Rio Tinto to spend over $1 bln on Alcan expansion

Dec 14 （Reuters） - Rio Tinto （RIO.AX） （RIO.L） said plans to spend more than $1 billion on two of its Canadian aluminum smelters, aiming to boost efficiency, cut costs and deliver on commitments made when it acquired Canada's Alcan.

The Anglo-Australian mining giant, which bought giant Canadian aluminum maker Alcan in 2007, said on Tuesday it will spend about $760 million to complete the first phase of its AP60 plant in Saguenay-Lac-Saint-Jean, Quebec.

The new plant, developed by Rio Tinto Alcan's research division in France, will house the most cost-effective, energy-efficient and environmentally friendly smelting technology commercially available, the company said.

Rio Tinto will also spend $300 million to prepare for the modernization of its Kitimat smelter in British Columbia.

At the time of the Alcan acquisition, Rio Tinto promised the Canadian government it would invest in the modernization at Kitimat and pilot plant in Quebec. But after the takeover, debt concerns led the company to slash spending.

A number of global metal and mining companies, including Vale SA （VALE5.SA） and U.S. Steel （X.N） have faced scathing criticism in Canada this year for failing to live up to commitments made to the Canadian government following their acquisitions of Inco and Stelco, respectively.

The issue came to the fore in light of BHP Billiton's （BHP.AX）（BLT.L） ill-fated, $39 billion bid for Canadian fertilizer giant Potash Corp （POT.TO）. Critics of BHP's bid were quick to note that Vale, U.S. Steel and Rio had failed to live up to promises made to Canadians in areas ranging from jobs to technology.

CAPEX INCREASED

Last month, Rio Tinto said it was set to nearly triple capital spending to $11 billion in 2011.

The company has only this year been able to reinstate its dividend and step up its capital outlays following the ill-timed and expensive acquisition of Alcan.

The company took on $40 billion in debt to make the acquisition and was forced to sell assets and new equity in a bid to reduce its debt load during the global economic slowdown.

Completion of the Kitimat project would increase the smelter's production capacity by close to 50 percent to about 420,000 tonnes a year, the company said.

Even so, Rio Tinto has yet to make a final investment decision on the $2.5 billion Kitimat expansion project.

Jacynthe Cote, the head of Montreal-based Rio Tinto Alcan, said the company plans to make its final decision on Kitimat in 2011.

"If we go ahead with the full approval next year, then production will begin in 2014," said Cote in an interview with Reuters, adding that Rio Tinto expects global aluminum markets to have strengthened by then.

The price of the metal, whose uses are as diverse as cooking utensils and baseball bats, has risen steadily over the last six months as demand rebounds after slowing sharply during the economic downturn.

"We still see continued growth next year, probably in the 5 to 7 percent range. But we still need, from the price perspective, to continue seeing inventory coming down, so that the price can come back to a very long-term price （level）," Cote said. （Reporting by Euan Rocha; editing by Frank McGurty）