Alcoa to Cash In Up to $2B of Chalco Shares

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Includes: AA, ACH
by: Steven Towns

Alcoa intends to sell $1.64 billion of shares it owns of Aluminum Corp. of China [Chalco], according to a term sheet seen by Dow Jones Newswires. Alcoa could sell its entire 6.86% stake for as much as $2B to $2.1B, earning a profit of around $1.9B, if it exercises an option. Alcoa will reportedly sell the shares (listed on the Hong Kong exchange) for HK$17.26 to HK$18.27, a 10.4% to 15.4% discount to Wednesday's close of HK$20.40. "Alcoa is taking profit from Chalco shares, and the sale indicates that it is concerned about the commodities cycle, after the credit crunch in the U.S.," commented Liu Yang of Atlantis Investment Management in Hong Kong. Some analysts expect broad profit-taking in Chalco shares, but a Hong Kong-based DBS analyst said, "... any pullback will present a buying opportunity." Alcoa originally bought Chalco shares in its 2001 IPO at HK$1.37/share. Alcoa was untraded as of 8:00 a.m. in Wednesday's pre-market, after gaining 0.4% to $34.20 on Tuesday. ADRs of Chalco are down 10.8% to $59.00 in thin pre-market trading, erasing Tuesday's 8.9% jump to $66.18.

Sources: Bloomberg, MarketWatch, Reuters
Commentary: Six Ways to Invest in Aluminum: The Most Abundant Metal in the WorldBilliton Considering Bid for Alcoa -- ReportGive Aluminum Corp. of China A Metal!
Stocks/ETFs to watch: AA, ACH. ETFs: PRFM, XLB, IYM, FNI, PGJ
Earnings call transcript: Alcoa Q2 2007

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