Newspaper article The Evening Standard (London, England)

Rio Tinto Plummets as It Counts Cost of Fund-Raising

Newspaper article The Evening Standard (London, England)

Rio Tinto Plummets as It Counts Cost of Fund-Raising

Article excerpt


WHO said money was cheap? Shares in Rio Tinto tumbled 99p to 2401p -- making it one of the biggest blue-chip fallers -- after it discovered the real cost to its coffers of raising extra funds.

The mining giant, which last year rejected an approach worth 6000p a share from BHP Billiton, down 54p at 1391p, has raised $3.5 billion ([pounds sterling]2.35 billion) by way of an issue of fixed-rate bonds. The issue is made up of $2 billion of five-year bonds yielding 8.95% and $1.5 billion of 10-year bonds paying a whopping 9%. That contrasts with American interest rates which are currently close to zero.

Dealers say Rio has been forced to agree to such generous terms in order to make sure it gets the issue away. Some companies, including other miners and property developers, have raised cash via share issues which have been steeply discounted by as much as 80%.

Rio's management has agreed to a $19.5 billion cash injection by the stateowned Aluminum Corporation of China (Chinalco). In return, Chinalco's stake in Rio is set to double to 18%. First-quarter production numbers from Rio were described as a "mixed bag".

In a separate move, Rio may offer to split up the packaging and engineering divisions of its Alcan Aluminium business in order to attract buyers. There are signs of a small recovery in copper production, but aluminium and iron ore were both lower.

Shares generally were touch softer for choice despite Wall Street clawing back an opening fall when trading resumed this afternoon. The FTSE 100 index fell 16.7 to 3972.29. President Obama may have seen the green shoots of recovery but investors remain unconvinced. US industrial production fell again in March for the fifth month in a row. The Dow Jones rose 35.44 to 7955.6.

The few buyers still in evidence focused on defensive stocks, such as Imperial Tobacco, up 43p at 1473p, British American Tobacco, 56p better at 1551p and Reckitt Benckiser, 80p higher at 2584p.

BG Group added 1p at 1045p on news of another major in the Santos basin, offshore of Brazil. Panmure Gordon describes it as a "significant prospect".

It rates the shares a buy with a 1200p target. …

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