Australian political opposition intensified against Rio Tinto Ltd's planned $19.5 billion tie-up with China's state-owned Chinalco on Wednesday, with a key independent Senator saying he opposes the deal. Senator Nick Xenophon joined the Greens and conservative National Party senator Barnaby Joyce in opposing the deal, as the Senate prepares later on Wednesday to call an inquiry into investments by sovereign wealth funds and state-owned companies.

We should be selling the milk not the cow, in this case the minerals not the mine, Xenophon told Australian radio.

Under the deal, Chinalco will pay $12.3 billion for stakes in iron ore, copper and aluminium assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent.

The deal itself cannot be blocked by the upper house Senate. It is being reviewed under Australia's foreign investment rules, but Treasurer Wayne Swan must make the final decision on whether the investment is in Australia's national interest.

If foreign investment approval is given, Rio Tinto must then win the backing of shareholders.

Xenophon said he had real concerns about the Chinalco bid because it would give the state-owned group an important stake in a strategic industry.

There is a real concern as to the implications for Australia's resources internationally in the longer term. This is not just an ordinary takeover, he said.

Joyce, who is the National Party leader in the Senate, ran two television advertisements on Tuesday outlining his opposition to the deal, saying China would never allow the Australian government to buy a mine in China.

Joyce has wide support for the Senate's Economics Committee to hold an inquiry into foreign investment rules and the impact of investments by sovereign wealth funds and state-owned companies on business growth and competition.

The Senate will vote on the inquiry later on Wednesday, with the committee due to report back by June 17. (Reporting by James Grubel; Editing by James Thornhill)

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