UPDATE 1-Vietnam allows Alcoa 40 pct stake in alumina plant

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HANOI, May 6 (Reuters) - The Vietnamese government said on Tuesday it will allow Alcoa Inc (AA.N) to own up to 40 percent of a major alumina mining and refining project in the central highland of Daknong.

The project, with an annual capacity of 600,000 tonnes of alumina, will be 51 percent owned by state-run coal producer Vinacomin and 9 percent would be sold to the public, the government said in a directive.

The directive said the refinery must pay an annual royalty of 10 percent of its net profit to the government.

It also said Vinacomin would be allowed to conduct negotiations with China's biggest maker of aluminium, Chalco (2600.HK) (601600.SS), over a 40 percent stake in a bauxite mining project.

Vietnam has said it needed about $15.6 billion to invest in major bauxite and alumina refining projects by 2025, to make use of its vast and largely unmined bauxite ore reserves. (Reporting by Nguyen Nhat Lam; Editing by Alan Raybould)