'(The deal) creates a pioneering strategic partnership with a leading Chinese diversified resources company,' Rio Tinto said in a statement to the Australian stock exchange.

Soon after the announcement Rio revealed that its annual net earnings had halved in 2008 as demand for its products deteriorated in the final quarter.

Rio said the Chinalco deal raised significant funds at a time when financial markets were distressed and would help to reduce the company's debt load.

Chief executive Tom Albanese said: 'Given the current uncertain economic conditions and the unprecedented rate of deterioration in our markets and prices, we are now focusing our efforts on maximising and conserving cash generation and paying down debt.' For Chinalco, the transaction will increase Beijing's direct control over resources needed to feed its economy.

Rio said Chinalco would invest US$12.3 billion in joint ventures in aluminium, copper and iron ore.

The company will also issue US$7.2 billion of convertible bonds to Chinalco, allowing the state-owned Chinese aluminium giant to increase its stake in Rio.

Rio said earnings in the 12 months to December were US$3.68 billion, down from US$7.31 billion in the previous year.

Writedowns totalling US$8.4 billion hit the bottom line, and were only partially offset by the US$1.5 billion raised in asset sales.

The deal came as Australian Treasurer Wayne Swan announced tighter foreign takeover laws that would crack down on complicated foreign investments that use instruments such as convertible notes.

'Even in the face of a global economic recession, investors recognise the underlying strengths of the Australian economy, and we are seeing strong interest in investments in the Australian resource sector,' Mr Swan said.

'The government welcomes foreign investment in the development of Australia's resources.' Australia's Foreign Investment Review Board automatically reviews proposed deals that give a foreign entity 15 per cent or more in an Australian firm.

Chinalco's proposed deal, which involves some US$7.2 billion in convertible bonds, would give it 14.9 per cent of Rio Tinto's Australian shares.

Chinalco later said it welcomed Swan's announcement, Dow Jones Newswires reported.

'It was always our commercial intention to seek approval from the Foreign Investment Review Board on all aspects of the transaction and to abide by all Australian laws,' Chinalco Deputy General Manager Lu Youqing said. -- AFP