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Last Updated: Monday, 26 November 2007, 10:48 GMT
Rio fights to keep BHP bid at bay
Rio Tinto plant in Australia
A merger would create a firm with a powerful hand in the metals market
Rio Tinto has said it will spend at least $2.4bn (1.2bn) on new mines and increase its dividend as it battles to fend off a bid from BHP Billiton.

The mining group is trying to shore up confidence among its investors to see off an all-share offer worth about $140bn, which it has rejected.

Rio's chief executive Tom Albanese said that the value of the firm was yet to be "fully reflected" by the market.

Booming metals prices have driven consolidation in the mining industry.

'Metal-hungry world'

Analysts say that Rio Tinto's refusal to team up with BHP - the biggest mining company in the world - was indicative of its conviction that mineral and metal prices would stay high for years to come, fuelled by strong demand from emerging economies such as China and India.

And it believes that it is best placed to capitalise on this trend as an independent company, they say.

"We believe we have a better growth pipeline than our competitors, which puts Rio Tinto in a strong position to supply the metal-hungry world," said Mr Albanese.

"We have the people, execution capability and resources to work smarter, faster and better than our competitors."

Underscoring his comments, Mr Albanese forecast that production of iron ore would triple to 600 million tonnes per year.

He also said that Rio would generate 50% more cost savings from its recent merger with Canadian aluminium miner Alcan.

Deal inevitable?

But many believe a deal could still be done if BHP sweetens its offer, possibly adding cash into the equation.

UBS has said BHP could afford to put a further $27bn in cash into the offer in addition to a promised $30bn share buyback.

A combination of the two Anglo-Australian mining firms would create a natural resources giant with a stronghold over the world's iron ore, copper and aluminium production.

Iron ore is the main component from which steel is made, a metal in strong demand in China and Japan.

Steelmakers in both countries have expressed concern that a merger between Rio and BHP would drive up the price of iron ore.

BHP's chief executive Marius Kloppers visited clients and government officials in China, Japan and South Korea last week to galvanise support for the merger, but observers said there was little sign that he made any progress.

A report in the state-owned China Business suggested that the Chinese government could even gatecrash BHP's takeover efforts with a bid of its own worth $200bn through its new sovereign wealth fund.

But, such a move was swiftly denied by a spokesperson for the agency tasked with managing Beijing's vast foreign exchange reserves.

SEE ALSO
Steel firms oppose BHP-Rio deal
19 Nov 07 |  Business
BHP woos Rio Tinto shareholders
12 Nov 07 |  Business
BHP makes bid move for Rio Tinto
08 Nov 07 |  Business
Rio Tinto secures Alcan takeover
24 Oct 07 |  Business
Rio Tinto's Alcan deal approved
27 Aug 07 |  Business
Rio Tinto makes $38.1bn Alcan bid
12 Jul 07 |  Business

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