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Chinalco set for record investment deal

ALUMINUM Corp of China (Chinalco), China's top aluminum maker, agreed today to invest a further US$19.5 billion in debt-ridden global miner Rio Tinto, in the nation's largest overseas acquisition.

Chinalco will acquire stakes in some of Rio's aluminum, copper and iron ore projects for US$12.3 billion and will also buy US$7.2 billion of bonds convertible into shares, the companies announced today.

As metals prices tumble, the deal will help state-run Chinalco secure a more natural resources supply for China in the long run at a relatively low price, while also providing a lifeline for Rio which is struggling to lower its US$38.9 billion of debt by US$10 billion this year.

Chinalco is already Rio's biggest shareholder after, together with Alcoa Inc, acquiring a 12 percent stake in Rio's London-listed stock, or 9 percent in the whole Rio group, last February for US$14.1 billion.

If converted, the bonds would increase Chinalco's current shareholding to 19 percent in London-listed Rio Tinto Plc and 14.9 percent in Sydney-listed Rio Tinto Ltd, equivalent to 18 percent in the Rio group.

Chinalco will be entitled to nominate two non-executive board members to add to Rio's 15 current members.

"This transaction follows our acquisition of a significant stake in Rio Tinto in February 2008 which laid a solid foundation for our broader strategic partnership," Chinalco President Xiao Yaqing said. "Our objectives are to seek commodity and geographic diversification, with a view to achieving long term financial returns from our investments."

Rio expects to benefit from Chinalco's relationships within China, which the Anglo-Australian miner believes will continue to be the main driver of growth in commodity markets over the longer term. Rio will enter into a joint venture for exploration in China, in partnership with Chinalco, it said.

"Chinalco's cash investment of US$19.5 billion will strengthen Rio Tinto's balance sheet, increase our flexibility to deliver growth as markets recover and position Rio Tinto for the next decade and beyond," Paul Skinner, Rio's chairman, said.

He said the deal will deliver superior value for its shareholders and recommended they vote in favor of the transaction which needs approval by governments and other regulators.

Shortly before yesterday's announcement, Australian treasurer Wayne Swan said the government would tighten its foreign ownership law by treating convertible notes as equity, while larger miner BHP Billiton, Rio's former suitor, may also counter-bid for some of the assets Chinalco is set to acquire.


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