BHP approves Worsley Alumina expansion

By James Regan

SYDNEY (Reuters) - BHP Billiton (BHP.AX) (BLT.L) said it would spend nearly $2 billion (1 billion pounds) expanding an alumina refinery in Australia, saying the outlook for the powder-like, aluminium-making material was strong.

The expenditure, long on the drawing boards, is the latest move by the world's biggest diversified mining house to keep up with multi-billion-dollar expansions underway by rival Rio Tinto (RIO.AX)(RIO.L), which BHP is trying to acquire via a hostile $147 billion offer.

Rio has made its growth prospects in aluminium and alumina key planks in its defence against BHP.

The expansion, cleared by environmental regulators in March, but only now approved by BHP's board, would lift annual production capacity at the Worsley refinery in far western Australia by 1.1 million tonnes to 4.6 million tonnes starting in 2011 at a cost of $1.9 billion.

It will also require mining more bauxite and upgrading ports.

Rio last year graduated from a regional supplier of alumina and aluminium to one of the world's largest in the sector when it bought Alcan of Canada. BHP, though bigger than Rio overall, ranks only sixth in the world in aluminium making.

Rio's head of aluminium, Dick Evans, on Wednesday outlined Rio's own plans to beef up in alumina and bauxite, possibly with the help of Russian and Chinese partners.

Evans told reporters the door was open to look at co-developing bauxite mines in Australia with a subsidiary of Rio's largest shareholder, China's Chinalco, while a study would start in the next 12 months to expand its Queensland alumina refinery 20 percent owned by Russian group Rusal.