Global miners Rio Tinto (RIO.AX) (RIO.L) and BHP Billiton (BHP.AX) said on Friday they will combine their major Australian iron ore operations, scuppering a $19.5 billion (12 billion pound) bid by China’s Chinalco to secure a stake in Rio and long-term access to its key ore supplies.

BHP (BLT.L) and Rio, the world’s second and third largest iron ore miners, have agreed to combine the operations into a 50-50 joint venture, the companies said in a joint statement, generating savings of at least $10 billion.

BHP, which dropped a bid to buy Rio last year, will pay Rio Tinto $5.8 billion to take its equity interest in the venture to 50 percent, but it stressed that the agreement was non-binding at this stage.

Rio said it was raising $15.2 billion in a deeply discounted rights issue to further cut its hefty debt pile.

"It’s significant. It’s something that was always a possibility and now it’s been realised," said Jamie Spiteri, senior dealer at Shaw Stockbroking.

"A significant component of BHP and Rio’s success going forward is to ensure that they reestablish good relations with the Chinese despite the fact the Chinalco deal with Rio has fallen over."

Chinalco said it planned to make a statement on Friday.

BHP shares in Australia climbed more than 9 percent to A$38.43 (19.10 pounds)

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