Australia is the world's largest producer of bauxite and alumina and the fifth largest producer of aluminium, but has so far sidestepped the merger mania among industry heavy hitters in Europe and North America.

Capral Aluminium Ltd chairman Jeremy Davis said the company planned to split its downstream fabricating and distribution divisions from the 155,000 tonne Kurri Kurri smelter, with a sale or listing of the smelter under consideration.

"One quite likely outcome is that you will end up with two separate publicly listed entities, one more a resource stock and the other more an industrial company," Davis said.

Standard & Poor's placed Capral's "BBB-" long-term rating on negative credit watch, saying if shareholders approve the plan next April then a narrowing of the company's business profile could weaken its credit quality. Capral's smelting profits slumped in the latest half year, dragging down overall net earnings to just A$6.5 million (US$4.2 million).

Capral's restructuring follows CSR Ltd's announcement on Monday that it wanted to exit its aluminium holdings along with its sugar assets to focus on its core construction and building materials units.

CSR owns 70 per cent of Gove Aluminium, which has a 36.5 per cent stake in the Tomago smelter and a 30 per cent share in the Gove bauxite and alumina joint venture with Alusuisse Lonza Group of Switzerland.

The Tomago and Kurri Kurri smelters are both in the Hunter Valley region of New South Wales, North of Sydney.

Analysts said the Australian companies were following an industry restructuring surge which has seen large overseas groups proposed mergers to create super producers controlling the ebb and flow of much of the 13 million tonnes or so of aluminium to be consumed globally this year.

Capral's Davis said there had been no active discussions with possible suitors for the Kurri Kurri smelter, but added the number of buyers was limited.

"There are only eight to 10 companies globally, particularly in the smelting end of the business, regarded as international players," he said.France's Pechiney SA, whose proposed merger with Alcan of Canada and Alusuisse is under review by the European Commission, is interested in raising its 36 per cent stake in the Tomago smelter.

Kurri Kurri is well within the financial reach of Pechiney, particularly if its three-way merger succeeds, as analysts expect. Moreover, it would give the trio 100 per cent ownership of an Australian smelter, albeit one of the smallest ones.

But whether Alcan, which owned Kurri Kurri until the mid-1990s, would be willing to put it back on its books is uncertain. Although profitable, costs on an industry basis are average at best.

Another deterrent is Capral's inability to lock in long-term power agreements, costing the company an extra A$11 million a year and thwarting plans to expand capacity.

In Venezuela, Pechiney is considering building a 500,000-tonnes per annum capacity smelter, suggesting Kurri Kurri may be off its radar Screen given its size. Reynolds Metals, awaiting regulatory approval for a US$4.2 billion merger with Alcoa Inc, has been identified as a potential buyer for Tomago or Kurri Kurri. Reynolds already owns a 56 per cent interest in the Worsley alumina refinery in Western Australia, the world's largest.

Comalco Ltd, Australia's largest producer and a unit of mining giant Rio Tinto with half year earnings 15 times bigger than Capral, is regarded as a less likely suitor for the local smelting assets, given its drive to lift internal alumina-making capabilities to feed its existing smelters.