Australian mining firm Rio Tinto and Chalco today signed a binding agreement to establish a joint venture (JV) covering the development and operation of the Simandou iron ore project in Guinea.

The binding agreement follows the signing of a memorandum of understanding between Rio Tinto and Chalco's parent firm Chinalco announced early this year in March. The agreement covers all aspects of how the JV and project itself will operate and be governed, including planning, construction and management of the mine and associated rail and port infrastructure.

In a statement, Rio Tinto chairman Jan du Plessis, said: said: "Developing our relationship and business links with China is a key priority for Rio Tinto. This agreement takes our relationship with China and our largest shareholder Chinalco to a new level, building on a line of successful partnerships between Rio Tinto and China dating back to the start of the Channar iron ore joint venture in the Pilbara a generation ago. The formation of partnerships is integral to our business engagement with China. We are confident that the knowledge and experience gained from these other ventures will help make this joint venture our most successful yet undertaken with a Chinese partner."

Xiong Weiping, president of Chinalco said the establishment of a joint venture will make use of Chinalco's advantages in the infrastructure field and its profound understanding of the Chinese market as well as Rio Tinto's technologies and experience in the operation of large mining projects, so as to form a complementary and powerful union.

"We believe the successful development of the Simandou project will greatly quicken the pace of local infrastructure construction and economic development. This project can also efficiently balance China's need for security of supply on the global iron ore market. We expect the two sides will regard cooperation on the Simandou project to be the foundation for further pushing forward the cooperation of these two companies in other resource projects," Mr. Xiong said.

Tom Albanese, Rio Tinto's chief executive added that this agreement will put the expertise of Rio Tinto, Chinalco and the IFC together to develop a world-class iron ore project.

"We firmly believe this agreement will deliver great value for our shareholders. We remain committed to continued engagement with the Guinean Government and other key stakeholders. We continue to invest funds to keep this important project moving forward and anticipate mining operations would start within five years," said Albanese.

Under the terms of the agreement, Rio Tinto's 95 per cent interest in the Simandou project will be held in the new JV. Chalco will acquire a 47 per cent interest in the new JV by providing US$1.35 billion on an earn-in basis through sole funding of ongoing development work over the next two to three years. Once Chalco has paid its US$1.35 billion, the effective interests of Rio Tinto and Chalco in the Simandou project will be 50.35 per cent and 44.65 per cent respectively. The remaining five per cent will be owned by the International Finance Corporation (IFC), the financing arm of the World Bank.

Both Rio Tinto and Chalco are keen to progress the project as soon as possible and are working with all stakeholders to expedite the process. The formation of the JV will be finalised in consultation with the Guinean Government and following satisfaction of various regulatory requirements.