Alcoa and Alcan Consolidate Interests in Guinea Bauxite with 1.5 Million Ton Alumina Refinery

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). There are two inter-connected areas of high activity being pursued by aluminum and alumina companies at present. One is pursuing the feasibility of greenfield projects close to sources of steady and relatively inexpensive power supply feedstocks. The other is the restructuring of existing production sites and capacities, where the rising cost of electricity and the advent of stricter environmental controls threaten competitive production for a product, for which demand is growing at about 4% per annum.

In this industry scenario, the majors of the aluminum world - Alcoa (NYSE:AA ) (Pittsburgh, Pennsylvania) and Alcan (NYSE:AL ) (Montreal, Quebec) find the prospects of the state-owned Compagnie des Bauxites de Guinea (CBG) in that West African country attractive. CBG has exclusive rights until 2038 to high quality bauxite reserves and resources in a 16,000 square kilometer area in the northwestern region of the country.

Halco Mining (Pittsburgh) is the 51% owner of CBG, and Alcan and Alcoa both hold 45% of Halco. Norsk Hydro (NYSE:NHY ) (Oslo, Norway) holds the 10% balance, with the government of Guinea holding the remaining 49%. Halco is currently involved in bauxite mining for export in the region.

Towards the end of November 2004, it was announced that a protocol had been signed between the government of Guinea, Alcan, and Alcoa World Alumina for the development of a 1.5 million-ton-per-year alumina refinery in Guinea. The protocol sets out the items and framework for the project, which will be negotiated over the next few months as part of the Memorandum of Understanding (MoU) signed by Alcoa World Alumina and Chemicals (AWAC) and Alcan in May 2004. AWAC is a global alliance between Alcoa and Alumina Limited, with Alcoa holding 60%. AWAC currently is in discussions with the International Finance Corporation concerning a possible investment in the project.

A detailed feasibility study for the refinery is expected to be completed by mid-2005, with construction to commence soon after. Alumina production is expected by 2008, and there is the possibility of the refinery's expanding beyond the first-phase 1.5 mtpy capacity. The refinery will incorporate the latest technology and world-class operating and management systems. Alcoa and Alcan are intending to secure bauxite supplies to the refinery from CBG, which, in turn, will add value to the massive reserves the company holds in the Boke region. Alcoa, Alcan, and Hydro will market their respective alumina takeoff independently.

Both Alcoa and Alcan are re-aligning their operations in Europe. Alcan is downsizing four sites: Laffon in Italy, Kolin in the Czech Republic, the Froges pharmaceutical workshop in France, and Alcan Mass Transportation Systems business unit in Zurich, Switzerland. It is looking to sell Mercus and Froges' high-purity business in France and anticipates three plant closures at Flemalle in Belgium, Cruseilles in France, and Garbagnate in Italy. These moves spring from the merger with Pechiney, and costs are expected to be within the scope of the expected overall Pechiney integration costs. At the same time, $40 million will be invested in the Issoire plant in France, in order to increase its plate production capacity by 10%, with the prospect of long-term, high demand from the aerospace industry.

Alcoa is investing $116 million in technology and environmental improvements in three of its smelters in northern Spain, which will include $83 million in Aviles to achieve the environmental emissions standards set by the E.U. for the start of 2007. It has also agreed with the Galician government to invest $32 million over the next five years to improve environmental observance at two smelters and one alumina refinery at San Ciprian and La Coruna.

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