Shares in Anglo-Australian mining giant Rio Tinto gained more than seven percent Friday after it reaffirmed its commitment to a proposed 19.5 billion US dollar tie-up with China's Chinalco. Rio closed up 7.43 percent at 61.88 Australian dollars (46.76 dollars US) after the company moved to quell fears that the deal was in doubt.
The miner's shares slumped more than 11 percent on Thursday amid speculation that the tie-up, which would be Beijing's largest-ever foreign investment, could be scrapped in favour of a rights issue. Rio told the Australian Stock Exchange Friday it noted the "continuing media speculation regarding possible alternatives to its proposed strategic partnership with Aluminium Corporation of China (Chinalco)."
"The company remains committed to delivering this strategic partnership," Rio said in a statement. The miner added that it continued to seek shareholder feedback on the proposal, and was otherwise conducting business as usual. Canberra is due in mid-June to rule on the proposed alliance under which Chinalco would double its investment in Rio to 18 percent and take two seats on the miner's board.
The proposal has come under fire in Australia amid increasing sensitivity about China's quest to secure a firmer hold on natural resources around the globe. IG Markets analyst Ben Potter said Thursday's dive in Rio's stock price was "probably a bit of an overreaction" but warned there was still a chance the Chinalco deal could fall through.
"It is just too unattractive at the current prices Chinalco is proposing," Potter said. BT Financial fund manager Tim Barker said there was likely to be some pressure for changes to the deal. "The circumstances surrounding the company have changed since the deal was originally anticipated," Barker said.
Investment group UBS said rival and former suitor BHP Billiton, the world's largest miner, could offer to help underwrite a Rio rights offer in the alternative, in exchange for a joint iron ore project. The synergies on offer from bringing together the twin Pilbara iron ore operations are estimated at 10 billion US dollars and were at the centre of BHP Billiton's failed bid for Rio last year.
Analyst Marcus Padley said the deal "could deliver cost savings of between 15 and 20 percent in their iron ore division." BHP dropped a controversial hostile take-over bid for Rio in November because of increased debt exposure amid the global economic crisis. The bid had passed Australian and US competition regulators and was awaiting a ruling from the European Union antitrust regulator before BHP's decision.