With Buy Out of Alcan By Rio Tinto, Is Kitimat Smelter Dead?

By 250 News

Prince George, B.C. - Questions are being raised about  Rio Tinto, (formerly, Alcan) and its ability to be able to construct a new smelter in Kitimat given the huge debt  Rio Tinto amassed in the Alcan buy out.

The buy out of Alcan’s shares are quickly closing.

Rio Tinto paid a 33% premium for the Alcan shares in the $38 billion dollar buy out. Tom Albenese ,who was formerly  Alcan’s chief but then moved over to Rio Tinto, finds himself with a debt load of about $47 billion dollars. The company will sell some Alcan divisions and come up with about $ 8 billion which will leave them with a debt of $39 billion dollars. That will eat up a staggering $2 billion dollars a year in interest alone.

Industry experts say that in order for the deal to work,  long term aluminum prices need to be about $1.26 a pound, the current spot price is $1.15 a pound, and analysts are saying that the long term price will be around 85 cents a pound.

That is of course unless Rio Tinto is able to freeze up the supply and drive up the price of the product. That, according to the experts, is not likely.

Now what effect will this latest move have on the dark clouds that have hung around Kitimat for years?

If Rio Tinto wants to snare some big money it could sell its power producing facilities to another source. That would free up needed cash.

The Company could  (in order to get the cash flow going) simply shut down the Kitimat aluminum smelter as a way to reduce the source of product and simply sell power to the BC Hydro grid that hands them a tidy cash flow.

They could also go ahead with the new smelter, but that required $2 billion dollars and the question quickly arises, where will the money come from?

The Kitimat smelter is becoming less and less of a reality as Rio Tinto takes control of Alcan and looks to see from  where it can milk some much needed cash.

Email | Print | Facebook | Twitter | Digg | Del.icio.us