On February 12, Australian-based leading mining group Rio Tinto announced the formation of a strategic partnership with Aluminum Corp. of China (Chinalco), based on which Chinalco will invest $19.5 billion in the mining company.
Accordingly, Rio Tinto will enter into a landmark joint venture for exploration in China in partnership with Chinalco. The transaction will forge a pioneering strategic partnership through the creation of joint ventures in aluminum, copper and iron ore, and will involve the issuing of convertible bonds to Chinalco, which would, if converted, allow Chinalco to increase its existing shareholding in Rio Tinto.
Investment by Chinalco in certain aluminium, copper and iron ore joint ventures will total $12.3 billion, while Rio Tinto will issue subordinated convertible bonds to Chinalco for a total of $7.2 billion. If converted, the bonds would increase Chinalco's current stake to nearly18 percent in Rio Tinto Group.
Rio Tinto will benefit from Chinalco's strong relationships within China, which Rio Tinto believes will continue to be the main driver of growth in the commodity markets over the longer term. The transaction is subject to approval by the shareholders of Rio Tinto, governments and other regulators.
Rio Tinto targets payment of about $10 billion of its $38 billion debt by 2010 through cutting some 14,000 jobs worldwide, selling assets and cutting capital spending.
Rio Tinto also reported a 50 percent decline in its 2008 net earnings to $3.7 billion from $7.3 billion a year earlier. Also in 2008, the company recorded an underlying EBITDA of $22.3 billion, up 60 percent and underlying earnings of $10.3 billion, up 38 percent compared with the figures for 2007.