Another holding period for Kitimat

The modernization of the Alcan Works plant in Kitimat is on hold once again, this time as current owner Rio Tinto keeps an eye on the wild mood swings of the global economy.

The Globe and Mail is reporting today, that Rio Tinto has decided to put off any final go ahead on the program for the time being, instead it will provide 300 million dollars in funding to "advance the project", while it keeps a watchful eye on the crashing nature of the commodities market of late. The sudden downturn of fortunes on the commodities markets has Rio Tinto reconsidering all of its capital plans, framed in the new reality of the economy.

Rio Tinto had originally planned on making a final decision by the end of this month, but has chosen a more cautious approach now, as the volatile nature of the global economy continues to dominate the news and the crashing of commodities prices has seen the price of aluminum decline by more than a third in the past three months.

Officials of Alcan suggest that the three hundred million dollars to be forwarded will provide funding for project activities into 2009.

And while that at least is some comfort for residents of Kitimat, it will be a move that will also bring another year of uncertainty to the region, which has been waiting for a final decision now for over a year.

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Tied into that uncertainty is the actual fate of Rio Tinto. The aluminum giant which acquired the Montreal based aluminum company last year for 38 billion dollars, is frequently mentioned as being a takeover target itself, a scenario that would certainly lead to a whole new era of uncertainty over the fate of one of the largest employers in the region.

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Once again, Kitimat finds itself in a holding pattern, hostages to an economy and events far beyond their control.

Rio shifts gears on Kitimat
ANDY HOFFMAN
From Thursday's Globe and Mail
October 22, 2008 at 7:40 PM EDT

The board of Rio Tinto PLC [RTP-N]has delayed giving final approval to a $2.5-billion (U.S.) aluminum smelter expansion in Kitimat, B.C., and has instead committed an additional $300-million to advance the project while it assesses the impact of the commodities crash.

Rio Tinto, which paid $38.1-billion for Montreal-based Alcan Inc. last year, had planned to make a decision on the project by the end of the month. But the vicious downturn in metals prices forced the company to announce last week that it is reviewing all of its capital expenditure projects, including those in Canada.

Jacynthe Côté, president of Rio Tinto Alcan's primary metal operations, said the new funds will be used to move the Kitimat project forward.

“We want to be flexible. The decision was made more than a week ago. We want to continue to progress the project at very good pace and that is what we are doing,” she said.
Rio Tinto

The price of aluminum has declined by more than a third in the past three months and hovered near a three-year low yesterday. Aluminum fell as much as 4.8 per cent to $1,976 a tonne or 89 cents a pound on the London Metal Exchange.

The $300-million, which brings total investment in the project to $520-million, will fund activities at Kitimat well into 2009, Ms. Côté said.