Rio, Chinalco back in bed with $12b deal

The Anglo-Australian miner and the Chinese industrial giant are in advanced talks that should lead to jointly developing the Simandou iron ore field in Guinea, Africa, at an expected cost of $US12 billion.

The Simandou joint venture negotiations have been taking place in Beijing. Rio Tinto chief executive Tom Albanese is due at the China Development Forum this weekend.

If the Chinese and Guinean governments approve the deal, it is likely Chinalco will pay for its Simandou interest by financing the next stage of pre-development, and Rio will remain the senior partner.

Simandou has exceptionally high quality iron ore and some say it has the potential to become the world's third great mining province, after the Pilbara and Carajas in Brazil.

But it has been beset by political uncertainty, not helped by the death in December 2008 of Guinea's president, Lansana Conte, and the shooting of his successor, Captain Moussa Dadis Camara, a year later. The northern half of Rio Tinto's Simandou iron ore tenement has been claimed by an Israeli diamond magnate, Benny Steinmetz.

Mr Albanese has made repairing his company's relationship with China a top priority. Chinalco's president, Xiong Weiping, has refrained from publicly criticising Rio.

The Herald understands the companies have confined talks to where they perceive clear "synergies" such as utilising China's geopolitical clout, financing capabilities and infrastructure development prowess in Africa.

Chinalco's strategy of keeping the door open to Rio appears to have the blessing of Chinese policymakers and advisers.

"The failure of the merger didn't mean no other co-operation opportunities existed or the breaking of mutual relations, either," said a report commissioned by the State Council and prepared by its Development Research Centre, seen by the Herald.

"After Rio Tinto cancelled the merger agreement with Chinalco, its management was still willing to continue co-operation with Chinalco," it said. "Rio Tinto has its big technological advantages in the breaking of mutual relations, either," said a report commissioned by the State Council and prepared by its Development Research Centre, seen by the Herald.

"After Rio Tinto cancelled the merger agreement with Chinalco, its management was still willing to continue co-operation with Chinalco," it said. "Rio Tinto has its big technological advantages in international mining exploration and ... there are still co-operation opportunities for equity rights in parts of assets, so contact and co-operation should be continued."

Negotiations are centred on Simandou but Chinalco and Rio have also discussed iron ore exploration in China as well as bauxite and alumina refining in Queensland.

Rio's interest in Oyu Tolgoi, Mongolia - which it says is the world's biggest undeveloped copper and gold mine - also has been discussed.

Relations between the two companies crashed in June, along with what would have been China's biggest outside investment deal.