Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Chinese Spying Allegations Don't Add Up

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

At this point we can only wonder how absurd the Chinese allegations against Rio Tinto (NYSE: RTP  ) , the big Anglo-Australian miner, ultimately will become.

Thus far, it's hard to even get the math to work. Here's why: China's state secrets agency has accused Rio of spying on Chinese steel mills during the past six years. According to the agency, the results include the mills paying an extra $102 billion for iron ore. The difficulty there is that it's more than double the nearly $43 billion total amount the Chinese have paid the company during that period.

As you probably know, the accusations have been accompanied by the Chinese having snatched four of Rio Tinto's employees, including Stern Hu, who has charge of Rio Tinto's iron ore operations in China. None have been formally charged. Also, reports indicate that the Chinese are questioning at least five of their domestic steel mills.

All this follows an iron ore pricing squabble between Rio, BHP Billiton (NYSE: BHP  ) , and Brazil's Vale (NYSE: VALE  ) on the one hand, and the major Chinese steelmakers on the other. The miners had been seeking cuts from last year's price closer to 33%, a steeper decline than even ArcelorMittal (NYSE: MT  ) , the world's largest steel manufacturer, accepted for ore. But the Chinese producers are holding out for at least a 40% reduction.

Beyond that, when Rio Tinto was searching for funds to repay a portion of the loan it had borrowed when it acquired Canada's Alcan, the Chinese were willing to make a $19.5 billion investment in the company through their Aluminum Corp. of China (NYSE: ACH  ) . In the end, however, Rio raised what it needed through a rights offering and an agreement to form an iron ore joint venture with BHP. That outcome clearly piqued the Chinese as well.

So the Chinese are demonstrating a willingness to play hardball. One question is what this means longer-term for the likes of Rio, BHP, and even copper producer Freeport-McMoRan (NYSE: FCX  ) , of which the Chinese are major customers.

That's a question that could take a while to answer. My more immediate response is that, today’s slide notwithstanding, Rio's shares have more than doubled since late last year. And since its skirmish with the Chinese is bound to work itself out, I'm betting that there's good money to be made from the company over time.

For related Foolishness on China:

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does, however, welcome your questions or comments. The Fool has a steel-toed disclosure policy.

Read/Post Comments (1) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 11, 2009, at 1:23 PM, gutone wrote:

    No disclosure? Sounds like Mr. Smith is a bag holder or either RTP or something related.

    Where does not it add up? Stern Hu owns several villas each of which valued at least $10 million. There's just no way he couldn't have earned that much money legally (that is, by ANY LAW). RTP played Chinolco and now gotta burnt. Very fair.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 961067, ~/Articles/ArticleHandler.aspx, 5/3/2016 10:35:48 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

David Smith

A longtime securities analyst and multiple-term member of The Wall Street Journal's All-Star Research team, Dave specializes in energy and natural resources.

Today's Market

updated Moments ago Sponsored by:
DOW 17,712.86 -178.30 -1.00%
S&P 500 2,060.26 -21.17 -1.02%
NASD 4,762.36 -55.23 -1.15%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
RTP.DL $0.00 Down +0.00 +0.00%
Rio Tinto plc (ADR… CAPS Rating: ****
ACH $8.22 Down -0.20 -2.38%
Aluminum Corp. of… CAPS Rating: **
BHP $29.39 Down -1.78 -5.71%
BHP Billiton Limit… CAPS Rating: ***
FCX $12.56 Down -0.99 -7.31%
Freeport-McMoRan C… CAPS Rating: ***
MT $5.30 Down -0.44 -7.59%
ArcelorMittal CAPS Rating: ***