Singapore: Mining giant Rio Tinto said it could sell more assets and reschedule debt if a proposed $19.5 billion tie-up with China’s state-owned aluminium firm Chinalco fails to materialise.
Rio also said it expects a recovery in metals prices in the second half as China’s stimulus package boosts infrastructure spending in the world’s most populous nation.
“First of all, we think it (Chinalco deal) will go through, but we have plans in the eventuality if other various governments or shareholders prevent the deal,” Rio’s chief financial officer Guy Elliott told a mining conference in Singapore on Thursday.
Alternatives could include bond issues, more asset sales, a rights issue, debt rescheduling, or a combination of these, he said.
“We have a plan B,” Elliott said. “Last, but not least, we have more than adequate backup.”
Under a proposed deal, China’s top aluminium company will pay $12.3 billion for stakes in Rio’s iron ore, copper and aluminium assets and $7.2 billion for convertible bonds that would double its equity stake in Rio to 18%.
Australia’s competition watchdog (ACCC) has this week cleared the deal, rejecting at least one key counter-argument. A final decision rests with Australia’s treasurer.
“It’s nice for shareholders and potential shareholders to realise there are options should the Chinalco deal not work, for whatever reason, and the company isn’t in dire straits should that deal be opposed or rejected by shareholders and/or Australia’s Foreign Investment Review Board,” said Tim Schroeders, portfolio manager with Pengana Capital.
Rio shares traded in Australia rose 1.6% to a 4-month high of A$54.85, while the broader stock index was up 1.1%.
Elliott said the Chinalco deal could provide Rio with greater access to the Chinese market and possible funding from the Chinese government on projects there.
He said Rio’s board decided in favour of a deal with Chinalco over a rights issue because there was a lot of uncertainty about the outlook for the industry at that time.
“I still think the Chinalco deal, from what we can see at the moment, offers a very good deal for shareholders in positioning the company to resume its production growth,” said Schroeders.
“Without that deal, the company survives and does have a number of financing options available to it, but it will stymie its future growth ambitions.”
Rio, which has already sold several billion dollars worth of assets, separately said it will shut a pig iron plant in Australia for 12 months, due to a weak outlook.
Elliott said that despite contradictory signals from the world economy, he was hopeful metal prices will recover in the second half of the year as China’s increased infrastructure investment offset falling demand in the West.
“There is a case, you can believe, for a recovery in the second half,” he said. “We are not far away from the bottom.
“We cannot expect that metal prices and other indicators are going to be immune from such a huge effort that the governments are making, particularly in China, but also in the US”
The US economy showed tentative signs on Wednesday that it may have stopped shrinking, after the government has pumped in hundreds of billions of dollars.
Beijing has launched a 4 trillion yuan ($586 billion) spending package and issued plans to support nearly a dozen key industries.