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Rio in talks for sales from $1.9b Australian bauxite mine.

Melbourne: Rio Tinto Group, the world's second-biggest miner, is advancing talks with potential customers in China for its new $1.9 billion bauxite project in Australia that will be built to meet growing demand in the world's most populous nation.

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 tonnes 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 seeing a great interest by a number of Chinese players," Alf Barrios, Rio's chief executive officer of aluminium, said on Friday in a phone interview from Brisbane. "We have a number of conversations that have been progressing now for a number of months and some of them are quite advanced. Now the board has approved the project, we are in a position to be making firm commitments."

Producers are adding new bauxite capacity as China's imports surged 49 per cent to 6.8 million metric tonnes in September, the highest since January 2014, according to customs data. The Amrun project will be "significant in helping to meet growing bauxite demand from China," CEO Sam Walsh said in the statement.

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'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 tonnes a year by 2025, Alumina said in an August 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 utilize 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 tonnes 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.

While Malaysia is currently the top exporter of bauxite to China, it won't be able to compete long term with Australian producers, Rio's Barrios said in the interview. China's imports from Malaysia were 2.17 million tonnes in October, compared to 1.34 million tonnes from Australia, according to customs data.

"Malaysia has been playing a significant role recently, but we all know that Malaysia has quite limited resources," he said. "At this level of production, it may last only another three or four years." Malaysia's current known reserves of bauxite may last about five years, according to the nation's Minerals and Geoscience Department.

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 tonnes, Rio said.

"The seaborne market is going to grow significantly," UBS Group analyst Daniel Morgan said by phone from Sydney. Rio is one of a 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.

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Publication:Times of Oman (Muscat, Oman)
Geographic Code:8AUST
Date:Nov 27, 2015
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