Chalco And Malaysians In Saudi Venture

Aluminum Corp. of China's shares shot up 5% Friday in Hong Kong after the world's second-largest aluminum producer allied with the Saudi Binladin Group and Malaysia's MMC Corp. to build a $3 billion aluminum smelter in the Middle East. Aluminum Corp. , commonly known as Chalco, spurted 1.10 Hong Kong dollars (14 cents) to 23.10 Hong Kong dollars ($2.96) after its president, Luo Jianchuan, shook hands with MMC Group Chief Executive Feizal Ali and Saudi Binladin Group Senior Vice President Sheikh Saleh Binladin on an agreement to build an aluminum smelter with annual capacity of one million tons at Jazan Economic City in Saudi Arabia. Under the memorandum of understanding signed Thursday in Jeddah, the partners will kick off construction of the aluminum smelter, the second aluminum project in the region, in the second half of 2008. An earlier proposal will establish an alumina refinery in Jazan Economic City with an annual production capacity of approximately 1.6 million metric tons and an aluminum smelter with annual production capacity of 600,000 metric tons. The building of the second plant comes at a time when global demand for aluminum is rising fast, spurred by strong world economic growth, said MMC. Chalco's Luo remarked in a joint statement, "The low electricity tariff within Jazan Economic City will lower our production costs and enable us to offer competitively priced aluminum to serve the growing world market." Electricity is the major cost, accounting for about 30-35% of overall production costs, in aluminum refining. "That gives Chalco an incentive to actually explore building the project there," said Wayne Fung, an analyst at China Everbright Research. Energy costs $20 per megawatt-hour in the Middle East, 50% cheaper than the rate of $40 in China. The smelter will create about 2,500 jobs and bring the total amount invested in Jazan Economic City to about $20 billion. Located 725 km south of Jeddah, by the Red Sea, Jazan Economic City is being jointly developed by MMC and the Saudi Binladin Group. The project will include a seaport, an industrial zone, a commercial business district, residential areas, hospitals and schools, as well as academic and vocational training institutions. Jazan will be Saudi Arabia's fourth "economic city" to be laid out and will be built up over 30 years at a development cost of approximately $30 billion. Headquartered in Jeddah, the Saudi Binladin Group is a multinational construction conglomerate owned by the Bin Laden family. Major projects of the group include Kuala Lumpur Airport in Malaysia, the expansion of the two holy mosques in Mecca and the refurbishing of the Prophet's Mosque in Medina. The group's current order book consists of large infrastructure projects exceeding $5.6 billion. MMC is a utilities and infrastructure group whose key businesses include Malyasia's largest container terminal, Tanjung Pelepas, Malaysia's largest independent power producer Malakoff and Gas Malaysia, the sole supplier of natural gas in peninsular Malaysia. The shares of MMC rose 0.6% to 8.65 ringgits ($2.53) in Kuala Lumpur on Friday.