CORRECT: Chalco Shelves A$3 Billion Aurukun Bauxite Alumina Project

Aluminum Corp. of China Ltd. (ACH), or Chalco, has shelved its planned A$3 billion Aurukun bauxite and alumina project in the north of Queensland state, citing soaring costs and the depressed state of the aluminum market.

However, with few other potential developers of the project in sight, the state's government has left the door open for a reworked project and Chalco has said it is open to discussing new options.

Chalco's development agreement with the state government lapsed Wednesday after it failed to meet an already extended deadline for a feasibility study into the development of a bauxite mine on the Cape York peninsula in the state's far north and an alumina refinery at Bowen on the state's east coast.

The Chinese group, which is the listed unit of China's biggest aluminum producer Aluminum Corp. of China, or Chinalco, said conditions in the global aluminum industry had "deteriorated significantly" since the development agreement was signed in March 2007.

Chinalco Vice President Lu Youqing told Dow Jones Newswires the project had been facing the headwinds of high labor costs, rising prices for raw materials for construction as well as fluctuating global aluminum prices.

"The cost was too high for us, and we just don't see the project generating much of a return," he said.

Despite Chalco's failure to honor the development agreement, the Queensland state government isn't stripping the Chinese group of the lease for the giant bauxite deposit and has said it will engage in talks over other possible development options.

"While the current agreement can't stand, we will continue discussions with a view, hopefully, to signing a new agreement that might have some different characteristics," Queensland Premier Anna Bligh told Australian Broadcasting Corp. radio.

Chalco Chairman and Chief Executive Xiong Weiping also said the company was willing to look for new ways to develop the Aurukun resource.

"We look forward to discussing new development and investment options for Chalco with respect to the Aurukun resources, as we continue to seek opportunities to invest in the resources sector in Australia and Queensland," he said in a statement.

The Aurukun deposit came up for grabs in 2004 after the state government stripped the lease from then owner Alcan for failing to meet a development deadline.

The subsequent process to find a new developer of the project drew a number of expressions of interest but in the end only Chalco submitted an offer, leading to an agreement that was heralded at the time as marking a new era for Chinese investment in Australia.

Analysts said the government's decision to leave the door open to Chalco was a recognition of that fact that few other companies were likely to be willing to spend billions developing the resource when the outlook for the aluminum market was so uncertain.

The most likely alternative developer would be Rio Tinto Ltd. (RTP) which has the adjacent Weipa bauxite mine and had been in discussions with Chalco about cooperating on infrastructure.

However, Rio Tinto already has another major bauxite resource to the south of Weipa that it can use to feed its Yarwun refinery so has no great imperative to seek control of Aurukun as well.

A spokeswoman for Rio Tinto declined to comment on the future of the Aurukun deposit.

Chinalco is Rio Tinto's largest shareholder with a 9.3% stake in the dual-listed miner and had been poised to take a 30% stake in Weipa and 50% stake in Yarwun under a wider US$19.5 billion investment deal which floundered last year.

-By Alex Wilson, Dow Jones Newswires: 613-9292-2094; [e-mail]