Rio Tinto wins supply pact for aluminium smelter

SYDNEY, Jan 30 (Reuters) - Rio Tinto Ltd/Plc (RIO.AX)(RIO.L) said on Wednesday it had reached a new power supply pact with the local utilities authority for its Kitimat aluminium smelter in Canada, allowing it to proceed with expansion work.

The agreement with the British Columbia Utilities Commission means the smelter's electricity needs will have priority over any other power sales, the company said.

Expansion of the smelter would lift the plant's annual output of primary aluminium by 125,000 tonnes, using renewable hydroelectric power from the company's Kemanao power station, Rio said.

Rio's global aluminium production would rise by 3 percent as a result, according to the company.

The power agreement is the last of three conditions imposed before work on revamping the smelter could proceed, following resolution of a labor agreement and environmental permitting.

U.S. engineering firm Bechtel was hired in June by Alcan of Canada, which was acquired by Rio late last year, to draw up a detailed feasibility study and confirm cost estimates and scheduling for the expansion of the smelter.

Alcan said at the time it planned to spend $1.8 billion on expansion work to lift its annual output to 400,000 tonnes per year.

Rio, fighting a three-for-one offer proposal from rival BHP Billiton Ltd/Plc (BHP.AX)(BLT.L), is seeking $15 billion in asset divestments, announced during its takeover of Alcan -- which made Rio the world's largest aluminium producer.

The divestments are expected to focus on Alcan's packaging businesses and steer clear of bauxite mining and alumina and aluminium production.

Rio Tinto is relying on Chinese industrial growth to support future metals prices and justify the cost of expansions it has earmarked in aluminium, iron ore, copper and other sectors to show it can continue to operate independently. (Reporting by James Regan)