Miner Rio Tinto posted weaker first-quarter aluminium and iron ore output on Wednesday and defended its $19.5 billion asset and stake sale deal with China's Chinalco in front of unhappy shareholders.

Aluminium production fell a steeper-than-expected 6 percent, iron ore production was down 15 percent, while refined copper rose 33 percent as the firm struggled to balance supply with global demand.

We were expecting it to be soft, but it was softer than we thought, UBS mining analyst Glyn Lawcock said.

Rio released its production figures on the same day as its annual general meeting, which gave shareholders a chance to let off steam over a plan to sell state-owned Chinalco stakes in prized assets and allow it to double its holding in Rio to 18 percent.

You seem intent on mortgaging parts of Rio Tinto ... Please do not get us into this deep mire, one shareholder said.

The deal has sparked opposition from some shareholders who want to participate in Rio's fundraising and from Australian politicians worried about Chinese influence in a key sector.

Outgoing Rio Chairman Paul Skinner said the Rio board was keenly listening to shareholders about Chinalco, which still needs approval from Australian regulators before it goes to a shareholder vote due in June.

The board, however, remained fully behind the deal, which provided flexibility amid uncertainty about when the global economy and metals prices might recover, he added.

Given weakness in the more developed economies, it is unlikely that we will see a synchronised global recovery for the next 12 to 18 months, Skinner told the meeting.

He shrugged off some analysts' views that Rio's successful $3.5 billion bond issue on Tuesday meant the Chinalco deal was no longer as necessary to slash Rio's $39 billion in debt.

It's something of course which gives us a few more financial degrees of freedom, but it shouldn't be seen anything more than that, he told reporters following the meeting.

Analyst Tony Robson at BMO Capital Markets said Rio was close to being able to meet an $8.9 billion debt payment due in October, if the bond issue was combined with a an undrawn $5 billion credit facility and potential further asset sales.

The bonds may be part of Rio Tinto's alternate plan should the Chinalco transaction not proceed, he said in a note.

Rio Tinto's financing arm, Rio Tinto Finance (USA) Ltd, saw very strong demand for its $3.5 billion sale of five-year and 10-year notes on Tuesday..

SHARES SLIDE

 Rio shares in London, up about 60 percent this year, closed down 5.2 percent to 2,371 pence. The UK mining index fell 4.5 percent. In Sydney, the shares closed up 1.1 percent.

ING analyst Nick Hatch in London said after the shares' recent strong performance he would not be surprised to see profit taking.

Although Rio said a sustained economic rebound was uncertain, it hoped to see a revival in demand for iron ore in the second half of the year on the back of a recovery in China.

In anticipation of an improvement, Rio was sticking with plans to up iron ore output to 200 million tonnes, from 175 million last year, Chief Executive Tom Albanese said.

Iron ore is Rio's most profitable product and is expected to account for more than half of core profit this year, one analyst said. First-quarter iron ore shipments from the firm's main Pilbara mines slowed by 9 percent due to flooding in the region over the period, which is the height of the cyclone season.

Rio's weaker aluminium output reflected supply cuts, but those and similar moves by rivals have done little to bolster depressed prices, which have hovered around five-year lows since late last year as demand wanes for the lightweight metal, used in everything from jets to beer cans.

Aluminium demand is expected to shrink sharply this year, leaving the market with a bigger surplus than was forecast in January, a Reuters survey showed on Tuesday.

Since buying Canada's Alcan in November 2007, Rio Tinto has been the world's top aluminium maker, but the takeover saddled the group with $39 billion in debt.

Over the quarter, a steady performance at Rio's Canadian smelters was outweighed by production cutbacks in operations in Europe and at a smelter in New Zealand, the company said.

Production of raw materials to make aluminium also declined. Alumina fell 2 percent to 2.18 million tonnes, and bauxite dropped 19 percent to 6.97 million tonnes. (Additional reporting by Bruce Hextall, Eric Onstad and Julie Crust in London, editing by Will Waterman)

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