bauxite billionaire article business spectator

Folks check this Article out.... from the Business Spectator..

http://www.businessspectator.com.au/bs.nsf/Article/Wholl-be-our-first-bauxite-billionaire-DFTZC?OpenDocument

Amazing....

a few snippets below...

"Who'll be our first bauxite billionaire?"

China, as you know, has been using a lot of everything. China's economy grew at double digit rates in the last quarter. Aluminium is a key commodity for commercial and residential real estate activity. It's a lot like copper in that respect. When an economy expands, demand for aluminium increases.

To meet that demand, China has increased its production of aluminium, importing bauxite from Indonesia as well as mining its own. In the first three months of 2007, China increased its aluminium production by a whopping 40 per cent. China's ability to produce aluminium is expected to grow by 15 per cent this year, according to the Australian Bureau of Agricultural and Resource Economics (ABARE).

Bauxite is cheap and plentiful. Energy is not. China and South Africa both have strained power grids. But more importantly, electric power generation in both countries comes from expensive coal.


"To address this issue, the Chinese Government has indicated its desire to limit the production and export of aluminium. In late 2006, the Chinese Government imposed regulations on the size, capital investment requirements and environmental standards of new smelters, and also increased the tax on exports of aluminium metal to 15 per cent (from 5 per cent)."

It's not a difficult conclusion to reach: increased power costs (and shortages) in China and South Africa will lead to lower aluminium production. There is still probably going to be a surplus this year. But the futures market is already pricing in increases later this year and early next year.

That would be a change from aluminium's recent performance. Of all the base metals it's been the big laggard. There was good reason for this, too. Bauxite is easy to mine and easy to find. Energy was cheap. Turning bauxite into alumina (refinement) and alumina into aluminium (smelting) was not a high-margin business.

What do the Gulf States lack? To make aluminium you need bauxite, electricity and the capital to build a smelter.

Capital? Check (the Aussie firm Worley Parsons got a $AU300 million contract to do work on the Saudi smelter). Electricity? Check (plenty of oil and gas, for now.) Bauxite? Hmmn.

Well there's plenty of that in Guinea and Australia, isn't there?

Rio Tinto is supremely placed to profit from all this, especially because of the Alcan acquisition. BHP Billiton... not so much.

The path to Australia's first big bauxite fortune will look a lot like the path Andrew Forrest trod in iron ore. Forrest – who according to Forbes magazine is Australia's richest man – realised he didn't need to compete with BHP and Rio Tinto. Just becoming Australia's third biggest producer of iron ore would be enough to make him a very rich man.

He was right. Incredibly, Forrest's company Fortescue Metals has yet to ship any actual ore to China. But the inherent sense of the business proposition – and rising iron ore prices – have propelled the stock to amazing heights anyway.

Incidentally, while Warren Buffett took the crown as the world's richest man this year (net worth of $US72 billion), India had four men in the top ten. Russia had 87 billionaires on the Forbes list. Russia's richest man, Oleg Deripaska, is the world's ninth richest. He made his money in Russian aluminium, not in Russian oil