Rio Pours $33m Into Weipa Study

The Age

Wednesday June 18, 2008

Barry FitzGerald

RIO TINTO has begun to lay the groundwork for the controversial joint development of bauxite resources at Weipa on Queensland's Cape York with its recently arrived substantial shareholder, China's Chinalco.

Fighting off a takeover bid from BHP Billiton, Rio has committed $US30 million ($A33 million) to a feasibility study into the $US1 billion development of a bauxite operation to the south of its existing Weipa bauxite mine and port.

While Rio did not mention the presence of Chinalco at Weipa, their respective leases over the region's 4 billion tonne bauxite resources are adjacent to each other. And in addition, previous briefings by Rio's aluminium unit has floated the possibility of a link-up with Chinalco in the development of its controversial Aurukun bauxite deposit.

All that has followed the February sharemarket raid on Rio in which the state-owned Chinalco, with US aluminium group Alcoa as a junior partner, grabbed a 9% stake. The raid prompted BHP to lower its proposed minimum acceptance condition from 90% of Rio to 50%.

Rio's move at Weipa also follows comments by its managing director, Tom Albanese, earlier in the week that unlocking the full force of Australia's mineral potential would require direct foreign investment.

Chinalco's Aurukun leases are controversial because the Queensland Government stripped French aluminium group Pechiney (now part of Rio's recently acquired Alcan) of them under its "use it or lose it" powers. Chinalco won the leases on the basis that it would develop a separate bauxite mine and alumina refinery.

The latest move by Rio throws doubts over Queensland now seeing the sort of multibillion-dollar investment the Government thought would eventuate from introducing Chinalco (through its listed offshoot Chalco) as the new player at Weipa.

Rio's move will also cause interest in Brussels, where the European Commission is putting BHP Billiton's proposed scrip offer for Rio through its antitrust hoops. That is because a takeover by BHP of Rio, and a joint development of the southern leases at Weipa, would concentrate ownership of Australia's bauxite industry.

It is also known that the Australian Competition and Consumer Commission took unexpected interest in bauxite competition issues surrounding last year's acquisition by Rio of Alcan. BHP's bid for Rio does not go live until EC and ACCC clearances are received.

Rio shares closed 86 higher at $137.06, or the equivalent of 3.05 BHP shares. The proposed BHP offer is 3.4 BHP shares for each Rio share. BHP closed $1.32 higher at $44.93, valuing the offer at $152.76, or an 11.4% premium to Rio's market price.

The reporter owns BHP shares

© 2008 The Age

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