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China-U.S. `Dawn Raid' on Rio Tinto Destabilizes Anglo-Australian BHP

Feb. 2, 2008 (EIRNS)—The successful Chinese-U.S. "biggest ever" "dawn raid" on Rio Tinto has thrown competitor BHP-Billiton into "chaos," the British press reported today. The combined forces of Chinalco and Alcoa, ín what Britain's Daily Telegraph called a "Sino-U.S. pact" to buy a $14 billion, 12% stake in Rio plc—which amounts to 9% of the whole Rio Tinto conglomerate—made clear that they "want a seat at the table" when deciding who runs Rio Tinto.

In the purchase in London, the two companies also blocked Anglo-Australian BHP Billiton's "all share bid" for Rio, just days before the final deadline by Rio Tinto, and might have even scared BHP "off altogether," the Telegraph reported. BHP, the world's biggest mining company, was outbid by over 10 pounds a share by the China-U.S. group. The Chinese side not only wants to secure iron ore and aluminum supplies, but also have leverage for negotiating prices. "What we can be sure about from Chinalco's action is just how serious the Chinese state is to protect its interest, business and political, around the world."

The Chinalco-Alcoa consortium put out a statement yesterday that it did not currently intend to make a bid for Rio, but reserved "the right to announce an offer or possible offer or make or participate in an offer or possible offer," The Times reported. Xiao Yaqing, president of Chinalco, said: "Our acquisition of a significant strategic stake in Rio Tinto today reflects our confidence in the long-term prospects for the rapidly evolving global mining sector."

The Times reported today that the decision to take the stake "went to the top of the Chinese government," and China may already have applied to the Australian regulators, to possibly buy a 19.9% share of Rio plc. This is the largest investment by China in a foreign corporation to date and it comes after similar deals last year to acquire stakes in Barclays Bank and Blackstone. The Times quoted a source close to the Chinese saying yesterday: "The central issue is that the Chinese have a huge demand for steel to drive their economy and they could not put themselves in a position where the majority of the world's iron ore is held by one company. This decision went right to the top, to the President."

Yesterday, Chinalco's president Xiao Yaqing said this was a "strategic financial investment." Chinalco is "currently happy" with its new share of Rio but is open to eventually increasing this. Xiao said Chinalco had sought the support of the Chinese government, but said that "this investment was driven by (our own) commercial interests." Xiao Yaqing had already visited London in December to discuss options after BHP made its bid to buy Rio. Chinalco used Lehman Brothers as its adviser, and held a series of meetings with Lehman chairman of U.K. investment Nick Wiles. The Chinese government agreed to the deal this past week, and Xiao was in London as of Jan. 31, to make arrangements with key shareholders after operating hours, and bought them up overnight.