THE Chinese government has put a $120 billion (£60 billion) war chest at the disposal of Chinalco, the state-owned aluminium group, as it prepares to battle with BHP Billiton over mining group Rio Tinto.

The money would be made available through CIC (China Investment Corporation), the sovereign wealth fund behind Beijing’s recent investments in the Wall Street firms Blackstone and Morgan Stanley.

Another arm of the government, China Development Bank, is understood to have bankrolled Chinalco’s audacious £7 billion dawn raid on Rio last week, when it bought a 12% stake.

Chinalco has teamed up with Alcoa, the American aluminium group, to buy the holding and is understood to be in talks with other international partners should it decide to try to buy Rio outright.

The move stunned BHP Billiton, the world’s largest mining company, which has been plotting a £70 billion takeover of Rio.

Chinalco took the stake just four working days before BHP must table a formal bid or withdraw for six months.

BHP’s deadline falls on Wednesday, when, by coincidence, the company is also due to publish its interim results.

The Chinese government is unhappy with the proposed amalgamation of BHP and Rio. The combined company will control much of the raw materials, notably iron ore, that Beijing needs to fuel its rapid economic growth and urbanisation.

“That is the real reason behind what happened on Friday. They don’t want to be held to ransom by a single supplier,” said one source close to Chinalco.

BHP, which is led by chairman Don Argus and chief executive Marius Kloppers, was this weekend working furiously with its

Senior sources said the company is likely to defy market speculation and stick to the terms of its indicative offer.

BHP is offering three of its shares for every one in Rio. Last week the Chinese paid – in cash – the equivalent of four BHP shares for every Rio share.

One analyst said: “This [the Chinese stake] does not really change the game as far as BHP is concerned.

“The Chinese and Alcoa will want something out of Rio, and BHP can talk to them about that, but its offer is still about the relative value of the combination and the benefits it brings to the combined group of shareholders.”

BHP’s stance means its offer will technically be hostile, unless it can somehow secure the agreement of the board before Wednesday. Rio directors have already rejected the 3-for1 offer, saying it undervalues their company.

Going hostile is likely to bring significant legal difficulties, as two different takeover laws – UK and Australian, apply.

While the size of CIC’s war chest makes it clear Chinalco has enough firepower to buy Rio outright, the Chinese will be aware that a takeover might face strong opposition in Australia.

The Australian Foreign Investment Review Board has swingeing powers to prevent foreign takeovers if they are deemed not to be in the public interest.

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