Oct 23 2008

Century Stops Investment in Helguvik Smelter

Century Aluminum announced in a statement it is reconsidering the planned smelter in Helguvík. It said it has stopped making any new capital commitments due to the global financial crisis.

“In the current environment, we have ceased making any new capital commitments and are reducing project spending. We believe the potential exists for a prudent way forward over time, but will soberly evaluate the feasibility of all elements of the project during the near term,” (1) said Logan Kruger, Century’s CEO.

While Century Aluminum’s revenue for the third quarter of 2008 rose due to an increase in aluminium shipments (2), prospects were deemed less rosy. Merrill Lynch downgraded Century Aluminum’s investment rating to ‘underperform’. It said aluminium pricing is weak, inventories of the metal are high and there are little catalysts to drive the price up.

“Some might think this is bad news for Iceland and that a new smelter could help with the economic crisis. But when we looked at what happened with Alcoa Fjardaal and Karahnjukar, a cancellation of Helguvik may be a blessing in disguise,” says Saving Iceland’s Jaap Krater.

“New big projects may appear to help in the short term but will make things worse in the long term, it would be like trying to pay off your debt with borrowed money. 360 million dollar of capital was actually borrowed by Icelandic investors including Kaupthing and Landsbanki to fund the first stage of the Helguvik project. That has contributed to the to the current crisis.”

“Geir Haarde noted recently that one of the main reasons for the free fall of the Krona was the execution of heavy industry projects (4). This had been predicted by various economists. David Oddsson, Valgerdur Sverrisdottir and others in power at the time refused to listen. If the current government does not want to make the same mistakes, it is better to cancel Bakki as well as Helguvik,” says Krater.

1. http://investor.shareholder.com/cenx/releases.cfm
2. http://www.reuters.com/article/marketsNews/idUSN2130255620081021?pageNumber=2&virtualBrandChannel=0&sp=true
3. http://investor.shareholder.com/cenx/releasedetail.cfm?ReleaseID=248119
4. http://www.icelandreview.com/icelandreview/daily_news/?cat_id=16567&ew_0_a_id=312850