Rio and Chinalco eye joint venture

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Rio Tinto and Chinalco have resurrected plans to develop jointly a rich iron ore deposit in Guinea in the first of several moves aimed at repairing the Anglo-Australian miner's strained relationship with Beijing.

Both parties are in late stage talks to develop Simandou, one of the world's highest-quality undeveloped iron ore concessions, according to a person close to the situation.

Rio in 2008 estimated project development would cost $6bn but analysts now believe it could be closer to $12bn.

Chinese steelmakers became Rio's most important customer by far last year. But Rio's relations with China froze from last June when the miner spurned a $19.5bn capital injection from Chinalco, a state-owned aluminium producer that remains Rio's largest shareholder.

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The deal would have restored Rio's balance sheet in return for Chinalco taking board seats and stakes in top-tier Australian assets. Instead Rio dropped the deal and launched a $15.2bn rights issue and a joint venture with BHP Billiton.

The joint development of Simandou was a feature of a broader “strategic partnership” that would have accompanied the original Rio-Chinalco deal.

Australia's relations with Beijing were further damaged in July when Stern Hu, Rio's executive iron ore salesman in China, and three associates were detained. The four executives were recently formally indicted on charges of taking bribes and their case will now proceed to trial.

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Discussions over Simandou come on the eve of a trip to Beijing by Tom Albanese, Rio's chief executive, who is on Monday due to address the China Development Forum.

Mr Albanese has maintained over the past few months that Rio's and China's interests are aligned over the long term: China needs iron ore to feed its steelmakers and Rio is the world's second-biggest producer of iron ore. A joint venture in Guinea would allow Rio to share political risk and Simandou's sizeable development costs. Simandou lies 750km from the sea with poor transport links and infrastructure.

People close to the Mongolian mining industry have said they believe Rio and Chinalco are working out a deal on Oyu Tolgoi, the enormous Mongolian copper-gold deposit that is a joint venture between Rio and Ivanhoe Mines of Canada.

Chinese companies including Shenhua have been jockeying to take concessions in Mongolia, an emerging mining province whose valuable coal and copper deposits are located in the southern Gobi desert near the Chinese border.