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Written by: Staff

SYDNEY, July 3 (Reuters) Underperforming U.S. aluminium giant Alcoa is ripe for takeover, and analysts see Australian resource companies BHP Billiton and Rio Tinto as likely predators.

Either company could manage the funding of a takeover of Alcoa Inc. and Alcoa's 60 percent-owned Alumina Ltd. of Australia, which broker JP Morgan estimates would cost a total of $46 billion-$57 billion via a combination of debt and shares.

''Both Rio and BHP have capacity to acquire both AWC and Alcoa simultaneously,'' JP Morgan said in a report.

Other analysts say BHP Billiton Ltd./Plc. with the added benefit of oil and gas assets in Europe, Australia and the Gulf of Mexico, could use cash to buy the companies.

Rio Tinto Ltd./Plc. is more likely to employ its script to avert a potential liquidity crunch, according to the analysts.

Neither company would comment about the speculation.

A takeover of Alcoa and Alumina would dwarf last year's $7 billion-plus acquisition of WMC Resources by BHP Billiton and place it among this year's big acquisitions in the sector.

Arizona copper-belt miner Phelps Dodge Corp. wants to acquire Canada's Inco Ltd. and Falconbridge Ltd. for about $40 billion in a blockbuster deal to assemble the world's top nickel miner and publicly listed copper producer.

BIG TAKEOVER SEASON That offer surpasses a bid by Teck Cominco Ltd. for Inco and one by Xstrata for Falconbridge, underscoring the perceived need among mines to consolidate, analysts said.

In steel, Mittal Steel is set to pay $32 billion for European rival Arcelor ''Rio at this stage, even more than BHP, needs new blood and Alcoa and alumina are natural fits,'' said Constellation Capital management analyst Peter Chilton.

Shares in Alcoa, which has struggled with its downstream and aerospace divisions in recent years, are little changed from two years ago, despite a 57 percent rise in world aluminium prices set by the London Metal Exchange.

Shares in the much smaller Alumina have faired a bit better, rising 30 percent since May 2004.

Thanks to a boom in demand for nickel, iron ore, copper and other mineral commodities, BHP Billiton and Rio Tinto export en masse to fast-industrialising but resource-starved China. BHP Billiton's shares over the same period are up 140 percent and Rio Tinto shares are 122 percent higher.

But the one thing China does not need is aluminium, said UBS Warburg analyst Glyn Lawcock.

''Alcoa has been a dog of a performer, considering the rest of the industry has been going ballistic over the last two years,'' he said.

GROWTH IN ALUMINIUM Rising demand for aluminium could come from a range of countries, including India and Southeast Asia to the Middle East, South Africa and Eastern Europe.

Rio Tinto, which turns out nearly one million tonnes of aluminium via its Comalco smelters in Australia and New Zealand, last week signalled it saw future growth in the sector and would help fund plans to build a giant smelter in Abu Dhabi in the United Arab Emirates.

A takeover of Alcoa, which was started in the 1800's as the Pittsburgh Reduction Company, and Alumina, formed in 2002 by a break-up of Western Mining's nickel and alumina divisions, would end former Western Mining Managing Director Hugh Morgan's quest to assemble prime takeover targets.

While BHP bought the nickel arm, Alumina remains independent.

Alumina's plans to boost alumina output capacity by 3.2 million tonnes by 2009 was appealing to both companies. It takes about two tonnes of alumina, derived from bauxite, to make a tonne of aluminium.

But analysts noted that China was stepping up its own production of alumina, possibly with the help of neighbouring Russia, which could eventually undermine demand.

($1=A$1.35) REUTERS MQA DS453

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