Kitimat is a sparsely populated town on the
rugged coast of northern British Columbia that's about 1,000
miles from nowhere, yet the name is familiar to anyone who has
ever followed the Canadian metals industry or has courageously
tried to chart supply trends for the aluminum market.
Kitimat has one big claim to fame an aluminum
smelter that's been at the center of controversy for what seems
like an eternity.
The Rio Tinto Alcan-owned smelter has sparked
a lot of debate over the years in part because the project also
encompasses water rights that allow the company to make oodles
of cash by selling surplus power from hydroelectric generation
facilities. The smelter is in serious need of an upgrade and
its aluminum output could be substantially increased, but court
cases and political wrangling seem to be continually getting in
The saga of Kitimat has had many twists and
turns and there could be more coming, but it appears we'll soon
know whether the 54-year-old smelter will get the green light
for an expansion that should finally put a lot of uncertainty
Alcan purchased the 900-megawatt hydropower
facilities, which go by the name of Kemano, under a 1950 deal
with the British Columbia provincial government. The town of
Kitimat believes the government gave Alcan the water rights to
produce aluminum, not to resell surplus power at a profit.
Alcan sells surplus electricity to British Columbia Hydro and
Power Authority (BC Hydro) for several times the cost of
During the past decade, it has boosted power
sales from Kemano while cutting back aluminum production and
shaving employment levels, driving a wedge between the company
and Kitimat's political leaders. The latest expansion and
modernization at Kitimat, announced two years ago, would mean
about 500 job cuts.
In late March, the Supreme Court of British
Columbia rejected the town of Kitimat's bid to stop Alcan from
selling the power, saying the company is within its legal
rights to do so under the 1950 contract. The court also noted
that the pact didn't define the smelter's production
Legally, Alcan could shut down the smelter
and simply sell all of Kemano's power output. The province's
utilities commission recently gave Alcan the right to sell up
to 380 megawatts to BC Hydro at appealing prices.
But Rio Tinto Alcan chief executive officer
Dick Evans wants to stay in the aluminum business in British
Columbia, with the commodity's healthy gains this year
providing an encouraging backdrop. Expansions at Kitimat, as
well as at Alcan's Alma smelter in Quebec, have been given new
urgency after Alcan's gigantic 720,000-tonne-a-year Coega
smelter in South Africa was delayed indefinitely due to chronic
power supply issues in that country.
Rio Tinto Alcan has budgeted $2.5 billion to
modernize and expand Kitimat's capacity by 45 percent. The plan
includes replacing the existing 277,000-tonne-a-year smelter
with a much more technologically advanced 400,000-tonne
It's now up to Tom Albanese, Rio Tinto's
chief executive officer, and his board to make a final decision
on Kitimat, which is expected before year-end. In March,
Albanese made it clear that Kitimat could play an important
role in the company's future. In an interview with the
Vancouver Sun, Albanese said he's bullish on global
aluminum prices because of economic growth in China. He
maintained that Kitimat's access to low-cost electricity means
that it is an exceptionally strong candidate for renewal.
Nevertheless, it would seem Kitimat might not
be among Albanese's biggest concerns. BHP Minerals' takeover
overtures, for instance, surely must be consuming more of his
The British Columbia government, meanwhile,
promises not to get in Alcan's way. Followers of the saga know
that's pretty crucial. In 1995, then-premier Mike Harcourt of
the New Democratic Party infamously halted construction midway
through an expansion at Kemano because of concerns it would
hurt fish stocks. The company at that point had already spent
$500 million on the work.
The current provincial Liberal government,
which has made green initiatives a priority and sided with
Alcan in the recent court cases, is pledging its full support.
Without a big investment, after all, the smelter will soon
reach the end of its operating lifespan and the town of Kitimat
likely would fade into the sunset. An expanded smelter also
would yield a 40-percent reduction in greenhouse gas emissions,
allowing the province to proudly keep wearing its "green"
Colin Hansen, British Columbia's Minister of
Economic Development, said in an interview with AMM
that Alcan has reassured the province it wants to stay in the
aluminum production business. "The idea of Alcan to exclusively
become an electricity generator is something that is not being
considered," Hansen said.
The estimated 500 job cuts in a community of
9,000 people is significant, he said, but "the way we look at
it is not whether you have 1,500 jobs at the plant or 1,000,
it's a question of whether you have 1,000 or none."
So Kitimat might finally have a smelter
worthy of the 21st Century-if, that is, Albanese stays bullish
on a commodity that's always been the town's lifeblood.