Rio Tinto invests £1bn in aluminium plant

The mining giant Rio Tinto Zinc is to spend nearly £1bn expanding aluminium production to meet soaring global demand.

Work is to begin almost immediately on its Yarwun refinery in Western Australia, aimed at more than doubling output to 3.4 million in the next four years.

The price of aluminium has rocketed on metal exchanges in the face of growing demand for the metal from China and other Asian economies.

Aluminium is widely used in the aerospace, motor and packaging industries. Rio's chief executive, Tom Albanese, said: "The expansion of the Yarwun refinery is one of the most significant investments made by Rio Tinto in recent years."

Supplies of bauxite used in the manufacturing process will be supplied from Rio's mines in Weipa, in Queensland.

Mr Albanese added: "The attractive fundamentals of the aluminium industry combined with Yarwun's well-located, low-cost position and our excellent bauxite resource at Weipa reinforce the deep underlying strength of the group's organic growth pipeline."

The new plant will be gas-fired to help meet carbon emission targets and achieve greater energy efficiency. Aluminium demand increased by around 8 per cent last year and is expected to grow a further 9.4 per cent this year, although in China the consumption is estimated to be growing at more than 20 per cent a year.

Aluminium prices peaked at around £3,000 a ton last year but have settled back at around $2,755.

The lightweight material is being used more widely in motor manufacturing. Lighter vehicles can dramatically reduce carbon dioxide emissions.

The scramble by producers to satisfy the hunger for the material has also triggered a lot of speculation concerning bids.

Rio and its fellow mining giant BHP Billiton have both been tipped as possible white knights for Canada's Alcan, which is fighting a hostile £13.8bn bid from its US rival Alcoa.

Last year Rio produced around 3.25 million tons of aluminium compared with global production of around 68 million.

Rio, in its first quarter trading review in April, said that aluminium production rose by 2 per cent compared with a year ago.

Fevered activity in metal markets saw the price of Lonmin climb further in London yesterday on continuing speculation it is about to attract a near £8bn bid from the deal-hungry Xstrata.

Lonmin is the world's largest producer of platinum - another material in demand from the motor industry, in its case for the production of catalytic converters. Lonmin closed 131p higher at 4310p.

Xstrata has spent around £11.5bn snapping up other mining companies over the past year, turning it into one of the world's leading mining groups.