Alcan Inc., the world's second-largest aluminium producer, said it may eventually produce more than 1 million metric tons of the metal a year from a planned smelter in South Africa.
Montreal-based Alcan today signed a 25-year accord with state-owned Eskom Holdings Ltd. that will see it receive 1,355 megawatts of power for the plant at Coega in Eastern Cape province from 2010, if it reaches final agreements on financing. The $2.7 billion smelter will initially have two production lines with an annual capacity of 720,000 tons.
"The infrastructure that is available here would allow us to add a third line," Michel Jacques, who becomes president of Alcan's primary metals unit on Dec. 1, said in an interview in Coega after the signing ceremony. "We will build the first two lines" and then evaluate whether to expand.
Five years of talks hinged on Alcan securing a cheap and reliable electricity supply. The government lowered power tariffs for the smelter in a bid to create jobs in one of the poorest regions of a country with a 26.5 percent unemployment rate.
The world's largest aluminium smelter is currently OAO Russian Aluminium's Bratsk plant in Russia, with a capacity of 981,000 tons, Paul Robinson, manager of London-based independent metals research company CRU's aluminium unit, said in an interview. There are at least five smelters currently larger than the 720,000 tons planned by Alcan for the South African plant, he added.
Cheap Power
Alcan and rivals such as Alcoa Inc., the world's largest aluminium producer, are cutting spending in the U.S. and Europe to build smelters in countries such as South Africa that offer cheaper power, which can account for a third of production costs. The power infrastructure at Coega will cost 6.4 billion rand ($891 million).
Alcan said it will keep 25 percent to 40 percent of the plant and is seeking partners for the rest. South Africa's state-owned Industrial Development Corp. said it will hold a 15 percent stake in the smelter.
"Construction is expected to begin in 2008 and result in first metal production before the end of 2010," Jacques said. "The next step is to complete the consortium and engage with potential partners and do the engineering and complete the financing."
Alcan has held discussions with several potential investors, Jacques added. He declined to name them.
Potential Investors
Eskom will build seven electricity substations and 1,741 kilometers of transmission lines to supply the new plant with power, said Thulani Gcabashe, the utility's chief executive officer.
South Africa began negotiating with Pechiney SA about building the smelter in 2001 and was close to concluding an agreement when the French company was bought by Alcan in 2004.
"The project we have now is much larger and a much better project than the one we had contemplated a few years ago," Jacques said.
The plant will be the centerpiece of Coega's development. The zone is the government's biggest job creation initiative in the Eastern Cape, a stronghold of the ruling African National Congress and the birthplace of President Thabo Mbeki and his predecessor Nelson Mandela, South Africa's first black president.
As many as 6,000 people will be employed to build the smelter and about 1,000 to operate it, Trade and Industry Minister Mandisi Mpahlwa said. The project could increase the Eastern Cape's economy by as much as 6 percent, he added.
BHP Plants
More than 30 companies are in negotiations about investing in Coega and by mid-October, nine had signed lease agreements worth a total of 3 billion rand, the National Treasury said on Oct. 25.
BHP Billiton, the world's biggest mining company, operates the Hillside and Bayside aluminium smelters at Richards Bay on South Africa's northeast coast and the Mozal plant on the outskirts of Mozambique's capital, Maputo.
Hillside has an annual capacity of about 704,000 tons whil
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