Mining giant Rio Tinto said it could sell more assets and reschedule debt if a proposed $19.5 billion tie-up with China's state-owned aluminum firm Chinalco fails to go ahead.

Rio also said on Thursday it expected a recovery in metals prices in the second half of 2009 as China's stimulus package boosts domestic infrastructure spending.

The upbeat comment helped lift copper prices by 3.0 percent in early trade to $4,088 per tonne.

Rio shares in London jumped 3.6 percent to 2,299 pence by 0910 GMT (5:10 a.m. EDT), outperforming a 1.3 percent rise in a European basic resources index <.SXPP>. Rio shares in Australia rose 1.6 percent to a four-month high of A$54.85.

First of all, we think it (Chinalco deal) will go through, but we have plans in the eventuality if other various governments or shareholders prevent the deal, finance director Guy Elliott told a mining conference in Singapore.

Alternatives could include asset sales, bond issues, debt rescheduling, a rights issue, or some combination of these, Elliott said, adding: We have a plan B.

Last, but not least, we have more than adequate backup.

Analysts have said prospects may dim for Rio's proposed link-up with Chinalco if strong markets boost the attraction of a rights issue and investors believe a new chairman would be more willing to consider alternatives.

NEAR BOTTOM?

Elliott said that despite contradictory signals from the world economy, he was hopeful metal prices would recover in the second half of the year as China's increased infrastructure investment offsets falling demand in the West.

There is a case, you can believe, for a recovery in the second half, he said. We are not far away from the bottom.

We cannot expect that metal prices and other indicators are going to be immune from such a huge effort that the governments are making, particularly in China, but also in the U.S.

The U.S. economy showed tentative signs on Wednesday that it may have stopped shrinking, after the government has pumped in hundreds of billions of dollars.

Beijing has launched a 4 trillion yuan ($586 billion) spending package and issued plans to support nearly a dozen key industries.

Under Rio's proposed deal with Chinalco, China's top aluminum company will pay $12.3 billion for stakes in Rio's iron ore, copper and aluminum assets and $7.2 billion for convertible bonds that would double its equity stake in Rio to 18 percent.

Australia's competition watchdog (ACCC) cleared the deal this week, rejecting at least one key counter-argument. A final decision rests with Australia's finance minister.

It's nice for shareholders and potential shareholders to realize there are options should the Chinalco deal not work, for whatever reason, and the company isn't in dire straits should that deal be opposed or rejected by shareholders and/or Australia's Foreign Investment Review Board, said Tim Schroeders, portfolio manager with Pengana Capital.

Elliott said the Chinalco deal could provide Rio with greater access to the Chinese market and possible funding from China on projects there.

He said Rio's board decided in favor of a deal with Chinalco over a rights issue because there was a lot of uncertainty about the outlook for the industry at that time.

I still think the Chinalco deal, from what we can see at the moment, offers a very good deal for shareholders in positioning the company to resume its production growth, said Schroeders.

Without that deal, the company survives and does have a number of financing options available to it, but it will stymie its future growth ambitions.

Rio, which has already sold several billion dollars worth of assets, separately said it will shut a pig iron plant in Australia for 12 months, due to a weak outlook.

(Additional reporting by Kash Cheong in Singapore, Sonali Paul in Melbourne and Eric Onstad in London)

(Editing by Ian Geoghegan and Dan Lalor)

($1 = 6.830 yuan)

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