Alcan not obligated on Saguenay, CEO says

Alcan Inc.'s legacy agreements with the Quebec government for water rights to the Saguenay River contain no employment or investment conditions, Alcan head Dick Evans said Tuesday, a revelation that could lessen political barriers for a potential foreign takeover of the aluminum maker.

Amid a rapidly consolidating metals industry and rising aluminum prices, Montreal-based Alcan has been tagged as a possible target for foreign mining giants such as Rio Tinto PLC, BHP Billiton Ltd. and Companhia Vale do Rio Doce (CVRD).

Mr. Evans, president and chief executive officer, has said Alcan is not interested in a friendly merger and has warned that the secret nature of Alcan's various agreements with Quebec including those concerning water rights to the Saguenay are a "black box" that could dissuade a hostile bidder.

However, on a conference call to discuss the company's first-quarter results, Mr. Evans said Alcan is not obligated to provide a minimum level of jobs or investment dollars as part of the agreements to build dams and hydroelectric stations on the Saguenay River signed with the province in 1926.

"The old legacy rights, no, there are no additional commitments," Mr. Evans said when pressed by an analyst on the call.

The Saguenay waters allow Alcan to produce roughly 1,115 megawatts of electricity annually, or more than half of the 2,015 megawatts it produces each year on average to power its eight aluminum smelters in Quebec. A potential Alcan suitor would need certainty it would continue to hold the Saguenay water rights for a takeover bid to succeed.

Mr. Evans said Alcan's Kemano power station in British Columbia, which produces an average 790 megawatts annually, would cost $2-billion (U.S.) to replace, suggesting the company's hydro assets in Quebec could be worth up to $5-billion.

Higher aluminum prices and strong performances from its four business units pushed Alcan's first-quarter profit up 30 per cent. Excluding unusual items, per share profit was $1.69, topping analyst estimates of $1.47.

In December of last year, the government of Quebec agreed to provide Alcan with more power from its grid and $500-million (Canadian) in interest-free loans and tax benefits after the company promised to invest more than $2-billion in the Saguenay region over 10 years.

As part of that agreement, Quebec extended Alcan's long-term lease on the water rights to the Peribonca River until 2058. The pact stipulates that the government of Quebec has the right to cancel benefits including those related to water and power "should there be either an acquisition of control of Alcan or a change in the location of its headquarters which has a negative impact on the company's positive commitment to or presence in Quebec."

In the past, Mr. Evans has said the stipulation is "not a poison pill" and should not dissuade takeover offers. Tuesday, he said there are still confidential elements to both the new agreement and the old power and water rights that "appear as a black box" from the outside.

"We see no competitive value in publicly sharing additional information around our rights and obligations on those power assets," Mr. Evans said.

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