Rio tries to mend fences with China

LONDON: Rio Tinto Group is seeking a better relationship with China, the mining company's largest customer, and is in talks with Aluminum Corp of China after four executives were arrested in a spying row.

Chief executive Tom Albanese said he was "disappointed" Rio did not complete a proposed investment by state-owned Aluminum Corp, also known as Chinalco, in June.

He had held "early stage" talks with the company and Chinese officials about co-operation and possible joint investments, he said yesterday in theUnited States.

"Those relationships are very important. Certainly from a Chinalco perspective, in the long term I think there are things we can do together," Albanese said. "We have a number of challenges in China at the moment."

Albanese has grappled with borrowings that ballooned after London-based Rio's US$38.1 billion ($56.3 billion) purchase of Canadian aluminium producer Alcan in 2007.

He rejected Chinalco's proposed US$19.5 billion deal in June, instead selling shares and agreeing to a joint venture with rival BHP Billiton to help pay debt.

A month later, four Rio iron ore executives were detained in Shanghai. They face charges of bribery and stealing commercial secrets from China's steel industry.

China accounted for 27 per cent of Rio's sales in the first half, Rio said late Thursday night in its first-half earnings statement. China ranked third behind North America and Europe a year earlier. Earnings excluding some one-time items fell 54 per cent to US$2.6 billion, missing the US$2.73 billion median estimate of seven analysts surveyed by Bloomberg News.

Rio was "pleased" the charges against Stern Hu, an Australian and head of its iron ore business in China, and the three other executives were not as serious as first thought and that the four had legal teams in place, Albanese said. "Things have moved in the last few weeks, and they've moved in a positive direction."

The detention of the Rio executives has strained relations between China and Australia, the site of a third of Rio's assets. Officials from the two countries will meet in Beijing next month to resume talks on a free trade agreement, the Australian Financial Review reported yesterday.

Rio's iron ore unit, its biggest earner, had a 33 per cent decline in underlying earnings to US$1.9 billion in the first half. The aluminium unit swung to a US$689 million loss from a profit of US$1 billion. Earnings from its copper and diamond unit plunged 72 per cent to US$472 million.

Rio cut 16,000 jobs in the first half and Albanese said it was on schedule to meet commitments to reduce full-year spending.

- BLOOMBERG