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Rio Tinto in talks to sell Quebec aluminum plant

NEW YORK, Jan 27 (Reuters) - A small Canadian aluminum producer is in talks to take over Rio Tinto Alcan's aluminum casthouse in Shawinigan, Quebec, rescuing the plant from closure at the end of this year, the fund's project leader told Reuters on Monday.

Sotrem, a company based in Saguenay, Quebec, that makes aluminum foundry alloys and deox, a type of aluminum used to remove oxygen in steel production, is leading the deal to buy the plant, said Yvon D'Anjou, who is in charge of the project.

"We expect to come to a consensus in the next few months," said D'Anjou.

He is familiar with the plant, having worked as head of business development at Alcan until 2008, he said.

A spokesman for Rio Tinto confirmed in an email that the company has entered exclusive negotiations for the sale of the casthouse, but did not give any further details.

Under a plan drawn up by Sotrem, the casthouse would produce 35,000-40,000 tonnes per year of small-diameter extrusion billet, a niche product used to make gas cylinders and scuba diving tanks, D'Anjou said.

That capacity could increase to 60,000 tonnes in the next two years if there was demand.

The smelter on site, which Alcan shut towards the end of last year, is not included in the deal, he said.

Financial terms are still being hammered out. Sotrem will also look into securing possible government financial help and expects to invest, "a few million dollars over the next few years," D'Anjou said.

Sotrem is owned by Pluri-Capital, an investment fund headquartered in Jonquiere, Quebec.

The new owners would employ about 50 people, slightly less than the current 60-strong workforce at the casthouse.

The fund is negotiating with Alcan to secure long-term supplies of aluminum for the casthouse from Alcan's other Canadian smelters, he said.

The closure of the primary smelter comes as aluminum producers are under pressure to cut expenses as prices on the London Metal Exchange languish close to or below costs because of a big global surplus.

Rio Tinto, one of the world's top mining companies, has sold or idled numerous underperforming aluminum assets, following its $38 billion takeover of Alcan in 2007.

Environmental regulations also helped force the closure of the Shawinigan primary smelter, which produced about 100,000 tonnes per year using Soderberg technology, which is considered less energy efficient than newer methods of smelting aluminum.