BHP Billiton Chief Executive Marius Kloppers has told investors the firm is not adding a cash sweetener to its current all-share takeover proposal for mining rival Rio Tinto, a South African BHP shareholder said on Monday.

The whole idea is that they perceive that it is a script-for-script deal. He is quite insistent that no cash will enter into the picture, Liston Meintjes, chief investment officer at Metropolitan Asset Managers in Cape Town, told Reuters in an interview.

They are definitely not going to put cash into it.

Meintjes said later that the reference to excluding cash related only to BHP's current proposal.

Kloppers was in South Africa last week to discuss BHP's takeover proposal for Rio, worth as much as $140 billion, with shareholders of both companies.

Rio shares in London dipped as much 2.3 percent, but recovered along with other mining shares to trade down 1.3 percent at 5,313 pence by 1122 GMT. BHP shares in London were down 1.7 percent to 1,575 pence.

BHP does not want to offer cash partly because an all-share deal removes the risk that a commodities boom that has led to soaring metals prices may fizzle out, Meintjes said.

It obviously takes out the effect of the cycle, so if the cycle goes against one (firm), it'll go against both, but it's their relative values that count.

Metropolitan holds 7.7 million shares in South African-listed shares of BHP Billiton worth around 1.7 billion rand ($253 million). It holds no Rio Tinto shares.

CONCERNED ABOUT RIO DEBT

Kloopers was slightly concerned about assuming heavy debt that Rio took on to acquire Canadian aluminium producer Alcan for $38.1 billion recently, Meintjes said.

He worried a little bit about the 45 billion (dollars in debt). The question relates back to how do you correctly value the debt that's lurking in Rio and then you are trying to fund a share buy-back into the bargain.

BHP has said that in addition to offering three of its own shares for each Rio share, it planned to hand $30 billion to shareholders via a share buyback if the deal goes through.

Meintjes said he supported a Rio takeover after an impressive presentation by Kloppers.

It is a very clearly, well-organised, well-directed decision. There was no question that Marius was posed that he was not able to answer extremely well, he said.

Quite honestly, from a BHP Billiton side, I certainly think it's a good idea, I don't think we're overpaying.

The share ratio might be slightly more advantageous to BHP shareholders because Rio's valuation was hurt when it took on so much debt to fund the Alcan takeover, he said.

Aluminium in particular has a lower EBIT (earnings before interest and tax) margin than most others, so it may have some attraction, but it's certainly not the best asset from a BHP point of view.

BHP probably left some flexibility to improve its offer slightly, but the Rio share price already reflects a premium based on BHP's proposal, Meintjes said.

There are still pretty cogent reasons to go back and say, 'Before the deal it looked like this, tell you what guys, we'll pull the bid and see what happens to your Rio shares'. They will drop.

Rio shares have surged 23 percent since BHP announced its takeover plans on November 8.

(Reporting by Eric Onstad; Editing by Sue Thomas and Matthew Tostevin)

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