Home > Investments, Market change > Chalco drops $2.4bn Australian bauxite plan

Chalco drops $2.4bn Australian bauxite plan

July 2, 2010

“Chalco, the second-largest aluminium producer, has pulled out of a A$3bn (US$2.4bn) deal to develop a bauxite refinery in Australia, blaming a drop in aluminium prices and difficult global conditions.

The Hong Kong-listed subsidiary of Aluminium Corporation of China won a permit to mine the high-quality Aurukun bauxite deposits in northern Queensland on condition it build a processing plant.”

Source: Financial Times, July 2 2010

Observations:

  • When Chalco, a Chinalco daughter, won the permit for the bauxite deposit aluminium prices were $3,000 a tonne compared with below $2,000 today.
  • Condition for the development was the construction of a smelter in Australia, to prevent the ore from being shipped directly to China. In this case the benefit for the Australian citizens would be significantly lower than with domestic smelting.

Implications:

  • The Australian government is likely to reopen the permitting process for the deposit, giving other firms a renewed option to develop the deposit. However, only few firms currently have the funds to undertake the project.
  • Today’s announcement by the new Australian prime minister that the super profit tax will only cover coal and iron ore operations does increase the feasibility of the project.

©2010 – thebusinessofmining.com

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