Friday, June 12, 2009

Rio Tinto Rejects Chinalco Offer, But China Remains Very Much in the Resources Acquisition Picture

One of the most fascinating aspects associated with the natural resources sector is watching Chinese government-affiliated businesses as they attempt to acquire resources around the world.

Sometimes the Chinese firms succeed, while in others they do not. The latter was the case recently when mining giant Rio Tinto rejected a nearly $20 billion investment package by Chinalco, which was set up in 2001 when 12 Chinese aluminum-related enterprises were consolidated into one firm. Headquartered in Beijing, Chinalco has in recent years been on the hunt for resources for the rapidly expanding Chinese economy.

Another major natural resource-related disappointment for China's leaders came in 2005 when the U.S. government stepped in to prevent an $18.5 billion acquistion by China National Offshore Oil Corp. of Unocal.

To be sure, in both the case of Australian-based Rio Tinto or Unocal national interests helped throws spanners into the deals. But China will not be going quietly into the night...not with a resource-hungry population to serve as well as $2 trillion in funds waiting to be invested (thanks Washington!).

Just to name a few of the places where China is actively involved now or is trying to buy assets: Afghanistan, Brazil, Cuba, Ecuador, Iran, Peru, the Sudan, Venezuela. The days are now long gone when the only players were coming from Australia or Canada or the UK or US. Of course, this is greatly oversimplified, but it is worth bearing in mind that the world of natural resources acquisition has become more competitive and exciting. Don't blink or Chinalco may make an offer on a gold mine near Reno, Nevada.

For more on this topic, see today's Financial Times story, "Outmanoeuvred."

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