Posted on 03 Oct 2008

Rio repeats rejection of BHP bid

RIO Tinto boss Tom Albanese says the global financial turmoil has not altered its rejection of BHP Billiton's hostile takeover, adding that the group's key markets remain robust.

 

Mr Albanese today reiterated that the $US120 billion ($152.23 billion) takeover undervalued the company, a day after the Australian Competition and Consumer Competition (ACCC) gave the green light to its rival's takeover plan.

 

"We believe that the current conditions do not impact on our rejection of BHP Billiton's pre-conditional offer,'' Mr Albanese told 750 guests at ae Melbourne Mining Club lunch today.

 

"The fact is Rio Tinto has no need to be bigger just for the sake of size.''

 

The ACCC, the second global regulator to wave through the takeover after the United States, said yesterday that the takeover was unlikely to reduce competition despite some "significant'' concerns raised during its fourth month investigation.

 

BHP Billiton's all-scrip offer requires approval from the the United States, Australia, South Africa, Canada and Europe.

 

Mr Albanese said the markets for Rio Tinto's products remain in  "good shape'' and that the financial crisis was having  "much less'' of an impact on China than OECD economies.

 

"I believe that China's economy is not being affected by the events of the past several weeks to the extent other economies have, (which) would reinforce our point that China has some built in buffers from mature OECD economies,'' Mr Albanese told reporters after the lunch.

 

Rio Tinto said Chinese gross domestic product (GDP) growth was showing a  "modest but clearly discernible deceleration'' and was expected to drop to about nine per cent in 2009, down from 12 per cent in 2007.

 

"China is pausing for breath. We expected it would and Rio Tinto has planned accordingly,'' Mr Albanese said.

 

He added that demand from China would remain  "robust'' and the outlook for constrained supply conditions and firm demand should establish  "higher than average prices through 2009''.

 

Mr Albanese said Rio Tinto would "continue to target $US10 billion ($12.69 billion) in divestments'' before the end of the year despite the turmoil in financial markets.

 

The company is pursuing the strategy to help pay off debt associated with the $US38.1 billion acquisition of aluminium producer Alcan Inc.

 

Meanwhile, contract iron ore negotiations officially kick off between the big iron ore producers - Rio Tinto, BHP Billiton and Brazil's Vale - and steelmakers next month.

 

BHP Billiton is pursuing a strategy to overhaul the decades-old benchmark pricing system in favour of an index to address the imbalance between benchmark contracts and the spot price.

 

Mr Albanese, however, said benchmark pricing had a role to to play in the industry  "provided it continues to evolve''.

 

Rio Tinto is pursuing its own strategy of capturing the differential between spot and contract prices by selling 15 million tonnes of iron ore into the spot market this calendar year.

 

Mr Albanese said the company had managed to sell about 10 million tonnes into the market during the first half of the year before spot prices came back of its highs.

 

"I think we will see a recovery of spot (prices) by the end of the year,'' he said.