Monday January 31th 2005

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Materials Research Group

• Monday January 31th 2005

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Company Introduction

• Alcan is the worlds second largest aluminum
  producing firm
• Founded in 1902
• Revenues of 25.9B in 2003
• 88,000 employees in 50 countries
• Involved in all aspects of aluminum processing
  mining, smelting, refining, rolling and
  engineering

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The Pechiney Acquisition

• Pechiney was a French aluminum firm with
  significant interests in the European aluminum
  market
• Core competencies in
• Primary Aluminum, Packaging and Aluminum
  conversion
• Bolstered all of Alcans core businesses
• Synergies found in production processes cost
  savings
• Pechiney was acquired at the trough of the cycle

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Where does aluminum come from?
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Company Divisions

• Bauxite and Alumina
• Mine bauxite, refine alumina and produce
  specialty aluminas
• 7 mines in 5 countries, 5 smelter grade plants in
  3 countries
• Primary Metal
• Produce aluminum in different shapes and forms
• Half of aluminum production is consumed in-house
• Generates 60 of power used

This is an Elephant.
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Company Divisions

• Engineered Products
• Produce specialty aluminum products for end users
• Aluminum alloys for BMW
• Packaging
• Produce aluminum packaging products
• Tin foil

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Revenue By Source
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Industry Characteristics

• Aluminum is currently in a demand/supply deficit
• Industry demand depends on aluminum technologies
  and world economic expansion
• Further exposure to China demand for aluminum
  in economic development

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Planes, Trains and Automobiles

• Aluminum is increasingly being used in the
  manufacturing of transportation systems
• Modern airplanes use significant amounts of
  aluminum in their designs
• Alcan is the 1 supplier to Airbus
• The front half of all new BMW 5-series vehicles
  are built with Alcan aluminum alloys
• Steel is falling out of favour in car production
  as cars become lighter and more fuel efficient

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Industry Alumina Refining
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Industry Alumina Smelting
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Alcoa

• Alcoa is Alcans main competitor
• Worlds leading producer of primary aluminum,
  fabricated aluminum, and alumina
• Market cap of 25.09 billion
• Revenue 23.5 billion in FY04
• Net Income 0.94 billion in FY04
• 119,000 employees in 43 countries
• Alcoa's products are used worldwide in
• aircraft, automobiles, commercial transportation,
  packaging, consumer products, building and
  construction and industrial applications

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Valuations
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Key Performance Figures
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Key Capabilities
This is a goat.

• Global group balanced presence
• Diversified business mix
• Significant synergies
• Modern asset base
• Superior technology
• Significant growth opportunities
• Strong financial performance
• Great cost structure

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Rationale for Buying

• Current Materials Sector Holdings
• Inco Mines nickel, copper, precious metals, and
  cobalt. Primary mines located in Sudbury,
  Manitoba, and Indonesia
• BHP Billiton Diversified resources group.
  Operates throughout the world, with significant
  projects in Australia North America
• Both these companies focus on mining commodities,
  whereas Alcan uses the commodity it mines to
  create value-added products
• By adding Alcan to the portfolio, we can decrease
  risk from exposure to global commodity prices
• of WIC portfolio in Materials Sector is
  currently too low
• Potential for growth as trends in the
  transportation industry lead to increased demand
  for aluminum
• Can be purchased on TSX, which would reduce our
  exposure to USD fluctuations

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Analyst Opinions

• Canaccord Buy (Top Research Pick)
• CIBC Sector Outperformer
• Prudential Overweight
• RBC Sector Perform
• Friedman Billings Outperform
• UBS Neutral
• Smith Barney Hold

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Price History
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Risks

• Company success is tied to demand for aluminum
  and its ability to market value added products
• Global primary aluminum supply and demand model
  predicts a deficit of 237 thousand tons in 2005
  but a surplus as early as 2006
• Rising energy costs could decrease margins
• Pechiney synergies may not play out as much as
  planned

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Conclusion

• Despite increasing capacity in the industry,
  Alcan is well positioned to profit in the future
• Acquired Pechiney at the trough of the cycle,
  bolstered sources of revenue
• Spun-off low growth rolled products business
  (Novelis)
• Because of company-owned hydroelectric
  facilities, Alcan has a great cost structure
• Great addition to WIC portfolio
• increased weight in the Materials Sector
• increased diversity within the Materials Sector