Rio and Chinese rubber-stamp West Africa JV

29th Jul 2010 08:57

Australia's Rio Tinto and Chinese state-owned miner Chinalco have formed a "powerful union" after the pair set up an iron ore joint venture in the West African state of Guinea.The binding agreement for the "world-class" Simandou project, signed by Rio chairman Jan du Plessis at a ceremony in the Great Hall of the People in Beijing, follows a memorandum of understanding between the two in March.It covers all aspects of how the venture and project will operate and be governed, including planning, construction and management of the mine and associated rail and port infrastructure."Developing our relationship and business links with China is a key priority for Rio Tinto," du Plessis said. "This agreement takes our relationship with China and our largest shareholder Chinalco to a new level."Relations have been strained in recent years. The Chinese effectively rescued Rio from the clutches of BHP Billiton, but last year's $19.5bn offer to double its stake in the firm was turned down by shareholders.Rio has also sacked four employees, including Australian Stern Hu, after a Chinese court found them guilty of bribery and stealing commercial secrets. A judge jailed them for between seven and 14 years in March.But with the scandal behind them, Rio believes this venture will be "our most successful yet undertaken with a Chinese partner".Chinalco president Xiong Weiping shares the South African's confidence. "The establishment of a joint venture will make use of Chinalco's advantages in the infrastructure field and its profound understanding of the Chinese market as well as Rio Tinto's technologies and experience in the operation of large mining projects, so as to form a complementary and powerful union," he said.Under the terms of the agreement, Rio's 95% interest in Simandou will be held in the new JV in which Chinalco unit, Chalco, will buy a 47% stake by providing $1.35bn on an earn-in basis through sole funding of ongoing development work over the next two to three years.Once Chalco has paid the money, the effective interests of Rio and Chalco will be 50.35% and 44.65% respectively. The Guinean government is apparently interested in exercising its option to buy up to 20% of the project, which would reduce the company's JV stakes.