June 5 (Bloomberg) -- Rio Tinto Group, the third-largest mining company, is considering a plan to raise as much as $15 billion in a stock sale after rejecting an investment from Aluminum Corp. of China, two people involved in the talks said.

Rio may also sell stakes in Australian iron ore mines to BHP Billiton Ltd., said the people, who declined to be identified because Rio’s board hasn’t approved the deal. BHP is in discussions with Rio about sharing infrastructure in a joint venture, the people said. Rio, which has a market value of 42 billion pounds ($68 billion), will make an announcement about the rights offer today, two other people said. Its shares were halted from trading in New Zealand and Australia this morning.

The funds would replace the planned $19.5 billion investment from Chinalco, as the state-owned Chinese company is known, the people said. That deal, which would have been the largest single foreign investment by a Chinese company, was criticized by Rio’s third-largest investor Legal & General Group Plc for not allowing shareholders other than Chinalco to participate. Metals prices and Rio’s stock have rallied since the accord was signed in February.

Rio “will say they listened to their shareholders,” Nick Hatch, an analyst at ING Groep NV in London who has a “hold” recommendation on the stock, said by phone. “As the share price rallied and credit market conditions improved, an alternative deal started to look like a much more attractive option.”

‘Range of Options’

Rio said in a statement yesterday it is “pursuing a range of options, some of which are at an advanced stage, for maximizing shareholder value and improving the group’s capital structure.”

BHP spokesman Ruban Yogarajah declined to comment. Liz Morley, a London-based spokeswoman for Chinalco, also declined to comment.

Rio slipped 192 pence, or 6.6 percent, to close at 2,720 pence on the London Stock Exchange yesterday. Melbourne-based BHP declined 2.5 percent to 1,456 pence. Rio rose 48 percent between Feb. 12, the day the Chinalco agreement was announced, and the close on June 3. Copper in London increased 42 percent in the same period.

The cost of protecting against default on Rio’s five-year bonds declined 12 percent to 313.194 basis points as of 6:07 a.m. in London. The pound and the Australian dollar fell.

Sydney Meetings

Under the plan announced Feb. 12, Chinalco agreed to buy $7.2 billion of convertible debt and pay $12.3 billion for stakes in some Rio projects. The decision to scrap that deal came after two days of meetings in Sydney, one of the people said. Rio must pay Chinalco a $195 million break fee should Rio withdraw from the deal or recommend an alternative proposal.

At $15 billion, the rights offering would be the second biggest this year after HSBC Holdings Plc, which sold $18.3 billion of stock in April. Rio would join companies including Xstrata Plc, the world’s fourth-largest copper producer, that have sold $45.2 billion of stock to existing investors, data compiled by Bloomberg show.

JPMorgan Cazenove, Credit Suisse Group AG and Morgan Stanley have been hired to arrange the potential rights offer with Macquarie Group Ltd., the people said.

Rio, which rejected a hostile offer from BHP in November, is cutting jobs and trying to sell assets to repay $10 billion of debt this year. It has total borrowings of $38.9 billion, incurred mainly through the 2007 purchase of Alcan Inc.

BHP and Rio may save as much as $10 billion by combining their iron-ore assets in the Pilbara region of Western Australia state through a merger or joint venture, UBS AG said in a May 14 report.

Rio and BHP are the world’s second- and third-largest iron ore producers and may supply 75 percent of imports of the raw material into China this year, according to Goldman Sachs JBWere Pty. China is the biggest steelmaker. Brazil’s Vale SA is the largest iron ore producer.

To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Ambereen Choudhury in London at at achoudhury@bloomberg.net;

Last Updated: June 4, 2009 19:20 EDT