Rio Tinto has told their shareholders the US$19.5 billion ($30 billion) investment from Chinalco of China is the best solution to the miner’s debt woes during this unprecedented downturn.
In a statement released by the company, Rio Tinto said it had considered a range of options and concluded that the strategic partnership with Chinalco offered the best medium term certainty and long term value.
Rio unveiled the long-awaited deal yesterday after reporting record underlying earnings of $US10.3 billion – $US500 million better than expectations – and taking $US8.4 billion of write-downs, mostly related to the acquisition of Alcan in 2007 that led to its debt burden.
The deal with Chinalco, subject to approval by the Foreign Investment Review Board, will eventually hand control of 18% of the miner to the Chinese state-backed enterprise.
The company will also be entitled to nominate two new non-executive board members to add to Rio’s 15 current Board members.
Chinalco’s President Xiao Yaqing said his company was willing to raise its interest in Rio to 18% with a view to “achieve long term financial returns.”
Rio’s chief executive Tom Albanese said the uncertain economic conditions and the unprecedented rate of deterioration were forcing the miner to maximise and conserve cash generation to pay down debt.
Albanese also said the deal would allow Rio to reactivate some alumina, coal and iron ore expansions in Western Australia and Queensland that could save 2000 jobs in Australia.
“Certain major capital projects have been deferred or slowed to bring capital expenditure down to $4 billion in 2009,” Albanese said.
“By deferring rather than cancelling future projects we retain the flexibility to reinstate them when economic conditions allow.”