Rio may cash out amid China aluminium reshuffle

SANYA, China, Dec 4 (Reuters) - Rio Tinto may raise much-needed cash by selling out of a Chinese aluminium joint venture, whose co-owner is consolidating assets to prepare for a takeover by another state-owned company, sources in the two companies said. Rio's joint venture partner, Qingtongxia Aluminium, is set to be taken over by state-owned China Power Investment Corp to form China's second-biggest producer of aluminium after Chalco ，said the sources, who declined to be identified because they are not authorised to speak to the media. "China Power is assessing our assets," said an official at Qingtongxia, who did not want to be named due to the sensitive information. Qingtongxia was in talks with Rio Tinto to buy back all the shares it currently did not own in the joint venture smelter, in order to consolidate its assets before the takeover, according to an official at Qingtongxia and a source at China Power. "Qingtongxia will come in with the new joint venture smelter," the source at China Power said. The joint venture smelter has 150,000 tonnes of aluminium smelting capacity a year, about a quarter of Qingtongxia's total capacity. A Rio Tinto spokesman in London, Nick Cobban, said the company declined to comment for now. Rio Tinto acquired half of a joint venture with Qingtongxia, a smelter controlled by the government of the Ningxia region, when it bought Canadian aluminium firm Alcan for $38 billion last year, a deal that has left it struggling to shake off $40 billion in debt. Rio has pledged to raise $15 billion in asset sales but has raised just $3 billion so far. When BHP Billiton abandoned its hostile bid for Rio last month, punishing Rio's shares, the firm was faced with the challenge of selling assets while the market for its products collapsed amid the global financial slowdown. Under the consolidation plan, the government of Ningxia would transfer its majority stake in return for billions of yuan of investment aimed at boosting the local economy in the remote northern Chinese region. After completion of the takeover, China Power would buy coal mines and build power plants to supply adequate electricity for energy-hungry aluminium production at the smelter, the Qingtongxia official said. China Power and Qingtongxia, which is minority-owned by Chinese firms, were also building a 1.08 million-tonne-a-year aluminium smelter in Ningxia in four equal phases, he said. Construction of the first 270,000 tonnes of capacity were almost finished and might start production in the next few months. The new smelter was 50 percent owned by China Power, 25 percent held by Qingtongxia and 25 percent by Chinese metal trader Maike Group, the official said. China Power controls smelter HMHJ Aluminum and Electricity Co Ltd, which operates 300,000 tonnes of capacity in Inner Mongolia, and is building a 500,000-tonne-per-year aluminium smelter in northwestern Qinghai province. The power firm and Russia's United Co RUSAL have agreed to jointly build a 500,000-tonne-a-year aluminium smelter in Qinghai. The Chinese firm may choose to sell a 49 percent stake in its Qinghai smelter to the Russian firm under the agreement, or the two firms may build another smelter.