Aluminum Corp. of China's (ACH) proposed investment in Australian mining giant Rio Tinto Ltd. (RIO.AU) is "absolutely favorable" and essential for the long-term future of the company, Rio Tinto's Chief Financial Officer Guy Elliott said Thursday.

"We might have had a (situation) where we couldn't have repaid (debt maturing) in 2010, and that's made us choose the Chinalco option," Elliott said, referring to the Chinese company as it is usually known.

But in the unlikely event of the deal not going through, the company still has other options, such as a bond or rights issue and more asset sales to raise funds, he added.

Australia's competition watchdog has already approved China's state-owned Chinalco taking a strategic stake in Rio Tinto, saying the deal won't influence iron ore prices.

The Australian Competition and Consumer Commission Wednesday said it won't oppose the $19.5 billion transaction that involves Chinalco acquiring stakes in several Rio Tinto assets, including iron ore mines, and increasing its interest in the miner to 18% from 9%.

The Chinalco deal is still subject to approval by Australia's Foreign Investment Review Board, which last week extended its review of the deal by 90 days.

The strategic advantages of the deal that haven't been highlighted are access to better intelligence on the Chinese market and access to exploration rights in China, Elliott said. "As a value proposition, this is absolutely favorable."

It may also bring other advantages as customers in China may favor buying from a company with a Chinese connection, he said. China is the biggest market for iron ore, Rio Tinto's flagship product.

 
   Delaying Iron Ore Settlement Beneficial

Elliott also said he sees some benefits in delaying a settlement in the ongoing negotiations on 2009 iron ore contract prices.

The company should wait for the market to recover before settling new term prices, he said at Asia Mining Congress 2009. "We see some benefits in not settling immediately."

While global economic growth indicators continue to be "pretty depressing," the stimulus measures announced by the U.S., China and other countries are bound to support metal prices, he said.

The 2009 contract year begins April 1, but none of the big three miners - Rio, Brazil's Companhia Vale do Rio Doce (RIO) and Australia's BHP Billiton Ltd. (BHP.AU) - have concluded price negotiations with steel producers.

Producers including key Chinese steel mills have been asking for sharp iron ore price reductions of up to 40%-50% amid falling steel prices and slowing demand.

On base metals, Elliott said they had to be viewed individually, noting the disparity between inventory levels of copper and aluminum in exchange warehouses.

"I can't say this is the bottom, but people are losing money especially in aluminum. Our central case remains that we will see some improvement in the second half (of 2009)."

 
   Expects More Industry Consolidation

Elliot said further industry consolidation is inevitable in the current market environment. "There are some high quality reserves selling at very low valuations."

He added the consolidation process could continue for some time. "This opportunity will be with us for years."

Meanwhile, despite the current market conditions, Rio Tinto is not shelving any of the current projects, he said. "The projects are on ice - they are still there. We have high-quality investment options that we can exercise when conditions are right."

Elliot said Rio Tinto's recent asset sales, totaling $5.3 billion so far, had been carefully considered and hadn't been made at distressed levels. "We have turned away a lot of offers" that undervalued the assets, he added.

According to him, Rio Tinto Alcan's packaging and engineering products business is the most likely asset to be sold in the near term as it is a "non-core" asset for the company. "You will see some future reshaping of that portfolio."

But he was positive on the overall progress of the integration of the Rio Tinto Alcan business into the company since the 2007 acquisition. "Alcan is very much more a Rio Tinto business than it was."

Elliot also said Alcan's scale and hydroelectric capabilities meant the acquisition would eventually "translate into higher returns for (Rio Tinto's) shareholders."

-By James Campbell, Dow Jones Newswires; 65 6415 4084; james.campbell@dowjones.com