Alcoa Taps Aluminum Demand With Brazil Bauxite Mine

JURUTI, Brazil (Dow Jones)-U.S.-based Alcoa Inc. (AA) has completed more than half the construction of a mine in this Amazon River village designed to eventually produce nearly 10% of the world’s supply of bauxite, a key resource for aluminum manufacturing.

The 1.6 billion reals project underscores the dwindling resources and growing demand for raw materials that is driving more miners into new territory. That means mines like Alcoa’s are going to be in high demand, despite the complicated logistics in making such remote mines operational.

The market is eagerly awaiting expansion in bauxite production, as aluminum consumption is estimated to grow 9.6% in 2008 and an average of 8% through the decade. At the same time, major bauxite exporter Guinea is constantly plagued by political instability. Current global bauxite output is around 164 million tons a year.

The Juruti project is even more important for Alcoa’s Brazilian in-house projects as freight rates remain high and Alcoa needs to feed its expanding aluminum operation in the country.

The mine is projected to produce 2.6 million metric tons a year by August, with the possibility of expanding to 12 million tons a year in the future — the company didn’t specify when production will reach the peak level. So far Alcoa has spent BRL1.6 billion on the project.

The mine’s construction license has been renewed and Alcoa will apply for its operational license in May 2008.

Construction is expected to be completed by August 2008, with the first barge carrying a load of the mineral down the Amazon River to the eastern coast of Brazil, where it will supply Alumar. This is a joint venture alumina refining and aluminum smelting operation with BHP Billiton (BHP) near Sao Luis, on the eastern coast of Brazil.

Alumar is expanding its alumina refining capacity to 3.5 millions tons a year and Alcoa’s annual share in the complex is planned to increase to 1.3 million tons of alumina, expected by the end of 2008.

Bauxite is refined first into alumina, which is then made into aluminum. It takes four tons of bauxite to make two tons of alumina, which in turn makes one ton of aluminum.

Currently Alcoa is sourcing bauxite from another mine in the Amazon run by Mineracao Rio do Norte, which Alcoa has a stake in. But the demand from Alumar is driving the need for more bauxite from the Juruti project.

Bauxite prices vary given differences in quality, but Brazilian bauxite is towards the upper end of the price range, getting around $35 a metric ton because of its high quality.

To make Juruti operational, Alcoa is building a port area along the Amazon River and still has to lay a 57-kilometer railway link to connect the port with the mine site. The area where the tracks will be laid has been cleared and once the rain season has eased, the tracks can be laid ready for startup in August.

Bauxite will then be shipped up the Amazon in barges that can carry 60,000 tons at a time; it’s estimated that it will take four to five days to reach the port of Sao Luis. At the beginning of operations, Alcoa is planning to ship one barge a week to Sao Luis.

The Amazon River is deep enough at the point where the mine is located, so Alcoa doesn’t need to dredge to get ships down the river, the company said.

Juruti is a town of 34,000 between the larger Amazonian cities Manaus and Belem. The mine area is spread across 1,500 hectares, accounting for 0.18% of the Juruti municipality’s total area, a district akin to a U.S. county.

Given Juruti’s isolated location, everything comes by barge, which takes 12 hours along the Amazon from the closest town of Santarem. It’s not well connected to the rest of Brazil by roads either. Reaching the mine requires a combination of commercial airline and chartered 12-seater aircraft, or a boat ride.

Alcoa has had to build its own landing strip. As construction progresses and the mine nears operational status, the makeshift airport is expanding. Landing lights to enable night flights are being installed.

Alcoa said some of the mining constraints include water and land preservation, given its location.

Since construction at the Juruti mine started in August 2006, the number of workers at the site has grown from 500 to 5,000. The current workforce is 38% from Juruti, 45% from Para State and the remainder from larger Brazil, but Alcoa is trying to increase the number of workers from the local community to minimize workforce turnover.

As a part of its efforts to work with the community and reduce the human stress and environmental damage from the mine, Alcoa has deployed a team of 20 specialists, which has so far spent BRL64.4 million, to create a water plant, and train residents, among other projects. The company has also recently agreed to pay BRL25 million or 1.57% of its total project budget in compensation to the Para State Environmental Agency.

"The mine is setting a new benchmark, so it’s different from just putting in a mine," said Jose Mauricio Macedo, sustainability and corporate affairs manager for the project. " Alcoa sees the project not only as mining but as a regional development project."