Aluminum Corp. of China, or Chinalco, confirmed Friday that Australian mining firm Rio Tinto has scrapped the proposed 19.5 billion U.S. dollars of investment by Chinalco, and Rio Tinto would pay a break fee of 195 million U.S. dollars to the Chinese aluminum maker.

Chinalco Chairman Xiong Weiping said the company is "very disappointed" at the result, as it has been making constructive efforts in negotiation and has made appropriate revisions to the deal the two sides entered into on Feb. 12 this year.

Xiong said Chinalco maintained that the deal would be a good opportunity to create value for the shareholders of Rio Tinto and would pave the way for long-term strategic cooperation between the two companies.

The reason that drove the global miner to reject Chinalco's investment might be "something other than economic concern," Zhang Yansheng, director of the Institute of Foreign Trade of the National Development and Reform Commission, told Xinhua Friday, citing Chinalco's position as a Chinese state-owned company in the downstream part of the industry.

However, the break-up of the deal might not be that bad, said Lian Ping, chief economist of the Bank of Communications. It saved the Chinalco 19.5 billion U.S. dollars, a price that might be unreasonably high for a stake in Rio Tinto.

The share price of Chinalco at the Shanghai Stock Exchange gained 0.73 percent to close at 12.47 yuan (1.82 U.S. dollars) after the news.

The break-up of the deal gave Chinalco an opportunity to look for other alternatives, said Zhang, referring to iron ore mines in Central Asia countries, such as Mongolia.

"With demand and money in hand, why do we worry about lack of iron ore resources?" Zhang said.

Zhang Lin, analyst with Beijing Lange Steel Information Research Center said domestic steel companies are actively participating in exploration and development of iron ore mines in Australia, Russia, Mongolia, Indonesia, and also many South American countries.

Despite the rejection, Xiong said Chinalco would not change its strategic target of becoming an international mining company with multi-metal products. Chinalco would continue to seek strategic investment opportunities and actively facilitate mutual development in the global mining industry.

In February, Chinalco signed an agreement to invest 19.5 billion U.S. dollars in Rio Tinto to secure resource supplies for China and help cut Rio's heavy debt. The deal would have been the largest single foreign investment by a Chinese company.

Rio Tinto also announced Friday a cooperation with BHP Billiton Ltd. in which the latter paid Rio 5.8 billion U.S. dollars to set up a joint venture to run the iron ore resources of both companies in west Australia.

The cooperation was said to save 10-billion-U.S.-dollars for both companies.

Hu Kai, a Umetal analyst, told Xinhua Friday that they would work together to find other ways to help reduce Rio's debt, and cooperation between the two miners would be what the Australian government wanted to see.

He added that the Rio-BHP new alliance on iron ore business would likely give them a bigger say in iron ore-price negotiation, which in turn might make the situation worse for Chinese steel mills than it already is now.

On May 31, China Iron and Steel Association rejected the iron ore price cut between 33 percent and 44 percent reached between Rio Tinto and Japan's Nippon Steel Corp, and insisted on a price cut of more than 40 percent in the annual contracts of iron ore

(Xinhua News Agency June 5, 2009)