When it came time for Tom Albanese to explain the biggest gamble of his life, when it came time for him to justify shelling out $38.1-billion (U.S.) for a company that wasn't worth half that much a year ago, the rookie boss of Rio Tinto PLC trotted out a familiar platitude.
"It's going to be all about the China story," he assured a group of reporters this week, just hours after tasting victory in a takeover battle for Montreal aluminum maker Alcan Inc.
Hmm. Where have investors heard that before? Amid the frenzied merger environment of the global mining industry, chief executive officers have routinely held up China as a key justification for their deal making and the hefty premiums they are willing to pay to get those deals done.
China, as we all know, has a voracious appetite for raw materials and natural resources, and the world's top miners are only too happy to ride the coattails of the country's economic boom.
This is great if you produce copper, or nickel, or iron ore, all of which China desperately craves. But what if, like Mr. Albanese, you happen to be the world's largest aluminum company? How do you pin your hopes on a country that is not only the world's biggest producer of aluminum, with more than a quarter of global production, but one that makes more than it can actually use?
The answer to this question - a big part of it, anyway - resides in the riverside Saguenay Lac St-Jean region of Quebec. It is there that Alcan has staked out its claim as the most efficient large-scale aluminum maker in the world, thanks not merely to its investment in cutting-edge smelting technology, but to the munificence of the provincial government, which has subsidized the company by providing access to waterways that can be used to generate cheap power.
With these winds at its back, Alcan can do something that few other manufacturers can: It can make a product more cheaply - much more, in fact - than the Chinese can.
In theory, this is fine. But observers are divided over what amounts to the crux of Mr. Albanese's gamble: Will the Chinese, saddled as they are with expensive, coal-burning power, ultimately decide it makes more sense to buy aluminum from companies like the newly Rio Tinto Alcan, and divert their costly electricity to other industries?
Orest Wowkadow, an analyst with Canaccord Adams, certainly believes so, although he thinks it might take a few years.
"At some point, China is going to become a massive importer of aluminum," he predicted. "In a growing economy like China's, using that much power to produce aluminum doesn't create enough jobs."
China produced 28 per cent of the world's aluminum last year, and accounted for 24 per cent of consumption, making it a net exporter of the metal. That has created some skepticism about Rio Tinto Alcan's hopes of becoming a sizable player in China, and even prompted some fears that the Chinese could flood the market and undercut aluminum prices.
"You can be as bullish as you like about China but these guys are self-sufficient in aluminum," said Jon Bergtheil, chief of global metals strategy at JPMorgan in London.
"Western countries should ask themselves: How much aluminum can we export to China? The answer is zero. China doesn't need anyone's aluminum."
Smelters have sprouted around the country to meet demand, including one operated by Alcan. Today there are about 90 of them, with a capacity to produce 10 to 12 million tonnes of the metal annually, up roughly tenfold from a decade ago. In the first five months of this year alone, production grew 38 per cent from the same period in 2006.
This sharp increase suggests that Rio Tinto Alcan could get some support from an unlikely ally - the Chinese government.