Rio Tinto Rises on Takeover Rumor

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Includes: BHP, RIO, VALE
by: Judith Levy

Shares of diversified miner Rio Tinto rose Thursday on rumors that Anglo-Australian miner BHP Billiton and Brazilian miner Companhia Vale do Rio Doce [CVRD] are discussing a joint bid for the company. BHP Billiton and CVRD have not commented on the speculation. Rio Tinto also received an upgrade Thursday from Sanford C. Bernstein analyst Andrew Keen, who raised his outlook to Outperform from Market Perform. Keen is forecasting a 25% increase in iron ore prices in the 2008 contract year, up from a prior estimate of 5%, on surging Chinese demand. "Bid speculation on Rio has been around for a while, and we believe this ties up with the story of demand for things like iron ore from China," said Richard Robinson, money manager at Ashburn Ltd. "I wouldn't be short of the iron-ore area, or mining stocks in the current environment." Societe Generale analysts Luc Pez and Alain William are not particularly sanguine about the bid for Rio Tinto, which they say "would raise antitrust issues and carries high risk of value destruction." Rio Tinto recently inked a deal to buy Alcan for $38.1 billion, a move that will create the world's biggest aluminum producer. Rio Tinto's shares gained 5.5% to close at $301.52 Thursday, BHP Billiton's shares rose 5.4% to $66.19, and CVRD's shares rose 3.9% to $52.08.

Sources: Dow Jones, TheStreet.com, Forbes, Bloomberg
Commentary: Rio Tinto: Pricey 'Defensive' Move With Alcan Threatens Credit ProfileRio Tinto Posts Disappointing Earnings on Higher CostsTakeout Values For Miners Listed By Desjardins
Stocks/ETFs to watch: RIO, RTP, BHP. ETFs: SLX

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