Rio Tinto in $2bn smelter deal

MINING giant Rio Tinto has signed a deal with Malaysian conglomerate Cahya Mata Sarawak Berhad (CMS) to develop an aluminium smelter in Sarawak. The cost of the project was not disclosed but industry sources have indicated a figure of around $US2 billion ($2.3 billion) for the smelter which would use power from the controversial Bakun Dam being built on Borneo island. The deal follows Rio's $US38 billion ($44.31 billion) takeover of Canadian aluminium producer Alcan, making it the world's biggest producer of the metal. The pair will conduct feasibility studies on the design, engineering, construction, commissioning and operation of the smelter. "The studies will take between 12 to 18 months to complete," Rio Tinto said today. "They will examine the technical, environmental, operational, social and economic aspects of a smelter development." Rio Tinto will take a 60 per cent stake in the smelter, with the remaining holding going to CMS. The proposed smelter would have an initial production capacity of 550,000 tonnes a year, to be expanded to 1.5 million tonnes. First production from the smelter could be expected in the fourth quarter of 2010 and it was proposed that electricity for the smelter would come from the Bakun Hydroelectric Dam, which was under construction. "The smelter would provide approximately 1200 direct jobs, and up to 3500 indirect jobs, and the opportunity to build an outstanding technical skill base for Malaysian nationals, while adding billions of US dollars to Malaysia's gross domestic product," Rio Tinto Aluminium chief executive Oscar Groeneveld said. "This is a very positive development for Rio Tinto and an important step in our plans to develop new greenfield aluminium smelting capacity." Rio Tinto Aluminium already has four smelters in its portfolio, including Australia's largest, Boyne Smelters in Queensland, which produces more than half a million tonnes of aluminium each year from its three production lines. At 1.58am (AEST) Rio Tinto's shareswere 49 cents higher at $87.45.