Xiao Yaqing (L), general manager of Aluminum Corp. of China (Chinalco), shakes hands with Rio Tinto Group chairman Paul Skinner at the signing ceremony in London, Britain, Feb. 12, 2009. Chinalco announced Thursday it would invest US$19.5 billion in mining giant Rio Tinto Group, bailing out the latter while securing for the state-owned Chinese company access to more resources. [Xinhua]

Aluminum Corp. of China, or Chinalco, announced Thursday it would invest US$19.5 billion in mining giant Rio Tinto Group, bailing out the latter while securing for the state-owned Chinese company access to more resources.

Chinalco will buy US$7.2 billion worth of 9-percent convertible bonds from Rio. If converted into shares, those bonds would nearly double Chinalco's stake in Rio from 9.3 percent to 18 percent, under agreements signed Thursday between the two firms.

As part of the agreements, Chinalco will be able to nominate two non-executive directors to Rio Tinto.

Chinalco, China's largest aluminum producer, will invest the remaining US$12.3 billion in Rio's iron ore, copper and aluminum assets in Weipa, Yarwun, Boyne & Gladstone Power, Escondida, KUC, Grasberg, la Granja and Hamersley Iron.

The two firms would also create three joint ventures to sell aluminum, copper and iron ore.

The agreements still require approval by many parties, including the shareholders of Rio and governments and regulators.

In January 2008, Chinalco and US-based aluminum producer Alcoa jointly bought a 12-percent stake in London-listed Rio Tinto PLC for US$14 billion. The deal translates into a 9.3-percent stake in the parent company Rio Tinto by Chinalco, which made it the top shareholder of Rio.

The debt-laden Rio Tinto will have to cut US$10 billion in debt by the end of 2009 by reducing spending, cutting about 14,000 jobs worldwide and increasing asset sales.

"Chinalco's cash investment of US$19.5 billion will strengthen Rio Tinto's balance sheet, increase our flexibility to deliver growth as markets recover and position Rio Tinto for the next decade and beyond," said Rio Tinto chairman Paul Skinner in the company statement.

The latest financial statement, released Thursday, showed that the world's third-biggest diversified mining group by market value had reduced its net debt by US$6.5 billion to US$38.7 billion at the end of 2008.

Analysts in China said Chinalco focused on the purchase of core assets from Rio, and they said the deal would raise Chinalco's standing in the global mining sector.

"The deal, if completed, might give Chinalco some say in the global commodities market," said Zou Jian, director of the Metallurgical Mines' Association of China.

He said the deal could be the biggest overseas investment by a Chinese company.

Peng Bo, a Ping An Securities analyst, said the strategic partnership between parent companies would have a limited impact on the listed subsidiaries, but share prices would still react to the news.

Chinalco's listed subsidiary, the Aluminum Corp. of China, rose 5.64 percent to 10.49 yuan (US$1.53) in the Shanghai Stock Exchange.

(Xinhua News Agency February 12, 2009)