Shares in Aluminum Corp of China (Chalco) rose to record highs in Hong Kong and Shanghai after it agreed to buy smaller rival Baotou Aluminum for 14.7 billion yuan in stock as part of its strategy to consolidate resources in aluminium production and to expand into the processing business. Chalco, the mainland's biggest aluminium producer that specialises in refining bauxite into alumina for aluminium production, is offering to buy each Baotou share for 1.48 of its new Shanghai-listed A shares. The deal values Baotou's shares at 34.15 yuan each, based on Chalco's A-share closing price on June 11, just before trading was suspended. That represents a 28 per cent premium to Baotou's same-day closing price. Baotou's shareholders also can choose to sell their shares to Chalco for 21.67 yuan each in cash. Chalco's parent Chinalco indirectly owns 55 per cent of Inner Mongolia-based Baotou. Chalco plans to take Baotou private. Earlier in April, it had completed the same process with two listed subsidiaries, Lanzhou Aluminium and Shandong Aluminium Industry. 'The deal is positive as it would help Chalco expand into the downstream aluminium processing business, giving it a more balanced value chain,' said Helen Wang, a metal analyst at DBS Vickers. She added that the deal would lift Chalco's profit. Ms Wang said the stock swap valued Baotou at about 22 times forecast earnings this year, in line with other mainland aluminium stocks. Chalco's Hong Kong-traded H shares surged 10.47 per cent, closing at HK$14.56 while its A shares ended at 23.94 yuan, up 3.7 per cent, both being record highs. Shares in Shanghai-listed Baotou hit their 10 per cent daily limit to close at 29.41 yuan yesterday after resuming trading. Ms Wang said she expected Baotou's shareholders to take the stock rather than the cash option, which was priced at a discount to Baotou's current stock price. 'There won't be dilution effect on Chalco's earnings per share based on the new shares it needs to issue and the potential profit contribution from Baotou,' she added. If all Baotou shareholders chose the stock offer, Chalco would need to issue about 637.88 million new A shares, or 4.72 per cent of its enlarged share capital. Mainland brokerages forecast Baotou to make a profit of 670 million yuan this year, up 66 per cent from last year's 403 million yuan. In April the company had forecast its earnings for this year would fall 1.8 per cent to 11.1 billion yuan from last year, based on the domestic accounting standards. Analysts said Chalco's 29-per-cent-owned associate Jiaozuo Wanfang Aluminium Manufacturing could be its next consolidation target.