Alcan Inc. says its first-quarter profit was up 30 per cent from last year, boosted by record aluminium prices, but the company won't plan new bauxite mines simply to feed China's ravenous metal demand.
"We do not see that as a particularly attractive long-term market. We would prefer to use our bauxite to refine and be self-sufficient on a low-cost basis," Dick Evans, Alcan's president and CEO, said in a conference call Tuesday to discuss the Montreal-based aluminium maker's first-quarter results.
"I don't think we would be making any big bauxite mine developments just to sell into that market. One reason for that, is the jury out is out as to how stable that market is going to be in the longer term."
The company, which keeps its accounts in U.S. dollars, said it earned $591 million in the first quarter of 2007, up from $453 million a year ago.
The profits were supported by historic highs in the price of aluminium, now about US$2,800 per tonne, fuelled by a gap between China's supply and demand.
One analyst said China has an "insatiable" demand for bauxite – the ore from which aluminium is derived – with imports of two million tonnes per month.
But Evans said that although Alcan sells some bauxite on a spot basis to the Asian economic titan, miners who depend on the Chinese market for their business may have shaky futures.
"I think the viability of all these facilities that have come on stream, some are going to be around. Others may find it more difficult over time," he said.
Alcan's bauxite and alumina group owns or operates six bauxite mines and deposits in five countries.
Evans sees room for improvement across the company's operations, although the quarter was Alcan's best ever.
The results "are outstanding, I think," he said in an interview before the conference call. "We're very pleased with them."
Income from continuing operations was $1.60 per common share, up from $1.21.
Evans said the results were boosted by high prices for primary aluminium but were also supported by markets in other areas served by Alcan including the aerospace, electrical cable and composites markets.
Evans said the company has an improvement plan that includes keeping costs down, but giving employees bonuses as incentives for high performance.
"There's no one silver bullet here, but it's a matter of aggressively managing our portfolio and managing our assets well, and investing in our people," Evans said.
"We try to run a fairly lean, productive system. We know there are a lot of areas for further improvement."
The company has seen operating costs go up in countries where currencies have strengthened against the U.S. dollar, including Canada, Europe and Australia.
And Alcan is still mired in controversy over the sale of power it generates in northwestern B.C., primarily for its smelter in Kitimat. The British Columbia Supreme Court has upheld Alcan's right to sell surplus power, over objections from some in the community who want the electricity devoted to expanding Kitimat's output.
Abroad, Alcan expects the sale of its 45 per cent stake in India's Utkal Alumina International Ltd. to close in the second quarter, but did not say how much it expects to realize, and did not identify the buyer. Evans said the sale will not materially change the company's finances.
Montreal-based Alcan has 68,000 employees in 61 countries, working in bauxite mining, alumina processing, primary metal smelting, power generation and aluminium fabrication.
Alcan shares were up $2.71 or 4.4 per cent to C$64.05 in afternoon trading on the Toronto Stock Exchange.
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