Chinalco and Rio Tinto to jointly develop giant Guinea ore reserve

Rio Tinto has signed a US$1.35 billion deal with the mainland's largest aluminium company, Chinalco, to develop the huge Simandou iron ore project in Guinea.

Under the terms of a non-binding memorandum of understanding, Rio Tinto, which owns 95 per cent of the project, said it would transfer its holding into a joint venture with Chinalco, with the mainland group taking a 47 per cent interest for US$1.35 billion.

The deal gives the mainland access to good quality iron ore - a resource it desperately needs for the huge amounts of steel that its rapidly growing economy is consuming with the development of infrastructure, housing and the production of cars and ships.

The price of iron ore has been the subject of intense friction between China, which is the world's biggest importer, and the quasi monopoly triumvirate that dominate supply - Rio Tinto, BHP Billiton and Vale.

The deal comes just days before four of Rio Tinto's staff go on trial in Shanghai on charges of receiving bribes and stealing commercial secrets. The case has threatened to derail commercial and diplomatic ties between China and Australia. The Guinea pact appears to mark a significant thawing in relations between the two companies after Rio walked away from a deal in June last year for Chinalco to take a stake in Rio for US$19.5 billion.

The collapse of this deal together with the acrimony surrounding the failure of Chinese negotiators to secure a 40 to 45 per cent reduction in iron prices is thought by some to have triggered the arrest in August last year of Stern Hu, Rio's chief iron ore negotiator in China, along with three other employees. The trial starts on Monday.