A successful bid by Canadian aluminium group Alcan for French aluminium player Pechiney is likely to affect the establishment of an $2,1-billion aluminium smelter at South Africa’s Coega port.
However, the jury is out as to what the exact impact of Alcan’s influence will be.
On Monday Alcan launched an unsolicited 3,4-billion euro cash-and-share offer for Pechiney and including debt. Alcan’s offer values Pechiney at 4,8-billion euro.
“A new Alcan-Pechiney group would be good for Coega as the new group would be in a better financial position than Pechiney, which has a heavy level of debt. Pechiney has been adverse to committing to Coega due to the funds involved and the technology risk associated with its AP50 technology,” a London analyst said.
Pechiney’s decision on whether to become the Coega industrial development zone’s anchor tenant is expected in the last quarter of 2003. Pechiney has negotiated an agreement with electricity utility Eskom, completed its environmental impact assessment and negotiated agreements with both the National Ports Authority and the South African Port Operations.
The key outstanding issue for the project to proceed is funding. Eskom has indicated it could provide a portion of the funding by acquiring 25% of the project, and the Industrial Development Corporation (IDC) might contribute on a similar basis.
Pechiney has been unwilling to take a majority stake in any Coega aluminium smelter but the extra financial muscle provided by Alcan could increase the project’s potential.
“Alcan is likely to commit to the Coega smelter depending on the rate of return,” the London analyst added.
At present Alcan is investigating two brownfield aluminium smelter expansions – one in Australia and the other in Canada, said an Alcan spokesperson on Monday.
One of the key benefits of locating an aluminium smelter in South Africa is the low cost of energy in the country supplied by Eskom as a vital cost factor for any aluminium smelter is energy costs. Global commodity giant BHP Billiton already has three aluminium smelters in southern Africa, two in Richards Bay and near Maputo.
However, a local industry player said that a successful bid by Alcan for Pechiney would be the “kiss of death” for any Coega smelter.
“The IDC and Eskom will have to sharpen their pencils even more to make Coega an attractive investment,” he added. – I-Net Bridge