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
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.
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
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
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
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
"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.