Chalco Ends Accord on A$3 Billion Bauxite Deposit (Update2)

SYDNEY, July 1 -- Aluminum Corp. of China Ltd., the nation's biggest producer of the metal, ended a 2007 accord with Australia's Queensland state to develop a A$3 billion ($2.6 billion) bauxite project after market conditions deteriorated.

"Both parties recognize that global conditions in the aluminum industry have deteriorated significantly since the original development agreement was signed," Stirling Hinchliffe, the state's minister for infrastructure and planning, said in an e-mailed statement today. A spokesman for Chalco confirmed the accord had been scrapped.

The announcement comes three weeks after Chalco, as the company is known, said it was "pushing ahead" with plans to develop the Aurukun deposit. The Australian Financial Review then reported that Chalco may seek to remove a requirement to build a refinery at the mine because of the proposed 40 percent tax on resource profits in Australia from 2012. Queensland Premier Anna Bligh said the refinery requirement would stand.

"The state government and Chalco will continue to discuss new development and investment options for Chalco with respect to the Aurukun resource in light of ongoing market conditions and the strategic importance of the Aurukun bauxite deposits," Hinchliffe said in the statement.

The price of aluminum for delivery in three months on the London Metal Exchange averaged $2,757 a metric ton during March 2007, when the accord was signed. It had fallen 30 percent to $1,933 a ton by 1:51 p.m. in London today.

"The business environment and alumina market have had a lot of changes since we conducted a feasibility study on the Aurukun project," Zhao Zhengang, general manager of overseas investment at Chalco, said today by phone. "From the economic view, our old plan doesn't look feasible," even without the issue of the resource tax, he said.

Chalco was due to submit a feasibility study for the project by June 30 after requesting a six month extension late last year, citing the global financial crisis, according to a statement on the Queensland government's website.

"We are continuing our negotiations with the state government on a variety of feasible business modes of the project," Zhao said.