Rio Tinto shares drop on China spy allegations

By James Grubel

CANBERRA (Reuters) - Shares in global miner Rio Tinto Ltd fell more than 3 percent on Monday after a Chinese magazine published additional spying allegations against the company.

Dual-listed Rio Tinto's were down 3 percent at 2,347 pence in London at 1258 GMT (8:58 a.m. EDT), slightly underperforming a generally weaker mining sector, having closed 3.3 percent lower at A$58.55 in Sydney.

Rio Tinto had spied on Chinese steel mills for six years, resulting in the mills overpaying $102 billion for iron ore, Rio Tinto's biggest earner, according to an article in the online edition of a magazine published by China's state secrets agency.

That overpayment allegation echoed the findings of an earlier study conducted by a Chinese university professor, but it was not clear if the article had any other basis for its argument.

The magazine's website (www.baomi.org) was inaccessible for most of the day on Monday.

When it reopened late on Monday, the article with details of the allegations was no longer accessible. A second article that referred to the Rio case in calling for greater protection of commercial information was still available on the website.

Rio Tinto declined to comment on the accusations, which followed China's detention of four Rio employees -- including Australian citizen Stern Hu -- a month ago in Shanghai on suspicion of stealing state secrets.

The company said last month its employees had done nothing wrong. The men remain in detention and have yet to be charged.

"The allegations referred to on the National Secrets Protection Bureau website are not new," a spokeswoman for Australian Foreign Minister Stephen Smith said in a statement.

"The (Australian) government has always said the Stern Hu case was complex and involved serious allegations. The government has urged the Chinese authorities to deal with his case expeditiously," the spokeswoman said, adding Australia would continue to make representations to Beijing over Hu's case.

The article said Rio Tinto's commercial spying involved "winning over and buying off, prying out intelligence ... and gaining things by deceit" over six years.

The detentions have raised concerns about doing business in China, strained ties with Australia and overshadowed 2009 price talks on iron ore, which is used to make steel.

"It sets a negative precedent for the whole industry," said Nick Hatch, analyst at ING. "It raises questions for the whole mining industry in terms of supplying China."

Australia exported A$18 billion ($15 billion) worth of iron ore and concentrates to China in 2008, accounting for 41 percent of China's iron ore imports last year. The ore came mainly from Rio and BHP Billiton, although other Australian companies shipped the mineral as well.

CONCERN FOR INVESTORS IN CHINA