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Chinese mining companies wary of BHP-Rio Tinto deal
By Xiao Yu and Rebecca Keenan Bloomberg NewsPublished: November 14, 2007


BEIJING: BHP Billiton's offer for Rio Tinto Group - potentially the largest mining acquisition in history - is spurring Chinese mining companies to step up global takeovers to secure raw materials.

China Shenhua Energy, the country's largest coal producer, and Yunnan Copper Industry, its third-largest copper producer, are planning acquisitions in Australia, Mongolia and elsewhere, executives said.

A BHP takeover of Rio would concentrate supplies of copper, iron ore and coal, weakening consumers' bargaining power. China, the largest buyer of metals and iron ore, is already hurting from a threefold gain in commodity prices since 2002.

"BHP's bid to buy Rio will help change the Chinese mentality, and accelerate their pace to go outside and open up," said Helen Lau, an analyst with Daiwa Securities Group based in Shanghai. "But mining assets are all very expensive now, given metal prices are at their peak."

Ling Wen, president of Shenhua, said at a forum Monday that a "takeover deal between BHP and Rio will trigger a new round of mining acquisitions, and that will be a challenge to all Chinese mining companies."

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The BHP chief executive, Marius Kloppers, on Monday promised to deliver faster supply of minerals at lower costs with a takeover of Rio Tinto. BHP's initial bid for Rio was rejected last week, but Kloppers said he had not given up.

Chinese buyers of copper ore would be under pressure with a combination of BHP and Rio, Yu Weiping, deputy general manager of Yunnan Copper Industry, said Tuesday in Sydney.

"After they become one, they will be more tough in negotiations," Yu said. Yunnan Copper is accelerating plans to buy copper mines in Australia, he said.

Shenhua's board is working on acquisition plans, which may include resources other than coal, because it does not want to be left out of the consolidation in the mining industry, Ling said.

"The Chinese need to get equity in supply," said Mark Pervan, a commodity strategist at Australia & New Zealand Banking Group in Melbourne. "They have been a buyer to date, and now they need to be an owner."

Shougang, the Chinese steel maker, has said that a BHP-Rio Tinto combination may lead to higher iron ore prices.

Kloppers said Monday that he had not "detected any hostility" from Chinese steel makers to the takeover proposal.

Wang Min, deputy minister at the Land and Resources Ministry, said Tuesday that over the past two years there had been "disharmony between the suppliers and consumers of resources." Wang did not mention Rio or BHP by name.