The short term outlook remains challenging as the industry experiences higher input costs and lower LME prices which are currently well below the industry's marginal cost of production. At current prices, Rio Tinto Alcan's underlying earnings are expected to be around break even in the second half of 2011.
The medium to long term fundamentals of aluminum remain strong, with demand forecast to grow by almost six per cent per year to 2020 and supply expected to remain in balance. The cost curve is expected to steepen mainly because of rising energy costs.
Rio Tinto is advancing the second phase of transformation of the Aluminum product group to achieve an EBITDA margin of 40% in 2015 and increase shareholder value. This will be achieved through:
1. Further operational and business improvements to increase EBITDA by over USD 1 billion.
2. Strategic investment in key growth projects, including Weipa bauxite in Australia and the modernization of the Kitimat smelter in British Columbia.
3. Streamlining the portfolio to concentrate on its tier one assets.
Capital investment at South of Embley would position Rio Tinto as the largest bauxite producer in the industry by 2016 with a very high quality product and outstanding resources. This project and the modernization of Kitimat are subject to Board approval.
Following the transformation, Rio Tinto Alcan will have an unrivalled low cost energy position with the lowest carbon footprint in the industry. The product group is positioned for lowest-cost quartile power for smelting with 97% carbon dioxide free. Rio Tinto Alcan will also be generating almost 65% self generated power against an industry average of 34%.
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