Aluminum Corp. of China and Alcoa Inc. bought a 7.2 billion-pound ($14 billion) stake in Rio Tinto Group to derail BHP Billiton Ltd.'s hostile bid for the world's third-largest mining company.
Rio Tinto, which owns Kennecott Utah Copper, surged 17 percent in London trading, after Chinalco, as the Chinese government-owned company is known, and Alcoa bought 9 percent of the company. The increase was the biggest advance since BHP's offer was unveiled on Nov. 8. Chinalco, China's largest aluminum producer, and Alcoa, the No. 3 maker of the metal, said they don't plan to bid for the rest of Rio Tinto.
Chinalco president Xiao Yaqing, through China's biggest-ever acquisition, is trying to stop BHP from creating a company that would supply a third of the world's traded iron ore and be the biggest maker of aluminum and energy coal. China needs raw materials to feed an economy that grew 11.4 percent in 2007, the fastest in 13 years.
"They want to be involved in the discussions over the future of these companies, and the Chinese want to have leverage over these strategic natural resource assets," said James Withall, a fund manager at London-based Baker Steel Capital LLP that oversees $850 million in natural resources.
Alcoa's chief executive officer Alain Belda helped establish Chinalco's listed unit by buying a stake in 2001.
Rio gained 644 pence, or 13 percent, to 5,600 pence at the close on the London Stock Exchange, after rising as high as 5,800 pence. That's still short of the 6,000 pence a share Alcoa and wholly government-controlled Chinalco paid for their stake, which was 21 percent more than the closing price yesterday. BHP advanced 145 pence, or 9.8 percent, to 1,622 pence.
The purchase was made after the London market closed Thursday through Shining Prospect Pte., a Singapore-based investment vehicle owned by Chinalco. Alcoa contributed $1.2 billion in funding to Shining Prospect to buy 12 percent of Rio's London-listed shares. That stake is equal to "just over" 9 percent of the combined Rio Tinto Group, listed in the U.K. and Australia, spokeswoman Christina Mills said in an e-mailed response to questions.
The Chinese company is "happy" with the current stake and believes the prices paid "reflected fair value for Rio," Xiao said at a news conference in London. He declined to comment on whether Chinalco would increase its holding in the future.
"Our investment was driven by our strategy to develop into a diversified metals and mining company," Xiao said. "We have a very bullish view of the long-term prospects of the global mining sector and we admire Rio Tinto."
London-based Rio Tinto became the world's biggest aluminum producer last year, leapfrogging Alcoa, when its $38.1 billion takeover offer for Canada's Alcan Inc. trumped Alcoa's hostile bid.
Alcoa, which has dropped 21 percent in New York trading since it lost the bid to Rio in July, sought to prop up its share price and defend itself against being acquired with plans to spend $6.9 billion on stock buybacks and the sale of less profitable units.
The decision to strengthen its links with Chinalco was the simplest option for Alcoa after the failure of the Alcan bid, said Leo Larkin, a metals and mining analyst at Standard & Poor's in New York. "They'll be more diversified and get more exposure to a global metals boom."
Alcoa rose $1.19, or 3.6 percent, to close at $34.28 on Friday, valuing the company at $29.1 billion.
"It is likely Chinalco, Alcoa and the Chinese government are aiming for an ultimate breakup of Rio Tinto," Michael Rawlinson, head of mining, resources and energy at Liberum Capital Ltd. in London, wrote in a report. "This could be an opportunity to liberate attractive assets that Alcoa missed out on. China is short low-cost alumina and aluminum."
BHP is considering options for its $127 billion proposal to buy Rio Tinto, said Illtud Harri, a BHP spokesman in London. BHP's three-for-one share offer for Rio was rejected in November.
Melbourne-based BHP, the world's largest mining company, has until Feb. 6 to make a formal bid for Rio Tinto or shelve it for six months.