Update-Rio Tinto targets longer alumina position with asset sales

If and when Rio Tinto manages to sell all of the 13 assets it put up for sale on October 17, it will have divested itself of around 2 million tpy of primary aluminium production capacity,and given itself a substantially longer position in alumina than in aluminium.

“Being long in bauxite and alumina is part of our strategy,” a Rio spokesman told MB, though he added that the company is investing heavily across the value chain.

But those investments will not alter the alumina/aluminium balance in the primary metal’s favour.

The $2.5-billion modernization of Rio’s Kitimat smelter in Quebec will boost production to 420,000 tpy from 282,000 tpy, but upgrades at the Yarwun alumina refinery will take that facility's production to an expected 3.4 million tpy of alumina in 2012 from 1.3 million tonnes in 2011.

The company is not alone in seeing value further upstream on the production chain, which has been illustrated in the initial reaction to Rio’s announcement.

Among the producers polled by MB, the interest in the Australian assets put up for sale – which include the Bell Bay, Boyne and Tomago smelters – confined to the Gove bauxite mine and alumina refinery.

“I was expecting, after a few days, to hear what our people are thinking about Gove,” a source from a large, integrated producer said. “The Gove refinery would be a good asset for someone like us.”

Others have already made strides towards a longer alumina position. Following Norsk Hydro’s acquisition of Vale’s upstream aluminium assets in Brazil in February the company will soon be twice as long in alumina as in aluminium – a situation that Hydro was aiming for with the purchase.

Even among those integrated companies that aim simply to cover their own alumina needs, such as United Co Rusal, people are beginning to see the benefits of having a long position in alumina.

BHP Billiton is also getting longer on the alumina side. In the third quarter, BHP Billiton produced 1.06 million tonnes of alumina, up 6% from the corresponding quarter last year. Over the same period, the company’s aluminium production remained flat at 315,000 tonnes.