Chalco quits bauxite project in Australia
Aluminum Corp of China (Chalco), the nation's largest producer of the metal, has terminated an accord on a US$2.5 billion bauxite project in Australia as industry prospects weaken and a hefty income tax looms.
The bauxite venture is one of China's largest investments in Australia.
However, the world's third-largest producer of the intermediate product alumina said it would continue to discuss with the Queensland state government the project and 'other investment ways'.
Aluminium, used in a wide range of products including aircraft, packaging materials and window frames, is smelted from alumina, which is refined from bauxite.
China is short of quality bauxite resources and imported 19.4 per cent of the 26.43 million tonnes it consumed last year.
The bauxite project in Aurukun, Queensland, was estimated to contain 560 million tonnes of reserves, comparable to Chalco's 580 million tonnes, former chairman Xiao Ya-qing said in 2006.
Chalco blamed the decision to let the development agreement lapse on Wednesday on 'noticeable adverse changes in the aluminium industry' since its signing in March 2007.
The project was also 'hindered by various unfavourable factors to the extent that it cannot be implemented', it added in a statement.
Chalco's decision came just weeks after Lu Youqing, the president of parent company Chinalco, reportedly said it had no plans to pull out and had not discussed doing so even though the Australian government had proposed a 40 per cent tax on mining profits.
Analyst Karen Li of brokerage CCB International believes both industry oversupply and the potential 'super-profit' tax were significant factors behind Chalco's decision.
'Industry executives think global demand-supply balance in aluminium will only be restored next year or 2012 at the earliest,' she said. 'As for the super-profit tax, it may be dropped or reduced under the new government leader. [But] it has highlighted Australia's country risk.'
The three-month aluminium contract price on the London Metal Exchange has fallen 11.3 per cent this year and is 40.4 per cent below the record high three years ago.
Chalco predicted in March that 18.4 per cent of global aluminium smelting capacity would be idled this year.
Li believes Chalco is still interested in Aurukun but will delay any investment as it waits out the industry downturn and seeks clarity on Australia's stance on the proposed mining tax. Letting the agreement expire could be a 'tactic' to pressure Canberra to kill the tax, she said.
Miners have put on hold more than US$20 billion in new resources investment in Australia because of the proposed tax.
Prime Minister Julia Guillard might announce today a deal with miners to end the bitter stand-off over the tax, the Australian newspaper reported. It said Canberra was likely to give ground on the tax's retrospective application, the profit threshold at which it will take effect and the tax rate.
The Aurukun project could create 3,800 construction jobs over three years and require a permanent workforce of about 600, vital to improving the standard of living of the local aboriginal community.
In addition to indigenous land ownership issues, other factors have stalled the project, including rising costs, a skilled mining labour shortage and a government requirement for the construction of an alumina refinery. Construction was originally envisioned to be completed this year.
Meanwhile, Chalco yesterday cut its alumina selling price by 7 per cent to 2,650 yuan (HK$3,044) a tonne.
The mainland consumed 26.43 million tonnes of bauxite last year
The project, with estimated reserves of 560 million tonnes, is one of China's largest investments in Australia at, in US$: $2.5b