Chalco: Leading Nonferrous Metal Producer


China Aluminum Corporation Limited (Chalco) is an alumina
producer and supplier holding the first place in China and the
second place in the world. It is also a primary aluminum producer
and supplier holding the first place in China and the sixth place
in the world. The output of alumina in the company is
approximately 10.0 million tons and the capacity of electrolytic
aluminum is nearly 2.8 million t/a in 2006. The capacity of
electrolytic aluminum in its parent company CHINALCO is around
3.5 million t/a and the aluminum processing capacity is 700
000-800 000 t/a in 2006. The Chalco stock controlled by CHINALCO
started circulation respectively in New York and Hong Kong on
December 11th and December 12th, 2001.

Equity swap
With the acquisitions of Shandong Aluminum Co., Ltd. (CCR2006,
No. 30) and Lanzhou Aluminum Co., Ltd. (CCR2006, No. 25), Chalco
has also successfully entered domestic stock markets, created
a platform for domestic financing, restructured internal
organizations, removed competition between counterparts and
reduced affiliated transaction.
   Shandong Aluminum Co., Ltd. has achieved sound performance
in recent years. In face with alumia market fluctuations, the
company is totally merged into Chalco through equity swap and
has gained the ability to cope with market changes. The integral
merging of Lanzhou Aluminum Co., Ltd. into Chalco can help
Lanzhou Aluminum to be financed, especially for the two major
projects under construction, and obtain present and future
goals.
   According to the chairman of Chalco, the company has a
complete industrial chain and after the merging of Shandong
Aluminum Co., Ltd. and Lanzhou Aluminum Co., Ltd. through equity
swap the company will have more rapid development and acquire
stronger ability to cope with risks.

Market potential
The demand for aluminum in China is constantly increasing along
with the rapid development of the national economy. In the
process of industrialization and IT application, a large amount
of nonferrous metals will be consumed. China has already become
the biggest aluminum producer and the second biggest aluminum
consumer in the world. The high price of energies in the world
will also give a strong backing to the price of electrolytic
aluminum.
   According to the chairman of Chalco, the price of alumina is
relatively low today and maybe further drop, but when the price
reaches close to the cost it will surely pick up. In the long
run, it is normal for the price of alumina to have some
fluctuations. The goal Chalco pursues after is a stable market
and stable growth.

Merging
Chalco focuses on merging on electrolytic aluminum in recent
years. From the beginning of 2005 to March 2006, the company
merged Lanzhou Aluminum Co., Ltd., Shanxi Guan Aluminum Co.,
Ltd., Jiaozuo Wanfang Aluminum Co., Ltd., Baiyin Honglu Aluminum
Co., Ltd., Zunyi Aluminum Co., Ltd. and Fushun Aluminum Plant.
The capacity of alumina, electrolytic aluminum and aluminum
processing in the company has been greatly increased and the
industrial chain has become more complete. In this way,
electrolytic aluminum enterprises in Chalco consume most of its
alumina. Except long-term orders, the sales of aluminum spot
goods are getting smaller and smaller. The extension of the
industrial chain has created an "ensured revenue stream" for the
company. With the price ups and downs of alumina and electrolytic
aluminum, profit is shifting between the alumina business and
the electrolytic aluminum business and the performance
instability caused by price changes of alumina in the past has
been removed.
   The chairman of Chalco says that the focus in future will no
longer be laid on the merging of electrolytic aluminum business.
It will be shifted to energy conservation, consumption reduction,
environmental protection, improvement of product quality and
reformation of listed companies. Chalco will highlight the
higher end of the industrial chain, namely the aluminum
processing business with higher technical content and greater
gross profit. CHINALCO has merged three such enterprises and
Chalco has merged one. CHINALCO plans to merge aluminum
processing enterprises into Chalco.
   The control of future resources is also one of the strategic
focuses in the company. Bauxite resources in China are not rich
compared with the average level in the world. Chalco has
successfully won the Aurukun bauxite project in Australia
through tendering, and gained 500 million tons of bauxite. It
has also acquired an exploration block of 10 000 km2 in Guinea
and it is expected that there will be more than one billion tons
of bauxite resources in the block. The alumina project in Dac
Nong of Vietnam and the ABS alumina project in Brazil are also
in smooth progress. All these advances have guaranteed that
aluminum resources in Chalco can have a service life of 50 years
or even longer.

Development prospect
"In the past few years, the company is growing at over 50%
annually. It has a few more years' peak period for development.
The company will do its utmost to make the industrial chain more
complete and the profit-earning ability more stable", said the
chairman of Chalco.