Alcoa Inc. is selling its interest in mining giant Rio Tinto Group for about $1 billion to investment partner Aluminum Corp. of China, one year after investing $1.2 billion in the world's third- largest mining company.

The deal helps solidify Alcoa's finances, just days after Standard & Poor's Ratings Services dropped its ratings with a prediction Alcoa's credit outlook is deteriorating.

America's largest aluminum producer said it would take a $120 million, first-quarter charge related to the sale -- an amount that should be applauded, said metals analyst Charles Bradford.

"Those guys ought to be complimented. This was a humongous win for Alcoa," said Bradford, who owns a New York consulting firm. "At the end of the year, the investment in Rio was down $800 million, so losing $120 million is a huge win."

One year ago this month, Alcoa and Aluminum Corp. of China, known as Chinalco, announced a deal to acquire 9 percent of Rio Tinto for $14 billion.

"When we made the initial investment with Chinalco in Rio Tinto, the world economy was a whole lot different, the aluminum industry was a whole lot different," said Alcoa spokesman Kevin Lowery. "The landscape has radically changed."

The transaction between Alcoa and Chinalco was minuscule compared to Chinalco's other deal announced yesterday, investing $19.5 billion in Rio Tinto. That transaction secures resources for the Chinese government-owned company, including a stake in Utah copper mines, while helping cut Rio's enormous debt load. If approved, the Chinese firm would control 18 percent of Rio Tinto.

Alcoa will receive from Chinalco $1.02 billion in three installments, with the final portion due by July 31. That's another win for the Pittsburgh icon, Bradford believes. Rio is two companies, one headquartered in Australia and the other in London.

"There is some question as to whether the Australian government will even approve the Rio-Chinalco deal," Bradford said. "It's very possible Alcoa could have all of its money before the Australian government has turned it down."

There are concerns the Australian government may not approve the Rio Tinto-Chinalco deal because it wants to ensure that investments by foreign, state-owned companies don't involve political strings, experts said.

Shortly before yesterday's announcement, Australia's treasurer, Wayne Swan, said the government would immediately tighten foreign ownership laws.

The $1 billion deal with Chinalco occurs days after Alcoa's debt was downgraded by Standard & Poor's analyst Marie Shmaruk, who sees the company's credit outlook deteriorating "significantly" this year.

"Given uncertainties regarding the length and depth of the ongoing economic downturn and our expectations of a long, slow recovery, improvements thereafter will likely result in credit metrics that we would consider to be more consistent with a 'BBB-' rating," Shmaruk said in her ratings note.

"This deal was a good idea because it brings in a lot of cash to Alcoa -- and cash is what's needed in today's economy," said Amir Arif, a metals analyst in Arlington, Va., with Friedman Billings Ramsey & Co. "This should help Alcoa in the eyes of the ratings agencies because it will certainly strengthen its balance sheet."

Shmaruk added that measures taken to date won't be sufficient to improve Alcoa's financials to levels above the low-investment-grade level during the next two to three years.

"In addition, we have concerns regarding the company's liquidity position in light of the current difficult credit environment," Shmaruk said.

Alcoa said yesterday it would continue to partner with Chinalco, "identifying strategic ventures that will benefit from the companies' complementary strengths ... ."

Alcoa said with a number of governments worldwide spending to jump-start economies, specifically on infrastructure projects, it expects the demand for aluminum to increase dramatically.

"The joint ventures could help because the Chinese have a lot of firepower and they are willing to spend money," Arif said. "There's a possibility at some time, Alcoa might sell some assets into a joint venture with Chinalco to fund some capital needs."

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