Rio Tinto looks for injection of Chinese cash

Global mining conglomerate Rio Tinto Alcan has confirmed it is in talks with Chinese aluminium giant Chinalco over a $US9 billion investment, although it is refusing to be drawn on exactly where that money would go.

Chinalco, an existing shareholder, is now in preliminary talks with the company, with the possibility of Chinalco acquiring minority interests in various operating businesses of the Rio Tinto group and also investing in convertible instruments.

As part of its cost cutting plans, the world¡¯s third-biggest mining company last month announced the permanent closure of its Beauharnois smelter in Canada, as part of plans to cut its annual aluminium output reductions by 11%, or 450,000 tons.

The Tiwai aluminium smelter near Bluff has been affected by these cuts. But the loss of 100,000 tonnes a year in production capacity because of a transformer failure in early November was taken into account when the company calculated its overall output reductions.

A company spokeswoman told NBR that Rio Tinto is continuing to assess the economic outlook when considering the smelter¡¯s future, although the advantage of Rio Tinto restoring capacity at the smelter is that it reduces the company¡¯s unit production cost.

Last week, Rio announced the sale of a group of mining assets in South America for $US1.6 billion to its Brazilian rival Companhia Vale do Rio Doce.

Rio Tinto is looking to raise cash after its purchase of Alcan in 2007 for about $US38 billion backfired, with a huge drop in aluminium prices since early last year. As a result of the Alcan deal, Rio is now reportedly saddled with $US39 billion in debt, including an $US8.9 billion instalment due in October.

In a statement released to the NSX today, the company stressed that it was still early days in the discussions with Chinalco. ¡°There can be no certainty that a transaction will ultimately take place and any possible transaction would be conditional upon approval by the shareholders of Rio Tinto and all necessary government and regulatory authorities.¡±

The state-owned Chinalco was formally known as Aluminum Corp of China. Last year it acquired an 11% stake in Rio Tinto.

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