Rio Tinto Alcan expansion projects under review for possible delay

By Ross Marowits, The Canadian Press

MONTREAL - Mining giant Rio Tinto says its expansion projects in Canada could be delayed as it reviews all capital expenditures in light of the global financial crisis and slower demand for metals.

Among its largest in Canada are the modernization of the Kitimat aluminum smelter in British Columbia and expansions at two smelters in Quebec's Saguenay region.

A company spokeswoman wouldn't discuss the impact on specific projects or the timing of such a review, saying the company is looking at capital expenditures regardless of location or product group.

"All the projects that we are currently doing and currently planning will be looked at," Christina Mills said in an interview from London.

The metals and mining giant also disclosed during the release of its third-quarter results that it may delay the planned sale of assets such as the Alcan packaging and engineering products unit.

Rio Tinto had planned to sell US$10 billion of assets this year, $15 billion in total, to pay down debt from the US$38.1-billion takeover of Alcan.

"We've reviewed the timetable and we're recognizing the liquidity challenges buyers are facing," chief financial officer Guy Elliott told analysts during a conference call.

Some estimates have suggested the packaging division alone could fetch US$5.5 billion, however the global financial crisis may have reduced the number of private equity players interested in bidding.

Mills said the company continues to work on selling the assets. But, she declined to indicate how many offers it has received from potential buyers.

"We haven't stopped anything but the primary objective is to get value for those assets and in a tradeoff between timing and value, value will always win out," she said.

Evolution Securities analyst Charles Cooper said Rio Tinto has to go "back to the drawing board" to review its debt profile to see if it can sell the assets at a cheaper price.

He said the company's efforts to sell the assets now will be hampered by a prolonged recession in the United States and Europe, which will reduce metal demand in Asia.

"The next six months the volatility in the market is going to be such that it's going to make it very hard for investors into mining stocks and commodities and also for quality players themselves."

The London-based analyst said he expects Rio Tinto will continue to fund advanced capital projects, but will delay those that won't come on line until 2011 or 2012.

Cooper said he doesn't expect any announcements before the end of the year, including the $2 billion Kitimat expansion.

"I would be surprised if they commit to that over the next few months, so I would imagine that they're unlikely to any commitments to that."

In Saguenay, feasibility work will "drift along" preparing for expansions, he added.

Rio Tinto Alcan said in May it was speeding up a pre-feasibility study to increase capacity of its AP50 pilot smelter by another 140,000 tonnes, an expansion that could cost up to US$2.5 billion.

Earlier, it advanced by a couple of years a preliminary study to expand the Alcan Alma smelter. The move would add 170,000 tonnes to the smelter's annual production of 400,000 tonnes.

At the time, company officials said the robustness of the mining sector made the timing of the expansions possible.

Rio is fighting a hostile bid from BHP Billiton valued at US$86 billion. But Cooper doesn't believe the review is related to Rio Tinto's efforts to thwart its sale.

All metals companies are adjusting to expectations of a significantly prolonged period of lower metals prices. Aluminum prices have dropped more than 30 per cent from an all-time high in July. Copper, lead, nickel and other metals have also tumbled sharply.