Smelter talk more like smegma talk

Last October a federal briefing note prepared for incoming natural resources minister Lisa Raitt listed an aluminum smelter in Labrador as one of 14 projects expected to be announced within six months.

Unfortunately for the people writing the briefing notes, the proponents – Rio Tinto Alcan – were busily chopping production globally in response to the economic meltdown.

The briefing note story is in the Saturday Telegram along with some choice recent history of the smelter story.  It isn’t on line.

As the Telly notes, the Premier traveled to Brazil in late 2007 to pitch the smelter idea to vale Inco. 

A year later the government’s favourite economist was touting the idea of an imminent announcement of what – as we told you at the time – was supposed to be an aluminum smelter. 

The project would, as the Telly quotes Wade Locke, “make the earlier start of the project [Lower Churchill] more viable and …act more like a loan guarantee for the Lower Churchill that will allow them easier access to capital.”

Nice thought, that, except that reality was intruding on the fantasy even as the words were being uttered or the briefing notes being drafted. Major aluminum producers were busily shedding capacity through the fall of 2008 and early winter of 2009 as demand plummeted.

The problem for Australian-based Rio Tinto was a bit larger.  The miner completed its purchase of Alcan in late 2008 and took on responsibility for the company’s $40 billion net debt problem, as a result.

Plans to shed some assets melted in mid October. Since then the company has announced plans to chop 14,000 jobs globally – 12.5% of its workforce – and has slowed production by as much as 22% in some aspects of aluminum production. In February, Rio Tinto announced a deal with Chi Nalco, a state-owned enterprise, to allow the Chinese to farm into several existing Rio ventures, including bauxite and aluminum projects in the Pacific.

The company’s capex plan for 2009-2010 reduces expenditures in 2009 by 50% and sets the level for 2010 at sustainment.  in other words, for the next two years the company is not anticipating any significant capital expenditure.  On top of that, the company has already reduced production  especially in some its high-cost operations.

The Chinese deal suggests not only that the company is welcoming some fresh cash into the system but also is gearing to take advantage of growth in the Chinese market using facilities that are closer to the market than Labrador. 

For those who don’t know, Labrador is pretty much as far from China as one can get.  All the raw materials for a smelter would have to be imported and the power would have to be sold at incredibly low prices – well below current market rates in Labrador – in order to offset the production and shipping costs. That’s almost identical in concept to the Smallwood-era phosphorous plant at Long Harbour.  The project was only viable because of its low energy costs (initially the same rate as sales to Hydro Quebec from Churchill Falls) and its proximity to its major market in the United Kingdom.

Similar aluminum projects in Iceland involved selling power at half the rate for other commercial users.

The Quebec government provides massive subsidies to its aluminum industry but that hasn’t stopped recent shutdowns and layoffs.

The idea of establishing an aluminum smelter in Labrador dates back to the 1950s.

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But will Charest expropriate?

Alcan closes a smelter and slashes production in the latest round of cuts and adjustments:

• A further six per cent reduction in aluminium production, bringing the total reduction to approximately 11 per cent, and close to six per cent reduction in alumina production
• Reduction in global workforce by approximately 1100 roles (300 contractors and 800 employee roles)
• Substantial cost reduction programmes in Rio Tinto Alcan facilities worldwide
• Permanent closure of Beauharnois smelter in Quebec, Canada
• Production at Vaudreuil alumina refinery in Canada to be temporarily curtailed by 400,000 tonnes
• Expected sale of interest in Alcan Ningxia joint venture in China
• As previously announced, the anticipated ending of smelting operations at Anglesey Aluminium joint venture in the United Kingdom in September 2009 when the current power contract expires. The impact on production and headcount is included in these figures.

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ALCOA bid off; Rio may pocket US$30 billion in asset sell-off

BHP has reportedly backed away from purchasing ALCOA. Share prices are down for the American aluminum company.

Meanwhile, Rio Tinto's plan to sell off non-core assets in ALCAN could bring the company US$30 billion according to The Australian. Analysis by Goldman Sachs JBWere said Rio could divest of the company's uranium, coal and other assets and focus on iron ore, copper and aluminum all of which are in high demand in the growing Chinese and Indian economies.

GSJBW said the potential sale of Rio's uranium, thermal coal, industrial minerals, gold and diamonds divisions and non-strategic assets in iron ore, copper and aluminum could net $US30 billion ($A34.15 billion).

The brokerage estimates Rio Tinto could receive $US8 billion ($A9.11 billion) for Pacific Coal, $US4 billion ($A4.55 billion) for Coal & Allied and $US5 billion ($A5.69 billion) for its uranium division, which includes its majority stake in Energy Resources of Australia Ltd.

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BHP Billiton considering US$50 billion bid for ALCOA

In the wake of Rio Tinto's successful bid of US$38 billion for ALCAN, mining giant BHP Billiton is reportedly considering making a US$50 billion bid for ALCOA.

BHP Billiton is already heavily involved with Alcoa through marketing arrangements in the US and its 39.25 per cent stake in Alcoa of Australia, which operates the Portland and Point Henry aluminium smelters in Victoria that provide about 30 per cent of Australia's aluminium production, and the Kwinana, Pinajara and Wagerup alumina refineries in Western Australia.

Meanwhile Rio Tinto is reportedly looking at options to cope with ALCAN's debt.

"We will be looking at the full range of Rio Tinto businesses in the new, larger Rio Tinto," he told ABC television.

He did not specifiy which parts of the business could be sold but said there could be some that "don't quite fit" or would be more valuable in the hands of another company.

"We might find buyers that are willing to pay more for them than we would necessarily see ascribed in our valuations or in our balance sheet," he said.

Analysts have said that Rio could offload its aluminium smelters or Alcan's engineered products division.

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Norsk Hydro ponders ALCAN bid

Norwegian energy company Norsk Hydro is considering a bid to take over ALCAN, according to the Globe and Mail.

Norsk Hydro is in the process of restructuring, following a merger last year with Statoil. The latter will absorb all of Norsk Hydro's oil and gas projects, with Hydro to focus on its traditional strengths of hydroelectricity generation and aluminum production.

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Rio Tinto sizing up ALCAN

Mining giant Rio Tinto, which operates an iron ore plant in western Labrador has hired Deutsche Bank to advise on a possible bid for ALCAN, as the Sydney Morning Herald reported in its Monday edition.

Alcan last week rejected a $US27 billion ($33 billion) hostile offer from its US rival, Alcoa, which would create the world's largest aluminium company, and indicated it was in talks with unnamed "third parties".

The Herald understands that several potential suitors, including Rio and BHP, have expressed interest in opening discussions with Alcan's board. Some, including Rio, have already hired investment banks to provide advice on a possible bid.

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