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.

Alcan rules the day. But some wonder if there will be a longer smelter delay?

Rio Tinto Alcan one of the largest employers in the Northwest, prevailed at the British Columbia Utilities Commission this week. As the aluminum giant interpreted the news of the Commission's approval, as a sense of vindication that their bid to sell excess power is a legitimate part of their business structure for Northwestern British Columbia.

It’s a case which hasn’t necessarilly been accepted by the District of Kitimat, which fears that the multi national Aluminum Company may spend more time on electrical power sales than in aluminum smelting, calling the proposed modernization plans to be mostly smoke and mirrors. Kitimat has expressed a concern over job losses at the modernized smelter and its pre-occupation with power sales. The mayor is looking fow ways to diversify the local economy, but suggests that Rio Tinto Alcan as a major landowner in the area is holding up potential investment in the area.

The District is examining the lengthy pages of the decision issued on Tuesday, to see if there is a room for appeal and more importantly if they have the appetite for launching yet another round of discussions on the topic of power sales.

The fate of the Kitimat works smelter was tied into the long running feud between Alcan and the District of Kitimat over the last few years, with Alcan suggesting that they needed the power sales to make the expansion feasible.

For now though, as far as Rio Tinto Alcan is concerned that argument may be more valid than ever, as the anticipated cost of modernizing the ancient Kitimat plant is rising by the day, spurred on by the heat of the B. C. economy in the south, the competition for labour and supplies from the 2010 Olympics and a trades shortage that is affecting many British Columbia projects.

The expansion and modernization project will be brought up to the Alcan board in April, with a revised forecast on the cost of the smelter’s bottom line, which had already be estimated to cost over 2 billion dollars.

The project which has been delayed for a while now, has seen one owner give way to a new one, a larger multi national company that itself is still the target of a takeover bid. It All adds a little extra drama to the prospects for the long discussed expansion project, which has been the topic of discussion in Kitimat for a number of years now, splitting the town into separate camps for most of that discussion.

The Globe and Mail featured a report on the potential for expansion and the different factors that Rio Tinto Alcan is considering as they lead up to their April board meeting.

After the green light, a new challenge for Alcan
With costs of major B.C. projects surging, company taking fresh look at cost of modernizing Kitimat smelter
PATRICK BRETHOUR and WENDY STUECK AND ANDY HOFFMAN
From Thursday's Globe and Mail
January 31, 2008 at 12:00 AM EST

VANCOUVER AND TORONTO — — Rio Tinto Alcan [RTP-N]is eyeing an even heftier price tag for the $2-billion (U.S.) modernization of its antiquated Kitimat aluminum smelter, as it aims to cope with the cost echoes of B.C.'s construction boom.

On Tuesday, the company received approval for a long-term electricity sales contract with B.C. Hydro, the last of three conditions it had set out for proceeding with the Kitimat project.
That approval in hand, it is now taking a fresh look at the capital costs of the project.

“We feel fairly certain that the cost will go up,” said Rio Tinto spokeswoman Colleen Nyce.

The costs of major construction projects in British Columbia have been surging by double digits annually through much of this decade, as expansion in the natural resources sectors, a residential construction boom and infrastructure needed for the 2010 Games have heated up competition – particularly for skilled hands.

For Rio Tinto, labour cost is the largest area of uncertainty.

“The big unknown for us is the labour factor,” Ms. Nyce said.

As it recalculates the price tag of its often-delayed expansion, the company is weighing the combined effect of the B.C. construction boom, competition from other megaprojects around the globe, and the surging Canadian dollar.

The company has satisfied other conditions for going forward with the upgrade. In addition to approval of its deal with B.C. Hydro, it reached a deal with its unions for labour peace past the startup date of the project and assurances on environmental assessment from the B.C. government.

Rio Tinto Alcan is far from alone in facing the big question of escalating capital costs in British Columbia, including more expensive steel and concrete. Residential and commercial builders have been forced to put their projects on hold, said Stuart MacKay of MMK Consulting Inc.

“There is a lot of demand out there that has been deferred because of the hot construction market,” Mr. MacKay said. “People who would like to undertake projects but because of the cost impacts and labour availability have deferred projects that they would otherwise have taken on,” he said.

So far, there's no talk of shelving Kitimat. Rather, the project will be brought before the Rio Tinto board in April. That gives the Canadian arm just eight weeks to update, and most likely redraft, cost estimates for the expansion. If the board gives its approval, construction would start later this year, with production from the new facility beginning in 2012.

Ms. Nyce said the company had already taken some steps to contain costs, including signing contracts for some of the specialized equipment needed to build a smelter. But some inflation of the 18-month-old price tag will be unavoidable. During that time, the cost of steel and concrete has been on the rise. And the Canadian dollar has surged, making wage bills more pricey in U.S. currency.

Weighed against those costs are the benefits that Kitimat will confer: an efficient modern plant that already taps into the surging Asian market for aluminum. “It will become one of the three largest aluminum smelters in North America and one of Rio Tinto's largest wholly owned smelters once the technology is completed,” Rio Tinto Alcan spokesman Stefano Bertolli said.
Kitimat is a key operation in Rio Tinto's plans to target increasing demand for aluminum from Chinese and other Asian customers. Almost all of the facility's aluminum production – 95 per cent – is destined for customers on the Pacific Rim, including China. The remaining 5 per cent goes to the United States.

China is currently a net exporter of aluminum. But Rio Tinto chief executive officer Tom Albanese is betting that China's booming economy, combined with a lack of access to cheap electricity needed to produce aluminum, will reverse the equation. That belief was a key driver in justifying the U.K. mining giant's $38-billion takeover of Alcan.

The expanded smelter would also cut Kitimat's greenhouse gas emissions by roughly one third, potentially reducing the company's domestic exposure to any new regulations.

The Kitimat project also has a substantial edge in operating costs, because of the associated Kemano hydro power station. Electricity accounts for roughly a third of the cost of producing aluminum. The deal approved this week by the utilities commission is slightly less favourable; Alcan won't receive $111-million in one-time payments from B.C. Hydro that would have been used to help fund the expansion.

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Press coverage of BCUC decision

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Canada.com--Rio Tinto Alcan pushing ahead with Kitimat modernization

Vancouver Sun--Commission approves Kitimat power deal

Opinion 250--BCUC Approves Hydro-Alcan Power Sale Agreement

Northern Sentinel--All Alcan smelter modernization conditions now met

CFTK News--Reaction in Kitimat to BCUC's Decision

CFTK News--BCUC Approves Alcan/BC Hydro Power Deal

CFTK News--Kitimat needs industry

Anxious times again in Kitimat

Just what are Alcan’s intentions? That is most likely the number one topic in Kitimat these days.

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Last weeks testimony before a B. C. Utilities board has left more questions on the table than it has answered, with a Hydro official admitting that a proposed new power sales deal does not necessarily bind Alcan to an upgrade of its smelter in the aluminum (for now) city.

For their part Alcan representatives testified that they are at the hearings because they still have a plan in place to build in Kitimat

"If we weren't planning to do anything with the plant, with the smelter, we would not be here,”

That answer in response to the questions over power sales to the province and the impact they may have on any upgrading of the Kitimat Works plant.

Yet the uncertainty continues in the long running drama, especially in the eyes of the District of Kitimat who have long been suspicious of Alcan’s motives.

Trafford Hall of the District, summed up their concerns with the thought that power sales seem to be the main focus of Alcan’s moves of late.

“The commercial incentives are not really there to build a smelter," Hall said.

"It's very concerning from a commercial standpoint for the community. Every time they've had a choice between metal and power sales, they've chosen power sales."

Added to the mix of late has been the fact that Alcan’s new owners, an Australian mining group known as Rio Tinto has itself been the target of a takeover bid, giving the drama of the northwest a very international flavour all of a sudden. And one that very well may be beyond the grasp of the BCUC, the Province of British Columbia and the people of Kitimat.

The Vancouver Sun published an interesting examination of the latest developments in the Saturday Business section of the Sun.


New Alcan-Hydro deal questioned
Kitimat's future uncertain after disclosure firm is no longer bound to modernizing smelter
Scott Simpson
Vancouver Sun
Saturday, November 24, 2007

The economic future of Kitimat grew more uncertain this week, based on testimony at a hearing into a new power sales deal between BC Hydro and Alcan.

Alcan's aluminum smelter is Kitimat's main employer, and an executive with the company said it is still planning a $2-billion modernization of the B.C. north-coast facility.

However, a Hydro official acknowledged this week in testimony before the B.C. Utilities Commission that a proposed new power sales deal will not bind Alcan to a smelter upgrade.

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An earlier, failed deal between Hydro and Alcan included a commitment by Alcan to undertake the modernization -- as well as a long-term power sales agreement involving surplus Alcan power that Hydro wants to buy and put onto the B.C. grid.

The earlier deal committed Hydro to pay Alcan about $72 per megawatt for surplus power from the 50-year-old Kemano hydroelectric facility that Alcan uses to power the smelter.

At peak, Alcan would be selling enough power to light 200,000 homes.

The agreement was announced by Premier Gordon Campbell.

But the BCUC tore up that deal, ruling that Hydro was going to pay too much -- it costs Alcan only about $5 per megawatt to produce electricity at Kemano.

The revised deal, which was the subject of a BCUC hearing this past week, starts out with a standard payment to Alcan of $46 per megawatt for its steady electricity supply -- but goes up three per cent per year, and is accompanied by payments of $82 per megawatt beginning in 2010 for the last 15 per cent on each delivery of steady or "firm" power.

Hydro is looking for firm power as a means of augmenting run-of-river and other green electricity sources such as wind power, which are usually available only on an intermittent basis. .
Kitimat estimates the new deal commits Hydro to pay an average, in the near term, of about $60 per megawatt -- lower than the amount proposed in the previous contract.

In testimony before the BCUC, Alcan spokesman Paul Henning noted that the company already has a contract in place with Hydro that runs through 2015 -- and it is only because of the modernization scheme that the contract is being reopened.

"If we weren't planning to do anything with the plant, with the smelter, we would not be here," Henning said.

He said Alcan plans to have in place "a much bigger smelter" by 2012, and the existing contract simply doesn't leave the company with enough power for the modernized facility after it meets its commitments to Hydro -- although Alcan will continue to have surplus available for sale to Hydro.

But Kitimat Mayor Richard Wozney, in Vancouver for the hearing, said in an interview that he is troubled by the absence of a firm Alcan commitment to modernize the smelter.

Wozney said the deal proposed by Hydro and Alcan is "just basically a power sales agreement, and there is no commitment whatsoever by Alcan to build the modernization project. That is still the concern to us as a community."

Wozney noted that Alcan promised in 1998 to undertake a modernization to double the smelter's capacity, but never followed through.

This time around, there's nothing on paper to commit Alcan -- and the formerly Quebec-based company is now owned by an Australia-based multinational mining company that is itself a takeover target.

"Alcan is more interested, as far as we are concerned as a community, in doing power sales than they are in doing the modernization.

"We will have to wait and see if they are actually going to do anything.

"And of course [that is] complicated by the fact that Rio Tinto has taken over Alcan."
Kitimat district manager Trafford Hall said in an interview that the commercial incentives to build a smelter, as opposed to simply selling power, "are not really there."

Hall noted that earlier this year the district lost a B.C. Supreme Court case arguing that Alcan had a long-standing contractual obligation to use water from the Kemano River to generate electricity for aluminum.

Instead, the court ruled that the original 50-year-old contract between Alcan and B.C. allowed the company to use the water according to its own needs -- including eschewing smelter operations in favour of power sales.

"The commercial incentives are not really there to build a smelter," Hall said.

"It's very concerning from a commercial standpoint for the community. Every time they've had a choice between metal and power sales, they've chosen power sales."

Kitimat residents sit back and watch the Alcan developments with a wary eye

Rumour is always the currency of a small town, but in Kitmat, rumour can only hope to keep up with the sudden flood of information recently unleashed on the world investment scene.

The purchase earlier this year of Alcan by the Rio Tinto conglomerate, left many wondering where the status of the smelter upgrading would lead to.

The frequent battles between the District of Kitimat and the Aluminum giant have fed the process over the last few years, the appearances in front of the utilities Board over power sales, the veiled suggestions that progress was at stake wihout a power sale allowance, the sale to a foreign investor; all of it leads to an air of uncertainty over the Aluminum city.

Opinion 250 recently featured a story on the situation with Rio Tinto and its plans for the aging smelter in Kitimat, an opinion piece that examined the companies debt load and how it may impact on the plans to redevelop the Kitimat works plant.

However, beyond the local scene a much larger drama is playing out on the world stock markets and capital investment scene.

The latest development has a hostile bid to take over Rio Tinto in the works, much like the process that gobbled up Alcan, the new owner may soon find itself on the mergers and acquisition list in very short order.

A company named BHP Billiton is said to have made a 142 Billion dollar offer last week, to purchase Rio Tinto and its various subsidiaries like Alcan. An offer that was rebuffed by Rio Tinto as inadequate.

If it had been accepted, it would have been the second largest ever takeover and would have created a monster company, a 350 billion dollar entity that would gain control over 40 per cent of the world’s iron ore production. A situation that it seems is not sitting well with China, a major purchaser of aluminum products and iron ore resources around the world.

While Rio Tinto may have said no to a deal on that occasion, BHP it seems has no intention of taking No for a final answer.

The Times of London in a report posted today said that: BHP Billiton is set to raise the stakes in its $153 billion (£74 billion) battle for control of Rio Tinto by taking its proposals directly to investors that hold cross-shareholdings in both of the mining giants.

Where all of this leaves an aluminum smelter upgrade in a far off corner of Northwestern BC is anyone’s guess, but you get the feeling that developments on the world stage could very well have a major impact on the Northwest.

TV 7 out of Terrace, has been advertising a special presentation planned to air tonight at 5:30 and repeated through the weeks to come.

Judging by world financial events it very well may be out of date before it even hits the air!

The future is in the water

Vaughn Palmer has an interesting piece in the Vancouver Sun about another run at power sales for BC Hydro from Alcan. All part of the plan to keep the modernization plans (which date back to one year ago) for the Alcan smelter in Kitimat alive. The Aluminum company and BC Hydro signed an agreement on power sales on August 16th, the proposal will now be filed with the British Columbia Utilities Commission (BCUC), which is where things went off the rails last time.

Palmer explains how the Aluminum company and the Hydro supplier plan on getting around those difficulties this time around.

Adding to the mix is the recent financial meltdown of the last week, which may pose a minor problem in the bid by Rio Tinto, which is in the midst of raising the $40 billion to buy Alcan.

Though as Palmer reports the company has stated that it doesn't anticipate any problems in the financial end as far as the Alcan purchase goes.

Still it shows how events on the other side of the country and the world for that matter can have an impact on this corner of BC.

Alcan power plan switched back on
Vaughn Palmer
Vancouver Sun
Friday, August 17, 2007

VICTORIA - BC Hydro has concluded a revised agreement to buy surplus power from Alcan, another step in the struggle to keep alive plans to modernize the aluminum smelter in Kitimat.
Thursday's announcement came a year after Premier Gordon Campbell presided at a press conference where an earlier version of the power purchase was yoked to Alcan's promise to spend $2 billion bringing the smelter up to date.

But that putative deal ran into trouble almost immediately.

Hydro was accused of paying too much for the power. Campbell was attacked for sacrificing 500 jobs in the smelter modernization.

The district of Kitimat and others challenged the terms before the B.C. Utilities Commission. At year end, they won.

The commission ruled that BC Hydro had failed to make the case: Not clear the power was needed. Not clear it was the best price. No deal.

Alcan lost no time saying it was rethinking its options. Perhaps the $2 billion would flow elsewhere. And the Kitimat smelter was not getting any younger.

The revival effort began in mid-March, with the Campbell government's announcement of a new energy plan, several elements of it seemingly tailored for another deal with Alcan.
Hydro was directed to accomplish self-sufficiency in electrical generation by 2016. It also needed to line up "insurance" power as a hedge against unexpected demand and intermittent sources like wind farms.

Moreover, the new sources of electricity were to be green -- renewable or neutral in terms of greenhouse gas emissions.

The utilities commission, in arguing Hydro was paying too much for the Alcan power, had cited to the lower cost of electricity from gas-fired generating stations.

But that option would immediately become more expensive if the operators were required to purchase carbon offsets for their natural-gas generated output.

A few weeks after the energy plan was released, BC Hydro abandoned plans to appeal the utilities commission ruling. Instead it would go after the Alcan surplus once again, in light of the new energy directives.

Meanwhile, the B.C. Supreme Court dealt a stunning setback to Kitimat in its longstanding fight against the town's leading employer.

The district had gone to court, arguing that Alcan was not allowed to sell surplus power. Instead it was obliged to use every kilowatt to make aluminum.

Not so, ruled Chief Justice Donald Brenner, based on a thorough reading of the law and agreements going back more than 50 years.

"Alcan is not restricted from selling its power or using it for the Kitimat smelter, as it considers appropriate."

Then in May, the Canadian Autoworkers Union, which was supposedly on the outs with Alcan, signed a five-year contract with the company.

Labour stability was one of the preconditions set by the Alcan board for the smelter project.
A new source of uncertainty emerged in late spring, when Alcan became the focus of a takeover battle. It was Alcoa at first. But eventually Rio Tinto emerged as the winner.

One of the new owner's first acts was to take out advertisements in Canadian newspapers, pledging its intentions to proceed with the smelter modernization.

As further evidence, in mid-July the company signed a contract with Bechtel to provide all the planning, engineering and site investigation work on the project.

Then at the end of July, Alcan and Kitimat put another round of court action on hold for 30 days in favour of negotiations.

The goal, so they said, was to try to establish a "positive environment" surrounding the modernization project.

Thursday's announcement gave another boost. The revised deal would provide Hydro with about the same amount of surplus electricity, enough to power more than 200,000 homes at peak.

Hydro, mindful of the utilities commission, said it is paying less than it proposed to do last year. But this is a longer-term agreement, running another 10 years to 2034. So it may well be worth as much or more to Alcan.

In any event, the revised deal still needs the approval of the utilities commission. Hydro will spell out additional details in an application to be filed next month.

Another obstacle is environmental approval. But I gather regulators are of the view that the project won't need extensive review, because the modernized structure will occupy the same site as the old one.

Then there's the concern that Rio Tinto, which is in the midst of raising the $40 billion to buy Alcan, may run into trouble.

Still, in a press release Thursday, the company offered assurances that its financing efforts were "well advanced and running on plan," despite the global credit crunch.

All in all, then the chances for the Kitimat smelter are look better than they did at the outset of the year, if not as shiny as at the premier's premature celebration a year ago.
vpalmer@direct.ca

Alcan reportedly set to be sold to London based Rio Tinto

The battle over Alcan, could take another twist on Thursday when a London based company called Rio Tinto bids to win the rights to the Canadian aluminum company, which of course has a large interest in the Northwest at Kitimat.

The Rio Tinto bid is an opportunity for Alcan to escape the clutches of rival Acloa of Pittsburgh, a fate that the current management at Alcan would like to escape if at all possible. In an interesting twist, if successful it is expected that Rio Tinto will move its management personnel from London to Quebec, due to a continuity agreement negotiated between Alcan and the Quebec government over power.

In that agreement, any changes that would see the decline of capital investment in the province or head office personnel reductions would automatically cancel Alcan's hydro and water rights in Quebec's. A clause that perhaps the province of BC might have thought about adding in its recent dealings with Alcan over the Kitimat works plant.

It will be if interest locally to see how, if successful, the big from Rio Tinto will impact on the Kitimat expansion plans and the current agreements between Alcan and the BC government.

The Globe and Mail is reporting that the successful bid from Rio could top some 33 billion dollars and very well could be announced on Thursday.


Alcan set to reveal merger pact with Rio Tinto
ANDY HOFFMAN
From Thursday's Globe and Mail
July 12, 2007 at 1:53 AM EDT

Alcan Inc. is set to unveil a merger agreement with Rio Tinto PLC, according to sources, that would top a hostile $28-billion (U.S.) bid from rival Alcoa Inc. and create a new global mining powerhouse that would be among the world's largest aluminum producers.

Sources familiar with the situation said that the friendly deal, which could value Alcan at more than $33-billion, could be announced as soon as Thursday.

The sources cautioned that the late-stage negotiations could still fall apart and that a definitive takeover agreement may not be reached.

The Montreal aluminum producer has been canvassing the globe for a friendly deal since May when Pittsburgh-based Alcoa launched a surprise cash-and-stock bid for Alcan after two years of halting negotiations broke down.

Alcan has rejected Alcoa's cash-and-stock offer, calling it too low and uncertain due to the challenging regulatory clearances it would need. At the close of trading yesterday, Alcoa's offer valued Alcan at $76.11 a share. Alcan shares rose more than 4 per cent yesterday, to a new high of $89.60, after The Globe and Mail reported that Rio Tinto was negotiating toward a friendly deal with Alcan.

For the London-based miner and its new chief executive officer, Tom Albanese, a bid for Alcan would mark the storied company's largest acquisition ever and represent a major bet on the future strength of aluminum prices.

Already a heavyweight in metals such as iron ore and copper, Rio Tinto is currently the world's third-largest mining company, but only the eighth-largest aluminum producer.

Alcan is the No. 3 aluminum producer behind Alcoa and UC Rusal, of Russia which recently completed a three-way merger to form the world's biggest maker of the metal used to make everything from cans to aircraft parts.

Alcan is particularly coveted for its smelting operations in Quebec, British Columbia and elsewhere, which are prized for their access to cheap hydroelectric power.

Power accounts for more than a third of the costs of running an aluminum smelter. Alcan generates much of its own electricity for its smelters in Quebec and has agreements with the province for additional power and access to waterways.

The deal with Rio Tinto is expected to keep Alcan's head office in Montreal.

The proposal would then likely see the London-based miner move the bulk of its aluminum executives to Quebec's largest city. Under a so-called "continuity agreement" negotiated last year, Quebec has the right to cancel Alcan's hydro and water agreements in the event of a takeover that would significantly reduce the company's head office count or the amount of capital invested in the province.

Rio Tinto is expected to sell the bulk of Alcan's so-called downstream assets, such as its packaging business and aerospace operations.

Indeed, sources said Rio Tinto has already approached potential buyers for the assets such as private equity groups and industry players such as Kaiser Aluminum Corp. of California.

For Alcoa, a friendly agreement between Alcan and Rio Tinto represents a severe setback for its hopes to create the world's largest aluminum maker, controlling about a fifth of global production.

Sources close to the company said it won't consider a potential counterbid until it has seen the terms of any deal Alcan may have. However, Alcoa may also insist on gaining access to Alcan's confidential information before increasing its bid.

"Before we offer up more value, we want to see more information," said a source familiar with Alcoa's strategy.

Alcoa chairman and CEO Alain Belda approached Alcan's CEO Dick Evans last month, hinting that Alcoa might sweeten its bid if it could gain access to the data room. The request was denied when Alcoa refused to sign a standstill agreement.

"You have to question the corporate governance of not letting us in," said another source close to Alcoa who noted that Alcan's board's responsibility is to create the maximum amount of shareholder value.

Update: the Rio Tinto bid is reported to be 38.1 billion dollars, sending Alcan shares surging on the stock exchange.

Now serving number four, number four please...

Another day, another couple of suitors for Canada's aluminum giant Alcan.

As the different nations of the world ready their bids, another Canadian company may soon change hands to international investors.

It may be the Aussies, or it may be Norwegian, but we're gonna have to serve somebody...

Alcan takeover talk heats up
Last Updated: Monday, May 28, 2007 10:15 AM ET
CBC News

Speculation over more offers for Alcan ramped up Monday amid a flurry of reports on possible bidders for the Canadian aluminum producer.

Rio Tinto PLC was reported to have hired Deutsche Bank to act as advisers on a possible bid, the Sydney Morning Herald said, citing anonymous sources.

Meanwhile, other published reports had Norsk Hydro ASA, which is 43 per cent owned by the Norwegian government, possibly gearing up for a run at Alcan.

The Globe and Mail reported that Norsk Hydro is preparing a $30-billion US bid, citing investment bankers working with the companies.

Last week, Alcan rejected a $27-billion US takeover bid — or $33 billion US when acquired debt is included — from Alcoa, calling it inadequate.

In a filing with the U.S. Securities and Exchange Commission last week, however, Alcan said it might be open to a sweetened bid from its American counterpart.

In the filing, Alcan also said it is "continuously evaluating" all options regarding a possible "Pac-Man strategy" in which it would attempt to acquire Alcoa.

A "Pac-Man strategy" is named after the 1980s video game, in which the characters try to swallow their opponents or risk being eaten themselves. In the world of takeovers, the strategy could see Alcan buying shares in Alcoa to try to thwart a hostile takeover.

Alcan said Friday it was in talks with unidentified third parties. The Globe said last week that Alcan had been in talks with Australia's BHP Billiton.

The hunted becomes the hunter?

A few short days after rejecting a hostile takeover bid by American based Alcoa, and apparently soliciting offers from an Australian aluminum producer, Alcan the Montreal based aluminum corporation is sending cryptic messages that it may just turn around and try and gobble up Alcoa.

Alcan officials put together a blue print for the Securities and Exchange Commission this week that asks and answers a number of potential questions, including one that asked if Alcan was prepared to utilize the Pacman strategy, which would see Alcan attempt to gobble up shares of Alcoa in a bid to stop any further attempts at a hostile takeover.

To cloud the issue even further, Alcan said that they might still be willing to entertain an offer to buy from Alcoa, but only; “If Alcoa brought forward a new proposal that made sense for our shareholders; we would consider it, but certainly not under the currently proposed terms and price,"

In other words, they want more money! At the close of business on Friday Alcan’s shares were worth $91.65 on the TSE, Alcoa’s offer earlier this week was $81.20 a share.

The fate of Canada’s largest aluminum producer and a giant economic force in the northwest rests on a gap of little over 10 dollars a share. It’s a fascinating lesson in how the global economy can change from day to day, but for the residents of Kitimat and the Northwest who have their lives invested in the place, the various twists and turns of international marketplace must be making for some nervous moments.

Alcan rejects Alcoa’s 28.4 billion dollar bid, waits for next turn of the saga.

The first skirmish is over, but many suggest that the final battle is not far off. Alcan the huge Canadian aluminum company with a major presence in the Northwest has said thanks, but no thanks to American based Alcoa in its hostile take over bid.

But, analysts say that this most recent attempt to take over the aluminum company may just be the warning shot of more to come. In a pre-emptive move, the Globe and Mail is reporting that Montreal based Alcan is in discussion with BHP Billiton of Australia, currently the world’s third largest aluminum company.

The game of musical chairs in the aluminum world comes as the large corporations become targets for takeover apparently from each other, last year Alcan was approached by BHP to explore merging resources, only to have Alcan turn them down.

Now, in a bid to thwart Alcoa’s bid to takeover the company, (Alcan reportedly believes that Alcoa has vastly undervalued their bid for the Canadian operation), Alcan instead is looking further a field hoping to find an investor willing to come closer to its expectations.

What all this might mean for Alcan as a Canadian institution and for Kitimat as a major producer remains to be seen. There has been a number of high profile Canadian companies becoming the hunted of late, part of the increasingly rapid pace of globalization, which treats world borders as nothing more than lines on a map.

As for the Kitimat operation, Kitimat works has been a controversial place of late, due to the sometimes heated debate over power sales and plant modernization, what the governments of BC and Canada might have to say about a foreign corporation having a large role in the distribution of energy and what that holds for the employment base in Kitimat remains to be seen.

The latest moves in the international arena are sure to have a major impact locally; it’s just a matter of waiting to see what comes next. The high finance maneuvering should make for more nervous times for the folks in Kitimat, who have already seen more than their share of uncertainty.

Alcan searching for white knight
ROMA LUCIW
Globe and Mail Update
May 23, 2007 at 2:18 PM EDT

TORONTO — The fight for Alcan Inc. is far from over, analysts said Wednesday after the Canadian aluminum maker dismissed a hostile takeover attempt from U.S. rival Alcoa Inc. as inadequate and instead looked to global mining giant BHP Billiton Ltd.

Montreal-based Alcan rejected Alcoa's bid, worth $28.4-billion (U.S.) or $73.25 a share, Tuesday night, arguing that it undervalues the company and is “highly conditional and uncertain.” According to people familiar with the matter, Alcan has entered early-stage discussions with Australia's BHP Billiton, the third-largest aluminum player in the world.
“At this point we believe the company needs more time to evaluate its strategic options,” Bank of America analyst Kuni Chen said in a note. “Ultimately we believe Alcan is worth $80 to $90 on a takeout, based on our initial estimates.”

He has a $86 price target and a “neutral” rating on Alcan shares, but said there was up to $2 of potential growth if the Alcoa bid is successful.

Investors appeared to be pricing in a higher bid. Shares of Alcan rose $3.14 (Canadian) or 3.56 per cent to $91.36 in Toronto on Wednesday and $3.43 (U.S.) or 4.23 per cent to $84.46 in New York. Alcoa stock climbed $1.56 or 4 per cent to $40.51.

In the regulatory filing, Alcan said the Alcoa bid does not adequately reflect its assets, strategic capabilities, and growth prospects. “Furthermore, it is clear to us that Alcan and Alcoa have fundamentally different approaches and track records in creating shareholder value,” the company said.

Alcan also suggested that Alcoa threatened it with a hostile offer last fall, and said one of the main reasons Alcoa pushed for a deal was that it feared becoming a target itself.

In an interview with The Globe & Mail , Alcan chief executive officer Dick Evans said the company was considering all of its options and refused to rule out any scenario – including one in which Alcan would turn the tables by launching its own bid for Alcoa.

Mr. Evans also said that Alcan is in “ongoing discussions with other third parties” and although he declined to identify them, sources said the Canadian company had started discussions with BHP. BHP approached the company about a possible union late last year, but was rebuffed, sources said. Rio Tinto PLC has been cited by several industry observers as another logical suitor for Alcan.

Scotia Capital analyst Onno Rutten said Wednesday he believes there is “scope for a go-friendly bump by Alcoa, based on Alcan's characterization of prior merger discussions.”

He estimates that there is a 55 per cent chance that a friendly white-knight bid will emerge, a 20 per cent chance of a “go-friendly bump” by Alcoa, a 20 per cent chance of a bidding war or auction, and a 5 per cent chance of a defensive transaction.

“Alcan appears to be making all the right moves to maximize value, but has not yet embarked on an all-out auction process,” Mr. Rutten said. However, he warned that Alcan's share price could fall if the company enters a defensive acquisition or fails to secure a higher offer from Alcoa, especially if they do not attract any other bidders.

With files from Sinclair Stewart, Andy Hoffman, Andrew Willis and Boyd Erman.

Sheesh, haven’t wars have been started over lesser things!

Money, get away.

Get a good job with good pay and you’re okay.

Money, it’s a gas.

Grab that cash with both hands and make a stash.

New car, caviar, four star daydream,

Think Ill buy me a football team.

Money, get back.

I’m all right jack keep your hands off of my stack.

(Pink Floyd-Money)

They have more than a few things to keep them occupied in Kitimat these days, but we suspect that around the council chambers, Mayor Wozney and his councillors might be humming a Pink Floyd tune. Curious as to the intentions of their neighbours up highway 37 to the north.

The Terrace Standard has a report in this week’s paper examining the covetous eyes of Mayor Jack Talstra and his thoughts on all that potential tax money that floats around Kitimat thanks to the anticipated construction of a new Alcan smelter in Kitimat.

Somehow we don’t think Mr. Talstra should start spending, let alone counting piles of Alcan cash just yet!

Mayor wants taste of Alcan taxes
The Terrace Standard
May 16 2007

TERRACE MAYOR Jack Talstra says the District of Kitimat shouldn’t be the only local government to benefit from increased property tax payments that will flow if Alcan goes ahead with its planned $2 billion smelter rebuild.

Talstra estimates Alcan could pay Kitimat at least $15 million and possibly more at current property tax rates should the rebuild take place. This year it is scheduled to pay Kitimat $8.48 million.

“Really, what we would have here is one community, Kitimat, becoming a ‘have’ community and other communities in Alcan’s world not being ‘have’ communities in taxation,” he said last week.

“It’s what First Nations have been talking about here for the last 200 years and that’s having everyone have economic opportunities. There has to be a way to balance the region with money to every community.”

Talstra’s framing his argument around the concept that local governments should share in the tax base of industries outside their boundaries if that industry’s employees and business activity use that government’s services.

In Alcan’s case, as many as 250 of its workers live in Terrace out of a current roster of 1,500 people.

Talstra also bases his idea on the northeast where the provincial government has specific revenue sharing agreements with municipalities tied to assessments on rural industrial development.

“Oil and gas is a natural resource and we see the same here with water as being a natural resource,” said Talstra in referring to Alcan’s hydro-generating facilities at Kemano which provide the power to run the smelter.

The mayor did acknowledge that the District of Kitimat can adjust its tax rates so that any new smelter won’t result in payments in excess of the current figure.

Talstra isn’t the first northwestern politician to speak about tax issues connected to Alcan.
Just two weeks ago the District of Kitimat released what it called “negotiating objectives” tied to Alcan’s rebuild plan.

One of the points was the removal of the current property tax exemption Alcan enjoys on its Kemano hydro-electric generating facilities within the Kitimat-Stikine and Bulkley-Nechako regional districts.

The Bulkley-Nechako regional district has raised that issue over the years and former Skeena Liberal MLA Roger Harris mused about the same in 2002.

Skeena’s current MLA, NDPer Robin Austin, has taken a slightly different approach. He says Alcan should pay more for water used to generate electricity that it sells onward as opposed to water Alcan uses to generate electricity to smelt aluminum.

Austin argues that Alcan makes far more selling power than making aluminum so that it should pay more for the use of the water in the first place.

The northeastern revenue sharing plan is based on rural industrial assessments with a portion of the resulting revenue being provided to municipalities in the region.

The province signed a 20-year deal in 2005 which paid out $20 million in the first year alone.
“Communities in this region cannot access what ordinarily would be their municipal industrial property tax base,” a provincial statement at the time indicated.

Fort St. John received the most at $15 million for the first year while Taylor the least at $258,299.

For Alcan its one step forward and then another one back.

Two interesting stories at seemingly cross purposes to each other today, all part of the ever entertaining Alcan vs. Kitimat grudge match.

Alcan and its union this week have reached a tentative contract agreement for the 1300 production and maintenance workers at the smelter in Kitimat. It has been Called a transition agreement, which is designed to ensure labour stability while construction to modernize the smelter takes place.

While they toasted each others wise decisions regarding labour stability however, a darker cloud seemed to pop up on the horizon. With Alcan and Kitimat seeming to enter another phase of their bitter war of words over the state of the smelter in the city.

The latest from the company has a senior official; Michel Jacques, ruminating about taking his smelter and moving further up Highway 37 to a more welcoming community.

A community which went un-named, but perhaps begins with a T and rhymes with stress (which would be an understament in Kitimat if it came to pass). Though we wonder how they might get those huge freighters close to any smelter built further inland, it may take a fair amount of dredging on the Skeena to pull that one off.

Perhaps the next phase of the where to build the new plant will feature Prince Rupert. Mr. Jacques will have to turn left at Highways 37 and 16 for further welcoming communities, after all we’ve been welcoming before.

In the past Prince Rupert has been tapped as the potential destination of choice for Steel Mills, LNG plants and sulphur terminals in the past, so why not throw an Aluminum smelter into the mix and wait for the inevitable crush of rumours to start here on the north coast.

From the Vancouver Sun and the Terrace Standard, two stories of the continually fluid Alcan situation in the Northwest.

Alcan clears another hurdle in plan to upgrade Kitimat smelter in B.C.

Vancouver Sun
Canadian Press
Tuesday, May 01, 2007

KITIMAT, B.C. (CP) - Alcan Inc. (TSX:AL) and the Canadian Auto Workers have reached a tentative contract agreement for 1,300 production and maintenance workers at the company's aluminum smelter in Kitimat, B.C.

The deal is a "transition" agreement which will ensure labour stability while construction to modernize the 55-year-old smelter goes on until 2011, the union said in announcing the deal Tuesday.

Along with setting the stage for investment in the smelter, the agreement "establishes gains on key issues such as wages, benefits, quality of work life issues, job security, health benefits for current and future retirees, and transition issues" related to new technology, the union said.
Details weren't disclosed. Local CAW members will hold a ratification vote Wednesday.

Alcan has been steadily reducing its workforce in Kitimat, currently at 1,550, down from 2,500.
Modernization of the smelter would increase its production by more than 60 per cent, the company said, from its current 245,000 tonnes per year to about 400,000 tonnes per year, however it would also reduce the employee count further to about 1,000.

The agreement with the union comes as Alcan closes in on a deal with the B.C. government and B.C. Hydro that will allow the aluminum producer to proceed with the $2-billion smelter upgrade.

Late last year, the B.C. Utilities Commission refused to ratify a long-term power purchase agreement between B.C. Hydro and Alcan Inc. because the utility made a mistake in its calculations and failed to prove the benefits would offset the costs.

The regulator's approval of the agreement between the utility and aluminum producer was one of three conditions set by Alcan for the final go-ahead of the upgrade.

The tribunal said in reasons for its ruling that B.C. Hydro made a mistake in the price that it used as a benchmark to establish the cost effectiveness of the agreement and failed to show the benefits of the deal would offset additional costs.


Alcan remains reluctant to pull Kitimat smelter plug
The Terrace Standard
May 02 2007

A SENIOR ALCAN official says he isn’t ready yet to give up on Kitimat and perhaps consider moving the company’s planned $2-billion aluminum smelter project up Hwy37 to a more welcoming community.

But Michel Jacques, in speaking last week, says he is disappointed in Kitimat council’s decision to keep alive the possibility it might appeal a supreme court decision which gave Alcan the green light to sell all of the power it wants from its Kemano hydro-electric generators if it so chooses.
Kitimat council, which began the court action that lead to that ruling, had wanted a decision backing its position that Alcan should use all of its Kemano power to generate aluminum and not sell a portion of it to BC Hydro.

Alcan says it does want to modernize its Kitimat smelter but also needs to sell a portion of the power it generates at Kemano.

For now, Montreal-based Jacques said he still wants the new smelter to be located on the site of the current one in Kitimat.

But he said it isn’t helpful that the community’s council “puts rocks and stones on the road.”
“We’re still not sitting on the same side of the table,” said Jacques.

Jacques was also referring to the District of Kitimat’s release of what it calls negotiating points for the smelter project to go ahead.

The district says Alcan should commit to a minimum electrical load for its new smelter plan, should sell excess power to industries and municipalities in the northwest at a reasonable rate, should sell residential power to native communities in the northwest and should pay taxes on its Kemano generating facilities.

Jacques called those “additional hurdles” and said he thought the council and his officials were having constructive discussions.

“We’re not in the negotiating mode with the District of Kitimat,” said Jacques. “We’re not asking for anything from the District of Kitimat. We’re offering to invest $2 billion.”

But although Jacques expressed his disappointment in Kitimat council several times, he didn’t provide any kind of timeline as to when his company needs that council’s blessing or face losing the project altogether.

And he did acknowledge that Alcan really doesn’t need to discuss its smelter plans with Kitimat council at all but does so to keep good relations.

“We respect the elected officials of the communities,” Jacques said.

For his part, Skeena NDP MLA Robin Austin favoured Kitimat’s four points.
He particularly like the idea of having Alcan sell electricity at reasonable rates to northwestern municipalities and businesses, adding that Terrace mayor Jack Talstra has been talking up something similar.

“Excellent idea,” said Austin.

“I think it’s not just Jack Talstra but there are probably a number of municipalities in the region who would be in favour of obtaining electricity at a fair price.”

Austin also said it is reasonable for Alcan to pay taxes on its Kemano generating facilities.
“The deal Alcan got in the 1950s for water, land and tax exemptions is not the kind of deal anyone could hope to receive today,” he said.

North coast issues examined on BC’s most listened to talk show.

The Northwest was high on the agenda of the Bill Good show on Friday morning, as two issues currently in the news in our part of the province were discussed at length on the popular Cutting Edge of the Leg segment.

Keith Baldrey and Vaughn Palmer joined with Good as they do every Friday, to examine the state of the Queen of the North sinking investigations.

All were confused, if not a tad angry about the situation that they say has Gary Coons, the MLA for Prince Rupert appearing to be the only person in BC not demanding that those crew members currently holding their silence on the issue be forced to speak out. They noted that he has been rather effective in his criticism of the Ferry Corporation regarding the tragedy but hasn’t proceeded with the same zeal when it comes to the unionized workers who have refused to talk thus far.

With pressure building from all corners of the debate, many it find it incomprehensible that the two members of the crew on board the ship that night with the most knowledge as to what happened, are allowed to keep their silence. They discussed how the Northwest’s MLA was caught up in a scrum in Victoria last week and could offer no answers, nor any explanations why he as ferry critic wasn’t demanding that the two speak out as well.

A telling point about the MLA’s interaction with the press was made as it was revealed that it was the first political scrum in a long time where an opposition member had to be rescued by a member of his or her staff, so as not to face the heat any longer on a controversial issue.

When that topic was exhausted, the trio turned their attention to the decision yesterday by the Supreme Court of BC to back Alcan in it’s battle with the District of Kitimat, a decision that outlines that the basis of Kitimat’s fight, the subject of power sales was never considered part of the original deal between Alcan and the government.

As the three read the judgment, in effect the court has said that Alcan had the right to do what it wishes with their surplus power and that the issue is not tied in with the state of the smelter in the city. And as if to reinforce the point, they stated that Alcan was awarded court charges, meaning that Kitimat must reimburse the aluminum company for the time and trouble of having to take the issue to court.

All seemed to agree that instead of weakening Alcan, the decision to go to court and then to lose, only strengthened the hand of the company leaving Kitimat with fewer and fewer options to turn to now.

You can examine the issues yourself by checking out the CKNW Audio Vault, select the Friday March 30 broadcast and the 10am-11am hour to get an interesting perspective on how our issues are being handled on a province wide basis!

Advantage Alcan! Is it time for Kitimat to fold their hand?

The District of Kitimat is reported to be "disappointed and weighing their options", which is a polite way of saying “whoops maybe we’re in a world of trouble here.”

It was only a few months ago that the District was heralding a ruling from the BC Utilities Commission as a sign that they were correct in their fight with the aluminum giant over the status of power sales in the province. Alcan subsequently has gone on to appeal that decision.

But having forced the issue to the Supreme Court of BC and receiving the ruling yesterday that Alcan is free to do what it wishes with its surplus power, the wind may have finally gone out of the Kitimat sails. One thing is certain this week's decision was a welcome bit of news in the corporate offices of the aluminum company.

The two sides have been fighting a bitter war of words for the last three years over the plans to build a new modernized smelter which may see job reductions, versus the money that Alcan makes from selling energy above what it uses to produce aluminum. The city has already seen the aluminum company shed some 1,000 jobs over the years. Kitimat argued that Alcan was in violation of the spirit of their 1950 agreement, which saw the Aluminum giant draw power from the Nechako River through its Kemano generating station.

The debate has split the community which continues to see population declines and caused friction between the municipal government and the business class in the city. At one point in the highly charged rhetoric, Alcan seemed to suggest that the plans to modernize the smelter were at stake should things continue down the path they were heading.

What remains to be seen now is if Kitimat wishes to launch an appeal of the decision requiring yet more work for the lawyers and another round of courtroom appearances, or if they decide that the fight is lost and it’s time to try and minimize their losses as much as possible.

It has been a hot button issue in the Northwest and beyond for a number of years, with the likes of Rafe Mair and Ben Meisner wading into the fray from time to time, arguing against the Alcan position. It’s expected that all of those concerns will continue to be aired as the debate continues on.

As is always the case, the population will await the word as to their fate. They are trapped between their elected officials and the corporate powers, both of which seem to be playing a game of chicken with the residents featured as the feed.

Dirk Meissner of the Province, provided a bit of background on the factors in the court case and what the court decision may eventually lead to in Kitimat.

Alcan free to sell power
District of Kitimat disappointed with ruling
Dirk Meissner
The Canadian Press
Friday, March 30, 2007

VICTORIA -- B.C.'s economic development minister says the northwest B.C. community of Kitimat needs to focus its energies on building a prosperous future after losing a bitter court battle with Alcan, the company town's largest employer.

Kitimat should consider the B.C. Supreme Court loss as an opportunity to unite behind a proposed $2-billion Alcan smelter upgrade project, even if it means a loss of 500 full-time jobs, Colin Hansen said yesterday.

The B.C. Supreme Court ruled that aluminum giant Alcan faces no restrictions on what it does with the electricity it generates at its power stations.

Back in the 1950s, Alcan gained rights to water in the Nechako River system, allowing it to build the massive Kemano hydroelectric facility to power an aluminum smelter that essentially founded the community of Kitimat.

Kitimat argued unsuccessfully that the B.C. Industrial Development Act and the original 1950 power-sales agreement between Alcan and the B.C. government allowed the company to only use its power to run the smelter or create jobs in the Kitimat area.

Kitimat argued Alcan stands to make huge profits selling power generated by a public water resource and ultimately will cut smelter jobs in favour of power sales.

"Alcan is very much committed to the generation of aluminum," said Hansen. "Alcan has shown a commitment to British Columbia over the last 50-some-odd years, and in the discussions that I've had with senior Alcan executives, they certainly indicated to me that they want to continue to be a good corporate citizen in British Columbia."

Alcan proposed a $2-billion plan last summer to upgrade its aluminum smelter in Kitimat. But the plan included a power-sales plan which meant selling power to B.C. Hydro, and a loss of about 500 jobs.

The Kitimat smelter currently employs more than 1,500 people. It used to employ more than 2,500.

Alcan's smelter upgrade proposal was put on hold after the power-sales option was rejected as too expensive by the regulatory B.C. Utilities Commission. The utilities commission decision is under appeal.

Alcan spokesman Michel Jacques said the court decision is a step in ensuring the sustainability of its operations in B.C.

The company still needs final approval for the upgrade project, he said.

Hansen said he believes the smelter project will proceed now that Alcan has the right to manage the power it produces.

"Now that the courts have decided what that interpretation should be it actually allows [Kitimat and Alcan] to sit down and move forward," Hansen said. "Everybody wants what's best for the residents of Kitimat."

The most recent census results revealed that Kitimat registered the largest population decline of any community in Canada from 2001 to 2006. Kitimat's population dropped more than 12 per cent to about 8,900 people. During the early 1980s, Kitimat had about 14,000 residents.

The District of Kitimat issued a statement saying it was disappointed with the court ruling and is weighing its options.

"We have been fighting to protect our community and one of the largest water resources in British Columbia for a number of years now, standing in where the provincial government should have been," said a statement attributed to Kitimat Mayor Richard Wozney and his council members.

"We are trying to make sure the benefits of our public resources go to British Columbians. If the provincial government had stood up for the use of this raw material in a value-added and profitable industry, the outcome surely would have been different. Why are they giving away our resources to multinationals?"

Kitimat district manager Trafford Hall said the community has yet to decide if it will appeal the ruling.

© The Vancouver Province 2007

The price isn’t right

The long awaited explanation as to why the BC Utilities Commission put the brakes on a proposed deal between Alcan of Kitimat and B. C Hydro has finally been given. A 100 page report was released, which in effect stated that the BCUC felt that the pricing issue gave them cause to believe that the arrangement was not in the best interests of the province.

With the release of the document, Alcan and BC Hydro are expected to announce their plans as far as an appeal or any other machinations they may wish to pursue. It’s effectively the green light for rebuttal and possibly further actions on both the Hydro and Aluminum production fronts.

The Daily News presented the details in the Tuesday paper.


‘PRICE’ REASON FOR ALCAN DEAL FAILURE
By Leanne Ritchie
The Daily News
Tuesday, February 6, 2007
Page one

The B. C. Utilities Commission has explained why it thinks a proposed deal between Alcan and B. C. Hydro was not in the public’s best interest.

The commission released its full 100 page decision yesterday on the long-term proposal to allow Alcan to sell power from its Kemano plant to B. C. Hydro – one of the major conditions for Alcan proceeding with its $1.8 billion modernization plan for its Kitimat smelter.

In its decision, the BCUC said B. C. hydro should not have agreed with the pricing arrangement, which would have seen Alcan sell power to B. C. Hydro at $71 per megawatt hour, as well as pay the company $111-million in incentives based on the company’s plans to nearly double its smelter capacity to 400,000 tonnes of annual aluminum production.

It was a small victory for the District of Kitimat, which has been opposing the deal from the beginning, with claims that it was of no benefit to British Columbians.

Kitimat Mayor Richard Wozney said the BCUC has confirmed what he and his council have been saying since August.

“This is a bad deal for B. C. the deal creates strong incentive for Alcan to get out of Aluminum protection altogether. It was not a smelter deal at all. Regarding the deal, you saw the whole smelter announcement was just spin,” he said.

One of Kitimat’s main concerns was that Alcan could sell electricity regardless of whether the company failed to start or complete the smelter.

Kitimat has always contended that all of the power generated at the Kemano plant should be used for aluminum generation.

“We hope the provincial government will now hold Alcan to the existing agreements,” said Wozney. “Alcan should use all the power generated by our rivers to build the full-sized smelter it has committed to three times in the past.”
Hydro and Alcan submitted the deal for the commission’s consideration in late October, and initially attempted to keep details secret.

The BCUC also agreed with the submission by Kitimat that the proposal would not contribute to provincial self-sufficiency in electrical generation, “because there is no net increase in generation.” Nor will failure of the plan to go ahead mean that B. C. Hydro will not be able to fulfill its future power plans given “other existing committed or planned resources”.

Principally, the BCUC turned down the deal on pricing issues.

The agreement was harshly criticized as a sweetheart deal between Alcan and the B. C. Liberals by a wide range of interveners including; aluminum expert Richard McLaren; MLA for Skeena riding Robin Austin; the mayor and council of Kitimat, the B. C. Citizens for Public Power and the B. C. Old Age Pensioners Association. They said the price paid to Alcan was unnecessarily high for BC Hydro customers and pointed out that Alcan is leased a public water resource for aluminum smelting, not to sell back to BC Hydro at more than a 1,000 per cent profit.

Alcan and B. C. Hydro have said in recent weeks that once they have the decision in hand, they will assess the ruling and decide what to do.

An inconvenient portfolio

Much is being made this weekend over a disclosure about Premier Gordon Campbell's personal finances, as it turns out that both he and his wife Nancy, have (or had) investment portfolios that consisted of an undisclosed number of shares in stock of Alcan Incorporated.

For the Premiers part he said on Friday that his shares in Alcan were sold by January 11th and that he no longer has any shares in the company and for that matter is not sure if he made any money on them. His shares were included in a discretionary equity portfolio which is managed by a Vancouver brokerage house.

Of course even the fact that he owned stock as recently as January 10th has raised a few flags of interest in the province, considering the current situation between Alcan and the BC Utilities Board.

The aluminum smelter and now apparent provincial energy provider is in the midst of a serious game of hardball with not only the community of Kitimat, but the British Columbia Utilities Commission.

The Commission late in December turned down the plan put together by Alcan and BC Hydro plans to sell electricity generated by Alcan to the province, a decision which has led to a fair amount of sabre rattling about planned modernization plans to the aging Kitimat Works plant.

The Premier has been a rather vocal booster of Alcan and its contribution to the British Columbia economy, and was quite expansive in his praise of the Aluminum giant when it announced its planned refurbishing of the Kitimat plant last summer.

Of course what's good for Alcan it would seem to some, might also have been good for the Premier's portfolio, a situation that is making a few observers a tad uneasy over perceptions of conflict and such.

It's an interesting situation, on one hand you might think that a public official might not want to be investing in businesses that may benefit directly from any form of governmental decision making, but then again it's possibly a sign that the Premier is so bullish on the BC economy that he's investing in it.

But the way the storyline is being presented, it seems that his involvement is possibly the byproduct of a large investment pool investing in a number of Canadian companies, a situation which it's suggested would be nigh impossible to monitor on a day to day basis and to which he probably would have little control over anyways.

There have been no accusations of wrong doing made thus far, nor suggestions of funny timing on stock purchases, rather it's more the optics that seem to have some people upset. That of a sitting Premier holding shares in a company that is currently looking for governmental support in its plans for not only Kitimat, but to remain a player in the energy sector in the province as well.

The NDP is keeping an eye on the situation and were making some hay of it over the weekend, suggesting that they will be approaching the province's conflict of interest commissioner, to see if ownership of the shares put Campbell in a conflict of interest situation.

Once the smoke clears on the current tempest, it will be interesting to see if this gun is a smoking one, or one that has fired blanks...

Here's some reading material on the issue from some of the weekends news sources:

Campbell's reveal Alcan Holdings ... Georgia Straight
Campbell says he dropped shares... Canada.com
Conflict allegations silly says financial advisor... CBC News
BC Premier accused of conflict over Alcan... Globe and Mail
Campbell faces conflict probe... Globe and Mail
NDP question premiers Alcan holdings... National Post
Campbell accused of conflict... Victoria Times-Colonist