Rio Tinto Group on Thursday announced a 19.5 billion US dollar deal with China's biggest aluminum producer Chinalco through the formation of a strategic partnership.

The deal would have Chinalco injecting 12.3 billion US dollars into aluminium, copper and iron ore joint ventures; and 7.2 billion US dollars worth of convertible bond issue. It would double Chinalco's stakes in the Anglo-Australian company from the present 9% to 18%.

Chinalco would also be granted two non-executive seats on the Rio Tinto Board, but Rio Tinto would retain operational control over the joint venture's assets.

Though the Boards of Rio Tinto – comprising Rio Tinto plc and Rio Tinto Limited – have unanimously agreed to the deal, it is still subject to approval from shareholders, the Australian government and regulators.

Chinalco's latest bid to increase its stakes in Rio Tinto, the world's third largest mining company, had been speculated on by the press for days, and the details were leaked prior to the formal announcement.

In a media release published on Rio Tinto's website, its chairman Paul Skinner said the deal would help to strengthen the company's balance sheet – which is burdened with 39 billion US dollars in debts.

The deal is expected to reduce Rio Tinto's net debt by a further ＄10 billion by end of 2009.

Skinner also highlighted China's growing participation in the global economy as opening opportunities for Rio Tinto.

"We believe this transaction is a logical step in advancing our capability in the Chinese market," he added.

If the partnership materialized, Rio Tinto would enter a joint venture with Chinalco for mining exploration in China.

The Chinese state-owned Chinalco would also facilitate Rio Tinto's access to funding from Chinese financial institutions for project development.

In the same media release, Chinalco president Xiao Yaqing was quoted as saying: "It (the deal) reflects our continued confidence in the long-term prospects of the industry and the Chinese economy, the strength of Rio Tinto's world-class management team and its long term growth prospects."

A year ago, Chinalco invested 14 billion US dollars to gain a 9% stake in Rio Tinto. The transaction was termed as the single largest overseas investment made by a Chinese company, but it led to huge unrealized losses when the Rio Tinto share price plunged.

On the same day the partnership deal was announced, Rio Tinto also released its 2008 earnings report, recording net earning of 3.7 billion US dollars last year, 50% below the 2007's figures.