Rio Tinto Alcan in Retreat Despite Incredible Profits
May 13, 2009, 2:08 PM EST
Rio Tinto Alcan (RTA) has undertaken a large scale restructuring. However, as revealed by a detailed analysis conducted by the CAW Research Department based on economic data provided by CRU, Rio Tinto Alcan's Canadian aluminum smelters are among the most profitable in the world, even in the context of the current market lows.
"The company's decision to retreat has nothing to do with the profitability of its Canadian smelters. Rather, it can be blamed on the massive debt incurred by Rio Tinto with its acquisition of Alcan in 2007," according to Alain Gagnon, president of SNEAA/CAW Local 1937, which represents Rio Tinto Alcan workers at the Jonquière Complex in the Saguenay region. "The Australian and British-owned multinational made this mega-deal using borrowed money at a time when the price of aluminium was at an all-time high."
"In this context, then, it is illogical and unacceptable for the company to eliminate jobs and postpone investments," said CAW Quebec Director Jean-Pierre Fortin. "The government of Quebec has entered into secret agreements with RTA, among other things authorizing the company to close the Beauharnois smelter in advance of the scheduled date. Because of the lack of transparency of the Quebec government, the public is not aware of the terms of these agreements. The government has a duty to disclose the details of its negotiations with RTA."
"With an additional loan of $175 million, the Quebec government must demand that all work resume quickly on the AP50 project at the Jonquière Complex. Finally, it must see to it that the staggering profits of this company are not swallowed up by the debt of the parent company, but rather that they are invested in the modernization of equipment and the creation of jobs."
The study conducted by the Canadian Auto Workers union analyzes RTA's operating costs, its gross profit margin in Canada and the value of the energy resources it has access to. This analysis reveals that the company's business operating costs among its Canadian smelters average US$1,388 per tonne, fully 15% lower than the global industry average and 24% lower than the industry in China.
"For the first time the public is getting a look inside the highly advantageous business conditions enjoyed by Rio Tinto Alcan in Canada," said Bill Murnighan, CAW researcher and author of the report.
The study demonstrates that all of the company's Quebec smelters, as well as the Kitimat facility in British Columbia, are profitable. Even the Beauharnois smelter, which the company announced it was closing in January, generated strong profits over the last two years. Forecasts show that this plant, despite its outdated equipment, would be profitable again in 2010.
The study also reveals that the company's access to extremely low-cost power gives it a key advantage. Indeed, the company generates much of its own power in facilities that escaped the nationalization of Quebec's hydroelectric power network in the 1960s. In its smelters where power is not self-generated, the company enjoys special rates consented by Hydro-Québec to large power customers (known as the "L" rate).
Thanks to its access to self-generated power, the company pays only one-quarter the price paid for energy by other aluminum producers in Quebec, and one one-sixth the global industry's average price. The value of this access to self-generated power is estimated to be upwards of $680 million per year.
"Government energy policies are key to the success of this industry and must ensure that use of our natural resources results in continued investment and support for good jobs," said Rick Belmont, local union president at the company's Kitimat operations in British Columbia.
According to Mr. Gagnon, Mr. Fortin and Mr. Belmont, the lessons to be drawn from this situation are that "government regulation and oversight of foreign takeovers involving industries that rely upon publicly owned hydro-electric resources must ensure that there are strong safeguards governing continued production and future investment, as well as guarding against market distortions caused by the potential of power re-sales."
To read the study 'Production, Power & Profits,' please visit: http://www.caw.ca/en/7463.htm