MINING giant BHP Billiton lobbied intensively behind the scenes to wreck a $21 billion investment deal between rival Rio Tinto and Chinese government-owned Chinalco, leaked US government cables reveal.
According to a confidential US embassy cable obtained by the Wikileaks website and released to The Age, federal Treasurer Wayne Swan's chief of staff told American embassy officials that BHP had out-manoeuvred its rival to orchestrate the collapse of the Chinalco deal.
The revelation is embarrassing for BHP Billiton, which has consistently refused to be drawn on suggestions it had engaged in a campaign to persuade federal government ministers not to approve Chinalco's push to double its stake in Rio Tinto.
On June 5 last year, the Chinese bid to lift its investment in Rio Tinto to 18 per cent collapsed and Rio Tinto immediately announced a joint venture with BHP Billiton to combine their West Australian iron ore operations.
"Treasurer Wayne Swan's chief of staff has told us on several occasions that BHP has played its cards with consummate skill, in part due to the increasing marginalisation of BHP CEO Marius Kloppers as BHP chairman Don Argus has taken the lead in lobbying the GOA (government of Australia) with the able assistance of BHP's well-connected VP for government relations, Bernie Delaney," the June 7 cable said.
The cable confirms an account by Treasury's top former China economist, Stephen Joske, who last year said Mr Argus and other BHP Billiton executives targeted then prime minister Kevin Rudd, Mr Swan, Resources Minister Martin Ferguson and their advisers over Chinalco's bid to invest more in Rio Tinto.
"Emails from BHP were circulating at the highest levels, copied in to ministers' offices, about all the 'China Inc' stuff," Mr Joske told The Age last year after leaving Treasury in July.
The US government cable said Rio Tinto's decision to reject what would have been China's biggest foreign investment "spared" the Australian government from having to make a tough decision on whether to approve the proposal.
But US embassy officials in Canberra noted it left Mr Rudd having to deal with "an unhappy China".
"We noticed a very glum Chinese ambassador Zhang Junsai waiting outside Rudd's office with the Chinalco CEO Xiong Weiping on the afternoon of June 5," the cable said.
In an early assessment, the Canberra embassy warned Washington that the proposed Chinalco deal "could lead to a wave of strategic mining investments from China which could lead to closer resources and energy trade and investment ties between China and Australia."
The embassy also reported that Chinese-based resource analysts had "assessed that the proposed deal would give Chinalco a strong degree of influence over Rio's copper, iron ore and aluminum operations, if not outright control, via the joint strategic alliances that would be formed to manage those assets".
The American officials attributed the collapse of the Chinalco-Rio Tinto deal to backroom lobbying by BHP Billiton, which led to the Rudd government delaying its decision on whether to approve the bid.
During this time, global commodity prices improved to the extent that Rio Tinto no longer needed Chinalco's cash injection to stave off debt incurred by fighting off an earlier takeover attempt by BHP Billiton.
"Having worked hard to torpedo the Rio-Chinalco deal, BHP believes that it has scored a major victory by preventing a state-owned Chinese firm from influencing iron ore pricing negotiations from the producer side," the cable reported.
"BHP has been lobbying extensively to block the deal, highlighting concerns about Chinese investment and the possibility that seats on the Rio board would give the Chinese representatives important insights into the producer side of the annual iron ore price negotiations.
"Chinalco has made clear that it considers the Rudd government's reluctance to approve the deal (as) one of the major reasons for its collapse."
In March this year, the Chinese government released a post-mortem on the collapse of the Chinalco-Rio Tinto deal which cleared the Australian government and the mining company of any role in killing the proposal.
But the Chinese report singled out BHP Billiton for waging a behind-the-scenes campaign against Chinalco which helped fuel an Australian backlash and influence the Rudd government.
The US government cables make it clear BHP knew the Chinese were angered by its role in frustrating Chinalco's bid, with BHP executive Mr Delaney telling American diplomats his company needed "damage control" with the Chinese Government to contain the fallout from the collapsed Rio Tinto deal.
In a separate cable, US officials quoted West Australian Premier Colin Barnett saying his visit to China which took place in the wake of Rio Tinto's rebuff of Chinalco was "tough" with terms like "treachery" being used in initial meetings with Chinese officials.
US officials concluded that the BHP Billiton joint venture with Rio Tinto "will greatly concern global steel producers who already believed those two companies had too much power to set iron ore prices".
Frequently Asked Questions about this Article…
Did BHP lobby to block the $21 billion Chinalco-Rio Tinto deal?
Leaked US embassy cables and reporting in the article say BHP Billiton lobbied intensively behind the scenes to frustrate the proposed Chinalco investment in Rio Tinto. US officials attributed the collapse of the Chinalco-Rio deal in part to that backroom lobbying, and a Chinese post-mortem singled out BHP for its campaign against the proposal.
What happened to the proposed Chinalco investment in Rio Tinto?
Chinalco’s bid to increase its stake in Rio Tinto to about 18% collapsed on June 5, after which Rio announced a joint venture with BHP Billiton to combine their West Australian iron ore operations. The article says the government delayed its decision while lobbying occurred and that improving commodity prices reduced Rio’s need for Chinalco’s cash.
Which BHP executives were reported to be involved in lobbying over the Rio–Chinalco deal?
The article names BHP chairman Don Argus and BHP’s vice-president for government relations Bernie Delaney as playing leading roles in lobbying, and it notes that CEO Marius Kloppers was said to have been increasingly marginalised in those efforts, according to the leaked cable and other accounts.
How did the collapse of the Chinalco deal affect Rio Tinto’s finances?
According to the article, global commodity prices improved during the delay in decision-making, which allowed Rio Tinto to avoid needing Chinalco’s cash injection to address debt it had incurred fighting off an earlier takeover attempt. In short, a price rebound reduced Rio’s immediate financing pressure.
What are the implications for iron ore prices and global steel producers after the Rio–BHP joint venture?
US officials quoted in the article warned that the BHP–Rio joint venture combining West Australian iron ore operations could heighten concerns among global steel producers, who already believed the two companies had significant power to influence iron ore pricing. The article suggests the joint venture could intensify worries about pricing leverage on the producer side.
Did the Australian government officially block the Chinalco investment?
The article says the Rudd government delayed its decision while the lobbying and diplomatic fallout unfolded. A later Chinese government post-mortem cleared the Australian government and Rio of formally killing the proposal, though it singled out BHP’s behind-the-scenes actions as a contributing factor to the Australian backlash.
What geopolitical or investor risks did the article highlight from the failed Chinalco–Rio deal?
The article flags geopolitical and investor risks such as strained Australia–China relations, Chinese anger reported by diplomats, and concerns about foreign state-owned firms gaining influence over key resources. It also notes warnings that a wave of strategic Chinese mining investments could follow such deals, which is relevant for investors watching political and regulatory risk in resource markets.
As an everyday investor, what should I take away from the BHP–Rio–Chinalco episode?
The article illustrates that corporate lobbying, government decisions and geopolitics can materially affect big resource deals and company strategies—factors that can influence commodity pricing, joint ventures and market power. For investors, it’s a reminder to watch regulatory and geopolitical risk around major resource companies like BHP and Rio Tinto, plus developments in iron ore markets and any consolidation that could affect pricing dynamics.
Call 1300 880 160
Start a chat
Schedule a call
