Chalco resumed trading Friday after its announcement on a deal on joint development of Guinea iron-ore project. Chinalco will pay Rio Tinto, which holds 95% of Simandou project, US$1.35 billion through Chalco, over 2-3 years. Chalco will ultimately own 44.65% in the project, while Rio Tinto’s stake will be 50.35%, with remaining 5% to continue to be held by International Finance Corp. This is a transformation for Chalco, as iron is outside core alumina, aluminium businesses.

The fund managers react positively to the deal.  Simandou iron-ore project signifies company moving upstream, diversifying out of alumina, aluminium businesses. “We view the move as positive, as a reflection of Chalco’s strategic reposition from a pure aluminum producer into a more diversified and global platform,” says Credit Suisse who keeps Outperform call, HK$7.80 (ADR $25.11) target. Another fund, Kim Eng , says although deal will bring short-term cash pressure, given strong iron ore demand from domestic steel mills, “we view this event as positive and to boost investor’s sentiment.”  BOCI believes news will boost sentiment, “reaffirms our view that the firm seeks to diversify from aluminium production into other metals.” However, BOCI doesn’t expect any near-term earnings enhancement as mining will not commence before 2015 and, ”moreover, the company will need to raise cash to fund the investment.”

The market reacted positively. Chalco’s pre-suspension price was HK$6.71 and it rose 2.68% to HK$6.89 (ADR $22.17), after earlier touching HK$7.07, when Hong Kong Friday morning session ended. The stock was last traded at $21.84 on Wall Street.