Rio & Chinalco in talks over Mongolia mine - paper

SYDNEY, Oct 29 (Reuters) - Global miner Rio Tinto (RIO.AX) is looking to mend relations with Chinese metals firm Chinalco by making a joint investment in Mongolia's Oyu Tolgoi copper-gold mine project, an Australian newspaper said on Thursday.

Rio Tinto (RIO.L) and Chinalco fell out in June when the miner walked away from a proposed $19.5 billion equity tie-up with the Chinese company and instead forged an iron ore partnership with rival miner BHP Billiton (BHP.AX) (BLT.L).

"Sources close to both Chinalco and Rio Tinto confirmed that the companies were proceeding cautiously with early discussions about investment and cooperation at Oyu Tolgoi," The Age said.

One of the world's biggest untapped copper and gold deposits, Oyu Tolgoi lies in Mongolia's Gobi Desert, about 80 km (50 miles) from the border with copper-hungry China.

Rio Tinto does not own a direct stake in the mine project. It holds its interest in Oyu Tolgoi entirely through its major stake in the mine's developer, Canadian-listed Ivanhoe Mines (IVN.TO).

Rio Tinto and Ivanhoe plan to spend as much as $4.5 billion to bring the mine to production by late 2013. It is expected to produce an average of more than 1 billion pounds of copper and 500,000 ounces of gold annually over the first 10 years.

Rio Tinto declined to comment on The Age report, noting that Chinalco was still the major shareholder in Rio Tinto and that it was always in talks with its investors.

"Chinalco is our largest shareholder and we always have conversations with shareholders," a Rio Tinto spokesman said, adding that these talks were confidential.

Mongolia will take a 34 percent stake in the project under an investment agreement signed with Ivanhoe this month. (Reporting by James Regan and Mark Bendeich; Editing by )