Sunday, November 11, 2007

Chinese National Bank buys shares in Rio Tinto Group after BHP Billiton bid

Sunday Telegraph, a London newspaper, reported the CDB had bought less than 1% in Rio Tinto, a tiny stake but significant owing to BHP Billiton's earlier three for one shares offer. The Sunday Telegraph did not name its source.

And in a report by The Times, BHP Billiton is said to be preparing the sale of its petroleum arm to either Chinese or other buyers for at least $40bn, funds that would be used to finance the takeover of Rio Tinto.

"It is the first time a Chinese state-backed group has taken a direct stake in a global miner and will fuel speculation that China may intervene in the bid battle," the Sunday Telegraph said.

Tom Albanese, Rio Tinto's CEO, was on a trip to China, arranged before BHP Billiton's bid was made public.

Rio Tinto's share price rocketed up by a third on November 8 after BHP Billiton confirmed market speculation it had approached Rio to combine their assets worth an estimated $350bn.

A combined company would have iron output similar to that of world number one CVRD and would be in a similar position with copper, rivalling Chile's Codelco for the number one spot. This would be negative for China, which consumes about half of the world's iron ore, because it would given the combined company huge pricing power.
Already, iron ore prices have increased by double digits every year for the last four years and are tipped to increase by 20% plus in current contract negotiations effective from April.

Quoting an Investec report from earlier this year, Miningmx said one possible takeover scenario for Rio Tinto would see the Japanese and Chinese participate in the business. The diversified mining business would retain overall management control, Investec said.

China's efforts to secure its own sources of raw materials are well known with some $5bn in trade surplus earmarked for African investment.

Standard Bank and Industrial & Commercial Bank of China Limited (ICBC), China’s biggest bank by market capitalisation, were planning to set up a global resource fund to target investment in mining, metals, oil and gas, projects, and associated industries anywhere in the world.

Here is the full article.