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GFG 'working with Alcoa' on solution for troubled San Ciprian aluminum smelter

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GFG 'working with Alcoa' on solution for troubled San Ciprian aluminum smelter

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GFG aims to turn San Ciprian business around

Energy, alumina supply crucial elements in any deal

London — GFG Alliance is "working with Alcoa" on the future of the troubled San Ciprian aluminum smelter in northwest Spain which has been put up for sale by the North American aluminum giant, and is "confident" on finding a solution for the plant's long term sustainability, so long as sources of power and alumina are guaranteed, said Jay Hambro, GFG's Chief Investment Officer.

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This single site is Spain's single largest power consumer, energy costs are of vital importance to its success or failure "and with a very sizeable investment in renewable energy in that part of Spain and broadly across Spain, we can create a cost-base for the smelter that will support a long-term future," Hambro said in a Sept. 14 interview with S&P Global Platts.

GFG is "trying very hard to create a long-term sustainable solution for the San Ciprian smelter.....we're very good at finding ways using a bit of imagination and the phenomenal human resources that we have in-house and our good track record of working with all stakeholders to bring those ingredients together to change the future of industries that a lot of people write off..... We're working with Alcoa to make sure the investments we make - that would have a pay-back period of 10 plus years - would be supported by us having confidence in the supply of their (alumina) refinery. If we can solve all these elements and have the willing cooperation of the vendor I'm pretty sure we can deliver what we do best..... changing the fortunes of a business like this," Hambro said.

GFG's UK-based Liberty House subsidiary entered into exclusive talks over Alcoa's proposed divestment of the 228,000 mt/year capacity San Ciprian smelter in August. Spain's Industry Ministry is also involved in the negotiations in a move to find a sustainable labor solution and an initial deadline for an agreement between the parties has been extended to Sept. 28.

Hambro, who is responsible for GFG's global growth strategy, would not be drawn on whether the Sept. 28 deadline still stands.

Liberty has significantly expanded its aluminum interests over the last two years. Its aluminum assets, including Europe's biggest (280,000 mt/year) aluminum smelter in Dunkirk, France, bought from Rio Tinto, the UK's sole smelter at Fort William, Scotland, and downstream assets have in recent months consolidated into the Alvance Aluminium Group.

Alcoa has had tussles with the Spanish government for several years over energy prices, viewed as a crucial element in the San Ciprian smelter's loss-making performance. Uncompetitive energy costs contributed to the company's decision in 2019 to sell its other two Spanish smelters, the 93,000 mt/year site at Aviles and the 87,000 mt/year plant at La Coruna to Swiss Group Parter Capital.

Two sides still apart

Alcoa's Spanish office, however, indicates that the negotiations between the two parties may still be far apart.

"Twelve days since the agreed date for an agreement on the general conditions for the sale of the aluminum plant at San Ciprian, GFG is still putting forward unreasonable demands which are outside of the negotiated agreement and is risking the sale process," Alcoa said in a Sept. 11 statement sent to Platts.

GFG is insisting on a 90 day inventory - which is not possible to store at the plant as well as rights over the alumina plant, which is neither for sale nor part of the Aug. 13 agreement with worker representatives, among others, Alcoa said.

Alcoa said it has offered to sell the plant for one euro and contribute $50 million to an escrow account for the aluminum plant and assume separating costs of $50 million and offer an alumina supply contract for five years at reasonable terms. However, GFG is requesting that Alcoa assumes $170 million in costs, it said.

Hambro did not comment in the interview on the differing stances taken by the two sides in the negotiations but indicated that guaranteeing "comfort on raw material supply" from the San Ciprian alumina refinery - which has not been included in the current sales negotiations – will be essential for the smelter purchase to go ahead. "We wouldn't want to have to deal with taking on the smelter.... And then they (Alcoa) wanting to close the refinery........ that would not be a good solution for anyone," Hambro said.