China and Alcoa Buy Stake in Rio Tinto

Big news in the multinational mining world: the Aluminum Corporation of China has partnered with Pittsburgh-based Alcoa (a huge aluminum producer) to buy a 12 percent stake in Rio Tinto. Rio Tinto has been around since 1873 and is involved in everything from coal and copper to salt and sulfuric acid.

The purchase is important because it shows China disapproves of BHP Billiton’s effort to essentially buy up Rio Tinto. China recently inked a deal with BHP to buy more iron ore over the next decade. If the companies had merged, China’s purchasing options would be reduced and so commodity prices (especially for iron ore) could have risen even more. According to the New York Times:

Less than a week before the deadline for BHP to make a formal offer for Rio, Chinalco, as the state-owned Chinese company is called, said the $14.05 billion deal was China’s biggest foreign investment and could lead to a full takeover.

China has been strongly opposed to BHP’s proposed merger with Rio, fearing that a merger of the world’s two biggest resources companies would give the combined company the power to dictate the price of commodities, particularly iron ore, that China needs to sustain strong economic growth. Other large commodity customers in Japan and South Korea have also objected to the BHP proposal.

See also, from Reuters, “FACTBOX-Chinese companies expand mining overseas.

February 1, 2008 9:54 AM
Posted By: