Alcoa desperate for cash

Wednesday, Mar 11, 2009
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US aluminium giant Alcoa is so desperate to conserve cash amid a metal price slump that it is willing to consider selling a strategic stake to a company such as Chinalco. Alcoa, which in 2001 had a larger market value than BHP Billiton, is now worth just $US4.9 billion amid a dramatic slump in aluminium prices. That compares to the $US38.7 billion Rio Tinto paid for Alcan in 2007, which before the takeover had a roughly similar market value to Alcoa. Alcoa's chief executive, Klaus Kleinfeld, told The Wall Street Journal his company was looking at "all cash-generating opportunities'', including the sale of a strategic stake. The aluminium producer has already slashed its dividend but has been so far unwilling to scrap it altogether since that would break with 60 years of tradition. Anglo American recently halted dividend payments for the first time since World War II in order to conserve cash. Alcoa once held a stake in Chinalco and recently formed a strategic alliance with the Chinese company. It had invested in Rio alongside Chinalco in an initial dawn raid last year but last month sold the stake to its Chinese partner. Alcoa could find it difficult to attract a new strategic investor outside of China, as other aluminium producers like Russia's Rusal are also suffering the effects of lower aluminium prices and diversified miners like BHP Billiton and Vale have indicated aluminium is not their favoured commodity. Alumina shares are trading 6%, or 5 cents, higher at 89 cents this morning on speculation Alcoa could be interested in buying its joint venture partner. But Alcoa would appear to be financially constrained itself and is unlikely to want to take on the burden of also paying for Alumina's 40% share of capital expenses on their alumina joint ventures. Mr Kleinfeld told the Journal: "I would neither buy back debt nor shares at this time.''

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