BEIJING, Feb. 3 -- Rio Tinto Group, the world's third-largest mining company, is in talks to raise cash from Aluminum Corp of China, tapping its largest shareholder to reduce 38.9 billion U.S. dollars of debt.

Aluminum Corp, known as Chinalco, may buy convertible debt in Rio Tinto and or minority stakes in some of its units, the London-based company said on Monday in a statement. The sales may raise as much as 15 billion dollars, UK's Sunday Telegraph reported on Sunday. Rio's shares closed 5.5 percent higher in Sydney.

Rio's Chief Executive Officer Tom Albanese, who rejected a takeover offer from BHP Billiton Ltd, is studying a share sale after commodity prices plunged the most in more than 50 years in 2008 and the company's debt ballooned 19-fold with the purchase of Alcan Inc.

"Raising money would alleviate the debt monkey off their back," said Glyn Lawcock, head of resources research at UBS AG in Sydney. "If they can get a decent asset sale away to the Chinese and raise $5 billion then that would be extremely positive."

Chinalco is in initial talks to buy assets from Rio, the company's Vice President Lu Youqing said Monday.

There is no certainty of an agreement with Rio because Rio is also talking to other people, Lu said. Any agreement would need government approval and depends on prices, he said, declining to give details on the assets.

The Chinese company may want to buy stakes in Rio's Gove or Queensland Alumina operations in Australia, the Escondida copper mine in Chile or Coal & Allied Industries Ltd, UBS' Lawcock said. It may also be interested in Rio's iron ore unit, he said.

"Strategically, the purchase of Rio assets will benefit Chinalco as China is lacking all of these materials and demand will be sustainable," Heng Kun, analyst at Essence Securities, said. "From a price point of view, it's a good opportunity to buy now as they are cheap."

Chinalco joined with Alcoa Inc to buy a 9 percent stake in Rio for 7.2 billion pounds in February 2008, three months after Melbourne-based BHP proposed the takeover. BHP abandoned the hostile 66 billion dollars bid in November, citing Rio's high level of debt and declining commodity markets.

Rio has declined 33 percent since then and its London shares are now trading 75 percent below the 6,000-pence-a-share price paid by Chinalco and Alcoa.

Mining companies including Xstrata Plc and Newcrest Mining Ltd are planning to sell stock to bolster capital and cut borrowings. Rio, forced to halve spending and cut 14,000 jobs to counter the global recession, had its market value fall below its debt in December. It has 38.9 billion dollars of debt and a market value of 38.5 billion dollars at its year-low in December.

Rio has a net debt-to-shareholders' equity ratio of 126 percent, compared with BHP's ratio of 22 percent and a ratio of 22 percent for Anglo American Plc.

"Rio bought an asset at the top of the market, took on too much debt and now they're paying for it," said Brad Shallard, who manages the equivalent of 19 million dollars in shares including Rio stock for Katana Capital Ltd in Perth. "Chinalco would have the whip hand in any deal."
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