But Hensel told Reuters the project was an alternative to one already under discussion between the Icelandic government and Norwegian state-controlled industrial group Norsk Hydro.

Icelandic officials said last week that they hoped to sign a declaration of intent later this month on a new smelter with Norsk Hydro and Icelandic investors.

A final decision on the smelter at Reydarfjordur in eastern Iceland, which would sharply raise the island's aluminium capacity, would be taken within a year from that time.

Industry Minister Finnur Ingolfsson said the declaration of intent would not commit the Icelandic government to hand the project over to Norsk Hydro."This agreement obliges Norsk Hydro and the Icelandic government to start seeking solutions to construct an aluminium smelter in Reydarfjordur,"he told Reuters. "The agreement is by no means a final contract to start construction."

Hensel had talks on Wednesday with Ingolfsson.

"I was satisfied with what we heard from Ingolfsson," Hensel said. "He asked us for a proposal, and now our task is to get together as much information as we can to get that proposal together at his request."

Hensel said Columbia did not intend to join Norsk Hydro in the project."We would be an alternative to the Norsk Hydro project," Hensel said."We have not talked about the general management at all to Norsk Hydro, but given that they want to be the operator, and we want to be the operator, it is difficult to have two operators."

Both Columbia Ventures and Norsk Hydro envisage a smelter with annual capacity of 90,000-120,000 tonnes.

Iceland has attracted several metals operations in recent years, capitalising on its huge resources of hydro and thermal power.Hensel said Columbia Ventures wanted to be the majority owner of the new smelter, and attract Icelandic andforeign investors.

The fact that Icelandic investors were reluctant to invest in Nordural three years ago was not important.

"I think times have changed in the intervening period," Hensel said. "Both because of the buoyant Icelandic economy, and I also think that the recent development of Nordural has educated people about aluminum smelters. As a result I think people are more interested in participating."

If Columbia Ventures builds the new smelter, it would come on stream in autumn 2003, Hensel said, although that was wholly dependent on hydro power availability in the area.

Hensel confirmed that Columbia Ventures existing Iceland operation Nordural planned to expand its capacity to 90,000 from 60,000 tonnes. "We are very close signing a contract, so we are beginning preparation of that," Hensel said. If it goes as planned, the new extended plant would come on stream in the spring of 2001, he said. He declined to comment on the cost of the extension.