News Service from House Harris

Rio shareholder deeply concerned about Chinalco deal(Wrap)

MELBOURNE, March 16 AAP - Rio Tinto Ltd major shareholder Australian Foundation Investment Company Ltd (AFIC) has expressed deep concern over Chinalco's planned investment in the resources company, as regulators extended their inquiry into the deal.

AFIC - a top 20 shareholder of Rio Tinto and rival BHP Billiton Ltd - is "deeply concerned" about the China state-backed aluminium producer becoming involved with the running of the business, citing potential conflicts on interest over investment decisions.

"Significant influence has been given to Chinalco with no premium paid," AFIC said in a presentation lodged with Australian Securities Exchange on Monday.

The planned $US19.5 billion ($A29.77 billion) investment by Chinalco in Rio Tinto will give it stakes in a number assets, and increase its interest in the dual-listed miner from nine per cent to 18 per cent.

The transaction, which has been backed by the Rio Tinto board, will also allow Chinalco to appoint two new non-executive board members to the global miners board.

"We let the company know our views and are seeking a response," AFIC said in the presentation.

BHP Billiton chairman Don Argus sits on the AFIC board and is a member of its investment committee, which approves all investment orders and transactions.

AFIC's concern comes as the Foreign Investment Review Board (FIRB) on Monday initiated a 90-day review of the transaction on Monday after the initial 30-day evaluation period closed.

Foreign Investment and Trade Policy Division general manager Patrick Colmer said the extension of the evaluation period was "for the purpose of enabling due consideration to be given to the question whether an order or orders should be made".

The FIRB is assessing a number of transactions involving Chinese entities and Australian resource groups, including Minmetals Non-ferrous Metals Company Ltd (Minmetals) $2.6 billion proposed takeover of OZ Minerals Ltd.

While the FIRB plays an advisory role, the ultimate decision of whether to approve a transaction is made by federal treasurer Wayne Swan.

Rio Tinto plans use the capital injection from Chinalco to help tackle the $US38 billion ($A58.02 billion) mountain of debt it incurred buying Canadian aluminium producer Alcan Inc in 2007.

The Chinalco transaction has drawn the ire of some of Rio Tinto's UK investors, who expressed disquiet over not being offered the chance to participate in a rights issue.

Rio Tinto's London-based managing director Tom Albanese was in Australia meeting investors earlier this month and told analysts that initial shareholder opposition in the UK appeared to be moderating.

However, some institutional shareholders in London scotched those claims, labelling them completely wrong and reiterating that a number of institutions would still vote against the deal.

According to The Observer newspaper in London, several unidentified institutional shareholders are pushing Rio Tinto to table a special resolution that could block the proposed transaction.

Approval by 50 per cent of Rio Tinto's shareholders is one of the key requirements for the Chinalco transaction to be successful.

Several institutional shareholders are reportedly seeking a special resolution to be tabled, which would require 75 per cent support from the share register to vote in favour of the deal.

Rio Tinto shares had shed $1.17, or 2.25 per cent to $50.85 by 1522 AEDT.