By staff reporter Yan Jiangning

(Caijing.com.cn) Chinalco, China's top aluminum and alumina producer, is considering revising its proposed US$19.5 billion investment in Rio Tinto, now that improved market conditions offer the Australian miner more fundraising options, a Chinalco official close to the transaction told Caijing.

"We are considering revising the proposal, but the possibility remains very small," the official at Chinalco, also known as Aluminum Corp. of China, said.
 
In February, debt-ridden Rio Tinto, the world's third largest mining company, had few fundraising options besides turning to Chinalco. Now, the official said, "They have more options, and scrapping the deal will cost them less." 

A May 21 report by the Sydney Morning Herald said Chinalco may alter material provisions of the deal, including corporate governance provisions for mining assets, and may give up the right to nominate management of new joint ventures. It may also share convertible bonds with existing shareholders, diluting its maximum possible stake in Rio from 18 percent to 15 percent.

State-owned Chinalco already owns 9 percent of Rio Tinto, which it proposed to raise to 18 percent in February. Rio was to sell Chinalco US$7.2 billion of convertible bonds and US$12.3 billion worth assets to help repay US$38.9 billion of debt.

Rio Tinto shareholders have opposed the deal because the convertible bonds will dilute their shares. That Rio's share price has surged over US$45 in recent weeks means the deal would now effectively hand Chinalco fresh equity at a discount. At this point, Rio Tinto could change the terms or possibly walk away from the deal.

But Chinalco won't easily change the original deal, because "we have to consider the interests of our shareholders. Chinalco is a company based on commercial operation and can't ignore our stakeholders' interest," said the Chinalco official.

Australia's Foreign Investment Review Board has until June 15 to review the acquisition, after which Australian Treasurer Wayne Swan may decide based on its report, or the board may ask Chinalco to resubmit the application, according to the Sydney Morning Herald.

But the Chinalco official told Caijing, "We won't resubmit an application to Australian regulators. If the transaction is postponed and the metals market continues to recover, what else should we do?" 

Rio Tinto shares closed at AUD 64.44 in Sydney on May 22, down 3.3 percent.

Full article in Chinese: http://www.caijing.com.cn/2009-05-22/110170104.html