1 September
SHANGHAI,
Dow Jones

SHANGHAI -(Dow Jones)- State-owned Aluminum Corp. of China hasn’t made a decision on raising its holding in Australian miner Rio Tinto PLC (RTP), Chinalco Chairman Xiao Yaqing said Monday.

"When and whether to raise (our stake in Rio Tinto) will depend on market conditions," Xiao told reporters in Shanghai.

"We’ll decide what will be the best for Chinalco, and make the decision. The Australian government’s approval just provided an option for us," Xiao said.

In February, Chinalco and Alcoa Inc. (AA) said they had paid US$14.1 billion for a 12% stake in London-listed Rio Tinto PLC, which equates to 9% of Rio Tinto Group.

On Aug. 24, Australian Treasurer Wayne Swan gave regulatory approval for Chinalco’s bid to acquire a stake of up to 14.99% in Rio Tinto PLC, which equates to an interest of around 11% in Rio Tinto Group.

However, Swan said Chinalco must seek further approval from the Australian government to raise its stake any further, and Chinalco can’t seek to appoint a director to either Rio Tinto PLC or Rio Tinto Ltd. (RIO.AU) as long as its stake is below 15%.

Chinalco isn’t concerned about any potential losses from the Rio Tinto investment, Xiao said, as it is a long-term investment that would be profitable over 10 or 20 years, and Chinalco’s decision is supported by Rio Tinto’s good first-half earnings.

Global economic uncertainties and volatile equities markets have prompted concerns in China about local firms' investments overseas, but Xiao said Chinalco’s global investments will facilitate its goal of becoming an international company in the future.

"It’s only when the big firms are involved in mergers and acquisitions, or face problems in the global economic slowdown, that we Chinese companies have the opportunity to buy into them."

The company "won’t take on everything by itself, and welcomes domestic and other companies' participation in all its overseas projects," Xiao said, adding that it welcomes companies like Alcoa and Rio Tinto to be its partner.

Xiao said Chinalco is aware of the international community’s concerns regarding Chinese companies' rapid overseas resources acquisitions, but "that doesn’t mean foreign governments are against Chinese investments.

Chinalco, the country’s biggest alumina producer by output, has said it plans to expand into copper and rare earth metals production, but Xiao said copper and titanium are the company’s focus now.

"I’m more optimistic about copper than aluminum, given the scarcity of (copper) ore worldwide," he said.

In May 2007, Chinalco signed an agreement with Anglo-Russian mineral resources developer Aricom PLC (TIO.LN) to set up a titanium manufacturing project in the northeastern Chinese province of Heilongjiang, with an investment totaling CNY5 billion to CNY6 billion.

Chinalco is the parent of Hong Kong and Shanghai-listed Aluminum Corp. of China Ltd. (ACH), better known as Chalco.

Xiao, who also heads Chalco, said the listed unit’s results in the first half is "not good enough." Chalco said Friday its first-half net profit fell 65.56% from a year earlier to CNY2.40 billion because of rising production costs and lower output, and it expects costs to rise further in the second half.

Xiao said uncertainties in the global economy, domestic over capacity and high pressure on production costs will lead to a volatile market for aluminum and alumina in the second half.

Alumina could rise as high as CNY3,500-CNY4,000 a metric ton in the second half, but could also fall below CNY3,000/ton, Xiao forecast. In the first half, Chalco sold alumina at an average of CNY2,830 a ton, down 4.52% from a year earlier.

In the second half, the average domestic price of aluminum is likely to be above CNY18,000/ton, Xiao said. In the first half, Chalco sold aluminum at an average of CNY16,241/ton, down 5.64% from a year earlier.

China’s demand for aluminum is expected continue to grow by 15% annually, Xiao said.

Meanwhile, bauxite prices are likely to fall a tad in the second half, and "its prices in the first half looks like it will be the peak for the next couple of years," Xiao said.

Bauxite is used to make alumina, which is used to produce aluminum.