Rio Tinto Alcan Open To Working With Chinalco — CEO 

MELBOURNE -(Dow Jones)- The head of Rio Tinto Ltd.'s (RTP) aluminum division said Wednesday the miner is open to working with Aluminum Corp. of China, also known as Chinalco, on projects and pointed to the Weipa and Aurukun projects in Queensland state as one possibility.

"We are not opposed to working with our single largest shareholder if something could make sense so that is something that is on the table that we will consider as an option as we explore the best way to further develop Weipa," Rio Tinto Alcan Chief Executive Dick Evans told reporters.

Chinalco unit Aluminum Corp. of China (2600.HK), or Chalco, is set to spend A$2.9 billion on the Aurukun bauxite mine which lies just to the south of Rio Tinto’s giant Weipa bauxite operations.

Evans said there had been no substantive talks with Chinalco since the Chinese group revealed it had purchased a 9% stake in Rio Tinto, but Rio Tinto is open to talks and he believes Chinalco is interested in a possible cooperation.

In a briefing at Rio Tinto’s Melbourne offices, Evans said he is confident Rio Tinto can extract further synergies from its acquisition of Alcan, beyond the US$1.1 billion it is currently targeting, although not until after 2009.

Rio Tinto is in talks with Russian aluminum giant United Co. Rusal over the possible expansion of their Queensland Alumina Ltd. joint venture and the relationship is improving, Evans said.

The alumina refinery currently has capacity of about 3.9 million metric tons a year and Evans said feasibility work could begin within 12 months on an expansion of up to 1 million tons.

Rio Tinto has been keen to promote its aluminum division as a key point of difference with BHP Billiton Ltd. (BHP.AU) as it fights to fend off a hostile takeover from its rival pitched at 3.4 BHP shares for each Rio Tinto share held.

Rio Tinto Chief Executive Tom Albanese has said the miner has the leading position in the aluminum industry, and has contrasted this with BHP’s petroleum division, which he described as a "nominal" player in its sector, sparking heated debate over the relative value of the two businesses.

Evans, the former chief executive of Alcan before it was taken over by Rio Tinto, declined to compare the two divisions, but said he was surprised to hear BHP talking down the prospects of the Alcan business.

"I find some of the rhetoric perhaps a bit amusing because, from my unique vantage point, I know that less than 12 months ago BHP was falling all over themselves to get into the Alcan deal," he said.

There has been a "fundamental shift" in the aluminum market since Rio Tinto bought Alcan for US$38.1 billion last year, Evans said, and the business would be worth a lot more today.

Rio Tinto expects aluminum consumption to grow 7% a year till 2015, driven by Chinese consumption which is set to grow at an average 14.7% a year over the same period.

At the same time, the cost of aluminum production is being driven higher by rising energy and electricity prices, as well as higher prices for bauxite and alumina.

Evans said the timing of the planned sale of Alcan’s packaging division had been affected by the global credit crisis.

"There is no question that the liquidity issues have had an impact on private equity and, I think, (on) buyers in this same space and that has been a factor that has slowed us down somewhat," he said.

The business is still performing well and Rio Tinto has a number of interested parties and expects to complete the sale by the year-end, he said.

Rio Tinto has a long list of planned expansions in bauxite, alumina and aluminum that are set to boost output, although some on the list are now looking less certain, Evans said.

The miner has put the Coega aluminum smelter in South Africa on hold due to power shortages and Evans said there is also now a question mark over a planned smelter in Abu Dhabi.

"Abu Dhabi is looking less attractive because in the Middle East they are looking again at reallocating their scarce natural gas to higher end uses, so these two I think are both delayed and may not happen," he said.