By Jackie Range and Anjuli Davies

SYDNEY/LONDON (Reuters) - Mining group Rio Tinto Plc has drawn up a shortlist of half a dozen suitors for its majority stake in Canada's largest iron ore producer, sources with knowledge of the situation said on Monday.

Rio values Iron Ore Co of Canada (IOC) at around $8 billion and is seeking between $3.5 billion and $4 billion for its stake, one of the sources said - roughly double industry estimates when the asset was earmarked for sale earlier this year.

Like some rivals, Rio has promised to focus on its key assets and sell non-core operations as it wrestles with a $19 billion debt burden, sluggish demand and weaker prices.

But a dearth of serious suitors and poor offer prices have restricted disposals - factors which could still hamper the sale of Rio's 59 percent holding in IOC, even with suitors circling.

"The biggest issue is whether Rio is going to get its reserve price," the source said.

Rio appointed advisers three months ago to sell the stake, adding to a string of assets on the block, including diamonds and aluminum. In iron ore, its push to refocus has meant concentrating on Australia's Pilbara region, where it has lower costs and higher grades.

The two sources said that after receiving 13 to 15 initial bids last month, the shortlist had been whittled down to five or six. One of the sources said it was unclear when binding bids were due, as Rio was still seeking additional interest in coming weeks from buyers including some of China's largest players, so far absent.

While iron ore assets up for sale are plentiful at a time of escalating costs and uncertain economic prospects, most are early-stage projects with high infrastructure costs and associated risks. IOC, however, has been producing since 1954.

WHO IS BUYING?

Suitors involved in the process include private equity fund Blackstone Group LP and miner and trader Glencore Xstrata Plc , two separate sources with knowledge of the matter said, though the latter is seen embroiled in the integration of Xstrata, a transformational deal that closed only last month.

Canada's largest diversified miner Teck Resources Ltd was also originally seen as a likely bidder, having long said adding iron ore to a portfolio that produces over 24 million tonnes of metallurgical coal a year would give it more leverage with steelmakers. It also favors assets in production.

But one of the sources said Teck had cooled in its appetite for acquisitions. The company in April played down the likelihood of its involvement in any major deal as "grossly overblown" and said it would remained disciplined as it comes under pressure from sagging coal and copper prices.

Rio's move to sell its IOC stake follows steelmaker ArcelorMittal SA's sale of a 15 percent stake in one of its iron ore operations in Canada, raising $1.1 billion to help pay off debt. Arcelor sold the stake to a consortium including South Korean steelmaker POSCO .

That deal also effectively precluded the involvement of POSCO, a spokeswoman for the steelmaker said. Other Asian suitors could include Essar Steel and Tata , India's largest steelmaker by market value, the sources said, though at least one source questioned Essar's interest.

IOC is a leading supplier of iron ore pellets and concentrates. It also owns and operates the Quebec North Shore & Labrador (QNS&L) rail line to its shipping terminal and deep water port in Sept-Îles, Quebec.

Shares in IOC not owned by Rio are held by Japan's Mitsubishi Corp , which has a 26 percent stake, and Labrador Iron Ore Royalty Income Corp.

Spokesmen for Rio, Blackstone, Glencore and Essar declined to comment. Tata had no immediate comment.

(Additional reporting by Greg Roumeliotis in New York, Hyunjoo Jin in Seoul, Sonali Paul in Melbourne and Krishna Das in Mumbai; Writing by Clara Ferreira-Marques; Editing by David Holmes)

Source