Chinalco determined to get a place on resources' top table (Source: The Australian)

Rowan Callick, China correspondent | February 04, 2008

THE Chinese Government has chosen Chinalco, the country's most powerful mining house, with $20 billion sales last financial year, to lead its charge to win a seat at the top table of global resource giants.

It is a company that already operates in nine countries, with its biggest investment the $3 billion it is spending on developing a bauxite mine at Aurukun on Cape York in north Queensland.

Chinalco is the state-owned parent of listed Chalco, China's dominant aluminium producer. It has emerged since 2000 from a process of rapid government-directed consolidation in what was formerly a highly fragmented sector.

Its role as China's international mining champion beyond the aluminium industry was underlined last month when it bought 49 per cent of Yunnan Copper Group, the second-largest copper producer in China.

Earlier, it had paid $900 million for Peru Copper, a Canadian listed exploration and mining company.

The company is thus rapidly diversifying, recently acquiring interests in titanium and magnesium as well as copper. It has stated that it aims to become "an international, multi-metals mining company".

Xiao Yaqing, president of Chinalco, said in London at the weekend following his $15 billion raid on Rio Tinto that the deal "underlines Chinalco's determination to increase and diversify its exposure" to the global mining game.

Luo Jianchuan, president of Chinalco's core subsidiary Chalco, told a mining conference in Beijing soon after BHP Billiton had launched its bid for Rio Tinto in November, that he did not know if any Chinese firm was preparing to buy in to Rio to hold up the takeover.

But he did concede then: "The impact of this on us is huge."

The impact is certainly now far bigger for Chalco than he might then have conceived.

Mr Luo's boss Mr Xiao - the mastermind of the bid, in concert with American aluminium giant Alcoa, long an ally of Chalco - will be in Sydney today to provide more details.

He is no stranger to Australia. Aged 48, he was formerly a metallurgical expert and plant manager. And it was in this capacity that he first visited Australia - on his very first overseas visit from China - 19 years ago, spending three months with CSIRO in Melbourne.

More recently, he has spent considerable time in Queensland bedding down the Aurukun project. This has involved meetings with Noel Pearson and other Aboriginal leaders, to discuss their perspectives. "We need to know what they expect, we need to listen to them," he said as he was finalising the bid.

Other Chinese firms, hungry for Australian resources, began the move downstream in order to gain greater security over supply and control over prices - by buying stakes in Australian operations, starting with Citic at Portland aluminium smelter and then Sinosteel at Rio's Channar iron ore mine.

But Chalco, with 63,000 employees, has taken a step further, becoming the first Chinese company to develop a major Australian mine - trumping, in doing so, its chief global rival, Russian giant Rusal.

Alumina and aluminium feature prominently among Australian exports to China, in recent years sometimes becoming the second biggest single item behind iron ore.

Mr Xiao expects Chinese aluminium demand to keep growing by more than 10 per cent per year. "New demand in the big cities is great," he told The Australian earlier. "But great potential also remains in the rural areas. If that starts to kick in, my growth expectations will prove very conservative."

He said then, two years ago, that "there's still a big distance between us and other international companies, because we've only been established five years".

But, typical of China's soaring confidence, Chinalco has swiftly bridged that gap and is now a big player at the top table.

Mr Xiao said there was "no big discrepancy between the politics" of China and Australia; the countries were good friends "There is also less risk for Chinese companies to invest and develop there because Australia enjoys a perfect legal system. The Aurukun process has been transparent, therefore fair."

At the same time, however, China is making it more difficult for foreign companies to invest in its mining and refining sectors. In November, it issued new rules underlining that foreign participation in its mines "would no longer be encouraged".

The rapidity of Chinalco's emergence and its low international profile need not diminish Mr Xiao's prospects of succeeding in his bid - backed fully by the massive savings at the disposal of the government - to catapult the company into the ranks of the Rios and BHPs.