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. Last Updated: 07/27/2016

Chinese Metals Firm Eyes RusAl's Aussie Refinery

BEIJING — Ambitious to expand and acquire assets overseas, Chinese metals giant Chinalco is eyeing assets held by United Company RusAl despite the setback of its failed investment this year in Australian mining giant Rio Tinto.

The mining and metals conglomerate has targeted RusAl's stake in an alumina refinery in Australia but is less interested in buying into the indebted Russian company's Hong Kong share issue, two sources familiar with the situation said on Tuesday.

However, political pressure may oblige state-owned Chinalco to subscribe to the share issue and take a stake in RusAl, the sources said. RusAl's top management is visiting China now to bargain for a series of potential cooperation moves.

The visit coincides with Prime Minister Vladimir Putin's trip to Beijing, where deals worth some $3.5 billion are to be signed, officials said, with hopes of further cooperation in energy, trade and political ties.

"The subscription largely depends on how Putin's visit goes," one of the sources said. "At the state level, Russia and China have a long-term friendship, but a big concern is that Chinalco is a state-owned company while RusAl is private-sector.

"Chinalco is not lacking money, but RusAl is deep in debt. The two sides could seek other ways of cooperating besides the share subscription, as Chinalco has shown interest in RusAl's global production assets," the source said.

The asset Chinalco is keenest to invest in is Queensland Alumina Ltd. (QAL), which would shore up its supply chain in Australia, the sources said.

The plant is one of the world's largest alumina refineries, with a nominal capacity of 3.95 million tons of alumina each year, RusAl says on its website.

RusAl owns 20 percent and Rio Tinto, in which Chinalco is the biggest shareholder, holds the rest of QAL. Chinalco subsidiary Chalco already has an almost $3 billion project to develop the vast Aurukun bauxite deposit in Queensland.

"If a deal succeeds, the plant could process Aurukun's bauxite," another source said.

Officials from Chinalco were not available to comment, and RusAl's media office said in an e-mailed statement that the company had no intention of selling its stake in QAL.

"It could be very hard for Chinalco to hammer the deal as it would be very tough to persuade RusAl to sell the refinery stake, especially if RusAl has its own bauxite supplies in Australia," said Heng Kun, analyst at Essence Securities.  

RusAl, more than $16 billion in debt, has restarted plans for a stock listing in Hong Kong to raise between $1.5 billion and $2.5 billion by the end of this year, sources have said on condition of anonymity.

The company must first settle its debt-restructuring plan with more than 70 international and Russian banks, the sources said. RusAl has said it plans to complete this long-delayed process by the end of October..

Despite political pressure, Chinalco was still likely to decline the proposal to potentially become a major shareholder of the world's largest aluminum producer in terms of production.

A refusal could dampen RusAl's planned initial public listing in Hong Kong, which the Russian firm intends to finalize by the end of this year and use 80 percent of its proceeds to pay back debt, the sources said.

"The accounting system in Russia is very different from the ones in Europe, China and Hong Kong. And that was a big reason that the company dropped its London listing plan," one of the sources said.

Essence Securities' Heng said the discussion on the IPO subscription could focus on prices since Chinalco would not decline the offer if it was clearly profitable. A source has said the benchmark for RusAl's valuation would be Chalco.