Rio Tinto announced the world’s largest industrial joint venture yesterday while simultaneously launching a $15.2 billion (£9.5 billion) rights issue.

The Anglo-Australian miner scrapped its proposed $19.5 billion deal with Chinalco, the Chinese state-owned metals group, after pressure from shareholders and is instead pursuing the heavily discounted rights issue.

The capital raising will be the third-largest by a British company and the largest by an industrial company.

Rio’s UK shareholders will be offered 21 shares for every 40 they own at a price of £14 — a discount of 48.5 per cent to Thursday’s closing price.

Investors reacted with enthusiasm to the announcement yesterday and Rio’s shares rose £2.81 to £30.01.

Rio also announced that it would create a joint venture with BHP Billiton that will lead to a merger of their iron ore operations in the Pilbara region of Western Australia. The venture is to manage mines and infrastructure, but the two companies will continue to sell their product independently.

Rio and BHP said yesterday that the joint venture would generate cost savings of at least $10 billion. As part of the iron ore agreement, BHP will pay Rio $5.8 billion to make the joint venture a 50-50 partnership and there is a $275 million break fee.

However, the deal is subject to regulatory approval by the European Commission and governments.

BHP dropped its hostile bid for Rio last year in part because the Commission raised concerns about one company controlling the vast Pilbarra iron ore operations. The combined company would have owned 39 per cent of the world’s exported iron ore, the raw material used to make steel.

The companies said yesterday that the approval process could take a year, but they were optimistic that a joint- venture structure could overcome regulatory concerns.

Jan du Plessis, the chairman of Rio Tinto, said that the company had chosen to abandon the Chinalco deal and pay a $195 million break fee because circumstances had changed.

Rio struck the deal with Chinalco in February because it was concerned about its ability to repay $19 billion of debt that was due over the next two years. The company had taken on $39 billion of debt after buying Alcan, the Canadian aluminium producer, and a collapse in metal prices at the end of last year threw into doubt its ability to meet its debt obligations.

Under the Chinalco deal, the Chinese would have bought convertible bonds worth $7.2 billion and stakes in Rio mines for a further $12.3 billion.

However, Rio’s shareholders were angry that it had agreed a capital raising with the Chinese without offering them the opportunity to take part and Australia’s Government expressed concern that Rio was considering selling strategically important assets to China.

Mr du Plessis said: “After extensive feedback from shareholders and other stakeholders, we concluded that the rights issue and BHP joint venture were the best options.”

He added that a recovery in Rio’s share price and the return of liquidity to financial markets had made the terms with Chinalco less attractive.

Legal & General, Rio’s largest institutional shareholder, said: “We are pleased that Rio Tinto has decided to pursue a conventional rights issue; it is important that companies of significant standing choose to honour shareholder rights.”

Rio also said that it would pay no interim dividend this year and that its full-year payment would be subject to trading conditions.

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