--Chalco spends 2 billion yuan on large power producer

--Purchase gives Chalco control over key raw material

--Acquisition is part of government's "go west" strategy

(Adds aluminum prices, background on Chalco's recent earnings slump and government policies, Chalco's other acquisition targets.)

 
   By Chuin-Wei Yap

BEIJING--Aluminum Corp. of China Ltd. (ACH) is moving to secure electricity and coal supply in an effort to control costs with its decision to buy 35.3% of Ningxia Electric Power Group Co., a wind-farm developer that's also the largest company in the northwestern Ningxia Autonomous Region.

China's largest aluminum producer by output, known as Chalco, said in filings to Hong Kong and Shanghai bourses Tuesday that it would spend 2 billion yuan ($319 million) to buy the Ningxia Electric stake.

Chalco's decision follows a net loss in the first quarter of this year, underscoring tight margins the company faces amid falling aluminum prices. Securing access to its own electricity supply will help the company's bottom line, as it accounts for around 45% of the light metal's production cost.

"Ningxia is where electricity prices are low, and it's the next stage of development for Chalco's electrolytic aluminum," Chalco said.

The Beijing-based company will become Ningxia Electric's largest shareholder after buying 23.4% from Bank of China Group Investment Ltd. for CNY1.35 billion and 11.9% from China Zhongtou Trust for CNY675 million, it said.

Aluminum prices have fallen 10% since the start of last year amid flagging global demand and domestic oversupply.

In June, China's beleaguered aluminum industry won electricity subsidies from provincial governments, part of a quid pro quo that has boosted aluminum output to near-record levels--even as it threatens to prolong the metal's price slump.

Ningxia Electric, which operates a number of solar and wind-power farms, also owns two coal mines, Chalco said. It had a power output capacity of around 4.8 million kilowatts as of the end of last year and coal output of around 10 million tons a year, according to the company's website.

The company has sought to diversify into other commodity sectors, including domestic rare-earth resources.

Chalco has sought a controlling stake in Mongolian coal miner SouthGobi Resources Ltd. (1878.HK) and is working on a joint venture with Rio Tinto PLC (RIO) to develop the Simandou iron ore project in Guinea.

The Ningxia purchase is part of an official push to develop the country's vast northwestern region, which has become a migration destination for aluminum smelters in search of lower costs. Chinese smelters produce half the world's aluminum.

"This project is Chalco's positive response to the 'Go West' development strategy," Chalco Chairman Xiong Weiping said in a separate statement.

The government is encouraging the industry to relocate westward in part to reduce environmental pollution in the more-populated eastern seaboard and also leverage on the region's proximity to coal-rich areas.

Write to Chuin-Wei Yap at chuin-wei.yap@dowjones.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires