Alcoa Continues Reshaping Upstream Business
April 16, 2015
Alcoa recently announced that it plans to curtail 443,000 metric tons per year (mtpy) of alumina refining capacity at Suralco in Suriname. In addition, the company and the government of Suriname have agreed to pursue a transaction for a government-owned entity to acquire the Suralco operations.
The curtailment and potential transaction are in line with Alcoa’s recent announcement to review upstream capacity for possible curtailment or divestiture and the company’s strategic goal to create a globally competitive commodity business. The curtailment, which represents one digester, is expected to be complete by April 30. “Reducing the production of the refinery will assist in extending the life of the operations as we continue to work with the government of Suriname on the transaction,” said Bob Wilt, president of Alcoa Global Primary Products. “We are committed to working with the government to find the best solution for the Suralco facility.”
In October 2014, the government and Alcoa signed a memorandum of understanding reflecting both parties’ intent to find a solution for the future of Suralco, which operates in a challenging global environment with limited bauxite reserves and lacks a long-term energy solution. The resulting discussions between the parties have led to the government’s decision to sustain the bauxite industry in Suriname. Both parties now intend to pursue a transaction where a government-owned entity would acquire Suralco, including the mining, refining and Afobaka hydroelectric operations. Following the appropriate due diligence, the parties are targeting to reach agreement on the proposed transaction by July 1.
The company will reportedly work closely with unions and employees to reduce the impact of the curtailment on affected employees by offering fair severance packages. The Paranam refinery and related mining operations employ approximately 700 people, in addition to contracted personnel. The net financial impact associated with the curtailment is not expected to be material to the company’s earnings. Alcoa’s review of its refinery operations is consistent with the company’s goal of lowering its position on the world alumina cost curve to the 21st percentile and the aluminum production cost curve to the 38th percentile, by 2016.
Suralco’s total refining capacity is 2.2 million mtpy, with 876,000 mtpy currently idled. Suralco is part of the Alcoa World Alumina and Chemicals group of companies, owned 60% by Alcoa Inc. and 40% by Alumina Ltd.
For more information, visit www.alcoa.com.