The Simandou iron ore project in Guinea

Beijing/Hong Kong --- MININGREVIEW.COM --- 30 July 2010 - Aluminum Corporation of China Limited (Chalco) has agreed to invest US$1.35 billion (R10.1 billion) in a Guinea joint venture that partner Rio Tinto claims is the world's largest undeveloped iron ore deposit.

The agreement to develop the Simandou project follows a non-binding deal signed in March by Chalco's parent, Chinalco, and is the Chinese group's first non-aluminium investment overseas.

Beijing has recently given both Chalco and Chinalco the green light to add more assets to their core aluminium businesses, allowing them to push into iron ore and secure more natural resources that are helping fuel the world's third-largest economy.

Analysts said the move would help Chalco diversify beyond a volatile aluminium market, which has seen prices swing between US$3 300 and US$1 300 a tonne in two years.

“It's probably a good thing for investor sentiment,” said UBS analyst Patrick Dai. “Investors will probably hope that Chalco will become equally diversified in the future, which will then reduce its reliance on aluminium alone.”

The Simandou venture is expected to begin production within five years, according to a statement from Rio, in which Chinalco holds a stake of around 9%. Chalco will pay Rio, which holds the rights to develop the project, US$1.35 billion (R10.1 billion) over two years.

The Chinese group would have 47% of the venture's interest, with Rio holding the remaining 53%. The joint venture will hold a combined 95% of the project, with International Finance Corporation  owning the rest.

The deal also signals a revival of Rio Tinto's relations with China, its biggest customer, after four of its staff had been jailed in Shanghai for bribery earlier this year, and after the company had scrapped a tie-up with Chinalco, last year.