There is widespread speculation that debt ridden Rio Tinto will not  tango with Chinalco and may go in for a new capital raising or sell some its assets to rival BHP Billiton in view of the global economic scenario has changed from February, when Chinalco made the $19.5 billion offer. (See: Chinalco invests $19.5 billion in Rio Tinto to raise stake to 18 per cent)

Major investors from the UK in Rio Tinto have, in a fresh round, vented their anger on the miner's new Chairman, Jan du Plesis, in London this week, demanding that the dual-listed company abandon its deal with Chinlaco and raise new capital, as well as start talks with BHP Billiton for certain asset sale.

In February, China's state-owned Aluminium Corporation of China (Chinalco) announced that it would invest $19.5 billion into troubled mining giant Rio Tinto by taking stakes in mining assets as well as bonds convertible to Rio shares, which could eventually raise its overall stake in Rio from the present 9 per cent to 18 per cent.

Apart from doubling its stake to 18 per cent in Rio Tinto, the deal would also give Chinalco two seats on the Rio board and stakes in the aluminium, bauxite, copper and iron ore projects of Rio.

Rio has almost $38 billion of debt after the overpriced acquisition of aluminium producer Alcan, with $20 billion repayable by the end of 2010. Rio says it wanted a deal that would fix its balance sheet for the next two years, and that if it had opted for the rights issue, and if the global economy downturn continued, it may not have been able to sell enough assets to satisfy debt repayment obligations.

With just four weeks to go for Australia's Foreign Investment Review Board (FIRB) to give a decision on China's biggest-ever overseas investment, the short honeymoon between China's state-run company and the world's third largest miner, is looking more and more doomed to end up in divorce with arch rival BHP Billiton waiting to step in.

Opposition to Chinalco
From the time the deal was announced, it ran into rough weather as politicians in Australia, major shareholders of Rio, both in the UK and Australia and arch rival BHP Billiton, seething in anger at Rio, each one of them having reasons plenty to scuttle the deal.

Australian politicians were angry with the miner for selling the country's strategic assets to a foreign state-run company and a few politicians had said that Rio was selling the cow instead of selling the milk.

Opposition parties had even put up TV commercials condemning the deal and accused Prime Minister Kevin Rudd government of selling itself to the Chinese.

Barnaby Joyce, senatorial leader of the opposition National Party said in a TV commercial, ''The Australian government would never be allowed to buy a mine in China, so why would we allow the Chinese government to buy and control a key strategic asset in our country.''

The major shareholders of Rio Tinto, were and are still opposing the deal vehemently as under the DLC structure, the British and Australian arms retain separate legal identities but are treated as if they are one combined entity, with the shareholders of both companies having a common economic interest in all the assets.

The shareholders feel that all shareholders must be treated equally and in this case, one shareholder has been given undue preference over the others.

The main focus of concern is that Rio proposes to sell off significant slabs off its prime assets at the bottom of the cycle to pay for the acquisition of lower quality assets, and is doing so at prices that are much lower than would have been possible only months earlier, resulting in value leakage. (See: Rio Tinto shareholders continue to oppose Chinalco deal)

For that reason, rather than the principle of pre-emption rights, many Australian investors also favour a rights issue by Rio, and further asset sales, rather than the proposed Chinalco deal.

The deal was also opposed by the chairman-elect Jim Leng who resigned from Rio Tinto due to differences with the board on reducing the company's debt. (See: Corus chairman quits Rio Tinto's board; rules out joining it)

Jim Leng felt that the deal gave too much power to a customer, since Chinalco was one of Rio's major customers. He is also reported to have wanted the board to explore the option of going in for a rights issue to raise funds.

BHP Billiton, meanwile was trying its best to scuttle the deal in Canberra. The Australian Foreign Investment Review Board had called the miner last month to give its opinion on the deal.

Although the miner has remained silent, analysts believe that it would have opposed the deal, since it would give the Chinese, privy to inside information of pricing of minerals, when it is also a major buyer, both at Rio and BHP Billiton.

BHP Billiton believes that Chinalco's communist bosses in Beijing may have a bigger say in fixing the annual prices for ores if the Rio Tinto-Chinalco deal goes through.

The secretary-general of the China Iron and Steel Association, Shan Shanghua told Bloomberg in an interview in March that the duopoly enjoyed by the Australians in supplying iron ore will be broken by China over a period of time and the investment of $19.5 billion might be too early to affect the 2009 price negotiations.

Last month, Chinese steel producers and China Iron & Steel Association (CISA) failed to reach an agreement on the size of the price cuts with mining giants Vale of Brazil, BHP Billiton and Rio Tinto in order to fix this year's long-term iron ore prices. (See: Global iron ore miners locked in pricing battle with China)

China, the biggest importer of iron ore, has said that the price cut of 40 per cent was justified since iron ore prices have gone up by nearly 400 per cent since the past five years and the demand for steel is highly unlikely to pick up in the current year due to the global recession.

BHP Billiton is also smarting of the underhand tactic opted by Chinalco by teaming up with Alcoa Inc to take a 12-per cent stake in Rio Tinto, with Chinalco taking 9 per cent and Alcoa 3 per cent, to scupper its sweetened hostile $147.4 billion acquisition bid in the miner in 2007. (See: BHP Billiton raises offer for Rio Tinto to $147 billion)

Last week, there were rumours that Chinalco may review the terms of the deal by dropping its proposed $5.1-billion acquisition of a 15-per cent stake in Hammersley Iron from Rio and also drop its overall stake to 15 per cent from 18 per cent, with the existing shareholders given a choice of acquiring the remaining 3 per cent.

One analyst said that the FIRB has to look into the real motive for China's state-run company to buy into Australia's strategic mineral wealth.

One point of extreme concern is that Chinalco's main business is aluminium, aluminia copper and titanium. So where does iron ore, which is required by steel manufactures, come on Chinalco's foreign acquisition agenda.

The Chinalco offer included a 15-per cent stake in Rio's iron ore project at Hammersley in Western Australia.

Beijing, seeing the global recession as a once-in-a-century opportunity to make strategic raw material acquisition, backed by its $1.87 trillion in foreign exchange reserve, is taking advantage of the global economic meltdown by making massive investments overseas in the minerals and energy sector.

Rio's options
In February, Chinalco looked like the only knight in shining armor to save the debt ridden Rio Tinto, but since then, the global lending market has eased up.

Analysts believe that the board of Rio Tinto, led by chief executive Tom Albanese and former chairman, Paul Skinner had cobbled up the shortsighted deal, when the credit market was frozen, reeling under the global financial turmoil.

Today, with the easing of the lending market, Rio has many other refinancing options and it is widely speculated Rio would raise more than $10 billion from a rights issue as well as sell certain assets to BHP Billiton's and create value-creating joint ventures in its West Australian iron ore operations with BHP Billiton.

Although walking away from the Chinalco deal will cost Rio a $195-million break fee, the miner is expected to easily underwrite that money in its balance sheet, which could be covered if share price of the company goes up again when the global economy recovers.

With the share price of Rio shooting up, the Chinalco deal does not look like a good deal currently and with investors clamoring to break the Chinalco offer, the Rio board has very little room for maneuver, because even if the FIRB passes the deal, the investors of Rio are very likely to end this honeymoon.