MercoPress. South Atlantic News Agency

Battle of giants for control of world's basic minerals

Rio Tinto, one of the world's largest mining firms rejected on Wednesday a sweetened mega merger bid from BHP Billiton worth 147 billion US dollars. If the two companies had merged, a company would have been created that controlled one third of the world's iron-ore market.

Amid speculation Rio Tinto was set to become the centre of a bidding battle, company management said the proposals from BHP "fail to recognise the underlying value of Rio Tinto's quality assets and prospects". Anglo-Australian BHP, the world's biggest mining group, had earlier proposed to exchange 3.4 of its own shares for each Rio Tinto stock, an improvement on its previous three-for-one offer that had also been rejected as inadequate. BHP said the combination would help to meet rising demand from resource-hungry China, but the proposed tie-up has raised concerns in Beijing because of the market power of a merged group. Last week, state-owned Chinese aluminum giant Chinalco teamed up with US-based peer Alcoa to buy the equivalent of 9% of Rio Tinto for about 14 billion US dollars. The move was seen by analysts as an attempt to thwart a BHP takeover and The Times reported Wednesday, citing sources close to Chinalco, that the Chinese group and Alcoa may make a counter bid for Rio Tinto. There has been speculation among market traders that Chinalco is looking to buy Rio Tinto to break the company up and that Alcoa would take Rio Tinto's Alcan aluminum assets. Chinalco and Alcoa said Wednesday they were "monitoring developments," saying any offer for Rio Tinto "should reflect the fundamental value of the company." The companies said last week that they had no takeover plans for Rio Tinto -- but they reserved the right to make an offer in the event of a bid from another party. China's largest steel company, Baosteel, has previously called on the Australian government to stop the deal. Shares in BHP Billiton fell sharply in Sydney and London, with analysts suggesting the group might have to raise its offer to at least four-to-one to win over a sceptical Rio Tinto board. A link-up between BHP and Rio Tinto, the world's third-largest mining group, would create a behemoth leading the planet in coke coal, thermal coal, copper and aluminum production. The increased offer by BHP overshadowed a separate announcement by the company that its net earnings fell 2.4% in the six months to December, representing the Anglo-Australian giant's first profits fall in five years. The group reported that profit in the six months to December fell to 6 billion US dollars.