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CANADIAN MINING PERSPECTIVES: Alcoa offers to snap up Alcan

The beginning of this week, New York-based ALCOA INC. made a hostile bid for Montreal-based ALCAN INC. The deal tha...


The beginning of this week, New York-based ALCOA INC. made a hostile bid for Montreal-based ALCAN INC. The deal that Alcoa offeredUS$73.25 per Alcan share to be paid in cash and Alcoa shareshas an enterprise value of about US$33 billion.

We know something about Alcan (www.alcan.com), with its seven bauxite mines and deposits in five (warm) countries, and 11 alumina plants in five countries including plants at Vaudreuil, Que., and Brockville, Ont. It operates or has interest in 22 aluminum smelters and nearby power facilities around the world, including in Alma, Arvida, Beauharnois, Becancour, Grande-Baie, Laterriere, Sept-Iles and Shawinigan in Quebec, and Kitimat in British Columbia. Alcan has capacity to produce 15 million tonnes/year of bauxite, 5.30 million t/y of smelter grade alumina, 722,000 t/y of specialty alumina and 3.48 million t/year of aluminum, plus installed capacity of 4.37 million MW of energy. (Over 50% of its smelting capacity and 61.5% of its power capacity are nestled in Canada.) Although Alcan started out in 1902 as a Canadian company, it has grown and globalized substantially over the years, including taking over the European companies Alusuisse in 2000 and Pechiney in 2003. Alcan has 68,000 employees in 61 countries, and posted revenues of US$23.6 billion in 2006.

What do we know about Alcoa (www.alcoa.com)? According to the May 7 press release announcing the offer, Alcoa is the world’s leading producer and manager of primary aluminum, fabricated aluminum and alumina facilities. It has smelter operations around the world including in Baie-Comeau, Becancour and Deschambault, Que. It serves the aerospace, automotive, packaging, building and construction, commercial transportation and industrial markets. The company has 122,000 employees in 44 countries.

Both Alcan and Alcoa score highly as sustainable corporations. After all, aluminum is a lightweight metal not easily corroded that is substantially helping us reduce the amount of fuel needed to move our vehicles. Where the alumina plants and aluminum smelters can be run by green power, the industry is of net benefit environmentally.

Is the takeover a good thing? According to the Alcoa news release the two companies had discussed a friendly business combination for two years, but talks broke off last fall when the two could not agree on who would be the senior officers. As the owner of a modest number of Alcan shares, I stand to benefit from the bid for Alcan, as I am bound to watch the share price rise.

There is another factor, a possible bidding war for Alcan, sparked by United Company RUSAL based in Moscow, which has recently become the worlds largest producer of alumina and aluminum. In fact, Rusal, Alcoa and Alcan are the big three in aluminum. What do you think: is this really a bid by Alcoa to regain its top spot, or perhaps to form a North American-based company that is bigger than the eastern-European-based Rusal?

Whatever the case, does it make business sense to become bigger? Bigger is not automatically more powerful, its not more efficient and its certainly not better. All it is, is bigger, more remote, and less in touch with employees and local concerns.

If/when Alcoa takes over Alcan, what am I going to do with my modest amount of cash and Alcoa shares? I will no doubt sell the Alcoa shares and reinvest the money in some Canadian company, but whom? I am running out of blue chip Canadian mining companies to invest in.

Why is it that Canada is one of the worlds richest countries in resources, and has the worlds largest mining financial centre in Toronto, but we are losing control over our senior metals companies? As soon as they get to a certain size, they are taken over by some larger non-Canadian company with deeper pockets (or access to the banks pockets). If this trend continues to its logical conclusion, Canadian resources will all be controlled by others.

Obviously I am an unrepentant Canadian nationalist. I cant do much, but I can vote with my shares, and so can you if you agree with me.


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