Bert Caldwell: Sizing up Kaiser: — It’s doing just fine
Kaiser Aluminum Corp., once a global heavyweight, now bobs along outside the metals industry mainstream.
Since emerging from bankruptcy last July, the company has focused on high-end manufacturing. Barely anything remains of its once far-flung mining, refining and smelting operations. Locally, the Mead smelter where 1,000 men and women once toiled for good, family wage jobs has been gutted. But the Trentwood rolling mill rolls on.
In fact, as Kaiser’s first-quarter earnings report makes clear, Trentwood is the company’s mainstay. While announcing results that disappointed investors — Kaiser shares have tumbled more than 13 percent over the last two days — the earnings release highlighted the contributions of its fabrication operations in general, and Trentwood in particular.
Two new heat-treat furnaces have been installed, and a third is due early next year. So is a stretcher that, by pulling a plate several inches thick, improves its metallurgical characteristics. That equipment will wind up a $105 million expansion at Trentwood, but perhaps just for the time being. Chief Executive Officer Jack Hockema told analysts Tuesday the company continues to monitor demand for treated metal, which has several applications in aerospace manufacturing.
Kaiser is also an interested spectator of the consolidation, real and proposed, in the aluminum industry. Although unwilling to discuss specifics, Hockema made clear the company’s readiness to pick off assets other aluminum producers might sell off as they respond to new challenges in the metals industry.
Unlike the pre-bankruptcy Kaiser, which foundered beneath $3 billion in debt, the reorganized company has the cash and cash flow to be a player.
“We have a lot of dry powder,” said Hockema. “We see ourselves as well-positioned to be a buyer of assets that are attractive for our portfolio.”
He added that, because Kaiser has about $1 billion in tax offsets available, buying assets in the United States makes the most sense. He did not rule out purchases overseas.
He did not mention Canada, where the latest of the metals mega-mergers will play out unless another company steps into the middle of the proposed purchase of Alcan Inc. by Alcoa Inc. Alcan is one of the crown jewels of Canadian industry and, as importantly, manufacturing in Quebec. The French-speaking province may have much to say about a potential takeover by Alcoa, based in Les États-Unis.
Last week’s conference call by Alcoa officials contained some clues about potential opportunities for Kaiser. Chief Executive Officer Alain Belda said the company had already had some discussions with regulators regarding possible over-concentration of assets in some businesses. Aerospace, he said, “is probably the most significant one.”
One of the plants that could be in play is at Ravenswood, W.Va. That would certainly be a facility familiar to Kaiser; Ravenswood was a Kaiser plant until 1989.
Belda’s much larger concern is Alcoa’s position in the rapidly changing metals industry. Alcoa was eclipsed as the world’s No. 1 aluminum producer in March, when a combination of two Russian companies and portions of a Swiss created United Co. Rusal. Aluminum Co. of China Ltd. and Hindalco Industries Ltd. of India are also rolling up assets to become global powers.
Companies whose names were familiar internationally a decade ago — Reynolds Metals, Alumax, Pechiney — have been erased. In a commodity business, the economies of scale suffocated the small, the less efficient, the capital-poor, the old Kaiser among them.
Some speculate that Alcoa’s bid for Alcan was an attempt to pre-empt a bid for either company from metals giants BHP Billiton Ltd. or Rio Tinto PLC. High metals prices are fattening corporate wallets everywhere. There’s a lot of that dry powder around.
Kaiser is much smaller today, but the company seems to be doing fine in its niche. The jet stream, where it does business with Boeing Co. and Airbus, may be safer than the mainstream.