Rio Tinto Deal Reveals Some Interesting Faces In Finance

Rio Tinto

Rio Tinto is interesting on more than one level. Outside today’s announcement that an Australian executive and three Chinese officials working with the mining conglomerate plead guilty to accepting bribes, there are the Chinalco deal, and other oddities afoot. Some of the investors in Rio Tinto, besides the new China connection that is, have their fingers in just about every natural resource pit there is.

Rio Tinto is currently the 4th largest mining conglomerate in the world. So, this deal between China and the UK/Australian company may not seem like big news, but looking just a degree or two left and right of the capital influx promised Rio Tinto by Chinalco (now number one by the way), it is interesting to watch the movers and shakers in resource commodities in the region and worldwide.

The Old World Charm of Natural Resources

Forget the deal, or lack of a deal as Goldman Sachs predicts in devaluing Rio Tinto, and consider who is behind the company founded on the river of the same name in Spain over a Century ago. If I brought up the Rothschild name again, would it surprise you? The Rothschild family took over control of the company way back in 1880, but the interesting part of this story fast forwards us to today. Jacob Rothschild, 4th Baron Rothschild, and other members of the world’s most famous banking family, still hold significant stakes in one of the old family businesses. A brief bit of research reveals Jacob Rothschild has at least two subsidiaries of his own wealth portfolio vested in Rio Tinto (among the many, many others).

Rothschild’s RIT Capital Partners held £12.5 million (PDF) of Rio Tinto in September. But more interestingly, Rothschild’s St. James Place Capital owned 3 percent of Rio Tinto at the beginning of this year. This may not seem all that interesting on face value, but consider the myriad of Rothschild holdings and subsidiaries. While not all that dramatic by themselves, other Rothschild investments, which by the way are as difficult to find out as hen’s teeth, reveal some interesting associations.

Waking Up With the Fleas

Maybe the most interesting of these, one which also revolves around mining and the far East, is the IPO of the world’s largest aluminum conglomerate  United Company RUSAL. The world’s biggest aluminum company recently went public on the Hong Kong Exchange with none other than Nathaniel Rothschild as one of the cornerstone investors. Among the others; Asia’s richest man Li Ka-shing, Libya’s sovereign wealth fund, U.S. hedge fund Paulson & Co. The one I found most curious was Libya’s Sovereign Wealth Fund? Now Qaddafi is wheeling and dealing with the big boys. My Mama always used to say; “If you go to bed with the dogs, you wake up with the fleas.” Do they have fleas in Libya?

Ethics and the Lack Thereof

Just to further confuse and baffle my readers I thought I would throw in Rio Tinto’s report via Goldman Sachs JB Were at the Brisbane Resources Conference (PDF) in 2007.  Now Goldman seems to be playing the “valuing – devaluing” game again with regard to the Rio Tinto China deal – first up and then down.  I will leave the speculation to the reader on this one,  but the latest news of a marriage of a Chinese mining monstrosity in bed with Rio Tinto? Maybe a marriage made in heaven if you consider one of Rio Tinto’s largest stakeholders, Norway’s $375 billion Government Pension Fund-Global -divested themselves on ethical grounds in 2008. Evidently, the Norwegians could not stomach Rio Tinto’s environmental practices.

As for the Chinese infusion of cash into the company, if Goldman Sachs keeps playing volleyball with Rio Tinto prices, Chinalco’s nearly $20 billion dollar stake could turn into half that overnight with the right news. Of course all this scattered info is somewhat speculative, but never the less interesting. I wonder who would step in and buy Rio Tinto stock if the price fell after the deal? Whatever happens, there is a lot of speculation going on with regard to Rio Tinto stock.

Robust Ethics and Holding Companies

Finally, Rio Tinto has assured the world that they fully intend to abide by the rules of countries where they have operations. They even came out to remind us that those naughty people about to do hard time in China for taking bribes and industrial espionage received a copy of the company’s code of conduct. The spokesman virtually assured the rest of us in the world that Rio Tinto practices what he called “a robust” ethics policy. It must not have been robust enough to keep the Norwegians from yanking their nearly one billion in investment, or to discourage bribe taking in the most recent case.

These Rio Tinto dealings, and the periphery surrounding them, provide interesting points of contact for any number of high profile investors.  The Rothschilds (who finding any news story about it rare), John Paulson’s company (in with the Rothschilds on the RUSAL IPO), Libya’s Qaddafi (of all people in the RUSAL venture),  Li Ka-shing (the most powerful man in Asia), and who knows who else, maybe even George Soros behind some holding company, all seem very interested in the metals business and China. What does this all mean? Not much yet, but it is interesting so far.

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