Chinalco Cleared by Australian Regulator for Rio Deal

By Rebecca Keenan and Madelene Pearson

March 25 (Bloomberg) -- Aluminum Corp. of China won approval from Australia’s competition regulator, clearing a hurdle for the Chinese state-controlled company’s proposed $19.5 billion investment in Rio Tinto Group.

The proposal wasn’t likely to affect the iron ore, copper, alumina and bauxite markets, the Australian Consumer and Competition Commission said today in a statement lodged with the Australian stock exchange by London-based Rio.

Australian lawmakers have begun an inquiry into foreign investment laws amid a backlash from politicians and shareholders over Chinalco’s planned investment. The proposal won’t influence annual talks to set contract iron ore prices, Rio, the world’s second-largest producer, said yesterday.

“The Chinese are not getting control of Rio Tinto, they are not getting control of their operations,” said Gavin Wendt, senior resources analyst at Fat Prophets Funds Management in Sydney, who said he doesn’t “have any issues with the deal”. Chinalco “are not going to be party to any iron ore discussions, or any commodity discussions,” he said.

Rio’s shares rose 1.1 percent to A$53.93 at the 4:10 p.m. Sydney time close on the exchange. The benchmark index rose 0.8 percent and BHP Billiton Ltd., the world’s largest mining company, declined 1.6 percent.

More Approvals

Chinalco agreed on Feb. 12 to buy $7.2 billion of convertible bonds and spend $12.3 billion on stakes in Rio Tinto mines. Chinalco’s investment requires approval from the Australian government and Rio Tinto shareholders.

Chinalco “looked forward to moving ahead with the transaction,” the Beijing-based company said in an e-mailed statement welcoming the commission’s decision.

The commission is an independent authority that administers the Trade Practices Act and promotes competition and fair trade, according to its Web site.

Australia’s Foreign Investment Review Board is also reviewing the proposed deal and last week extended its investigation by 90 days. It will provide a recommendation to Treasurer Wayne Swan, who will make a final decision whether the deal is in Australia’s national interest.

Chinalco’s investment in Rio will bolster China’s bargaining power to set iron ore prices, the China Iron and Steel Association said last month. Chinalco would take 15 percent of Rio’s Hamersley iron ore unit and jointly sell 30 percent of output in China.

The potential for integration between Rio’s Australian iron ore operations and Chinese steelmakers was subject to study, the commission said. This was “based on the assumption that Chinalco and various steelmakers are subsidiaries of the same parent entity and therefore have common commercial interests,” it said.

Global Ore

“Chinalco and Rio Tinto would be unlikely to have the ability to unilaterally decrease global iron ore prices below competitive levels,” the commission said in the statement.

Contract iron ore prices will drop for two years, undermined by a “whopping oversupply” of the steelmaking raw material, Citigroup Inc. said yesterday. Producers including Rio and Melbourne-based BHP, negotiate annual benchmark contract prices with steelmakers for the year starting April 1.

There is limited direct competitive overlap of the operations of the two companies in Australia to affect the supply of bauxite, copper and alumina, the commission said.

To contact the reporters on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net; Madelene Pearson in Melbourne on mpearson1@bloomberg.net