Rio Tinto ready to spend on Alcan

Rio Tinto PLC is poised to announce it’s going ahead with major spending commitments on Canadian projects at its Alcan subsidiary after putting them on ice two years ago as the mining giant struggled with heavy debt and the drop in global demand for aluminum.

Montreal-based Rio Tinto Alcan is expected to announce as early as Tuesday that it is reviving spending on some Canadian aluminum smelter projects in Quebec and British Columbia.

Rio Tinto chief financial officer Guy Elliott said efforts to improve the returns of the aluminum business are ongoing and that more asset sales are likely to be part of the strategy.

It’s not clear if any of the assets to be sold are in Canada, But Mr. Elliott also indicated that long-delayed spending on projects in Canada is in the works.

He told The Australian that London-based Rio Tinto is set to unveil the first significant spending at Alcan since it took on a huge debt load when it acquired the aluminum producer in a $37-billion （U.S.） all-cash deal three years ago.

The two most likely options, according to the newspaper, are expansion of the Kitimat smelter in British Columbia, initially estimated at more than $2-billion, and construction of a state-of-the-art smelter – known as the AP50 – in the Saguenay region in Quebec.

Rio Tinto Alcan spokesman Bryan Tucker declined to provide any details Monday beyond what Mr. Elliott was quoted as saying in the publication.

“We’re always evaluating our portfolio,” he said.

Cost-cutting and productivity improvements continue to be a top priority, he added. “The modernization and expansion of smelters can help them move down the cost curve.”

The move to go ahead with capital expenditure programs makes sense given the recovery of aluminum markets, said Charles Bradford, an analyst with Bradford Research-Soleil Inc. in New York.

Almost two years ago, aluminum prices plunged to about 62 cents a pound on the London Metal Exchange, the lowest price for the metal since 2003.

Now, prices are in the $1.05 range, said Mr. Bradford. “New spending would say that they are optimistic about the outlook for aluminum,” he said.

Rival companies, including Alcoa Inc. and some Indian and Chinese producers are also embarking on major spending programs, he said.

Earlier this year, Rio Tinto Alcan chief executive officer Jacynthe C?té said the company was encouraged by the strength of the global economic recovery but wanted to wait a little longer to assess how stable it was before ramping up spending in Canada.

All told, Rio Tinto Alcan had about $6-billion of investments planned for Canada, including the AP50 project and a second facility in Saguenay, as well as Kitimat.

To win approval of the Alcan acquisition from Ottawa and Quebec, Rio Tinto made several commitments, including establishing the global aluminum headquarters in Montreal, building the AP50 smelter in the Saguenay and upgrading the smelting operations in Kitimat.

The AP50 project is to build a pilot plant using high-power smelting technology that produces aluminum at lower operating and capital costs than the traditional technology.