Chinalco hangs refinery deal on Swan's merger verdict

THE Chinese state-owned company Chinalco will wait until the federal Treasurer, Wayne Swan, makes a decision on its $US19.5 billion ($24.4 billion) tie-up with Rio Tinto before making an investment decision on the miner's Yarwun alumina refinery in Queensland.

Rio has again agreed to extend the original March deadline amid mounting pressure for the federal and Queensland governments to break the monopoly control the Rio/Chinalco alliance would have over Queensland's world-class bauxite leases.

"Chinalco now has until June 15 to confirm its participation in the funding," Rio said in a statement. "The expansion project is now 29 per cent complete."

In late 2006 the Queensland Government controversially awarded Chinalco's 30 per cent-owned Hong Kong subsidiary, Chalco, the right to develop the 650 million tonne Aurukun bauxite deposit.

The Government had stripped the leases from Alcan, now owned by Rio, because it failed to develop the project.

Chalco gave an undertaking to build a multibillion-dollar refinery in Bowen, offering

about 600 permanent jobs. However, the sharp downturn in alumina prices caused the Chalco executives to tell the Queensland Government the stand-alone refinery might be shelved.

The alternative put forward by Chalco is to provide the funding for the $US1.8 billion second-stage development of Rio's Yarwun refinery. Chinalco will secure a 50 per cent share of Yarwun from Rio for $US500 million as part of the $US19.5 billion tie-up.

The Queensland Government has publicly urged Chalco to take a long-term investment view within the state. The tie-up between Chinalco and Rio could mean a loss of billions of dollars for the Queensland and Australian economies.

The decision to extend the deadline for Chinalco's investment decision on its Queensland alumina interests seems to indicate Mr Swan will make any approval of Rio deal highly conditional on the bauxite leases.

The Australian Shareholders' Association says the Rio-Chinalco investment deal is "inequitable" to shareholders and may give the Chinese company undue influence.

A spokesman for the association said yesterday that it had raised its corporate governance concerns at a meeting with the Rio chairman, Jan du Plessis, in Melbourne last week.

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