HONG KONG (Reuters) - China's state-owned aluminum giant Chinalco and U.S. partner Alcoa Inc <AA.N> had agreed to buy up to 14.9 percent of Rio Tinto Plc <RIO.L> this month and had up to $24 billion to spend, according to a January 30 memo.
By Tom Miles
HONG KONG (Reuters) - China's state-owned aluminum giant Chinalco and U.S. partner Alcoa Inc <AA.N> had agreed to buy up to 14.9 percent of Rio Tinto Plc <RIO.L> this month and had up to $24 billion to spend, according to a January 30 memo.
The memo, a copy of which was included in a filing by Rio to the Australian Stock Exchange on Wednesday and later obtained by Reuters, was signed just ahead of the firms' $14 billion investment in 12 percent of Rio's London-listed shares.
The purchase, including $1.2 billion from Alcoa, accounted for 9 percent of the total equity of Rio, which also has a listing in Sydney <RIO.AX>.
!ADVERTISEMENT!The stake acquisition came just before a deadline for rival miner BHP Billiton <BHP.AX><BLT.L> to make an offer for Rio, putting a significant obstacle in the path of a merger that could create the world's second-biggest company and dramatically crimp China's buying power over iron ore supplies that feed its huge steel sector.
Just before BHP made an all-share offer on February 6, Chinalco said it "currently" had no intention to acquire more shares, but it has since declined to say whether it might buy more.
It has also reserved the right to counterbid for Rio Tinto.
In the memo, the companies are at times referred to by code names, which are explained in an appendix. Alcoa is dubbed "Aries," Chinalco "Cancer" and Rio's London and Sydney shares "Scorpio North" and "Scorpio South" respectively.
"Chinalco has created a special purpose vehicle company (SPV) in Singapore with the intent to acquire up to 14.9 percent of the ordinary shares (including any American Depositary Shares) of Scorpio North," the memo says.
"Alcoa will loan SPV 5 percent of the total funds required to purchase the Scorpio interest. This loan is expected to be approximately $1.0 billion but will not exceed $1.2 billion."
That implies total available funding was $24 billion.
SUPPORTING CHINALCO'S GROWTH
The document, dated January 30, gave a 30-day deadline for reaching the 14.9 percent, which it terms "the threshold," after which any unused funds would be returned. It also says Alcoa will cooperate if Chinalco needs to obtain third party funding.
The memo also says Alcoa's long history of links with Chinalco would help the companies work quickly toward "a potential transaction which is in our mutual best interest," but makes no mention of a takeover bid for the whole company.
"Alcoa is a major metals producer in Australia, Canada, the US and Europe and believes it could play a critical role supporting Chinalco in its growth," it said.
"Alcoa's recent contacts with the various host governments and regulatory agencies were very positive," it said, without elaborating. The memo did not mention any plan to acquire Rio's Sydney shares, but Chinalco President Xiao Yanqing said last week his firm had notified Australia's Foreign Investment Review Board as a courtesy, although it was under no obligation to do so until it amassed 15 percent of the company.
Under Australian rules, once one company acquires more than 19.99 percent of another, it must launch a takeover.
Shares of Chinalco's Hong Kong-listed unit Aluminum Corp of China Ltd, or Chalco <2600.HK>, rose more than 10 percent on Thursday, outpacing a 3 percent gain in the benchmark index <.HSI>.
(Reporting by Tom Miles; Editing by Anne Marie Roantree & Ian Geoghegan)
