Despite Failure of Rio Deal Chinalco is Doing Well

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Aluminum Corporation of China (Chinalco), the country’s largest alumina and primary aluminum producer has not let the grass grow under its feet since losing the chance to increase its stake in Rio Tinto Alcan earlier this year. In the first ten months of the year, Chinalco added holdings of 53 million tons of bauxite reserves and 3 million tons of copper reserves. Chinalco’s primary alumina and aluminum capacity has gradually come back on stream as domestic demand has increased; the company is now running at 90% of alumina and 88% of aluminum capacity according to a report in Reuters. This is a dramatic improvement from August when the company stated it was operating just 67% of total alumina capacity and 83% of total primary aluminum capacity. It has about 11 million tons of annual alumina capacity and 4 million tons of primary aluminum capacity.

But Chinaclo is about a lot more than aluminum. According to the Peruvian Times Chinalco is to invest $2.15 bn in developing the Toromocho open pit copper mine in Peru’s central highlands, near Morococha in Junin. Production is set at 200,000 tons of copper per annum and is scheduled to begin in early 2012. Apparently Chinalco has aspirations for Toromocho to be the most advanced copper mine in Chile.

Nor are bridges with Rio completely burned, Rio themselves said just last week that they are keen to develop projects with Chinalco and the two firms have been in recent contact. In many ways the surprise during this recession is that Chinese companies like Chinalco have not been more acquisitive snapping up assets at discounted prices. The purchase of a sizable chunk of Rio’s assets would have been a major coup for Chinalco and explains their annoyance at being dumped when a better deal from BHP and Rio’s shareholders came along. But the failure is an example of a much bigger problem Chinese companies have had in buying into existing businesses. They have done moderately well investing in very high risk African green field sites but much less well trying to buy western assets on the cheap in that respect it has not been a good recession for China.

–Stuart Burns

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