The news has been released before the annual report later...

The news has been released before the annual report later today.


Reuters/AAP, with a staff reporter

Rio Tinto Ltd will sell $US12.3 billion ($A18.7 billion) in assets to Chinalco and raise a further $US7.2 billion ($A10.94 billion) by issuing China's top aluminium maker convertible bonds to cut debt, a source with direct knowledge of the deal told Reuters on Thursday.

The deal, which comes ahead of the release of Rio Tinto's annual results on Thursday, will increase Chinalco's stake in the Australian and London-listed Rio to 18 per cent from nine per cent, the source said on Thursday. The source was not authorised to speak on the record about the deal.

Chinalco's convertible bonds in Rio comes with a 60-year financing term and a seven-year call option, the source said.

Chinalco's investment involves minority stakes in nine mines around the world: Boyne & GPS, Escondida, Grasberg, Hamersley Iron, La Granja, KUC, Weipa and Yarwun.

Reports in the British press overnight also said a deal had been struck. Chinalco is Rio Tinto's biggest shareholder and any increase in its interest would need the approval of Australian regulators.

Federal Treasurer Wayne Swan said earlier, any deal between the pair would have to meet government guidelines and be examined by the Foreign Investment Review Board (FIRB), which considers proposals by foreign interests that want to invest directly in Australia.

"They will be examined in the normal way within the guidelines that we put out at the beginning of last year," Mr Swan told ABC Radio on Thursday morning.

Rio Tinto, which is due to report its annual results at 1700 AEDT, requested a trading halt before the opening of the Australian market, having also halted the trading of its shares in Europe following reports in the British press. The shares traded 5.2 per cent higher before that.

A report in The Financial Times said company had agreed to a $US19.5 billion ($A29.21 billion) cash injection from Chinalco.

Such an agreement had been widely expected after Rio's chairman-designate, Jim Leng, quit the mining group two days ago because of objections to a tie-up with the state-run Chinese aluminium maker, which is Rio's top shareholder.

Rio issued a statement reiterating that it was in talks with Chinalco.

"Rio Tinto notes continued media speculation in connection with a possible transaction with Chinalco and confirms the parties are in negotiations, which may or may not lead to any agreement being reached," the company said.

"Rio Tinto has been in communications with the New York Stock Exchange (the “NYSE”) and they have agreed to halt trading of Rio Tinto plc ADRs on the NYSE.

"Rio Tinto will be requesting a trading halt of Rio Tinto Limited ordinary shares on the Australian Stock Exchange at the opening of trading on 12 February.

"A further announcement will be made shortly."

Rio, the third-biggest diversified mining group by market value, announced last week it had held talks with Chinalco about selling it convertible notes and stakes in some assets.

A deal with Chinalco may help dampen investor concerns over Rio's $US39 billion debt load and an $US9 billion debt payment due in October.

"If the market sees that they are on a road to reduction of debt, that will make a lot of people feel more comfortable," said Martin Angel, dealer at Patersons Securities Ltd in Australia.

Rio's London shares climbed 3.5 per cent to 1,969 pence - outperforming a 0.7 per cent increase in the UK mining index - after jumping 6.2 per cent in Australia.

Rio's shares have lost more than a third of their value after bigger rival BHP Billiton scrapped a $US66 billion takeover bid last November. BHP's shares have risen 12 per cent since then.

Strategic partnerships

Under the terms of the deal, Chinalco will increase its stake in Rio to 18 per cent from nine per cent. It will buy $US7.2 billion in convertible bonds that will convert into Rio shares at a later date, the FT reported, without saying how it had obtained the information.

Chinalco bought a nine per cent stake in Rio with US aluminium giant Alcoa a year ago, but it would likely need fresh permission from Australian authorities, which have said Chinalco can increase the stake to 14.99 per cent.

Chinalco will also invest $US12.3 billion in three strategic partnerships with Rio across its copper, aluminium and iron ore divisions, the FT said.

This will involve Chinalco taking minority stakes in a total of nine mines around the world: Weipa; Yarwun; Boyne & GPS; Escondida; KUC; Grasberg; la Granja and Hamersley Iron.

Rio owns 30 per cent of Escondida, the world's biggest copper mine, in a joint venture with BHP. The FT did not explain how Rio can sell a stake to Chinalco when BHP has a pre-emptive right to buy the stake. BHP declined to comment.

Goldman Sachs/JB Were said in a note on Tuesday that it was difficult to judge such a deal without the details, but selling high-quality assets threatens to erode value for shareholders.

In effect, the deal was trading strong assets such as iron ore to pay off debt for an expensive acquisition of Canadian aluminium producer Alcan at the height of the commodities boom, it said.

"The potential of high-quality asset sales to reduce debt that was used to overpay for a structurally challenged aluminium business has the potential to be value destroying," it said.

The FT also said Chinalco will set up a $US1 billion joint venture with Rio, with each contributing $US500 million, which will be used to develop projects such as the Simandou iron ore project in Guinea.

Under the deal, Chinalco will receive one seat on Rio's board and have the right to appoint another at a later date.