DIALOGUE SUR L'ALUMINIUM

110 years of History in Canada

  •  1901 – Birth of the industry in Quebec
  •  1925 – Building of the world's greatest aluminium complex
  •  1925 to 1945 – Growth of the Aluminium Company of Canada, Alcan’s predecessor
  •  1945 – Founding of Alcan
  •  1951 – First aluminium smelter in British Columbia
  •  1986 to 1997 – Three new smelter projects in Quebec
  •  1998 to 2004 – Development and consolidation
  •  2005 – Expansion of the Alouette smelter (Phase II)
  •  2006-2007 – More plant upgrades
  •  2007 – The struggle to control Alcan

Since its introduction in 1901, the aluminium industry has experienced phenomenal growth in Canada. Its history is intimately related to certain regions. The construction of aluminium smelters spurred the rapid social and economic development of the Centre-du-Québec, Saguenay--Lac-Saint-Jean and the North Shore in Quebec, as well as the Kitimat region in British Columbia.


1901 – BIRTH OF THE INDUSTRY IN QUEBEC

In Canada, the aluminium industry first located in Quebec, close to the Shawinigan Falls on the Saint-Maurice River. The Pittsburgh Reduction Company, later renamed Alcoa,, poured its first ingot of aluminium in Quebec on October 22, 1901. Production: 760 kilograms. A modest beginning for an industry that today produces 3 million metric tonnes in Canada each year, 2.8 million of which are produced in Quebec.

The electricity asset
The smelter was constructed in just seven months following the signature, on August 14, 1899, of a contract with the Shawinigan Water and Power Company to supply electricity. The electrolysis process used to manufacture aluminium requires a great deal of electric power. This is why the industry chose to concentrate its activities in Quebec, with its many waterways.

At the time, Quebec production of aluminium ingots was mainly destined for the British and Japanese markets. The Pittsburgh Reduction Company also manufactured aluminium conductors used in transmitting electric power to Montreal.

In 1902, the Pittsburgh Reduction Company became the Northern Aluminium Company in Canada. In 1913, it opened a kitchen utensil production plant and a foundry in Toronto, Ontario. A few years later, a rolling mill was also started up in this plant.

The First World War played a significant role in the prodigious growth of the aluminium industry. From 1914 to 1918, world production almost doubled, from 69,000 to 131,000 metric tonnes.


1925 – BUILDING OF THE WORLD'S GREATEST ALUMINIUM COMPLEX

In 1925, two entrepreneurs, Arthur Vining Davis and James Buchanan Duke, came to a historical agreement. James Duke, a partner of William Price in a hydroelectric generating station, merged his still unexploited upstream rights on the Saguenay River in Quebec with those of the Northern Aluminum Company. At the same time, Davis undertook to purchase the electrical power required for his planned aluminium smelter from Duke. These agreements formed the foundation on which the world's greatest aluminium complex was to be built.

Following the acquisition of operating rights to the hydroelectric potential of the Saguenay River, in the spring of 1925, the Northern Aluminum Company started construction of the Arvida aluminium smelter named after the company's President (ARthur VIning DAvis). On July 8, 1925, the Northern Aluminum Company Limited was renamed the Aluminum Company of Canada.

The Aluminum Company of Canada gave birth to the City of Arvida, today a part of the City of Saguenay. It contributed to the rapid development of the entire Saguenay—Lac-Saint-Jean region and the introduction of major port and railway facilities. By providing its employees with homes close to their workplace, schools for their children, a hospital and most of the commodities necessary to the daily lives of their families, the company ensured it would have the manpower pool it required.

One year later, on July 27, 1926, the first cells in the Arvida plant began to produce aluminium.


1925-1945 – GROWTH OF THE ALUMINIUM COMPANY OF CANADA, ALCAN’S PREDECESSOR

The Aluminum Company of Canada then set about consolidating its presence in Quebec:
  •  signing contracts for the construction of the Isle-Maligne hydroelectric generating station, close to Alma, and another at Shipshaw, close to  Jonquière; 
  •  purchasing the Compagnie Générale de Chemin de fer Roberval-Saguenay 
  •  purchasing the Compagnie Générale du Port de Chicoutimi, which would become the Terminus Maritime du Saguenay in 1970.

In 1928, the Pittsburgh Reduction Company, the predecessor to the Aluminum Company of America, which had operated under the name of Alcoa since 1907, split in two. Alcoa maintained its activities in the U.S. and transferred its Canadian assets to a new company, the Aluminum Company of Canada.

Support to the war effort
The Second World War was instrumental in the exceptional growth of the aluminium industry, with world production tripling between 1939 and 1943, going from 687,000 to 2,200,000 metric tonnes. The Aluminum Company of Canada supported Canada and the Allies' war effort, by producing aluminium used in military aviation.

In 1939 Alcan expanded its Arvida smelter, increasing its annual production capacity to approximately 500,000 metric tonnes by 1943, 350,000 tonnes of which were produced with energy from its own hydroelectric generating stations.

New plants start up
In 1940, the Aluminum Company of Canada began production at its sheet rolling and extrusion facility in Kingston, Ontario, following which a second aluminium smelter was constructed in Shawinigan (1941), the Beauharnois smelter in Melocheville and a smelter in La Tuque (1942). The following year, construction began at the Isle-Maligne smelter in Alma.

During the same period, Alcan completed construction of a second hydroelectric generating station at Shipshaw, Quebec, with an installed generating capacity of 896 megawatts, and set up a research centre in Kingston, Ontario, which was later expanded several times. It also introduced sand casting activities in its Etobicoke plant in Ontario.


1945 – FOUNDING OF ALCAN

In March 1944, Quebec's aluminium smelters attained their maximum production during the war years, 1,400 metric tonnes per day. In the years following the end of World War II, demand for aluminium dropped due to wartime overproduction; however, recovery was quick in coming.

Demand surged once again. Between 1946 and 1952, world production almost tripled, growing from 774,000 to 2,032,000 metric tonnes. Aluminium was increasingly being used for civil purposes, particularly in manufacturing airplanes and automobiles as well as various domestic products. In 1949, Alcan commenced construction of a research centre in Arvida, with a view to finding new uses for aluminium.

Another producer arrives
In 1955, a second aluminium producer gained a foothold in Quebec: the Canadian British Aluminium Company, which subsequently became the Canadian Reynolds Metal Company. The company began with the secondary fabrication of aluminium, acquiring a share in an aluminium plate rolling mill at Cap-de-la-Madeleine. Two years later, it undertook construction of a plant in Baie-Comeau on Quebec's North Shore.

During the 1960s, Reynolds established other plants in Quebec. In 1981, it launched a major expansion and upgrading program for its Baie-Comeau smelter. In 1985 and in 1991, it added two series of potlines to its facilities, increasing its production capacity to over 400,000 metric tonnes a year.

At the same time, Alcan continued its growth through acquisitions and the construction of new facilities. With world demand growing steadily and technologies evolving, older facilities were gradually replaced by modern, more energy-efficient and environmentally friendly plants.

Between 1977 and 1988, Alcan constructed new aluminium smelters in La Baie and Chicoutimi, known as the Grande-Baie and Laterrière smelters. In 1980, Alcan inaugurated a secondary metal plant in Guelph, Ontario.


1951 – FIRST ALUMINIUM SMELTER IN BRITISH COLUMBIA

At the close of the 1940s, the Government of British Columbia showed interest in developing its considerable resources on the west coast, across from the Queen Charlotte Islands, a sparsely inhabited area. It invited Alcan to study the possibility of building a smelter at the mouth of the Kitimat, a river with significant hydroelectric potential.

In 1951, Alcan initiated a $500 million project, the largest public-private partnership ever introduced in Canada at the time.

The project included the construction of several facilities:
  •  an aluminium smelter in Kitimat, which started up production in 1954; 
  •  a hydroelectric generating station with an installed capacity of 112 megawatts at Kenamo, which supplied the smelter with power; and 
  •  an 82-km power transmission line between the station and the plant. As was the case in Saguenay-Lac-Saint-Jean, the smelter encouraged economic development of this region, attracting other large companies to the area.


1986 to 1997 – THREE NEW SMELTER PROJECTS IN QUEBEC


BÉCANCOUR
The Government of Quebec decided to build on Quebec's hydroelectric potential to promote the introduction and expansion of large companies. These companies not only created jobs but they also consumed significant quantities of electricity. For these reasons, the Government signed risk-sharing contracts with them.

Access to large quantities of electric power at competitive prices and the proximity of waterways, facilitating procurement of raw materials and exportation of finished products, attracted new investors and contributed to developing a world-class industry in Quebec. Since 1901, Quebec has developed considerable expertise in this field and maintains a large, highly-qualified pool of manpower.

Starting in 1986, three new aluminium companies located in Quebec.

Aluminerie de Bécancour, a joint initiative of Pechiney (France), la Société générale de financement du Québec (SGF) and Alumax (U.S.), started production in 1986. At the time, this was the largest private investment ever carried out in Quebec.

ALOUETTE
On the initiative of the Société générale de financement du Québec, an international consortium was created in 1987, to construct a new aluminium smelter in the province. It was composed of VAW (Germany), Austria Metall (Austria), Hooghovens (Holland), Kobe Steel and Marubeni Corporation (Japan), as well as the Société générale de financement du Québec.

On September 1, 1989, the consortium announced the construction of the Alouette smelter in Pointe-Noire, near Sept-Îles. The region was chosen due to the presence of a deep water port, qualified manpower and its proximity to large electric power networks.

Built in less than three years, the smelter produced its first metric tonne of aluminium in June 1992. By December of the same year, Phase I of the aluminium smelter was in full operation. It produces 215,000 metric tonnes of aluminium each year.

Another plant, the Lauralco smelter owned by Alumax, started operations in Deschambault in the Quebec City region. With a capacity of 215,000 metric tonnes a year, it reached full operation in 1993.

At the same time, the number of industries using aluminium as their raw material multiplied rapidly, benefiting from the growth of the primary aluminium industry in Quebec. A wide variety of sub-contractors, as well as large equipment manufacturers, developed upstream and downstream of the industry, which acts as a true economic engine for Quebec's regions.

ALCOA
At the end of the 20th century, Alcan, which dominated production in Quebec, was joined by its ancestor, Alcoa, who had built the very first smelter in the province.

In July, 1998, Alcoa purchased the Alumax smelter in Deschambault, as well as the 25% share that Alumax held in the Bécancour smelter.

Two years later, Alcoa acquired the Canadian Reynolds Metal Company which also owned the Baie-Comeau smelter, the Bécancour rod plant (Reybec Bécancour) and Reynolds’ food and consumer product packaging as well as Reynolds' 50% share in the Bécancour smelter.

By 2000, Alcoa owned 75% of the Bécancour smelter, with the other 25% held by the French company, Pechiney.


1998 to 2004 – DEVELOPMENT AND CONSOLIDATION

Between 1998 and 2001, Saguenay—Lac-Saint-Jean became the largest construction site in North America, as Alcan undertook the $3 billion construction of a smelter in Alma with an annual production capacity of 400,000 metric tonnes.

In 2000, with the merger of Alcan and the Swiss company Algroup, creating a more vertically integrated operation, Alcan became the world leader in rolled products and the second largest primary aluminium production company.

Two years later, Alouette began its project to expand its smelter in Sept-Îles to increase its annual production capacity from 240,000 to 575,000 metric tonnes. The smelter, which has changed owner several times, is now owned by a consortium of five companies:
  •  Rio Tinto Alcan (40%), 
  •  Austria Metall (20%), 
  •  Hydro Aluminium (20%), 
  •  Investissement Québec (13.33%), and 
  •  Marubeni (6.67%).

In 2003, the newly elected Government of Quebec cancelled the agreement concluded with the preceding government concerning upgrading Alcoa’s plant in Baie-Comeau. The $1.1 billion project was abandoned in early 2004... Nevertheless, discussions continued in regard to allocating a block of 175 MW of power and financial assistance. In mid-2004, the Government submitted another offer to Alcoa concerning the proposed upgrading project for Baie-Comeau; this offer was refused.

In 2004, Alcan became the aluminium industry world leader by acquiring Pechiney, the fourth player in worldwide production and fabrication of aluminium and the third in packaging. At the same time, the company obtained Pechiney's share in the Bécancour smelter.

In 2004, Alcoa announced that Montreal had been chosen as the location of its project office for the Fjaroal aluminium smelter in Iceland.

However, the company did not give up its proposal to double the capacity of its Deschambault plant.

As for Alcan, in early 2004, the Company announced it would close down its Söderberg cells at the Jonquière plant resulting in 550 workers being laid off.

In May of the same year, Alcan announced it would split its activities by creating a new company specializing in laminated products. Novelis would become the largest enterprise of its type in the world.

In July 2004, the employees of the Bécancour smelter, owned jointly by Alcoa (75%) and Alcan (25%), rejected the employer’s offers and went out on a strike that would last five months.

In 2004, work to expand the Alouette aluminium smelter in Sept-Îles progressed rapidly, on schedule and within budget. The construction site proved to be a model of efficiency in terms of project planning as well as labour relations management and occupational health and safety.


2005 – EXPANSION OF THE ALOUETTE SMELTER (PHASE II)

In January 2005, Alouette started up its new series of 330 cells, increasing annual production to 575,000 tonnes.

A few months later, the Alouette smelter announced that it would ship half its annual production by water. The “blue highway”, between Sept-Îles and Trois-Rivières, would reduce the number of truckloads on highway 138 by 15,000 each year.

On September 21, 2005, the Premier of Quebec officially inaugurated Phase II. The aluminium smelter would become the largest in the Americas and the fifth largest in the world.

In all, the Alouette expansion project represented an investment of $1.4 billion.


2006-2007 – MORE PLANT UPGRADES

For Alcan, 2006 was marked by major project start-ups and the conclusion of several collective agreements with its employees.

In July, with a 92% vote, employees, members of the CAW union, ratified a long-term agreement creating a favourable climate for major investments. In December, with a 90% vote, employees at the Alma plant accepted the new collective agreement expiring in 2011. Negotiations are underway for the signing of the next collective agreement.

In August 2006, Alcan announced record quarterly earnings. During the same month, the company unveiled a $1.8 billion investment to upgrade its smelter in Kitimat, British Columbia.

On December 15, 2006, Alcan announced investments of more than $2 billion over ten years in the Saguenay, with the creation of 740 jobs on completion. The plant, with start-up originally slated for 2010, will be the first in the world to use the AP50 electrolysis technology. This technology consumes 20% less electricity than the most efficient processes currently in use. This exclusive technology has evolved from AP50 to AP 60 since the announcement of the project.

In the autumn, Alcan launched a vast advertising campaign throughout the country. This initiative was soon followed by Alcoa, with a similar campaign designed to position the company. There was no longer any doubt about the role these companies would play in the upheaval that the aluminium industry would experience the following year in Canada and around the world.

In 2007, in Kitimat, British Columbia, Alcan’s expansion and upgrading project continued in full swing, following ratification of a new five-year collective agreement by plant employees in May 2007. Signing of this long-term agreement was a key condition for the investment project.

Elsewhere, the expansion of Alcoa’s Deschambault smelter was still the subject of negotiations with the Government of Quebec. At the same time, Aluminerie Alouette improved its performance and took first place in the world for the energy efficiency of its electrolysis cells.


2007 – THE STRUGGLE TO CONTROL ALCAN

In 2007, economic and political arenas in Canada and around the world were focussed on the rebounds created by Alcoa’s unsolicited offer to purchase Alcan and, ultimately, Alcan’s purchase by Rio Tinto.

It all began on May 7 when Alcoa’s President and CEO announced the details of the hostile offer to purchase Alcan, a transaction valued at U.S. $33 billion ($73.25 per share).

According to Alcoa, it was a perfect marriage. Alcoa promised to respect all the contracts and agreements concluded by Alcan with governments and communities. Alcos also promised to pursue the projects already announced.

On May 22, Alcan’s Board of Directors unequivocally rejected Alcoa’s offer. At the same time, Alcan announced that it was negotiating with other companies.

On May 24, Alcoa declared that, after having studied Alcan’s negative response, nothing encouraged it to re-evaluate its offer. Alcoa’s offer to Alcan’s shareholders represented a gain of 35% over the average value of the Alcan share during the month preceding the offer.

On May 25, Alcan issued a press release stating that it was prepared to study an improved offer from its rival, Alcoa, or that it could even be tempted to reverse the roles and purchase Alcoa itself.

Rumours of negotiations with BHP Billiton, Rio Tinto CVRD and Norsk Hydro inflated the value of Alcan’s shares, which closed at $904.25 on May 28, 2007, an increase of 40% in one month.

On July 12, Rio Tinto made a registered offer for Alcan, evaluated at U.S. $40 billion, or $101.00 per share, in cash. On the same day, the Chairman of Alcan’s Board of Directors recommended that shareholders accept Rio Tinto’s offer. It was not to be a merger of equal to equal, but a clear takeover of Alcan by Rio Tinto.

Rio Tinto, an Anglo-Australian mining giant, knew Quebec very well since it was the owner of the Iron Ore Company (IOC) and QIT-Fer et Titane, now Rio Tinto, Fer et Titane. Rio Tinto agreed to respect all contracts and agreements concluded by Alcan and to make Montreal the world centre of the activities of the primary metal division.

On July 17, Rio Tinto and Alcan confirmed the sale of the Alcan Packaging division and the possibility that other divisions would also be sold.

U.S., Canadian and European regulatory authorities approved the transaction. The shareholders of Rio Tinto approved the purchase of Alcan officially on September 28, 2007. Alcan was integrated to Rio Tinto to form Rio Tinto Alcan.

A few weeks after it appeared that the affair had been finalized, another development occurred. On November 8, the Anglo-Australian mining company BHP Billiton declared that it had submitted a public offer to purchase its rival, Rio Tinto, valued at approximately $140 billion; however, Rio Tinto rejected the offer, considering it insufficient. Rio Tinto reversed its stand on December 3 and agreed to carry on discussions with BHP Billiton, the largest mining company in the world.

2008
CONCLUSION

On February 6, 2008, BHP Billiton submitted a formal offer for Rio Tinto, which was rejected. According to the terms of the public offer to purchase, BHP Billiton intended to absorb Rio Tinto by exchanging 3.4 shares of BHP for every Rio Tinto share, representing a disbursement of some U.S. $170 billion. This transaction could, however, only go ahead if it met the requirements of regulatory organizations based in Europe, China and the United States. In July 2008, the transaction took an important step with the American authorities responsible for corporate mergers, the conclusion, before its expiry, of the Hart-Scott-Rodino (HSR) waiting period imposed by the U.S. Department of Justice and the Federal Trade Commission. However, on November 25, 2008, BHP Billiton decided not to go ahead with the offer to purchase Rio Tinto, deeming the offer not to be in the best interest of its shareholders.

2009-2011
UPGRADES AND EXPANSIONS

The Canadian aluminium industry has progressively been closing the older smelters that use Söderberg cells. These are being replaced with plants using prebaked-anode cells. The Government of Quebec has passed environmental legislation that will be enacted in 2015. At that time, smelters with Söderberg cells will no longer be compliant and will have to be either closed or modernized. The Beauharnois smelter was therefore closed in 2009. One of Alcoa’s Baie-Comeau smelter’s potlines has also been shut down and will be replaced with prebaked cells. As for Rio Tinto Alcan’s Kitimat smelter, the Company has announced in 2011 an additional investment of $300 million to modernize this smelter located in B.C. Rio Tinto Alcan also announced the first phase of the AP60 plant – the latest generation of its benchmark AP technology – which will have 38 pots and an annual production capacity of 60,000 tonnes of aluminium. It is slated to start up by 2013. The AP60 technology has 40% higher metal output while being the most environment-friendly technology available on the market.

President's Editorial

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