Chinalco Is Growing Up and Moving Out

You can't keep time in a bottle, and kids won't stay young forever. Before you know it, they're growing up and breaking out on their own to realize their full potential.

Hardship is one key catalyst for change. Aluminum Corporation of China (NYSE: ACH  ) -- or Chalco -- reported its third consecutive quarterly loss this week, reflecting challenges similar to those faced by American rival Alcoa (NYSE: AA  ) . Chalco lost $515 million for the first half of 2009 on a 29% revenue decline, but promises a return to profitability during the second half.

That return would come from both higher prices and increased production from its own operated mines, which are up by 55% during the first half of 2009. Also, the company is studying the feasibility of a joint venture with the Saudi Binladin Group for a primary aluminum plant and power plant in Saudi Arabia, and mulling another alumina project in Australia.

By its own admission, Chinalco -- the state-run parent of Chalco -- is quickly coming of age. In the words of President Xiong Weiping: "We are getting more mature after the Rio Tinto matter."

Fools will recall Chinalco's failed attempt to boost its ownership stake in Rio Tinto (NYSE: RTP  ) with a proposed $19.5 billion investment. Rio Tinto rebuffed the offer in favor of a game-changing iron ore joint venture with rival (and original suitor) BHP Billiton (NYSE: BHP  ) .

I interpret Xiong Weiping's quote as recognition of growing geopolitical barriers to massive resource acquisitions by Chinese interests while China's emergence as an economic superpower itself continues to mature. As Chinalco adapts to China's policy of promoting foreign investments -- with a clear bias toward resource plays -- the company appears aware that the wrong deal can backfire intensely.

Chinese steelmakers may have had an epiphany, too. A group of steel interests is loaning $6 billion to Australia's third-largest iron ore producer -- Fortescue Metals -- in exchange for secured ore supplies at a favorable price. Sidestepping the regulatory scrutiny of an ownership stake, and being substantially smaller in scale, the deal reflects China's highly adaptive approach to securing future resource supplies.