China willing to do Rio deal without Hamersley stake

Chinese state-owned aluminum maker Chinalco may be willing to go ahead with a $19.5 billion tie-up with Rio Tinto even if Australian regulators say it can't take a stake in a major Rio iron ore mine, people familiar with the deal said.

Dropping a proposed 15 percent stake in Rio's massive Hamersley mine would lop more than $5.1 billion from the overall deal, but that may be the price of getting the deal done.

"I don't think they're really worried about it," one source said, referring to Hamersley, adding that iron ore, while attractive to China, is not part of Chinalco's core business. "It's of value, but not strategic for them."

The Hamersley stake was seen as a sweetener for Chinalco back in February, but political momentum in Canberra has swelled against China's recent Australian resources shopping spree.

Hamersley is especially sensitive now that China is pressing for steep price cuts in iron ore contract negotiations. But there is little clarity on regulators' thinking given they approved in March a $438 million Chinese investment in Australian iron ore producer Fortescue Metals Group.

Australia's Foreign Investment Review Board is due to hand its recommendation on the deal to Treasurer Wayne Swan by mid-June. Swan has the final say, and Rio plans to put the deal to a shareholder vote if Swan approves it.

Chinalco executives say they are against any changes to the original debt and asset package, but it has signaled it's willing to go ahead even without Hamersley, sources familiar with the matter said.

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