Saturday, December 20, 2008

Kitimat smelter project slows down

With Rio Tinto experiencing a number of shocks from the global economic siutation and facing a number of cost cutting measures across the globe, the progress on the Kitimat smelter project is slowing down while the company takes the pulse of the economic landscape.

The smelter project which has been a long running discussion in Kitimat for a number of years now, has been the subject of much speculation in the Northwest as Rio Tinto first purchased the Alcan Canada operations and then fought off a hostile take over bid.

Those financial shocks combined with the dropping price of aluminum has many wondering if the modernization project will ever reach the stage where a substantive move forward will be seen.

The Daily News featured the latest troubles for Kitimat as their front page headline story in Friday's paper.

But the company says it is still committed to the project and wants to get it done long-term
By George T. Baker
The Daily News
Friday, December 19, 2008
Pages one and five

In another sign of the severity of the volatile global economic crisis in the Pacific Northwest, Rio Tinto Alcan has announced that it is slowing down its smelter plant modernization in Kitimat.
Modernization project manager Brent Hegger said that this does not mean a complete halt to plans and the company remains fully committed to the project.

What that means in terms of timeline Hegger could not say.

"We are proceeding with a program selective path activities but with the ongoing economic situation at present has caused us to review and look at our capital funding plans for next year and the project timelines.

"We expect in the first quarter of next year to finish that," said Hegger.

With aluminum prices dropping steadily during the past few months and hitting a five-year low yesterday, Rio Tinto Alcan began sending home out-of-town contractors from the project, leaving some to wonder whether or not the $2.5 billion upgrade would really see the light of day.
In October, Rio Tinto's board of directors awarded the project another $300 million to move the work along at a faster rate.

According to Hegger, that has not changed and the money is still available.

When Rio Tinto purchased Alcan in 2007, some suggested that perhaps the US$38.1 billion bidding war price was too much for a company that was rated at US$20 billion by BHP Billiton, when that company was looking to buy Rio Tinto.

The company is now US$39 billion in debt, which is higher than its own market capitalization (an estimation of the value of a business that is obtained by multiplying the number of shares outstanding by the current price of a share). But Hegger could not comment on whether that was the cause of the company's change in direction, saying that would best be answered by the company's board of directors.

"I can confirm that our team is on the ground working on the full project and there is no change in a project scope and that is to deliver the full and complete 400,000 tonne per annum Kitimat modernization smelter. There is no change to our working plan."

According to Kitimat's guide for industrial investors, the current smelting plant is the largest employer in town, with 1,900 workers tied to the 54-year-old smelting facility.

But the relationship between the aluminum producer and the District of Kitimat has not always been rosy.

Last February, the company won an appeal decision over Rio Tinto Alcan's right to sell unlimited power to BC Hydro that the company produces at its Kemano power plant at Kitimat.
The power sales deal from Alcan's Kemano hydro electric facility was a condition set out by the company in order to proceed with the $2-billion upgrade.

The agreement, which was announced in January of this year, renews and modified B.C. Hydro's ability to purchase surplus Kemano power from Alcan on a secure, long-term basis.

Kitimat's new mayor, Joanne Monaghan, would have never expected a first month on the job like this.

During 30 years as a councillor she has dealt with a lot of different organizations and she figures Kitimat will weather the announcement that Rio Tinto Alcan has decided to slow down its modernization plan.

"I know that the world's economy is not the greatest and the metal prices have gone way down but the good thing is Rio Tinto does have the cheapest water in all of Canada and that is a plus for them," said Monaghan.

She said that the community remains upbeat in light of the news because the company claims it will only be a downturn for a limited time.

"If they just do a slowdown I'll be happy because they are saying they are not going to pull out completely," added Monaghan.

There was speculation that the provincial government could seize the hydro assets from Alcan, much like Newfoundland Premier Danny Williams did Wednesday when his government took control of the hydro assets and timber cutting rights of Grand Falls-Windsor- based AbitibiBowater Inc. after the company announced it would close its adjacent newsprint mill.

Skeena-Bulkley Valley MP Nathan Cullen said he would study Williams' move a little more but warned this is what you get when multi-national corporations merge under the current economic system.

"The trend we have seen of acquiring companies through massive borrowing has made for very unstable industries.

"We have seen it in forestry and we are now seeing it in aluminum and in banking in the U.S. This is part of the problem in that we have a debtor society," said Cullen.

"Companies are buying other companies with just through borrowing money expecting low interest rates. When those low interest rates don't materialize the whole deal feels shaky and that's why mergers have a less than 50 per cent success rate."

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