Rio Tinto seeks to cut Chinalco’s 11% stake

Rio Tinto (ASX: RIO) is considering an asset-for-equity swap with state-owned Aluminum Corp of China (Chinalco) that would reduce the miner’s stake in Rio, Reuters reported, citing three people familiar with the matter.

Sources told Reuters that Chinalco would exchange a portion of its holdings for stakes in some of Rio Tinto’s mining assets in a move to free up Rio to resume share buybacks and pursue new strategic deals.

Rio Tinto declined to comment on the report.

The potential swap may aim to resolve governance constraints and complex ownership structures that have limited Rio’s flexibility since Chinalco acquired shares worth 15% of the total company 2008.

Chinalco’s acquisition was subject to regulatory restrictions imposed by the Federal Government and included limitations on increasing Chinalco’s stake without approval and prohibiting board representation.

In 2009 Chinalco’s proposed $19.5b investment was met with shareholder and regulatory resistance which led to the transaction being blocked.

In 2016, after a failed attempt from Chinalco to buyout the Simandou iron ore project in Guinea, Rio shareholders expressed concerns over the miner’s control of Rio’s assets and its stake in the company was reduced to 11%.

A mining asset exchange differs from conventional share acquisitions, focusing on operational collaboration between partners rather than ownership. This kind of arrangement may give Rio the opportunity to navigate its way out of an ongoing governance gridlock.

Assets that may be of interest to Chinalco are the Oyu Tolgoi copper mine in Mongolia and Rio’s titanium business which is currently under strategic review. Chinalco may also still have its eye on Rio’s stake in the Simandou project which is currently under majority Chinese ownership.

Further updates are expected in the coming weeks, ahead of Rio’s investor day scheduled for December 4.