China stalking BHP stake: report

By James Regan

SYDNEY (Reuters) - Resource-hungry China may be planning to buy more than 9 percent of BHP Billiton Ltd, the world's biggest miner, The Australian newspaper reported, muscling in on BHP's proposed takeover of rival Rio Tinto Ltd.

The report drove up BHP's Sydney shares by 3.7 percent on Wednesday, though the group's London-listed stock later fell more than 2 percent after a senior management source at Chinese steel giant Baosteel said he was unaware of any move by his company to take a stake in BHP.

China was in the early stages of formulating a plan to buy a chunk of BHP larger than the 9.3 percent of Rio it acquired for $14 billion in February, the newspaper reported, after quietly teeing up sellers of Rio's London stock.

Baosteel, China's biggest steelmaker, had been touted by London traders late on Tuesday as a possible BHP stake builder.

"If Baosteel has any plan (to do this) then I should be informed, but I haven't been," the source close to Baosteel's top management told Reuters.

Chinese companies and officials, seeking to safeguard iron ore and coal supplies, oppose BHP's $135 billion bid for Rio, fearing a merged group would have too much clout in negotiating prices of raw materials vital to rapid industrial expansion in the world's fourth-biggest economy.

"The mining companies are too strong in negotiations with the steel companies," said Li Xinchuang, vice president at China Metallurgical Industry Planning & Research Institute, adding that multiple steel companies may be teaming up to buy BHP shares.

"We can't rule out this possibility. It should be one of the solutions," he said.