Pilbara iron ore's part of Rio deal: Chinalco

CHINESE aluminium giant Chinalco has denied reports it is prepared to cut crown deal Pilbara iron ore assets from its $US19.5 billion ($25.8 billion) Rio Tinto rescue package. Chinalco is understood to be increasingly prepared to bend on the structure of a $US7.2 billion convertible bond issue that would boost its stake in Rio from 9 per cent to 18 per cent. However, the state-owned company bristled at a wire report that said a 15 per cent stake in Rio's Hamersley iron ore unit was not of strategic value. "The transaction was negotiated with Rio Tinto as a package and any assertion that we would be happy with the removal of any aspect of that package is incorrect," a Chinalco spokesman said yesterday. Yesterday, Reuters reported people familiar with the deal -- usually code for advisers -- as saying Chinalco would not be "really worried" if the $US5.1 billion sale of Hamersley needed to be cut from the equation to get government or shareholder approval. The report came amid mounting speculation that Rio had been talking to BHP about a competing deal for the West Australian iron ore assets. Rio's deal with Chinalco forbids it from actively searching out competitive bidders but does not preclude it from talking to those who approach it. In a deal that still needs to be approved by Treasurer Wayne Swan and shareholders, Rio has agreed to sell the bonds and $US12.3 billion of stakes in prime iron ore, aluminium and copper assets. The $US19.5 billion deal was struck to solve Rio's debt hangover from the $US38 billion acquisition of Alcan in 2007, which has left the miner with $US40 billion of debt. The package was negotiated amid frozen debt and equity markets but a recent thawing, and a more than doubling of Rio's share price, has led to calls to at least change the terms of the bond issue. Rio shares extended their rally yesterday, ending 56c higher at $79.60 and finishing the week at a 20 per cent premium to the $US45 strike price of the first tranche of the bond issue.