UPDATE 2-Rio inks Chinese tie-ups to strengthen ties

* Rio to set up JV to explore mineral resources in China

* Pact is Rio’s second with largest shareholder Chinalco

* Extends Channar iron ore JV in W.Australia with Sinosteel

(Adds analyst comment, background)

By Jim Bai and Fayen Wong

BEIJING, Dec 3 (BestGrowthStock) – Rio Tinto (RIO.AX: )(RIO.L: ) agreed
pacts with two Chinese companies to step up mining activity in
China and Australia, as the Anglo-Australian group presses on
with a charm offensive to reach out to its largest customer.

Rio signed a deal with its largest shareholder Chinalco to
set up a joint venture to explore mineral resources in China,
and separately agreed with state-owned Sinosteel [SINOS.UL] to
extend their Channar iron ore venture in western Australia to
produce a further 50 million tonnes of ore. [ID:nSDY3NE6KO]

The deals announced on Friday underscore efforts Rio is
taking to mend ties with China and Chinalco, which reached a low
after its shareholders rejected a $19.5 billion investment by
the Chinese firm last year.

Tensions also rocketed after the arrest of four of Rio’s
staff in China for alleged commercial spying.

“It looks as if after a period of time, good relations have
been restored,” said analyst Tom Gidley-Kitchin at brokerage
Charles Stanley in London.

Pacts with Rio will give China an avenue to access the huge
amount of metals needed for its ambitious infrastructure
programme, hopefully without frightening Western nations worried
about Chinese takeovers, Gidley-Kitchin added.

Recently, during BHP Billiton’s (BLT.L: ) (BHP.AX: ) failed
hostile bid for Potash Corp (POT.TO: ), Canadian officials made
clear China would not be welcome if it made a competing bid.

“The Chinese obviously were watching the Potash deal pretty
closely. They may have drawn the lesson that being a minority
partner with Rio is quite a good low-profile way of achieving
some of their objectives,” Gidley-Kitchin added.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ For Breakingviews on Rio-China deal [ID:nLDE6B20I9] ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>


For Chinalco, China’s biggest producer of alumina, the joint
venture is its first expansion into other mining sectors, after
receiving government approvals in July to expand into the
lucrative iron ore sector.

For Rio, which has spent years exploring in China with
little success, the deal is a strategic move to ride on
Chinalco’s deep knowledge of the country’s geology.

“The combination of skills provided by Rio Tinto and
Chinalco offers great potential to unlock value for mutual
benefit,” Rio Chief Executive Tom Albanese said in a statement.

The cooperation marks the second deal between the two miners
after they agreed in March to jointly develop the Simandou iron
ore mine in Guinea.

Chinalco unit Chalco (2600.HK: ) finalised the Simandou deal
in June, agreeing to invest $1.35 billion in the project, billed
by Rio as the world’s largest undeveloped iron ore deposit.

Liberum Capital said the exploration venture may uncover
more information about the extent of China’s mineral wealth.

“Given the lack of insight into potential Chinese deposits,
this could be very interesting and it highlights the strength of
relationship given the JV at Simandou and potentially at
Ivanhoe,” Liberum said in a note.

In July, Rio said Chinalco was considering buying a stake in
the Oyu Tolgoi copper-gold deposit in Mongolia being developed
by Rio and Ivanhoe Mines (IVN.TO: ). [ID:nLDE665187]

Rio plans to nearly triple capital spending to $11 billion
next year as it expands lucrative iron ore mines in Australia,
highlighting the miner’s bullish outlook on China’s metals
demand and commodity prices. [ID:nLDE6AP1MZ]

Rio’s iron ore sales to China will hit 140 million tonnes
this year, accounting for roughly two-thirds of its total
production, the firm’s iron ore chief Sam Walsh told a press
conference in Beijing.

Under the agreement with Chinalco, the Chinese firm will
take a 51 percent stake, while Rio will hold the rest of the
venture that will start operations in the first half of 2011.

The initial assets of the joint venture will include three
to five exploration projects in China.
(Additional reporting by Eric Onstad in London; Editing by
Jacqueline Wong and David Holmes)

UPDATE 2-Rio inks Chinese tie-ups to strengthen ties