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Alcoa Seals NY State Deal to Keep Massena West Smelter Open

AlcoaAA has landed an agreement with New York State to keep its Massena West aluminum smelter operating at full capacity. The three-and-a-half year agreement will allow the aluminum producer to improve the competitiveness and cost position of the smelter as well as maintain hundreds of jobs in New York's North Country.

Alcoa, on Nov 2, announced its plans to idle the Massena West smelter in New York by early next year as part of its move to cut uncompetitive aluminum smelting and alumina refining capacity to ensure sustained competitiveness in a challenging operating backdrop.

The company also said that it will idle the Intalco & Wenatchee primary aluminum smelters in Washington State and partly curtail alumina refining capacity at its Pt. Comfort, TX facility. Alcoa will also permanently close the New York Massena East aluminum smelter.

The Massena West smelter has 130,000 metric tons of smelting capacity. New York State's incentive package will help the company retain around 600 jobs at the facility through the term of the deal. The agreement, which runs through Mar 31, 2019, offers a range of state incentives to Alcoa and includes significant financial penalties should the company defaults or terminates the deal early.

Under the terms of the agreement, the New York Power Authority (NYPA) will provide the plant with low-cost hydro power while the Empire State Development will offer capital and operating expense support totaling $38.8 million. Alcoa will also face financial penalties (of up to $40 million) should it breaches or terminates the agreement. The company is also required to keep at least 600 full-time workers at the Massena West facility.

Alcoa said that it will continue with its other planned curtailments of uncompetitive smelting and refining capacity. The company's smelting capacity will be reduced by 373,000 metric tons once the curtailments are complete. The curtailments are expected to further improve the cost position of the company's upstream business amid a weak pricing environment.

Alcoa sees total restructuring-related charges (post-tax) of $130-$150 million or 10-11 cents per share associated with these actions in fourth-quarter 2015, of which roughly 40% would be non-cash.

Alcoa remains committed to strengthen its upstream portfolio and improve cost position. It remains on track to meet its 38th percentile goal on the global aluminum cash cost curve in 2016.

Alcoa delivered disappointing third-quarter results last month as lower aluminum prices continued to hammer its legacy aluminum smelting business. Its profits for the quarter plummeted roughly 70% year over year, hurt by lower metal prices and decrease in premiums. The company's outlook also indicated a slowdown across a number of markets in China.

Aluminum prices remain under pressure due to supply glut, exacerbated by ballooning exports of the metal by China (the world's biggest producer) amid weakening demand at home. London Metal Exchange (LME) aluminum prices have tumbled to a six-year low, hurt by oversupply of the metal.

The aluminum price slump has triggered Alcoa's move to separate its smelting and refining business from those that cater to rapidly growing aerospace and automotive markets. The transaction is expected to close in second-half 2016. The separation will result in the creation of two publicly-traded, Fortune 500 entities - "The Upstream Company" and "The Value-Add Company". It will mark the completion of Alcoa's multi-year transformation.

Alcoa currently holds a Zacks Rank #3 (Hold).

Better-ranked companies in the mining space include Coeur Mining, Inc. CDE , Taseko Mines Ltd. TGB and Vedanta Limited VEDL . While Coeur Mining sports a Zacks Rank #1 (Strong Buy), both Taseko and Vedanta retain a Zacks Rank #2 (Buy).

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ALCOA INC (AA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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