China-based XinRen Aluminum Holdings has agreed to increase its stake in an aluminum smelter to a controlling 51 per cent from 21 per cent for 3.15 billion yuan (S$640 million).

Mainboard-listed XinRen said it had decided to exercise its option to raise its stake in China Leading International Group, which fully owns the smelting plant, Xinjiang Production and Construction Corps Agricultural Division Eight Xinjiang Tianshan Aluminum Plant Co.

The purchase will be financed from internal sources, bank borrowings and may include proceeds from fundraising exercises.

XinRen said the move will enable it to consolidate the results of a very lucrative enterprise, which contributed 93.6 million yuan to group net profit last year.

The Xinjiang plant generated a net profit of 443 million yuan from an output of 400,000 tonnes last year.

The primary aluminum smelter's profit contribution to XinRen is expected to rise even further as output is ramped up to 880,000 tonnes this year.

XinRenexecutive chairman Zeng Chaolin said the plant has one of the lowest cash production costs among the aluminum smelters in China.

"XinRen's increased stake in this strategic investment is in line with the group's drive to remain profitable in the midst of a prolonged industry downturn," said Mr Zeng.

"It also firmly sets XinRen amongst the leading integrated upstream producers in China's aluminum industry."

Located in Xinjiang province, and having its in-house independent power plant, the Xinjiang plant gives XinRen access to cheap and abundant coal resources and comparatively lower electricity costs.

In light of the still low aluminum prices and the Chinese government's efforts to phase out inefficient producers, XinRen believes that its majority stake in this asset will enable the group to pull ahead of its competition.