Good news is bad news for Tom Albanese. Since unveiling the proposed tie-up with Chinalco in February, Rio Tinto's chief executive has tried to depict the deal as providing certainty in an uncertain world. Six consecutive weeks of rising markets, however, put him in a difficult spot.
That the Chinalco transaction removes doubts is still true: none of the alternatives delivers as much cash, as quickly, resolving Rio's refinancing problems at a stroke. But the more sentiment improves, the more latitude the company has to explore some combination of a rights issue and asset sales. Rio itself returned to the debt markets last week, raising $3.5bn of five- and ten-year money – more cheaply than a recent issue from rival Anglo American – in an exercise described as “business as usual” capital management.
If markets really are on a more even keel, shareholders should be even less willing to see a deal that was struck – and priced – at a point of near-maximum discomfort. Spot metals prices troughed a week after the announcement; they have since gained almost 40 per cent. Rio's shares are up by a fifth, while CDS prices on Rio debt are down about as much. Having slashed costs and capital expenditure, the company is confronting a seeming recovery in commodities in better shape. As market sap rises, assets long on the chopping-block – such as the Alcan packaging business – could also be offloaded. Rio's $2.5bn of asset sales so far this year, all at reasonable prices, suggest it could cover its repayments this year and next while preserving control over its most prized assets.