Rio Tinto sees China’s metal demand driving growth

Rio Tinto sees China’s metal demand driving growth

Montreal, 25 October Rio Tinto Plc sees surging economic growth in China driving global demand for metals and the big miner expects its $38.1 billion takeover of aluminum producer Alcan Inc to help it profit from the trend.

“We see the same demands trends in steel and in copper as we do in aluminum," Rio Tinto Chief Executive Tom Albanese told Reuters in an interview on Thursday.

Rising standards of living in China and India and the countries’ voracious appetite for metals are a key part of the rationale for Rio Tinto’s acquisition of Montreal-based Alcan, Albanese said.

Alcan joined Rio Tinto on Thursday as 79.4% of its shares were tendered to the London-based miner’s friendly $101 a share offer. Rio Tinto’s bid was extended to 8 November to acquire the remaining Alcan shares.

The acquisition makes Rio Tinto the world’s largest aluminum producer, ahead of Russia’s UC Rusal.

While the Alcan deal grabbed headlines, Rio Tinto has also been investing in its copper and iron ore assets to tap demand growth for steel and copper, Albanese said.

So far, China has been matching its demand for aluminum with domestic supply from new smelters and the return of idled smelting capacity, but Albanese figures it will run out of headroom as domestic power supplies reach their limit in supplying the power-hungry sector.

“Once these big power-intensive potlines come up against lots of people needing that power, the people are usually winning, and that’s a global phenomenon," he said.

Power concerns in South Africa

Another area where power supply issues loom large for big industry is South Africa, where Rio Tinto inherited the $2.7 billion Coega aluminum smelter project from Alcan.

Customers of Eskom, South Africa’s publicly owned power company, have had to cut back their electricity use as the utility uses rolling brownouts to meet residential needs.

Albanese said he has sought assurances from Eskom that it can supply the power needed for the proposed smelter, which would have an annual capacity of 720,000 tonnes.

“I have already met with the senior management of Eskom about the importance of not only getting contractual assurance -- I want to see some physical assurance: lots of power plants being built, lot of transmission towers being built," he said.

Alcan signed a long-term energy agreement in November 2006 for Eskom to supply electricity for the smelter.

Flanked during the interview by Alcan CEO Dick Evans, who becomes CEO of Rio Tinto Alcan with the takeover, Albanese, 50, declined to comment on speculation that Rio Tinto itself might be a takeover target for a rival such as BHP Billiton.

He said Rio Tinto is forging ahead with plans to cut its $46.3 billion debt load by divesting more than $10 billion of assets, including Alcan’s packaging business.

“We are generating roughly $1 billion a month of cash flow, which certainly helps towards paying down the debt, and this will be nicely supplemented with those asset sales," he said.

Rio Tinto’s London-listed shares rose 3.6% to 4,235 pence on Thursday. Alcan shares were flat at $100.92 in New York and down 25 Canadian cents at C$97.51 in Toronto.