Chinalco buys $1.5bn Rio Tinto shares

China’s state-controlled Chinalco on Thursday confirmed it had taken up its full entitlement to Rio Tinto’s $15.2bn share issue to maintain its 9 per cent shareholding in the miner, depite the soured relationship between the two companies.

A Chinalco spokesman called it an economically rational decision to prevent the dilution of its ownership in the Anglo-Australian miner.

“Chinalco believes in the long-term prospects of the industry and will continue to explore opportunities to advance its strategic objectives. Chinalco will, as the company’s current largest single shareholder, continue to monitor developments at Rio,?he said.

The Chinese group’s decision to maintain its stake in Rio ?at a cost of around ?80m ($1.5bn) ?came one month after the miner rejected a $19.5bn investment package that would have seen the Chinese group’s stake rise to 19 per cent.

Senior leaders in Beijing have seen the rejection as a blow to Chinese prestige and Xiong Weiping, Chinalco’s chairman, laid the blame squarely on Rio for the collapse of a deal originally agreed five months ago.

Rio said in a statement it sold almost 97 per cent of the 524m new shares it offered in London overnight at ?4 per share. Rio was also selling 150m new shares in Australia at $A28.29 per share but the company said it was unable to disclose the acceptance level in Sydney until July 3 because of Australia’s paper-based system.

Following the rights issue, Chinalco controls around 9 per cent of the group through a 12 per cent stake in Rio Tinto plc, the UK listed arm. It bought its initial stake for ?0 per share in January 2008 and it does not own Rio’s Australian shares.

Rio’s equity sale was launched to pay down some of its $38.7bn of debt, mostly incurred by its takeover of Canadian aluminium giant Alcan in 2007. Around $8.9bn is due by the end of this year, with a further $9.1bn due in 2010.

Rio plans an iron ore joint venture with rival BHP Billiton which has adjacent operations in the Western Australia

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