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Alcoa cancels $1.1 billion smelter project in Quebec

Alcoa (NYSE:AA) will not go ahead with a $1.1 billion modernization of its smelter in Baie-Comeau, Que., the company said Monday.

The announcement comes after six months of intense negotiations over Quebec government support for the project.

The aluminum giant said it could not reach a deal with the province over energy costs and, as a result, the existing smelter will eventually close. Alcoa is the largest company in the region, employing 1,800 people.

Work on the expansion and modernization was suspended in January after the Liberal government refused to respect commitments made in late 2002 by the previous Parti Quebecois administration.

"Despite several months of hard work and good-faith negotiations between the company and the Quebec government, the parties have not been able to generate the conditions that could lead to an agreement," Jean-Pierre Gilardeau, president of Alcoa Canada Primary Metals, said in a statement.

"With energy representing more than 30 per cent of our operating costs, we simply cannot invest a billion dollars in a project with the risk that energy prices will rise considerably over the life of that project," Gilardeau said. "Over 40 years, even with only moderate increases, energy would represent a $10-billion cost."

Alcoa said it intends to keep the smelter in operation "at least until 2010, as long as environmental requirements, energy availability and market conditions will allow."

Written by CBC News Online staff

Copyright © 2004 Canadian Broadcasting Corporation - All Rights Reserved

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