Chinalco in Talks With Rio on Ivanhoe, Mine Stakes (Update2)

July 7 (Bloomberg) -- Aluminum Corp. of China, the nation's biggest producer of the metal, is in talks with Rio Tinto Group to buy a stake in the $4.6 billion Oyu Tolgoi mine in Mongolia or the U.K. company's partner in the project, Ivanhoe Mines Ltd.

Chinalco, as the Chinese company is known, is in talks with Rio and "indicated an interest in acquiring a minority equity stake in the company or acquiring, from the company, a direct minority ownership interest in the Oyu Tolgoi project," Rio said today in a U.S. Securities and Exchange Commission filing, referring to Ivanhoe.

Rio is working to repair relations with Chinalco, its largest shareholder, which were soured last year when it scrapped a $19.5 billion investment by the Chinese company and four Rio employees were arrested in Shanghai. Ivanhoe Deputy Chairman Peter Meredith said in May that the company may bring in another partner to the copper and gold project and it made sense for Chinese interests to study an investment.

Rio Tinto, the world's third-biggest mining company, last month exercised warrants in Ivanhoe for $393 million to boost its stake in the Vancouver-based company to 29.6 percent.

Chinalco spokesman Lu Youqing couldn't immediately comment when reached on his mobile today. An Ivanhoe spokesman wasn't immediately available to comment.

Equity Conversion

"If any arrangement is agreed, it may be a bi-partite or tri-partite arrangement with the company and/or Rio Tinto," London-based Rio said in the SEC filing.

Ivanhoe rose 2.2 percent to C$14.17 by 12:03 p.m. in Toronto. Rio fell 0.4 percent to 3,036 pence in London.

Ivanhoe spent more than six years negotiating an accord with Mongolia over the project, which Rio has described as the world's largest untapped copper and gold resource. Ivanhoe said in January it hired Citigroup Inc. to study options, including debt and equity offerings and asset sales.

Rio said in the filing it's also in talks with Ivanhoe about converting its equity stake in the company into a direct ownership stake in the mine. Any agreement would require the support of the Mongolian government, Rio said. Ivanhoe holds 66 percent of Oyu Tolgoi and Mongolia the rest. Rio has an option to increase its stake in Ivanhoe to about 44 percent.

The 81.3 billion pounds of copper and 46.4 million ounces of gold at Oyu Tolgoi may give the site a 59-year life, Ivanhoe said in May. The mine will produce an average of 1.2 billion pounds of copper and 650,000 ounces of gold a year for the first decade. Production is scheduled to begin in 2013.