Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Chinese-Alcoa consortium Forces BHP to pay more for Rio Tinto

Companies / Metals & Mining Feb 08, 2008 - 04:00 AM GMT

By: Fat_Prophets


Best Financial Markets Analysis ArticleBHP Billiton has upped the ante with respect to its takeover ambitions for Rio Tinto, boosting its previous 3-for-1 share offer to a more reasonable 3.4-for-1. To what extent this increase was influenced by the arrival of the Chinese onto the RIO register remains a mystery, but it must have entered BHP's calculations to some degree. We believe RIO remains in a position of strength with regard to developments and that shareholders should sit tight.

"RIO remains firmly in the driver's seat with respect to the unfolding takeover scenario."

Fat Prophets initially recommended buying RIO at $73.99 in July 2006 (Fat Mining 35). Our last review of the stock was during January in Fat Mining 109.

In the near-term, Rio Tinto remains highly influenced by the takeover bid from BHP Billiton and the acquisition of a 12% stake by Chinalco, in association with Alcoa. Since touching a corrective low of $99.52 in January, the stock has risen by as much as 34% to reach $133.39 earlier this week.

Following such a rapid rebound in prices, we cannot rule out a near-term pause for consolidation. However, with investor support for the stock remaining buoyant, we believe that downside risks are limited. As marked on the daily chart, initial support lies between $115 and $110 with the January low of $99.52 underpinning the broader upward trend.

Although the potential for continued volatility in the weeks ahead remains high, the dominant feature of longer-term charts remains the underlying upward trend. In coming months, we believe that Rio retains the potential to break above the November high of $149.99, extending to new alltime highs.

As we outlined in our BHP report, a fresh offer has been tabled for Rio Tinto, as the company does everything it can to increase the level of market support for its ambitious plan to snare RIO, and in the process create the world's biggest mining group.

BHP's bid now stands at 3.4 of its shares for each RIO share held, an improvement on the previous 3-for-1 offer that RIO shareholders, the market and the RIO board had flatly rejected.

This effectively values RIO shares at A$156.74 per share, which is a premium to their closing price of $127.35 a share on Tuesday, prior to the announcement of the revised bid. This of course will change with the pullback in BHP's share price on the market on Wednesday.

Whether this latest bid will be enough to secure RIO remains to be seen. It will depend on the reaction of the RIO board, the market and also the Chinese-Alcoa alliance, which dealt themselves into the equation with their lightning raid on RIO on Friday night in London.

This consortium, comprising Aluminium Corp of China (Chalco) (backed by the Chinese government) and Alcoa of the US, has acquired a 9% stake in RIO, giving it a major say in what happens next.

BHP's revised 3.4-for-1 share offer represents a 45% premium to Rio's pre-bid price in November last year and that the portions that each company would hold in a merged group would be BHP 56% and RIO 44%. The portions that each company would hold in a merged group would be BHP 56% and RIO 44%.

We still maintain our long-held view that an offer of at least 4-for-1 represents appropriate value for RIO shareholders.

RIO's board and the Chinese-Alcoa consortium have not yet made any official comment with respect to the bid, although we would expect these over the coming days. At the moment, the RIO board has recommended that its shareholders take no action.

What role may the Chinese play in all of this? Well, we are confident that they have no plans to bid for Rio Tinto. But they have the potential to throw a potentially big spanner in the works with respect to BHP's takeover plans. The Chinese have made it abundantly clear that they oppose any potential tie-up between BHP and RIO, and this is one way of putting the cat amongst the pigeons.

It could be argued that the eleventh hour arrival of the Chinese could have helped force BHP into a higher bid, and may still present problems for BHP down the track. Remember, as recently as just a few weeks ago BHP was arguing that its previous 3-for-1 share offer represented compelling value. But the market disagreed.

The net effect of what the Chinese-Alcoa consortium has done is to effectively force BHP to pay more for RIO (closer to our original 4-for-1 share estimate) than BHP's existing 3-for-1 share deal.

Interestingly also, Chinalco and Alcoa have reserved their right to increase their stake, but only if BHP makes a formal bid or cuts a deal with Rio, which it has now done. So the potential is there for the Chinese to potentially raise the stakes by upping its stake in RIO. This battle is a long way from over in our view.

We reiterate that it is clear to us that the Chinese are not interested in gaining control of RIO. This would be met with stringent opposition by the Australian federal government on national interest grounds, as the Chinese would be fully aware. The Australian government would seek to preserve resources of substantial national economic interest, principally the Pilbara iron ore assets in Western Australia.

In the worst case scenario for the Chinese, which would be a BHP-RIO tie-up, they and Alcoa have probably grabbed an important seat at the table in order to get a share of the merged group's aluminium/alumina assets.

Remember, one of the jewels in RIO's crown is the Alcan aluminium business, which it successfully acquired late last year, beating Alcoa in a takeover battle. Both Chinalco and Alcoa would be keen to share the spoils in any asset sell-off. The decision to strengthen its links with Chinalco was the simplest option for Alcoa after the failure of the Alcan bid.

We reiterate our view that Rio Tinto remains in a position of strength as far as the whole saga is concerned and recent developments simply underline this. We would advise Members holding Rio Tinto to take no action and await further developments as they unfold.

Accordingly, Rio Tinto will remain firmly held within the Fat Prophets Mining & Resources portfolio.

Disclosure: Interests associated with Fat Prophets declare an interest in Rio Tinto

For a FREE sample of Fat Prophets research please call 02079369357 or email

About Us - Fat Prophets provides independent advice on the financial markets where our objective is to be transparent, accountable, objective and ethical. We believe that integrity is the central characteristic of every successful investor. Our independence in financial markets is derived from the fact that Fat Prophets does not execute transactions or provide investment banking services.

Fat Prophets principal focus is to deliver a quality service to Members by discovering and identifying quality stock recommendations on the London Stock Exchange. The launch of our UK service follows the successful establishment of Fat Prophets in Australasia.

Founded in June 2000, Fat Prophets is owned and operated by financial markets professionals. Having become Australia's leading independent stock market advisors, our horizons were broadened during 2003 through the addition of Fat Prophets United Kingdom. Our service offering also includes Fat Prophets Mining & Resources, Fat Prophets USA, and Fat Prophets Funds Management.

Fat Prophets UK was launched in 2003. As one of the world's largest stock markets, the UK offers an expansive array of investment opportunities. Within this environment our value-based strategy has proven highly successful, and fattened our Members' portfolios.

Fat Prophets Australasia focuses on delivering a quality service to Members by identifying and recommending undervalued companies on the Australian and New Zealand stock exchanges.

Fat Prophets Mining & Resources coverage extends to companies involved in mining, exploration, precious metals, diversified resources, energy, mineral sands, bulk ores, diamonds, as well as mining and energy infrastructure services.

Fat Prophets USA has an international focus, recommending a broad range of US based and foreign companies trading on the US exchanges.

Fat Prophets Funds Management In 2005 the company diversified into funds management when the Fat Prophets Australia Share Fund (Fat Fund) was successfully listed on the Australian Stock Exchange after $33 million was raised.

Disclaimer : Mint Financial (UK) Ltd, trading as Fat Prophets United Kingdom, has made every effort to ensure the reliability of the views and recommendations expressed in this report. Fat Prophets United Kingdom research is based upon information known to us or which was obtained from sources which we believed to be reliable and accurate at time of publication. However, like the markets, we are not perfect.
This report is prepared for general information only, and as such, the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore discuss, with their financial planner or advisor, the merits of each recommendation for their own specific circumstances and realise that not all investments will be appropriate for all subscribers.
To the extent permitted by law, Fat Prophets United Kingdom and its employees, agents and authorised representatives exclude all liability for any loss or damage (including indirect, special or consequential loss or damage) arising from the use of, or reliance on, any information within the report whether or not caused by any negligent act or omission. If the law prohibits the exclusion of such liability, Fat Prophets United Kingdom hereby limits its liability, to the extent permitted by law, to the resupply of the said information or the cost of the said resupply.

Fat Prophets Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules