Noranda Aluminum, Ameren Missouri’s largest customer, filed for bankruptcy protection Monday and said it will idle the remaining operations at its New Madrid, Mo., smelter next month.
The Chapter 11 petition in bankruptcy court in St. Louis adds more urgency to efforts to save the southeast Missouri smelter, which already lost two of its three production lines due to a January power failure.
But an electric rate cut won’t be enough to save the smelter from at least a temporary shutdown. Noranda now says it plans to idle all the operations at the New Madrid smelter in March, though it did add that it will “maintain the flexibility to restart operations at New Madrid should conditions allow.”
Still, many of the smelter’s roughly 850 workers, more than half of whom have already been laid off, are getting ready to leave the region, according to Cameron Redd, vice president of the United Steelworkers local that represents much of the New Madrid smelter’s workforce.
The union official said few are hopeful the smelter will restart absent higher tariffs on Chinese aluminum, which he blamed for driving down the metal’s price.
“The school systems are going to suffer greatly; it’s going to affect everything,” Redd said. “Some people are trying to sell their homes and moving out. You have to prepare yourself to move on to whatever’s available.”
Low commodity prices caused by a global slowdown in emerging economies such as China have battered Noranda and other aluminum producers, bringing the number of operating U.S. smelters to just a handful from 23 in 2000.
When Noranda curtails its New Madrid plant, only about five U.S. smelters will continue producing primary aluminum, down from eight at the beginning of last year.
The Franklin, Tenn., company was also weighed down by takeover that saddled it with $1 billion in debt.
Apollo Global Management paid itself more than $300 million in special dividends shortly after the New York-based private equity firm acquired Noranda in 2007. It took the company public in 2010 and paid out $160 million more in dividends over the next few years before selling its stake in May.
Noranda reported $530 million in secured debt and another $175 million in senior unsecured notes as of Monday.
In its bankruptcy filing, Noranda also points to labor costs that include unfunded pension liabilities of $159 million and the rising cost of electricity at its New Madrid smelter. Since 2008, annual electricity costs from Ameren have risen by $44 million, Noranda says.
Noranda’s tenuous future has pushed it to team up with Ameren, putting aside a history of fights over electric rate increases and utility-backed legislation in Jefferson City.
Ameren, meanwhile, faces losing a customer that buys 10 percent of its power, and the utility expects to fetch far less on the wholesale electricity market following the smelter’s closure.
If Noranda stops buying Ameren power, regulators can adjust other utility customers’ rates to make up the difference.
Ameren could ask for a rate increase as soon as March.
Both the utility and Noranda have signaled support for legislation sponsored by Sen. Ryan Silvey, R-Kansas City, that could change Missouri utility regulation and provide for lower rates for Noranda.
Silvey couldn’t immediately be reached Monday, but he said last week senators wouldn’t try to “ram a bill through” to meet Noranda’s shutdown date of March.
During Ameren’s rate case last year, Noranda already won a lower electric rate that it estimated would save it $17 million to $25 million a year.
Now, the state’s largest industrial power users are asking Missouri utility regulators for an even lower, emergency electric rate for Noranda, arguing that the smelter’s closure would push rates higher for other customers.
Noranda, however, said last week the rate reduction wasn’t enough and “a legislative approach such as the framework proposed by Sen. Silvey is the best path to a sustainable power rate.”
Even after the smelter idles, Noranda spokesman John Parker indicated a legislative solution to the company’s power rate, its largest production cost, is still important.
“It’s just that now, instead of being necessary to keep the smelter in operation, it’s necessary if the smelter is to (restart) at some point in the future,” Parker said in an email.
Warren Wood, Ameren Missouri’s vice president of external affairs and communications, said the company “will continue to work with Noranda, legislators and other stakeholders on a long-term legislative solution to support Noranda’s operations.”
In an emailed statement, he said Ameren Missouri “cares about the people working at Noranda and knows this company and its employees play an important” economic role in the New Madrid area.
Even more imminent for Noranda, though, is securing provisional financing to continue operating during bankruptcy.
The company already has $35 million in financing commitments, but it says it wants another $130 million.
As part of the financing package, Noranda says it will likely sell its profitable finished aluminum products business, which is separate from the New Madrid smelter.
“The potential consequences to the Debtors of a failure to obtain adequate funding are dire: among other things, the Debtors could be forced to idle additional facilities, lose valuable customer accounts, and liquidate on a piecemeal basis…” Noranda wrote in a supplement to its bankruptcy filing.
Reuters contributed to this report.