Alcoa Inc. (NYSE:AA), one of the world’s largest aluminum producers, has agreed to delay the closing of its Portovesme aluminum smelter until September. In the meantime, the company will scout for potential suitors for the facility. In January, the company announced plans to cut capacity across geographies as it reels under pressure from falling aluminum prices and rising costs. Alcoa’s products are used across industries including mining, refining, smelting and recycling. It competes with companies like ArcelorMittal (NYSE:MT) and US Steel (NYSE:X).
Our price estimate for Alcoa stands at $12, implying a premium of close to 20% to the current market price.
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Postpones closing of smelter, but only temporarily
The company has decided to delay the closing of its Portovesme aluminum smelter until September after it struck an agreement with labor unions and Italy’s Ministry of Economic Development. In the meantime, the company will keep looking for a buyer for the plant. Under the terms of the agreement, the closing process will begin in September if no prospective buyer signs a letter of intent by the end of August. In the event that a letter of intent is signed but the sale has yet to be finalized by the end of October, the company will begin the process of closing the plant in November.  In March, Reuters reported that three buyers had expressed interest in the unit. Earlier, there were reports that Glencore International PLC was showing interest in the smelter.
In January, Alcoa announced its plans to shut the smelter, which produces about 150,000 metric tons of aluminum annually. Unfavorable energy costs, rising raw material costs and declining aluminum prices have prompted the company to announce a cut in its aluminum smelting capacity of 12%.Notes: