Alcan plans closures, job cuts (November 26, 2004)

Montreal-based aluminum giant Alcan (AL-T) plans to close three European facilities as part of a restructuring plan associated with its assimilation of French rival Pechiney, which it acquired in 2003.

Slated for closure are the Flemalle rolled products mill in Belgium, and packaging plants in Cruseilles, France, and Garbagnate, Italy. The plan also calls for downsizing at Laffon in Italy, Kolin in the Czech Republic, Froges (pharmaceutical workshop) in France and Alcan Mass Transportation Systems in Zurich, Switzerland. Alcan says it will also look to sell the Mercus and Froges alloy businesses in France.

In all, some 520 jobs will be eliminated; the losses will be partially offset by the creation of around 40 new jobs in France, Switzerland, and Italy. Alcan currently employs some 46,000 people in Europe.

“In the normal course of business, Alcan continually reviews its portfolio based on changing economic and market conditions,” said Alcan’s CEO Travis Engen in a prepared statement. “This proposed restructuring is necessary to ensure Alcan’s competitiveness in the marketplace and to create favourable conditions for future growth and expansion. Maintaining competitiveness is the best insurance for long term sustainable employment.”

Some of the new jobs will result from a 22-million-euro investment at the Issoire plant in central France. The company plans to boost plate production capacity there by 10% in 2005 and 2006; the plant supplies the aerospace industry.

Alcan is currently in talks with employee representatives over implementation of the restructuring plan.

Alcan will also put a board-approved plan to spin-off of its rolled products businesses into an independent company named Novelis to a shareholder vote on Dec. 22.

Novelis is expected to begin operating in early 2005, and will be the world’s biggest rolled aluminum products company, based on shipment volumes; pro-forma revenues in 2003 were US$6.2 billion. The company will be domiciled in Canada, with executive office in the United States, and 38 operations and 13,600 employees in 12 countries.

The spin-off plan also calls for some $2.8 billion in new bank and bond financing; Alcan already has commitments from a group of financial institutions. The scheme is aimed at meeting conditions imposed by U.S. and European regulators after Alcan’s takeover of Pechiney.

Novelis shares will trade on both the New York and Toronto stock exchanges.

Alcan also sold off its zinc and lead metal trading business and its ores and concentrate trading division to Amsterdam-based Trafigura, an independent commodity trading company, earlier this month. The company said the operations, picked up via the Pechiney acquisition, were considered non-core assets. The sales were also aimed at placating competition authorities.

Meanwhile, in the Republic of Guinea, Alcan and Pittsburgh-based partner Alcoa (AA-N) have inked a protocol agreement with the government for the development of a 1.5 million-tonne-per-year alumina refinery. The protocol provides a framework for a memorandum of understanding to be negotiated by the three over the next few months.

The world’s two largest aluminum producers expect to complete a feasibility study of the project in 2005, with a production decision to follow soon thereafter; alumina production could begin in 2008. The refinery’s design would allow for future expansion. The cost of the project has yet to be determined. Alcoa would operate the refinery, with each of the companies’ marketing their own share of production.

Bauxite feed for the refinery is expected to come from Compagnie des Bauxites de Guinee (CBG), which currently mines bauxite for export. Alcan and Alcoa each have a 45% stake in Halco (Mining), which in turn owns 51% of CBG,; the government holds the balance.

“Due to the significant quantity and high quality of the bauxite reserves, Guinea represents an attractive location for an alumina refinery and a potential value-maximizing growth opportunity for Alcan,” said Alcan Bauxite and Alumina CEO Michael Hanley. “In addition, the long-standing involvement of Alcan and Alcoa in Compagnie des Bauxites de Guinee places us in a uniquely favorable position to develop such a project.”

CBG’s has exclusive rights to bauxite reserves and resources in a 25,900-sq.-km area in the northwestern part of the country. (Bauxite is a source of alumina, or aluminum oxide, which is extracted and smelted into aluminum.)

Talks regarding possible investment in the project continue with the government and International Finance Corp. are ongoing.