Coverage:

©AFP/File / Leon Neal

Rio Tinto chief executive Tom Albanese has signed a non-binding agreement with China's state-owned Chinalco

SYDNEY (AFP) - Mining giant Rio Tinto announced a huge iron ore deal with China's state-run Chinalco Friday, days before four if its staff go on trial in a case that has threatened diplomatic and trade ties.

Rio said Chinalco signed a non-binding, 1.35 billion US dollar deal to help develop a massive mine in Guinea, drawing a line under a period of turbulent relations with its biggest shareholder.

"We have long believed that Rio Tinto and Chinalco could work together on major projects for mutual benefit," said Rio chief executive Tom Albanese.

The debt-strapped Anglo-Australian miner snubbed a 19.5 billion US dollar cash injection from Chinalco last June, angering some Chinese commentators.

Weeks later, China's spy agency swooped on Australian citizen Stern Hu and three Chinese colleagues in Shanghai, prompting a rapid plunge in relations with Canberra and sending shudders through China's foreign business community.

Hu, Wang Yong, Ge Minqiang and Liu Caikui are scheduled for a three-day trial in Shanghai from Monday over alleged bribery and industrial espionage, setting the stage for renewed sparring between the two governments.

©AFP Graphic

Graphic on a massive mining project in Guinea, the focus of talks between Rio Tinto and China's Chinalco

Australia on Friday insisted business with China, now its biggest trading partner, would not be harmed by the trial.

"The two matters are separate," Trade Minister Simon Crean told public broadcaster ABC.

"We are treating the Stern Hu case strictly as a consular case. We've never sought to make any link and neither have the Chinese in their discussions with us."

However, Prime Minister Kevin Rudd has already warned that the "world will be watching".

Analysts say the case goes to the heart of Australia's relationship with China, as it centres on its biggest export to the country, iron ore, and touches on issues such as judicial independence.

The trial will be held against the backdrop of new iron ore tensions, after China ignored Australia's request to stay out of annual contract negotiations and vowed to support steelmakers in a pricing dispute with top miners.

Guinea's Simandou mine, long mired by political upheaval, is described as the world's best undeveloped source of high-grade iron ore, which is being consumed in vast quantities by industrialising China.

©AFP/File / Philippe Lopez

Debt-strapped Rio Tinto snubbed a $19.5 bln cash injection from Chinalco last June, angering some Chinese commentators

Analysts say the 110 kilometre (70-mile) seam could produce 200 million tonnes a year, matching Rio's entire Western Australia Pilbara operation. Chinalco will acquire a 47 percent stake in the project.

"It's a world-class monster. It's a gorilla of a project," James Wilson, a research analyst with stockbroker DJ Carmichael, told AFP earlier this week.

Rio said the project, which involves building a mine, railway and port, would create tens of thousands of jobs in the impoverished country during construction and some 4,000 full-time posts when operations start.

"Chinalco brings its own skills and capabilities in major projects and access to the infrastructure expertise of other Chinese organisations," Albanese said.

China signed a seven-billion-US-dollar mining and oil deal with Guinea last October in a controversial move, just weeks after troops opened fire on protesters, killing 150 people, according to rights groups.

Rio's senior officials had earlier outlined plans to strengthen relations with China, and Albanese is due to attend the China Development Forum in Beijing this weekend.