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Rio Tinto and Chinalco may partner on Oyu Tolgoi Gold-Copper Project

Now that China appears to be repairing bridges with Australia in general, and Rio Tinto (ASX:RIO, LSE:RIO) in particular, there is strong speculation that Rio may be taking co-operation with the Chinese to the next stage by partnering with Chinalco in its investment in the giant Oyu Tolgoi gold/copper project in Mongolia, close to the Chinese border.

China has officially exonerated the Australian government and Rio of any wrongdoing in the latter's collapsed US$19.5 billion deal with Chinalco two years ago, putting the deal failure down to ‘economic reasons' and that Chinalco had tried to move too far too fast for the comfort of Rio's mainstream investors.  Now, Chinese sources suggest that a heavily-scaled back version of the original deal is under discussion and this may involve investment is a specific single venture - albeit a very large one - and Oyu Tolgoi, being very much in a Chinese area of influence fits this bill very nicely.

Indeed, the Australian Financial Review noted only last week that Rio insiders confirmed that the UK/Australian mega miner was indeed in new discussions with Chinalco and that a joint project in Mongolia would be less likely to stir up the kind of political and investor opposition the original Chinalco aborted deal had generated.

Rio still has substantial debt after buying Alcan at the peak of the market, despite some considerable divestments and Oyu Tolgoi will take huge capital sums to develop, so a partnership with Chinalco to finance its share of the project it controls in conjunction with Canada's Ivanhoe Mines would probably be welcome.  And given that China will be the likely market for the bulk of the huge mine's production, a partnership with China's largest nonferrous metals company would make a lot of sense.

Other areas of potential co-operation between the two companies are in aluminium, with Rio, following its Alcan purchase, one of the world's two biggest aluminium companies, and Chinalco China's largest aluminium producer.

Disclosure: The author holds no positions in the company