Rio approves US$1.9b bauxite project to meet China demand

[MELBOURNE] Rio Tinto Group, the world's second-biggest miner, approved the development of a US$1.9 billion bauxite mine in Australia to meet growing demand from China.

The Amrun project, near Weipa in Queensland state, includes a bauxite mine, processing facilities, and port and will have initial production of about 22.8 million metric tons a year, London-based Rio said on Friday in a statement. Output and shipping is due to start in the first half of 2019.

"We are establishing Cape York bauxite as the product of choice for the Chinese seaborne market with consistent quality, security of supply and strong technical marketing support," Chief Executive Officer Sam Walsh said Friday in a statement. "Amrun will be significant in helping to meet growing bauxite demand from China."

China's rising imports are spurring producers to add new bauxite capacity as its imports surged 49 per cent to 6.8 million metric tons in September, the highest since January 2014, according to customs data.

The raw material is one of Rio's key areas of future investment, Jean-Sebastien Jacques, chief executive officer for copper and coal, said Thursday in an interview in Sydney.

WIN ADVANTAGE

As with its iron ore operations in Western Australia, Rio can win an advantage in bauxite because of the nation's proximity to China, Mark Pervan, Australia & New Zealand Banking Group Ltd's head of commodity research in Melbourne, said by phone. "It's a very low cost commodity, so it's all about the transportation and the quality mix."

Bauxite is mined near the surface and refined into alumina, an intermediate product that's further refined into aluminum, the metal used in cans and window frames.

China's imports may more than double to 104 million tons a year by 2025, Alumina Ltd said in an Aug 19 filing, citing CM Group research.

Consumption of domestic bauxite will peak in China in 2019, while refineries in Henan and Shanxi provinces are forecast to be converted to utilise imported bauxite, the Melbourne-based company said.

RISING EXPORTS

Bauxite exports from Australia will grow at an average annual rate of 11 per cent through 2020 on rising international demand, according to Australia's Department of Industry and Science. Exports will rise to 21.3 million tons in the year to June 30 as Australia helps to meet the supply gap in China following Indonesia's decision to ban the export of raw ore, the department said in September.

Malaysia and Australia have emerged as the top exporters of bauxite to China following Indonesia's action, according to Bloomberg Intelligence.

Output from Amrun, formerly known as South of Embley, will replace production from the depleting East Weipa mine, increasing annual bauxite exports from Cape York by about 10 million ton, Rio said.

"The seaborne market is going to grow significantly," UBS Group AG analyst Daniel Morgan said by phone from Sydney. Rio is one of few large miners with a significant presence in bauxite and others are likely to look to add production, he said.

Norsk Hydro ASA, Europe's third-largest aluminum producer, last month signed a letter of intent to acquire Vale SA's 40 per cent stake in Brazilian bauxite producer Mineracao Rio do Norte SA.

It typically takes four to seven tons of bauxite ore to make one ton of refined metal.

About a third of the cost of aluminum comes from alumina, while bauxite contributes less than 10 per cent, according to Sanford C. Bernstein Ltd. estimates last year.

BLOOMBERG