CHICAGO Century Aluminum Co. has agreed to acquire Rio Tinto Alcans smelter in Sebree, Ky., for $61 million in cash and the assumption of $4 million in liabilities, the companies said April 29.
Under the terms of the deal, Monterey, Calif.-based Century will receive $71 million in working capital while Montreal-based Rio Tinto Alcan will assume all past environmental liabilities and has agreed to fully fund the operations pension plan.
The transaction remains subject to closing conditions but is expected to be completed by the end of June, Rio Tinto Alcan said.
Sebree has been a "solid operation" and should remain so under Centurys ownership, the company said. Rio Tinto Alcan declined to comment beyond a news release.
Rio Tinto Alcan announced plans in 2011 to divest 13 assets, including the Sebree smelter (amm.com, Oct. 17, 2011).
The Sebree acquisition comes as Century also announced that it had reached a tentative power agreement for its smelter in Hawesville, Ky.
AMM reported in February that Century was interested in acquiring the Sebree smelter (amm.com, Feb. 8). Market participants suggested at the time that if both facilities were owned by one company it would have more leverage in power rate negotiations.
Centurys Hawesville smelter has a rated capacity of 244,000 tonnes of primary aluminum per year and employs about 650 people, Century said. The Sebree plant produced 205,000 tonnes of primary aluminum in 2012 and supports 1,800 direct and indirect jobs, Rio Tinto Alcan said.
The Hawesville and Sebree smelters in western Kentucky are provided with power by Big Rivers Electric Corp., Henderson, Ky. The two smelters are estimated to account for about 70 percent of Big Rivers output, and both Century (amm.com, Feb. 4) and Rio Tinto Alcan (amm.com, Aug. 20) had given the utility notice of their plans to terminate their power contracts.
"We believe that, with these facilities under common ownership, we will derive real benefits in better serving customers and through improving both operations," Century president and chief executive officer Michael Bless said in a statement. "We believe Sebree, like Hawesville, is globally competitive in every area other than the cost of power."
Getting access to competitively priced energy is critical to the "continued viability" of both smelters as well as the thousands of direct and indirect jobs they support, Bless said. The tentative power agreement, also announced April 29 by Century, represents a first step toward locking in "market-priced power," he said.
The tentative power deal for Centurys Hawesville smelter would see its electricity providers acquire power on the open market and pass it on to the aluminum producer in addition to any associated costs, Century said. A definitive agreement has not been signed, and the pact remains subject to third-party approvals, including from the Kentucky Public Service Commission and the Rural Utilities Service, the company said.
All parties are moving as quickly as possible to reach a final deal before Centurys current power deal for the Hawesville smelter expires Aug. 20, the company said.
Big Rivers, a nonprofit electric generation and transmission cooperative, confirmed that a tentative framework for a deal had been reached. "It is great news for the employees at Century as well as the employees at the companies with whom they do business," a Big Rivers spokesman told AMM. "But its taken several months to get here. And just because we have this agreement doesnt mean Big Rivers wont need a rate increase." A rate increase would have been necessary whether Big Rivers gave Century a rate concession, whether the Hawesville smelter closed or whether it got power from the open market, he said.
The deal also means that Big Rivers will have to idle one of its plants, the spokesman said. It remains to be determined whether that will be a facility in Hawesville or Sebree or another in Ohio County, Ky., he said.
The new power agreement should lower power costs at Hawesville by approximately $200 per tonne of aluminum, or roughly $50 million per year, analysts Lloyd T. OCarroll and John F. Ockerman of Davenport & Co. LLC said in an April 29 note to investors. They estimated that the smelter had been losing $50 million per year over the past year.
"The improvement in power costs should make Hawesville breakeven on a cash basis at recent aluminum prices," OCarroll and Ockerman said.
Sebree recently underwent a rectifier upgrade that increased its power efficiency and lowered its costs, the analysts said. But the facility has still been losing about $20 million per year over the past year, they estimated.
Losses at Sebree have been lower than those at Hawesville because the Sebree smelter produces more billet and value-added products than the Hawesville smelter, which mostly sells molten aluminum to wire and cable producer Southwire Co., the analysts said. If Century were to negotiate a power arrangement at Sebree similar to the one at Hawesville, the Sebree smelter could see costs reduced by approximately $41 million per year, or $200 per tonne of aluminum, they said.