Alcan to invest US$1.8 billion in Kitimat

Alcan announces $2-billion investment plan for B.C.
News Release, BC Government, 14-Aug-2006

Alcan to invest US$1.8 billion in Kitimat
Canadian Press, 14-Aug-2006

COMMENT: No matter how it appears, underpinning this decision by Alcan, is an energy deal, not an aluminum smelting deal. Analysis to come. Stay tuned ...

For Immediate Release

Aug. 14, 2006
Office of the Premier
Ministry of Economic Development

VANCOUVER ­ Alcan’s announcement that it plans to invest $2 billion to upgrade its Kitimat smelter with modern and more efficient technology highlights B.C.’s international competitiveness, and this investment will serve as an important basis for continued economic prosperity in B.C.’s Northwest, Premier Gordon Campbell said today.

“The aluminum sector is a highly competitive, global business. With this investment, Alcan has sent a clear message that they believe B.C. is a critical part of the company’s future and success,” said Campbell. “This is more than just an investment; it’s a major vote of confidence in the people of Kitimat, the future of the Northwest, and recognition of the strength of B.C.’s investment climate.”

Alcan has undertaken a comprehensive review of its international operations. As part of this review, Alcan could have focused its capital investments in other international locations and continued with the status quo operations at Kitimat until the smelter reached its scheduled shutdown in about a decade. However, after considering the options, Alcan has chosen to revitalize its B.C. presence by investing $2 billion to modernize the Kitimat smelter. This modernization will increase the smelter’s output while reducing greenhouse gas emissions and providing a stable energy supply to BC Hydro.

The modernization is expected to ensure approximately 1,000 jobs remain in Kitimat for at least the next 35 years, while creating more than 800-1,000 construction and other jobs over a five-year period. Importantly, the energy requirements of the modernized smelter have allowed for the 1997 Replacement Electricity Supply Agreement to be extinguished, thereby removing a significant potential liability of the Province to provide power to Alcan at below market prices.

As part of its future plans for Kitimat, Alcan and BC Hydro have agreed to amend and extend a power purchase agreement that will see BC Hydro buy power in excess of Alcan’s smelter needs to meet the needs of BC Hydro customers. This agreement will help address the growing gap between the amount of electricity the province is consuming versus the amount being produced in the province. The terms of the agreement will be put into a formal agreement over the coming weeks, to be approved by government and Alcan’s board. The power purchase agreement is subject to BC Utilities Commission review and approval.

“Alcan has been a valued partner in the growth of our province for over 50 years and will continue to build on that legacy with this major investment in Kitimat,” said Campbell. “I want to thank Alcan for its continued commitment to B.C. and for working with its partners to make this investment possible for the benefit of the entire Northwest.

“Combined with two major, billion-dollar-plus pipeline projects, a $500-million LNG plant and a potential break-bulk port expansion, the Northwest is becoming a resource and transportation powerhouse for not only B.C., but the entire country.”

Backgrounder 1:
http://www2.news.gov.bc.ca/news_releases_2005-2009/2006OTP0132-001034-Attachment1.htm
Backgrounder 2:
http://www2.news.gov.bc.ca/news_releases_2005-2009/2006OTP0132-001034-Attachment2.htm

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VANCOUVER - Alcan Inc. (TSX:AL) will spend $1.8 billion US to revamp its primary aluminum smelter in Kitimat, B.C., resulting in an anticipated four per cent increase in annual production and securing about 1,000 jobs in the northern community.

"The planned modernization of Kitimat would leverage two of Alcan's great competitive advantages - clean, self-generated power and the world's leading AP (Aluminium Pechiney) smelting technology," Cynthia Carroll, president and CEO of Alcan's primary metal group said in a statement.

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.

The refurbished plant's first new capacity is expected to come on-stream in 2009, with final metal on-line by the end of 2011, Alcan said.

Power for the operation will be drawn from Alcan's Kemano hydro-electric plant. The company has an agreement in principle with BC Hydro contains a "smelter first provision" to ensure power is delivered to the plant with surplus production being sold to the utility.

The upgrade is subject to approval by Alcan's board, environmental permits and the conclusion of agreements with BC Hydro and the Canadian Autoworkers union.

Early in August, Montreal-based Alcan reported its second-quarter profit more than doubled to $455 million, from a year-earlier $191 million and increased its quarterly dividend by 33 per cent.

http://www.canada.com/

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