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Rio Tinto Alcan says it is investing a total of $487-million (U.S.) in its aluminium smelter in Iceland to increase production by 20 per cent.

The company's announcement on Friday of a further $140-million investment in the so-called ISAL smelter follows the signing of a long-term energy supply agreement with Iceland's state-owned power utility.

The latest funds will go toward a casting mill to produce value-added billet aluminum at the Straumsvik smelter.

"Expanding production capacity and investing in a new casting facility at ISAL is part of our strategy of developing our top-tier assets," said Jacynthe Cote, chief executive of Montreal-based Rio Tinto Alcan.

"ISAL has a clean energy source in hydro power, low (carbon dioxide) emissions and strong performance on health, safety and the environment. The investment will help us continue to deliver reliable and high quality products to our customers."

Rio Tinto Alcan, the Canadian-based global metals company formed a few years ago through the combination of Alcan Ltd. and Rio Tinto's aluminum operations, said the smelter is expected to begin the gradual production increase in April 2012 and be at full capacity by July 2014.

The company says the investment will reinforce Rio Tinto Alcan's market position in Northern Europe and demonstrates its long-term commitment to being a stable supplier of high-quality billet.

Billets are used in the auto, construction, aerospace and other industries.

The aluminum producer said it also plans to consolidate the expertise and production for the slab products from ISAL with existing operations in France and Britain.

The ISAL smelter started up in 1969 and currently employs 450 people.

Rio Tinto is one of the world's largest miners with operations spanning the globe. The London-based company combines Rio Tinto PLC , a London and NYSE listed company, and Rio Tinto Ltd., which is listed on the Australian Securities Exchange.

Rio Tinto's major products are aluminium, copper, diamonds, energy (coal and uranium), gold, industrial minerals and iron ore. The company's key operations are in Australia and North America with significant businesses in South America, Asia, Europe and southern Africa.