Following the collapse of Aluminum Corp of China’s (Chinalco) proposed US$19.5 billion investment in Rio Tinto, the Anglo-Australian miner turned to plan B – a stock rights issue and a production joint venture with rival miner BHP Billiton.
It was an ironic solution, given Chinalco first got involved with Rio as a means of preventing it joining forces with BHP. A union between two of the world’s leading miners isn’t in the interests of Beijing, one of their major customers.
BHP is only partnering with Rio having abandoned its earlier attempt to acquire the company, so analysts argue that China has little to fear. But this doesn’t mean Chinese companies will stop splashing their cash.
"China will be looking for other investment opportunities for which it can look to alleviate that import dependency on the iron ore market," said Andrew Driscoll, head of resources research at CLSA.
But the bad publicity that dogged the Rio deal – and soured other direct investments in Australia’s mining sector – may prompt a change in strategy.
"I think another possible avenue would be for some of these companies to provide money to private equity and hedge funds who can eventually go in and take equity positions equity or otherwise [in mining projects]," said Thomas Wrigglesworth, head of Asia-Pacific metals and mining at Citi.
Strategic changes aside, China’s ore demand is such that resource investments offer no respite from the ongoing international iron-ore contract price negotiations between steelmakers and the major miners. Following the Japanese mills agreeing to a 33% price cut with BHP and Rio, it seems unlikely that China will secure a lower rate.
"Somebody else has settled so there’s enough to say [this price] is about right," said Michael Komesaroff, an international mining industry consultant. "You’ve got to wonder what they could do to lower it further."