Rio Tinto and Chinalco sign iron ore JV

The venture in Simandou, Guinea, not binding at this stage, marks a turnaround for the companies after Rio last year scrapped a $19.5 billion tie-up with the state-owned Chinese firm -- a falling-out that also bruised Sino-Australian ties.

The new alliance, rumoured for some time, comes just days before four Rio Tinto employees stand trial in China on charges of commercial spying during price talks with Chinese mills last year. Rio Tinto has said its workers are innocent of the charges.

Rio Tinto, the world's No. 2 iron ore producer, has remained a big supplier of the ore to China and is again locked in discussions to set prices for the next 12 months.

With spot market prices for iron ore surging in the last year, the world's big miners are pushing steel mills to accept one of the highest annual price hikes on record.

Brazil's Vale , the only iron ore producer larger than Rio Tinto, has asked mills to pay 90 percent more for ore this year.

Iron ore suppliers were making unreasonable price demands on China's steel makers, the chairman of Chinese metals trading house Sinosteel, Huang Tianwen, said.

Huang Tianwen also said such demands were unfavourable to the relationship between Chinese steelmakers and suppliers.

However, the trial of the four Rio Tinto staff -- slated to start on Monday in Shanghai -- will not influence the sensitive iron ore price negotiations, Australian Trade Minister Simon Crean said on Friday.

DEAL DETAILS

Under the latest deal between the Anglo-Australian miner Rio and Chinalco, a portion of the iron ore from Simandou would be earmarked for China, though it may take years to complete development.

"We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit," Rio Tinto Chief Executive Tom Albanese said in a statement.

Chinalco has been Rio Tinto's largest shareholder since 2008, holding 9 percent of the stock.

State-run Chinalco's interests are focussed mainly on aluminium, a sector where Rio Tinto holds the world No. 1 spot after acquiring Alcan two years ago, but has made it clear it wants to diversify into other sectors.

Under the deal, Rio Tinto would put its current 95 percent holding in Simandou into the new joint venture. Chinalco would invest $1.35 billion for a 47 percent stake, an effective 44.65 percent interest in the project itself.

Guinea has an option to buy up to 20 percent of the project.

Rio Tinto postponed development of the Simandou project in 2008 as markets plunged, but spot iron ore prices <.IO62-CNI=SI> have since rocketed on a recovery in steelmaking.

The firm says Simandou holds 2.25 billion tonnes of iron ore, making it the world's biggest undeveloped iron ore deposit.

The project, forecast to cost $6 billion, is earmarked to produce 70 million tonnes of ore in its first year.

Chinalco said in a separate statement Rio Tinto would operate the joint venture but they would have an equal number of directors, with ore being sold to China, the world's biggest steel-maker and importer of iron ore.

Major additional capital would be required on top of Chinalco's investment to fully develop Simandou, Rio Tinto said, though it did not give a figure.

(Editing by Himani Sarkar)