Rio Ore Price May Rise More Than 95%, Macquarie Says (Update1)

June 23, 2008

June 23rd (Bloomberg) – Rio Tinto Group, the world’s third- largest mining company, may secure a record increase of more than 95 percent price for iron ore shipped to Asian steel mills, according to Macquarie Group Ltd.

London-based Rio is committed to securing more than the 71 percent agreed by Brazil’s Cia. Vale do Rio Doce in February, and greater than “the 85 percent and 95 percent estimates that have figured prominently in recent speculation,” Macquarie analysts led by Jim Lennon said in a report today.

Mills in China, the largest iron-ore buyers, have failed to arrest a tripling of prices in five years. Rio is seeking to double output from its Western Australian mines to 320 million metric tons within five years to take advantage of these prices.

“Investors should be prepared for an extended and potentially hostile conclusion to the negotiations,” Lennon wrote in the report. Talks may continue past the end of June, he said.

Rio fell by as much as A$2.33, or 1.7 percent, to A$136.27, and was A$137.00 at 10:13 a.m. Sydney time on the Australian stock exchange. It has gained 2.3 percent this year outpacing the benchmark index, which as declined 17.6 percent.

Rio and rival BHP Billiton Ltd. want to charge a so-called freight premium on iron-ore sales to Asian mills because companies such as China’s Baosteel Group Corp. pay less to ship the material from the companies’ Australian mines than from Vale’s operations in Brazil.

Rio spokeswoman Amanda Buckley was not available for comment at her office.

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