Rio/BHP merger prompts conter-bid speculation

BHP Billiton’s proposed merger with Rio Tinto, to create a $US400 billion diversified mining group, has already seen a major reaction from the mining sector.

There is speculation that Xstrata and CVRD, the Brazilian group, could mount a counter-bid, and also that Norilsk the Russian nickel miner is seeking a partner to help mount a bid for Rio.

In addition, it is rumoured that Chinese sovereign funds could block the move by acquiring a stake in Rio.

A merged Rio/BHP would be crucial in supplying the metals that the country’s its fast growing economy needs and Chinese sovereign funds are keen to acquire resource assets to guarantee supply.

The Chinese Government has recently published details of the China Investment Corporation, a $US200 billion sovereign wealth fund.

The fund plans to further the interests of the Chinese economy by taking small stakes in international companies.

On Friday of last week, Rio’s share price increased 15.4% to a record high, adding billions of dollars to its overall market value.

Analysts have pointed out that BHP should have approached Rio 12 months ago, before it acquired Alcan, at what some consider a high price.