South Africa: Rio Tinto Backs New Smelter for Coega

ANGLO-Australian miner Rio Tinto has given an assurance that its proposed $38bn takeover of Canadian aluminium group Alcan will not affect plans for the construction of an aluminium smelter at the Coega industrial zone near Port Elizabeth. Alcan's board yesterday accepted the Rio Tinto bid unanimously. The message from Rio Tinto was that it "clearly values Alcan's proposed project pipeline", with instructions to move forward on projects, including the Coega smelter, Alcan spokesman Robert Valdmanis said yesterday. "The key message is that there is substantial commitment from the company. We believe the combination (of Alcan and Rio Tinto) would be stronger than the sum of its parts," said Valdmanis. Rio Tinto's bid for Alcan announced yesterday tops a $28bn hostile bid from Alcoa, which it was feared could put the Coega smelter on hold. Alcan also announced this week that it had signed a $100m contract for a joint venture that included local construction company Murray & Roberts for the front-end engineering design of the smelter project -- a decisive step to bringing the project to fruition. Alcan said the front-end engineering design was expected to take nine months to complete, and would provide firm cost estimates and a "critical path for construction", pending financial arrangements. A second phase of the project, which would bump production up to 720000 tons a year, was also already in development, said Alcan. Murray & Roberts was also involved in the construction of the Mozal and Hillside smelters. The other partners in the joint venture are SNC-Lavalin and Hatch. Murray & Roberts CEO Brian Bruce said yesterday the project was "clearly significant" for the group. Murray & Roberts' share price gained more than 3% to R74,51 yesterday after the news, which came on top of a bullish trading update. Significant strides have been made in recent months to finalise plans for the Coega smelter, which took a marathon six years to negotiate. Alcan made its commitment clear last month when it announced the appointment of Brent Hegger as CEO of the smelter project. Other key positions are also in the process of being filled, and Valdmanis confirmed yesterday that the process to secure financial partners for the R18bn project was at an advanced stage. Valdmanis would not say who the likely partners were. "We are moving forward well and have had a lot of interest," he said. Project financing was expected to account for about 60% of the total investment required. Construction work is scheduled to start next year if the financial arrangements are secured. Alcan's contribution to the smelter project would be substantial -- it would retain 25% to 40% in equity -- while the Industrial Development Corporation has pledged to take a 15% equity stake. The National Energy Fund will hold an unspecified stake, while 5% has been earmarked for empowerment partners. The smelter has already been six years in the planning, and negotiations had to virtually start from scratch when Alcan took over France's Pechiney, originally involved in the plans to build the smelter. Talks with Alcan have been dragging on since 2003. Only at the end of last year did it seem as if SA was moving towards clinching the deal when Alcan and Eskom reached an agreement over the supply of electricity. Alcoa's hostile takeover bid for Alcan in April again raised doubts about whether or not the smelter project would go ahead.