195 (17.05.18)


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EXCLUSIVE

Star-Crossed: Rio Tinto & Alcoa

A new zero-carbon aluminium initiative launched by Apple, Rio Tinto and Alcoa in Canada could be the beginning of a deeper relationship

Under spotlights in Quebec City last week, piled-up on a podium against a backdrop of shimmering blue rock, the world's first carbon-free aluminium ingots were unveiled to the world's press.
   Looking on was Canada's prime minister Justin Trudeau, flanked by executives from Apple, Rio Tinto and Alcoa, a $9bn aluminium group in the US. Wearing white socks emblazoned with stars and an aluminium-grey suit and tie, Trudeau fired celebratory Tweets at Apple's boss Tim Cook, whilst press releases hailed the event as “revolutionary” and “truly historic.”
   “This is HUGE!” onlookers Tweeted, “Again, Yay Apple!”
   The two companies behind the unveiling, Rio and Alcoa, were guarded about their new technology, but at its technical centre near Pittsburgh, Alcoa has been churning-out aluminium ingots that “eliminate” greenhouse gases from the smelting process, pumping-out pure oxygen instead.
   The breakthrough promises to change aluminium production for the first time since the 1880s, turning a metal tarnished by dirty smelters into a lauded green metal of the future. Strong, lightweight and infinitely recyclable, around 60m tonnes of aluminium is used every year in everything from iPhones to aeroplanes. Bauxite is mined and purified into alumina, which is then melted and split by anodes into liquid metal and gas, releasing huge quantities of CO2, accounting for nearly 1 per cent of all the world's emissions.
   Alcoa's technology, which it has been trialling since 2009, was first uncovered by Apple, which has been trying to clean-up its image in response to criticism about where it buys all the metal and plastic that goes into its shiny, short-lived products.
   Ever since 2015, when Apple turned its shopfront logos green to celebrate Earth Day, the company has been on a campaign to lower emissions and waste: 99 per cent of the paper in its packaging is recycled, all its facilities are powered by green energy and the company is pressurising suppliers to do the same.
   One obstacle has been aluminium: there is roughly half a kilogram of the metal in each of its laptops, accounting for a third of their weight and 24 per cent of Apple's total carbon footprint. To get that figure down, it has threatened to end its “reliance on mining altogether”, instead using recycled materials in a “closed-loop” supply chain.
   As a stopgap, Apple sent engineers round the world's largest aluminium groups and labs, turning up Alcoa's zero-carbon ingots. The technology's biggest hindrance is that it burns through electricity, so Apple introduced Rio Tinto, one of the largest

players in so-called green aluminium, produced using hydropower from dams in Rio's Canadian aluminium business.
   The three companies are now pouring cash into a new joint-venture. Apple is investing C$13m ($10m), whilst Alcoa and Rio Tinto will initially spend C$55m each, upscaling the technology and licensing it out to build new smelters and retrofit old ones. Trudeau has lobbed C$60m into the idea, as has the government of Quebec. Total investment is due to hit C$558m.
   Industry insiders say this could be the beginning of a deeper relationship between Rio Tinto and Alcoa, potentially bringing the two groups together.
   In green aluminium, Rio's biggest competitor is Russian group Rusal, which has just been knocked out of the market by US Treasury sanctions against its founder Oleg Deripaska, blocking warehouses from handling Rusal's goods. To squeeze-out China, President Trump has also put tariffs on aluminium imports, boosting Alcoa's facilities in the US.
   The changes promise a period of bumper profits for both Rio and Alcoa, which mined roughly 50m tonnes of bauxite each last year, turning it into 2m to 4m tonnes of aluminium apiece. In Brazil and Guinea, they also co-own two mines. Putting the two together and Rio's aluminium business would swell to sales of $23bn, generating $5.8bn of operating profit and $2.2bn of free cash flow last year.
   The biggest impediment to any deal is the stock market: Rio's shareholders keenly remember its $38bn cash takeover of aluminium giant Alcan in 2007, forcing Rio to turn to the market with a $15bn rights issue when prices collapsed two years later.
   Aluminium insiders say the Alcan deal, though widely derided, is well on its way to paying itself off, accounting for a third of Rio's revenue today and throwing-off more cash flow than its coveted copper business. “There is the old joke,” one fund manager says, “about your short-term investment becoming a long-term investment because you've had a bit of a setback.”
   Rio's chief executive Jean-Sebastien Jacques, who has brushed-up the group's portfolio since his appointment in 2016, selling over $7bn of assets, is openly bullish on aluminium, saying the market has reached “a turning point” as China promises to tighten supply after years of expansion. “All the signals for the long term are moving in the right direction.”
   In Quebec, as Rio's head of aluminium grinned alongside Canada's prime minister and Alcoa's chief executive, Rio's staff pinged-out updates on social media: “We can't wait to see what the future holds.”

 

CONTENTS

Clock-Ticking in Race
for Traceable Metal

Mining has a supply chain problem. New technology can improve traceability. It could also be a source of profit

Silicon Valley a Derivative of the Mining Industry

The valuation of Facebook versus Rio Tinto points to a misunderstanding in society, writes Bernstein's Paul Gait

Briefing: Bullpen at BAML

The world's largest mining companies traded blows at the Bank of America conference in Miami this week



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Alcoa's Breakthroughs

1886 Chemist Charles Hall invents aluminium smelting, founding the Pittsburgh Reduction Co.

1903 Makes engine block for “Flyer”, the Wright Brother's first plane

1907 Changes name to Aluminum Company of America (Alcoa)

1910 Invents tinfoil: an
instant commercial success

1925 Lists shares on the
New York Curb Exchange

2000 $4.5bn merger with rival Reynolds Metals, pushing sales through $20bn

2016 Spins-off $8bn engine parts business, leaving Alcoa focused on mining and smelting

2018 Zero-carbon aluminium joint-venture launched with Rio Tinto