Rio Tinto Is Talking with Chinalco, but No Deal Yet

Rio Tinto has held talks with state-owned Chinese aluminum company Chinalco on the latter acquiring minority interests in various Rio businesses, the global miner said on Monday.

In a statement responding to press speculation, Rio said there was no certainty a transaction would take place.

"Rio Tinto confirms that it has held discussions with Chinalco regarding Chinalco acquiring minority interests in various operating businesses of the Rio Tinto group and also investing in convertible instruments," it said.

The Australian newspaper reported on Monday that Rio was thought to be close to selling up to $8 billion in asset stakes to Chinalco.

The paper also said Rio was looking at a combination of asset sales, convertible notes and share issues that would generate $15 billion and lift Chinalco's stake in Rio to greater than 11
percent from its current 9 percent.

Rio Tinto shares bucked a downtrend in the wider market, jumping more than 7%, while close peer BHP Billiton fell 2.3 percent.

Analysts said that despite Rio's desperate need for cash, the miner was not conducting a fire sale of its assets. Rio has $8.9 billion in debt due in October and another $10 billion due in October 2010. Analysts were also not surprised by Chinalco's growing interest in Rio, as Chinese firms were expected to start moving on foreign mining companies, which look cheap at present given the downturn in commodities markets.

Rio Tinto is weighing up options including an equity raising, to reduce $38 billion in debt incurred largely when it bought Canadian aluminum maker Alcan.

It hopes to pay off about $10 billion by the end of the year by reducing capital spending, eliminating 14,000 jobs and selling businesses.

So far it has sold or is the process of selling around $4.7 billion of assets.

Still on the block is its U.S. coal business and Alcan's packaging business, though analysts expect other assets to go as well, particularly outside its core base metals and iron ore divisions.

Chinalco, with Alcoa bought its 9 percent interest in the London and Australia-listed Rio Tinto last year, paying about $14 billion to become its largest shareholder.

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