Mining giant Rio Tinto has abandoned a deal with Chinese metal group Chinalco, opting instead for a US$15.2 billion rights issue, after organising an iron ore deal with BHP Billiton.
Rio shares have gained 12.85% to $75.50 after the announcement, with the company saying the rights issues will “enable the group to meet its Alcan facility debt repayment obligations fully in 2009 and substantially in 2010”.
“As a result, net debt will be reduced to approximately US$23.2 billion; exceeding the commitment made in December 2008 to reduce net debt by US$10 billion by the end of 2009.”
The original deal with Chinalco would have seen the Chinese company pay US$12.3 billion for a stake in the company, with Rio then able to pay off half of its US$38 billion debt.
But the deal found opposition from Rio shareholders and others who feared Rio would gain significant influence over the prices of iron ore.
Meanwhile, BHP shares rose 9.1% to $38.30 after it announced the deal with Rio, that will combine the two companies’ iron ore interests in WA.
“Rio Tinto and BHP Billiton today signed a non-binding agreement to establish a production joint venture covering the entirety of both companies’ Western Australian iron ore assets,” the two companies said in a statement.
Also in the mining industry, OZ Minerals shares rose 2.87% to 89.5 cents this morning, after news that the company will be offered a proposal that will see it recapitalised without having to sell off assets.
Meanwhile, the Australian share market has jumped over the 4,000-point mark for the second time this week on the back of higher commodity prices.
The benchmark S&P/ASX200 index was up 54 points or 1.37% to 3,988.6 at 12.07 AEST. The Australian dollar slipped, falling back to 82 US cents.
Commonwealth Bank also gained 1.5% to $37.36. Westpac gained 0.9% to $19.32, while ANZ lost 1.1% to $16.66.
Overseas, Japanese GDP figures for the March quarter may be revised after it emerged businesses cut spending on plant and equipment expenditures less than expected. The revision means the country may have contracted just 3.8% during the quarter, opposed to the preliminary recording of a 4% contraction.
“Overall, corporate earnings conditions remain severe, so declines in capital expenditure were inevitable. While the pace of decline was smaller than expected, there’s no doubt capital spending was weak in the first quarter,” Kyohei Morita, chief economist at Barclays Capital, told Reuters.
In the US, Wall Street recorded gains after a positive report on US banks from RBC Capital Markets. The Dow Jones Industrial Average jumped 74.96 points or 0.86% to 8,750.24.
Good news also came with new Labour Department figures, which showed the number of US workers filing for jobless benefits dropped for a third consecutive week.
“It’s still bad, but not as bad as it has been. It’s consistent with the story that the economy is turning the corner and we may have passed the worst point [of the recession],” Bill Cheney, chief economist at John Hancock Financial Services, told Reuters.
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
