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Rio to justify BHP bid rejection Rio fights to keep BHP bid at bay
(about 4 hours later)
Mining group Rio Tinto is expected to staunchly defend its opposition to rival BHP Billiton's takeover bid at its annual investor seminar. Rio Tinto has said it will spend at least $2.4bn (£1.15bn) on new mines and increase its dividend as it battles to fend off a bid from BHP Billiton.
Rio rebuffed an all-share approach from BHP worth $140bn (£68bn) earlier this month, suggesting the price undervalued the firm and its prospects. The mining group is trying to shore up confidence among its investors to see off an all-share offer worth about $140bn (£68bn), which it has rejected.
Analysts are expecting Rio to criticise BHP's bid for not giving enough credit for the firm's production record. Rio's chief executive Tom Albanese said that the value of the firm was yet to be "fully reflected" by the market.
But many believe a deal could still be done if BHP sweetens its offer. Booming metals prices have driven consolidation in the mining industry.
'Metal-hungry world'
Analysts say that Rio Tinto's refusal to team up with BHP - the biggest mining company in the world - was indicative of its conviction that mineral and metal prices would stay high for years to come, fuelled by strong demand from emerging economies such as China and India.
And it believes that it is best placed to capitalise on this trend as an independent company, they say.
"We believe we have a better growth pipeline than our competitors, which puts Rio Tinto in a strong position to supply the metal-hungry world," said Mr Albanese.
"We have the people, execution capability and resources to work smarter, faster and better than our competitors."
Underscoring his comments, Mr Albanese forecast that production of iron ore would triple to 600 million tonnes per year.
He also said that Rio would generate 50% more cost savings from its recent merger with Canadian aluminium miner Alcan.
Deal inevitable?
But many believe a deal could still be done if BHP sweetens its offer, possibly adding cash into the equation.
UBS has said BHP could afford to put a further $27bn in cash into the offer in addition to a promised $30bn share buyback.UBS has said BHP could afford to put a further $27bn in cash into the offer in addition to a promised $30bn share buyback.
China worries
A combination of the two Anglo-Australian mining firms would create a natural resources giant with a stronghold over the world's iron ore, copper and aluminium production.A combination of the two Anglo-Australian mining firms would create a natural resources giant with a stronghold over the world's iron ore, copper and aluminium production.
Iron ore is the main component from which steel is made, a metal in strong demand in China and Japan.Iron ore is the main component from which steel is made, a metal in strong demand in China and Japan.
Steelmakers in both countries have expressed concern that a merger between Rio and BHP would drive up the price of iron ore.Steelmakers in both countries have expressed concern that a merger between Rio and BHP would drive up the price of iron ore.
BHP's chief executive Marius Kloppers visited clients and government officials in China, Japan and South Korea last week to galvanise support for the merger, but observers said there was little sign that he made any progress.BHP's chief executive Marius Kloppers visited clients and government officials in China, Japan and South Korea last week to galvanise support for the merger, but observers said there was little sign that he made any progress.
A report in the state-owned China Business suggested that the Chinese government could even gatecrash BHP's takeover efforts with a bid of its own worth $200bn through its new sovereign wealth fund.A report in the state-owned China Business suggested that the Chinese government could even gatecrash BHP's takeover efforts with a bid of its own worth $200bn through its new sovereign wealth fund.
But, such a move was swiftly denied by a spokesperson for the agency tasked with managing Beijing's vast foreign exchange reserves.But, such a move was swiftly denied by a spokesperson for the agency tasked with managing Beijing's vast foreign exchange reserves.
Metals boom
Rio Tinto's refusal to team up with the biggest mining company in the world suggests that it expects mineral and metal prices to keep on rising on continued strong demand from emerging economies, such as China and India.
Tight supply due to significant underinvestment in the 1990s is also supporting prices.
"I think we need to see a lot more on the table than we've got at the moment," said Julian Chillingworth, chief investment officer at Rathbone Investment Management, which holds 4.7 million London-listed shares in Rio.
"Rio is a unique asset and as a shareholder I need to be persuaded in the form of a very decent offer so I want to sell."