Aluar Aluminio Argentino S.A.I.C.

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Aluar Aluminio Argentino S.A.I.C.

Marcelo T. de Alvear 590
Buenos Aires, C.F. C1058AAF
Argentina
Telephone: (54) (11) 4313-7593
Fax: (54) (11) 4311-9026
Web site: http://www.aluar.com.ar

Public Company
Incorporated: 1970
Employees: 1,791
Sales: ARS 1.47 billion ($500 million) (2004)
Stock Exchanges: Bolsa de Comercio de Buenos Aires
Ticker Symbol: ALUO
NAIC: 331312 Primary Aluminum Production; 331314 Secondary Smelting and Alloying of Aluminum; 331315 Aluminum Sheet, Plate and Foil Manufacturing; 331316 Aluminum Extruded Product Manufacturing

Aluar Aluminio Argentino S.A.I.C. is Argentina's only producer of aluminum. The company converts alumina (aluminum oxide) to primary aluminum and aluminum products for use in the transport, construction, electrical, medical, water treatment, and packaging industries. More than 80 percent of Aluar's production is exported to other countries.

A Controversial Concession: Aluar in the 1970s

The aluminum plant began as a project of Argentina's military-ruled government, which sought to make the nation self-sufficient in security matters. The planning commission—a ten-member air force body—apparently expected the aluminum to be used by a vigorous local aircraft industry, improving Argentina's trade balance by substituting for imported aluminum. Puerto Madryn, a town of 4,000 to 5,000 people on Patagonia's bleak Atlantic coast, was chosen to be the site because a deepwater port would be needed for import and export and because cheap electricity could be obtained by building a hydroelectric complex in the Andes Mountains, about 320 miles to the west. Although the project required the import of bauxite (aluminum ore) refined into alumina, Argentina already produced enough petroleum coke, the other main raw material needed.

Aluar was incorporated in 1970 by Fate S.A., which assumed 52 percent of the shares. This company's origins went back to Leiser Madanes, a Polish immigrant who arrived in Buenos Aires in 1912 and began manufacturing and selling rubberized articles, including condoms for the city's flourishing brothels. He made his fortune in the 1930s with a raincoat factory. Taking advantage of the inability of international tire manufacturers to supply the Argentine market during World War II, his sons founded Fate, a tiremaking plant, in 1943. Friction eventually developed between the ambitious Manuel Madanes and his more cautious brother Adolfo. During the 1960s Manuel turned to Jose Gelbard, the head of Argentina's employers' federation and a man with high-ranking connections throughout the world, including places as ideologically disparate as Washington and Havana. According to Maria Seoane, Gelbard's biographer, he supplied the laundered money that enabled Manuel to buy out his brothers Victor and Marco and thereby isolate Adolfo. In return, Gelbard received a one-third share of the family holding company.

Aluar, in 1971, won the concession to build and operate the aluminum plant, aided—according to Seoane—by a $4 million slush fund assembled from the three Italian subcontractors who actually built the plant, and controlled by Gelbard, who distributed half of the money to military men. The Argentine state provided critical infrastructure in the form of a dam, the hydro-electric plant, transmission lines, an auxiliary thermoelectric plant, an aqueduct, the deepwater port, and a connection to a gas pipeline. Fate also benefited from a special rule that allowed it to exempt its shares in Aluar from a tax on earnings. Other large Argentine companies also took a stake in the company, and it began selling shares on the Buenos Aires stock exchange in 1979. For its part, the government took preferred shares paying a fixed dividend and an additional participation in the profits.

There were many critics of this project. Fate's winning bid was attacked as tainted. It was pointed out that the state's investment in the dam and hydroelectric plant alone was double the projected cost of the aluminum plant. A 20-year contract with the Aluminum Co. of America (Alcoa) for alumina from two facilities in Australia seemed to contradict the rationale of national self-sufficiency. When another military junta came to power in 1976, it arrested the members of the earlier one on charges of having granted Fate excessive tax exemptions and other concessions. Gelbard, who had risen to become minister of the economy, fled to Washington, where he died soon after. Madanes fled to Canada, where he remained until he was cleared in 1980. Gelbard's heirs eventually recovered his property and sold his stakes in Fate, Aluar, and the family holding company in 1992.

Growing Enterprise: 1974–2000

Aluar's factory began production in 1974, powered by six turbines until 1978, when the Futaleufu hydroelectric plant came on line. The electrolytic process needed to produce aluminum from alumina was supported by anodes constructed in a satellite plant. Petroleum coke initially was imported. Including complementary facilities and living quarters for the 1,100 employees and workers, the cost of construction came to about $223 million. Once the hydroelectric plant was supplying power, Aluar, which produced 49,000 metric tons of aluminum in 1978, was capable of turning out 140,000 metric tons a year. More than three-quarters of the 1978 production was in the form of ingots to be used for the manufacture of electrical conductors, with another 20 percent in the form of bars for the construction and automobile industries. The rest was in the form of sheets of foil used in the food industry.

Aluar was the 47th largest enterprise in Argentina in 1979 and advanced to 30th place in 1980, when it earned ARS 27.21 billion on sales of ARS 535.83 billion (about $280 million). Given that it had accumulated a debt of about $133 million and, within Argentina, not only was required to meet internal demand but to sell there at a price determined by a government formula, the enterprise was anxious to market its goods abroad. By 1982, Aluar, its plant operating at full capacity, was exporting more than 60 percent of its production. Unfortunately, a world recession in this period had resulted in low market prices. The accompanying slump in the Argentine economy was not good news either, and in 1985 Aluar dropped to 42nd place in sales.

By this time Aluar had invested another $61 million on three projects to make its plant more efficient. The first consisted of the installation of an electronic circuit for its electrolytic cells. This permitted an increase in current and a corresponding decrease in energy consumption. The second involved the installation of 16 more electrolytic cells, raising the number to about 400, each of them holding about a ton of molten aluminum each day. These two projects allowed an increase in aluminum production of 8,750 metric tons a year. The third project, based on years of experimentation, allowed the company to put a lid on the cells and capture, for later treatment, the gaseous products of electrolysis.

Aluar was seeking added value from aluminum when it purchased, in 1983, Kicsa Industrial y Comercial S.A. Originally established as a subsidiary of Kaiser Aluminum & Chemical Corp. to manufacture aluminum products, this firm had been sold to local entrepreneurs before being acquired by Aluar, which then spent another $10 million to modernize Kicsa's equipment for molding aluminum into sheets, foil, profiles, and bars of aluminum alloys. Located in La Plata in the province of Buenos Aires, Kicsa was, in 1987, employing 680 people and had annual sales of $55 million, compared with $240 million for Aluar.

Angelo Bertolucci was president and general manager of Aluar in this period, working under Manuel Madanes. After Madanes died at the end of 1988, a power struggle developed between his daughter Monica and his sons Leiser, Miguel, and Pablo. Control of the firm subsequently went to another branch of the family, headed by a relative by marriage, Dolores Quintanilla de Madanes, who owned 40 percent of the shares of the Fate-Aluar group in 1997. She took the position of president in 1992 or 1993 and dropped Monica and her brothers from the board of directors. Her son Javier Madanes Quintanilla first appeared on the board in 1995 and succeeded her as president in 1997. Dolores was reported, in 1999, not to be speaking to her son (or her nephew Daniel Friedenthal, longtime executive vice-president of Aluar) after the 37-year-old Javier married a photographer of whom she disapproved. Family members controlled between 70 and 75 percent of the enterprise at this time.

In 1993 Aluar merged Kicsa with Camea S.A., a manufacturer of aluminum products owned by the Canadian company Alcan Aluminium Holdings Ltd. The two jointly owned the merged company, C&K Aluminio S.A., until 1996, when Aluar purchased Alcan's share of C&K, which then became Aluar's division of manufactured products, located in Abasto in the province of Buenos Aires. In 1995 the Argentine government opened the Futaleufu power plant to private capital. Aluar then purchased 59 percent of the facility for $135.8 million. In order to increase its percentage of sales in added value rather than primary aluminum, Aluar in 1998 acquired Refineria Metales Uboldi y Cia. S.A. for $17.9 million. This company had two plants—one in Puerto Madryn—and was specializing in the manufacture of special alloys and aluminum wire, the latter employed in the production of cables. Uboldi became Aluar's division of semimanufactured products.

Key Dates:

1971:: Newly formed Aluar wins the concession to produce aluminum in Argentina.
1974:: The aluminum plant begins production.
1976:: Argentina's former leaders are arrested for their part in the Aluar contract.
1980:: Aluar's chief executive returns after four years in exile.
1983:: Aluar buys a firm that molds aluminum into various manufactured products.
1995:: The company buys a majority share of the hydro-electric plant providing much of its power.
1998:: Aluar acquires a company that becomes its division of semimanufactured products.
2003:: Booming Aluar's aluminum plant is operating at 99 percent of capacity.
2004:: Aluar signs a contract for a transmission line to meet its growing need for power.

Aluar spent another $340 million to expand its Puerto Madryn plant, which in 1999 became capable of turning out 260,000 metric tons of aluminum per year. Only about 75,000 tons were reaching the local market. Interviewed for the business magazine Mercado, Madanes Quintanilla indicated that the problem lay with Argentine industry. "One typical case is the automobile industry," he told Mario Benechi. "In the rest of the world autos have a high composition of aluminum to lighten the weight and thereby lower fuel consumption. [By contrast] Our strongest local customer continues to be the construction industry, which accounts for more than half the sales." Madanes foresaw Aluar making 90 percent of its sales in the foreign market.

Aluar in the 21st Century

Madanes also told the magazine that the Fate-Aluar group, along with some overseas partners, would spend $1.5 billion over the next five years to build a new plant in Patagonia for aluminum products that would bring production to more than 500,000 metric tons a year. Such an undertaking, however, would require more electricity. Aluar was consuming, in its Puerto Madryn factory, as much electricity as the city of Cordoba—Argentina's second largest—and 80 percent of all the consumption in Patagonia. Because the region did not belong to the rest of Argentina's national grid and Futaleufu no longer came even close to meeting Aluar's needs for power, the company had been obliged to invest in a backup system in case of a power failure by taking stakes in thermal electricity-generating plants.

Aluar later scaled down its expansion project so that production would rise to 400,000 metric tons. To meet its electricity needs, the company proposed a new 355-kilometer (220-mile) transmission line that would be linked to the national power grid and provide power not only to the smelter but benefit all consumers in northern Patagonia. Aluar proposed to contribute 15 percent of the $70 million investment needed for the line, with another 15 percent from the Futaleufu hydroelectric enterprise and the remaining 70 percent from the federal government. The contract was signed in 2004, with work to be completed by the end of 2005.

Argentina's economic recession, which began in 1998 and worsened until the country defaulted on its debts at the end of 2001, hardly affected Aluar since most of its production was being sold abroad. Indeed, the devaluation of the peso at the end of 2001 made its goods cheaper and thereby more attractive to foreign customers. Operating at 99 percent of capacity, the Puerto Madryn plant produced 227,251 metric tons of primary aluminum in 2004, a record. Aided by the opening of a second plant, the division of semimanufactured products produced 66,838 metric tons of aluminum wire, zinc-aluminum, and ingots of aluminum alloys. The division of manufactured products produced 24,069 metric tons of aluminum sheets and molded products. The total sales volume was 283,435 tons, of which 74 percent was exported. Aluar's profit margin continued to be sizable in 2004; it recorded net income of ARS 335.5 million ($114.12 million) on net sales of ARS 1.47 billion ($500 million). Its long-term debt consisted of ARS 212.72 million ($72.35 million) in loans.

Aluar's extrusion process was producing aluminum bars, tubes, and profiles in a variety of sizes and forms. The profiles, developed for metal carpentry, were available in a series of finishes, such as anodized and painted surfaces. The rolling line was turning out sheet metal and rolls in a wide range of alloys for multiple uses, including foil for applications that included not only home kitchen use, disposable food containers, and weather proofing, but also printed, painted, lacquered, and other forms of foil products used, for the most part, in packaging for the tobacco, pharmaceuticals, food, and other industries.