Shares still climb, despite allegations

MELBOURNE: China's detention of four Rio Tinto Group executives on spying claims has not yet dimmed the optimism of investors for the world's third-largest mining company as they seek to benefit from a global recovery.

Rio was like BHP Billiton "on steroids", said Albert Landman, a fund manager in Melbourne at Stonebridge Group, which owns BHP and Rio shares. "If you are looking for the recovery play and you are bullish about the future", then London-based Rio was the preferred stock, he said.

Rio shares have risen 4.9 per cent since Stern Hu, the head of iron ore operations in China, and three colleagues were detained on July 5, while its credit default swaps, a measure of default risk, have dropped 11 per cent. The company expects further recovery in Chinese steel demand in 2009 after this week reporting record second-quarter iron ore output from Australia.

"We are becoming increasingly positive on the outlook for iron ore with spot prices increasing and global steel production expected to recover somewhat in the second half of 2009," Goldman Sachs JBWere analysts led by Neil Goodwill said in a note after the production report. "This should provide some upside" to Rio's earnings.

Rio shares closed at A$52.48 on the Australian stock exchange yesterday. Melbourne-based BHP, the world's biggest mining company, was at A$35.20.

Stonebridge's Landman said the accusation "has just been put on the back-burner day to day on the markets".

China's economy rebounded from its weakest growth in almost a decade, the Government said this week. The International Monetary Fund said this month the global economic rebound next year would be stronger than it forecast in April as the financial system stabilised.

Rio had its 2009 earnings estimate raised 33 per cent by Royal Bank of Scotland in a report on Thursday, citing increased iron ore profitability.

- BLOOMBERG