Rio Tinto, the embattled FTSE 100 mining giant, rebuffed a “low ball” offer from rival BHP Billiton for its stake in the world’s biggest copper mine last month.
Tension between the two Anglo-Australian listed mining companies intensified last week when Rio decided to take a $19.5bn (£13.6bn) injection from Chinalco, China’s state-owned metals group. This included $3.4bn for half of Rio’s 30 per cent stake in Escondida, the Chilean copper mine.
BHP, which last year abandoned an attempt to buy Rio that would have been the second-biggest corporate takeover in history, is trying to get its rival’s shareholders to veto the Chinalco investment plan in favour of a share issue. BHP would like to buy Rio’s stake in Escondida, in which it already owns 57.5 per cent.
However, mining sources said that BHP offered “less than half” $3.4bn for all of Rio’s 30 per cent stake in the middle of last month. “It was a low- ball offer,” said a close source.
With Chinalco paying $3.4bn for just 15 per cent, this means that the Chinese group valued the mine at more than four times BHP’s offer. Rio chief executive Tom Albanese said last week that Chinalco’s offers for key assets “were very attractive and certainly more attractive than” undisclosed rival bids.
Rio was close to choosing a rights issue over a Chinalco cash injection to tackle its huge debt burden. However, a senior mining banker said that Chinalco’s investment gave Rio greater protection from having to accept low bids from BHP for its assets.
Paul Skinner, the Rio chairman, believes that the company would have only raised $10bn from a rights issue.
Some major investors in Rio are concerned that Chinalco, which could end up with an 18 per cent stake from its current 9 per cent in the company, will have too much influence and could dilute existing shares if it takes up convertible bonds. Chinalco is raising $7.2bn in bonds that can be converted into an equity stake in Rio.
The Association of British Insurers has told Mr Skinner that a rights issue would have been preferable.
Last week Mr Skinner’s nominated successor, Jim Leng, left the company after arguing in favour of a rights issue. If the sale of a stake to Chinalco fails, it would cast doubt on plans for Mr Skinner to take over as chairman of BP.
Legal & General, Rio's third-biggest shareholder with more than 5 per cent of the company, has warned that it has "pre-emption rights". This means the right of first refusal of a deal it does not like as an existing shareholder. L&G met with the Rio board to outline its concerns on Friday.