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Chinalco may eat up more Rio

Aluminum Corp of China (Chinalco) is in talks with Rio Tinto to buy assets from the debt-laden Anglo-Australian mining giant.

Chinalco, already the largest shareholder in Rio, may buy minority interests in various businesses and also invest in convertible instruments, Rio said in a statement today.

"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," Rio said in response to earlier British press speculation regarding its discussions with Chinalco.

The Sunday Times reported on Sunday a deal could be worth up to 6.1 billion pounds (US$8.9 billion) while the Sunday Telegraph said Chinalco may raise its holdings in Rio's London-traded unit to 18 percent and buy 14 percent of its Sydney-listed shares under the plan.

A Chinalco spokesman in Beijing confirmed they had held talks but declined to provide further details.

Analysts said it's no surprise that Chinalco becomes increasingly interested in Rio, which produces iron ore, aluminum and copper, in the long-term as commodity prices look cheap at the moment.

Rio has been struggling to reduce US$38 billion in debt, mostly associated with the purchase of Canada's Alcan Inc. The plunge in commodity prices, a result of the economic slump, has squeezed Rio's cash flows.

Rio has pledged to pay off about US$10 billion by the end of the year through asset sales, spending reduction and job cuts. So far it has sold about US$4.6 billion of assets since announcing the asset disposal program.

Chinalco, with US aluminum maker Alcoa Inc, acquired a 12 percent in Rio's London-listed unit in February last year for about US$14 billion. That stake amounted to 9 percent of the whole Rio Tinto group.

Chinalco has won approval from the Australian government to increase its stake in the whole Rio group to no more than 14.99 percent. It would have to seek fresh approval if the latest plan took the holding past this level.

Rio would like to have a deal with Chinalco to announce on February 12 when it publishes its full-year results.


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