Australia allows Chinalco a 15% Rio Tinto stake

The Australian government has approved a maximum limit of 14.99% holding in the shares of mining giant Rio Tinto PLC (RTP-N, RIO-L) to Aluminum Corporation of China (Chinalco). The approval is subject to the conditions that the Chinese government-owned Chinalco does not appoint a director to Rio Tinto’s board, and that it will seek government approval prior to raising its stake above this level.

Rio Tinto is made up of London-based Rio Tinto PLC and Melbourne-based Rio Tinto Ltd. In February, Chinalco and Alcoa (AA-N) announced the purchase of a 12% interest in Rio Tinto PLC for US$13 billion. The move appears to have two objectives: giving the Chinese government a significant ownership stake in the mining industry, while at the same time lessening the likelihood of a merger of iron ore miners such as BHP Billiton (BHP-N) and Rio Tinto, which would give them stronger pricing power over iron-importing China. Currently, BHP Billiton is proposing to take over Rio Tinto, and the hostile takeover is being reviewed by various regulators from Europe to Australia to ensure that it will not harm competition in the iron ore market.

A 14.99% interest in London’s Rio Tinto PLC would give Chinalco an 11% interest in the combined Australian / British Rio Tinto group. Based on Chinalco’s 12% stake in February, it would appear that the Chinese company can acquire another 3% in Rio Tinto PLC, while still remaining within the ownership limit set by the Australian government. It is quite possible that Chinalco will decide to go ahead and buy the extra 3% stake, although the company did not confirm that it would go ahead with this purchase.

Asked to comment about Australia’s decision, Nick Cobban, media relations advisor for Rio Tinto, said that the company noted the government’s decision but did not wish to comment on it, nor did it want to comment on the possibility that Chinalco may increase its ownership interest by 3%. He said that, when Chinalco bought their Rio Tinto stake in February, they said that they were just shareholders in the company, and that they have stuck to that limited role.