Chalco Zooms in Easten China Rare Earth Resources

Aluminum Corporation of China Limited (SHSE: 601600, Chalco) is zooming in on the rare earth resources in the city of Qingyuan, Guangdong Province, eastern China, shortly after a plan to invest a similar amount of money in its rare earth base in Jiangxi Province.

Its state-owned parent Chinalco, which is seeking to diversify from aluminium to become a global mining firm, said in a statement on October 10 that it would take a controlling stake in Jiangxi Rare Earth and Rare Metals Tungsten Group (JXTC).

Chinalco, the country's biggest aluminium producer, will invest at least CNY 10 billion yuan in the Jiangxi firm over the next three to five years to accelerate the development of rare earth resources.

China supplies at least 95 percent of the world's rare earths, which are essential for making components used in a variety of products including iPods, electric cars and guided missiles.

The investment comes after Japanese traders accused China of blocking exports of the minerals to Japan, which Beijing has repeatedly denied, amid the worst diplomatic row between the two Asian powers in years.

The investment will be used to establish a rare earth and rare metals production base, which is expected to boost the sales revenue of Tungsten Group Holding to 50 billion yuan within the next three to five years.

The company aims to diversify its operations by buying into coal, rare earth, copper and iron ore assets, as core business margins remain pressured on ample global supplies.

Cairman Xiong Weiping of Chalco said that the firm was well placed to expand into compatible materials production after reporting early recently a loss in the second quarter.

Chalco plans to build two to three coal production bases in the next three years, aiming to obtain "sizable" coal resources that could help boost electricity generation. Rare earth is another priority for the diversification, and the firm is participating in the consolidation of China's rare earth industry, the world's largest.

The plans for further diversification follow Chalco's recent agreement to invest USD1.35 billion in a Guinea joint venture of Simandou that partner Rio Tinto (NYSE: RTP) claims to be the world's largest undeveloped iron ore deposit.

Xiong said Chalco was also in talks with the government of Australia's state of Queensland for a new development plan for the Aurukun bauxite deposits, after terminating in late June a USD2.5 billion agreement to develop an operation there.

Chalco revised upward its forecast on global aluminium production capacity, output and consumption for this year, but maintained its forecast on China's aluminium output at 17 million tonnes.