Aug 08 2007

Rio Tinto Alcan after 550,000 tonne hydro project in Malaysia

Rio targets being top player in aluminium
By Nigel Wilson

August 08, 2007 06:00am
Article from: The Australian

RIO TINTO aims to be the world’s biggest aluminium producer – with the help of some of the world’s cheapest energy – before the end of the decade.

Rio Tinto Aluminium chief executive Oscar Groeneveld said yesterday that the possibility of a new aluminium smelter in the Malaysian state of Sarawak, coupled with closer links with Abu Dhabi once the Rio Tinto/Alcan merger was completed, would create a leading world player in the aluminium business.

Rio Tinto and the Malaysian conglomerate Cahya Mata Sarawak signed a heads of agreement yesterday for a feasibility study into a proposed development of a $US2 billion ($2.3 billion), 550,000 tonnes a year smelter at Similajau, about 60km from Bintulu.

The project is predicated on supplying the Chinese market, which continues to expand rapidly.

China is constrained in new smelting capacity because its electricity comes mainly from high-cost coal, which is increasingly under attack for its greenhouse gas emissions.

Rio Tinto will have 60 per cent of the Sarawak project, which has the potential to be expanded to 1.5 million tonnes, or roughly 60 per cent of the total current aluminium capacity of Australia and New Zealand – 2.3 million tonnes – which is produced by Rio, Alcoa and Norsk Hydro. In Australia and New Zealand, Rio Tinto produces about 800,000 tonnes of aluminium a year.

The first phase of the Sarawak development will take about 1.1 million tonnes of alumina a year which will be supplied from Rio Tinto’s existing production network, probably the Yarwun refinery at Gladstone, which is undergoing a $US1.8 billion expansion from 1.4 million tonnes to 3.4 million tonnes a year by 2011.

Speaking from the Sarawak capital of Kuching, Mr Groeneveld said the deal had been under discussion for months, long before Rio Tinto made its $US38.1 billion agreed bid for Alcan.

He said the combined Rio Tinto/Alcan business would be the world’s number one in bauxite, number two in alumina, after Alcoa, and number two after United Company RUSAL but was aiming to be number one in all three components of the aluminium business.

Nominally, Rio Tinto/Alcan accounts for around 4 million tonnes of metal a year with United Company RUSAL claiming 4.3 million tonnes annual metal production.

“Alcan is bringing on the Sohar plant in Oman which will brings us more new metal capacity,” Mr Groeneveld told The Australian.

“We are also keen to become involved with Abu Dhabi’s plans for a substantial aluminium industry based on its cheap energy.

“So you can see Sarawak’s output will be complementary to those objectives.”

Studies for the Sarawak plant could take 18 months to complete but current plans have first production flowing from the fourth quarter of 2010.

Power for the smelter will come from the controversial 2400 megawatt Bakun hydroelectric dam, which is under construction involving one of the highest rockfill dams in the world. Bakun has attracted criticism from conservationists because it is slated to supply peninsula Malaysia with power via a long transmission network including undersea cables.

Conservation groups claim that up to 10,000 people will have to be relocated as the dam fills.

Mr Groeneveld conceded that Rio Tinto had obtained one of the few hydro-electric supply sources available to the aluminium industry anywhere in the world.