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Alcoa Signs Tentative BPA Contract

by Zacks Equity Research
Nasdaq, October 15, 2012

(Philip A. Dwyer) Worker Kevin Daniels works on a recently started aluminum smelter pot on potline B at the Alcoa Intalco aluminum smelter west of Ferndale, Tuesday afternoon, Feb. 15, 2011. Intalco has also hired 60 more people. Aluminum giant Alcoa Inc. announced the signing of a tentative long-term power contract with Bonneville Power Administration (BPA) for its Intalco Works aluminum smelter in Ferndale, Washington. The contract is expected to be finalized by the end of the year and will expire in September 2022.

According to the contract, BPA will provide power supply to the smelter and help sustain the economic impact of the plant in the region. The contact will also allow a 90-day extension along with public comment process on the new contract, followed by a review by BPA.

A few days back, Alcoa reported a loss of $143 million or 13 cents in the third quarter of 2012, hurt by a hefty charge associated with environmental remediation and legal settlement, and lower aluminum pricing. It compared with a profit of $172 million or 15 cents a share in the year-ago quarter.

Excluding one-time special items (a $175 million charge mainly related to environmental remediation of the Grasse River and the settlement of a civil lawsuit against Aluminum Bahrain), Alcoa earned $32 million or 3 cents a share in the quarter compared with the Zacks Consensus Estimate of a break even result on per share basis. The company recorded a $40 million charge associated with the legal settlement in the quarter.

Revenues decreased 9.1% year over year and 2.2% sequentially to $5,833 million, but were ahead of the Zacks Consensus Estimate of $5,565 million. Alcoa said that aluminum prices dropped 17% year over year and 5% sequentially in the third quarter.

Alcoa witnessed strong productivity growth in its upstream and downstream businesses in the quarter on the back of higher utilization rates, process innovations, lower scrap rates and usage reductions. The company saw healthy demand across the aerospace and automotive markets in the quarter.

The company has lowered its global aluminum demand forecast for 2012 to 6% from its earlier expectation of 7%, owing to the slowdown in China. The company, however, expects the aluminum market to double in 2020 from the 2010 levels as the market is already ahead of the required 6.5% compound annual growth rate.

Pennsylvania-based Alcoa Inc. is among the world's leading producers of primary and fabricated aluminum and alumina. The company competes with Aluminum Corporation Of China Limited and RioTinto plc. It currently retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We have a long-term Neutral recommendation on the stock.

Zacks Equity Research
Alcoa Signs Tentative BPA Contract
Nasdaq, October 15, 2012

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