chinese buy 12 percent of rio tinto, page-7

Update via Reuters:

LONDON, Feb 1 (Reuters) - Chinese and U.S. aluminium producers Chinalco and Alcoa (AA.N: Quote, Profile, Research) have teamed up to buy a 12 percent stake in Rio Tinto (RIO.L: Quote, Profile, Research), days ahead of a deadline for suitor BHP Billiton (BLT.L: Quote, Profile, Research) to make a firm offer for Rio or walk away.

The move sent Rio's shares surging 13 percent and the stock was trading 10 percent higher at 54.59 pounds by 0822 GMT.

Chinalco, China's biggest aluminium producer, and Alcoa said in a statement on Friday they did not currently intend to make an offer for Rio, but reserved the right to do so if Rio received a firm bid from a third party.

BHP, the world's biggest mining group, made public a proposal on Nov. 8 to take over Rio and forge a mega-mining group with a market capitalisation of around $350 billion, but Rio spurned the approach.

Rumours have swirling for weeks about possible involvement in Rio by players from China, which buys huge amounts of commodities produced by both Rio and BHP to build infrastructure for its booming economy.

"Our acquisition of a significant strategic stake in Rio Tinto Plc today reflects our confidence in the long term prospects for the rapidly evolving global mining sector," Chinalco's President Xiao Yaqing said.

"We have confidence in the fundamental value of the Rio Tinto Group and the management's strong ability to realise that value for shareholders."

The statement did not say how much was paid for the stake, but Lehman Bros said it bought the shares on behalf of Chinalco at 60 pounds a share.

"The door is still very much open for BHP. 12 percent is not a blocking stake...and 60 pounds a share is equivalent to about 4-to-1 (BHP shares for each Rio share) and we think BHP can go up to about 4.5-to-1," said Liberium Capital analyst Michael Rawlinson.

Rio has spurned BHP's all-share takeover proposal, saying it fundamentally undervalued Rio and its growth prospects.

In an effort to fend off BHP's advances, Rio said on Nov. 26 it would spend $9 billion in 2008 to expand output, boost dividends and generate at least $15 billion in asset sales.

BHP Billiton, which has argued a combination with Rio would generate $3.7 billion in synergies, had until Feb. 6 to make a firm offer for Rio Tinto or to drop its proposed takeover for six months under a deadline imposed by UK takeover regulators. ** For further comment on this story double click on [ID:nL01426566] (Reporting by Mark Potter and Eric Onstad; Editing by Louise Ireland)