Posted on 28 Dec 2007
Japan iron ore investment aids Rio Tinto against hostile takeover
Rio Tinto's defence plans against a takeover attempt from rival BHP Billiton were boosted yesterday after three Japanese conglomerates announced that they would invest in an iron ore project.
The $423m investment by Mitsui, Nippon Steel and Sumitomo Metal Industries is earmarked for the Mesa A/ Warramboo mine in the Pilbara region of Western Australia, part of a concession majority owned by the Australia-based company.
Because the investment will attach greater value to Rio's assets, it should shore up the company's efforts to defend itself.
Rio has announced several expansions in recent weeks as it fends off the approach from its arch-rival.
A few weeks after BHP made its $70bn approach in November, Rio announced that it would invest $2.42bn in the Pilbara region, with first production expected in 2010. Since then it has been waiting for partners to commit shares. Rio owns 53 per cent of the Warramboo mine.
In an open letter to shareholders yesterday from Paul Skinner, chairman, Rio reiterated its opposition to the takeover and played up growth prospects in iron ore, copper and aluminium.
"Together these are positioned to capture strong growth in demand in developing countries, including India and China," he said.
At a recent presentation, Rio claimed its iron ore compound growth had been 14 per cent a year since 1999 compared with 6 per cent at BHP.
The consensus among some analysts is for a minimum 25 per cent rise in ore prices next year on the back of Chinese demand alone.
There has also been mounting speculation that Chinese investors will launch a rival bid or build a blocking stake in Rio to stop a takeover by BHP. Any takeover of Rio Tinto would probably spur a wave of consolidation in the mining industry.
Yesterday, UK mining stocks gained, led by Rio Tinto, Anglo American and Xstrata, as metal prices climbed in London.
