China has forked Australia.
In chess, you fork your opponent when an attacking move by one of your pieces puts two or more of your opponent’s pieces under pressure. Your opponent can defend only one piece and must concede the loss of one of his. That seems to us an apt description of what Chinalco’s 12% stake in Rio accomplished this weekend.
At the very least, China, through Chinalco, has influence over a BHP Billiton (ASX: BHP) takeover over Rio Tinto (ASX: RIO). It can try and block the takeover by increasing its stake in Rio, although Chinalco Xiao Yaqing says this is not the plan. “We do not have plans to increase our stake,” he told investors yesterday in Sydney. “The objective of this investment is to make a return. So if the return is attractive… we’ll be happy,” he added.
There’s a lot to be happy about. Chinalco can aid BHP if it decides it would like to carve up Rio, serving up Rio’s much-coveted iron ore assets to a famished BHP and keeping Rio’s aluminium and cooper for itself. Or, Chinalco can play white knight to Rio, blocking the BHP bid altogether. And worst case, Chinalco’s move forces BHP to ante up more cash for Rio, delivering a short-term return on a timely investment. That’s investing like a deal maker.
Markets and Money