RusAl Plans Projects in China and Guinea

United Company RusAl, the world's largest aluminum producer, said Monday that it would partner with China Power Investment in building a 500,000-ton smelter in western China and a bauxite and alumina complex in Guinea.

The deal gives RusAl, majority-owned by billionaire Oleg Deripaska, a foothold in China's fast-growing aluminum market, already the world's top consumer and producer of the light metal used in drink cans, cars and construction.

"It is important that RusAl fixes its presence in China, which is the largest aluminum market," said Alexander Pukhayev, metals and mining analyst for Deutsche Bank in Moscow.

"It's good that RusAl will also secure energy supplies, as China's situation in the electricity sector is not as good as Russia's," Pukhayev said.

RusAl said in a statement that it had signed a memorandum of understanding with CPI, a major Chinese energy firm, giving it 49 percent of a smelter in Qinghai province that will have capacity to produce at least 500,000 tons per year of aluminum.

The smelter will secure its electricity supply from CPI's hydropower facilities on the Huang He River.

The two projects will create a vertically integrated aluminum-production complex. RusAl will hold a stake of up to 49 percent in the Chinese aluminum smelter, and CPI will hold up to 49 percent of the Guinea bauxite-alumina complex, which will have capacity of up to 2.8 million tons of alumina per year.

RusAl and CPI will finance the projects in proportion to their ownership and will create a working group to conduct an audit and feasibility study. RusAl said the study was slated for completion by mid-2008 and the project could start in 2009.

Further financial details of the transaction were not disclosed.

"Joining forces with one of China's largest energy corporations is an important move in realizing [RusAl's] strategy of strengthening the company's presence in China," RusAl chief executive Alexander Bulygin said.

United Company RusAl was created in March 2007 through the merger of Deripaska's Russian Aluminum, smaller domestic rival SUAL and assets belonging to Swiss-based commodities trader Glencore.

The company accounts for 12 percent of global aluminum output and 15 percent of intermediate product alumina, a white powdery substance made from bauxite.

RusAl does not currently own any smelters or alumina refineries in China. It does, however, own a plant in Shanxi province that produces cathodes, components of the electrolytic cells used in aluminum production.

In Guinea, a country rich in bauxite, RusAl owns mining firm Compagnie des Bauxites de Kindia as well as the Friguia alumina refinery. It also owns the Dian Dian bauxite deposit.