Alcan thought long and hard before Kitimat expansion

Revamping aging smelters in places like northwestern British Columbia may soon be a thing of the past as the global aluminum industry looks to serve its customers by expanding in regions where construction costs are much lower.

"There are not too many places where you are going to see expansion or investment in the aluminum industry in North America," said Cynthia Carroll, chief executive officer of Alcan Inc.'s Primary Metals Group.

Ms. Carroll said Alcan thought long and hard before agreeing to invest $1.8-billion (U.S.) to expand its aging Kitimat smelter, a move that will make the B.C. operation one of the world's most efficient producers of aluminum.

"We have been working on this for about 10 years," she told reporters during a news conference in Vancouver yesterday.

The decision to proceed comes only after the B.C. government consented to amend agreements to give Alcan greater flexibility to access hydro power at Kitimat and sell it back to the hydro grid.

B.C. Premier Gordon Campbell welcomed the expansion, saying the province is clearly critical to Alcan's future. "The aluminum sector is a highly competitive, global business," Mr. Campbell said at the news conference.

During the construction phase, Montreal-based Alcan will have the right to sell enough excess power at market prices to keep the lights on in 225,000 homes.

Amendments to previous agreements have angered municipal leaders in Kitimat who argue that Alcan was originally granted access to cheap electricity so that it could maximize industrial development and production.

However, Ms. Carroll said Alcan's critics are ignoring the fact that hydro is crucial to the viability of a smelter, and can account for a third of total costs. "Without access to power, we don't invest."

Ms. Carroll said critics of the amended deal should consider the fact that northwestern B.C. is not considered to be a low cost area for building new smelters.

"You have to bring everything in and the cost of labour is very high," she said, adding that places like Iceland, South America and Cameroon are also vying for smelter investment money.

When the expansion is completed in 2012, production at Kitimat is expected to rise by more than 60 per cent from current levels to 400,000 tonnes a year. The modernization plan is slated to secure 1,000 jobs at the site, down from the existing level of 1,550. AL (TSX) fell 68 cents to $51.40.