Chinese state-owned metals firm Chinalco may revise its planned $19.5 billion investment in miner Rio Tinto before a June 14 deadline to avoid further delays in Australian government approval, two sources close to the deal said on Thursday.

Any changes would address concerns raised by both Canberra and Rio Tinto shareholders over the biggest overseas investment by a Chinese company.

I think they'll (Chinalco) come out and make an announcement before the deadline, an investment banker with direct knowledge of the deal told Reuters.

There's a lot of things on the table and there's a lot of frustration, and I think Chinalco are getting to the point where they want to make an announcement sooner rather than later, probably next week, the banker said.

Australia's Foreign Investment Review Board (FIRB) is due to give its recommendation on the deal to Treasurer Wayne Swan by June 14. Swan has the final say on whether it will go ahead.

If there was a chance the deal needs to be amended, the companies would notify FIRB of that before a FIRB decision on the current application, said another source close to the deal.

There would be no point getting something through FIRB only to have it rejected by shareholders, he said.

Neither source wanted to be identified due to the sensitive nature of the negotiations.

As the deal stands, Chinalco would pay $12.3 billion for stakes in debt-saddled Rio's key iron ore, copper and aluminum assets and $7.2 billion for convertible notes that would double its equity stake in Rio to 18 percent.

Rio Tinto's shares in London fell 1.0 percent to 2,882 pence by 3:35 a.m. EDT, largely in line with a weaker UK mining index <.FTNMX1770>. Rio shares in Sydney closed down 6.6 percent on Thursday, while bigger rival BHP Billiton fell 5.2 percent.

SHAREHOLDER OPPOSITION

The deal has run into opposition from Rio shareholders, who have complained the deal favors Chinalco over other shareholders, and from some who are worried that China, Rio's biggest customer, will gain influence over pricing of key commodities like iron ore.

From the perspective of Rio Tinto, there's big pressure from shareholders to change it. Unfortunately, it's a bit embarrassing for them and not very convenient, in terms of maintaining relations with Chinalco, said Peter Chilton, an analyst with Constellation Capital Management, which owns Rio Tinto shares.

He said it looked like a revised deal may reduce the bond issue to Chinalco, limiting its stake to 14.9 percent, and would include a rights issue to all Rio Tinto shareholders.

Noise around the deal comes as China's steelmakers hold out for steeper price cuts on iron ore contracts from major miners than the one-third price cut Rio has already agreed with Japanese, South Korean and Taiwanese mills.

CLOCK TICKING

It would be up to FIRB to decide whether to approve a revised application by June 14, or extend the review, depending on how big the changes are, said one of the sources and another person close to the process.

Rio and Chinalco would prefer if the clock remained ticking on the current timetable, the source said.

If a revised deal were approved by June 14, shareholders would get to vote on it by mid-July at the earliest.

In some form, not on its own, the Chinalco deal will probably get up. Whether with a combination of rights is hard to tell, said David Walsh, portfolio manager at Barclays Global Investments, Rio's fifth-largest shareholder in Australia, according to Reuters data.

If the deal was revised only after being approved by Canberra, it would need to be resubmitted to FIRB as a fresh proposal and could face further delays.

Rio and Chinalco declined to comment on the deal's status.

Rio originally lined up the deal in February to help pay off half its $38 billion in debt, and had hoped then to complete the deal by early in the third quarter. However, commodity, equities and credit markets have improved since then, making the deal less attractive to shareholders.

The company has said it is listening to shareholders' concerns, and has said it remained committed to the deal.

Chinalco has said publicly it would not like to see its Rio stake reduced below 15 percent and did not want to see any changes to the asset side of the deal.

People familiar with the deal have previously told Reuters that Chinalco may be willing to drop a proposed 15 percent stake in Rio's Hamersley iron ore assets from the deal to get over Canberra's worry about a Chinese state-owned entity owning a strategic asset.

(Additional reporting by Joseph Chaney in HONG KONG and Denny Thomas in SYDNEY)

(Editing by Jonathan Standing & Ian Geoghegan)

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