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REPORTING · 12th May 2010
Walter McFarlane
Paul Henning, Vice President of BC Operations for Rio Tinto Alcan stepped up to the stand on Monday, May 4th, at Kitimat City Council. He stated he would update Council on the smelter since the last time he presented to Council, almost a year ago.

When he last presented, there was some uncertainty around the global economy and the challenges the local smelter was going to face. “What we saw in our business was essentially a drop in the value of the metal price, fairly significant. To about 15% of its value of the last 18, certainly 12 months. But it had been there before. What we also saw was a huge increase in the inventory level of metal on the ground around the world. It is a function of the price but it is also a function of the marketplace. And that metal is essentially still there today,” said Henning.

He explained they worked to mitigate the impact to the current smelter so they could sustain the business. His first chart displayed the tonnes of metal in warehouses. The tonnage of metal in registered London metal exchange warehouses reached 4.5 thousand tonnes quickly.

“To date, where this is pretty accurate, certainly for the first couple of months of 2010, we have not seen a downturn. What that means is: there is no new metal going in but there is no old metal coming out. So the production level of primary production like Kitimat is feeding the marketplace but the net balance is not forcing a reduction. What would do that is if we continue to reduce primary capacity, reduce the number of smelters operating to stop putting primary metal on the market, we assume that would change the demand for this metal to be reprocessed and get into the marketplace,” said Henning.

His next chart displayed the inventory and the amount of weeks it would take to consume the inventory. It would take 18 weeks to consume the excess if there was no new metal reaching the marketplace. He explained there was a similar event in the 90s.

Henning explained the excess inventory around the world is one of the reasons why they are not confident in returning to full production. Henning stated two Rio Tinto Smelters had already been closed permanently. One smelter was in Quebec and at the end of its life. The other was in Wales. Both were closed because of the economy.

He said the price of metal was not in their control but the cost to produce the metal was. A part of the plan was to reduce production by letting pots fail and not restarting them once they have been replaced. This would make things more difficult but they would not close any of the Kitimat facility.

In addition, the metal which was not selling was re-melted and sold at a discount. It was not until August when Kitimat Smelter managed to make money. They managed to reduce $40 million dollars of their costs. RTA took a long look at overtime as a cost they could control.

“It was painful at times but it was necessary,” said Henning

The next chart showed the workforce and overtime hours of the plant. They aim to have 1000 workers when the Kitimat Modernization Plan (KMP) begins. Their goal is to reduce the workforce without layoffs until they have no choice. As the workforce goes down, overtime goes up. They managed to cut 50% of the overtime or 250 hours of work.

The next chart showed the production of sheet production, the billets and the re-melt. Billets and sheets are value added products. The billets have not sold well but the sheet metal is increasing. The re-melt is not worth much; in 2009, it was sold at a discount.

He moved on to power. He showed a chart with monthly power used by the smelter and sold to BC Hydro from 1954 through to the present. Councillor Gerd Gottschling requested some numbers. Henning explained the smelter required 620 megawatts when it opened and about 500 today. On average they sell 300 megawatts although the numbers change regularly with generator ability, water level and smelter consumption. He further explained the changes in the generation in the plant.



Gottschling wanted to know how many pots were not active. Henning estimated about 160. He said he could start more pots but he has to be able to sell the metal and he doesn’t have the confidence to justify starting those pots. He wanted to minimize lines 7 and 8 and maximise the other pots.

He explained he is trying to balance the number of pots which takes time. Henning added they will be using all of the electricity once the KMP begins. They do not want to have outages during KMP.

He expressed at the plant, with all of the noise and all of the distraction, things could have gone wrong. “The one thing that I’m extremely proud of and thrilled with has been our safety performance,” said Henning. “The safety performance could have deteriorated quickly. […]

The next chart showed the safety levels of the plant. Year to date, there has only been one incident with time lost. In 2009, there were 7.

“It is the employees and the union, because the union and the management team have created something special,” said Henning. “Never the less, this is world class,”

He expressed if they did not have people who could run the plant safely, the price of the power and the high tech did not matter.

He moved on to the Fluoride Emissions and the non compliance issue which became the focus of the discussions throughout 2009. He said there was confusion over this and it was the staff's fault. Henning explained they have been in compliance since October 2009 and a barometer in their publications displaying them out of compliance has been used to keep the pressure on the workforce. “Now that I let the cat out of the bag, we have to change it,” joked Henning.

He said it is in the yellow now, but they are starting the months in which they were challenged last year. The next chart showed the Fluoride emissions going back to 1974, when they did the last upgrade on the plant. This was the inclusion of dry scrubbers over wet scrubbers. He could not guarantee they would not be out of compliance this summer but he hoped they would not repeat the peaks from 2009, The Ministry of Environment is working hard to regulate the Smelter.

The next part of his presentation was KMP. Henning said when Jacynthe Côté was in Kitimat, she said Kitimat could teach them about safety. She also said they have $100,000,000 towards KMP. The next chart showed the changes to the buildings describing it as positive yet frustrating.

The project has been optimized into a better plant in design, efficiency, environmental controls and layout than was previously designed. They plan to start building the first part of the modernisation project this month. The building will house the interface between the pot rooms and the carbon facilities. It is a transition zone. However, it will serve another role in the moderation as its size will allow them to facilitate operations during the winter.

Henning said it means more local construction than probably would have happened. “The bidding process is live while we speak to make that a reality,” said Henning.

He concluded the challenge remains the same in 2010. They will feel better than they did in 2009. He said the challenge would be the solid metal price but not the volume of metal coming down which keeps the lack of confidence alive. They are predicting to freeze 200,000 tonnes this year, although it could change based on demand. He does not want to reduce the re-melt.

He explained they want to be in compliance, as they do not like being regulated. If they remain out of compliance, they will be forced to start shutting down the operation. They will stay in compliance through process control. This is basic, not fancy or unique, it’s control. He added: the most important aspect for 2010 will be the journey towards 0 injuries.

Councillor Richard McLaren wanted to know how the snow pack was in the reservoir this year. Henning explained it was low and explained the reservoir was also lower than it was last year. He was not worried because they get 80% of their water during the spring.

Gottschling thanked him for coming and asked about the managing of power, water level and the electricity through the power line. Henning clarified a few things and illustrated the water levels in the reservoir by doodling a quick sketch on Councils' Dry Erase Board with the wrong kind of marker. Henning suggested there something which would clean it up.

Gottschling asked if Henning had approval to upgrade the capacity of the powerline to Terrace to 420 megawatts. The answer, "No". He did have an agreement for the amount, but under certain weather conditions, it can get to 420. He has the abilty to go there if he needs to rather than the need to go there.

Goffinet asked for clarification on two things, first, the number of workers to lay the groundwork. Henning replied the modernized smelter would require 1000 employees including staff. He wanted to make certain they are not laying off people but are as lean as possible when KMP begins. He explained how they are retiring people but the number will not be exact.

Goffinet then clarified, the modernization would take 24-30 months, and it was expected attrition would take place during this time. Henning said this was correct. “It’s not enough just to modernize, it has to be the best in class. It has to be the first in quarter, most cost efficient and safe, and most environmentally friendly unit in Rio Tinto. That’s what has to be here. And what has to be here is the workforce to be able to support it,” said Henning.

Gottschling wanted to know the current number of hourly workers. Henning replied there were about 1395 workers including staff, about 1100 hourly. He wanted to know if the inventory around the world was not accessible to the market. Henning replied this metal was released to the market and spoke about how the market for this metal worked. Some of it would be tied up in terms, but he did not know what the terms are.

Gottschling had another question and Mayor Joanne Monaghan wanted to know how many more he had. Gottschling clarified information on resources and asked if they were burning out pots based on the changing amperage. Henning replied no. There were many things. Gottschling asked if he was planning on increasing the number of pots out. Henning replied yes, but he was changing the balance.

Goffinet wanted to know why Kemano had to be ready for KMP. Henning explained there was maintenance to be done in Kemano. If there was a low water year, and/or maintenance needed when KMP came online, they would have a problem. Again, it was about balancing everything so they are balanced. Goffinet clarified this is procding now? The answer: Yes.

Gottschling asked if there was any good news for Council, citing the five year labour contract with the union. He asked if they were working with the union now, as they are close to 2012 and the contract is close to expiration. Henning explained they are talking about it, but they are not officially in discussion at this time.

Gottschling asked his final question. He asked: why not start the Kitimat Modernization Project today. Henning stated they do not have final approval at this time and he could not speak for the board. He said they have to be ready when the board does make the decision.

Councillor Bob Corless wanted to ask a question regarding a motion which Goffinet wished to make later in the meeting regarding keeping Moon Bay Marina open for area boaters.

Henning said this was a contract situation which was not viable. A part of it was environmental, but this was only a piece of the puzzle, safety and commerical being the other two. They need to stabilize the situation they have. He did not want to do this, but if he did not, he felt he would not have done the right thing.

They want to look at the site, what needs to be done to stablize it and view what the future would look like. He did not want to close any doors but he wanted to be fair to custom sports.

Henning stepped down and Monaghan thanked him for coming. Henning jokingly offered to wreck more of Council’s property with his drawings. Monaghan said it was modern art and asked him to sign it.