Business Article

Blackstone in Chinese break-up bid for Rio

COULD MEAN SELL-OFF OF ALCAN Iron- ore industry fears power a combinedRio Tinto- BHP Billiton could wield

DAVID LITTERICK LONDON DAILY TELEGRAPH
LONDON – Blackstone is planning an audacious break-up bid for miner Rio Tinto Group, the Daily Telegraph can reveal.

The U.S. private equity giant is in the middle of putting together a consortium – believed to include a Chinese sovereign wealth fund – to mount the bid for Rio, currently the target of an unwelcome approach by rival mining giant BHP Billiton.
Blackstone is already believed to have appointed lawyers for the approach, and is in talks with bankers and public relations companies.
As part of its defence against the three-for-one share offer made by BHP, Rio has identified up to $30 billion of disposals it believes will drive shareholder value. These include its talc business, two uranium projects in Australia and the United States, the Northparkes copper and gold mine in Australia and the U.S. Greens Creek zinc, lead and silver mine.
Blackstone is ready to go further and break the business up completely. This would mean undoing this year’s merger with Montreal aluminium producer Alcan, as well as selling off the company’s main asset – its iron ore business.
Blackstone believes the key iron ore operations are worth at least $110 billion, based on the $1.06-billion valuation placed on Australian miner Midwest Resources by Chinese company Sinosteel. Sinosteel is in the process of lobbying the Australian government to allow its bid to go ahead. If successful it would be the first time a Chinese company has taken over a listed Australian business and would highlight China’s willingness and ability to play a role in consolidation of the mining industry.
The $110-billion figure – which compares with Rio’s market capitalization of $150 billion – is based on Rio’s existing proven reserves. However it is believed further mineralization in the Pilbara in Australia and at the Simandou project in Guinea could push this valuation and that of Rio as a whole higher.
The iron ore assets are crucial to any deal involving Rio Tinto. The rationale for the approach from BHP – which also has extensive operations in the Pilbara – is the synergies the company believes can be derived from bolting the two companies’ iron ore assets together.
China’s insatiable desire for iron ore has sent prices soaring. The industry fears a combined Rio Tinto and BHP Billiton would give the resulting super major too much power.
Blackstone already has strong links with the Chinese after China Investment Corp., the $200billion sovereign wealth fund, paid $3 billion for a 10-per-cent stake in the private equity giant before flotation this year. Blackstone declined to comment.