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Rio has signed an exploration joint venture with its largest shareholder, Chinalco.
Eight months of duchessing Chinese authorities could pay a huge dividend for Rio. It will focus on greenfields sites in the north and northwest of China, including restless Xinjiang province. But Rio is understood to have ruled out the largely untapped resources in Tibet as too politically sensitive.
It would focus on copper and coking coal that was used in steel-making and would spend up to $10 million initially, Rio Tinto chief executive Tom Albanese said yesterday.
Rio last year spent $514m on exploration, down from $1.1 billion in 2008, a dip caused by the global economic downturn.
It is the second project announced with Chinalco this year after the two groups signed a joint venture in July, which will cost as much as $15bn, to tap a massive high-grade iron ore reserve in the west African country of Guinea.
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"The key issue has been that of tenure," Mr Albanese said.
Like other mining groups, most of which have given up on getting major mines running in China, Rio has been frustrated over the lack of guarantee that it can move its exploration operations into profitable mining enterprises. "Having a China-wide agreement with a senior SOE (state-owned enterprise) is a more positive mechanism for that pathway (land tenture)," Mr Albanese said.
Chinalco will hold a 51 per cent interest in the venture and Rio will appoint the chief executive under a non-binding memorandum of understanding signed in Beijing yesterday by Mr Albanese and his Chinalco counterpart, Xiong Weiping.
"Chinalco has special advantages in the Chinese market in terms of access and relationship," Mr Xiong said.
In March this year, Rio's reputation in China was in tatters after it had rejected a $US19.5bn bid by Chinalco to double its 9.9 per cent stake in the group. This was followed by the arrest and jailing of four of its Chinese sales executives, including Australian Stern Hu, for taking bribes and stealing business secrets.
But while Rio believed there was no basis for the second charge, it has made no public attempts to have that part of the sentence of its executive reduced, preferring to mount an unprecedented public affairs campaign to win back the favour of its largest customer.
"Since the difficult moments of last year, Rio Tinto and Chinalco have taken several major and very important steps forward, including our very important recent agreement on the development of Simandou," Mr Albanese said.
Mr Albanese was yesterday on his ninth visit to China this year.
The venture will not extend to Mongolia, where Rio is building a copper mine at Oyu Togloi.
China has tended to regard mining as one of its key strategic industries that are limited to local companies and dominated by SOEs such as Chinalco.
But China's own vast minerals and energy reserves are being slowly depleted and in many areas offering lower yields, increasing the cost of removing them from the ground owing to its lack of technology.
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