BUOYANT RIO SEEKS TO FORM JOINT VENTURES WITH CHINALCO

tauringhuang.

By Rebecca Bream in London
Wednesday, August 27, 2008
  

Rio Tinto is keen to use its growing relationship with shareholder Chinalco, the Chinese state-owned aluminium producer, to pursue joint ventures around the world and even increase its presence in China, the mining group said yesterday.

Chinalco is the largest shareholder in Rio, which yesterday reported record half-year underlying earnings, having bought a 9 per cent stake in a surprise dusk raid in February.

Wayne Swan, Australia's Federal Treasurer, said last week that he would permit Chinalco, China's biggest aluminium producer, to buy up to 14.99 per cent of Rio's London-listed shares. This would equate to an 11 per cent stake in the mining company's combined Australian and London-listed stock.

tauringhuang.

The Chinese company said yesterday it was “pleased that it now has the flexibility to increase its stake, should it choose to do so”. Paul Skinner, Rio chairman, said Chinalco had not yet spelled out its long-term plan for its holding.

Some analysts think Chinalco has bought the shares as a way to block rival BHP Billiton's hostile takeover bid for Rio, while others see it as a way to be first in the queue if BHP succeeds but is forced to sell assets as part of the deal.

Mr Skinner said: “We are in the foothills of our relationship with Chinalco, but we expect . . . there to be opportunities for co-operation.” This could include the joint construction of port and rail infrastructure in Queensland, Australia, for the two companies' neighbouring bauxite mining projects there.

Tom Albanese, Rio chief executive, said that another area where the nascent relationship with Chinalco could benefit Rio was in better access to China's mineral deposits.

However, he said that defining these resources would need lots of exploration work. “I have had this conversation with the Chinese government. We would like to explore more, but we would need more security of tenure first.” Only 0.5 per cent of Rio's exploration budget is deployed in China at present.

Mr Skinner said Rio's relationship with Chinalco could put it in a better position to lead the western exploration effort in China if the government decided to encourage foreign companies to do so. “It should be a win-win situation, but it could take time. In the mining business we have to be patient.”