China Trade Information

Aluminum Corp. of China, the nation’s biggest producer of the metal, is considering acquisitions to take advantage of a slump in global stock markets that reduced the price of potential targets.

Chinalco, as the Beijing-based state-owned company is known, could pay as much as the $14.5 billion that it and Alcoa Inc. spent buying a 9 percent stake in Rio Tinto Group, President Xiao Yaqing said today in a Bloomberg television interview in Hong Kong. It’s also studying building bauxite mines in Indonesia and Africa, he said.

“To become a global mining giant, Chinalco must pursue a multimetal development strategy,”Tang Lixin, an analyst at Galaxy Asset Management Co., said by phone from Shanghai today. “It is getting difficult to find such a good target as Rio.”

Chinalco and Chinese rivals are scouring the globe buying mines and oilfields to feed an economy that has grown more than 10 percent a year since 2001. Global equities have plunged as the U.S. slows, with Rio now trading 12 percent less than the price paid by Chinalco in February.

“In times of stock market decline and lower assets prices, it’s time for good and strong companies to look for opportunities,” Xiao said. “If there are good investment opportunities like Rio, we will definitely invest.”

Increase Rio Stake

Chinalco said it bought the stake in London-based Rio to diversify into other metals and as part of a strategy to secure resources. Analysts have said the purchase may stymie BHP Billiton Ltd.’s $137 billion takeover offer for Rio, the world’s third-largest mining company.

BHP, the biggest mining company, wants Rio to create the largest exporter of aluminum and coal.

Chinalco has more than 200 billion yuan ($28 billion) of assets, a debt ratio of 48 percent, and is able to secure funding from Chinese banks, Xiao said. At Rio’s current price,”the chance for Chinalco to increase the stake in Rio Tinto is bigger than selling the stake,”Xiao said.

“Chinalco is in broad discussion with Alcoa to explore opportunities in corporation in various areas,”he said, declining to be more specific.

Rio Tinto spokeswoman Amanda Buckley and BHP spokeswoman Samantha Evans both declined to comment today.

More Expensive Assets

“Listed companies may be expensive, but they have operating assets,”Xiao said. “We’re also looking at new projects for long-term investments. We’re looking at cooperation with all.”

Xiao today said the company is studying bauxite projects in Indonesia and Guinea. Aluminum is smelted from alumina, a secondary material refined from bauxite ore.

Deposits could be similar in size to a A$3 billion ($2.8 billion) bauxite mine and refinery project in Australia planned by its listed unit Aluminum Corp. of China Ltd., Xiao said today.

The Aurukun deposit in Queensland has bauxite deposits of 650 million metric tons. Chalco may mine 7.5 million tons of bauxite a year to produce 2.1 million tons of alumina.

“China faces a shortage of bauxite resources, but it’s not a global issue,” Xiao said.

Bauxite prices have risen as much as 30 percent since January on rising Chinese demand and dwindling exports from Indonesia, India’s largest exporter said Feb. 19. China imported 23 million tons of bauxite last year, and the amount will increase further, Xiao said.

Capital Expenditure

Chalco, as the Shanghai and Hongkong-listed unit is known, may have a capital expenditure of more than 20 billion yuan this year, Xiao said. Investments will rise over the next two years, he said.

Chinalco doesn’t plan to sell new shares in Chalco to raise funds for the parent’s expansion, as “it has nothing to do with Chalco,”Xiao said.

Tags: Chinalco

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