Have you noticed how the world of big business is coming together, creating deals between companies from all over the globe?
One of the latest such ventures involves recently struggling Alcoa (NYSE:AA) and Saudi Arabian Mining Co. -- also known as Maaden. The pair will join up to invest approximately $10.8 billion in a giant aluminum-production facility. Pittsburgh-based Alcoa, America's largest aluminum producer, will control 40% of the project -- 20% thanks to its own funding and 20% from regional partners -- while Maaden will have the remainder.
Current plans call for the inclusion of a bauxite mine, an alumina refinery, a rolling mill and an aluminum smelter. The mine will have a capacity of 4 million metric tons per year for starters, while the refinery will be capable of turning out about 1.8 million metric tons annually. The mill will be devoted initially to the production of aluminum cans and, as it becomes necessary, materials for the construction industry.
During the worldwide economic recession, Alcoa has been hindered significantly by a lack of aluminum demand and consequently sliding prices. As such, like so many U.S. industrial companies, it has been cutting costs, shuttering plants, and putting its funds into its most efficient plants, such as in Brazil.
But now the company is embarking upon what CEO Klaus Kleinfeld is calling, "A model for the growth of aluminum in competition with other metals." The facility was originally scheduled to include Rio Tinto (NYSE:RTP), which ultimately decided it was unable to come up with its nearly 50% stake in the project. Once completed, the project will allow Alcoa to compete more effectively with its two major competitors, Rio Tinto and Russian producer UC Rusal.
The Alcoa-Maaden combination is one of several to come together of late. As you know, early last week, ExxonMobil (NYSE:XOM) announced that it would acquire gas producer XTO (NYSE:XTO). Beyond that, Bucyrus International (NASDAQ:BUCY) will buy Terex Corp.'s (NYSE:TEX) mining division.
Regarding Alcoa's deal, my inclination is that the company suddenly is imbued with increased potential. While I wouldn't load up the ore cart right now, I'd keep my eye on the company and perhaps slowly salt away a few shares.
Alcoa has been rated a four-star company by Motley Fool's CAPS players. Why not go to the company's CAPS page and indicate your opinion?
