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A new aluminum smelter would “require lots of energy that Guinea cannot provide,” said a government source.

Guy Erwood/Getty Images/iStockphoto

Russian aluminum giant RUSAL has quietly abandoned plans for a multibillion-dollar aluminum smelter in Guinea, according to a government source and documents seen by Reuters on Thursday.

RUSAL is trimming its output in the face of weak prices and rising power costs. Its decision adds to a string of vanishing investment plans in the impoverished and restive West African state.

"I think this is the pragmatic option," a government source who spoke on condition of anonymity said, adding that a new smelter would "require lots of energy that Guinea cannot provide."

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RUSAL, which already controls bauxite mining developments and an alumina refinery in Guinea, had been considering a 240,000 tonne-per-year smelter that experts estimate would have cost well over $5-billion (U.S.).

A development agreement for the Dian Dian bauxite deposit signed in 2001 committed RUSAL to complete a feasibility study for the smelter by 2013. But all mention of the smelter was removed from the agreement in an amendment signed in December 2012 and ratified by the government this week.

The new agreement also removes mention of a planned 117-kilometre railway for shipment to a coastal port.

A RUSAL official confirmed the current development plan for Dian Dian does not include a smelter but declined to elaborate. He also declined to acknowledge that a smelter plan existed.

Aluminum will be in surplus this year and next, with analysts polled by Reuters forecasting supply exceeding demand by 687,455 tonnes this year and 747,000 tonnes in 2014.

Mining heavyweights Vale SA and BHP Billiton Ltd. have also reduced investment plans in Guinea.

The new development agreement outlines previously published plans to start 3 million tonnes per year of bauxite production from the Dian Dian mine by the end of 2015. It contains plans for an associated refinery for intermediate product alumina, with a capacity of 1.2 million tonnes.

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Output from Dian Dian would then rise to 6 million tonnes per year by the end of 2019, with the alumina refinery coming online over the same period, according to the plan.

It adds that RUSAL will conduct a feasibility study on a possible mine output increase to between 9 million and 12 million tonnes per year, which would help cover Guinea's export requirements.

Dian Dian is the world's richest bauxite reserve, containing some 550 million tonnes of the ore with an estimated alumina concentration of 58 per cent.

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