RIO fell 3.4% on Wednesday, with weakness gaining momentum in London, on increased talk of a multi-billion dollar capital raise to help settle a $US6.7bn lithium acquisition. RIO’s CEO is currently at the BMO conference in Miami telling investors he is considering the capital raise; he’s potentially looking to gauge appetite from investors, which will give him a guide to how easily the stock could be placed – remember GMG, whose far more in vogue with investors, than the ASX miners, had to recently place stock at a ~7% discount to it’s last trade to raise the desired $4 billion. RIO could end up driving its share price back toward $100. In unison, the “Big Australian” BHP, which would likely be in part used as a funding vehicle, would suffer as a result.
However, it’s strange that a CEO would flag a raise before pulling the trigger. Since they can fund with debt, it might be a way of putting some pressure on bankers to sharpen their pencils.
- We see no compelling reason to buy RIO until we have clarity about funding the lithium purchase.
MM is neutral RIO ~$115
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