Alcoa Takes Full Ownership of Intalco and Eastalco Smelters in Washington and Maryland

07-03-2006: Alcoa announced it has reached agreement to acquire the minority interests in its Intalco and Eastalco aluminum smelters in Ferndale, Washington and Frederick, Maryland.

Affiliates of both Mitsui & Co. Ltd. and YKK Corporation will sell their combined 39 percent stake in the two smelters, which will result in Alcoa having sole ownership of the two facilities. Alcoa will receive undisclosed cash consideration to cover liabilities relating to the prior operation of the smelters. The transaction is expected to be completed by the end of the month.

The Intalco smelter is a 278,000 metric ton per year facility and is operating at approximately one-third its capacity. The 195,000 metric ton per year Eastalco smelter was temporarily idled in December 2005 because it could not secure a competitively priced long-term power arrangement. The company is continuing to work with union, community, and elected officials to explore long-term power options that would allow the plant to reopen.

In the Pacific Northwest, Alcoa has signed agreements with the Bonneville Power Administration (BPA) and Public Utility District No., 1 of Whatcom County (Whatcom PUD) that provide financial benefits to help reduce the cost impact of market-based power purchases from other energy suppliers after its current contract with BPA expires in October, 2006.

The agreements follow a BPA Supplemental Record of Decision (ROD) issued earlier this month that provided the three remaining Northwest aluminum companies financial benefits in lieu of cost-based, direct service currently provided by BPA. Under the terms of the ROD, each company is entitled to a benefit of $12/MWh based on its historical energy contracts.

In addition to the Intalco smelter, Alcoa operates the Wenatchee smelter in the BPA region. Wenatchee is operating at approximately one-half of its capacity.

"The financial incentives will certainly help," said Alan Cransberg, President, Global Manufacturing Alcoa Primary Products. "But even with the incentives, our energy costs in the Northwest will increase significantly. We are exploring all possible options to remain viable at Ferndale during the transitional period from October 2006 to 2011," Cransberg added.

"Any viable long-term option for Intalco must include several key components -- among them is the ability to secure long-term, globally competitive power. The long-term future of Intalco hinges on successful negotiation of a cost-based energy contract with BPA beginning in 2011. We view the 2006 to 2011 contract as a bridge to that time period where we hopefully would be able to purchase power in the same manner as other key industries in the region," said Cransberg.