Chalco marks 60b yuan for capacity expansion

PUBLISHED : Friday, 25 August, 2006, 12:00am
UPDATED : Friday, 25 August, 2006, 12:00am

Aluminium firm targets acquisitions, new plants to lift output over four years

Aluminum Corp of China (Chalco), the world's second-largest alumina producer, plans to invest 60 billion yuan between this year and 2010 to expand production capacity order bolster earnings in the face of sliding prices for its products.

The company, the mainland's largest aluminium smelter, aims to boost its annual production capacity for alumina, the base ingredient of aluminium, to 13-14 million tonnes by 2010 from 8.3 million tonnes last year and more than triple its annual aluminium smelting capacity to five million tonnes from 1.5 million tonnes last year, chairman and chief executive Xiao Yaqing said yesterday.

'For alumina, we'll build new production facilities ourselves but for aluminium the capacity expansion will mainly come about through mergers and acquisitions,' said Mr Xiao a day after the company announced a 90 per cent surge in net earnings on higher prices and increased sales.

'At that time [2010], 70 per cent to 80 per cent of the alumina produced will be for internal use, which would lessen the impact of fluctuations in alumina prices on our profit,' Mr Xiao said.

It takes two tonnes of alumina, which is refined from bauxite, to make a tonne of aluminium. Last year, only 36 per cent of the alumina that Chalco produced was for internal use.

So far this year, Chalco had acquired 970,000 tonnes of additional aluminium smelting capacity and had targeted to buy another 770,000 tonnes by year-end, Mr Xiao said.

It has set aside three billion to four billion yuan for acquisitions this year, of which 1.14 billion was used in the first half.

International alumina prices rallied 40.5 per cent in the first half but had fallen nearly 50 per cent since a mid-April peak of US$628 a tonne.

Chalco cut its domestic alumina price 13.3 per cent to 4,900 yuan from August 7, its first price cut in more than two years, to reflect the market, though analysts expect the company to face mounting pressure for a spot alumina price cut.

Mr Xiao said the 'abnormally high' price of alumina would not last long but aluminium demand would continue to grow with China's economic growth and urbanisation for at least the next few years and possibly even 10 years.

'We're optimistic of our future earnings growth,' he added, referring to the market's concern that declining alumina prices would crimp the firm's future earnings. Chalco is also looking to buy assets from overseas and expects to conclude a deal on a A$3 billion (HK$17.9 billion) bauxite mining and refining project in Australia in the third-quarter this year.

'We had 12.1 billion yuan in cash as at the end of June, and our gearing ratio is still below 40 per cent, so there is no financing pressure,' Mr Xiao said, stressing that the company was not pressing to issue A shares.

Shares of Chalco climbed as much as 6.5 per cent to HK$5.41 yesterday after it announced a record first-half profit of 6.74 billion yuan and declared an interim dividend of 18.8 fen per share on Wednesday, the first such payment since it went public in December 2001. The stock closed at HK$5.24, up 3.15 per cent.

Mr Xiao said the company would pursue its long-term policy of paying out about 35 per cent as dividend.