UPDATE 1-Chinalco, China bank agree $2 bln Peru mine loan

China's Chinalco (601600.SS: Quote, Profile, Research, Stock Buzz) and a Chinese bank will announce this week a $2 billion loan to develop the Toromocho copper project in Peru, a Peruvian government official said Tuesday.

Peru is the world's second largest producer of copper and the Toromocho mine could lift the country's annual output by as much as 25 percent.

"China's bank of foreign financing and Chinalco are set to finalize a finance operation for the development of Toromocho," Foreign Minister Jose Antonio Garcia Belaunde said on local radio.

The project is Chinalco's first investment in Peru.

Twenty-one heads of state are gathering this week in Lima for the Asia Pacific Economic Cooperation forum, or APEC, and China and Peru are expected to announce a free-trade deal during the summit.

The state-owned Chinese company expects its Toromocho mine to start production in the first quarter of 2012, while construction should start in mid-2009.

Toromocho, in the Andean province of Junin, has reserves of 2 billion tonnes, with a copper grade of 0.08 percent.

Annual copper output from the pit mine would be 210,000 tonnes for the first 10 years of the mine's expected three decades of operation.

State-owned Chinalco, the world's third-largest aluminum producer and China's second-largest copper company, is the parent of Aluminum Corp of China (601600.SS: Quote, Profile, Research, Stock Buzz) (2600.HK: Quote, Profile, Research, Stock Buzz).

The Chinese government at times has encouraged the use of the country's huge foreign exchange reserves to secure access to natural resources, and Chinese miners could have an advantage, if other financing for the sector dries up.

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