The rising electricity costs will bring down Chalco's revenue. The company plans to buy coal mines and power plants to reduce costs. China Daily

Aluminum Corporation of China (Chalco), the country's biggest producer of the metal, said yesterday it will buy coal mines and build power plants to reduce output costs, after it posted sluggish first-half results.

Chairman and CEO Xiao Yaqing told reporters that the prices of coal and electricity were the two major factors affecting the company's revenue. Even though coal price has become more stable recently, the electricity cost remains a cause for concern.

"The price of electricity has kept rising these days. As a result, we have reduced the production of aluminum," Xiao said.

He said the company has already invested in two coal mines in Henan and Gansu. Chalco will also consider buying some stakes in other power plants.

"We expect to self-supply 20 percent of the power needed for our operation, and the percentage will be further improved in the future," Xiao said.

He also said if the company has its own power plants, the price of electricity will not have serious impact on the company's operation costs.

However, Xiao said, the surging electricity price will bring not just problems but also opportunities.

"The rising costs of electricity will bring down our company's revenue. Yet the mounting costs will also reduce the production of aluminum, which can lead to aluminum price hikes," Xiao added.

The company's total costs of sales in the first half jumped 9.25 percent, or 2.84 billion yuan, to 33.49 billion yuan. The increase was mainly attributed to the surging price of raw and ancillary materials.

Meanwhile, Xiao said, Chalco will cut down 20 percent of its capital expenditure (CAPEX) in China. Yet the company has not yet decided its CAPEX on overseas investments.

"At the moment, our investment in overseas projects is not very big. Our direction of investment will become clearer by the end of this year," Xiao said.

Regarding the investment of Chalco's parent company Chinalco in Anglo-Australian miner Rio Tinto, Xiao, who is also head of Chinalco, said the company has not yet decided to increase its investment in Rio Tinto. He, however, added that Rio Tinto's revenue growth was quite good.

"Investing in Rio Tinto has helped expand our international market," Xiao said.

Chalco's first-half net profits slumped 65.4 percent to 2.41 billion yuan, while the company's interim revenue also dropped 7.14 percent to 39.6 billion yuan.

Xiao said the performance was dragged down by the US subprime crisis, global inflation, depreciating US dollar as well as the snowstorm and earthquake in China.

(HK Edition 09/03/2008 page2)