The Chinese government-controlled mining and metals company Chinalco is putting $19.5 billion into publicly traded peer Rio Tinto (TRP). A billion dollars of the cash will go to buying back a piece of RTP owned by Alcoa (AA).
If China believes that it is getting a piece of RTP’s assets on the cheap, it is right.
The price of metals has collapsed driven by falling demand as the world moves more deeper into a recession. A year ago, BHP Billiton (BHP) buy Rio Tinto rocketed up on takeover talk.
China’s play may be very simple. It has the capital to buy assets which will appreciate in value when demand rebounds in an industrial recovery. RTP shares have dropped from a 52-week high of over $558 to just above $112.
If there is long-term money to be made in buying and selling metal assets, Alcoa may be the next target on the list. Its shares have fallen from $45 to $8 this year and its market cap is only $6 billion. An acquirer who believes that the question is not if metal prices will rebound but when, would find Alcoa remarkably inexpensive.
As of today Alcoa is in play.
Douglas A. McIntyre
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