Companies

Chalco invests $1.35b in Rio's Simandou iron ore project in Guinea

(Agencies)
Updated: 2010-07-29 16:18

Aluminum Corp of China Ltd, the nation's biggest producer of the metal, agreed to pay $1.35 billion for a stake in Rio Tinto Group's Simandou iron ore project in Guinea, making its first investment in the commodity.

Chalco will acquire a 44.65 percent stake by funding development over the next two to three years, the two companies said in a statement. Today's agreement follows on an initial accord on the project with Chinalco, Chalco's State-owned parent, in March.

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Rio is working to repair relations with China, its biggest customer, after last year scrapping a $19.5 billion investment from ChinalCo. Chalco, facing a 12 percent drop in aluminum prices, will benefit from tapping what London-based Rio had said is the world's top undeveloped iron ore deposit.

"Chalco delayed a share sale this year and the stock performed badly," Owen Liang, a Shenzhen-based analyst at Guotai Junan Securities Co, said by phone. "To raise funds, the company needs to convince investors of profit growth. The Simandou project will contribute substantially to profit after it starts."

Rio Tinto, whose largest shareholder is Chinalco, rose 0.7 percent to A$71.50 at the 4:10 pm close on the Australian stock exchange. Shares of Chalco, down 22 percent this year in Hong Kong trading, were suspended pending the announcement.

This will be Chalco's biggest overseas investment after it last month pulled a plan to develop a A$3 billion ($2.7 billion) bauxite project in Australia as market conditions deteriorated. Bauxite is a raw material for aluminum. In February, the company agreed to jointly develop and operate a $1 billion smelter in Malaysia with GIIG Holdings Sdn.