Rio Tinto is swinging back into spending mode in Canada amid an increasingly robust outlook for investment in mining, fuelled by growing demand from China and other emerging markets.
But after a two-year hiatus, the global mining giant is taking a cautious, step-by-step approach on expansion and facelift projects at two Canadian aluminum smelters, one in Quebec’s Saguenay region, the other in Kitimat, B.C.
A new technology centre in Saguenay-Lac-Saint-Jean – dubbed AP60 – is getting a $758-million (U.S.) injection while an aging facility in Kitimat receives $300-million for further construction work ahead of a planned $2.5-billion upgrade.
The spending – a total of little more than $1-billion – represents only a fraction of combined investments of about $6-billion that were first unveiled before the recession.
Rio Tinto cut back on its spending programs in the wake of its debt-heavy, $38.1-billion acquisition of Montreal-based Alcan in 2007 and as a result of the global commodities crash.
The update on Rio Tinto's investment intentions in Canada comes amid growing global confidence in the economic recovery and the outlook for spending in the mining sector.
Aluminum prices have bounced back to the $1.05-per-pound range, from a low of 76 cents in 2009, said Charles Bradford, an analyst with Affiliated Research Group in New York. Rio Tinto Alcan forecasts that global demand for aluminum will nearly double over the next decade.
For Kitimat Mayor Joanne Monaghan, the relatively modest sum being invested at the sprawling smelter is a bit of a disappointment.
“The whole community feels like they are only getting announcements of intentions in a few bits and pieces,” she said.
“I would like – finally – an announcement that says, ‘Yes, we are going to build a new smelter.’”
The investment in the AP60 project – cutting-edge technology the company says is the most efficient and least polluting in the world – is also only a small part of the anticipated total cost of up to $2.5-billion.
And there is no word on previously announced plans for a $1-billion expansion of another smelter in the Saguenay region, at Alma.
Rio Tinto Alcan chief executive officer Jacynthe Côté said the company is doing the right thing by taking a careful approach, given the fragile recovery in aluminum markets and still-strong inventories.
“We want to be prudent concerning the addition of capacity,” she said.
A final decision on whether or not to go ahead with the Kitimat expansion will be made sometime next year. The company also intends to take a wait-and-see stance regarding further expansion of the AP60 plant, with no decision expected on a second phase until 2013.
As for Alma: “We still need to complete a study.”
Ms. Côté said she’s not concerned the company might be perceived by some critics as dragging its feet on promised investments in Canada since the Alcan takeover, especially in light of recent controversies over foreign companies allegedly failing to stick with promised “net benefits” following takeovers.
“We take this very seriously. There are regular reviews by Ottawa and the provinces,” she said.
The key in making decisions for future investment is timing, and until there is a fuller, clearer picture of the aluminum market, the strategy is “to continue portfolio discipline,” she said.
Rio Tinto is also studying the possibility of shutting or selling more of its assets in different regions of the world, but there are no plans for such action in Canada, she said.
Rio Tinto’s strategy for Canadian aluminum operations unveiled Tuesday “sounded cautious,” Mr. Bradford said.
“The trick is to forecast and take into account what others are doing,” he said, pointing to continued aluminum exports from China and Alcoa Inc.’s building of a low-cost facility in Saudi Arabia.
“They [Rio Tinto] may not want to push it too far, to such an extent that it affects prices.”