Drawer of a tailor: Talking about of Strategic Industries ...: ASIA: Global miner Rio Tinto in Malaysian venture to build aluminum smelter

Global miner Rio Tinto Ltd. and local conglomerate Cahya Mata Sarawak signed a pact Tuesday to jointly build an aluminum smelter that could cost up to US$2 billion (€1.45 billion) in Malaysia's eastern state of Sarawak.

The smelter, which will use power from the Bakun hydroelectric dam under construction on Borneo island, is expected to be the fifth and biggest aluminum plant for Rio Tinto, said its external affairs manager Jim Singer.

The project is expected to be the main energy consumer for the 2,400-megawatt controversial Bakun dam, which is due to be completed by 2010 after years of delay. Environmentalists and advocates of Borneo's indigenous people have protested against the dam project because it would flood an area the size of Singapore and displace thousands of people.

Production from the Sarawak smelting plant will begin in the fourth quarter of 2010 with an initial annual output of 550,000 metric tons, rising to 1.5 million tons over time, the two companies said in a statement. Singer told The Associated Press a smelter of this size is estimated to cost US$2 billion (€1.53 billion) but the capital outlay has not been finalized. The spending plans will depend on a technical and feasibility study to be completed within 18 months, he said.

Rio Tinto will hold a 60 percent stake in the venture to be known as Sarawak Aluminium Company. The remaining 40 percent will be owned by Cahya Mata, in which the family of Sarawak Chief Minister Abdul Taib Mahmud is a key shareholder.

"This is a very positive development for Rio Tinto Aluminium and an important step in our plans to develop new greenfield aluminum smelting capacity," its chief executive Oscar Groeneveld said in the statement.

Rio Tinto picked Sarawak for the project due to strong government support, a credible local partner, abundant electricity supply from the Bakun dam and robust demand in the region, Singer said.

The Sarawak smelter will cater to demand in Malaysia and emerging markets in Southeast Asia, he said in a telephone interview.

The companies said in the joint statement that the project will mark one of the largest foreign investment in Malaysia, adding billions of U.S. dollars to the economy and providing up to 4,700 direct and indirect jobs.

Rio Tinto, based in London and Melbourne, already owns and operates four smelters including Australia's largest, Boyne Smelters Ltd. in Queensland. Last month, it made a US$38.1 billion (€30 billion) bid for Canada's Alcoa Inc. in a takeover that will form the world's largest aluminum producer.

Cahya Mata is Sarawak's largest infrastructure company with interest in construction, road maintenance, cement manufacturing and quarrying.