Rio Tinto Chief Says Alcan Price Justified By Demand From China, India

By Rohan Sullivan Associated Press

SYDNEY, Australia — Rio Tinto’s chief executive on Friday defended as good value the $38.1 billion price his company has put on Alcan Inc., saying China’s skyrocketing demand for metals justifies the takeover plan.

The massive deal, which spurred gains on U.S., British and Australian markets when it was announced Thursday, will create the world’s largest aluminum company, and ended U.S. rival Alcoa Inc.’s hostile bid for the Canadian company.

Rio Tinto’s price defied others in the sector and fell, amid profit taking and as some analysts said the $101-per-share cash- only offer was too high. Rio Tinto closed 2.45 percent down at 102.30 Australian dollars ($88.29) in Australian trading on Friday.

Alcoa withdrew its offer for Alcan after the friendly Rio Tinto bid was announced. The price was about one-third more than Alcoa’s $28 billion offer.

Analysts said the huge price tag was designed to knock Alcoa out of the fight, though some said it may be too much.

Rio Tinto chief executive Tom Albanese disagreed.

“We’re very comfortable with the fact that we’ve found the right balance between the compelling offer for Alcan shareholders and an offer that’s consistent with our approach to value,” Albanese told Australian Broadcasting Corp. in an interview broadcast Friday.

The deal would put the Anglo-Australian diversified miner in a better position to capitalize on the rampant growth in China and India, he said.

“This is a very important transaction for Rio Tinto,” Albanese said. “As I look ahead … what we see in China (is that) there are three metals that are really being driven off of the growth that we’re seeing in … the industrialization, the urbanization in China, and those would be steel, copper and aluminum.”

Resources stocks drove Wall Street and London markets higher overnight, and the Australian bourse surged when it resumed trading for the first time since the Rio Tinto-Alcan announcement.

Shares in BHP Billiton Ltd., the world’s biggest mining company, surged more than 2 percent on Friday as the failure of Alcoa’s bid reignited speculation that the hunter of Alcan could become BHP’s prey. BHP closed up 1.14 percent at A$39.16.

The Alcan deal “reignited talk of further consolidation in the global resources sector,” said Josh Whiting, a senior dealer at CMC Markets. “Other possible resource stock marriages … include a BHP Billiton takeover of Alcoa, or locally an approach by Oxiana Resources for zinc miner Zinifex.”

Credit Suisse was another brokerage crunching numbers on a possible BHP tilt at Alcoa, saying such a tie-up could boost BHP’s earnings by up to 25 percent.

“Aluminum has been the worst-performing base metal in the last five years, but its prospects appear to be improving as supply growth from both China and Russia appears to be more muted than first anticipated,” Credit Suisse said.

Withdrawing his company’s $28 billion offer for Alcan, Alcoa chairman and chief executive Alain Belda said Rio Tinto’s offer “strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future.”

“However, at this price level, we have more attractive options for delivering additional value to shareholders,” he said.

(c) 2007 Deseret News (Salt Lake City). Provided by ProQuest Information and Learning. All rights Reserved.