The Tiwai Point aluminium smelter is firing up its capacity again, but owner Rio Tinto has bigger issues on its plate today, with a new $US5.8 billion deal with rival BHP Billiton and a massive $15 billion rights issue as it backs away slowly from its Chinalco deal.

The death of the Chinalco deal has been widely reported in global media overnight and has been confirmed this afternoon by Rio, which says the BHP deal and the rights issue offer "the best solution".

Rio has also confirmed the launch of the fully underwritten rights issue and the deal with BHP, with Rio shares on the NZX frozen for much of the morning, although the trading halt has now been lifted.

Yesterday, the world’s third largest mining company confirmed it was restoring capacity at its Southland smelter, seven months after a transformer failed, knocking out a quarter of its capacity and directly affecting some of the country’s largest energy providers.

But that news has been overshadowed this morning with reports that Rio Tinto is calling off its $19.5 billion deal with Chinalco.

Shares of Rio Tinto fell by 8% on the London Stock Exchange overnight after widespread speculation that the deal had been sunk by vocal opposition from shareholders over a convertible bond issuance, along with possible regulatory barriers.

Rio chairman Jan du Plessis says the "extensive feedback" from shareholders was a major factor in deciding to withdraw from the deal.

"Over recent weeks we were also endevouring to achieve a new agreement with Chinalco. We were disappointed that we were unable to find a solution acceptable to both sides."

Rio will still need to pay Chinalco the agreed break fee of $195 million.

Rio has wasted no time in announcing a source for replacing some of the lost capital, with the confirmation of the joint venture with rival BHP Billiton.

The new deal, announced today, will see the two mining giants combine their major Australian operations into a 50-50 joint venture.

BHP will pay Rio Tinto $5.8 billion to take its equity interest in the venture to 50 percent, although the agreement is still non-binding at this stage.

Further capital will also be raised through the biggest rights issue in Australian history.

The rights issue has always been seen as a solid plan B for Chinalco, but the numbers now being thrown around dwarf the $A8-10 billion previously predicted.

The rights issue will offer 21 shares for every 40 existing shares at $A28.29 per share, which is expected to raise $US15.2 billion.

The deal with state-owned Chinalco would have been the largest single foreign investment by a Chinese company and would have given it an 18% stake in Rio.

But even though Rio’s stock price has rallied since the February announcement, its third-largest investor Legal & General Group slammed the deal for not allowing shareholders other than Chinalco to participate.

The company has little time to waste. It must refinance $8.9 billion by October, with a further $30 billion in longer-term debt.