Overview
Transaction overview
The transaction will deliver substantial aggregate cash proceeds of US$19.5 billion through:
- An investment by Chinalco in certain aluminium, copper and iron ore joint ventures totalling US$12.3 billion; and
- The issue of subordinated convertible bonds in two tranches with conversion prices of US$45 and US$60 in each of Rio Tinto plc and Rio Tinto Limited for a total consideration of US$7.2 billion. If converted, the subordinated convertible bonds would increase Chinalco's current shareholding to 19.0 per cent in Rio Tinto plc and 14.9 per cent in Rio Tinto Limited, equivalent to an 18.0 per cent interest in the Group.
Rio Tinto intends to use the proceeds of the transaction primarily to strengthen its balance sheet, to repay debt and to provide flexibility to continue to invest in value creating growth opportunities. The transaction will allow Rio Tinto to raise funds at a time when financial markets are distressed, thereby significantly reducing its debt levels, strengthening its balance sheet, and increasing its flexibility to pursue attractive investment opportunities throughout the cycle.
Following the transaction, Rio Tinto will maintain operational control of the businesses that are the subject of the strategic partnerships. The current Rio Tinto Group senior executive team will continue to manage each business, with continuity of Rio Tinto's existing strategy and business principles. Governance arrangements will be implemented to regulate the continuing relationship between the parties on the basis that Rio Tinto retains responsibility for carrying on the day to day management and operation of the businesses independently of Chinalco.
The Rio Tinto board believes the strategic alliance with Chinalco will strengthen Rio Tinto's ability to deliver its strategy of maximising shareholder value through the development and operation of low cost, long life assets.
In addition to significantly strengthening Rio Tinto's balance sheet and ensuring financial flexibility over the medium term, the pioneering partnership is expected to offer the following benefits to Rio Tinto:
- A link to Chinalco's strong relationships within China, which Rio Tinto believes will continue to be the main driver of commodity market growth over the longer term.
- The strategic alliance creates the opportunity for joint ventures and project development in emerging economies. The two groups bring complementary skills including Chinalco's capabilities to deliver infrastructure projects, and Rio Tinto's leadership in operational excellence and sustainable development.
- Rio Tinto will enter into a landmark joint venture for exploration in China in partnership with Chinalco.
- The Chinalco relationship will facilitate access for Rio Tinto to funding from Chinese financial institutions for project development.
In recognition of its significant investment and consistent with the strategic alliance, Chinalco will be entitled to nominate two new non executive board members (one independent under applicable corporate governance criteria) to add to the 15 current board members of Rio Tinto. Independent non executive directors will continue to comprise a majority of the Rio Tinto board, consistent with corporate governance best practice. Rio Tinto will comply fully with the UK Combined Code on Corporate Governance following completion of the transaction. These appointments will be on the same terms as the other non executive directors of Rio Tinto. Further details on the relationship agreement are set out in Product group strategic alliances.
The transaction is conditional upon approval of Rio Tinto shareholders and is subject to government and regulatory approvals. The initial completion of the transaction is scheduled to occur prior to 31 July 2009.
