Rio Tinto, Chinalco clinch $19.5 bln deal - FT

LONDON, Feb 11 - Debt-laden mining group Rio Tinto Ltd/Plc has agreed to a $19.5 billion cash injection from China's state-owned Chinalco under a deal to be unveiled on Thursday, the Financial Times said on its website. ADVERTISEMENT Such an agreement had been widely expected after Rio's chairman-designate, Jim Leng, quit the mining group two days ago because of objections to a tie-up with the state-run Chinese aluminium maker, which is Rio's top shareholder. Rio, scheduled to releases its annual results on Thursday, issued a statement reiterating that it was in talks with Chinalco. "Rio Tinto notes continued media speculation in connection with a possible transaction with Chinalco and confirms the parties are in negotiations, which may or may not lead to any agreement being reached." Rio, the third-biggest diversified mining group by market value, announced last week it had held talks with Chinalco about selling it convertible notes and stakes in some assets. A deal with Chinalco may help dampen investor concerns over Rio's $39 billion debt load and an $9 billion debt payment due in October. "If the market sees that they are on a road to reduction of debt, that will make a lot of people feel more comfortable," said Martin Angel, dealer at Patersons Securities Ltd in Australia. Rio's London shares climbed 3.5 percent to 1,969 pence -- outperforming a 0.7 percent increase in the UK mining index <.FTNMX1770> -- after jumping 6.2 percent in Australia. Rio said in the statement it had requested a halt in trading of its ADRs in New York , which had gained 5.2 percent, and would ask the Australian bourse to stop trading on Thursday. Rio is to issue its results at 0600 GMT on Thursday. Rio's shares have lost more than a third of their value after bigger rival BHP Billiton scrapped a $66 billion takeover bid last November. BHP's shares have risen 12 percent since then. STRATEGIC PARTNERSHIPS Under the terms of the deal, Chinalco will increase its stake in Rio to 18 percent from 9 percent. It will buy $7.2 billion in convertible bonds that will convert into Rio shares at a later date, the FT reported, without saying how it had obtained the information. Chinalco bought a 9 percent stake in Rio with U.S. aluminium giant Alcoa a year ago, but it would likely need fresh permission from Australian authorities, which have said Chinalco can increase the stake to 14.99 percent. Chinalco will also invest $12.3 billion in three strategic partnerships with Rio across its copper, aluminium and iron ore divisions, the FT said. This will involve Chinalco taking minority stakes in a total of nine mines around the world: Weipa; Yarwun; Boyne & GPS; Escondida; KUC; Grasberg; la Granja and Hamersley Iron. Rio owns 30 percent of Escondida, the world's biggest copper mine, in a joint venture with BHP. The FT did not explain how Rio can sell a stake to Chinalco when BHP has a pre-emptive right to buy the stake. BHP declined to comment. Goldman Sachs/JB Were said in a note on Tuesday that it was difficult to judge such a deal without the details, but selling high-quality assets threatens to erode value for shareholders. In effect, the deal was trading strong assets such as iron ore to pay off debt for an expensive acquisition of Canadian aluminium producer Alcan at the height of the commodities boom, it said. "The potential of high-quality asset sales to reduce debt that was used to overpay for a structurally challenged aluminium business has the potential to be value destroying," it said. The FT also said Chinalco will set up a $1 billion joint venture with Rio, with each contributing $500 million, which will be used to develop projects such as the Simandou iron ore project in Guinea. Under the deal, Chinalco will receive one seat on Rio's board and have the right to appoint another at a later date. (Reporting by Quentin Webb, Ben Hirschler and Eric Onstad in London and Sonali Paul in Melbourne; Editing by Andrew Callus, Andrew Macdonald and John Wallace)