Skip navigation

James Kirby
April 19, 2009

IT’S remarkable, but we just might see Rio Tinto, the nation’s second-biggest miner, saved from doing a dud deal with China by … well, China.

Puzzled by strong rises in commodity prices since the start of the year — for example, copper is up 50 per cent — the mining industry has twigged that China is hoovering up available stocks of key metals at what remain relatively low prices.

Put simply, China appears to be stockpiling the resources it needs for the longer term. From China’s point of view it’s a smart strategy and a better use of money than spending it on US investments. From the point of view of Australian stockmarket investors, it’s the best news this year because it drives up the stock prices of mining companies.

And, of course, among those improved stock prices is Rio Tinto. It was only a few months ago that Rio agreed to effectively hand control to China by selling up to 18 per cent of the company, along with interests in many of its best mines, to state-owned Chinalco. From less than $30 at the time of the Chinalco announcement, Rio is now trading at $59.12.

In other words, Rio is no longer the basket case it was when the dual-listed UK-Australian company did a deal that sold Australian interests down the river. The chance to scrap that deal is now very real.

In fact, if big institutional investors are as combative in public as they have been behind closed doors, we could see fireworks at Rio’s Australian annual meeting in Sydney tomorrow.

For a short time it seemed anyone who said a bad word about this deal was shouted down — worse still, some were called racist or xenophobic. That’s invariably unfair and inaccurate. It’s reasonable to question any deal as feeble as the Chinalco deal Rio announced and then pretended had attained investor support.

It’s also reasonable to ask hard questions about the terms on which Australia should engage with China. It might be inappropriate to say China does not “play by the rules”, but it is fair to say China plays by its own rules and is increasingly in a position to impose those rules on others.

The Chinalco deal is exceptional, but only in terms of size and its inadequacy.

But whether the deal gets through — and it’s looking less likely by the day — the broader debate the deal opened for investors needs to take place.

Can Australian companies — Rio, Fortescue, Oz Minerals and many more to come — assume any deal from a China-based organisation is acceptable as long as money is on the table? What criteria were used to raise that money? What level of expertise does the management that is leading the China side of the deal have?

There is nothing to say these factors will not change over time, nothing to say things won’t get better in China as its “market economy” evolves, and nothing to stop anyone asking questions such as these at the meeting tomorrow.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: