Alcoa Inc.'s (AA) balance sheet is getting a much needed boost 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 as a joint venture with Aluminum Corp. of China, or Chinalco 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.

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.

At the same time, Alcoa announced it was exploring strategic partnerships with Chinalco. These may include greenfield projects as well as investment in existing operations and acquisitions, Alcoa spokesman Kevin Lowery told Dow Jones Newswires.

This isn't the first time the two companies have worked together. The relationship dates back to November 2001, when Alcoa signed up to a strategic alliance with Chinalco's subsidiary, Chalco. But the metals landscape has changed dramatically since then, with China now dwarfing the rest of the world in terms of both its alumina and aluminum production.

"Looking to the future we see many such opportunities to build on, and deepen, that strong base of collaboration and cooperation" between Alcoa and Chinalco, the Chinese company's president Xiao Yaqing said.

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. If it goes ahead, it would double Chinalco's stake to 18% and give it access to what market participants describe as the crown jewels in Rio Tinto's portfolio of metals and mining assets.

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 as it had contributed $1.2 billion to the original $14.1 billion Rio investment.

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