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Rio Tinto halts trading in shares Rio Tinto scraps China firm deal
(about 3 hours later)
Anglo-Australian mining Rio Tinto has stopped its shares trading, amid concern it might walk away from a $19.5bn deal with China's Chinalco. Anglo-Australian mining giant Rio Tinto has scrapped a $19.5bn deal with China's Chinalco in favour of a tie-up with rival giant BHP Billiton.
The halt was called before trading opened on New Zealand and Australian markets on Friday. The move is expected to save Rio - which has debts of close to $40bn - and its former suitor BHP some $10bn.
It will remain in place "pending the release of an announcement by the company," said Rio Tinto manager James Gerraty. Both companies' shares jumped about 10% after the announced deal.
On Thursday, Rio Tinto's share price fell by 7%. State-owned Chinalco said it was "very disappointed" by Rio's rejection of the deal, which would have been China's largest investment in a foreign firm.
The firm has not denied reports it planned a huge rights issue as an alternative way to tackle its debt problem. Rio Tinto will pay Chinalco $195m in compensation for pulling out of the deal.
In February, the firm said that Chinalco, which already has a 9% stake in Rio, was increasing its investment. 'Too much power'
On Friday, Rio and BHP signed an agreement to set up the 50/50 joint venture.
They said they would combine their major iron ore operations in Western Australia, sharing port and rail facilities.
"The synergies in this combination are so substantial that both companies have been investigating ways to combine these operations for more than a decade," said BHP chief Marius Kloppers.
Under the deal, BHP will pay Rio nearly $6bn to take its equity interest in the joint venture to 50%.
The move is likely to upset the Chinese steel makers, who have said that Australian iron ore miners have too much power to decide prices, the BBC's Phil Mercer in Sydney says.
Global commodity prices hit record highs last summer before falling back sharply as the world economy slumped.Global commodity prices hit record highs last summer before falling back sharply as the world economy slumped.
Speculation
Under the agreed deal, state-owned Chinalco would invest $12.3bn in joint aluminium, copper and ore mining investments with Rio, plus spend $7.2bn on convertible bonds in the firm.
It would have represented China's largest investment in a foreign company, and at the time, Rio said the fresh investment created " a pioneering strategic partnership".
But there has been speculation about the status of the deal for several weeks.
Some reports suggest that Rio may consider a joint venture with its one-time suitor BHP Billiton as another alternative to the China agreement.
China increasing its investment has also been questioned by some Rio shareholders who complained that the Chinalco deal favoured the Chinese firm.
There were also worries that China, which is Rio's biggest customer, would be able to get a greater say in the price of commodities such as iron ore which are key to its growth.
However some observers have maintained that the agreement was a good option for Rio - which has debts of close to $40bn.