Gina’s iron ore note is plumping for miners again today by trying to light the Glencore fire under Rio Tinto again:
Most observers in London believe this is exactly what Glencore chief executive Ivan Glasenberg will do at some point after a compulsory six-month cooling off period expires in early April…But any mega-merger would be subject to regulatory approval in Australia and other countries.
…The Chinese state-owned Chinalco is Rio’s biggest shareholder with a 9.8 per cent stake. It would dearly love to own the whole company. This won’t happen because China’s steel mills are Rio’s biggest customer for iron ore. But there are concerns in Canberra a Glencore merger backed by Chinalco would give the Chinese greater control over the Pilbara.
…The second reason Glencore would be blocked is tax. Rio makes a lot of the fact that it is Australia’s biggest corporate tax payer. It paid about $US5.7 billion in corporate and payroll tax as well as state royalties in Australia during 2013. This is not say it could not pay more. But as this week’s reports on the tax haven of Luxembourg shows it could be a lot less.
Let me put Canberra’s mind at ease. Chinalco (and China inc so far as that goes) will be appalled at the idea of Glencore takeover of Rio (as will every other steel maker in the world). The vertical integration of a dominant trading house and a dominant supplier offers spectacular opportunity for market control. The reason that Chinalco bought into Rio in the first place was to prevent BHP from cornering the market in such a way. I can’t see why Europe would agree, either, given it blocked the BHP/RIO iron ore marketing joint venture.
The Australian government should also block it given the tax record of Glencore but it’s such a pussy on these things that I doubt it would.
At least the story popped RIO’s share price for a few minutes.
