Rio Tinto Shares Gain After Reaffirming Chinalco Deal

(Bloomberg) -- Rio Tinto Group rose the most in almost four months in Sydney trading after the world’s third- largest mining company said it will proceed with plans to raise $19.5 billion from Aluminum Corp. of China.

Rio climbed 8.2 percent to A$62.31 as of 1 p.m. Sydney time, the biggest gain since Jan. 27. Speculation that Rio would scrap the deal with Chinalco, as the state-owned entity is known, and pursue a rights offer instead pushed the London-based company down 20 percent in the first four days of this week.

“The company remains committed to delivering this strategic partnership,” Rio said today in a statement. Chinalco hasn’t received any request to revise the plan, Chinalco Vice President Lu Youqing said today by phone from Beijing.

Rio is trying to convince investors and regulators that the accord signed in February with Chinalco is the best way to slash the company’s $38.9 billion of debt. Rio may drop the deal in favor of a five billion pound ($7.6 billion) rights issue, the Telegraph newspaper said this week.

Any possible share sale is “potentially a lot further down the track than what the market may have been anticipating here in recent days,” said Jamie Spiteri, head dealer at Shaw Stockbroking Ltd. “It just probably eliminates some of the added uncertainty, which had probably aided in a bit of a nervous sell-off in recent days.”

Shares of Aluminum Corp. of China Ltd., Chinalco’s Hong Kong-listed unit, gained 3.1 percent to HK$7.07.

‘Best Way Forward’

The Chinalco deal is “the best way forward” for Rio and Chairman Jan du Plessis is meeting investors in the U.K. this week to listen to their views, spokesman Nick Cobban said yesterday in London. The company has agreed to sell $7.2 billion of convertible bonds and stakes in projects worth $12.3 billion to Chinalco.

The probability of Chinalco completing the investment in Rio is below 50 percent, Liberum Capital Ltd. said last month, citing a rebound in financial and commodity markets.

“With changed market conditions, a rebound in metals prices, rebounding investor sentiment and a strong share price appreciation, it now gives them an opportunity to vary the deal,” said Shaun Giacomo, who helps manage $2.5 billion at SG Asset Management Pte. in Singapore including Rio stock. “Directors do have a fiduciary duty to respond to a changed investment climate.”

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