Rio Tinto PLC (RTP) shareholders Friday welcomed the Anglo-Australian miner's decision to pursue a $15.2 billion rights issue over a proposed tie-up with Aluminum Corp. of China, or Chinalco.

"We are pleased that Rio Tinto have decided to pursue a conventional rights issue; it is important that companies of significant standing choose to honor shareholder rights," Legal & General Investment Management, Rio's biggest institutional investor, said in a statement.

Investors had objected to Chinalco's proposed $19.5 billion investment in Rio Tinto. L&G and others complained that it violated preemption rights - in this case the ability to buy into a convertible bond on the same terms as Chinalco.

Rio Tinto and Chinalco in February struck a deal that would have given the Chinese group minority stakes in a suite of assets for $12.3 billion and convertible bonds valued at $7.2 billion. Chinalco's stake in Rio would have jumped to 18% from 9%, while other shareholders would have seen their holdings diluted.

Rio formally abandoned that agreement Friday in favor of the rights issue and an iron ore joint venture with rival BHP Billiton Ltd. (BHP).

"We welcome the board's decision to offer shares to existing shareholders via a rights issue," Robert Waugh, head of U.K. equities at pension fund Scottish Widows Investment Partnership, said in an emailed statement.

Waugh in February objected to Rio's decision to issue attractive equity to one shareholder without offering it to all shareholders. Scottish Widows is one of the top 15 investors in Rio's London-listed shares, according to data provider FactSet.

Robert Talbut, chief investment officer at Rio investor Royal London Asset Management, said the miner likely abandoned the Chinalco deal because commodity, equity and capital markets had improved markedly since February, giving the company a broader array of options to repair its debt-burdened balance sheet.

"I also believe that the view of shareholders around the globe hardened toward (the Chinalco deal)," Talbut said.

Talbut called the combined rights issue and JV a "good deal."

"The company when it completes this financing will have great financial flexibility, still be in a great strategic position and remain an attractive investment," he said.

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

Company Web site: www.riotinto.com

-By Jeffrey Sparshott, Dow Jones Newswires; +44 (0)207 842 9347; jeffrey.sparshott@dowjones.com