Rio in asset sale talks with Chinalco

By James Regan

SYDNEY (Reuters) - Global miner Rio Tinto Ltd/Plc (RIO.AX) (RIO.L) said it had held talks to sell some assets to Chinese government-owned aluminum maker Chinalco, its biggest shareholder, reportedly to cut debt by up to $8 billion.

The Australian newspaper reported on Monday that Rio was looking at a combination of asset sales, convertible notes and share issues that would generate $15 billion in total and lift Chinalco's Rio stake to more than 11 percent from 9 percent now.

It said Rio was close to clinching asset sales to Chinalco.

In a statement responding to the media speculation, Rio said there was no certainty a transaction with Chinalco would take place. The talks centered on "minority interests in various operating businesses of the Rio Tinto group and also investing in convertible instruments," Rio said.

Though in urgent need of cash, Rio was not conducting a fire sale of its assets, analysts said. Rio has $8.9 billion in debt due in October and another $10 billion due in October 2010.

Rio said on Friday it would sell potash assets for about $850 million and its Corumba iron ore mine in Brazil for $750 million to Vale (VALE5.SA) RIO.N, which ranks ahead of Rio as the world's biggest iron ore miner. Analysts said the prices for the assets were fair.

"Rio has not said specifically what it is going to sell to Chinalco, but you'd think it would involve alumina or aluminum and possibly coal in Australia," said James Wilson, analyst with DJ Carmichael & Co in Perth.

"For $8 billion, it's going to be something serious."

Rio shares rose 4.7 percent in London to 1,577 pence by 1001 GMT, outperforming a 1.4 percent loss in the UK mining index .FTNMX1770. Bigger rival BHP Billiton Ltd/Plc (BHP.AX)(BLT.L) fell 2.5 percent.

Analyst Michael Rawlinson at Liberum Capital in London said a successful deal with Chinalco would be good for the mining sector as a whole.

"There is one less rights issue to fund and there is evidence that the biggest consumer of global commodities is still anxious to pay up for access to key minerals," he said.

Rio is considering several options, including an equity raising, to generate cash, backpedaling after Chief Executive Tom Albanese had previously said there was no need to sell shares to meet debt-cutting targets.

It is likely to decide which option to pursue by the time it reports 2008 results on February 12.

AUSTRALIAN RESTRICTIONS

Any additional interest taken by Chinalco would be limited given restrictions on how much of Rio the Chinese firm could buy under Australian foreign investment rules.