Rio Tinto shares rebound 7.4%

Rio Tinto shares rebound 7.4%

Rio Tinto Ltd shares rebounded strongly on Friday after the mining giant reaffirmed
its commitment to a $US19.5 billion ($A25.68 billion) alliance with a Chinese
company.

The proposed transaction with Aluminum Corporation of China (Chinalco) also got a
boost on Friday after US regulators gave the deal a green light.
Shares in Rio Tinto ended the day up 7.43 per cent, or $4.28, at $61.88, after
reaching a session high of $62.82.
"The company remains committed to delivering this strategic partnership," Rio Tinto
said in response to a query from the Australian Securities Exchange.
"The company continues to seek feedback from shareholders on this transaction."
Shares in the world's third-biggest miner plunged 11.7 per cent on Thursday, amid
market speculation that Rio Tinto could alter or scrap the Chinalco deal because the
terms now looked too favourable to the Chinese state-owned company.
Some market watchers have also predicted the company could instead pursue a $US10
billion ($A13.17 billion) capital raising.
The market talk prompted a "please explain" from the exchange which queried Rio
Tinto about a fall in its share price to $58.95 on Thursday, from $71.60 on May 8.
Rio Tinto said it was aware of the market speculation but knew of no specific reason
for the price fall.
It also revealed it expected to record a profit of $900 million from the disposal of
undeveloped projects in its first half results.
This will mostly reflect the disposal of Potasio Rio Colorado, a potash project in
Argentina, completed on February 5.
The deal with Chinalco was forged in February when credit markets were very tight
and many corporations had trouble refinancing debt.
The aim was to raise funds to help Rio Tinto pay off some of its $US39 billion
($A51.37 billion) debt.
But investors in Australia and Britain have expressed discontent that Chinalco will
be entitled to $US7.2 billion ($A9.48 billion) in convertible notes at a strike
price of $US45 ($A59.27) - which got US regulatory approval on Thursday.
The strike price represented a premium to Rio Tinto shares when the deal was
announced three months ago, but the stock has since risen.
Before the deal with Chinalco can go ahead it must be approved by Australia's
Foreign Investment Review Board, Chinese regulators, and Rio Tinto shareholders.
IG Markets research analyst Ben Potter said Rio Tinto's stated commitment to the
deal had driven the share price gain on Friday.
"Yesterday's move was probably a bit of an over-reaction," he said.
"The market is generally stronger today, so we have seen a bit of a snap-back."
But Mr Potter said there was still a very good chance the deal with Chinalco could
fall through.
"It is just too unattractive at the current prices Chinalco is proposing," Mr Potter
said.
Client adviser with Bell Potter Securities, Chris Kimber, Chinalco could make a
counter offer if Rio Tinto appeared ready to abandon the current proposal.
"Chinalco is not going to just walk away," he said.
Meanwhile, the US Committee on Foreign Investment (CFIUS) has granted clearance for
the proposed issue of $US7.2 billion of convertible bonds to Chinalco and an
indirect minority investment in the Kennecott Utah copper operation in the US.
As part of the deal between Rio Tinto and Chinalco, the state-owned Chinese company
will effectively acquire a 15 per cent stake in Hammersley Iron for $US5.1 billion
($A6.72 billion).
Hammersley Iron is one Rio Tinto's major iron ore assets, located in the Pilbara
region of Western Australia, and the proposed deal has sparked political debate.