China's state-owned metals firm Chinalco is considering changes to its planned $19.5 billion tie-up with Rio Tinto (RIO.L: Quote) but is adamant about boosting its equity stake in the miner, Chinalco's president told a magazine.

Chinalco's comments in Caijing magazine and remarks made by Rio on Tuesday that the deal is evolving added to recent media speculation that the two firms will have to rejig the deal that has sparked opposition from many shareholders.

Rio Tinto lined up the deal with Chinalco in February, looking for a way to pay down half its $38 billion in debt as debt markets remained frozen and commodity prices collapsed.

Certainly there have already been changes in the market and according to these changes we and Rio are together looking into the present situation, Caijing quoted Chinalco President Xiong Weiping as saying.

He declined to detail how the deal might be changed, but denied media reports that Chinalco would agree to limit its equity stake in Rio to 15 percent instead of doubling it to 18 percent as originally agreed. These are all market rumours, he said.

Xiong's comments echoed those of Rio Tinto's iron ore chief Sam Walsh in Australia.

I think it's a situation that is evolving, he told reporters in Canberra on Tuesday, adding that Rio would decide its next move after meeting shareholders.

We have certainly seen economic conditions improve since the deal was announced in February but importantly for us we need to take into account in our deliberations what our shareholders see as the key issues, he added.

UNHAPPY SHAREHOLDERS

Many shareholders have criticised the proposal, saying Chinalco is being favoured over other investors, while Australian politicians are worried the deal will give China influence over the pricing of a strategic commodity, iron ore.

Some shareholders prefer a rights issue as a way to raise capital while others have suggested Chinalco might give up one of two board seats they will get under the proposal.

Rio Tinto Chairman Jan du Plessis arrives in Australia this week to talk to shareholders, having discussed the China deal with major UK shareholders over the past two weeks.

Major UK shareholders said last week more changes were needed to the planned deal and said rumoured concessions may not go far enough. [ID:nLM690128]

Under the deal, Chinalco would take direct minority stakes in some Rio mining assets as well as buying convertible notes that could double its equity stake to 18 percent.

Despite leaving the door open to a revised Chinalco deal, Walsh defended the principle of major consumers such as Chinese state firms taking equity stakes in producers, and dismissed concerns about China gaining control or influence over pricing.

He said miners had had joint ventures with customers for nearly 50 years, during which time companies and their customers had remained commercially independent.

In the resource industry there is a solid history of customer involvement in projects and that has not impacted on pricing, he said. It beggars belief that anybody can now object to this in 2009, on the basis of some principle entirely new to this industry.

Walsh also responded to concerns that Chinalco may press Rio to develop assets offshore at the expense of its Australian assets, and said the deal involved Chinalco taking direct stakes in Australian iron ore assets, not offshore.

In this sense the Chinalco deal will represent a pioneering ... joint venture and skew trade towards Australia on account of their investment here, he said.

Walsh said Chinese iron ore demand had picked up, but this was largely because China, Rio's biggest iron ore market, had shut about half its own iron ore capacity as spot prices fell.

That has opened up an opportunity for us, and I'm very pleased to say that for the last six weeks our operations have been running absolutely flat out, Walsh said.

After Walsh spoke Rio said it had agreed to cut key iron ore prices to Japanese steelmakers by a third in this year's first contract, setting a benchmark analysts say China will almost certainly reject. [ID:nSP498033] (Writing by Eric Onstad and Sonali Paul; Editing by Jonathan Standing and Greg Mahlich)

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