By Sonali Paul and Alfred Cang

Leng, deputy chairman of India's Tata Steel , was named as Rio's next chairman just over three weeks ago.

Leng said in a statement he resigned following a dispute over how to cut Rio's heavy debt load of around $39 billion.

"As the company previously stated, it has a financial issue to resolve in terms of its debt and repayment and there has been a difference of opinion over which option the company should pursue. I am hopeful that my resignation will enable the board to reach a consensual decision," he said.

Last week, Rio said it had held talks with Chinalco, China's largest aluminum producer, about selling it convertible notes and stakes in some assets, but declined to comment further.

"The two companies are still in talks," Chinalco vice president Lu Youqing told Reuters on Monday.

He could not confirm a timeframe for a deal, which a Chinese newspaper reported was likely to be sealed before Thursday, when Rio Tinto releases its annual results.

CHINALCO KEY ISSUE

Leng did not mention the Chinalco deal in his statement, but an industry source said that was the key issue.

"He believes that the financial issue is not best resolved through this Chinese solution because it has some strategy implications that are going to restrict the long-term options available to the company," said the source, who declined to be named.

"This is a financial problem, it needs a financial resolution."

Leng did not resign because he wanted to take up another chairmanship, the source added.

Another deal potentially in the offing for Rio is a sale of an asset, possibly Rio's 75 percent stake in coal producer Coal & Allied Industries , to Japanese trading group Mitsui & Co <8031.T>, the Australian Financial Review reported.

The move comes as Rio scrambles to sell assets and has axed jobs and projects to meet its target of reducing debt by $10 billion this year, but the sales have taken longer than expected against a backdrop of tumbling global commodity prices.

Rio shares fell 2.2 percent in London to 1,914 pence, largely in line with the UK mining index <.FTNMX1770>, after gaining 5.7 percent in Australia.

The gains in Sydney were driven by investors focused on the prospect that Rio would announce a deal this week to wipe out concern about an $8.9 billion debt payment due in October.

Chinalco bought a 9 percent stake in Rio with U.S. aluminum giant Alcoa a year ago. The stake is now worth about one-third of the 60 pounds a share they paid.

NEW HEAD AT CHINALCO

Chinalco spokesman Lu said the company's president Xiao Yaqing will be replaced by former executive Xiong Weiping, although the move had not been announced, even internally.

An analyst in Hong Kong said he did not expect any major change under the new president.

"They don't really have as much control as people might think. What I'm saying is I don't think the man matters so much as the times," said Larry Grace, analyst at Kim Eng Securities in Hong Kong.

Rio has been moving quickly to pare debt after bigger rival BHP Billiton Ltd/Plc scrapped a hostile takeover bid for it last November.

Rio Chairman Paul Skinner said last month he would step down earlier than planned. The company said he will now remain in the post until mid-2009 to allow time to appoint a successor.

"Paul Skinner staying on longer could be a positive as Rio is not yet through its turmoil. It's yet to deal fully with its debt, iron ore negotiations are going on and things have yet to settle down," said Peter Chilton, resources analyst with Constellation Capital Management in Sydney.

Skinner was considered the preferred candidate to take over as chairman of British oil giant BP in April, but some shareholders have raised concerns about the planned appointment in light of Rio's woes, according to recent news reports.

(Additional reporting by James Regan and Denny Thomas in Australia and Eric Onstad in London; Editing by Anshuman Daga and Mike Nesbit)