China to put $3.25b into bauxite mine

Aluminum Corp of China, the world's second-biggest alumina producer, is poised to make China's single largest investment in Australia as it seeks to ease shortages of materials used to make aircraft and car bodies.

The company, known as Chalco and 70 per cent owned by China, will submit a final bid by May to build a A$2.9 billion ($3.25 billion) bauxite mine and refinery in Queensland, the state government said.

The deposit has enough resources to produce aluminium for 2.5 million Boeing 747-400 aircraft.

Chinese companies including Chalco and Cnooc are scouring the world for raw materials since supplies can't meet the boom in demand for cars, homes and appliances in the world's fastest-growing economy. Chinese companies may invest as much as A$10 billion in Australia, which ranks among the world's top five producers of alumina, coal, bauxite and iron ore.

"China is industrialising and they have to source materials and power," Alfred Wong, who helps manage US$15 billion ($22.5 billion), including resources stocks at UOB Asset Management, said in Singapore.

Soaring Chinese demand has led to a 53 per cent rise in the price of alumina, a white powder used to make aluminium, in the past 12 months. Australia has 22 per cent of the world's proven reserves of bauxite, which is refined to make alumina, while China has only 2 per cent.

China, whose economy has expanded 55 per cent in the past five years, is the world's largest producer and consumer of aluminium.

Alcoa, the world's largest aluminium producer, last month said sales in China may jump 40 per cent this year.

"Chinese are aggressively looking for oil, gas and metals as part of their search for world-class deposits on a meaningful scale," said Gavin Wendt, a senior resources analyst at Sydney's Fat Prophets Funds Management.

"With the backing of the Chinese Government behind Chalco that would have to provide confidence that they can finance this."

Chinese investors in Australia include Sinosteel Corp. and Beijing Shougang. Sinosteel, China's second-largest iron ore trader, signed an agreement last October to study the development of A$1.5 billion worth of iron ore projects in Western Australia with Midwest Corp.

Beijing Shougang, China's second-largest producer of construction steel, is paying A$120 million for a 50 per cent stake in Mt Gibson Iron's A$715 million iron ore project.

If Chalco's proposal is accepted it will be named "preferred developer" of the 650 million tonne Aurukun bauxite deposit, Queensland Premier Peter Beattie said in a statement.

Chalco was one of 10 companies in an initial short-list to build the mine drawn up by the Queensland government last year.

Alcoa, Alcan and Cia Vale do Rio Doce said they pulled out of the bidding last month.

BHP Billiton, Mitsubishi and Hindalco Industries had also expressed interest.

- BLOOMBERG