Should I ask colleagues of my mentor for internship opportunity?
I think it would be perfectly reasonable for you to a) ask your mentor which of his colleagues might be accepting students and b) mention his name when contacting his colleagues, AFTER you've first made sure he's ok with this plan. 

I don't think you need to be worried about a conflict: he's opened the door by saying that he's too busy to take on students this summer. As to whether he'd give you a good reference, that's quite hard to say, which is why it's best to ask him. Paper rejection in and of itself doesn't mean he doesn't like your work.