Word: rios
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...commodities China's leadership knows it will need much more of in the long run. In the past month, Chinese companies have bought assets abroad at an unprecedented pace. Aluminum Corp. of China (Chinalco), a major holding company focused on resources, has announced plans to invest $19.5 billion in Rio Tinto, one of the world's largest mining companies. If completed the deal would be the biggest foreign purchase any Chinese company has ever made. China Minmetals, another state-owned firm, said it would pay $1.7 billion in cash for Australia-based Oz Minerals, the world's second largest zinc...
...deals are not without controversy, particularly in Australia, where some are worried that control of vital resources is being handed over to the Chinese. Chinalco is a huge consumer of iron ore, and mining companies fear that the investment in Rio Tinto could give China more influence over the price of iron in global commodities markets. Every year, steel and aluminum producers worldwide dicker with the big raw-material producers over new contracts. During the boom years, when Chinese companies' appetite for virtually every metal was voracious, they got stuck with stiff price increases. But the deal could give Chinalco...
...This rankles some of Rio's shareholders. One institutional investor told TIME that it's "up to Rio to convince us that this does not transfer key pricing power over a key commodity to a big customer. They need to make that case, or I'm not inclined to vote for the deal" when it comes up for approval in May or June. The investment also must be cleared by the Australian Foreign Investment Review Board...
...March 2 news briefing in Sydney, Chinalco President Xiong Weiping tried to allay fears. "The transaction will in no way lead to any control of the natural resources of Australia," he said, adding that Rio's corporate strategies and management practices would also remain unchanged. For now at least, blatant anti-Chinese sentiment in Australia appears to be bottled up, and the investment is expected to go through...
...Considering how far mineral prices have fallen, some analysts believe Chinalco might actually be paying a premium for Rio Tinto assets. But BOC International's Xu says "the price is much, much lower for the assets - particularly iron ore and copper - than it would have been just six months ago. This seems like a pretty good deal." As long as commodity prices are depressed, Chinese companies - having learned the pitfalls of "Going Out" - are likely to be ravenous buyers...