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Rio Tinto's backdown shows short-sightedness, prejudice
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09:04, June 10, 2009

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China steel association opposes Rio-BHP iron ore JV

FM spokesman: Chinese companies pursue equality, mutual benefit, friendship, honesty in int'l co-op

A 19.5 billion U.S. dollar agreement between Australian mining firm Rio Tinto and Aluminum Corporation of China (Chinalco) unexpectedly failed due to Rio's last-minute change of heart.

Instead, Rio Tinto cut a deal with BHP Billiton Ltd, the world's second largest mining company, to create an iron ore joint venture in Western Australia's Pilbara region.

Chinalco was once called a "white knight" by a grateful Rio when the Chinese national aluminium manufacturer offered a 19.5 billion dollar investment to the debt-ridden mining concern amid the economic slump.

But Chinalco was quickly dumped when the mining market picked up. The perfidy of Rio, the world's third largest mining company, seems somewhere between short-sightedness and possible political prejudice.

There is an old Chinese saying: "A gentlemen's agreement is beyond the letter." Honesty is the blood of business behavior.

When Rio was trapped in its 38 billion dollar debt earlier this year, it was Chinalco that lent a helping hand by offering an investment to halve the company's debt.

Last December, after BHP Billiton dropped a takeover of Rio, the company's share price hit bottom at 32 U.S. dollars on the Australian stock market. However, the price soon doubled, partly due to the world's commodities markets' recovery and partly due to Chinalco's announcement of an alliance with Rio.

Yet quite unexpectedly, Rio quickly announced a breakup once the market recovered and the share price went up -- an act of "kicking down the ladder."

China's fast economic development has brought up the need for commodities such as iron ore, which has greatly benefited Australia and Rio, the main iron ore producer.

The union of a mining producer and a mining importer would pave the way for smooth trade. To break up with a potentially strong strategic partner such as Chinalco is a big loss for Rio from a long-term perspective.

A joint mining project between the world's No. 2 and No. 3 iron ore miners BHP and Rio also aroused objections from the world's steel makers and antitrust regulators.

European opposition last year forced BHP to drop a 68 billion dollar attempt to take over Rio Tinto. This time, the World Steel Association, the

European steel industry federation Eurofer and China's steel industry group also voiced objections to the merger.

The change of heart also has a shadow of political prejudice. An Australian analyst pointed out that the deal was actually victim of a new form of "Cold War" thinking instead of a result of market games.

Chinese enterprises recently have been actively investing in Australia -- a normal market behavior. However, some Australian politicians and media have been wantonly shouting the so-called "China threat" and putting pressure on the government to refrain from cooperating with China.

This kind of prejudice will not only stall the pace of economic cooperation between China and Australia, but also hurt the interests of the Australian enterprises themselves.

The abortion of the Rio deal will not slow Chinese enterprises in their effort to invest overseas. For Chinalco, the one-time failure in international trade will soon fade. Yet for Rio Tinto, it will take years to overcome the lost honesty and tainted image.

Source:Xinhua



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