AluNews - July 2007

Tata Steel to sell aluminum business of Corus

Myiris.com, India - Jul 1, 2007

Tata Steel is planning to sell the aluminum business of Corus, reports Business Standard.

The Corus aluminum business consists of two smelters in the Netherlands and Germany and is expected to earn more than USD 1 billion (Rs 40 billion).

Last year, Corus sold its downstream aluminum business, including its rolling and extrusions business in Europe, for USD 1 billion. Now it is also looking for selling its aluminum business in Netherlands due to the high-energy cost.

In January 2007, Tata Steel (Q, N,C,F)* acquired Corus for USD 12.9 billion, making it the largest overseas takeover by any Indian Company abroad.

Shares of the company closed up Rs 4.15, or 0.70%, at Rs 597.20. The total volume of share traded was 26,093 at the BSE (Friday).

Aluminum to Beat Copper

Free Market News Network, FL Monday, July 02, 2007

A growing number of investors say takeovers of Alcan Inc. of Canada and Russia's OAO Sual Group may reduce aluminum production as China, the world's largest supplier, cuts exports. Aluminum will be the only metal on the LME to gain for the rest of 2007, while copper, nickel, zinc and tin decline, futures markets show. -Bloomberg

http://www.freemarketnews.com/WorldNews.asp?nid44976 for full story

Rio green light to Gladstone expansion

The Australian, Australia - July 03, 2007

RESOURCES giant Rio Tinto said it will proceed with the $US1.8 billion ($A2.1 billion) expansion of the Yarwun aluminium refinery at Gladstone, in central Queensland.

The mining giant said the expansion would more than double annual production, increasing output by two million tonnes to 3.4 million tonnes by 2011.

"The expansion of the Yarwun Alumina Refinery is one of the most significant investments made by Rio Tinto in recent years," said chief executive Tom Albanese.

The company said it would supply bauxite to the refinery from its long-life resource at Weipa, in northern Queensland, adding scale efficiencies.

"The attractive fundamentals of the aluminium industry, combined with Yarwun's well located, low cost position and our excellent bauxite resource at Weipa, reinforce the deep underlying strength of the group's organic growth pipeline," Mr Albanese said.

Rio Tinto said the refinery would be primarily gas-fired.

Work will commence on the expansion in the third quarter of 2007. It is expected to take about three years to complete.

First shipments are expected in the second half of 2010.

Alcoa hints at boosting offer for Alcan

WIS, SC 03-Jul-2007

By Robert Melnbardis and Steve James

MONTREAL/NEW YORK (Reuters) - Alcoa Inc. (AA.N) says it could raise its hostile $28.6 billion offer for Alcan Inc.(AL.TO) (AL.N) if warranted, but the Canadian aluminum maker has rebuffed requests for talks, a regulatory filing showed on Tuesday.

In an exchange of letters late last month included in an Alcoa filing with the U.S. Securities and Exchange Commission, Chief Executive Alain Belda said Alcoa would welcome the chance to visit an Alcan data room, if one exists.

Hinting that Alcoa could increase its cash-and-stock offer he said looking at Alcan's books would help "determine whether there is additional value for your shareholders beyond that reflected in our offer."

Evans replied that talks would require a confidentiality and standstill agreement between the two firms, and when Belda replied that any such agreement would have to take into account Alcoa's current offer, Evans said he saw "no reason to engage in further discussions or correspondence."

Alcan would not confirm or deny if that it had opened a data room.

There has been speculation that big international miners such as BHP Billiton (BLT.L) (BHP.AX) or Rio Tinto (RIO.AX) (RIO.L) may be interested in poring over Alcan's books with a view to making an offer.

Alcoa spokesman Kevin Lowery said the company was amenable to signing a standstill agreement, but only if it accounts for the fact that Alcoa has already made an offer for Alcan.

"Our offer is still out there and our team stands ready to engage in conversation," he said.

Alcoa's offer expires on July 10, but the company has said it would likely have to be extended.

Alcan said little had changed in Alcoa's position since it made its hostile offer directly to Alcan shareholders May 7.

"They had two years to make a compelling offer and they never did, and Alcoa has refused to sign a standard confidentiality and standstill agreement in that time," said Alcan spokeswoman Anik Michaud.

Alcan says Alcoa's refusal to sign a two-year confidentiality and standstill agreement -- under which each company would agree not to purchase shares of the other for a specified time -- was a key factor in the failure of talks on a "merger of equals" last year.

Alcan said Alcoa refused to sign a standstill agreement because the U.S. company wanted to keep the option of making a hostile offer for Alcan.

Alcan is expected to unveil its own strategy in the coming weeks, indicating whether it wants to remain independent, find another suitor, or reach a friendly deal with Alcoa.

"Alcan has got to come up with a third party, and if not, make a proposal to Alcoa to convert the bid into a friendly offer at a better price," said analyst Charles Bradford, of Bradford Research/Soleil.

Bradford noted that Rio Tinto, touted as a possible white knight for Alcan, just invested $1.8 billion in an alumina refinery expansion and aims to focus on internal growth and a share buyback.

"That's not the kind of thing you would do if you were going to bid for Alcan," Bradford said.

Alcoa's cash-and-stock bid was valued at $75.65 a share on Tuesday.

Alcan shares closed at $84.01, up $1.40 or 1.7 percent, on the New York Stock Exchange on Tuesday, well above Alcoa's offer. Trading on the New York Stock Exchange ceased at 1 p.m., ahead of the July 4 U.S. Independence Day holiday.

In Toronto, Alcan shares closed at C$88.83, up C$1.93 or 2.2 percent.

Alcoa shares closed at $41.50, up 41 cents or 1 percent, in New York.

LME aluminum seen sliding

Purchasing.com, MA - July 3, 2007

By Tom Stundza

Primary aluminum sold for an average 1.26/lb for the first six months on the London Metals Exchange (LME). For the year, Purchasingdata.com projects an LME cash buyer price of $1.25—which also is the same price projection of Global Insight of Lexington, Mass. (Last year, LME aluminum averaged $1.16/lb.)

Purchasingdata.com’s 2008 outlook is $1.13 for world aluminum, while Global Insight’s outlook is even lower at $1.10. Reason: Global aluminum output is growing at an annual rate of 11.4% (among the highest rates in 24 years) even though global industrial production is slowing, reports Harbor Intelligence in Laredo, Texas.

A dissenting voice is analyst Dan Brebner at UBS Securities in London, who projects a world price of aluminum at $1.40/lb—because of expected increases in raw material and energy costs. In a recent Bloomberg story, he pins the possibility of higher-priced aluminum metal next year on takeovers of Alcan in Canada and Sual Group in Russia— which may reduce aluminum production just as China, the world's largest supplier, reduces shipments to other countries.

Alcan Endorses United Nations Global Compact Climate Change Statement

CSRwire.com (press release) - July 5, 2007

Alcan Joins More than 150 Global Compact Participants in a Call to Action on Climate Change

(CSRwire) MONTREAL- July 5, 2007 - Alcan Inc. announced today that it has signed the UN Global Compact's "Caring for Climate: The Business Leadership Platform" statement. The official statement, which was announced in conjunction with the Global Compact Leaders Summit in Geneva, Switzerland, is a powerful call to action from the participants of the Global Compact who wish to advance practical climate change solutions and voice the need for all businesses, governments and citizens to take steps to address climate change.

"Alcan is pleased to join the more than 150 signatories of the Global Compact's statement on climate change," stated Dick Evans, President and CEO of Alcan Inc. "At Alcan, we firmly believe that climate change is a truly global issue, and therefore we need to combat the negative impacts of climate change on a global level. This statement clearly articulates the urgent need for all sectors around the world to work together towards the common objective of advancing practical climate change solutions," he added.

Alcan has long been committed to addressing the issue of climate change. In addition to significantly reducing its own greenhouse gas (GHG) emissions over the past 17 years, Alcan has been a leader in the climate change debate. The company chaired the Executive Forum on Climate Change in 2005; took part in the Carbon Disclosure Project; participated in the United States Climate Action Partnership; and on an ongoing basis, lends its support to progressive NGOs like the World Environment Center.

Mathieu Bouchard, Vice President, Business Sustainability for Alcan Inc. is in attendance at the Global Compact Leaders Summit in Geneva and has endorsed the declaration on Alcan's behalf. "Alcan believes that a market-based solution, such as an emissions trading system is an effective way to address climate change. This statement from the UN Global Compact's participants recognizes this and urges governments to facilitate these systems with clear and effective legislation," he stated.

The "Caring for Climate: The Business Leadership Platform" statement was drafted by the UN Global Compact, UN Environment Programme, and the World Business Council for Sustainable Development. It is a message from the business sector recognizing the urgent need for extensive action from all sectors to address climate change. The signatories commit to taking practical action to increase energy efficiency and reduce emissions from their respective organizations. The statement also calls on governments to create long-term effective climate-friendly legislation and fiscal frameworks and to co-operate internationally to create a robust global policy on climate change.

Rio Tinto braced for aluminium bid battle

Telegraph.co.uk, United Kingdom - 1:25am BST 06/07/2007

By Ben Harrington and Mark Kleinman

Rio Tinto, the world's second-largest mining group, is drawing up plans to gatecrash the $28bn (£14bn) hostile bid battle being fought between the North American miners Alcan and Alcoa, The Daily Telegraph can reveal.

Rio Tinto, which is listed in London and Sydney, is understood to have engaged Credit Suisse and Deutsche Bank to advise it on a range of options, including a bid for Alcan. Another possibility is a bid for Alcoa although this is thought less likely.

The appointment of the two banks comes after the hiring of Morgan Stanley, Rio's long-standing financial adviser, by the Canadian-based Alcan, which is trying to fend off the unwelcome approach from Alcoa.

People close to the process said last night that Rio Tinto had asked Credit Suisse and Deutsche Bank to explore "strategic opportunities" in the mining sector, which is undergoing a round of global consolidation.

Rio Tinto is thought to have already held tentative talks with Alcan's management about a counter-offer for the Canadian aluminium miner, which received the $28bn hostile bid from Alcoa, its US rival, at the beginning of May.

Dick Evans, the chief executive of Alcan, said in a regulatory filing this week it was "exploring alter-natives consistent with the best interests of our shareholders, which includes ongoing discussions with third parties".

In addition to Rio Tinto, it has been reported that Mr Evans has talked to BHP Billiton, the world's largest mining company about a possible white knight counter-offer.

It was not clear last night what stage the discussions between Rio Tinto and Alcan had reached. Alcan is attractive to Rio Tinto because it would bring valuable alumina and bauxite reserves. Alcan had sales of C$23bn (£10.8bn) in 2006 and net income of C$1.7bn. Rio Tinto had sales of $22bn and pre-tax profits of $10.2bn.

Rio Tinto, a global leader in iron ore and copper and has a strong presence in commodities such as aluminium and uranium, was at pains this week to stress the organic growth opportunities available to it in the aluminium sector as it unveiled a $1.8bn expansion of a refinery in Queensland, Australia.

However, bankers with knowledge of Rio Tinto's plans said it is keen to get hold of Alcan and Alcoa's aluminium mining assets, although less likely to be interested in Alcoa's downstream metal production businesses and its packaging subsidiaries.

Companhia Vale do Rio Doce (CVRD), the Brazilian mining group, is also thought to have shown interest in making a counter offer for Alcan.

However, Alcoa's regulatory filings also reveal that its chief executive, Alain Belda, believes he could raise his hostile bid although Alcan has rebuffed requests for talks.

The flurry of mergers and acquisitions in the mining sector reflects surging demand for commodities, fuelled by the voracious economic growth in emerging markets such as China and India. The boom has left mining companies awash with surplus cash, which many have opted to return to shareholders. However, analysts expect a number of big deals will be seen in the coming months.

Alcoa Gets 2nd Gov't Request

Forbes, Associated Press 07.06.07, 9:11 AM ET

Aluminum maker Alcoa Inc. on Friday said the antitrust division of the Department of Justice requested additional information about its $27.5 billion hostile takeover bid for rival aluminum maker Alcan Inc.

The request, the second from the Department of Justice, extends the waiting period before any deal can take place to 30 days after Alcoa (nyse: AA - news - people ) has complied with the request.

Alcoa said it will continue cooperating the Department of Justice's review.

The takeover bid is facing opposition from Alcan . On Wednesday, Alcan denied a request by Alcoa for further talks on the bid. Alcan's board of directors rejected the unsolicited offer as inadequate in May and urged its shareholders to follow suit.

Alcoa shares rose 17 cents to $41.52 and Alcan shares rose 80 cents to $85.90 during premarket electronic trading.

Questions or comments about this story should be directed to the Financial News desk of The Associated Press at 212-621-7190.

Once the brightest, India Foils frays at edges over time

Economic Times, India - SATURDAY, JULY 07, 2007 04:06:57 AM

MV RAMSURYA & RAKHI MAZUMDAR

MUMBAI/KOLKATA: Seven years after buying India Foils from the BM Khaitan group, the Anil Agarwal-promoted Vedanta Resources has put the foils maker again on the block. But what draws attention is that the company, which is also India’s largest in the aluminium foils category, is suddenly not attractive anymore.

The Aditya Birla group and Sterlite Industries — Vedanta hadn’t been promoted then — fought a pitched battle from 1997 to gain ownership of the Kolkata-based company. The world’s largest, Alcoa, too was interested.

The aim was to corner what was then almost a monopoly in packaging and covers. Apart from a variety of uses, aluminium foils are used to wrap consumer items such as chocolates and food items and most importantly, by the pharma industry for packing tablets.

With an installed capacity to make 19,000 tonne of foil products such as light gauge bare foil, chocolate foil, pharma foil, cigarette foil, pilfer-proof cap foil at its three units at Heora, Taratalla and Kamarhati in West Bengal, India Foils was an undisputed leader. So why is it being sold? According to a senior executive with Hindalco Industries — the largest aluminium maker in India — it is a combination of factors such as erosion of margins, dumping threats from China and a wipeout in a major market usage.

"Earlier, the margins used to be high as demand was growing and there weren’t many sources," said the executive who didn’t want to be named. "Now, with China ready to dump foils, the margins are really low. The scope for value addition has eroded," he added.

The low-volume, low-margin scenario can fit a small player, but with players like Hindalco and Vedanta having grown in size, it wasn’t viable. In fact, Vedanta executives have said for an upstream company like theirs, a downstream activity isn’t their focus. In foils, average demand size is small and typically varies between 100 kg and 500 kg and requires a lot of customisation.

Hindalco makes 410,000 tonne of aluminium products a year, while Vedanta makes about 400,000 tonne. Both companies declined comment. Being a value-added product, supply of base grade aluminium is vital. But this was a problem for India Foils. Says Aditya Khaitan, a director with Williamson Magor, the former owner: "Though IFL (India Foils) was producing good quality value-added products, it was always dependent on external sources for supply of basic feedstock or foilstock. The cost of the raw material was steadily increasing and we were not in a position to pass on the cost to our customers."

This is in contrast to global aluminium companies like Alcan which have a strong downstream business. Domestic aluminium majors, on the other hand, continue to add smelting capacities. Availability of high quality bauxite works to their advantage making them one of the lowest cost producers of the metal. In the past few years, strong metal prices on the LME also seemed to work in their favour, thus adding to their bottomlines.

India Foils, which in the last fiscal posted sales of Rs 237 crore, is believed to have a debt burden of about Rs 300 crore. A possible valuation will include that of its three factories; Heora and Taratalla are not operational. But the company has the high-value Achenbach rolling mills and high-speed printing and laminating machines.

Namdung House, the headquarters of India Foils, on prime location on Shakespeare Sarani, in Kolkata, was sold for Rs 5 crore to Simplex Concrete Piles in 2002. The office building, with about 20,000 square feet of built-up capacity, was lying vacant ever since IFL left the BM Khaitan group.

Alcan in talks with miners

Telegraph.co.uk, United Kingdom - 6 Jul, 2007

Rio Tinto has hired bankers to look at a bid for Alcan, the Canadian aluminium producer.

But is it really worth Tom Albanese, Rio's chief executive, trying to break into an already fractious bid battle raging between Alcan and Alcoa?

Given Alcan's reluctance to fall into the arms of Alcoa, it is clearly looking for a white knight, so now is the time to strike.

One prize for Rio is Alcan's huge bauxite deposit in Australia, called Gove. This would fit very neatly with Rio's existing Weipa bauxite deposit, also in Australia.

There is obvious industrial logic in the tie up, plus cost savings from combining the two businesses that would be significant. A Rio-Alcan tie-up would result in the creation of the world's largest aluminium producer, topping Russia's Rusal.

The past few years have been among the easiest in history for mining chief executives.

Booming demand for raw materials from China, India and economies such as Brazil has meant management has been able to watch as prices of metals and other commodities soared. But there might well be some harder work to do now.

The bulls of the mining sector have been predicting a new "super-cycle" that suggests demand from fast developing economies will last for the long term and which represents a "new paradigm".

Those wary of that term believe soaring commodity prices are not sustainable. But mining chief executives tend to fall into the first camp, which is why they believe consolidation is worth pursuing. Buying existing assets, such as Alcan's Gove deposit, is more economical than investing in the search for, and development of, new deposits.

Consolidation between mining companies on this scale will therefore deliver management extra pricing power, at least that's the theory.

Big customers such as China aren't going to accept constantly rising prices for raw materials, and will no doubt step up the search for their own deposits.

The other danger facing miners is the temptation at the top of the market to reach too far and overpay for rivals - something which shareholders in Rio should be worrying about rather more.

China to fund $1 bln hydro dam in Guinea

Washington Post, United States Saturday, July 7, 2007; 2:12 PM

By Saliou Samb

CONAKRY (Reuters) - China has agreed to fund the construction of a $1 billion hydroelectric dam in mineral-rich Guinea and renovate a series of state buildings, government officials in the West African country said on Saturday.

The Souapiti dam should allow the former French colony to generate some 750 MW of electricity, officials said. Guinea is one of the world's least developed countries and even parts of the capital city have only sporadic mains power.

A senior Chinese government delegation visiting Guinea had confirmed that China's government-owned Export-Import Bank (Eximbank), which has invested in projects across the world's poorest continent, would fund the dam.

Local media reported that in return, Guinean authorities would guarantee China access to mineral reserves equivalent to some 2 billion tonnes of bauxite, the raw material used in the production of aluminum.

"To guarantee Chinese investment, you have to give them guarantees but nothing has yet been formally decided," said Cece Noramou, a senior official in Guinea's mines ministry.

"They are interested in bauxite but we haven't finished determining the tonnage and so on," he added.

China has been offering low interest loans, debt relief and other incentives to countries around Africa as it seeks to increase its influence on the continent and gain access to natural resources to feed its fast developing economy.

Guinea is the world's top bauxite exporter but most of the population survive on less than $1 a day.

The Chinese delegation also promised debt relief worth around $4 million and an aid package of $5.2 million, according to Aboubacar Cisse, a spokesman for Guinea's foreign ministry.

He said China had pledged to renovate the People's Palace cultural centre in Conakry and the state radio and television centre, partially destroyed when a Guinean air force jet crash-landed on it in April.

Billiton project in Orissa to be scrapped

Financial Express, India Saturday, July 07, 2007

BHUBANESWAR, JULY 6: The proposed world-class alumina refinery project by the Australian mining major, BHP Billiton in Orissa is unlikely to materialise as the state government was not keen about the venture, official sources said.

The government's impression on the world's largest mining company came to the fore after BHP Billiton's India chairman M S Ramachandran made a presentation on the proposed project before the chief secretary Ajit Kumar Tripathy last week.

The company has proposed to establish only an alumina refinery which does not ensure full value addition to bauxite, said a senior official who attended the presentation session.

According to Industries Secretary Ashok Dalwai, the government wanted value addition to the raw material down to aluminium metal and also secondary processing in downstream industries like transport, construction and packaging.

He said maximum value addition would ensure more employment generation as well as extra revenue generation for the state.

Sources said the company couldn't affirm on the value addition to the raw material when the senior officials of the state asked about it during the presentation.

As such the government's policy says that the investor which agrees for value addition to the raw material only would be provided with captive mines. We could not have two policies, said an official.

Bauxite reserves of 120 mln tons found in China's Guangxi province

Forbes, NY 07.09.07, 1:54 AM ET

BEIJING (XFN-ASIA) - China's Ministry of Commerce said that it has found 120 mln tons of new bauxite reserves in southern Guangxi province.

In a statement published on its website, the ministry said that the new reserves, which are located in Chongzhou in the southern region of Youjiang, has a very high-quality of bauxite, a raw material for making aluminum.

No further details were given.

Currently, the proven reserves of bauxite in Guangxi are about 1 bln tons, making the province one of the country's biggest bauxite sources, the ministry added.

zachary.wei@xfn.com

Alcan tip for Rio

Melbourne Herald Sun, Australia -July 09, 2007 12:00am

SPECULATION is mounting in London investment circles that global miner Rio Tinto is set to pitch a takeover bid for Canadian aluminium company Alcan.

Several British newspapers reported on Friday that Rio had asked investment banks Credit Suisse and Deutsche Bank to advise it on a range of options, including a possible bid for Alcan.

Alcan confirmed on Friday that it was talking to third parties after rejecting a $US28.6 billion (A$33.3 billion) takeover offer from US-based Alcoa.

"We've said from the outset that we were in discussions with third parties," said Alcan spokeswoman Anik Michaud.

Ms Michaud refused to identify the third parties, but noted that Alcan's shares were trading on Friday almost 14 per cent above the Alcoa bid.

Rio's Australian spokesman Ian Head refused to comment on the reports.

Alcan is the world's third largest maker of primary aluminium, behind Alcoa and Russia's Rusal.

If Rio bought Alcan, it would have access to two of the world's largest sources of bauxite -- Rio's existing Weipa deposit and Alcan's Gove deposit, both in Australia.

Bauxite is required to make alumina, then aluminium, for use in products ranging from drinks cans to aircraft.

Last week Rio announced plans to invest $1.8 billion in expanding its alumina refining operations, which some analysts interpreted as a sign it would not bid for Alcan.

Alcoa made its bid on May 7, about six months after the collapse of two years of merger talks with Alcan.

BHP Billiton, Anglo American and Xstrata are also viewed as potential bidders for Alcan. with REUTERS

Norsk Hydro to close or sell U.S. aluminum remelter

International Herald Tribune, France The Associated PressPublished: July 9, 2007

OSLO, Norway: Norsk Hydro ASA will close or sell its aluminum remelting plant in Ellenville, New York, in a move that will affect 55 employees, the Norwegian company said Monday.

Hydro had previously announced it would close its extrusion plant at the same location.

The measures will lead to restructuring charges of US$31 million (€23 million) in the second quarter, the Oslo-based company said. It said the moves were prompted by "challenging market conditions" in North America.

Norsk Hydro plans to close the remelting plant by the end of September, but "will also actively explore a potential sale" of the facility.

Orissa government rejects Billiton's SEZ alumina project proposal

domain-B, India - 9 July 2007

Mumbai: The Orissa government has rejected a proposal by Australian mining giant BHP Billiton to set up a 3-million tonne alumina refinery special economic zone (SEZ) in Gopalpur with an investment of $3.3 billion (Rs14,000 crore).

BHP Billiton's India chairman M S Ramachandran had made a presentation on the proposed project before Orissa chief secretary Ajit Kumar Tripathy last week.

The chief secretary has conveyed the government's feelings to BHP Billiton's India head at a meeting attended by state steel & mines secretary UP Singh, industries secretary Ashok Dalwai, and IPICOL managing director Ashok Meena.

The government refused to accept the offer on the ground that the project did not have any proposal for an aluminium smelter. The state government, which is insisting on value addition to at least 50 per cent of the alumina in the state as part of its mineral policy, has asked the company to submit a fresh proposal with facilities for production of aluminium.

BHP Billiton has sought bauxite mines with proven reserve of 300 million tonne and 5500 acre in Gopalpur for the project.

The company has proposed to establish only an alumina refinery which does not ensure full value addition to bauxite, said a senior official who attended the presentation session. He said maximum value addition would ensure more employment generation as well as extra revenue generation for the state.

According to Industries secretary Ashok Dalwai, the government wanted value addition to the raw material down to aluminium metal and also secondary processing in downstream industries like transport, construction and packaging.

As such the government's policy says that the investor which agrees for value addition to the raw material only would be provided with captive mines. We could not have two policies, said an official.

China mulls over primary aluminum import tax cancellation

Interfax.cn (subscription), China - July 11, 2007

Shanghai. July 11. INTERFAX-CHINA - China may cancel the current 5 percent import tax on primary aluminum to further encourage imports, an industry official told Interfax yesterday.

"I heard that the central government was discussing the feasibility of this policy with relevant departments. It is hoped that domestic enterprises will start to import more of this energy-intensive metal, which will further cool down overheated investment in China's aluminum industry," a senior China Nonferrous Metals Industry Association (CNMIA) official, surnamed Wen, said.

He added that while the policy might not significantly increase aluminum imports, it will be widely interpreted as a move by the government to throw its weight behind primary aluminum imports.

China currently produces more primary aluminum than is required by domestic industries, and relies on exports to solve the surplus problem.

The government's previous attempt to restrain energy-intensive and high-polluting resource product exports and curb the huge trade surplus, was to lift the export duty on primary aluminum from 5 percent to 15 percent on Nov. 1, 2006. As a result, China exported 273,701 tons of unwrought aluminum (primary aluminum and aluminum alloy) in the first half of this year, plummeting 56.2 percent from the same period last year. Exports in June stood at 35,275 tons, dropping 23.62 percent from the May figure of 46,181 tons, according to preliminary statistics released by the General Administration of Customs yesterday.

Li Rongcan, director of the Ministry of Commerce (MOFCOM)'s finance department, commented that the government is currently studying which product imports need to be encouraged, including strategic resources, energy products, advanced technology and equipment, according to a report in the International Business Daily, a MOFCOM supervised newspaper.

The policy will probably be released at the end of July and is designed to help alleviate China's ballooning trade surplus and the appreciation pressure of the renminbi, according to the report.

Alcan moves forward with its AP50 pilot plant in Saguenay, Quebec

CNW Telbec (Communiqués de presse), Canada July 10, 2007

COMPANY SIGNS A DESIGN, ENGINEERING AND CONSTRUCTION CONTRACT WITH AREVA

MONTREAL, July 10 /CNW Telbec/ - Alcan announced today that it has signed a US$130-million contract with the French energy company AREVA for the design, engineering and construction of a new high-voltage sub-station that will power Alcan's planned AP50 pilot plant in Saguenay, Quebec as announced on December 14, 2006.

"Alcan is pleased to announce the signing of this contract, moving ahead as planned with the realization of the AP50 pilot plant project. AREVA's proven technological expertise makes them a partner of choice for Alcan," said Michel Jacques, President and CEO, Alcan Primary Metal Group.

Preparations for the AP50 pilot plant have been under way for several months and are proceeding on schedule and on budget. The demolition of the old-technology Svderberg potlines began in March of 2007 to vacate the facility and make way for the new advanced AP50 potlines. The site will be ready to accommodate construction at the beginning of 2008.

"The new AP50 pilot facility will be the cornerstone of Alcan's industrial strategy for Quebec, which has been developed with the support of the Government of Quebec. The signing of this contract with AREVA is another step forward in realizing this project and a demonstration of our commitments to our local and provincial stakeholders," said Jean Simon, President, Alcan Primary Metal Group, North America.

Greg Farthing, President, AREVA Canada Transmission and Distribution division said: "We are proud to have been awarded this strategic project as it reinforces our presence in the industrial market and our commitment to Alcan and their investment program in Quebec's Saguenay-Lac-Saint-Jean region."

As announced on December 14, 2006, Alcan plans to build a US$550-million pilot plant at its Complexe Jonquière site in Canada to develop the Company's proprietary AP50 smelting technology. This pilot plant is expected to produce approximately 60,000 tonnes of aluminum per year and will be the platform for future generations of AP50 technology. This pilot plant is the first step in a planned ten-year US$1.8-billion investment program in Quebec's Saguenay-Lac-Saint-Jean region.

Rio Tinto near deal to buy Alcan: WSJ

Thu Jul 12, 2007 12:51 AM EDT

NEW YORK (Reuters) - Rio Tinto (RIO.L: Quote) (RIO.AX: Quote) was near a deal to buy Canada's aluminum giant Alcan (AL.TO: Quote) Inc. for about $100 per share or $37 billion, The Wall Street Journal Online reported on Thursday.

A final deal should be announced early on Thursday, the Journal said, citing people familiar with the transaction.

Alcan said to be moving toward friendly deal with Rio

Alcan, which is fighting a hostile $US28.8 billion ($33.49 billion) bid from US rival Alcoa, is closer to arranging a friendly deal involving Rio Tinto Plc and is expected to make an announcement this week, according to sources familiar with the situation.

Sources said the situation was still fluid and could change before an announcement is made. In addition to London-based Rio Tinto, Australia's BHP Billiton has been reported as interested in Canada's Alcan.

But BHP Billiton may not be as far along in the negotiating process as Rio, the sources said, indicating Rio could be closer to a deal.

An announcement is expected before the end of the week, the sources said.

Britain's The Times newspaper said on Wednesday that Rio was poised to offer $US90 a share, or $US34 billion ($39.54 billion).

Alcan's stock rose $US3.46 or 4 per cent to $US89.60 on the New York Stock Exchange on Wednesday, putting its market capitalisation close to the reported Rio total.

The shares rose C$4.20 or 4.7 per cent to C$94.40 on the Toronto Stock Exchange.

Alcoa's shares rose 77 cents to $US42.43 in New York, which put the value of its offer for Alcan at $US76.03 a share.

Among other companies sources previously said have shown interest in Alcan is Brazil's CVRD.

Alcan, which has long said it was in talks with third parties as part of its efforts to fight off Alcoa, changed gears slightly this week in describing those negotiations.

It now says it has signed confidentiality and standstill agreements with those parties, indicating it has moved further along in the negotiating process.

But Alcan declined to name the third parties, or say who it was talking to.

"We're in negotiations with third parties," said spokeswoman Anik Michaud.

A Rio spokesman in London had no comment.

The company has at least two investment banks - Deutsche Bank AG and Credit Suisse Group - working for it, sources have said. According to Canada's Globe and Mail newspaper, Rio recently hired CIBC World Markets as well. CIBC said it had no comment.

BHP, which has hired Merrill Lynch and Co Inc, according to sources, also declined to comment.

One issue that any bidder must consider is that, under agreements with the government of Quebec on long-term supplies of cheap power and the company's rights to use certain waterways to generate its own electricity, Alcan must keep its head office in Montreal.

Alcan has six aluminum smelters and interests in two others in Quebec, giving it 1.45 million tonnes of aluminum production annually. It also owns six hydro-electric generating stations in the Canadian province.

Alcoa has promised that if successful in taking over Alcan, the combined company would have dual head offices, in Montreal and New York, and the headquarters of the global primary metal products business would be in the Canadian city.

Alcoa has said it expects pre-tax cost savings of some $US1 billion ($1.16 billion) a year by the third year of a combination with Alcan, and add to cash flow and profits within the first year. It has also promised to maintain the two companies' plans to invest further in their Quebec assets.

Alcan has repeatedly rejected Alcoa's May 7 offer as inadequate.

Alcan has declined to enter talks with Alcoa, in part because it says the US firm refused to sign a confidentiality and standstill agreement during friendly talks that collapsed last year.

This week Alcoa extended its offer for Alcan to August 10. It also signed a $US30 billion ($34.89 billion) line of credit from Goldman Sachs Group Inc and Citigroup Inc, which are advising it on the offer.

Reuters

Outotec to deliver alumina calcination plant to CBA, Brazil

Kauppalehti (press release), Finland Wednesday 11 July 2007 13:06 EEST Kauppalehti Online

Outotec to deliver alumina calcination plant to CBA, Brazil Outotec has been awarded a contract by Companhia Brasileira de Alumínio S.A. (CBA) for the supply of an alumina calcination plant in Alumínio (SP), Brazil. The contract value exceeds EUR 40 million.

Outotec's scope of delivery covers the engineering, supply and construction of a circulating fluid bed calcination plant with a capacity of 1,600 tons alumina per day. The start-up of the new plant is scheduled for June 2009.

CBA belongs to Votorantim Group and is the biggest integrated aluminum manufacturer in the world, with a total annual production of 470,000 tons of primary aluminum. The new unit will complement the two existing calcination plants, which Outotec delivered in 1984 and 1990, and it will guarantee sufficient supply of alumina also for CBA's further expansion planned for a production of 570,000 tons aluminum per year by 2010.

Outotec's President and CEO Tapani Järvinen said: "This is our third alumina calciner delivery to the same customer. Our experience and reputation of offering first class alumina technology, combined with reliable project execution, helped to secure this contract and firmly establish Outotec's position as one of the leading technology providers for the aluminum industry. In June we announced the delivery of two alumina calciners to Russia and several technology deliveries to China."

For further information please contact: Outotec GmbH Roger Bligh, Vice President - Aluminum Technologies tel. +49 6171 9693 615 e-mail: roger.bligh(at)outotec.com

Rio Tinto, Alcan reach US$38.1-billion merger deal

CTV.ca, Canada - Thu. Jul. 12 2007 10:51 PM ET

Anglo-Australian mining giant Rio Tinto has tabled an all-cash offer for Montreal-based Alcan Inc. valued at US$38.1-billion.

The friendly takeover deal will create the world's biggest aluminum producer.

"(It's) pretty much a knockout bid," BNN's Michael Kane said Thursday. "(But) it's always possible that Alcoa or perhaps one of the other mining companies could step in with a counter-offer."

Alcan's board of directors has unanimously recommended that shareholders accept Rio Tinto's all-cash offer of US$101 per share.

The offer represents a premium of 32 per cent over the current share value of US$76.03.

The new company will be called Rio Tinto Alcan and will be based in Montreal and headed by Dick Evans -- the current president and CEO of Alcan.

In a statement released Thursday, Evans said the merger will create "a new global leader in the aluminum industry.''

"As we move ahead together, we will remain true to our shared values, including commitments to the environment, health, safety and sustainability, and our focus on creating value,'' Evans said. "I am personally delighted and excited by the opportunity of leading the new larger aluminum group, Rio Tinto Alcan."

The deal comes as Alcan had been trying to fend off a hostile US$28-billion takeover bid from Alcoa Inc., based out of Pittsburgh.

Rio Tinto employs about 4,300 people in Canada and has 32,000 workers worldwide. The London-based company plans to take the bid before regulatory authorities before July 23. The deal will need the approval of two-thirds of shareholders to be approved.

Alcan has 68,000 employees and operates in 61 countries.

http://www.ctv.ca/servlet/ArticleNews/story/CTVNews/20070712/alcan_deal_070712/20070712?hubCTVNewsAt11

A bid to feed China's Hunger

Melbourne Herald Sun, Australia -July 13, 2007 12:00am

IT'S used in soft drink cans, aircraft bodies, cars and buildings - and China wants a lot of it.

The rapid industrialisation of global powerhouse China is the driving force behind Rio Tinto's $US38 ($A44 billion) billion bid for the world's third-largest aluminium producer.

If the bid is successful, it will make Rio the biggest aluminium producer in the world ahead of Alcoa and Russian giant Rusal.

And place it nicely in the middle of some of the biggest bauxite and alumina facilities in the world at a time when the price of aluminium is tipped to outperform other commodities such as copper and nickel.

The biggest takeover bid in mining history comes a week after Rio announced a $2.1 billion upgrade of its alumina refinery in Gladstone.

That would give it access to Alcan's Gove alumina refinery in the Northern Territory, conveniently right across the Gulf of Carpentaria from Rio's massive Weipa bauxite deposits and just down the road from Chalco's planned $3 billion Aurukun development.

A huge expansion at Gove - which is being run out of Alcan's Brisbane Pacific office - is expected to produce 3.8 million tonnes of alumina annually.

New Rio CEO Tom Albanese said yesterday he expected demand from China for aluminium to grow by 15 per cent annually, and Alcan would give the company he took charge of in May a rounded-out offering in the metals primarily used in construction.

"This transaction would round out these three metals, putting us in a position to benefit more from the China story," Mr Albanese said.

Credit Suisse expects aluminium to account for 32 per cent of Rio's 2008 earnings after buying Alcan, up from 9 per cent in 2006.

It says the deal could boost overall earnings by 7 per cent next year.

The futures markets suggest aluminium will be the only metal on the London Metals Exchange to gain for the rest of this year.

On the spot market aluminium is selling for $US2832 a tonne

Takeover answers the threat from Russia

The Australian, Australia - July 13, 2007

Nigel Wilson, Energy writer

A SUCCESSFUL takeover of Alcan by Rio Tinto will consolidate Australia's pivotal position in the world aluminium industry, which has been threatened by the emergence of a Russian/Chinese aluminium axis.

Alcoa, formerly the world's biggest aluminium group, put itself in play in May with its low-ball bid for Alcan.

That offer had been prompted by the Rusal-Sual-Glencore merger earlier in the year, creating United Company Rusal as the undisputed No1 player.

The group, controlled by Russian oligarch Oleg Deripaska, claims annual output of 4 million tonnes of aluminium and 11 million tonnes of alumina in a market that is increasingly being challenged by growth in Chinese production of both alumina and aluminium.

But Rio Tinto Alcan will have annual metal production of around 4.3 million tonnes and alumina production of 7.6 million tonnes, thus tilting the axis slightly back to the Western players.

Alcoa, Alcan and Rio are individually heavily involved in the Australian alumina industry.

In fact, the Australian operations of Alcan contribute around 60 per cent of the Canadian company's global alumina production, partly as a result of its takeover of French group Pechiney earlier this decade.

Alcan's Australian assets include the Gove bauxite mine and alumina refinery in the Northern Territory, 41.4 per cent of Queensland Alumina Ltd, which operates the world's largest alumina refinery at Gladstone, more than half of the Tomago aluminium smelter in NSW, and about 800 million tonnes of bauxite reserves.

The recently formed Rio Tinto Aluminium division (previously known as Comalco) owns the Weipa bauxite mine on Cape York, 38.6 per cent of QAL, the Yarwun refinery at Gladstone, for which a $US1.8 billion expansion was announced last week, and smelters in Tasmania, Queensland, New Zealand and Wales.

Yesterday's takeover announcement said: "As Rio Tinto and Alcan's assets in Australia are largely complementary, it is expected the merger and integration will provide opportunities for cost synergies and revenue enhancement as a result of expansion of Australian output."

Australia, which has been for most of the past two decades the world's leading alumina supplier, had looked likely to lose this mantle within a year or so to China.

The domestic alumina industry has been dominated by Alcoa and Alcan, with smaller players including Rio and BHP Billiton.

But these operations are facing challenges as both China and Russia can tap cheap energy supplies, which offset their relative paucity of bauxite and alumina supplies, meaning they are happy to import unprocessed raw materials.

The Aluminium Corp of China, better known as Chalco, is studying the feasibility of a bauxite mine at Aurukun in Cape York, while United Company Rusal has the biggest Russian investment in Australia, a 20 per cent stake in the QAL alumina refinery, which it is seeking to expand beyond its present nominal 3.95 million tonnes capacity.

Rusal Unlikely To Bid For Alcan, Alcoa - Source

CNNMoney.com - July 13, 2007: 05:51 AM EST

LONDON -(Dow Jones)- The world's largest aluminum company, Russia's United Company Rusal, is unlikely to enter a bidding war for either U.S. Alcoa Inc. ( AA) or Canada's Alcan Inc. (AL), a source close to the situation told Dow Jones Newswires Friday.

"Rusal's emphasis remains on its upstream operations, making a move for either Alcoa or Alcan very unlikely," the source said, noting the large downstream operations that both the North American aluminum producers have.

A spokesman for Rusal confirmed that the company's focus is on its upstream activities, which contribute some 90% of the group's revenues.

"Rusal have made it very clear they're watching the situation (with Alcan and Alcoa) with great interest," Rusal spokesman Jon Simmons told Dow Jones Newswires. "Should individual assets become available through the course of the merger and acquisition activity, Rusal would consider looking at them," he added.

Since May, Alcan has been the subject of a $27.94 billion hostile takeover bid from Alcoa. This was withdrawn late Thursday as the Canadian producer announced a knockout $38.1 billion friendly offer from Rio Tinto PLC (RIO.LN). Analysts now consider Alcoa to be in play, while the possibility of a counterbid for Alcan from a third party remains.

Downstream aluminum assets are generally considered to be lower-margin, and include packaging, rolled products and extrusions. Prior to the current flurry of corporate merger and acquisition activity, Alcan and Alcoa had stated they planned to sell their packaging businesses.

Deep-pocketed private equity firms like New York-based Blackstone Group (BX) and London-based CVC Capital Partners Ltd. would make ideal investors in the sector, analysts said, although they may not retain the assets for long.

Rusal, which is making plans for a London flotation, was created earlier this year from the merger of ZAO Rusal, Sual Group and the aluminum assets of Glencore AG. The deal valued the combined entity at around $30 billion.

It produces 3.9 million metric tons of aluminum a year, equivalent to 16% of global output.

-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@ dowjones.com

(END) Dow Jones Newswires

07-13-07 0551ET

Copyright (c) 2007 Dow Jones & Company, Inc.

Other Alcan bids unlikely

Canada.com, Canada Friday, July 13, 2007

http://www.canada.com/nationalpost/financialpost/printedition/story.html?ided4de61f-780d-4bc2-889f-4fcf41d82045

Us$38.1B Takeover; Rio Tinto's Offer Expected To Bring End To Auction

Peter Koven, Financial Post

Rio Tinto PLC's record-setting US$38.1-billion bid for Alcan Inc. is expected to bring an abrupt end to the takeover battle for the Montreal-based company, as people inside and outside Alcan agree it will likely scare off other bidders.

Alcan's board received the massive offer on Wednesday following an intense bidding war between Rio Tinto and Companhia Vale do Rio Doce (CVRD) of Brazil.

"[The battle] made us all stronger," Tom Albanese, Rio chief executive, said in an interview yesterday. "We ended up with a very good balance between meeting the compelling offer for Alcan shareholders in a combination of price, all-cash, and very clear and high probability of completion in the fourth quarter of this year."

Once Alcoa Inc. launched its shocking hostile bid on May 7, Alcan's board set up an independent committee and reviewed alternatives. It started by looking at what Alcan could do to remain a stand-alone company. Every option was reviewed, including a hostile bid for Alcoa, divesting assets or selling a large stake to a strategic or financial buyer where control of the company would not change hands. But ultimately it could not come up with a standalone strategy that would produce as much near-term shareholder value as the Alcoa bid.

A data room was set up, and the offers started flowing in.

"We discovered quite quickly that we had many friends that were offering to lend a helping hand, and some of these discussions actually turned into negotiations," Yves Fortier, Alcan chairman, said at a press conference. He later added he had "a lump in my throat" at the thought of selling such a prized Canadian asset.

A number of possible suitors were rejected because it would take too long for them to organize themselves and get financing in place. In the end, two serious bidders were left: Rio and CVRD.

On Tuesday, they put forward what are being described as "impressive" bids. The board sent them back to the drawing board to come up with best-and-final offers. Rio Tinto's blow-away bid of US$101 a share was easily the winner.

"In value to shareholders, value to employees, value to the community, it was an overall package," Dick Evans, Alcan chief executive, said in an interview. "And it nudged out the next one."

Alcoa quickly dropped its hostile bid last night to focus on other ways of delivering value to shareholders.

Jake Siewert, vice-president of global communications for Alcoa, said the massive premium in the Alcan deal is forcing people to look at the industry differently and recognize a lot of value.

"The multiple is extremely high that Rio is paying," he said. "For us, the amount of leverage to take on to pay that kind of premium at this point in the market is way more risk than we're willing to take."

CVRD is not expected to come back with a higher bid, but it did not rule out the possibility, as the company said it is "always analyzing opportunities to strengthen its financial position, including acquisitions."

The bid from Rio shocked both Bay Street and Wall Street, which never guessed that the company would go as much as 32% over Alcoa's hostile bid on its first counter-offer.

DISSECTING ALCAN'S TAKEOVER - Rio Tinto bid 65.5% higher than Alcan's share price prior to Alcoa bid for Alcan. - Total acquisition facility of US$40-billion, underwritten by Royal Bank of Scotland, Deutsche Bank, Credit Suisse and Societe Generale. - Break fee of US$1.05-billion. - US$600-million synergies per year, after tax. - The debt of two companies increases to US$46.3-billion before divestment of divisions. - Three members of Alcan on Rio Tinto board. - Alcan CEO Dick Evans CEO of new Rio Tinto Alcan Aluminum Division. - Rio Tinto Aluminum head office based in Montreal.

"I thought it would take a competitive bidding situation to get there," one analyst said. "What Rio Tinto has done is pre-empt a competitive situation."

Mr. Albanese said that Rio could justify such a high price because it is extremely bullish on the fundamentals of the aluminum market, which is forecast to grow 6% a year through 2011 because of accelerating demand from China and India.

He said that Alcan's low-cost smelting assets are especially attractive in this environment.

Alcoa vulnerable to takeover after Alcan-Rio

Reuters Fri Jul 13, 2007 7:39AM EDT

NEW YORK (Reuters) - U.S. aluminum maker Alcoa Inc. (AA.N: Quote, Profile, Research) is now itself vulnerable to takeover after Canadian rival Alcan Inc. (AL.TO: Quote, Profile, Research) (AL.N: Quote, Profile, Research) rebuffed its $29 billion hostile bid in favor of a deal with Rio Tinto (RIO.AX: Quote, Profile, Research)(RIO.L: Quote, Profile, Research).

Alcoa shares reacted by hitting a new high along with those of Alcan, which announced the $38 billion deal with the Anglo-Australian mining company on Thursday.

Another Anglo-Australian miner, BHP Billiton (BHP.AX: Quote, Profile, Research) (BLT.L: Quote, Profile, Research), is one possible buyer for Alcoa, analysts and sources familiar with the matter said, and other names in the frame include CVRD (VALE5.SA: Quote, Profile, Research) (RIO.N: Quote, Profile, Research) and Xstrata Plc (XTA.L: Quote, Profile, Research).

Sources said BHP would only be interested in Alcoa's mining activities, not its packaging and downstream metal production businesses. Alcoa and BHP declined comment on the speculation.

Hours after the Alcan-Rio announcement, Alcoa said it was withdrawing its offer for Alcan, which was a subsidiary before Alcoa divested its foreign holdings in the early 20th century.

"It puts Alcoa strategy in question (and) makes them vulnerable to a BHP Billiton offer," Charles Stanley analyst Tom Gidley-Kitchin said of the Rio deal.

Alcoa's other possible move is looking for another acquisition that would fend off an unwanted suitor.

But one arbitrage trader said without Alcan, Alcoa was left hanging in the wind. "I don't know that Alcoa has any other options," he said, pointing out there were few aluminum makers left to buy given the consolidation of the metals industry.

Alcoa's withdrawn bid for Alcan, at $77.09 per share in cash and stock, was about $24 a share below Rio's.

"At this price level, we have more attractive options for delivering additional value to shareholders." Alcoa Chief Executive Officer Alain Belda said in a statement.

He said this could come from strong results, growth investments, trimming underperforming businesses and resuming a share buyback program suspended while the Alcan offer was open.

In January, its board authorized the repurchase of up to 10 percent of the outstanding stock, or about 87 million shares.

BID SPECULATION

Analysts said Rio's deal put Alcoa in focus for BHP, prompting Alcoa stock to leap and moves in the options market.

Alcoa shares hit a record high and closed on Thursday at $45.29, up 6.7 percent, on the New York Stock Exchange.

"The deal rips Alcan from the jaws of Alcoa in what had become a nasty spat. Traders are now focused on the likelihood of a bid from Australian mineral producer, BHP Billiton (BHP)," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group, in his daily commentary.

"It seems that all of those Alcoa bulls finally got this one right, yet some perhaps wise cautionary protection was taken on the put side this morning," he said.

Options investors often turn to puts in anticipation of share price weakness or to protect holdings from adverse price swings, and to calls hoping to profit from a share price rise.

According to market research firm Track Data, a total of 259,552 calls compared to 55,738 puts traded in Alcoa, way above its normal volume of 64,948 contracts overall.

Roughly 51,000 contracts combined traded in July and August $45 Alcoa calls. Speculation grew that Alcoa stock would keep rising with new trading in calls granting buyers the right to buy Alcoa shares at $50 between now and October, Wilkinson said. On the defensive side, there was heavy put trading at the $42.50 and $45 strikes in July and August contracts.

Talk that BHP is interested in Alcoa has surfaced in media reports since early this year, but analysts, traders and investors said there are other possible buyers as well.

Victory Capital Management analyst and portfolio manager Kirk Schmitt said possible suitors also included Xstrata and Brazil's CVRD -- which bid for Alcan but could not meet Rio's $101-per-share cash price, according to two sources.

Pittsburgh-based Alcoa may need to be on board for any takeover to be successful, however, given Pennsylvania takeover laws that enable companies to fend off unwanted attacks more easily. (For details, double-click on (ID:nN24343330: Quote, Profile, Research))

Schmitt said given Rio's bid premium on Alcan, Alcoa would be worth about $55 per share. Management would need to agree, he said, but investors were likely to put pressure on them.

"Investors, including ourselves, have been sort of disappointed in Alcoa. In the last three or four years they haven't really taken part in the move in the metals sector," said Schmitt, whose firm owns Alcoa, BHP and Rio Tinto shares.

(Additional reporting by Matt Daily and Steve James in New York and Doris Frankel in Chicago)

Reuters Messaging: caroline.humer.reuters.com@reuters.net; email Caroline.Humer@reuters.com; Tel: 1 646 223 6181))

Failed bidder Alcoa now a sitting duck

Sydney Morning Herald, Australia July 14, 2007

Jamie Freed

ALCOA has made itself what analysts called a "sitting duck" takeover target for a global miner such as BHP Billiton or Brazil's CVRD, after the US aluminium maker on Friday dropped its hostile bid for Alcan.

In a statement, Alcoa chief executive Alain Belda said his company had "more attractive options" for delivering value to shareholders than trumping Rio Tinto's $US38.1 billion ($44.3 billion) bid for Alcan. Alcoa will resume its suspended share buyback program, trim underperforming businesses and make targeted growth investments.

When asked whether Alcoa might create more value for its shareholders by opening a data room and offering itself for sale to the highest bidder, spokesman Kevin Lowery told the Herald: "The better path for our shareholders is to do what we said we are going to do."

But an analyst said Alcoa was a "sitting duck" and was "highly unlikely to remain independent".

The most obvious buyer for Alcoa would be BHP Billiton, which could extract major cost savings by combining their refining operations in Western Australia and Brazil. BHP has reportedly considered teaming up with private equity group Blackstone, which would presumably buy Alcoa's downstream assets.

Another potential buyer is CVRD, which has some complementary operations in Brazil. Following its debt-financed purchase of Inco last year, its balance sheet is more stretched than that of BHP. But on some estimates, CVRD's gearing should fall to 21 per cent by the end of this year and 5 per cent by the end of next year. There are rumours it has teamed up with private equity group TPG to study a potential bid.

Canada's The Globe and Mail reported BHP exited the Alcan auction process to focus on a tilt at Alcoa, while CVRD was unable to table a bid as high as Rio's in the final days.

But the situation could be complicated due to a joint venture agreement between Alcoa and Melbourne's Alumina. Any purchaser of Alcoa would have to vend 40 per cent of its bauxite and refining assets to the Australian company. BHP is unlikely to want to do that, and therefore would probably make a simultaneous bid for Alcoa and Alumina.

Depending on its financing situation - given its strong focus on maintaining its hard-earned investment grade credit rating - CVRD might want to sell 40 per cent of its refining business to Alumina to help fund a bid for Alcoa.

Another option would be for CVRD to bid for Alumina, which would force BHP to sell 40 per cent of its own refining business to CVRD if it bought Alcoa. An observer said BHP might want to start building a strategic stake in Alumina to avoid that possibility.

Consolidation to help super cycle

Sydney Morning Herald, Australia July 14, 2007

Stephen Bartholomeusz

RIO TINTO'S $44.3 billion bid for Canada's Alcan says something powerful about its view of the duration of the commodities super cycle.

Like its fellow Anglo Australian resource giant, BHP Billiton, Rio has been relatively cautious about the risk of paying top-of-the-cycle prices by making major acquisitions. Until this week, like BHP, it had been focused largely on organic expansion of its operations, returning huge amounts of excess cash to shareholders.

The two industry heavyweights had until recently been penalised by the market for their conservatism, with investors awarding premiums to more aggressive players such as Xstrata and Anglo American and valuing the leaders at levels that bore no relationship to the torrents of cash they are generating. The bid for Alcan says very clearly that Rio is now convinced that the super cycle will remain stronger for longer.

Rio is too disciplined to pay 33 per cent more than Alcoa and too conservative to leverage itself as significantly as it will, unless it believes the cycle will persist long enough to enable aluminium to generate the same kind of gains experienced by iron ore and copper.

There has been solid demand growth for aluminium of 7.7 per cent a year for the past four years and the price has doubled in the past five years. However, aluminium tends to be in demand later in the industrialisation process than iron ore or copper - per capita consumption in China and India is a fraction that of the developed economies.

China accounts for about 26 per cent of global aluminium demand and is forecast to increase its consumption by 15 per cent a year over the next five years. Rio's bid is a statement of its confidence that demand growth will materialise and persist.

An interesting comment made at Thursday's press conference by Rio's chief financial officer, Guy Elliott, was that Rio's forecasts were based on prices closer to the forward curve - the futures market for aluminium - than broking analysts' assumptions. Rio and BHP, like most analysts, base their investment decisions on models that incorporate the forward curve in the near term and then assume a reversion to long-term trend.

The analysts are still doing that - the discrepancy between broker valuations and valuations that assume spot prices will be sustained in the longer terms has been huge — but there have been indications that BHP and Rio have started to factor into their decision-making a conviction that prices will remain stronger for longer

Rio, given that aluminium prices will only fully reflect the rapid industrialisation of China and India in some years' time, is presumably now factoring in at least a five-to-seven-year positive outlook for demand. A curious aspect of the Rio acquisition is that the acquisition itself could help prolong the cycle.

Among the reasons the resource industry in the past has been so volatile and cyclical is that it was highly fragmented and capital investment was pro-cyclical. Every time demand and prices rose, supply responded quickly and powerfully, deflating the boom with overcapacity and creating long periods of depressed pricing. The 1990s slump, exacerbated by massive de-stocking from the former Soviet Union, choked off capital investment and laid the foundations for the capacity shortages that have exaggerated the supply-demand imbalance created by the surge in China's demand.

However, it also helped to trigger a huge burst of consolidation and a focus by the bigger miners on the fundamentals of their business. Rio and BHP were formed during a tough period for the industry.

Consolidation has given the big resource groups far greater influence, even control, over supply. Most of the major commodities are now dominated by three or four companies - in most instances the same three or four.

That dominance is aided by the fact that exploration spending and activity was cut back heavily in the 1990s and that those big discoveries that have been made tend to be in difficult jurisdictions.

The long lead times and spiralling costs of developing a new mine, and a shortage of trained people and even of the basic equipment needed, reinforces the position of the big miners.

Assuming Rio's bid for Alcan does succeed, the combined group would be the global aluminium industry leader, with about 17 per cent of the world's bauxite production, 12 per cent of alumina production and a similar share of the aluminium market.

Its position would actually be even more strategic, given that in a sector where smelting costs are rising steeply, and where the impact of carbon pricing will be acutely felt, Alcan is at the low end of the cost curve and has long-term access to hydro energy on competitive terms.

There is already speculation that BHP, which is thought to have held talks with Alcan, will move on Alcoa, probably with a private equity group that would acquire Alcoa's downstream assets.

If that occurred, BHP would become the industry leader but, more particularly, the further consolidation would enhance both its position and Rio's, giving them both more control over the long-term industry supply/demand equation and pricing power.

While their customers would not like to see the two groups become even more powerful across a larger range of metals, consolidation should mute the sector's volatility and help prolong the super cycle, creating a virtuous cycle for the consolidators.

bartho@smh.com.au

Joint venture to build Alcan smelter in South Africa

MONTREAL - SNC-LAVALIN, MURRAY & ROBERTS and HATCH have created a joint venture that has signed a contract with ALCAN for the front-end engineering and design (FEED) and engineering, procurement and construction management services (EPCM) for the first phase of Alcan’s Coega aluminum smelter project in Port Elizabeth, South Africa. The contract is valued at more than US$100 million.

The project has an estimated total cost of US$2.7 billion for two phases. Upon completion of this first phase, the smelter will have an initial capacity of 360,000 t/y. The second phase will double annual production.

While the value mentioned above of the joint venture’s contract is for the first phase of the project, the second phase is also included in the contract. The FEED is expected to take nine months to complete and will provide firm cost estimates and a critical path for construction, pending the notice to proceed from Alcan.

Kazakh alumina producer to modernise, raise output

Reuters.uk, UK - Jul 13, 2007

By Tatyana Seroshtanova

ALMATY, July 13 (Reuters) - Kazakh alumina producer Aluminium of Kazakhstan <ALKZ.KZ> plans to invest $266 million to expand and modernise production facilities and raise output, its parent company said on Friday.

The London-registered parent firm, Eurasian Natural Resources Corp (ENRC), said separately it had completed 90 percent of construction of the first stage of a new electrolysis plant which is due to start operations in December 2007. The company unites many Kazakh assets such as Kazchrome <KZCR.KZ>, Zhairem GOK, Sokolov-Sarbai, Eurasian Energy Corporation, ENRC Logistics and ENRC Marketing & Sales.

In its statement, ENRC, which is considering a stock market float, said Aluminium of Kazakhstan planned to raise production to 1.8 million tonnes a year by the end of 2010.

It said the plant reached production of 1.5 million tonnes of alumina as of December 2005. No data for 2006 output was available. The plant's project capacity is only just over 1 million tonnes of alumina, ENRC said.

The statement said existing bauxite deposits would keep up production for another 50 years but demand for higher output meant the company needed to expand exploration and development.

"We are already planning geological and exploration work at new deposits, for example at Taunsorskoye whose reserves are estimated at 42 million tonnes," the statement said.

In a separate statement, ENRC said the planned capacity of the new plant would be 250,000 tonnes of aluminium products.

The first stage will see production reaching 62,500 tonnes of primary aluminium by the end of this year and reach 125,000 tonnes in 2008, it said.

The plant, in northern Kazakhstan, is expected to reach its project capacity in 2009 and employ 1,800 people.

ENRC accounts for 5 percent of Kazakhstan's gross domestic product. It holds a quarter of the world's reserves of chromium -- an essential ingredient in stainless steel -- and supplies two-fifths of the world's gallium, a metal used in semiconductors.

It is also Kazakhstan's main energy provider. It produces iron ore, much in demand from metal-hungry China, which borders Kazakhstan, as well as alumina and manganese.

ENRC, in which the government owns a 24.8 percent stake, has annual sales of over $3 billion.

© Reuters 2007.

Gulf to see new aluminium smelters

Gulf News, United Arab Emirates -July 16, 2007, 00:03

Guinea Alumina is building an alumina refinery in the Republic of Guinea in partnership with Dubai Aluminium and Abu Dhabi's Mubadala. Karim L. Karjian discusses the fundamentals of alumina's demand and supply.

Gulf News: What are the main challenges for ensuring smooth supply of alumina?

Karjian: The main challenges for the supply of alumina are long-term reserves of good quality bauxite, ownership in modern world-class alumina refineries and easy access to infrastructure, particularly port and shipping facilities.

Do you see new large investments in bauxite mining and alumina refineries?

The world growth for aluminium is continuing to rise sharply on the growth of the economies of China, India and others, so does the demand for alumina and therefore, a larger investment in bauxite mines.

China has increased its alumina refining capacity dramatically, but has no matching bauxite resources. Guinea has over 30 per cent of the world's bauxite resources and, therefore, can increasingly compete with other traditional countries in attracting investment in its bauxite mining sector.

There are three major companies in addition to Global Alumina Corporation/Guinea Alumina Ltd that have already started construction of their alumina refinery, that are planning new alumina refineries in Guinea.

The Gulf will see a big growth in aluminium output in a few years? Do you think more smelters from the region should try to become integrated companies?

Yes, we will be seeing a major increase in new aluminium smelters in the Gulf. It is one of very few areas in the world where the cost of energy is still competitive.

Clearly, alumina represents approximately 40 per cent of the cost of producing aluminium and therefore, I strongly believe that smelters from the Gulf should secure their long-term supply of alumina through ownership in some form or another of alumina refineries.

It is with this in mind that both Dubal and Emal have taken a shareholding in Guinea Alumina's alumina refinery. Being an integrated company in the Gulf is difficult due to a lack of bauxite. All the major aluminium companies are integrated ones.

How is your Guinea project progressing?

The joint venture between Global Alumina, Dubal, Mubadala and BHP Billiton has given a tremendous impetus to our alumina refinery project and we are very pleased to report that we are on schedule in the execution of this project.

The government of the Republic of Guinea is fully supportive of this project and continues to contribute to its success.

Vietnam`s largest cable plant commences operations

Business in Asia Today - July 17, 2007

Hanoi (ANTARA News/Asia Pulse) - Vietnam's largest cable manufacturing plant began operations in the Long Thanh industrial park in the Mekong delta province of Dong Nai, on July 16.

The US$40 million facility will produce electric and telecommunication cables along with copper and aluminum rods. The plant was built by Taihan-Sacom (TSC), a joint venture of the listed firm Cable and Telecommunications Material Company (Sacom) and Korean partner Taihan.

SACOM holds a 30 per cent of the stake of the JV. Taihan, one of South Korea's leading cable producers, owns 70 per cent.

Source:

Business in Asia Today - July 17, 2007

Rio Tinto may partner in Utkal Alumina

Business Standard, India - July 18, 2007

Kausik Datta & Ishita Ayan Dutt / Mumbai/ Kolkata

Rio Tinto, the Anglo-Australian mining major acquiring Canadian aluminium giant Alcan, is likely to be the joint venture partner of the Aditya Birla Group in Utkal Alumina International, which is developing a bauxite mine and a new alumina refinery in Orissa.

Alcan had earlier decided to pull out of Utkal Alumina on the grounds that it had limited powers to participate in the key decisions of the company and had set June as the deadline for divesting its stake.

But Alcan’s prospective owner Rio Tinto, which had made a $38 billion bid for Alcan, would like to hold on to the 45 per cent stake in Utkal, sources familiar with the developments said.

When contacted, a Rio Tinto spokesman said: "We have just made the offer. It is yet to be ratified by shareholders. We do not want to comment on individual projects now; once we get shareholders’ approval, we will have a look at what Alcan had."

"It is still early stages," the spokesperson added. An e-mail query to Alcan remained unanswered.

The sources said Rio Tinto’s aggressive bid for Alcan was heavily dependent on the future business of the company from China and India.

Rio Tinto’s chief executive, Tom Albanese, recently said the creation of the world’s largest aluminium company, to be called Rio Tinto Alcan, would benefit from rapid economic growth of China and India. The acquisition still needs to be approved by regulators.

India’s growth was five years behind China’s but gross domestic product in both countries was expected to increase at almost 9 per cent until 2015, Albanese had said.

Utkal was established in 1992 as a joint venture between Hindalco, Alcan and Hydro Norsk. Indal, now a part of Hindalco, held 20 per cent, Alcan 35 per cent and Norsk Hydro 45 per cent. Norsk Hydro later sold its stake to the other two partners.

Rio Tinto had been looking for a suitable target in India for quite some time. It had shown initial interest in acquiring iron ore exporter Sesa Goa from Japan’s second largest trading company, Mitsui, but did not participate in the bidding process.

Rio Tinto’s biggest rival, BHP Billiton, is finalising plans to debut in India. It is expected to pick up 51 per cent in Ashapura Minechem’s alumina project in Orissa. Ashapura will hold the remaining 49 per cent in the Rs 2,500-crore aluminium refinery project.

Utkal was established in 1992 as a joint venture between Hindalco, Alcan and Hydro Norsk. Indal, now a part of Hindalco, held 20 per cent; Alcan 35 per cent and Norsk Hydro 45 per cent. Norsk Hydro later sold its stake to the other two partners.

The Utkal project, which is in an engineering phase, has been marred with controversy with local residents opposing its construction on the plea that it would displace three villages and at least 200 families. Local critics have estimated that as many as 22,000 people could be affected.

In December 2000, there was a clash between villagers and police at Maikanch over land acquisition. Three tribals were killed in the police firing that followed.

Dick Evans, Alcan’s president and CEO, was confronted by protesters at the company’s annual general meeting last year, asking Alcan to pull out of the project.

A resolution calling on Alcan to sponsor an independent committee to assess the project’s impact on the community was defeated.

BHP shares hit turbulence

Daily Telegraph, Australia - Jul 16, 2007

By Tony Grant-Taylor

BHP BILLITON shares struck some turbulence yesterday as world markets remained convinced it was poised to launch a pound stg. 20 billion-plus ($46 billion) bid for US aluminium producer Alcoa.

But though many analysts are speculating that a mop-up of Alumina could, with a takeover premium, could cost BHP (bhp.ASX:Quote,News) as much another $12 billion to $15 billion, BHP's shares held up better than those of Rio Tinto.

Rio (rio.ASX:Quote,News) last week announced the largest ever resource sector bid, a $44 billion cash offer for Canada's Alcan.

As Rio yesterday replied to an Australian stock exchange query as to why it hadn't announced the Alcan deal earlier, its shares shed another 4.14 per cent, or $4.20 to $97.10, nearly $7 below last week's peak.

BHP's stock closed off 2.44 per cent, or 96c, at $38.20.

Takeovers sound

Analysts generally agreed Rio's move and that contemplated by BHP are strategically sound.

But there are plenty of worries in the market about Rio's "knockout price'', which has pushed up the expectations of the shareholders of Alcoa and its Australian arm Alumina.

Analysts see some Alcoa assets as inferior to some of Alcan's.

Media reports from London say BHP also looked at Alcan, but decided not to match Rio's big bid.

BHP to examine Alcoa deal

However a report by BHP's advisers Merrill Lynch and JP Morgan examining an Alcoa bid is due to be handed to CEO Chip Goodyear "in the next fortnight".

Mr Goodyear is due to hand over to Marius Kloppers in October, but both are said to be keen on Alcoa which abandoned its own bid for Alcan in the face of Rio's offer.

BHP declined to comment on the "speculation'' yesterday.

Rio was forced to tell the ASX that though it and Alcan had been talking for months about a possible merger its Alcan deal hadn't been sealed until late Thursday, when it halted trading in its shares ahead of its announcement.

Rio believes its deal with Alcan will pass muster with world competition regulators. But a BHP bid for Alcoa, particularly if it also went for Alumina, could face problems.

A three-way merger would give it control of close to 35 per cent of world alumina production, the derivative of bauxite smelted to make aluminium.

In 2000, Alcoa was forced, after its takeover of another US aluminium group, Reynolds, to sell off the 56 per cent stake in its West Australian Worsley alumina refinery, part of its AWAC joint venture with Alumina.

Ironically, that stake went to Billiton, which had not then merged with BHP.

ABN Amro analyst Rob Clifford said yesterday Alcoa could try buying Alumina itself or succumb to BHP or a miner like Brazil's CVRD.

All of which "boded well for Alumina", whose shares finished up 25c yesterday at $8.80.

A bid by BHP would be "strategically very good'' and Rio's bid for Alcan was "also very sound.

"But it all comes down to price," Mr Clifford said as ABN Amro and several other brokers, like Citigroup, cut their recommendation on Rio from buy to hold.

Alcan sells Utkal stake to Hindalco

Business Standard, India July 19, 2007

BS Reporter / Mumbai

Canadian metal giant Alcan today announced an agreement to sell its 45 per cent stake in Utkal Alumina to the Aditya Birla group’s Hindalco Industries for an undisclosed sum.

The Utkal joint venture was established in 1992 between the Birlas and Alcan, with the Birlas owning the remaining 55 per cent of the equity. The venture involved the development of a new bauxite mine and alumina refinery in Orissa.

Alcan, the target of a friendly $38 billion takeover offer from Rio Tinto, said in April this year that it planned to sell the stake in Utkal Alumina.

In a statement issued from Montreal, Alcan said today that it expected to complete the transaction during the third quarter of 2007.

"Alcan is pleased to have reached this agreement with Hindalco regarding the sale of its participating interest in Utkal," said Jacynthe Cote, president and CEO of Alcan Bauxite and Alumina.

"The company values its long-standing partnership with Hindalco, with whom it remains associated as technology supplier to the Utkal project and other Hindalco projects," Cote continued.

"Alcan will continue to focus on growing and executing its pipeline of projects in bauxite-rich regions, while leveraging its world-leading alumina refining technology," she concluded.

In its statement, Hindalco said the conclusion of the transaction marked the complete exit of Alcan from the Utkal project. "Alcan will have no surviving rights or obligations as Hindalco becomes the 100 per cent owner of the Utkal project," it said. The Indian company expects the deal to be closed in the next 30 days.

Hindalco and Alcan will continue to have a cordial business association, given that Alcan has ongoing contracts with Novelis. It is also the technology provider to the Utkal alumina project and some other alumina projects of Hindalco.

Alcan had earlier in April suggested that the Rs 4,500 crore project was too risky due to its lack of control over it.

"We have carefully weighed the opportunity and risk presented by the Utkal project and, given the constraints within the governance structure that limit Alcan’s ability to participate in key decisions, believe that we have acted in the best interests of all our stakeholders," Cote had said in April.

The project has been marred by controversy, with local residents opposing its construction on the plea that it will displace three villages and at least 200 families. Local critics have estimated that as many as 22,000 people could be affected. In December 2000, there was a clash between villagers and police in Maikanch over land acquisition. Three tribals were killed in the police firing that followed. Utkal was initially established as a joint venture between Hindalco, Alcan and Hydro Norsk. The shareholding was shared between Indal, now a part of Hindalco at 20 per cent; Alcan at 35 per cent and Norsk Hydro with 45 per cent. Norsk Hydro later sold its stake to the other two partners.

Rusal to Establish New Plant to Supply Metal Structures for Komi Aluminium Project

Azom.com - July 18th, 2007

UC RUSAL, the world’s largest producer of aluminium and alumina, today announces the launch of a new branch of Industrial Park Siberia in the town of Ukhta. The new plant will supply metal structures for the ongoing construction of a bauxite and alumina complex within the Komi Aluminium project. The plant is expected to produce about 51,000 tonnes of products worth over USD 100 mln.

The metalware plant will be launched with the technical and advisory support of Storvik, a Norwegian company. The production site, located in the town of Ukhta, will cover 70,000 square meters and will have developed infrastructure and communications. The first batch of metal is expected to be produced in November 2007.

‘The establishment of a metalware production site in the Komi Republic is a logical continuation of our project to produce the equipment and hardware required by our aluminium and alumina projects currently under construction’, said Valery Matvienko, UC RUSAL’s Director of the Engineering and Construction Division. ‘By creating partnerships with leading Western corporations we are able to secure access to the best production technologies. Furthermore, by locating production sites in the vicinity of new projects in Russia, we can manufacture products customised to our needs and achieve significant time and cost savings’.

Industrial Park Siberia was launched by RUSAL in 2004 in Krasnoyarsk. It was set up to develop production and maintenance capacities for the company’s main processing equipment, required by the aluminium smelters and alumina refineries. The industrial park’s infrastructure includes fully-equipped premises and community facilities. The companies working in the industrial park were promised assistance from RUSAL in their relations with local authorities, the registration of entities in Russia and recruitment services. The participation of producers in the project will reduce the cost of equipment production by 20-30%

The opening of the Ukhta branch represents a new stage in Industrial Park Siberia’s development. Today, the project can do more than just render production-related services to foreign companies; it is now able to arrange the manufacturing of products required by United Company RUSAL.

Changes in aluminum tariffs soon

People's Daily Online, China July 20, 2007

The Chinese government will further restrict exports of highly polluting resource products by adjusting tariffs on aluminum and aluminum products.

The Ministry of Finance yesterday said on its website it will suspend import tariffs on primary aluminum and will impose a 15 percent preliminary tariff on exports of rods and bars made from primary aluminum. The new tariff rates will take effect on August 1. The import tariff on primary aluminum is currently 5 percent.

"The moves are targeted to further restrict export of energy-intensive, highly polluting resource products and to encourage import of raw materials," the ministry said.

The removal of the import tariff is unlikely to lead to a big increase in China's aluminum imports, said Wang Feihong, an aluminum analyst with Beijing-based metal industry consultancy Antaike Information Development Co Ltd.

He said the aluminum price on the international market is about $2,800 per ton compared with $2,630 per ton in China, and the domestic supply is enough to meet the demand in the country.

"But it indicates the Chinese government's attitude of encouraging imports of raw materials."

Wang said the new export tariff on rods and bars made from primary aluminum is expected to "restrain the exports in certain categories of low-value-added aluminum products".

China imposed a 5 percent tariff on aluminum ingot exports at the beginning of last year. In November, the tariff was raised to 15 percent.

The moves were all part of the drive to conserve energy to ensure sustainable development. Aluminum is among the industries that consume the most electricity and resources.

Many aluminum companies have aggressively expanded production capacity, encouraged by high prices in previous years and tumbling costs of alumina, the raw material used to make the metal.

Source:China Daily

BHP Billiton Will Not Bid For Alcoa - Source

CNNMoney.com - July 19, 2007: 09:33 PM EST

MELBOURNE -(Dow Jones)- BHP Billiton Ltd. (BHP.AU) will not be making a bid for aluminum giant Alcoa Inc. (AA) as has been rumored, a person familiar with the situation told Dow Jones Newswires Friday.

The announcement of the US$38.1 billion bid by Rio Tinto Ltd. for Alcan Inc. intensified rumors that BHP Billiton was working on a possible bid of up to US$ 50 billion for Alcoa.

But the person said the mining giant will not be following Rio Tinto's lead with a bid for Alcoa.

A spokeswoman for BHP Billiton said the company does not comment on market speculation.

Merrill Lynch and JPMorgan, who have reportedly been working with BHP on a possible Alcoa bid, both declined to comment.

-By Alex Wilson, Dow Jones Newswires; 61-3-9671-4313; alex.wilson@dowjones.com

Gimme smelter

Economist, UK - Jul 19th 2007

http://www.economist.com/business/displaystory.cfm?story_id9517201

Are more big deals ahead?

The notion that aluminium is merely a dull, grey metal has taken something of a hammering lately. A dramatic string of mergers, bids and counterbids has enlivened an industry that is proving to be as malleable as its end product. On July 12th Rio Tinto, one of the world's biggest mining firms, comprehensively trumped Alcoa's hostile $27 billion offer for Alcan, a Canadian rival, by stumping up $38.1 billion in cash. The deal will make Rio Tinto the world's top aluminium producer (see chart), ahead of Russia's RUSAL, which was itself involved in a big merger in March. And the flurry of activity in the industry might even result in Alcoa itself being gobbled up. BHP Billiton, an Anglo-Australian mining giant sitting on a pile of money earned from high metal prices, is thought to be mulling a $40 billion bid for the American aluminium-maker.

What explains all this dealmaking? Tom Albanese, Rio Tinto's boss, is confident that the huge sum he is paying for Alcan is justified, in large part because of the situation in China. It is expected to consume 12.5m tonnes of aluminium this year out of a world total of 40m tonnes. But although Chinese demand has pushed up the aluminium price to twice its level of 18 months ago, the price has hovered around $2,700 a tonne for some months.

Where it will go next is the subject of much debate. Until a few years ago China was a net importer of aluminium. Since then both production and consumption have exploded to satisfy the demands of the expanding economy. But production outpaced consumption, making China a net exporter. Jim Lennon, an analyst with Macquarie Bank, points out that aluminium plants can be built far more quickly there than anywhere else in the world, and at about a quarter of the cost.

China is home to Chalco, one of the giants of the aluminium business, and to over a third of the world's smelters. But although plants can be built cheaply in China, production costs are among the highest in the world. China relies on expensive imported alumina, the refined version of bauxite, the ore from which aluminium is made. And smelting it uses vast amounts of energy, accounting for one-third of the costs in an average plant. The government has tried to rein in aluminium producers on the ground that they are hogging prized energy resources that it would prefer to divert to other parts of the economy. Last year a tax rebate on the export of aluminium ingots was eliminated, and then an export tax was imposed.

But China's policymakers may fail to stem the power drain. Ingot exports have slowed down in recent months but exports of semi-finished and finished aluminium products, which are much harder to track, may have filled the gap. Demand for aluminium grew by 23% in China in 2006 and is expected to expand by 30% this year. The government may try to intervene to prevent production from expanding commensurately; but it may not succeed.

Even so, many industry watchers believe that China will once again become a net importer of aluminium. On current trends world demand for the metal will reach 70m tonnes by 2020. But where will the extra supply come from? There are few places with the abundant cheap energy needed to make the stuff. Alcan is probably best placed to take advantage of growing demand, because a deal with Quebec, its home province, provides it with cheap, plentiful hydro-electric power. Hence its appeal to Rio Tinto.

What of BHP Billiton's supposed interest in Alcoa? Unlike Alcan, the American firm does not have access to bargain-priced power supplies. And along with its smelters and bauxite deposits, it has a raft of less tasty downstream assets, such as a packaging business with pitiful margins. But BHP Billiton could team up with a private-equity buyer to offload the less desirable parts of Alcoa, and some analysts reckon that of all the potential suitors it is in the best position to extract savings from a deal. So it might still prove enticing, particularly if BHP Billiton shares Mr Albanese's cheerful forecast of growing demand for aluminium from another source. "Where goes China, India is likely to follow," he says.

Norsk Hydro to invest $1.5bn in Brazilian alumina refinery

newratings.com - Monday, July 23, 2007 10:30:00 AM ET

LONDON, July 23 (newratings.com) – Norway-based aluminum company Norsk Hydro SA (NOH1.ETR) Monday announced that it intends to invest $1.5 billion in an alumina refinery in Brazil. The refinery is to be set up in association with mining giant CVRD.

The new plant, aimed at boosting Norsk Hydro’s aluminum supply, is to be developed in four stages, with 1.85 million tones of production capacity being added during each stage. Norsk Hydro said it will hold a 20% stake in the new refinery, with CVRD holding the rest. The new refinery will be located near Belem, which is only 5 km from Alunorte, the world's largest alumina refinery that is 57% owned by CVRD and 34% by Hydro.

United Company RUSAL’s aluminum output goes up 3.8% in January-June 2007

Ural Business Consulting, Russia 23.07.2007

United Company RUSAL’s aluminum output went up by 3.8% (from 1,962,637 tons to 2,037,236 tons) in January-June 2007, whereas the high-value-added production rose by 14%. This was brought about by the ongoing expansion, equipment upgrades, and improving on the aluminum plants’ technical and economic characteristics. The share of high-value-added production came to 52% of all the aluminum produced by United Company RUSAL, their press officer reports.

Since the beginning of the year, the enterprise has mainly focused on developing new types of products for the car industry by launching special kinds of alloys at its Bratskiy and Novokuznetskiy aluminum plants. At the moment, 22% of all the goods produced by the company are meant for car industry and machine-building.

The fact that the company’s aluminum enjoyed less demand on the American market and increasing demand on the European one led to more aluminum exported to Europe, with the share of Europe-bound goods amounting to 49% of everything exported by United Company RUSAL in January-June 2007 (which exceeds the figures for January-June 2006 by 8%). The ever-increasing consumption of aluminum by transport, packaging, and construction industries makes Russia and the CIS a top priority market. The share of goods shipped around Russia and the countries of the Commonwealth of Independent States reached 21% of the company’s shipments in the first half of 2007.

China may further restrain semi-finished metal product tolling

Interfax.cn (subscription), China July 23.2007

By Ida Chen

Shanghai. July 23. INTERFAX-CHINA - The Chinese government may further restrain semi-finished metal product tolling in order to control the export of high energy-consuming and resource-wasting finished products, industry officials told Interfax today.

An anonymous official with the Ministry of Commerce (MOFCOM)'s tolling trade department said today that MOFCOM is creating a list of products that will be either restricted or entirely prohibited from tolling, which may include various semi-finished metal products. However, no implementation timetable has been set yet, the official said.

Tolling is a trade practice where raw materials are imported and then processed into finished products for export. A product with a tolling license enjoys favorable import and export tax rates.

An official, surnamed Duan, with the China Nonferrous Metal Industry Association said that the Chinese government is likely to restrict tolling licenses for semi-finished copper products, but allow high value-added products such as copper inner grooved tube and high precise copper strip and plate to continue tolling.

"Most of the products included in the value-added tax (VAT) export rebate reduction policy implemented in September 2006 are very likely be included on the restricted tolling list," he said.

Semi-finished aluminum products that have already had their VAT export rebate canceled will probably be totally prohibited from tolling, the official said.

The VAT export rebate on semi-finished aluminum products, including aluminum rod and bar, was canceled on July 1 this year.

However, lead and zinc semi-finished products will probably only be included on the restricted tolling list, according to the official.

The VAT export rebate on semi-finished copper products was slashed to 5 percent on Dec. 15 last year, and the rebate on lead and zinc semi-finished products, including lead and zinc rod, bar and profile, was reduced from 8 percent to 5 percent on July 1 this year.

Copper, lead and zinc product tolling will be restricted by charging both import taxes and VAT on raw materials and only remunerating the full amount after fabricated products are re-exported.

Duan commented that while this method of restriction will not substantially damage enterprise revenues, it will squeeze operational cash flows.

Russia's Rusal Chooses Anglo Refugee Over Brian Gilbertson

Resource Investor, VA -25 Jul 2007 at 10:44 AM GMT-04:00

By John Helmer

JOHANNESBURG (Business Day) -- Stung by a series of public misstatements, a pending UK court case, and a clash with Brian Gilbertson, Russia’s giant aluminium monopoly, United Company Rusal, has selected former Anglo American executive [NASDAQ:AAUKD] Simon Thompson to become chairman of the board.

The appointment was leaked in a Moscow newspaper but has yet to be confirmed by Rusal.

The search for the chairman has been confirmed by sources close to the company, who told Business Day that Mike Salamon, who retired as executive director of BHP Billiton [NYSE:BHP; LSE:BLT] last year, turned down the post.

Following the merger of the two Russian aluminium producers, Russian Aluminium, which is owned by Oleg Deripaska, and Sual, owned by Victor Vekselberg, Brian Gilbertson, then Sual’s chief executive, was proposed as the chairman of the new company.

Gilbertson has confirmed that he and Vekselberg are in dispute and may be litigating. He says Vekselberg violated his commitments. A Rusal adviser told Business Day there was a bitter fight over the Gilbertson appointment.

Thompson headed Anglo American’s base metals and exploration divisions, and was the internally favoured candidate to succeed Tony Trahar as chief executive when he retired.

But Anglo’s board passed Thompson over in favour of outsider, Alcan [NYSE:AL; TSX:AL] executive Cynthia Carroll. Thompson resigned on April 13. Sources close to Anglo think Thompson came under pressure from Carroll.

Rusal has announced its intention to seek a full London Stock Exchange listing in November and set a target for market valuation of $30 billion.

However, this plan is under threat from a lawsuit filed by a former patron of Deripaska, Michael Cherney, who says he has evidence of a trust agreement with Deripaska, confirming he still owns 20% of stake in the new company.

Cherney is seeking billions of dollars from Deripaska, but Deripaska claims he has no obligation to Cherney. The company says Deripaska owns 66%, Vekselberg 22% and Glencore 12%.

Deripaska has also said the Kremlin may take over his shareholding.

Speaking of Rusal’s problems in launching an initial public offering, a financial adviser to Deripaska said, "This company comes with huge baggage, which must be dealt with."

At a presentation by Rusal chief executive Alexander Bulygin to metals analysts in London on June 23, the focus was on promoting the global aluminium business as an investment target, rather than Rusal as such. Rusal’s attractiveness is expressed as a function of its "unparalleled access to low-cost power" and to internally priced bauxite and alumina, produced from associated mining and refining assets in Russia, Ukraine and west Africa.

The presentation does not refer to the growing troubles Rusal faces at its principal source of bauxite in the Republic of Guinea, where domestic opposition to the weakening Lansana Conte regime has targeted Rusal bauxite mine concessions.

Among the "exceptional portfolio of growth opportunities", the Rusal presentation identified two new bauxite mines in Guinea, Dian-Dian and Kindia-2. The seriousness of the risk Rusal is facing in west Africa is indicated by Rusal’s senior managers in Nigeria being taken hostage last month for ransom and related political negotiations.

Rusal’s presentation in London spoke of "world-class standards of corporate governance." The company "intends to comply with the UK Combined Code on Corporate Governance". The company also said that seven independent directors would be appointed to the new board. Two have been announced. Thompson is the third. He will face more scepticism than he was used to dealing with at Anglo American.

"The senior team has extensive experience and a track record of managing growth," Rusal told the London analysts. But according to a UK high court finding by Judge Jack on November 24 2003, three on the team have a public credibility problem.

They are Bulygin, raw materials division head Andrei Raikov and alumina division head Pavel Ovchinnikov.

Ruling against Rusal’s subsidiary, Guinea Investment Limited, in a claim brought by Tekron, a company of three influential advisers in Guinea, the judge ruled testimony from Raikov was "nonsense, which must throw considerable doubt on the rest." Of Ovchinnikov’s evidence, the judge said, "I should place little weight on the relevant passages".

The judicial ruling reveals that Bulygin wrote to the Guinean president, asking for his help and intimating corruption on the part of those then suing Rusal.

The judge reacted sharply and said, "It is apparent from these matters that under the threat of litigation in London Rusal have done what they can to blacken the names of Tekron and its principals in Guinea.

"On the evidence before me, they have not only failed, but have secured indirect evidence that the government considers that Tekron have behaved properly in its relations with the government."

Rusal paid Tekron the court award. But that has not been the end of high court condemnation of Rusal’s business practices.

In 2006, Judge Morrison ruled that Rusal was behind an action brought by the Tajikistan Aluminium Company (Talco), which Rusal had taken over and controlled since December 2004.

The judge found the plaintiffs were "not the victims of fraud, they have been the perpetrators of it in this litigation. …(Talco) has been involved in deliberate attempts to mislead the (Arbitration) Tribunal and have committed acts which in this jurisdiction are serious crimes…"

It is rare for the veracity of a major international group as big and influential as Rusal to be called into question, as the court record in London shows.

Rusal's Mystery Tycoon

Wall Street Journal - July 30, 2007; Page A9

Russian Aluminum Giant Readies IPO as Its Owner Keeps Low Profile

By ANDREW OSBORN

MOSCOW -- Russian aluminum giant United Co. Rusal is preparing its public debut on international markets in unconventional style: by maintaining a wall of silence about the billionaire behind it.

Oleg Deripaska, a 39-year-old tycoon whose U.S. visa was withdrawn over questions about his past business dealings, owns two-thirds of Rusal, founded the company and previously acted as its chief executive. He plays a major role in a company that, through a series of big mergers, now rivals the West's biggest mining companies. When it conducts its initial public offering of a stake of as much as 25% in November, Rusal could raise $7.5 billion, an offering that would be among the largest IPOs and immediately make it one of Russia biggest companies by market value.

Yet Mr. Deripaska played no part last month in informal presentations in London, Frankfurt, New York and other financial centers designed to gauge interest ahead of its planned November listing on the London Stock Exchange. Bankers familiar with the company's plans say Mr. Deripaska is unlikely to participate in any pre-IPO pitches further down the line either.

Public Face: Russian aluminum giant Rusal, which is preparing for a public offering, is promoting CEO Alexander Bulygin as its decision maker.

In the Background: Oleg Deripaska, who owns two-thirds of Rusal, hasn't been participating in informal presentations to potential investors.

In the Past: Rusal's approach demonstrates how many Russian firms emphasize their plans but are reluctant to discuss their histories.Rusal is keen instead to promote its current CEO, Alexander Bulygin, as what spokeswoman Vera Kurochkina calls "a key strategic decision maker for the company." Through his Moscow-headquartered holding company, Basic Element, Mr. Deripaska declined to comment.

Rusal's approach demonstrates how Russian firms striving to gain international recognition are often keen to emphasize future plans but remain reluctant to discuss their frequently colorful corporate histories that date to Russia's anarchic 1990s. Flush with cash from the nation's fast-growing economy and the four-year boom in natural resources, Russian companies are eager to spend to extend their global reach.

Questions about their past have occasionally hindered that effort. Last year, lack of information about another Russian tycoon, Alexey Mordashov, contributed to the failure of the attempt by the Russian steel company he controls, OAO Severstal, to acquire steelmaker Arcelor SA. Since then, Severstal has gone public and Mr. Mordashov has increased transparency and outlined plans to build globally rather than embark on an acquisition spree. The moves have won Severstal greater respect in the industry and in the markets.

Mr. Bulygin, 38, hopes to earn such respect for Rusal. He was appointed CEO in March when the company merged with Russia's Sual Group and Switzerland's Glencore International AG and with almost 15 years of experience in the aluminum industry, he has worked closely with Mr. Deripaska for years.

Fluent in English, Mr. Bulygin says in an interview that he wants to transform Rusal from an aluminum maker into a company that produces a range of metals and embark on an ambitious program to expand the company's power sources into the nuclear sector.

Rusal faces growing competition for the top spot among aluminum makers. Rio Tinto PLC will become the world's largest by output when it completes its acquisition of Canada's Alcan Inc. Alcoa Inc. of the U.S., which after the Rio Tinto deal would be the No. 3 producer behind the newly merged entity and Rusal, is considered a potential acquisition candidate for another big mining company, such as Australia's BHP Billiton Ltd. or Brazil's Companhia Vale do Rio Doce. That could give it access to greater heft and resources. "Nobody can stand still or sleep," says Mr. Bulygin.

His plan to secure Rusal's future is therefore heavily contingent on a successful IPO. Analysts say investors are hungry to buy into a company whose main commodity is tipped to outperform other metals in the next year due to rising raw-material and energy costs. In an investor presentation reviewed by The Wall Street Journal, Rusal said it has combined sales of $13 billion last year and earnings before interest, taxation, depreciation and amortization of $5 billion.

Mr. Bulygin says Rusal will be one of the few left standing when global industry consolidation peters out. His strategy is to turn the company into a "multiminer" and a major producer of all the metals traded on the London Metal Exchange. "Rusal, similar to BHP Billiton Ltd., could be a base for all these metals," he said.

While Mr. Bulygin is promising to draw investors with good corporate governance and a multinational corporate culture, he is dogged by the question of whether he is really in charge and controversy surrounding Mr. Deripaska, who is a board member. While Mr. Bulygin says he is responsible for day-to-day affairs, he says that Mr Deripaska "plays a crucial role in the running and direction of the company."

Mr Deripaska has for years fielded allegations that he has, or had, some connections with organized-crime groups, accusations he rejects as "propaganda" by business rivals. The State Department revoked the oligarch's entry visa last year amid concerns about the accuracy of statements he made in a meeting with the Federal Bureau of Investigation, according to U.S. officials familiar with the matter. He declined to comment on the matter.

Estimated to be the country's richest or second-richest person, with a fortune between $16.8 billion and $21 billion, Mr. Deripaska has President Vladimir Putin's ear and has cast himself as a modern-day version of John D. Rockefeller, albeit one who dons the mantle of a Russian patriot. Through his holding company Mr. Deripaska holds a wide range of investments and recently took a significant stake in Canada's Magna International Inc., an automobile-components supplier that unsuccessfully bid to acquire auto maker Chrysler Group.

Investors are closely studying Mr. Deripaska's role, as well as lingering lawsuits. In one, businessman Michael Cherney, who claims to be a former partner of Mr. Deripaska, is suing him in London for a 20% stake in Rusal that he alleges Mr. Deripaska was holding in trust for him. In the other, a Tajik aluminum firm has launched a lawsuit in the British Virgin Islands alleging that Rusal benefited from fraud at a plant it owns costing it hundreds of millions of dollars. Mr. Deripaska and Rusal reject both claims as "baseless."

Karina Litvack, of London-based asset manager F&C Investments, says her fund has yet to take a view but will be looking into litigation risks carefully when the time comes. Mr Bulygin suggests Mr. Deripaska is a victim of his own success. "People in any walk of life -- be it business, sport or even religion -- who rise to the top always attract admirers and detractors and he is no different in that respect."

Morgan Stanley, Deutsche Bank AG, and J.P. Morgan Chase & Co. have been appointed as global coordinators of Rusal's IPO, according to a person familiar with the matter. UBS AG, Credit Suisse Group and Goldman Sachs Group Inc. have been given supporting roles, this person said.

--Paul Glader in Pittsburgh contributed to this article.

Write to Andrew Osborn at andrew.osborn@wsj.com

Energy shortage hampers development in Africa

International Herald Tribune, France July 29, 2007

By Michael Wines

LUSAKA, Zambia: It is not that Jacob Mwale minds irrigating the 11 acres of land he farms just east of Lusaka, Zambia's capital. It is irrigating his 11 acres in the dead of night that angers him.

Two or three times a week, the Mwale farm abruptly loses power, like the homes and businesses of some of Zambia's 300,000 other electricity users. When the power returns, sometimes late in the evening, Mwale's farmhands work overtime, watering the four-and-a-half hectares of fields by moonlight.

"If they shut down the whole day, I have to work nights, and pay extra," Mwale, 39, grumbled. "It's killing us."

Power blackouts - "load shedding," in utility jargon - are hardly novel in sub-Saharan Africa, where many electricity grids remain chewing-gum-and-baling-wire affairs. Even so, this year is different.

Perhaps 25 of the 44 sub-Saharan nations face crippling electricity shortages, a power crisis that some experts call unprecedented.

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The causes are manifold: strong economic growth in some places, economic collapse in others, war, poor planning, population booms, high oil prices and drought have combined to leave both industry and residents short of power when many need it most.

"We've had no significant capital injection into generation and transmission, from either the private or public sectors, for 15, maybe 20 years," said Lawrence Musaba, the manager of the Southern African Power Pool, a 12-nation consortium of electricity utilities at the continent's tip.

The implications go beyond candlelight suppers and extra blankets on beds. The lack of reliable power has already begun to hamper the region's development, clipping more than 2 percent off the annual growth rates of the worst-hit African economies, according to the World Bank. Some nations, like Ghana, have tried to deal with their power crises by leasing huge teams of gas generators, producing emergency power at exorbitant rates until power plants can be built.

In Nigeria, Angola and some other nations, virtually all businesses and many residents run private generators to supplement faltering public service, saddling economies with added costs and worsening pollution.

In normal times, South Africa's muscular chain of power plants fills the gaps of its neighbors. But South Africa now could experience up to seven years of its own electricity shortages. Rolling blackouts blanketed parts of the country in January, and sporadic power failures have persisted since.

The gravity of this year's shortage is all the more apparent considering how little electricity sub-Saharan Africa has to begin with. Excluding South Africa, whose economy and power consumption dwarf other nations', the region's remaining 700 million citizens have access to roughly as much electricity as do the 38 million citizens of Poland.

Much goes to industry: a single aluminum smelter near Mozambique's capital, Maputo, gobbles four times as much power as the entire rest of Mozambique. On average, the World Bank said, fewer than one in four sub-Saharan Africans are hooked to national electricity grids.

Moreover, some grids are so poorly maintained that electricity suppliers get paid for as little as 60 percent of the power they generate. The rest is either stolen or lost in ill-maintained networks.

For decades, the region had enough generating capacity - and few enough customers - to tolerate such waste. No more: Sub-Saharan nations are adding about a thousand megawatts of generating capacity each year, World Bank experts said, but need up to twice that to keep pace with demand.

Some governments privatized chunks of their power industry in the early 1990s when free-market solutions to public-sector problems were in vogue, leaving it unclear who is ultimately responsible for providing power.

Other governments, as in South Africa, failed to build power plants that experts warned were needed. The government monopoly Eskom, the world's fourth-largest power utility, was advised in a 1998 report that it would run short of power in 2007, but planning and financing problems - not all within the utility's control - stalled upgrades.

The forecast was actually optimistic: Eskom began running short in 2006.

Yet South Africa's woes pale beside those of Nigeria, Africa's most populous nation. Only 19 of 79 power plants work, the government said in April. Daily electricity output has plunged 60 percent from its peak, and blackouts cost the economy $1 billion a year, the Council for Renewable Energy in Nigeria said.

Poor management is but one problem. War has devastated the power grid in Congo, in Africa's heart, and stalled plans to develop its vast hydroelectric potential. In Kenya, Tanzania, Uganda and parts of West Africa, drought has shrunk rivers and slashed the generating capacity of hydroelectric dams. Drought in Ghana, for example, has crippled gold and aluminum production and set off blackouts in Togo and Benin, which buy power from Ghana.

Once a major power exporter, Uganda now blacks out parts of its capital, Kampala, for as much as a day at a time and has leased two 50-megawatt generators, burning diesel at a time of record oil prices.

The demand for hydropower in Uganda and its neighbors, also with drought, is blamed by some for a steady reduction in the water level of Lake Victoria, Africa's largest.

Zambia, where power to customers like Mwale is rationed almost every day, is a template for such problems. Barely 20 percent of households are wired for power - only 3 percent in rural areas - but the Zambia Electricity Supply Co., known as Zesco, is signing up 10,000 new customers a year, said Christopher Nthala, the utility's transmission director.

Now Zambia is getting a push: A global commodities boom has jolted its moribund metals industry to life. Investors are building two smelters, and doubling the capacity of another, to handle the boom in copper, nickel and other metals, taxing the nation's power supply.

"We've never seen this kind of growth before," Nthala said.

Once the utility could make up shortfalls by buying power from other utilities in the Southern Africa Power Pool. But now, Nthala said, neighbors have little surplus to hand out. "Sometimes we get it," he said. "Sometimes we don't."

None of that mollifies customers, who say blackouts are so common that service in much of Lusaka has become totally unreliable.

Many power failures seem to hit Matero, a poor township that is home to maybe a million of Lusaka's estimated three million residents.

"Every day - it's either in the morning, when people are going to work or preparing to cook, or in the evening, the prime time when I'm tired and I need to go home and listen to the news and cook my supper," said Bishop Peter Ndhlovu, who leads the 250,000-member Bible Gospel Church, an evangelical movement.

Aluminum In 200,000-Ton Surplus In 2007 - Alcan

CNNMoney.com July 31, 2007: 10:24 AM EST

LONDON -(Dow Jones)- The world primary aluminum market is expected to be in a modest surplus of approximately 200,000 metric tons in 2007, from a deficit of 162,000 tons in 2006, Canadian producer Alcan Inc (AL) said Tuesday.

Consumption of primary aluminum is forecast to increase by approximately 10.1% in 2007, up from a 6.9% rise last year. This represents the fastest rate of global consumption increase since at least 1980 and is being driven by exceptionally high demand in China, Alcan said.

Production from new capacity and restarts is expected to increase world supply by about 11.2% in 2007, up from a 6.4% rise in 2006.

Earlier Tuesday, Alcan posted a 3.7% decline in second-quarter net income as a weaker U.S. dollar affected its operating earnings.

China remains a net importer of aluminum units and is seen starting to increase imports further in the coming months, according to Dick Evans, chief executive of Canada's Alcan Inc. (AL).

This is because the gap between capacity and output is narrowing, Evans said. "China continues to be the biggest factor affecting global aluminum prices," he said. China is a net exporter of unwrought aluminum and semis, but a net importer of scrap.

Evans noted that the outlook for the aluminum market remains very bullish, with continued supportive fundamentals in the short term, and improved signals for the longer-term outlook.

Earlier Tuesday, Alcan posted a 3.7% decline in second-quarter net income as a weaker U.S. dollar affected its operating earnings.

The Canadian aluminum producer is agreed earlier this month to be acquired by Rio Tinto PLC (RTP).

-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@ dowjones.com

Alcan, Rio Tinto Integration Could Take Two Years: Evans

CNNMoney.com July 31, 2007: 10:17 AM EST

VANCOUVER -(Dow Jones)- It might be two years before Rio Tinto PLC's (RTP) $ 38.1 billion friendly takeover of Alcan Inc. (AL) is fully integrated, Alcan Chief Executive and President Dick Evans told Dow Jones Newswires Tuesday.

"Typically, something with this size, you're looking at two years; in this particular case, because there is relatively little overlap of businesses, it could go even a bit quicker than that," he said in a telephone interview.

Evans, who will head up the combined companies' aluminum business out of Montreal once the deal closes, said it will be up to Rio Tinto to figure out a timeframe for reviewing the combined portfolio and, ultimately, the allocation of capital for projects in the pipeline.

"They want to start with this as soon as they're done with this transaction," Evans said. "There are certain major decisions that we (won't) take independently without consulting with Rio. Having said that, they are very much aware of the pipeline of our major projects and they're very supportive of it - that's one reason why they bought us."

Evans comments come after Alcan released second-quarter results - a trading period hit by a strong Canadian dollar. The company said Tuesday it had earned $ 438 million, or $1.18 a share, in the second quarter, which is down from $455 million or $1.21 a share, during the same period last year. The currency translation effect overshadowed a 8.2% increase in sales to $6.6 billion from $ 6.1 billion, thanks in part to higher aluminum prices.

Evans said currency fluctuations do have an adverse effect on earnings, especially a strong Canadian dollar when it comes to country-specific liabilities, such as pension commitments.

However, this quarter could be the last time Alcan reports as an independent company, meaning its earnings will now be incorporated with Rio Tinto, a London- listed company that reports earnings semi-annually and in U.S. dollars.

In terms of integration, it's a given that Rio will sell Alcan's packaging business.

"(The sale) is something we had started even before the Alcoa hostile offer, so we had done a thorough evaluation of the business, what we thought the value was, who were the likely buyers and had some contact with interested parties," Evans said. "We put all of this on hold since the Alcoa hostile offer."

Before Rio swooped in on Alcan, U.S.-based Alcoa Inc. (AA) had tendered a hostile bid for the Canadian aluminum company back in May.

Evans said Alcan is now "dusting off" the packaging-business file and revisiting the sale in conjunction with Rio Tinto.

"We will be determining with them how rapidly we push ahead," he said. "Our objective here is to get it done expeditiously but not at the expense of getting maximumn value."

Overall, Evans said Rio Tinto is taking on a large asset, meaning integration will be a complex affair.

"We've compared notes on what we think is the right direction of the aluminum business within Rio Tinto and I would say we're largely aligned on that," he said. "He's buying a very big company in Alcan...and we all want to make the right decisions in terms of what assets we keep and which ones we might divest."

In New York Friday, Alcan is up 66 cents to $97.46 on 569,000 shares.

Company Web Site: http://www.alcan.com

-Brian Truscott, Dow Jones Newswires; 604-669-1595; brian.truscott@ dowjones.com