The world's second largest alumina producer, Aluminum Corporation of China (Chalco), yesterday issued about US$375 million in one-year corporate bonds to repay short-term debts and supply it with working capital.

Last year the company, which suffered from high production costs in 2005, issued 2 billion yuan (US$250 million) in short-term corporate bonds with an interest rate of about 3.55 per cent.

Yet the company, staying optimistic, still plans to beef up its annual production of alumina to 12 million tons in the next three years.

Last year, it produced 8.33 million tons of the compound.

Chalco Chairman and Chief Executive Officer Xiao Yaqing said yesterday that newly operating plants in Chongqing and Zunyi were expected to hit 800,000 tons in production a year each.

The company's production of alumina and aluminium metal amounts to 7.18 million tons and 1.05 million tons, representing increases of 13.2 and 36.4 per cent in 2004, respectively.

Xiao said that Chalco, which announced the acquisition of Fushun Aluminium Co for 500 million yuan (US$62.1 million) over the weekend, will press ahead with its acquisition plans, in particular in the aluminum metal sector.

"We hope that through merger and acquisition activities, the production of primary aluminium (the metal form) can be substantially increased. We expect to reach an output of 3 million tons of primary aluminum by the end of the year," he said.

Apart from the domestic market, Chalco is attempting to explore overseas markets such as Brazil, Australia, Viet Nam and Guinea.

"The development of these markets is still in the preliminary stages and no operations will begin until 2007," Xiao said.

The company will enter into an agreement in May concerning an Australian project, which involves about 5.6 million tons of bauxite, a commercial ore made from aluminium.

Xiao said this year the company will earmark 10 billion yuan (US$1.25 billion) for capital expenditure, compared to 8.4 billion yuan (US$1.05 billion) in 2005.

"The capital will be mainly spent on acquiring primary aluminum plants," said Xiao.

The company's profit margin in 2005 was affected by an increase in production costs such as electricity.

Chalco's sales costs in 2005 increased 15.44 per cent to 24.8 billion yuan (US$3.1 billion).

But Xiao is optimistic that this year will be less expensive.

"The expenditure in raw material cost will be lower than last year in the light of a limited cost rise," said Xiao.

The company, already trading shares in Hong Kong, is planning a mainland listing but Xiao said the company has not set a timeframe for A-share sales.

The company had proposed to issue up to 1.5 billion A shares with a nominal value of 1 yuan each. The plan was passed at the 2004 annual general meeting.

Chalco will seek shareholder's approval to extend that proposal by one year.

The company grew nearly 10 per cent in terms of net profit in 2005 to 7 billion yuan (US$875 million).

Morgan Stanley said that Chalco's earnings are 5 per cent lower than expected, and attributed the increase of raw material costs in offsetting the increase in alumina prices.

Source: China Daily