Rio Shares Drop After $10 Billion Share Sale Report

By Rebecca Keenan

May 13 (Bloomberg) -- Rio Tinto Group, the world’s third-largest mining company, fell in Sydney trading after the Telegraph reported it may drop an investment deal with Aluminum Corp. of China for a 5 billion pound ($10 billion) share sale.

The shares declined 4.4 percent to A$65.50 at 2:25 p.m. Sydney time on the Australian stock exchange. That was its biggest slump since April 21. Rio’s London stock fell 6.9 percent yesterday.

Rio may have drawn up plans for a rights issue to be underwritten by JPMorgan Cazenove Ltd. and Credit Suisse Group AG, the Telegraph newspaper in London reported on its Web site, without citing anyone. The $19.5 billion deal with Chinalco, as state-owned Aluminum Corp. is known, is “teetering on failure”, Citigroup Inc. said in a report this week.

“It’s all to do with rumors in London last night regarding the five billion pound raising,” said Anthony Anderson, a trader at MF Global Ltd. in Sydney. “That would be done at quite a discount and there would be more stock on issue. It makes the market a bit nervous.”

The probability of Chinalco completing the investment in Rio, which includes a bond sale as well as buying stakes in Rio’s mines, is less than 50 percent, Liberum Capital Ltd. said last month, citing a rebound in financial and commodity markets. Rio will consider selling shares, bonds, assets and or reschedule its debt should the deal fail, Chief Financial Officer Guy Elliott has said.

‘Strategic Options’

“We do not comment on market rumor and speculation,” Rio’s Melbourne-based spokeswoman Amanda Buckley said today by phone. She referred Bloomberg to a Rio statement to the exchange on Feb. 12 stating “the Rio Tinto boards have extensively considered a range of strategic options” and decided the Chinalco proposal was superior.

Rio could raise up to $15 billion from a rights issue because of the demand globally for share sales, Citigroup analysts led by Clarke Wilkins said in a May 11 report.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net.