Aluminum Corp of China (Chinalco) on Thursday signed a US$1.35 billion agreement with global miner Rio Tinto to develop the Simandou iron ore project in the West African country of Guinea.

Xiong Weiping (right), chairman of Aluminum Corp of China Ltd (Chalco), and Jan Du Plessis, chairman of Rio Tinto Plc, shake hands at a signing ceremony at the Great Hall of the People in Beijing on Thursday. Gilles Sabrie / Rio Via Bloomberg

The move also marks the end of the stalemate between China and the global miner on cooperation after ties soured in June this year.

The agreement was signed by Chinalco Chairman Xiong Weiping and Rio Tinto Chairman Jan du Plessis in the presence of several senior government officials including Zhang Xiaoqiang, the vice-chairman of the National Development and Reform Commission and Huang Danhua, vice-chairwoman of State-owned Assets Supervision and Administration Commission.

Du Plessis said he expects the agreement to bolster Rio's relations with China. "This project will take our relations with China, and Chinalco, our largest shareholder, to a new level," he said.

Rio Tinto will look to expand its relationship with China and also seek more cooperation opportunities, he said.

"The Simandou project is in a mature exploration period, and will have an annual production capacity of 70 million tons in the first stage," Xiong said.

Rio's relations with China hit a rough patch after it walked away from $19.5 billion investment deal with Chinalco in June last year. Ties soured further after four Rio Tinto employees from Shanghai, including an Australian Stern Hu, were detained for bribery and commercial espionage during the annual iron ore price talks.

Chinalco is still the top shareholder in Rio with a 9.3 percent stake. The Chinese company signed a non-binding accord in March this year to pay US$1.35 billion over two years for a 44.65 percent stake in the Guinean iron ore project.

Rio said Simandou has the world's largest untapped iron ore deposits and nearly 2.25 billion tons of iron ore resources. It expects to produce 70 million tons of ore from the project over the next five years.

Analysts said the move would help Chinalco diversify its business beyond aluminum. The company has, of late, been facing stiff competition in the domestic aluminum market from private companies like Shanxi Zhaofeng Aluminum.

Chalco, the listed arm of Chinalco, cut alumina prices by 7 percent in July to 2,650 yuan per ton, the second such cut in the last two months.

Alumina prices were around 4,500 yuan per ton before the global financial crisis. "The gloomy aluminum market has impacted Chalco's financial results in recent years, and hence it will have to look for options to diversify its businesses," said Owen Liang, an analyst with Guotai Junan Securities.

Chalco's domestic aluminum market share fell to 36 percent last year, from 96 percent in 2005. It reported a loss of 4.64 billion yuan in 2009.