Over the past 10 days or so it has been BHP Billiton’s CEO, Marius Kloppers doing the public selling campaign for his ambitious offer for control of his rival, Rio Tinto.
This week, it’s Rio’s turn with CEO Tom Albanese out and about selling Rio’s defence.
The market still thinks BHP will either have to lift its offer from the current 3.4 BHP shares for every Rio share, or retreat.
The offer is with regulators in Europe and Australia and while no problem is expected here, there could be a few hitches in Europe, although BHP reckons it will all go smoothly.
BHP shares rose 57c yesterday to $43.61, Rio shares rose $1.70 to $136.70 and the BHP offer was valued at $148.27 per Rio share.
So, on the face of it, that’s the market saying. no offer from BHP.
Mr Albanese was doing his best to make sure that remains the situation: he told a weekend finance industry briefing that his company was worth more than the BHP offer because metals may rise for another decade.
"This very strong demand environment in this constrained supply environment” makes Rio" much, much more valuable than anything we’ve seen from BHP,” Albanese said.
"To the extent there are synergies, they are being provided by assets that are owned by Rio shareholders. Its one thing to acknowledge synergies and another thing to recognize where they are coming from and who is remunerated for them.”
"Given the escalation in capital costs and that many of these ore bodies are deeper or more difficult, the efficiency of capital has dropped over the last five years,” Albanese said. Projects cost 40% more than five years ago, he said.
"The need for a settlement has become more urgent,” Albanese said. "At certain points, buyers and sellers have different options and they will need to be taken into account as we look ahead for the business. Time is moving on.”
"Strong supply constraints” and booming demand from China and other emerging markets will buoy metals." There will be "continuing, enduring strength in the markets,” he said.
He said that the recent rise in Chinese inflation is being driven by rising food and energy costs and won’t undermine strong demand for commodities.
"A leveling out in food and energy prices will lead to falling ‘headline’ inflation without a dramatic impact on economic growth," Mr Tom Albanese said.
Prices for Rio’s products ”are supported by economic fundamentals, not financial bubbles” Albanese said, citing dwindling supplies of metals including copper.
He said that there was little evidence supporting claims that the current prices of commodities were due to “financial trading”(AKA speculation by speculators).
"For key Rio Tinto products there is little evidence supporting this view: stocks for many key Rio Tinto commodities are low – copper stocks in 2007 were less than a third of 2002 levels – and supply risks remain."
He said there was little evidence of ‘‘hoarding’’ as financial market positions must by definition be net-neutral while prices for non-financially-traded commodities such as iron ore have risen by as much, or more than, financially-traded minerals.
And current prices of key Rio Tinto products are justified by the economic fundamentals of sustained demand growth and tight supply; together these factors will support long-run prices
In Sydney Mr Albanese told a business lunch that more investment by foreigners, including sovereign wealth funds, was needed to fully develop Australia’s resources assets.
Mr Albanese said while the authorities might have some reservations, the country could not afford to miss out on access to the valuable capital offered by such funds.
"Most of us agree that unlocking the full force of Australia’s mineral potential will require direct foreign investment,” Mr Albanese said.
Mr Albanese said sovereign wealth funds, such as those from China, present few direct threats to the global financial system.
Increased Chinese capital is expected to flow into the Australian market, following a decision by the Asian country’s regulator last week to make Australia an approved investment destination.
Chinese state-owned aluminium company Chinalco took a 9% stake in Rio Tinto in early February with US group, Alcoa.
Could these comments mean that to escape BHP’s bid, Rio might throw its lot in with China?
