BEIJING, July 29 (Xinhua) -- The Aluminum Corporation of China Limited (Chalco), the country's top producer of the metal, signed a binding agreement with mining giant Rio Tinto Thursday to set up a joint venture (JV) for the development of the Simandou iron ore mine in Guinea.
The Simandou iron ore mine is estimated to have an annual output of over 70 million tonnes.
The binding agreement follows the signing of a memorandum of understanding between Rio Tinto and Chalco's parent company Chinalco in March.
Under the agreement, Rio Tinto's 95-percent interest in the Simandou project will be held by the new JV.
"Chalco will acquire a 47-percent interest in the JV by providing 1.35 billion U.S. dollars on an earn-in basis through sole funding of ongoing development work over the next two to three years," a statement posted on Rio Tinto website read Thursday.
Once Chalco has paid the 1.35 billion U.S. dollars, the effective interests of Rio Tinto and Chalco in the Simandou project will be 50.35 percent and 44.65 percent, respectively, it said. The remaining 5 percent will be held by the International Finance Corporation, the financing arm of the World Bank.
The Guinean government holds an option to buy up to 20 percent of the project, and it has "recently expressed a willingness to exercise that option," it said.
"We continue to invest funds to keep this important project moving forward and anticipate mining operations would start within five years," Rio Tinto's chief executive officer Tom Albanese said during the signing ceremony.
"The successful development of the Simandou project will greatly increase iron ore supplies on the global market and help promote the stable and healthy development of the world's iron ore business," said Xiong Weiping, Chinalco president and chairman and chief executive officer of Chalco.
"We expect the two sides will regard the Simandou project as the foundation for further pushing forward cooperation between these two companies in other resource projects," Xiong said.
It was necessary for Chalco, which posted a loss of 4.6 billion yuan (685.2 million U.S. dollars) in 2009, to expand other non-aluminum businesses amid a decline in the price of electrolytic aluminum and Chinese government's efforts to curb energy-consuming industries, said Southwest Securities analyst Lan Ke.
The project, however, would also pose a challenge for Chalco because of the poor infrastructure in West Africa, said Zeng Jiesheng, analyst at the Mysteel.com, China's iron and steel trade portal.
Trading of Chalco shares have been suspended since Wednesday on both the Shanghai and Hong Kong bourses due to the company's involvement in negotiations of "a major issue," but trading was likely to resume Friday, it said in a statement to the Shanghai Stock Exchange.
