Mining giant Rio Tinto PLC is renewing its vows with a once-spurned Chinese partner by signing a mineral-exploration joint venture with state-owned aluminum producer Aluminum Corp. of China Ltd. (Chinalco).
The new entity will focus on mineral exploration in China, with copper as its "immediate priority," the partners said Wednesday. Coal and potash will follow.
China is the world's largest consumer of copper, an industrial staple, and is constantly hunting for more to meet its need for rapid infrastructure growth. Chinese demand for copper has helped propel the metal's price to record levels in recent months of more than $4 (U.S.) a pound.
The country is anxious to find more copper reserves at home. Chinese firms, despite their deep pockets, balked recently at paying rich premiums to buy a couple of Canadian-based producers.
China's Minmetals Resources Ltd. made a $6.3-billion hostile bid for copper producer Equinox Minerals Ltd. in April, but refused to enter a bidding war after Barrick Gold Corp. topped the price by $1-billion.
Last month, Chinese mining firm Jinchuan Group Ltd., backed by sovereign wealth fund China Investment Corp., failed to strike an acceptable deal for assets owned by copper-focused Lundin Mining Corp., according to sources. Jinchuan was among a handful of buyers that examined Lundin's properties across Europe and Africa, but the Chinese miner's interest has yet to result in a sale.
Wednesday's official agreement between Rio Tinto and Chinalco complements the Chinese firm's strategy to diversify its business away from aluminum and into other commodities, particularly since China is the world's largest consumer of many commodities.
"Access to natural resources is a critical component to many of the world's leading economies," Chinalco president Xiong Weiping said in a statement Wednesday. "Drawing on the respective strengths of both companies, this exploration JV [joint venture]could potentially create commodity supplies to benefit the global economy."
It's also another step toward peace between the two firms after Rio Tinto rejected a $19.5-billion investment from Chinalco in 2009. Rio Tinto has also been trying to repair the damage caused by the jailing of four of its Shanghai staff last year for stealing commercial secrets and taking bribes.
"The formalization of our exploration JV is an important milestone in the expanding relationship between Rio Tinto and China," Rio Tinto chief executive officer Tom Albanese said. "Given that mainland China is highly prospective, the JV has the potential to create valuable opportunities for both partners."
Last year, Chinalco and Rio Tinto became joint-venture partners in the Simandou iron ore deposit in Guinea.
"This shows means and intent with China. It signals that Rio is still pursuing a relationship with Beijing," said BMO Nesbitt Burns analyst Tony Robson.
Chinalco will hold a 51-per-cent interest in the joint venture, Chinalco Rio Tinto Exploration Co., with Rio Tinto holding the remaining 49 per cent.
There has been speculation that Chinalco may be interested in the Oyu Tolgoi project in Mongolia, after an executive said last year the company was interested in investing in the copper-gold development.
Oyu Tolgoi is majority owned by Ivanhoe Mines Ltd., a Vancouver-based company in which Rio Tinto is the largest shareholder. Chinalco is Rio's largest shareholder, with a 9-per-cent stake.
With files from Reuters