M&A

Rio Tinto Mines Support to Oppose BHP

Believing the $140 billion hostile Australian bid insufficient, the UK-based target talks up its stand-alone value.
Stephen TaubNovember 26, 2007

Rio Tinto, the London-based mining company that’s been targeted in a $140-billion unsolicited all-stock offer by Australian behemoth BHP Billiton, began talking up its own value in pursuit of an alternative future.

In a press release, Rio Tinto detailed how its portfolio of assets and growth options “are exceptionally well placed to benefit from the global rise in demand for metals and minerals.” The report was published on Sunday, ahead of a planned Monday presentation at an investor conference in Johannesburg.

“We believe we have a better growth pipeline than our competitors, which puts Rio Tinto in a strong position to supply the metal-hungry world,” chief executive Tom Albanese said in the press release carrying the headline “Rio Tinto poised for exceptional growth.”

After the $140-billion offer earlier this month from BHP Billiton, the world’s largest mining company, Rio Tinto rejected it as too skimpy. Rio Tinto itself had acquired Canadian aluminum-maker Alcan for $42.67 billion in July.

In this week’s press release, it pointed to “an exceptional growth strategy” in iron ore and a strong pricing outlook, and added that it is positioned as the world’s leading aluminum and bauxite producer, with an excellent portfolio of projects. “As one of the world’s leading copper businesses Rio Tinto has an impressive pipeline of exciting projects with interests in many of the world’s largest undeveloped mineralisation opportunities,” the company added.

It also asserted that its capital management strategy focuses on enhancing shareholder returns from cash flow while providing flexibility for further. The total 2007 dividend will be increased by 30 percent with a further annual total increase of no less than 20 percent in each of the following two years, it said.

“We believe the stand-alone value we can create from our growth dwarfs what BHP Billiton has asserted to be acquisition synergies,” Albanese told the conference audience, according to Thomson Financial. “While BHP may need Rio, Rio does not need BHP.”

While on a conference call, Albanese said Rio Tinto is currently not discussing any arrangements with other potential buyers.

“We are looking at a period, probably for several decades, where global consumption of most of what we produce will be at a higher level than it’s been for the past several decades,” Albanese told the conference, according to Reuters. “And that in itself will be a driver of our industry…and have the effect of raising equilibrium prices.”