Billiton billion on Guinea in risky race for alumina

Mining giant BHP Billiton is considering ploughing at least $1 billion into building an alumina plant in Guinea, west Africa.

It would be the latest move in an emerging race among world miners to secure access to resources in frontier, or politically risky, regions of the globe.

BHP has entered exclusive talks to take a one-third stake in cash-strapped Toronto miner Globe Alumina's $US2.2 billion ($2.87 billion) project to build a refinery at Boke based on its bauxite resources.

Guinea has some of the world's biggest, high quality bauxite desposits, but a key concern will be the potential for the capital cost to escalate.

As Globe seeks to raise capital for the project, it is also in talks to bring in Middle Eastern aluminium producer Dubai Aluminium as a 25 per cent stake holder, with a further 8.3 per cent to be offered to Abu Dhabi's investment company Mubadala. The aim is joint-venture arrangements by the end of the month. The three would-be partners have agreed to lend Globe $115million for ongoing costs.

Globe Alumina is aiming to have a refinery producing 2.8 million tonnes a year before the end of 2009.

Dubai Aluminium has already agreed to take 40 per cent of the initial output, while Swiss commodity trader Glencore is to take a further 15 per cent of production.

BHP said Boke was a more advanced project than its own bauxite leases in Guinea. Aluminium giants Rusal, Alcoa and Alcan operate bauxite mines in Guinea, while Rusal also operates the Frijuia refinery in the country.

Alumina prices have fallen steeply after China ramped up output. The bulk of the world's alumina is sold under long-term contracts but the spot price has tumbled from over $US600/tonne to $US250/tonne. That is still well above previous long-term prices of $US150/tonne.