Alcoa offer good news for Alumina

ALUMINA’S shares were up nearly 4 per cent yesterday after its international partner, Alcoa of the U.S., made a $32.5 billion bid for its main competitor, Alcan of Canada.

If the Alcoa bid is successful – and analysts were yesterday resurrecting the idea that both Rio Tinto and BHP Billiton were possible spoilers who could well bid for Alcoa – Alumina would emerge with a 40 per cent stake in a much bigger bauxite and alumina business than it currently holds.

Alcoa and Alumina run their global bauxite/alumina operations through a joint venture known as AWAC, with Alcoa holding the other 60 per cent of the partnership.

The AWAC agreement requires both partners to run all their bauxite/alumina businesses – meaning Alcan’s extensive interests in these downstream aluminium businesses may find their way into AWAC if Alcoa’s bid is successful.

Alumina would have to pay for the privilege of taking its share of Alcan’s significant bauxite/alumina assets – which include the Northern Territory’s Gove alumina refinery, which has just been expansively expanded.

But it would also share in some of the $1.2 billion in costs savings Alcoa sees as available by combining with Alcan.

Alcoa’s offer follows earlier failed merger talks between it and Alcan – which Alcoa chairman and chief executive Alain Belda said he was disappointed had not come to fruition, leaving it, by implication, with no choice but “to go directly to the shareholders of Alcan which it described as its natural partner”.

“It’s better to be bigger . . . as my father used to say, you have to be bigger than the hole you can fall in,” Mr Belda said at a Montreal briefing yesterday.

Both Rio Tinto and BHP Billiton were widely reported earlier this year to have examined taking Alcoa over.

Information from: www.news.com.au