MONTREAL- Alcan Inc.'s B.C. smelter expansion project has been delayed and could be in jeopardy, but CEO Dick Evans said Wednesday he's optimistic a solution can still be found.
The Montreal-based aluminum company heads into 2007 with the Kitimat, B.C., project still unresolved after swinging to a record fourth-quarter profit of US$422 million from a year-ago loss of US$361 million.
Alcan will appeal the B.C. Utilities Commission's rejection of proposed pricing in a long-term energy supply agreement between B.C. Hydro and Alcan's Kemano power plant near Kitimat, Evans confirmed in an interview.
As a result, the smelter project will be delayed by about six months, he said, adding his company is still waiting for written reasons for the negative ruling.
Asked if the utilities commission ruling has put the Kitimat project in jeopardy, Evans replied: "Obviously, to some extent it does." But he's optimistic.
"It's not untypical in major projects like this to often have competing views and it is sometimes a complex process to reach consensus. While this was a setback we did not want, and wish had not happened, it's not totally uncommon in big projects."
Evans said environmental approval and a long-term agreement with the union representing workers in Kitimat are also needed for the smelter work to go ahead.
"If we resolve these three issues in the first half (of this year), we'd probably start the preliminary work in the second half of this year."
Net income for the quarter ended Dec. 31 amounted to $1.13 a share, contrasting with a loss of 98 cents per share a year ago, the company reported.
Capping a record year, quarterly operating cash flow reached an all-time high of US$1.1 billion. The firm reports in U.S. dollars.
Analysts' consensus forecast was for earnings of $1.28 a share, before one-time items, according to Thomson Financial.
For the full year, earnings soared to $1.79 billion or $4.75 a share from $129 million or 33 cents a share in the previous year.
Sales and operating revenues in the final quarter rose to $6.2 billion from $5.1 billion. For the full year, revenues increased to $23.6 billion from $20.3 billion in 2005.
Evans said the fourth quarter capped an excellent year and he expects the trend to continue.
"We expect strong and supportive markets in 2007. Our forecast is for a slight surplus of supply over demand, but you have to recognized the market is also growing..." he said.
A Merrill Lynch research note said aluminum consumption is expected to increase by 6.7 per cent this year while production is expected to increase by almost eight per cent and inventories remain low at 5.5 weeks of shipments.
"We reiterate our "neutral" rating on share of Alcan as we believe that the shares are fairly valued based on our outlook for aluminum."
By the end of this year, Alcan will be in its strongest position in decades with its bauxite and alumina businesses, Evans told a conference call with analysts. A key priority is to secure and improve long-term supply of alumina. he said.
Evans said Alcan is working on several other projects that haven't been announced but he noted the company already has four major smelting projects on the go, including those in Quebec and British Columbia.
"We have a pretty full plate already and we will be putting a lot of our effort on advancing those projects, in addition to continuing to prospect and develop other opportunities."
He also said costs have gone up for upgrading and expanding the Gove refinery in northern Australia to US$2.3 billion and Alcan has delayed its startup date until the second quarter of this year, from the first quarter. The plant needed more work than previously thought, which increased costs and affected its schedule, and Australia's cyclone season also caused delays.
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