Aluminum Corp of China (Chinalco), the nation's largest aluminum producer, is in talks with Anglo-Australian miner Rio Tinto Group on potential projects amid reports that they will jointly develop a $12 billion iron-ore project.

"We are in talks with Rio Tinto on potential projects, and we are talking with many partners on investment projects. Rio is one of them," said Lu Youqing, vice-president of Chinalco, the top shareholder in Rio with a 9.3 percent stake. However, he declined to specify the project.

The Sydney Morning Herald had earlier reported that the two companies are in talks to develop the Simandou iron-ore project in the West African nation of Guinea.

A tie-up with Chinalco could help Rio offset some of the continuing costs of the projected $6 billion Guinea mine project. Rio is spending about $10 million a month to explore the mine in anticipation of selling the ore commercially, the Wall Street Journal (WSJ) said on Tuesday, quoting an unnamed source.

The negotiations are also centered on whether the Chinalco funds could be invested in offsetting the future development costs of the mine, the US newspaper said.

Simandou has 2.25 billion metric tons of resources, with annual production capacity of 70 million tons of iron ore, Rio said.

The Anglo-Australian miner is trying to repair relations with China, its biggest customer, after the soured last year. It ended talks with Chinalco on a proposed $19.5 billion alliance and formed an iron ore joint venture with rival BHP Billiton last year.

Relations with China worsened after four Rio employees in Shanghai were accused of bribery and commercial espionage during the annual iron ore price talks.

Rio CEO Tom Albanese will attend the China Development Forum in Beijing this weekend, alongside chief executives of other foreign companies, Bloomberg News said on Monday.

"An objective for 2010, and one that I am particularly focused on, is to strengthen our relationship with China," Albanese said in the annual report released on Monday, according to Bloomberg.

"China is our largest source of short-term demand growth," he said.

"We will continue to work towards extending our relationship with Chinalco and to pursue business opportunities that may be to our mutual benefit," Rio Chairman Jan du Plessis said.

Chinese companies spent more than $30 billion buying up mines and oil deposits globally last year, taking advantage of the global recession to add resources to feed domestic economic growth.

Rio is also in talks with Chinalco on the Oyu Tolgoi copper and gold project in Mongolia, iron-ore exploration in China, and bauxite and alumina refining in Australia, the Sydney Morning Herald said.

Chinalco President Xiong Weiping told Reuters on Sunday that the company is in talks with many potential partners, including Rio, and hoped to participate in Oyu Tolgoi.