KUALA LUMPUR, Aug 7, 2007 (AFP) - Global Anglo-Australian miner Rio Tinto on Tuesday signed an agreement with Malaysia's Cahaya Mata Sarawak (CMS) to study building what could be one of the world's largest aluminium smelters.

The cost of the project was not disclosed but industry sources have indicated a figure of around two billion dollars for the smelter which would use power from the controversial Bakun Dam being built on Borneo island.

The study will take 12 to 18 months, covering technical, operational, environmental, social and economic analysis of the proposed smelter.

The smelter, to be known as the Sarawak Aluminium Company, would be situated in Similajau and expected to commence operation by the end of 2010. It would have an initial production capacity of 550,000 tonnes per year, rising to 1.5 million tonnes in time.

"This is a very positive development for Rio Tinto Aluminum and an important step in our plans to develop new greenfield aluminium smelting capacity," Rio Tinto Aluminium chief executive Oscar Groeneveld said in a statement.

He said the project could provide nearly 5,000 direct and indirect jobs, as well as help boost Malaysia's overall economy.

"CMS and Rio Tinto Aluminium are committed to develop the project to world class environmental and community standards," Goeneveld said.

CMS chairman Syed Anwar Jamalullail said his firm's experience as Sarawak's leading nfrastructure development company would complement technical expertise to be provided by Rio Tinto.

Electricity for the smelter is expected to come from the Bakun Hydroelectric Dam. The dam, currently under construction, has met with strong criticism because up to 10,000 tribal residents were forced to relocate.

Rio Tinto Aluminium is part of the Rio Tinto Group and owns and manages mining, refining and smelting assets mainly situated in Australia and New Zealand.

The group is set to become the world's largest aluminium producer through its recent 38.1 billion dollar takeover of Canada's Alcan Inc.

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