Chinalco more likely to raise Rio stake than cut it

By Alfred Cang and Li Hongwei

SHANGHAI (Reuters) - Chinalco, the Chinese metals company that led a stunning $14 billion investment in Rio Tinto Plc (RIO.L), could raise its stake in the global mining firm and has no intention of cutting back on its ambitions elsewhere.

"We have set the target of building up a first-class global enterprise, a brand that stands for 100 years," Chinalco's president Xiao Yaqing told a group interview in Shanghai.

"And we've realised the brand will only stand for 100 years if we own mining assets, and not just smelting facilities."

Chinalco burst onto the world stage six weeks ago with the Rio (RIO.AX) purchase it made jointly with Alcoa Inc (AA.N), gatecrashing a takeover plan by Rio's rival BHP Billiton (BHP.AX) (BLT.L) at the last moment before BHP unveiled its own, lower bid.

The purchase of 12 percent of Rio's London-listed shares for $14 billion, or almost 60 pounds a share, was widely seen as a deliberate move to stymie BHP's bid.

"I feel the price was very good. It was a very appropriate price. The price was not high considering Rio's value," Xiao said. "In the current circumstances, the possibility of raising the stake is higher than cutting it."

Rio's shares opened 3 percent higher after he spoke and were trading at 52.23 by 5:26 a.m. EDT.

CHINALCOA

Xiao said Chinalco would decide whether to increase its stake in Rio based on two criteria: Chinalco's judgment of Rio's share price and the opinion of its partner, Alcoa.

"We bought at 60 pounds a share and if they rise to 100, we could consider selling some," he joked, laughing heartily. A 100 pound share price would put Rio just outside the 10 most valuable companies in the world.

Turning serious, Xiao stressed that the decision would be a joint one and, although Chinalco was talking to Alcoa, no move was imminent.

"Alcoa and Chinalco have not made a plan for the next move yet," he said.

He declined to be say how many shares the two firms might buy if they raised their stake and said details were subject to commercial confidentiality.

He also declined to give details of their partnership, but a company source said Chinalco had 9 percent of Rio while Alcoa had 3 percent.

Alcoa's history with Chinalco began when the U.S. firm supported the 2001 floatation of its subsidiary Chalco (2600.HK) (601600.SS), taking a stake of around 8 percent. Alcoa cashed out last September with a gain of almost $2 billion, prompting many analysts to wonder if it had played a good hand badly.