Rio Tinto has admitted it will consider selling equity to help repay $10bn (£7bn) of debt, in response to reports that it is working with banks to gauge shareholder backing for a A$6bn (£2.8bn) rights issue.

The mining group’s statement on Wednesday, which was triggered by a query from the Australian Stock Exchange, comes two weeks after Tom Albanese, Rio’s chief executive, said the group would not need to launch an emergency rights issue unless economic conditions deteriorated further.

Mr Albanese had insisted cost-cutting and asset sales would be enough to meet debt reduction targets.

Dual-listed Rio said Wednesday that its boards in the UK and Australia did “not rule out the potential to issue equity”, the first time it has stated publicly that it would consider such an option to help repair its balance sheet.

However, the group stressed that nothing had changed in the past two weeks and that it still saw no need to launch a rights issue at the present time.

Rio’s heavy debt burden of about $37bn has come under scrutiny in the months since BHP Billiton, its Anglo-Australian rival, abandoned a $62bn hostile pursuit of its smaller counterpart.

Last month, Rio unveiled a series of measures to raise cash, including 14,000 job cuts and a $5bn cut in its capital expenditure budget.

Other options include an expanded programme of asset sales and holding the 2008 and 2009 dividend payouts.

The Australian Stock Exchange on Wednesday queried Rio on “market rumours” following reports that Deutsche Bank, Macquarie Group and Morgan Stanley could help the company with an equity offering of A$4bn-A$6bn.

There have also been reports that large institutional investors had been approached about their interest in a possible equity offer.

In response to the exchange’s query, Rio said: “In order to preserve maximum flexibility for the group, the boards do not rule out the potential to issue equity as one of the options it has available, if it is determined to be in the best interests of shareholders …No decision on which options will be pursued has yet been taken and further announcements will be made as and when appropriate.”

Falling commodities prices have led to lower profit margins and cash generation for most of the world’s mining groups amid concerns that the most highly geared of them will struggle to service their debt repayments. The tough market conditions also mean buyers are scarce for the assets that Rio is trying to sell, making a rights issue look more probable.

Rio’s London-listed shares fell 24p Wednesday to close at £16.15.

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