Alcan to expand aging Kitimat smelter

VANCOUVER -- Aluminum company Alcan Ltd. is ready to kick-start a long-awaited $1.8-billion expansion of its aging Kitimat smelter in northwestern British Columbia, taking advantage of buoyant commodity markets.

The world's second-largest aluminum company is set to proceed with what it says will be the largest private sector investment in the history of B.C. after reaching a crucial power supply agreement with the provincial government.

"This is an agreement that will secure Alcan's future in British Columbia," said Alcan's Kitimat-based spokeswoman Colleen Nyce.

B.C. Premier Gordon Campbell and Cynthia Carroll, the president of Alcan's Primary Metals Group, will be on hand to discuss details of the agreement at a press conference in Vancouver this morning. Speculation is that Alcan has agreed to the expansion in return for guaranteed access to cheap electricity.

Over the past 10 years, Alcan has spent about $25-million to come up with a plan to modernize a 52-year-old plant that is producing 250,000 tonnes of aluminum a year, mainly for South Korea and Japan.

"We believe that we now have a plan that is viable in all its aspects," said Ms. Nyce, adding that the existing technology will be replaced by more efficient techniques that were inherited when it acquired Pechiney SA of France in 2003.

Once the Kitimat expansion is fully operational in 2009, the new Pechiney system will allow Alcan to increase the capacity of Kitimat to 400,000 tonnes a year, while reducing the number of employees by 500 through a process of attrition.

There are 1,550 employees working at the plant.

Alcan is eyeing expansion in B.C. amid expectations that world aluminum demand will rise by 6.8 per cent this year, the company's chief executive officer Richard Evans said recently. The increase is being driven by the rise in Chinese consumption, which is expected to climb by 18 per cent annually as a result of planned infrastructure.

Aluminum prices on the London Metal Exchange averaged $2,661 (U.S.) a tonne in the second quarter ended June 30, up from $1,868 in the same period last year.

The Kitimat expansion is one of several that Alcan is evaluating as it pushes for growth, following the $6-billion acquisition of Pechiney.

"It's a boost that the area could use," said Gerry Martin, president of the Kitimat-Terrace Industrial Development Society.

He said it comes at a time when the provincial government is studying plans to build a port at Kitimat, a municipality of about 10,000 people, which expects to be the end point for a new $1.2-billion natural gas pipeline that's predicted to be in service by 2009.

However, Alcan's plan for Kitimat is unlikely to satisfy municipal leaders. Last year, the district launched a legal action in the B.C. Court of Appeal, citing an agreement with the province from 1950 and arguing that Alcan was given power rights in order to support economic development and job creation. Those efforts were thwarted in February when the court ruled in Alcan's favour.

But district officials are continuing to seek an interpretation of the 1950 water rights agreement between the province and Alcan.

Low-cost power is expected to make Kitimat among the cheapest smelters in the world to operate.