Chalco's Xiao Seeks Coal, Hydro Assets to Cut Costs

Aluminum Corp. of China Ltd is seeking to buy coal mines and build power stations to reduce output costs.

The company may also secure hydropower supplies for its smelters, Chairman Xiao Yaqing, 49, said today in a Bloomberg television interview in Hong Kong. Chalco has bought minority stakes in two coal mines in Gansu and Henan provinces, and will buy more when valuations are more ``rational,'' Xiao said.

China's largest aluminum producers slashed output by more than a tenth from August because of a shortage of electricity, which accounts for as much as 40 percent of costs. Rio Tinto Group last year bought Alcan Inc. to secure hydropower supplies in Canada for aluminum production.

``We have been looking for opportunities to obtain coal and hydropower resources to ensure energy supply,'' Xiao said.

Chalco, as the Beijing-based company is known, fell 4 percent to HK$6.81 at 12:28 p.m. local time. In Shanghai trading, it dropped 0.3 percent to 9.78 yuan at the 11:30 a.m. break.

Energy coal prices in China jumped 41 percent in the first- half from a year ago period after the government closed small mines and demand from utilities surged. China is fighting a sixth year of power shortage and has raised electricity charges in the second half of the year.

Nuclear Option

``If coal prices keep rising this fast, it could be cheaper to use nuclear to generate power,'' Xiao said. ``It's a right direction for China to develop nuclear power.''

Nuclear-capacity will rise to at least 60 gigawatts by the end of next decade, according to Wang Yonggan, secretary of the China Electricity Council.

A reduction in China's aluminum smelting capacity may support prices of the metal used in planes, cars and beverages cans. The metal price jumped to a record in July when China's 20 largest aluminum smelters first said they will cut output by 10 percent from August.

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