Alcoa Inc. (AA) is exploring strategic partnerships with Aluminum Corp. of China Ltd. (ACH), or Chinalco, as the company gives up its stake in Rio Tinto PLC (RTP) for significantly more than it is currently worth.

The U.S. producer, which took a stake in Rio Tinto just over a year-ago, will get $1.021 billion in cash for the interest by July, it said Thursday. At current market prices, the stake is worth around $300 million.

Alcoa also will receive its pro rata portion of dividends paid by Rio Tinto to date since the investment was made.

"This transaction, combined with our intention to explore opportunities to expand our commercial relationship, strengthens Alcoa's ability to weather the economic downturn," said Klaus Kleinfeld, Alcoa president and chief executive.

Strategic partnerships may include greenfield projects as well as investment in existing operations and acquisitions, Alcoa spokesman Kevin Lowery told Dow Jones Newswires.

The move comes as Rio Tinto announces a proposed $19.5 billion strategic partnership with Chinalco that includes a $7.2 billion convertible bond issue and $12.3 billion in asset sales across Rio's aluminum, copper and iron ore business.

The deal gives Alcoa's balance sheet a much-needed boost. The company was downgraded to the brink of junk status by Standard & Poor's Rating Services earlier this week, citing expectations of deteriorating credit metrics this year.

The company, the world's largest producer of aluminum, has been leading the way in cutting output amid collapsing demand for the metal and rapidly rising inventories, which had caused prices to plummet. Aluminum prices have more than halved since peaking in July at $3,380 a metric ton, leading Alcoa to reduce its production capacity by some 18%.

Alcoa said the transaction will improve its cash position and result in a positive impact on its debt-to-capital ratio. The company will record a non-cash after-tax loss of approximately $120 million on the investment in the first quarter of 2009.

-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@dowjones.com