Rio Tinto shares slump as $15.2 billion share sale begins

 Rio Tinto Group's shares were lower in Sydney trade Thursday as the miner began a share sale that will raise $15.2 billion via a discounted rights offer to investors. 
 

UBS cut its price target for Rio to A$70 ($56.68) from A$90 to account for the dilution created by the rights offer, which will see 21 new shares offered for every 40 held by investors.

UBS said the issue will erode the miner's earnings per share by 5% in 2009, 22% in 2010 and 26% in 2011.

Still, the broker recommended investors buy Rio shares, saying the company is preferable to BHP Billiton.

However, it cautioned that a moderation in demand for industrial commodities from China could hurt Rio's stock price in the near future.

Separately, Australian Trade Minister Simon Crean said earlier this week the proposed iron-ore joint venture between Rio and BHP won't lessen competition between the two companies.

"They will still operate as separate marketing arms, they will therefore be competitors and so there won't be any lessening of competition," Dow Jones Newswires cited Crean as saying. "When the details of the proposal emerge there will be acceptance of that."

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