Aluar Aluminio Argentino SAIC May Spend $3.5 Billion on Patagonia Aluminum Smelter, Dam

Oct. 26 (Bloomberg) -- Aluar Aluminio Argentino SAIC, Argentina's only aluminum producer, may spend $3.5 billion on a smelter and hydroelectric dam in the southern province of Santa Cruz as the company seeks to expand output as prices rise.

``It's a mega-project of really some size,'' Aluar Chairman Javier Madanes said during an interview Oct. 24 in Buenos Aires. (The massive Hydro Aysen project in Patagonia, Chile is estimated to cost 4.0 Billion USD.)

Aluar is competing with other aluminum producers for the rights to dam the Santa Cruz River, Madanes said. The government may award the rights at the end of this year, he said.

Aluminum prices that have risen 89 percent in the past five may keep rallying, as a strengthening global economy boosts demand for metal used in auto parts and beverage cans, Madanes said. Aluar and aluminum producers such as Moscow-based United Co. Rusal and London-based Rio Tinto Plc are seeking to develop smelter projects in areas with abundant energy resources because electricity can be 40 percent of the cost of production.

Aluar already exploits the Futaleufu River in Argentina's southern Chubut province to make aluminum. On the Santa Cruz River, the company wants to build two dams at a cost of $2 billion to provide electricity for a new smelter nearby that would cost at least $1.5 billion, Madanes said.

Aluminum is derived from a dirt-like material called bauxite, and smelting the ore at high temperatures is needed to retrieve the pure metal.

The Santa Cruz River drains off ice-melt from the Perito Moreno glacier, one of Argentina's most popular tourist destinations in the Patagonia region of South America's southern tip.

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The company's majority-owned Hidroelectrica Futaleufu dam provides 472 megawatts of power to generate electricity for the company's Puerto Madryn smelter and local communities. The smelter's capacity is being expanded by 130,000 tons a year to 410,000 tons with an $850 million investment. Aluar plans a further $400 million expansion to 515,000 tons a year.

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