Rio's China Line

  Rio Tinto's board and management remains very wedded to the idea of the Chinalco cash injection and equity deal: they spent a long time at yesterday's Australian AGM of the mining giant defending it and talking it up.From media reports of the meeting, and from reports of the London meeting, the issue has dominated the 2009 AGMs for the best part of & #160;six hours of talk, questions and defence at both functions.So voluminous has been the defence that you'd have to say the Rio board seems to be taking a big, unhedged bet on approval of the deal by the Australian government.Talk of a Plan B or C appears to be carefully constructed briefings and leaks of possible other methods of finding the money.But the company's new chairman, & #160;Jan du & #160;Plessis, made it clear he didn't see a need for Plan B (But then he also said he hadn't had time to visit any of the company's Australian operations).Last week's bond raising, plus cash on hand and available cash flow has just about covered the & #36;US9.8 billion that will be needed later this year, thereby easing the pressure to do an instant deal if the original Chinalco sale is rejected by Canberra.Yesterday saw departing chairman, Paul Skinner endorse the Chinalco deal, matched by CEO Tom Albanese and the incoming chairman, Jan du Plessis.No second thoughts there.The new chairman says completing the controversial Chinalco deal will be his first priority. & quot;We are committed to pursing the Chinalco transaction,'' Mr du Plessis told shareholders after becoming chairman at the global miner's annual meeting in Sydney. & quot;I don't like the idea of a plan B. & quot;Chinalco was attractive in early February for financial and strategic reasons and our stance hasn't changed.''But he gave off conflicting messages, talking about not doing the Chinalco deal if shareholders rejected it, which they may or may not at a meeting following any approval by Canberra. & #160;That won't happen to the third quarter of the year.Some analysts wonder if the rise in the company's share price and markets since February, when the deal was revealed, will end up a more important factor.Shareholders in London last week spoke against the offer and yesterday was no different in Sydney. Some used the rebound in markets to illustrate why Rio should be looking for other solutions to the debt problem.Mr Skinner, in his last appearance as Chairman, said the Chinalco deal was a good move for world's third-largest miner, and for Australia. & quot;We anticipate that investment in China will start to gain strength later this year with the support of public-sector spending on transport infrastructure and housing, & quot; Mr Skinner said in a presentation to shareholders. & quot;However, given weakness in the more developed economies, it is unlikely that we will see a synchronised global recovery for the next 12 to 18 months, & quot; he said.He said the mining giant was confronted by & quot;very difficult markets & quot; and weak demand. & quot;China will remain key to the performance of our markets as the primary driver of growth in commodity demand, & quot; Mr Skinner said.And Mr Albanese said Australia has a large stake in the outcome of the proposed deal. & quot;There is currently an opportunity for Australia to position itself for a mutually rewarding relationship that could define the next few decades, & quot; he told the meeting.The deal will see Chinalco subscribing for & #36;US7.2 billion of convertible debt and & #36;US12.3 billion worth of stakes in projects owned by Rio, the world's third largest mining company in aluminium, copper and iron ore. & quot;By facilitating a deeper engagement with China, including by allowing substantial inflows of capital, we could forge stronger and more enduring export markets, & quot; Mr Albanese said in the speech. & quot;The Australia-China relationship is critical for both countries and Rio Tinto supports efforts that will bring the two countries closer together. & quot;And in his address, Mr Skinner made sure everyone at the meeting got the message about the importance of China; not only from the point of view of the Chinalco deal, but more broadly speaking. & quot;Rio Tinto's long term outlook for commodities has not fundamentally changed. China will remain key to the performance of our markets as the primary driver of growth in commodity demand. & #160; & quot;It is true that economic growth rates in China have fallen as a result of a sharp slowdown in its western export markets, and from the tightening of its monetary policy in 2007 to damp down inflationary pressures. & quot;But China has the policy levers and economic tools to restore its growth momentum, and is now applying a very substantial stimulus package to its economy. & quot;At the global level it was encouraging see the emphasis by the G20 nations on fiscal stimulus and the importance of free trade. & quot;When global economic activity recovers - and predicting the timing is very difficult - we could see metals and minerals demand pick up quite rapidly, driven by the requirement to rebuild stocks and make up the backlog of development projects slowed by the recession. & quot;Based on underlying trends of urbanisation and industrialisation across a very large population, we believe the fundamentals of the Chinese economy, and other fast growing markets like India, remain intact, and that our industry's long term prospects remain very positive. & quot;We anticipate that investment in China will start to gain strength later this year with the support of public sector spending on transport infrastructure and housing. & quot;However, given weakness in the more developed economies, it is unlikely that we will see a synchronised global recovery for the next 12 to 18 months. & quot;The potential partnership with Chinalco will strengthen our position during this period of extreme uncertainty. & quot; & quot;We do not know how long the downturn will last, but, thanks to our people and assets, we will remain ideally placed to benefit from the upturn when it comes, especially with the proposed strengthening from Chinalco, & quot; Mr Skinner said.In the market no one was listening; investors sold off the shares and they closed down 3.5% or more than & #36;2 a share at & #36;57.06, after hitting a day's low of & #36;56.50.Overnight world markets fell, the US heavily as signs emerged of the market bounce being overstretched.If that's reversed, the pressure will return for Rio to do the Chinalco deal. & #160;  

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