Chinalco Suffers from BHP Billiton-Rio Tinto Tie Suspension

Aluminum Corporation of China (Chinalco) is estimated to incur unrealized loss of over USD 8 billion after the global mining giant BHP Billiton announced the withdrawal from the acquisition offer of USD 66 billion for its archrival Rio Tinto.

Shares of Rio Tinto, sharply declining in the recent months among the global slowdown, dove further to GBP 15 apiece following the announcement on November 25.

The price stood in vivid contrast against GBP 60 per share, a price at which Chinalco and US-based Alcoa Inc. (NYSE: AA) acquired a 12 percent stake in Rio Tinto's London-listed shares, or 9 percent holding in the group, in February 2008, a deal worth USD 14.05 billion in total.

Obviously, the withdrawal announcement is not good news to Chinalco, although it maybe of benefit to domestic steelmakers, pointed out Hu Kai, an iron ore analyst at Umetal.com.

However, Chinalco Vice President Lv Youqing stressed earlier that his company would not sell the stake in Rio Tinto and might even lift its ownership.

In August 2008, Chinalco gained approval from Australian regulators to raise its holding in London-listed Rio Tinto (LON: RIO) to 14.99 percent, equal to about 11 percent of the Australian iron ore producer Rio Tinto (NYSE: RTP), said sources.

The Chinese leading metal manufacturer expects Rio Tinto to operate well to bolster stock prices and considers the Australian miner as an even better investment target than the beginning of this year, citing the vice president.

Chinalco has had cash of about CNY 60 billion, or USD 8.78 billion, in hand, and the money is enough to support its normal operation and will help it weather the global financial crisis and economic downturn, noted Mr. Lv.

Remarkably, the Chinese company and its Australian partners are expected to further their cooperation. Last month, Rio Tinto disclosed that it planned to set up a join venture with such Chinese government-backed companies as Chinalco when announcing an iron ore output reduction of 10 percent or 20 million tons.

Rio Tinto Chief Executive Officer Tom Albanese confirmed that his company was interested in development of new iron ore projects along with Chinese partners, and that the Chinese side would be responsible for construction of infrastructure and roads, railways and ports for iron ore transportation.

A Rio Tinto spokesperson said that they would possibly join forces with Chinalco in infrastructure development in Queensland, northeastern Australia, where both sides have had operations.

(USD 1 = CNY 6.85; USD 1 = GBP 0.54)

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