Chalco to sell stake in Chalco Iron Ore to parent Chinalco for $2.067 bn

ChalcoChinese aluminum giant Chalco yesterday said that it is selling a 65per cent stake in Chalco Iron Ore Holding Ltd, to its parent company Aluminum Corp of China for $2.067 billion in order to reduce capital expenditure needed to fund the giant Simandou iron ore project in Guinea.

Hong Kong-listed Chalco is a subsidiary of Aluminum Corporation of China Ltd, which in turn is the wholly owned subsidiary of Beijing-based Aluminum Corporation of China, known as Chinalco.

"The Simandou project involves big investment with a long construction period... placing funding pressure, so the company has to sell the interest to cut capital expenditure, and reduce interest expenses," Chalco said in a filing with the Hong Kong Stock Exchange.

The Chinese state-run company said that it expects to profit by 5.4 billion yuan from the disposal.

In March 2010 Chinalco and Anglo-Australian miner Rio Tinto had signed a non-binding memorandum of understanding (MoU) to establish a joint venture to develop and operate the Simandou iron ore project covering rail, port infrastructure and the mine. (See: The story behind Rio's $1.35-billion Saimandou deal with Chinalco )

Rio Tinto transferred its entire 95 per cent stake to the JV and gave Chalco 44.65 per cent stake in exchange for a $1.35 billion investment on an earn-in basis.

Rio Tinto subsidiary Simfer holds a 30.5-per cent stake in the project while 44.65 per cent is held by Chalco and 5 per cent by the International Finance Corporation, the commercial lending arm of the World Bank.

The Simandou iron ore project is estimated to hold 2.25 billion tonnes of ore, and if developed, has the potential to become the world's third-largest mining area, after Australia's Pilbara and Brazil's Carajas with output estimated to reach 100 million mt/year by 2023.

Tom Albanese, the then mining head of Rio Tinto, had said in December 2008 that the Simandou project was "without doubt, the top undeveloped tier-one iron ore asset in the world" and had estimated its development cost at approximately $6 billion.

However, since then the cost has escalated to more than three times the amount to $20 billion.