Argus tries to win over Rio register

He has written to all of them, at an estimated cost of more than $350,000. The glossy eight-page letter contains a pitch from Mr Argus on the merits of the bid and a condensed presentation on BHP itself.

There was nothing in the letter that had not already been said by BHP on the offer. Its main purpose seemed to be to remind Rio shareholders that a bid was on its way, hopefully in December, should BHP's offer clear antitrust regulators in Europe.

It is a source of annoyance to Rio that in the letter BHP again argues that its 3.4-for-1 scrip offer represents a 45% premium.

The premium claimed by BHP is based on Rio's "undisturbed" share price before BHP announced the bid. Rio argues that it needs to be restated to account for higher than expected iron and coal price increases since the offer was announced, among other things.

BHP's conditional bid valued Rio yesterday at $133.48 a share, or a 9.8% premium to Rio's market price of $121.50, up $2.35, or 1.9%, on the day.

Rio has also maintained a cracking pace in announcing new developments and expansions that it has said reflect its ability to take advantage of long-term strength in commodity prices.

The latest addition is a $US2.15 billion commitment to expand its Corumba iron ore mine in Brazil. The expansion will lift production more than fivefold to 12.8 million tonnes a year.

Rio managing director and the man who has said BHP's offer is ballparks away from fair value, Tom Albanese, said the expansion "reinforces our capability to expand capacity rapidly to match increased demand wherever it occurs".

In his letter to Rio shareholders, Mr Argus said he strongly believed that a combined BHP and Rio could generate substantial additional value for shareholders.

He said a combined group would have a strengthened asset portfolio and enhanced growth potential as well as synergies and other benefits. Rio counters by saying that is why BHP should offer more.

But Mr Argus repeated that the all-share consideration meant the offer was about relative value, not absolute value.

Meanwhile, BHP would not comment on a report in the trade publication Upstream that it planned to sell its less significant oil and gas interests in the Gulf of Mexico.

BHP also suffered two deaths at its operations. Its Nelson Point iron ore port in Western Australia was closed after a worker was killed in a locomotive maintenance shed. Operations were also suspended at the Klipspruit coalmine in South Africa after a worker was killed when a drill rig moved over a high wall and fell 10metres.

The reporter owns BHP shares.

KEY POINTS

- BHP Billiton chairman Don Argus has written to all 200,000 Rio Tinto shareholders.

- Rio is annoyed that BHP is using pre-bid valuations.