Rio Tinto will seek to raise capital through a US$15.2 billion ($19 billion) equity raising and an iron ore joint venture with rival BHP Billiton.
Rio announced last week that its US$19.5 billion transaction deal with Chinalco was no longer viable and that it would be abandoning the deal in favour of other options.
The company is seeking to pay US$10 billion from its US$38.7 billion debt by the end of the year.
The equity issue will see Rio offer Australian and UK investors 21 new shares for every 40 shares held at $28.29.
Abandoning the Chinalco deal will cost Rio a US$195 million break fee.
Chinalco president Xiong Weiping said his company is disappointed with Rio Tinto’s decision.
“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,” he said.
“We note the announcement of the joint venture in the Pilbara between Rio Tinto and BHP Billiton and will continue to monitor developments in relation to this project.”
According to new Rio chairman Jan du Plessis, the joint venture with BHP came after feedback from shareholders led the company to pursue alternatives to the Chinalco deal.
The new agreement will be a US$5.8 billion ($7.2 billion) joint iron ore venture in the Pilbara and is a 50-50 division between the two miners that will encompass all current and future iron ore assets and liabilities in WA.
Du Plessis said that the new financing direction will be best for both Rio and its shareholders.
“The boards have concluded that the formation of an iron ore production joint venture in Western Australia with BHP Billiton together with the rights issues deliver the best solution,” du Plessis said.
“This course of action will assist us to address Rio Tinto’s short and medium term debt repayment obligations whilst enabling us to retain strategic flexibility, and to preserve and grow long-term shareholder value.”
In a joint statement to the Australian Securities Exchange, Rio and BHP said that the plan will save both companies billions of dollars, with production and development synergies projected at more than $US10 billion.
BHP chairman Don Argus said the venture will allow the companies to better utilise the resources that are available in the Pilbara.
“The combination of these two asset portfolios will unlock the scale benefits inherent in this world class resource basin,” BHP chairman Don Argus said.