A leaked US government cable reveals the behind-the-scenes fight by BHP Billiton to destroy a $21 billion deal between its rival Rio Tinto and Chinalco, owned by the Chinese government, The Sydney Morning Herald reports .
According to the Wikileaks cables , Treasurer Wayne Swan’s chief of staff told embassy officials BHP Billiton had outsmarted Rio Tinto to create the collapse of the deal with Chinalco.
BHP has consistently refused to admit it has engaged in such a campaign to convince miners not to approve Chinalco’s intention to double its stake in Rio Tinto.
In June 2009, the Chinese made a bid to increase its holdings in Rio Tinto to 18 per cent. Rio immediately announced a joint venture with BHP Billiton to combine their West Australian iron ore operations.
"Treasurer Wayne Swan’s chief of staff has told us on several occasions that BHP has played its cards with consummate skill, in part due to the increasing marginalisation of BHP CEO Marius Kloppers as BHP chairman Don Argus has taken the lead in lobbying the GOA [government of Australia] with the able assistance of BHP’s well-connected VP for government relations, Bernie Delaney,” the cable from 7 June said.
Last year, the Treasury’s former top China economist, Stephen Joske, said Angus and other BHP executives targeted Swan, the then-Prime Minister Kevin Rudd, Resources Minister Martin Ferguson and their advisors over the bid by Chinalco.
”Emails from BHP were circulating at the highest levels, copied in to ministers’ offices, about all the ‘China Inc’ stuff,” Mr Joske said last year after leaving Treasury in July.
According to the cable, the rejection by Rio “spared” the government from making the tough decision on whether to approve what would have been China’s largest foreign investment, though embassy officials in Canberra said it left Rudd to pick up the pieces and deal with “an unhappy China.”
The embassy allegedly warned Washington in an early assessment that Chinalco “could lead to a wave of strategic mining investments from China which could lead to closer resources and energy trade and investment ties between China and Australia” and also said that resource analysts in China had"assessed that the proposed deal would give Chinalco a strong degree of influence over Rio’s copper, iron ore, and aluminum operations, if not outright control”.
The collapse of the Chinalco deal was blamed on backroom lobbying by BHP, according to US officials, which led the Rudd government to delay whether to approve the bid.
While this was happening, the global commodity prices improved so that Rio did not need the cash injection from Chinalco to prevent debt incurred from fighting an earlier attempt by BHP to take over.
"Having worked hard to torpedo the Rio-Chinalco deal, BHP believes that it has scored a major victory by preventing a state-owned Chinese firm from influencing iron ore pricing negotiations from the producer side,” the Herald report ed the cable s as saying.
"BHP has been lobbying extensively to block the deal, highlighting concerns about Chinese investment and the possibility that seats on the Rio board would give the Chinese representatives important insights into the producer side of the annual iron ore price negotiations.
"Chinalco has made clear that it considers the Rudd government’s reluctance to approve the deal [as] one of the major reasons for its collapse.”
China released a report into the collapse of the Chinalco deal last month, clearing the Australian government and the mining company of any role in killing the proposal, but it did name BHP for waging a campaign behind-the-scenes against Chinalco. The report said this helped fuel an Australian backlash and influenced the Rudd government.
The cables allegedly show BHP knew the Chinese were angry about its role to frustrate Chinalco’s bid, and that Delaney told US diplomats it needed to do “damage control” with China to control a potential fallout.
US officials concluded the BHP joint venture with Rio Tinto would ”greatly concern global steel producers who already believed those two companies had too much power to set iron ore prices".