UPDATE: Chalco, Rio Tinto Seal Pact On Guinea Simandou Mine

29th Jul 2010 11:45

(Adds comments from Rio Tinto iron ore chief executive, background on Guinea government involvement) By Chuin-Wei Yap Of DOW JONES NEWSWIRES BEIJING (Dow Jones)--Chinese major Aluminum Corp. of China Ltd. (ACH), also called Chalco, and Anglo-Australian miner Rio Tinto PLC (RTP) set out the formal details of a joint venture Thursday, sealing a pact in which the Guinea government is now poised to own a fifth of the venture. The imminent inclusion of the Guinea government, which had been offered an option to own up to 20% in the companies' West African Simandou iron ore project, ushers a new partner in a deal otherwise already largely spelled out in March. "The (Guinean) government has recently expressed a willingness to exercise that option," Rio Tinto's chairman, Jan du Plessis, said at a signing ceremony in Beijing. Though the companies avoided any mention of obstacles in the run-up to Thursday's announcement, Guinea government officials had earlier raised questions about Rio Tinto's rights to parts of the project. The Guinea government awarded rights to two blocks of Simandou to a group controlled by Beny Steinmetz, a billionaire Israeli diamond trader, who in April sold those rights to Rio Tinto's rival, Brazilian miner Vale S.A. (VALE), for $2.5 billion. But with senior Guinea officials, including the ambassador to China, Mamady Diare, on hand at Thursday's ceremony, the spat appeared to have been resolved. "The joint venture suits Guinean government requirements and China's bilateral needs," Chinalco President Xiong Weiping said Thursday. Xiong also said Chalco would officially spearhead the Simandou project on China's behalf, partnering on the Chinese side with China Railway Construction Corp. and China Communications Construction Corp. "We want to maximize shareholder value in Chalco," said Xiong, who is also the listed unit's general manager. Pending the announcement, trading in Chalco shares was halted on the Shanghai and Hong Kong stock exchanges Wednesday. The company said trading will likely resume Friday. Chalco's yuan-denominated A-shares gained nearly 14% in the past seven sessions before trading was suspended. Chalco, which will invest $1.35 billion in the project over two-three years, will own a 47% interest in the new joint venture. Once the $1.35 billion is paid, Chalco's effective interests will be 44.65% and Rio Tinto's will be 50.35%, the companies' leaders said at the ceremony. The remaining 5% will be held by International Finance Corp. It wasn't clear Thursday where Guinea's share would come from. The mine, expected to be operational in five years, will have the capacity to produce 70 million metric tons of iron ore annually, du Plessis said. The move comes after China's State-owned Assets Supervision and Administration Commission of the State Council last week approved a change in Chinalco's statement of core businesses. The company has officially added iron ore to its brief, as part of a wider core business that named mined resources, nonferrous metals and mineral resources excluding petroleum and natural gas. Sasac's previous statement, in 2007, showed Chinalco's core businesses were aluminum, copper and rare earths. Du Plessis said it was a priority for his company to repair strained relations with Chinalco, China's biggest aluminum maker by volume and the biggest shareholder in Rio Tinto. Relations between the two deteriorated after Rio Tinto rejected a takeover bid by Chinalco, opting instead to team up with BHP Billiton Ltd. (BHP) to form a separate iron ore joint venture in the Pilbara region of Australia. The arrest and conviction of four Rio Tinto employees in China on commercial espionage charges also affected relations between the two countries. The Pilbara joint venture is still undergoing regulatory review in a variety of jurisdictions, including the European Union and China, Sam Walsh, Rio Tinto's chief executive for iron ore, said on the sidelines of Thursday's ceremony. He said he expected the Simandou deal would help the Pilbara deal by bringing more iron ore into the market. He didn't elaborate. But one of the reservations against the BHP-Rio Pilbara venture, particularly among Chinese steelmakers, has been the potential concentration of iron ore supplies in the hands of a small group of global miners. -By Chuin-Wei Yap, Dow Jones Newswires; 8610 6588 5848; [email protected] (END) Dow Jones Newswires July 29, 2010 06:45 ET (10:45 GMT)