China Investment Corp, which manages China's foreign exchange reserves, and China steel companies Baosteel Shougang Group and Angang Steel are said to be working on a bid for Rio Tinto (NYSE: RTP), Forbes reported Monday, citing China Business, the state-owned Chinese weekly. Rio denied receiving an approach from Chinese investors, Agency France Presse reported.

Deal talk had sent Rio's shares up about 7% in Australia early Monday. However, in the U.S., there was little follow through: Rio's shares fell $2.20 to $433.85 in mid-day Monday trading.

Earlier this year Rio rejected an offer from BHP Billiton (NYSE: BBL), saying BHP's offer undervalued the company. Two subsequent requests for talks by BHP were also turned down.

Sector/Deal Analysis

It would not be out of the question for China-based investors to make a bid for Rio or for another mining company. With its economy surging, China's government has pursued a twofold strategy to sign favorable commodity and raw material supply deals with foreign suppliers and to simultaneously scout commodity company purchases. Further, given its high iron ore use, China has a particular interest securing in an iron ore deal before a mega-deal occurs -- one that could create a miner with pricing power over China.

The deal speculation most likely will enhance the value of Rio's shares, and probably the value of other large miners, as well, not just iron ore miners. As economic growth in emerging markets continues at a strong pace, healthy demand for commodities and raw materials is likely to continue. That secular trend undoubtedly will increase the value of the handful of miners, such as Rio, BHP Billiton, Freeport McMoRan (NYSE: FCX), with sufficient economies of scale and capital to compete in today's increasingly intercontinental market.