MONTREAL (Reuters) - Alcan Inc. expects to see further progress in its global aluminum smelter projects in the months ahead, the company's chief executive said in an interview.
Speaking to Reuters on the sidelines of Alcan's announcement on Thursday that it will invest $1.8 billion to add 450,000 tonnes of annual smelter capacity over 10 years in Quebec's Saguenay region, CEO Dick Evans said other projects will remain on track.
Those include what analysts expect will be Alcan's firm commitment in the weeks ahead for the $2.7 billion construction of a 720,000-ton smelter at Coega in South Africa.
Coega has landed a key long-term power supply contract for the project, in which Alcan would have a 25 to 40 percent interest, and the company is talking to prospective partners about final terms for the development.
Elsewhere, the world's second-largest maker of primary aluminum, is lining up a long-term power supply for a $1 billion expansion of its smelter in Iceland to 460,000 tonnes a year from 180,000 tonnes.
The company has locked in part of the power needed for the project, which would make it Europe's largest aluminum smelter, and is "very near" obtaining the balance, Evans said.
In the first phase of its new investment in the Saguenay region, where Alcan has the bulk of its 1.6 million tonnes of Canadian smelting capacity, the company will spend $550 million to build a 60,000-ton pilot plant using lower-cost and environmentally friendlier AP50 technology.
Aided by a $355 million, 30-year, interest-free loan from the Quebec government and $100 million of tax credits, Alcan is "95 percent" certain to proceed with adding another 390,000 tonnes of output in the region over 10 years, Evans said.
"If we continue and do the full $1.8 billion, we do it because we are getting good returns well above our cost of capital on those projects," he said.
QUEBEC PROJECT A PRIORITY
To help things along, Alcan is also getting a 225 megawatt block of power from provincially owned utility Hydro-Quebec at a preferential rate reserved for large industrial users.
Existing power contracts will be extended, as will water rights on the Peribonca River, where Alcan generates 900 MW of its own electricity.
Evans said Alcan will fund the first $550 million of investment through cash flow and the company had already factored that phase into its finances.
"It has been in our plans as we evaluated a dividend increase and share buyback," he said.
Alcan recently raised its dividend and announced a share buyback program.
Aluminum prices have rebounded in recent weeks, resuming a rising trend that began in mid-2005. Three-month aluminum futures were at $2,800 a ton on the London Metal Exchange on Friday, compared with $2,465 in mid-September.
Evans said he expects Alcan to forge ahead with the Saguenay development because of its technological and production benefits. The project would remain a priority even if aluminum prices soften, he added.
"If it was a severe softening, we would have to consider whether we sought other forms of capital or if we deferred any of our projects. This one would probably be the last we would defer," Evans said.
Construction in Saguenay is expected to begin in 2008, with first metal coming on stream in late 2010.
The Montreal-based company acquired the AP50 technology during its takeover of France's Pechiney in early 2004.
The next-generation process uses higher amperage in the reduction cells, and allows for lower capital and operating costs, and lower emissions, for each unit of production.
Alcan shares were off 99 Canadian cents at C$57.26 on the Toronto Stock Exchange and down 76 cents at $49.48 on the New York Stock Exchange on Friday afternoon.
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