INSTANT VIEW: Rio Tinto scraps Chinalco deal, in JV with BHP

SYDNEY (Reuters) - Rio Tinto Ltd/Plc scrapped its planned $19.5 billion tie-up with Chinese state-owned metals firm Chinalco, instead launching a heavily discounted $15.2 billion right issue and combining its Australian iron ore mines with rival BHP Billiton.

**************************************************************

COMMENTARY:

ROSS BARKER, MANAGING DIRECTOR, AUSTRALIAN FOUNDATION

INVESTMENT

"I'm pleased they've announced it. It makes sense for both parties to realize the synergies. We were not supporters of the Chinalco transaction. We're happy to see this alternative approach to solving Rio's issues with its debt.

"I think that the Chinese will accept it and move on. They're going to have to live with each other. I don't think, given what's happened in markets, the terms of the (Chinalco) transaction were going to survive."

BARNABY JOYCE, NATIONALS SENATOR

"It is great for the Australian people that this deal falls over and we do not have the complications of the Communist People's Republic of China's government owning the wealth of Australia.

"This would, obviously, be to the benefit of the Chinese people ... but it would have been to the detriment of the Australian people," he told reporters in Canberra.

ROB HOOK, FUND MANAGER, S.G. HISCOCK "Chinalco won't be happy with it, but maybe they asked for too much to begin with and that is where probably the deal fell through. The market has changed and probably Chinalco did not want to go along with a different deal. This is a very good deal for both BHP and Rio.

"I don't think there will be any competition issues here or in Europe."

TIM SCHROEDERS, PORTFOLIO MANAGER, PENGANA CAPITAL

"The equity raising removes a lot of uncertainties about the future of the company and whether it would have received FIRB approval for the deal with Chinalco. It definitely allows flexibility moving forward in terms of opportunities in addressing the balance sheet.

"The price is there to ensure it gets done. It seems a big discount but it does not really matter because it is only impacting existing shareholders. I think it is a good deal for Rio Tinto, in conjunction with the joint venture with BHP on iron ore."

JONATHAN BARRATT, MANAGING DIRECTOR, COMMODITY BROKING

SERVICES

"Rio has declared open season on itself. They went to the Chinese for help and have walked. Chinalco must be mad.

"There are some risks -- Rio needs a solid iron deal but the Chinese have been stockpiling. The Chinese know Rio might be a weak link and will play hardball.

"That's why Rio is getting into bed with BHP on iron ore in order not to be left out in the cold if the Chinese decide to boycott them."

JAMIE SPITERI, SENIOR DEALER, SHAW STOCKBROKING:

"It's significant. It's something that was always a possibility and now it's been realized.

"A significant component of BHP and Rio's success going forward is to ensure that they reestablish good relations with the Chinese despite the fact the Chinalco deal with Rio has fallen over. They've got ongoing relationships there with their interests in Alcan, so it's important that BHP and Rio re-establish good relationships with their major customer -- that is the Chinese.

"It now directly engages BHP with Rio in their iron ore joint venture but with BHP being the influential component of that joint venture."

MICHAEL BENTLEY, RESOURCES PORTFOLIO MANAGER, NORTHWARD

CAPITAL

"My initial reaction is that it will be overwhelmingly positive for both companies because of the cost savings, the synergies. I daresay we've got a rights issue coming."

KEN WEST, PARTNER, PERENNIAL GROWTH

"If you were a buyer you would like to think synergies would flow through to lower prices in real terms over time. In other words, there would be some transfer of the margin to the buyer. It depends on the sort of competitive tension that remains in the market place with the two of them and a third player like Brazil."

TIM BARKER, ANALYST AT BT INVESTMENT MANAGEMENT

"In a sense this is what they have aiming for years. They will benefit from the rationalization of this development while at the same time maintain their individual ownership. I do not know if this means the end of the Rio-Chinalco deal."

MARKET REACTION

- Shares in BHP Billiton rose 7.9 percent to A$37.87 after the announcement. Rio Tinto remained on a trading halt.

- Rival iron ore miner Fortescue Metals Group jumped 16.4 percent to A$3.28.