Rio Tinto Ltd. (RTP) said Friday it is terminating its planned US$19.5 billion alliance with Aluminum Corp. of China, or Chinalco, and instead launching a US$15.2 billion rights issue and entering into an iron ore joint venture with BHP Billiton Ltd. (BHP.AU).

The Chinalco deal, which would have been China's biggest ever overseas investment, had drawn opposition from investors and Australian politicians, but in the end it was the brightening market conditions that overtook the deal.

Rio Tinto Chairman Jan du Plessis said improving market conditions were behind the decision to terminate the deal, which had been designed to ease Rio's US$38.7 billion debt burden.

"Firstly, the financial terms of the Chinalco transaction became markedly less valuable and, secondly our ability to raise a level of equity appropriate for our needs on attractive terms has improved very considerably," he said in a statement.

The miner will now carry out a 21-for-40 rights issue to raise US$15.2 billion, with the offer pitched at GBP14 per share in the U.K. and A$28.29 a share in Australia.

The pricing of the rights issue in Australia represents a 57.7% discount to the last trade of Rio shares Thursday before the announcement.

One analyst said the steep discount reflected the complexity of carrying out a rights issue as a dual-listed company, but was still greater than expected.

Du Plessis said the funds raised will allow Rio to reduce its net debt to US$23.2 billion and meet repayments due this year and next on debt associated with its US$38.1 billion purchase of Alcan in 2007.

Rio also announced Friday it has entered into an agreement to form a joint venture with BHP at the pair's iron ore operations in the Pilbara region of Western Australia.

Rio said the joint venture will deliver synergies of more than US$10 billion as adjacent mines are combined into single operations, rail haulage is made more efficient and future growth is optimized.

These are the very synergies that drove BHP's failed all-share takeover bid for Rio last year, which raised concerns from European competition regulators over a reduction in competition, and the current joint venture plan will again face European regulatory approval.

However, the two miners hope that their commitment to continue to market their iron ore individually will win over competition regulators.

"The JV makes sense for both companies but I'm yet to be convinced how they'll get around the competition issues," Fat Prophets analyst Gavin Wendt said.

News of the rights issue and iron ore deal boosted Rio's shares, which were up 10.4% to A$73.86 at 0230 GMT while BHP climbed 7.8% to A$37.85 in a broader Australian market up 1.2%.

"The deal eliminates the uncertainty hanging over Rio over the last six to nine months and shows the influence of their shareholder base, particularly in the U.K., where they were very committed to a discounted entitlement issue," Shaw Stockbroking Head Of Trading Jamie Spiteri said.

Chinalco Chairman Xiong Weiping said the Chinese group had worked hard to engage with Rio on potential changes to the transaction terms to reflect the changed market conditions and feedback from shareholders and regulators since the deal was struck Feb. 12.

"As a result, we are very disappointed with this outcome," he said in a statement.

"We continue to believe our proposal presented an outstanding value-creating opportunity for all Rio Tinto shareholders and would have provided a strong platform for a long-term strategic partnership between the two companies."

Rio also released an unaudited net profit of US$1.60 billion for the first quarter, down from US$2.94 billion last year, and said it won't pay an interim dividend in light of the current macroeconomic outlook. However, it said it does expect to pay a final dividend.

-By Alex Wilson, Dow Jones Newswires; 61-3-9292-2094; alex.wilson@dowjones.com

(Bill Lindsay contributed to this story)