Rio Tinto strengthens ties with Chinese SOEs

Rio Tinto on Friday signed joint venture agreements with two Chinese state-owned enterprises （SOEs） to jointly develop mining properties.

In Beijing, Rio Tinto and the Aluminum Corporation of China （Chinalco） signed a non-binding memorandum of understanding （MOU） to create a joint venture in China. Chinalco is the world’s second-largest alumina producer and the parent of Hong Kong- and New York Stock Exchange-listed Aluminum Corp of China, or Chalco.

Chinalco will own 51% of the JV and Rio Tinto the remaining 49%. The JV is expected to become operational in the first half of next year and will explore mainland China for mineral deposits. The partners will initially select between three and five exploration projects to focus on, but may later add further projects.

"This exploration JV is the latest chapter in the rich history of partnerships between Rio Tinto and China,” said Rio Tinto chief executive officer Tom Albanese.

Chinalco is not only one of Rio Tinto’s largest customers, but also one of its largest shareholders following the acquisition of a 9% stake in February 2008. However, Chinalco’s subsequent plans to increase its stake in Rio Tinto were scuttled by objections from Rio Tinto’s shareholders, which caused some strain on the relationship between the two companies.

Rio Tinto will appoint the CEO of the JV, while Chinalco will nominate the chairman of the five-member board, the companies said in a statement.

Separately, Rio Tinto and Sinosteel Corp extended their Channar mining JV in the Pilbara region of Western Australia, leading the way for a further 50 million tonnes of iron ore to be produced. This agreement was also signed in Beijing. The original Channar agreements for the production of 200 million tonnes were signed in 1987.

The Channar JV, in which Rio Tinto owns 60% and Sinosteel 40%, is the owner of the Channar mine, which is operated by Rio Tinto. The two companies also agreed to cooperate and potentially jointly develop iron ore opportunities within or immediately surrounding the Channar mine.

Rio Tinto's CEO for iron ore and Australia, Sam Walsh, described the signing of the Channar agreement as “the latest milestone in Rio Tinto's long history of close ties with China, now its largest single market”。 Sinosteel is well known in Australia as the first Chinese company to launch a hostile takeover. Sinosteel's successful bid for Midwest, an Australian mining and exploration firm, put it squarely on the map in the country.

Rio Tinto is strengthening its ties with China soon after its proposed iron ore production JV with BHP Billiton had to be abandoned in October because the companies could not allay monopoly concerns in various jurisdictions, including Europe, Australia and Japan.