Chinalco: from lean to profitable

Chinalco, the Aluminum Corp of China, is expecting to show a net profit this year after two years of continuous losses as a result of the global financial crisis, its president has said.

"We'll report a double-digit profit this year, not only for the listed branch but also for the seven other branches," said Xiong Weiping, chairman of Chinalco.

The listed branch, Aluminum Corp of China Ltd, or Chalco, posted a net loss of 4.6 billion last year, when the financial crisis hit the aluminum market.

To get the company out of the woods, Xiong said, they implemented a salary reduction system, with a 30 percent cut for the general manager, and a 20-25 percent cut for vice-general mangers, until they reported a profit in August 2009.

Over the past two years, Chinalco's cost reductions saved it 6.8 billion yuan.

Xiong said that structural reforms and diversification are essential to solving their problems.

Chinalco and its partner, the Anglo-Australian Rio Tinto, signed an agreement earlier this month to establish a joint venture to look for new copper and coking coal sources.

This is an expansion into other mining sectors, after the agreement on the Simandou iron ore project, in West Africa, with Rio Tinto.

Chinalco got government approvals in July to expand into other sectors including iron ore, coal, and rare earth.

Xiong said the company aims to become one of the top 10 global mining companies.

He also expects the overseas business to account for more than 50 percent of the whole group's income and to accelerate the pace of acquiring overseas mining assets. It will develop bauxite, copper, and iron ore resources in resource-rich countries, and aluminum projects.

Analysts said the move will help Chinalco diversify beyond aluminum. The company has been facing stiff competition in the domestic aluminum market from private companies.

Alumina prices were around 4,500 yuan per ton before the global financial crisis, then dropped to 2,650 yuan per ton in 2009.

"The gloomy aluminum market has affected Chalco's financial results in recent years, and it will have to look for ways to diversify," said Owen Liang, an analyst with Guotai Junan Securities.

Chalco plans to build two to three coal production bases over the next three years, to get coal resources that can boost electric power generation, Xiong said earlier.

Rare earth is another object of diversification and the company is looking at consolidating China's rare earth business.

Chalco is also interested in high-quality copper resources both in China and abroad, Xiong said.

Pingguo Aluminum Co

Chaloc is already China's dominate producer of alumina, the substance aluminum is made from, and the largest aluminum maker.

The Pingguo Aluminum Co, which merged with Chalco's Guangxi branch in 2008, is the only subsidiary that showed a profit in the fourth quarter of 2008. At that time, other units were in the red when the financial crisis hit aluminum prices.

It was also the first branch to show a profite in 2009, when it reported a profit of 305 million yuan, topping all Chalco subsidiaries.

"Pingguo Aluminum will expand annual alumina capacity to 2.5 million tons next year, up 50,000 tons from the current level," said Wu Jianqiang, general manager of the Chalco, Guangxi branch.

The company has bauxite resources in the Guangxi Zhuang autonomous region and got 21.7 million tons of bauxite in 2009.

Source:China Daily