Australia's competition watchdog cleared Rio Tinto Ltd's
Treasurer Wayne Swan has the final decision, and will base that on the national interest after he receives a recommendation from the Foreign Investment Review Board, which has extended its review of the deal by 90 days to late-June.
Under the deal, designed to help the mining giant cut its $39 billion debt burden, China's top aluminum firm will pay $12.3 billion for stakes in Rio's iron ore, copper and aluminum assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent.
The Australian Competition and Consumer Commission (ACCC) rejected local politicians' argument that Rio
It said the only way Rio could drive down prices sharply would be to increase iron ore supplies. But if it did so, other producers would react by curbing their production to prop up global prices.
The ACCC was ultimately of the view, however, that any change to global iron ore prices caused by unilateral capacity expansion decisions by Rio Tinto would most likely be very minor only and transitory in nature, it said.
It added that any strategy by Rio to continually bring forward expansion projects to keep prices down would be unsustainable over time.
It found that there was little direct overlap in Rio Tinto's and Chinalco's bauxite, alumina and copper operations in Australia, so the tie-up would not harm competition.
Chinalco welcomed the decision, saying it was an important step in achieving full regulatory clearance.
ABN AMRO analyst Warren Edney said there were no competition issues for the ACCC to consider.
Chinalco does not have any iron ore, and aluminum is traded on the London Metal Exchange. In other words that's a free market, he said.
Rio shares traded in Australia closed up 1 percent on Wednesday, beating the broader index's <.AXJO> 0.8 percent gain.
If Swan approves the deal, Rio plans to ask shareholders to vote in an ordinary resolution, requiring just a simple majority -- a move opposed by some large British institutions irked that one shareholder is being favored over others.
(Reporting by Jonathan Standing and Sonali Paul; Editing by James Thornhill & Ian Geoghegan)