Why Chinalco's Buying Into Rio Tinto

The Chinese giant's new stake in the mining outfit is seen as Beijing's attempt to head off a BHP Billiton takeover, to protect the mainland's supply of ores
Chinalco chief Xiao Yaqing said Feb. 4 the Chinese company has no plans to increase its stake in Rio Tinto after last week acquiring 9% of the Anglo-Australian iron-ore producer. Anoek De Groot/AFP/Getty Images

Aluminum Corp. of China (Chinalco) (ACH) is a behemoth. Founded in 2001 in Beijing, it now has more than 200,000 employees, with 25 subsidiary companies. In 2007 it expanded its overseas investment into Australia, Peru, and Vietnam. And its Hong Kong-listed company has a market cap of $20.2 billion. Its revenues grew 24.1% to $18 billion last year, while profits reached $2.78 billion. Now Chinalco has set a new record for cash-flush China: The company, majority-controlled by the Chinese government, teamed up with Pittsburgh-based Alcoa (AA) on Feb. 1 to spend $14 billion for a 9% stake in Anglo-Australian iron ore producer Rio Tinto (RTP), making the largest overseas purchase by a Chinese company ever. Beijing-based Chinalco put up the lion's share, with Alcoa just pitching in $1.2 billion. The two paid $117.97 a share, a 21% premium over Rio's closing price the previous day.

To continue reading this article you must be a Bloomberg Professional Service Subscriber.