Rio Tinto Considers Asset-for-Equity Swap With Chinalco to End Governance Block

Post by : Saif Nasser

Rio Tinto, the Anglo-Australian mining giant, is exploring a potential deal with Chinese state-owned company Chinalco to exchange some mining assets for shares. The move could reduce Chinalco’s 11% stake in Rio Tinto, allowing the company to resume share buybacks and pursue new projects more freely, sources told Reuters.

Chinalco, officially called Aluminium Corporation of China Limited, may receive partnerships in selected Rio Tinto mining projects in exchange for reducing its stake. This could resolve governance restrictions that have limited Rio Tinto’s flexibility for more than 15 years. The company has been constrained from making some major decisions due to the structure of its dual Anglo-Australian listing and the significant stake held by Chinalco.

The assets that may interest Chinalco include the Simandou iron ore project in Guinea and the Oyu Tolgoi copper mine in Mongolia. Both projects are already partially Chinese-owned, and Chinalco had attempted to take full control of Simandou in 2016, but the deal did not succeed. Rio Tinto’s titanium business, which is under strategic review, could also be part of the swap. China produces and consumes most of the world’s titanium dioxide, which is used in paints, cosmetics, and military products.

If the swap goes ahead, Chinalco’s stake in Rio Tinto could drop by two to three percentage points. This reduction would give Rio Tinto more freedom to carry out share buybacks, mergers, and capital restructuring without affecting its largest shareholder.

Chinalco initially bought nearly 15% of Rio Tinto’s London-listed arm in 2008. The deal included rules that prevented the Chinese company from increasing its stake or taking a board seat without approval. In 2009, Chinalco proposed a $19.5 billion investment to reduce Rio Tinto’s $39 billion debt, gaining minority stakes in many assets, but this plan was blocked by other shareholders and regulators due to concerns over Chinese control of strategic resources.

Currently, activist investors are urging Rio Tinto to remove its dual listing in the UK and Australia, saying it causes conflicts between shareholders and makes mergers with certain companies harder, especially where Chinese ownership is restricted.

Rio Tinto’s new CEO, Simon Trott, has been pushing to streamline the company and control costs. He has reorganized the business into three core units from four and is reviewing key assets such as borates, iron, and titanium. Trott is also considering further divestments, including pausing early work on the Jadar lithium project in Serbia, which has faced opposition from environmental groups.

Trott has reduced the executive committee from 11 to nine members and plans to cut the number of managing directors. Each department head has been asked to outline cost-cutting plans rather than follow a company-wide target. A further update on Rio Tinto’s reorganization may come within the next two weeks, ahead of its investor day on December 4.

The proposed asset-for-equity swap could be a major step for Rio Tinto, giving it more strategic freedom, improving investor confidence, and resolving long-standing governance issues caused by Chinalco’s stake.