Alumina is the key raw material for the production of primary aluminium. Hydro Aluminium holds a 34 per cent interest in Alunorte and will, after completion of the project, increase supplies of alumina from Alunorte to its global primary aluminium production system with 610,000 tonnes, to more than 1.4 million tonnes per year.

Including project reserves and financial costs, Hydro's 34 per cent share of the investment is expected to be USD 204 million. The expansion project will start this summer, and full production is expected at the end of the second quarter of 2006.

The Alunorte expansion project represents an investment cost of approximately USD 320 per tonne of new production capacity,  lower than other major brownfield projects known in the market. Full cash operating cost after expansion will be well below the estimated present world average of USD 135 per tonne, confirming that Alunorte has one of the lowest conversion costs in the industry.

The investment is financially attractive with an expected real rate of return (IRR) after taxes of around 15%, calculated on an average primary aluminium three-month price of USD 1,400 per tonne on the London Metal Exchange. This is well above Norsk Hydro's 10 per cent hurdle rate for investments.

It is vital for our global primary aluminium position that we can ensure cost efficient alumina supplies. Alunorte offers some of the lowest conversion costs in the alumina industry, at the same time as performance in safety, environment and community relations is very good." says Truls Gautesen, president of Hydro Aluminium Primary Metal.

Hydro Aluminium operates seven fully owned primary aluminium plants in Norway, Germany and Australia. Hydro Aluminium also has equity participation in five plants in Norway, Germany, Slovakia, Canada and Australia. Total primary aluminium capacity, on an equity basis, is approximately 1.4 million tonnes per year. Ongoing major expansions in new low cost production capacity at Sunndal, Norway, and Alouette, Canada, as well as smaller efficiency measures in existing potlines, will add up to 300,000 tonnes of new primary capacity from 2002 to 2006.

Alumina represents 35 - 40 per cent of the total cash operating cost in primary aluminium production, and focus on and control of this cost element is critical. Hydro Aluminium needs approximately three million tonnes of alumina supplies annually to cover its current equity production of aluminium. Approximately 45 per cent of this is today covered through ownership in alumina refineries: Alunorte, Brazil (34%), Alpart, Jamaica (35%), AOS, Germany (50%). The rest is supplied through a portfolio of long-term contracts.

Through this expansion of Alunorte Hydro Aluminium maintains an equity alumina sourcing of about 50 per cent, also after completion of the ongoing expansions of primary metal production.

Hydro became a partner in Alunorte in 2000, and later took part in the first expansion inaugurated in April this year, increasing Hydro's off-take from Alunorte to approximately 820,000 tonnes.

The Alunorte  project also includes additional energy generation capacity making Alunorte self-sufficient when it comes to the electricity and steam needed to run the process. Bauxite for the new production lines is secured under contracts with Aluvale (a subsiduary of CVRD)  that controls 57 per cent of the shares of Alunorte. Bauxite will come from the new Paragominas mine, 230 kilometres from the refinery.

In June this year, Hydro Aluminium announced a major 26 year alumina contract with the Australian company Comalco. The contract with Comalco confirms Hydro Aluminium's low investment alumina strategy to secure long-term supplies. Hydro Aluminium is one of the top three integrated, global aluminium companies, and the leading aluminium company in Europe.  Hydro Aluminium is part of Norsk Hydro, a leading Norway-based industrial group with core business areas being Hydro Oil & Energy, Hydro Agri and Hydro Aluminium. 

Source: Hydro