Australia welcomes Chinalco deal report

The Chinese government's report said the deal failed because Chinalco did not do enough to engage other Rio shareholders or to fight the public relations war in Australia, the Age said.

Rio kept Chinalco informed about its talks with BHP, and the State Council accepted that as global conditions improved it made more sense for Rio to link up with BHP in an iron ore joint venture than to tie up with Chinalco, a customer, according to the report the Age cited.

"One important reason for blocking the vertical merger is conflict of interest, that is, when the major customer of Rio Tinto enters the board of directors, it will have certain rights to speak on product pricing which may harm the interests of Rio Tinto's other shareholders," it said.

The report concluded that China underestimated the backlash to the deal and the effectiveness of a campaign led by Rio's rival BHP against the Chinese state-owned company owning key resources in Australia.

It also outlined several mistakes China made that led to it losing the public relations war in Australia, including launching two other resources bids at the same time, Chinalco not lobbying enough, and not communicating with Rio Tinto's key shareholders.

It also said Chinalco tried to grab too much in the one deal, seeking a bigger equity stake and joint ventures in assets.

Rio Tinto had no immediate comment on the report and BHP declined to comment on it.

Rio's shares dropped 0.76 pct at A$75.38 at 5:13 a.m. British time.

(Reporting by Sonali Paul in Melbourne and Polly Yam in Hong Kong; Editing by Lucy Hornby and Bill Tarrant)