Rio Tinto Alcan Steps Up Canadian Plant Modernization

Mining giant says it will close and dismantle two of the Kitimat smelter's pot lines to clear the way for future buildings as it steps up pace of a major modernization project.

MONTREAL (CP) -- Rio Tinto Alcan says it will close and dismantle two of the Kitimat smelter's pot lines to clear the way for future buildings to be constructed as it steps up the pace of a major modernization of the B.C. operation.

The Montreal-based division of global mining giant Rio Tinto said Thursday that the site preparation work also includes the construction of a new "reduction services" building.

The work is estimated to cost US$50 million and is in addition to the ongoing activities that are needed to build an anode pallet storage facility and roads for the smelter's overall upgrade.

The permanent closure of the giant pots used in the smelting process represents a 67,000-tonne reduction in Kitimat's annual production.

The larger modernization project would increase current production by more than 40 per cent to about 400,000 tonnes per year.

"The modernization of our Kitimat smelter remains a strategic priority for Rio Tinto Alcan," stated Rio Tinto Alcan chief executive Jacynthe Cote.

"With the increased activity, we are continuing to lay the groundwork for profitable growth through this important project that will transform our smelter into a top tier, low-cost, large-scale, and low-carbon asset."

Final approval for the full US$578 million upgrade of the smelter is scheduled for 2011.

It is part of the US$15 billion worth of capital projects over two years that Rio Tinto confirmed Thursday in its results for the first half of 2010.

The company's first-half profit more than tripled amid strong iron ore demand from China and higher commodity prices as the world economy climbed out of recession.

Net profit for the six months through June was US$5.85 billion, up from $1.62 billion in the same period a year earlier.

The company's underlying earnings -- which exclude one-time gains and losses from events such as asset sales -- were $5.77 billion, up 125 per cent.

Higher aluminum prices pushed the group's underlining earnings to US$358 million, or US$1 billion more than a year ago. Partially offsetting the increased prices were US$226 million impact from the higher Canadian and Australian currencies.

The modernized Kitimat smelter will use Rio Tinto Alcan's proprietary AP technology, which reduces total emissions, including greenhouse gas emissions, by up to 40 per cent per year.

Rio Tinto Alcan is also proceeding with the US$228 million construction of a new 225 megawatt turbine at the Shipshaw power station in Saguenay, Que. The project is expected to be completed in December 2012.

Phase 1 of the US$429 million AP50 project in Saguenay is scheduled for approval in 2011.

Work on this project and the Kitimat upgrade were slowed down in 2009 because of the economic recession which depressed aluminum demand and prices.

Rio Tinto also announced Thursday that it received a binding offer from funds affiliated with Apollo Global Management, L.P. and France's Fonds Strategique d'Investissement (FSI) to buy a 61 per cent stake in Alcan Engineered Products, excluding the Cable Division

Terms of the transaction were not disclosed.

Apollo would hold a 51 per cent stake, FSI 10 per cent and Rio Tinto 39 per cent.

The sale is part of the miner's efforts to sell off non-core assets acquired as part of the US$38.1 billion takeover of Alcan. Divestments, including Alcan's packaging businesses, netted US$3.6 billion in the first half of the year, and US$10.3 billion since 2008.

Rio Tinto has reduced its net debt to US$12 billion, from US$18.9 billion at Dec. 31.

Damien Hackett of CanaccordGenuity said Rio Tinto's overall results "should provide the market with comfort that Rio Tinto is out of the woods in respect of pressures related to excess debt and well on the way to solid growth."