KUALA LUMPUR — Rio Tinto, a global mining concern, and Cahya Mata Sarawak, a Malaysian conglomerate, signed a pact Tuesday to jointly build an aluminum smelter that could cost up to $2 billion in Malaysia's eastern state of Sarawak on Borneo.
The smelter, which will use power from the controversial Bakun hydroelectric dam still under construction, is expected to be the fifth and biggest aluminum plant for Rio Tinto, said its external affairs manager, Jim Singer.
Even with current prices about 20 percent below last year's record at above $3,300 a metric ton, aluminum demand has been surging, driven largely by China and other developing economies, resulting in new smelters sprouting around the world and existing smelters being expanded. A metric ton equals 1,000 kilograms, or 1,102 tons.
The Malaysia project is expected to be the main energy consumer for the 2,400-megawatt Bakun dam, which is due to be completed by 2010 after years of delay. Environmentalists and advocates of Borneo's indigenous people have protested against the dam project because it would flood an area the size of Singapore and displace thousands of people.
Production from the Sarawak smelting plant will begin in the fourth quarter of 2010 with an initial annual output of 550,000 metric tons, rising to 1.5 million metric tons over time, the two companies said in a statement.
Singer said a smelter of this size is estimated to cost $2 billion, but the capital outlay has not been finalized. The spending plans will depend on a technical and feasibility study to be completed within 18 months, he said.
Rio Tinto will hold a 60 percent stake in the venture, to be known as Sarawak Aluminium Company. The remaining 40 percent will be owned by Cahya Mata, in which the family of Abdul Taib Mahmud, the chief minister of Sarawak, is a key shareholder.
"This is a very positive development for Rio Tinto Aluminium and an important step in our plans to develop new greenfield aluminum smelting capacity," Oscar Groeneveld, chief executive of Rio Tinto, said in the statement.
The Sarawak smelter will cater to demand in Malaysia and emerging markets in Southeast Asia, Singer said.
The companies said the project will provide up to 4,700 jobs, directly and indirectly.
Rio Tinto already owns and operates four smelters, including Australia's largest, Boyne Smelters in Queensland. Last month it made a $38.1 billion bid for Canada's Alcoa in a takeover that would form the largest aluminum producer in the world.
Cahya Mata is Sarawak's largest infrastructure company, with interest in construction, road maintenance, cement manufacturing and quarrying.
Abdul Taib said the state has room for two aluminum smelters as more power supplies become available, adding that another proposal from a Malaysian-Chinese consortium remained on the table.
"After we have some experience with Rio Tinto, we will be dealing with them," Abdul Taib said, referring to the proposal by Syed Mokhtar Al-Bukhary, a Malaysian tycoon, and a Chinese partner.

Source: http://www.nytimes.com/2007/08/07/business/worldbusiness/07iht-rio.1.7014718.html