CANBERRA (Reuters) - Global miner Rio Tinto says its $19.5 billion (12.27 billion pound) tie-up with China’s state-owned Chinalco is an “evolving” deal and still subject to shareholder consultation.
The deal has come under fire from shareholders, who say Chinalco is being favoured over other investors, and politicians in Canberra who are worried the deal will give China influence over the pricing of a strategic commodity, iron ore.
“I think it’s a situation that is evolving,” Rio Tinto’s iron ore chief Sam Walsh told reporters on Tuesday, adding Rio would decide its next move after meeting shareholders.
“We have certainly seen economic conditions improve since the deal was announced in February, but importantly for us we need to take into account in our deliberations what our shareholders see as the key issues,” he added.
Rio Tinto Chairman Jan du Plessis arrives in Australia this week to talk to shareholders, having discussed the China deal with major UK shareholders over the past two weeks.
Despite leaving the door open to a revised Chinalco deal, Walsh defended the principle of major consumers such as Chinese state firms taking equity stakes in producers, and dismissed concerns about China gaining control or influence over pricing.
He said miners had had joint ventures with customers for nearly 50 years, during which companies and their customers had remained commercially independent.
“In the resource industry there is a solid history of customer involvement in projects and that has not impacted on pricing,” he said.
“It beggars belief that anybody can now object to this in 2009, on the basis of some principle entirely new to this industry.”
Walsh also responded to concerns that Chinalco may press Rio to develop assets offshore at the expense of its Australian assets, and noted the deal involved Chinalco taking direct stakes in Australian iron ore assets, not offshore.
“In this sense, the Chinalco deal will represent a pioneering ... joint venture, and skew trade towards Australia on account of their investment here,” he said.
Rio Tinto lined up the deal with Chinalco in February, looking for a way to pay down half its $38 billion in debt as debt markets remained frozen and commodity prices collapsed.
Under the deal, Chinalco would take direct minority stakes in some Rio mining assets as well as buying convertible notes that could double its equity stake to 18 percent.
Walsh said Chinese iron ore demand had picked up, but this was largely because China, Rio’s biggest iron ore market, had shut about half its own iron ore capacity as spot prices fell.
“That has opened up an opportunity for us, and I’m very pleased to say that for the last six weeks our operations have been running absolutely flat out,” Walsh said.
China imported a record 57 million tonnes of iron ore in April, up 9 percent from March and a third more than a year earlier, official data showed.
The figure surprised industry analysts and came as major producers Rio, BHP Billiton and Brazil’s Vale are locked in tense price negotiations with Chinese, Japanese and South Korean steelmakers.
Walsh said Rio hoped to reach an agreement soon, pointing out that contracts last year were set in the last week of June.
But the top-three iron ore producer said its major growth projects were still either shelved or just “ticking over,” suggesting it was not yet ready to rekindle its long-term plan to expand annual output by 45 percent to 320 million tonnes.
“Our long-term confidence remains despite the short-term shocks of the recent past,” Walsh said.
Writing by Sonali Paul; editing by Jonathan Standing & Ian Geoghegan