Rio shares dive in wake of BHP pullout

Rio Tinto shares plunged this week after the news that BHP Billiton was pulling out of its planned $102 billion takeover of the miner.

Rio Tinto shares plunged this week after the news that BHP Billiton was pulling out of its planned $102 billion takeover of the miner.

In the wake of the announcement Rio’s shares fell nearly 40% to $42.93, which represents a three year low.

This plunge left the company as a whole with a total value of $54 billion, down from a value of $204 billion when shares peaked at $157.45 in May this year.

Much of the panic among investors was put down to questions over whether Rio could now pay its considerable debts without BHP taking over.

According to Rio Tinto chairman Paul Skinner, the company has debt of $9 billion that is due to be paid in October 2009.

Despite the considerable number, Rio is not worried and has options at its disposal, Skinner said.

“We don’t see any need to issue equity to meet that,” he said.

“We are confident that our debt position is manageable.

“In fact we currently have available unused credit facilities of almost $7 billion.”

According to Skinner, the massive drop in the price of Rio Tinto shares would have more to do with people dumping stock after the surprise announcement, rather than an indication of any weaknesses in the company.

“We’ve seen a correction in our share price in the wake of this announcement, but how much of that is just positions being unwound?” he said.

“We maintain a constant line of sight on the net present value of our business.

“We are guided much more by that than by day to day movement in the markets.”

According to Skinner, rather than the daily price of shares, what is important to Rio Tinto is the position of their long shareholders.

“They have remained quite steadfast in their support of the company and the position the board has taken,” he said.

“Where they stand is more important than where people who have been punting this or that may be.”

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