Rio Tinto is looking at new ways to deal with its huge debt burden, the mining group said on Thursday in response to reports its planned $19.5 billion stake sale to China's Chinalco has collapsed.

Rio did not mention state-owned metals firm Chinalco in a brief statement that followed heated speculation over a deal that been criticized by shareholders and would be the biggest overseas investment by a Chinese company.

Rio Tinto is pursuing a range of options, some of which are at an advanced stage, for maximizing shareholder value and improving the group's capital structure, it said.

Spokesman Nick Cobban declined to give any further details.

The Financial Times said Chinalco was due to walk away from the deal because it could not reach agreement over revisions to one element of the deal, a $7.2 billion convertible bond issue.

The FT report, quoting people familiar with the situation, said Rio was now looking at alternatives including a $12 billion rights issue and creating a joint venture with rival BHP Billiton .

Other reports said a rights issue may be worth $15 billion.

Our initial views are that a $10-$12 billion rights is now imminent and that a BHPB bid in the near term very unlikely, said analyst Michael Rawlinson at Liberum Capital in London.

Talk of a rights issue, potentially at a deep discount, hit Rio shares in London, which slid as much as 10 percent.

The shares, which have soared 80 percent this year, were 8.9 percent weaker at 2,653 pence at 1410 GMT, underperforming a 5.4 percent fall in the UK mining index <.FTNMX1770>.


Under the deal agreed in February, Chinalco would pay $12.3 billion for stakes in debt-saddled Rio's key iron ore, copper and aluminum assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent.

Rio originally lined up the deal to help pay off half its $38 billion in debt and had hoped to complete the deal by early in the third quarter.

The deal ran into opposition from Rio shareholders, who complained it favors Chinalco over other shareholders, and from some who are worried that China, Rio's biggest customer, will gain influence over pricing of key commodities like iron ore.

The company has said it is listening to shareholders' concerns and new Chairman Jan du Plessis has recently completed a round of meetings with shareholders.

Two sources close to the deal told Reuters earlier on Thursday that Chinalco had been planning to revise the deal before a June 14 deadline to avoid further delays in Australian government approval.

I think they'll (Chinalco) come out and make an announcement before the deadline, an investment banker with direct knowledge of the deal told Reuters.

Australia's Foreign Investment Review Board (FIRB) was due to give its recommendation on the deal to Treasurer Wayne Swan by June 14. Swan has the final say on whether it will go ahead.

The sources did not want to be identified due to the sensitive nature of the negotiations.

The FT said the deal breaker was changing terms of $7.2 billion in convertible bonds, in which Chinalco would have paid high premiums based on share prices in February.

The strong rebound in Rio shares have reduced those premiums and a recovery in financial markets has opened up other options such as a rights issue.

We are very surprised that the Chinese appear to have chosen to walk on something as trivial as the terms on the CB... the least important part of the deal, said Rawlinson.

People familiar with the deal have previously told Reuters that Chinalco may have been willing to drop a proposed 15 percent stake in Rio's Hamersley iron ore assets from the deal to get over Canberra's worry about a Chinese state-owned entity owning a strategic asset.

(Additional reporting by Joseph Chaney in HONG KONG and Denny Thomas in SYDNEY)

(Editing by Jonathan Standing and Andrew Callus)