Rio Tinto currently owns 95% of Simandou with the rest held by the International Finance Corporation, the financing arm of the World Bank.

Under a memorandum of understanding signed with Chinalco, Rio Tinto's interest will be held in a new joint venture.

Chinalco will acquire a 47% stake in the JV by providing $1.35bn to fund development work over the next two to three years.

Rio Tinto's Simfer subsidiary will continue to manage development of the project, which will require significant additional development expenditure on top of Chincalco's funding before it becomes fully operational.

Tom Albanese, chief executive of Rio Tinto, said the group had long believed it could work with Chinalco on major projects.

'We believe the Simandou project is a large scale, long life asset and is the single best undeveloped source of high grade iron ore.'

The Guinea government holds an option to buy up to 20% of the project.

Story provided by Business Financial Newswire