Mining giant Rio Tinto Sunday defended the price it has offered for Canada’s Alcan, saying the robust economic growth of China and India would see the business prosper.
The $38.1 billion (Rs1.54 trillion) bid for the aluminium producer, the mining industry’s biggest-ever acquisition, would secure “a first-class, tier-I asset”, said chief executive Tom Albanese.
“There aren’t many of them out in the mining sector and in the market right now,” he told Australian Broadcasting Corporation’s Inside Business programme.
The creation of the world’s largest aluminum company, to be called Rio Tinto Alcan, would benefit from the rapid economic growth of China and India, Albanese said.
India’s growth is five years behind China’s, but gross domestic product in both countries is expected to increase at almost 9% annually until 2015, he said. “In a metal like aluminium, which is very much going to benefit as we see China continue to grow, we have found that confluence point where we are able to provide an offer which fully met the needs of the Alcan shareholders,” he added. The offer was also “in the mantra of value that we have within Rio Tinto and very much consistent and complimentary with our strategy”.
But international ratings agency Fitch Ratings said it was placing Rio Tinto on credit watch negative, noting the proposed transaction was highly leveraged and taking place “at the top of the current commodity price cycle.”
Albanese said Rio Tinto’s strong cash flows would help drive down higher debt levels.
“We have a strong, robust set of cash flows within Rio Tinto, with cash generated from operations running at roughly $1 billion a month,” he said.
Proceeds from the sale of Alcan’s packaging unit, which was a large part of its business, would be used to pay down some of the debt and other potential asset sales could be possible after a sweeping review of the new, larger Rio Tinto operation, he said.
The acquisition still needs to be approved by regulators.