Outlook Rio Tinto stands accused of being adventurous to the point of recklessness in paying top dollar for Alcan a year and a half ago. In raising nearly $20bn from Chinalco to address the consequent debt problem, the mining giant is now accused of being too cautious by half, and thereby again being careless with the interests of its shareholders. Does Rio really need to raise so much, and does it really need to fly in the face of pre-emption rights to underpin its future?
There is still a way to go before shareholders have to make up their minds but in valuation terms, the Chinalco deal is looking better by the day. The more markets and commodity prices fall, the more enticing Chinalco's price seems. OK, so the Chinalco valuation is not quite as off the scale as the one paid by Rio for Alcan, but the convertible is at a huge premium to the present price and even rivals agree that the valuation placed by Chinalco on individual mining assets is good.
If they reject this deal, shareholders are going to have to dig deep by way of an alternative. The mooted $10bn rights issue may not be enough. They will also have to find a new board. Yet in the end, the decis-ion comes down to whether or not Rio gains an advantage by becoming almost wholly beholden to China Inc.
You can argue it either way. The potential downside of jumping into bed with your biggest customer has to be balanced against the potential advantages of gaining an unrivalled opening on the world's biggest and fastest-growing emerging market. Rio hasn't perhaps put the case in favour as powerfully as it should. If Rio is to win through, it needs to articulate the claimed strategic benefits more coherently.