Alcan buys into $2.7bn SA smelter

27 November 2006

Canadian aluminium firm Alcan has signed a power supply agreement with South African state electricity firm Eskom that paves the way for the construction of a US$2.7-billion (almost R20-billion) aluminium smelter in the Coega Industrial Development Zone in the Eastern Cape.

Construction on the smelter could “begin in 2008 and result in first metal production before the end of 2010,” Alcan said in a statement on Friday after signing a 25-year power supply contract with Eskom.

“Today’s agreement is a key step towards the realisation of this important project – important for both Alcan and South Africa,” Alcan Primary Metal Group CEO Michel Jacques said in the statement.

Investment boost
Speaking after the signing, Trade and Industry Minister Mandisi Mpahlwa said Alcan’s investment – one of South Africa’s biggest since 1994 – provided a “clear signal, particularly to multinationals,” of the opportunities that existed in South Africa.

Alcan’s Coega project manager, Hal Spencer, told Business Report that the Coega smelter was likely to reach production levels of 720 000 tons of aluminium a year by 2014, making it one of the largest in the world.

If Alcan exercised an option to extend it to 1 million tons, Spencer added, it could become the largest aluminium smelter in the world.

The project is expected to create about 6 000 new jobs in the construction phase and 1 000 jobs once the smelter starts operating.

Friday’s signing means that Coega now has its long-sought “anchor tenant,” regarded as crucial to securing further investment and ensuring the viability of the industrial development zone and the new Port of Ngqura around which the zone is based.

Infrastructure development
The South African government has spent in the region of R7.5-billion developing the zone and the port – making Coega the single biggest infrastructure project in the country’s history – and Alcan has singled this out as key to the company’s decision to go ahead with the project.

“It’s one of the best infrastructures I have seen throughout the world,” Anglo-American CEO-designate Cynthia Carroll – at the time Alcan Primary Metal Group’s CEO – told the Eastern Province Herald in October.

“To create the right environment for investment is very important, and establishing locations for investment is a great thing to be doing. And that’s what the government is doing.”

Eskom CEO Thulani Gcabashe said on Friday that the Coega smelter would be the first project to benefit from a development electricity pricing programme specifically designed to attract major industrial investors to the country.

Alcan will be making a substantial contribution to the smelter: the company said on Friday that it wanted to retain between 25% and 40% of the equity of the project and seek partners for the balance.

The SA government, through state-owned finance institution the Industrial Development Corporation (IDC), will also inject a huge amount of capital into the project. According to Business Day, the IDC will take up a 15% stake in the smelter, as well as provide up to $100-million in debt finance.

SouthAfrica.info reporter

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