Relations between Australia and China appear to be thawing quickly, just as Rio Tinto and Chinalco start to look at ways to co operate again on large undeveloped projects.
For those of us with foggy memories of anything further out than 12 months, Chinalco and Rio Tinto have courted each other before. Back in 2008, Chinalco came close to taking a significant stake in several projects operated by the Australian mining giant in a USD 19.5 billion deal. The proposed deal received a frosty reception from both Rio Tinto’s shareholder base and the Australian Government, and in the end, was scuppered after commodity markets recovered just enough to allow Rio Tinto to tap the markets for cash and embark on a round of asset disposals to shore up its balance sheet.
This all seems like ancient history now, with iron ore, copper and many other commodities recovering strongly, and with it, the market valuation of the world’s mining heavyweights, but the memories of the failed deal are being stoked up again as four Rio Tinto employees who were arrested in August 2009 are set to go on trial in China charged with commercial spying.
Under the terms of the MOU, the project will be vended into a new JV, in which Chinalco will acquire a 47% interest by providing USD 1.35 billion that will be used to sole fund development of the project over the next two to three years. Once the full sum is invested, Chinalco’s interest will fall to 44.65% with Rio Tinto retaining 50.35% and the IFC 5%. All three parties could also be diluted by Guinean Government who holds an option to buy up to 20% of the project.
Mr Tom Albanese CEO of Rio Tinto said that "We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit. Chinalco is an excellent partner for us in Simandou. Chinalco brings its own skills and capabilities in major projects and access to the infrastructure expertise of other Chinese organizations. We believe the Simandou project is a large scale, long life asset and is the single best undeveloped source of high grade iron ore. By working with Chinalco and the IFC we expect to realize great economic and social benefits for Guinea, and great value for our shareholders."
He added that "Investors will no doubt be speculating on the significance of this morning’s deal. Could it influence the criminal trial in China? Will there be more deals announced between Rio Tinto and Chinalco? Only time will tell."
(Sourced from Proactive Investor)
