Rio to Invest $1 Billion in Aluminum Smelters in Quebec, British Columbia

(Bloomberg)--Rio Tinto Group, the world’s third- largest mining company, will spend more than $1 billion expanding two Canadian aluminum smelters to cut costs and electricity usage.

The company will invest $758 million on the first stage of a development at its Saguenay-Lac-Saint-Jean smelter in Quebec and a further $300 million at the Kitimat smelter in British Columbia, the company said today in a statement. Work at the Quebec plant will be completed by 2013, Rio said.

A revival in demand, along with profit and share prices in the metals industry, has helped Rio’s Chief Executive Officer Tom Albanese reduce debt that ballooned after a $38.1 billion purchase of Canadian aluminum company Alcan Inc. in 2007. In August, Albanese said that Rio’s priority was to expand its current operations rather than purchase businesses.

“Demand for aluminum is recovering,” Jacynthe Cote, CEO of the company’s Rio Tinto Alcan unit, said today in a telephone interview. “Inventories are falling but they are still relatively high. We continue to work very hard on reducing costs and making our business more resilient.”

Spending at Kitimat will prepare for a planned $2.5 billion modernization that will increase capacity at the plant by more than 48 percent to about 420,000 metric tons a year by 2014, Rio said. The company will make a final decision on whether to go ahead with the Kitimat expansion in 2011, Cote said.

‘Being Prudent’

“We are being prudent with respect to the addition of capacity,” Cote said. “The projects we are going ahead with first are the ones that allow us to modernize our facilities and add capacity around the time when we think inventories will be back at normal levels.”

Rio will probably wait until at least 2013 before deciding on any subsequent expansion of the Saguenay-Lac-Saint-Jean plant because the company wants to see further signs that aluminum demand is continuing to grow, Cote said.

“The test for this plant will start in 2013,” she said of the Quebec smelter. “We want to see the first phase in operation. It will take some time before we are ready to go to the next phase.”

The price of aluminum for delivery in three months has increased 5.4 percent this year on the London Metal Exchange, while inventories monitored by the LME declined 7.5 percent.