Kate Mackenzie Chinalco makes some concessions

Sources have confirmed that Chinalco plans to restructure its proposed investment in Rio Tinto to overcome regulatory – and more, importantly, political – hurdles to the $19.5bn deal.

The Chinese miner is prepared to limit its investment to 15 per cent rather than 18 per cent. However:

Chinalco would not be prepared to go below a 15 per cent equity stake and would not sacrifice the minority stakes in has agreed to buy in Rio’s assets, including a 15 per cent stake in the Western Australian iron ore assets, one of the people said.

The person added that Chinalco also recognised that the original deal it struck with Rio in February was far less attractive to the mining group’s shareholders given the recent global stock market rally and rise in commodity prices.

Shareholders, having seen Rio Tinto fend off a takeover bid from BHP Billiton last year not long before commodity prices began to crash, need some persuading, as does the Australian government. The decision by Australia’s Foreign Investment Review Board but it will ultimately rest with the country’s treasurer, Wayne Swan and prime minister, Kevin Rudd.

It difficult to overestimate the sensitivity of this sort of foreign ownership in Australia, where the country’s abundant natural resources create a sense of vulnerability, especially concerning its more densely populated neighbours to the north. Conservative senator Barnaby Joyce, one of the most vocal opponents of the deal, sums up that fear: “We still have the same problem that the resource in situ, in the ground, is owned by another nation’s government.”

Related link:

China to restructure Rio Tinto deal (FT, 21/05/09)