Currently, the price of iron ore produced in Brazil is $72.11 per ton, three times that five years ago. The merger between large iron ore producers will squeeze profits out of steel makers, transfer them to iron ore producers and severely damage the development of the iron and steel industry, according to some.

Against the backdrop of a possible monopoly in the global mining industry, the average price of imported iron ore in China increased by 9.5 percent in 2007, 19 percent in 2006 and 71.5 percent in 2005. The price hikes were partly attributed to China's shortage of iron ore resources.

Chinalco's acquisition of Rio's shares is expected to give China an advantage in negotiations over iron ore pricing.

New overseas strategy

BHP Billiton raised its offer from 3 to 3.4 of its shares for every Rio share on February 6, but was rejected a second time by the board of Rio.

"BHP Billiton's offers, while improved, still fail to recognize the underlying value of Rio Tinto's quality assets and prospects," said Chairman of Rio, Paul Skinner.

The purchase price of 12 percent of Rio's London-listed stock by Chinalco and Alcoa on February 1, however, equates to the price of 4 BHP's share for every Rio's share, with reference to the price of Rio's stock that day, much higher than BHP's formal offer.

Apparently, it's not price that weighs when Chinalco planed its overseas investments. The company was active with its overseas investments in Australia, Peru and Viet Nam last year.

"These overseas investments have helped to diversify the company's business, turn Chinalco into an international company, and transfer our operations to regions rich in resources and energy," said Lu.

Chinese enterprises have drawn lessons from many unsuccessful overseas acquisitions, particularly since 2005 when China's largest offshore oil and gas producer CNOOC Ltd. failed to acquired Unocal Corp. Chinalco this time took a much more sophisticated and low-key approach-the company gave up an obsession with a controlling stake in the target company to avoid being involved in daily operations and political concerns.

"Chinalco will not seek a board position or interfere with Rio's operations," said Chinalco President Xiao Yaqing. "It's the consensus of Chinalco and Alcoa that Rio is well managed. "

Besides, Chinese enterprises are increasingly willing to hire international financial and public relations consultants to tackle the international capital market. Chinalco's partner Alcoa is the world's largest producer of primary aluminum, fabricated aluminum and alumina facilities, and has established operations in 41 countries and regions, with its business revenue reaching $30.4 billion in 2006. Chinalco teamed up with Alcoa again, this time to make the move "a purely commercial decision" by the two companies and ease worries that this move might have been a political one.

This move has increased the difficulties for BHP to sweeten its bid. Xiao said the group's investment in Rio Tinto was "strategic" and it had no intention to raise the stake in Rio Tinto, though they reserved the right to participate in a takeover offer within the next six months.

"Chinalco's purchase of Rio's stock indicates the increasing possibility of BHP taking over Rio," said Hu Kai, analyst with Umetal. "Chinalco will benefit from Rio's rising stock price if the deal is successful; otherwise, Chinalco will definitely suffer if Rio's stock price dives, since the company bought Rio's stock at a high price."