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Alcoa to Modernize Cheoah Dam

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Aluminum giant Alcoa Inc. (AA - Analyst Report) along with the U.S. Department of Energy commissioned a modernization project at Cheoah Dam in Robbinsville. The project involves an investment of approximately $110 million and is part of Alcoa’s Power Generating Inc.’s Tapoco Project, which seeks to upgrade four hydroelectric dams across the nation.

The Project got a shot in the arm when the U.S. Department of Energy granted Alcoa $12.95 million as part of the 2009 American Recovery and Reinvestment Act. The modernization project has enhanced the dam’s efficiency and energy output as well as extended its life by about 40-50 years. The purpose of the project was also to increase the generation capacity and results showed that the increase was about 50%, which was much more than expected.

The modernization project has also led to a net decrease in total oil volume of nearly 40,000 gallons in high voltage equipment by doing away with circuit breaker oil and by lower usage of transformer oil. The project also supports the use of renewable energy resources and other recreational activities.

The overall project includes the upgrade of four of the dam’s five power generation units, along with process and utility systems. Another two units will be upgraded during Phase 2 of the project, expected to be completed in 2013.

Alcoa is a leading producer of primary and fabricated aluminum as well as the world’s largest miner of bauxite and refiner of alumina. The company released its second-quarter 2012 results in July 2012. It posted a loss of $2 million (break-even on a per-share basis) in the quarter compared with a profit of $322 million (or 28 cents a share) in the year-ago quarter. The bottom line was hit by lower aluminum prices.

Excluding one-time special items (including restructuring and other charges, litigation expenses and tax-related items), Alcoa earned 6 cents a share in the quarter, in line with the Zacks Consensus Estimate but below the year-ago earnings of 32 cents a share.

Revenues decreased 9.4% year over year to $5,963 million, surpassing the Zacks Consensus Estimate of $5,828 million. Though weak aluminum prices dragged down revenues, the company witnessed increased demand across aerospace and automotive markets in the quarter. Aluminum prices dropped 18% year over year and 4% sequentially in the quarter.

Alcoa witnessed strong performances across all its businesses during the quarter, driven by higher utilization rates, process innovations, lower scrap rates and usage reductions. The company expects higher demand for aluminum from automobile, aerospace, packaging and commercial transportation end markets in the near term.

Alcoa, which competes with Aluminum Corporation of China Limited and RioTinto plc. (RIO - Analyst Report), retains a short-term Zacks #3 Rank (Hold). We currently have a long-term Neutral recommendation on the stock.
 

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