Hydro Prepare for a Future As A Resource-Rich Fully Integrated Aluminium Company

After an eventful 2010 and the announcement of the biggest transaction in the company's history, Norsk Hydro ASA is preparing for a new era as a resource-rich and fully integrated aluminium company. A persistent focus on costs and operational performance remains the top priority, as Hydro climbs into a new league in a growing global aluminium industry.

As part of intensified efforts to improve the company's competitive position, Hydro has accelerated the USD 300 per tonne improvement program which is now expected to be achieved in 2013, a year earlier than previously indicated.

MEETING: Svein Richard Brandtzæg, Hydro President and CEO, spoke to some 150 attendees at the company's Capital Markets Day 2011. (Photo: Kåre Foss)

"Thanks to continuous improvement efforts combined with an ability and agility to develop and capture business opportunities, we have emerged from the crisis as an even stronger company. The planned acquisition of Vale's aluminium assets is a bold and transforming move that will shape Hydro's future," said Hydro President and CEO Svein Richard Brandtzæg.

"The production ramp-up of the major Qatalum plant in Qatar is 50 percent complete. Unfortunately, the power plant is facing technical challenges related to the cooling water system which could prompt an eight-week delay before we reach full output from June 2011," Brandtzæg said.

World aluminum demand has picked up in 2010 and is expected to normalize at around 7 percent outside China in 2011, giving grounds to an optimistic short, medium and long-term outlook for upstream as well as downstream aluminium products.

Hydro's Capital Markets Day includes the following highlights:

  • The planned acquisition of Vale SA's bauxite, alumina and aluminium assets is expected to be completed in the first half 2011. Hydro is working closely with Vale to complete the transaction as soon as possible, and hope to finalize the outstanding issues earlier and close in the first quarter.
  • This transforming acquisition enhances Hydro's earnings robustness and provides Hydro with a long alumina position for decades to come. The current market environment is an attractive commercial foundation for alumina, and Hydro believes future alumina pricing needs to reflect the economic fundamentals of the bauxite and alumina value chain.
  • Hydro's USD 300 per tonne cash cost improvement program for its fully owned smelters is on track and is planned to be achieved by the end of 2013, one year earlier than previously indicated. USD 50 per tonne in improvement has been realized in 2010 and a further USD 125 per tonne is targeted for 2011. The improvement program excludes impact of raw material prices and currency rates.
  • The ramp-up of the Qatalum smelter is about 50 percent complete following a power outage in August. Further ramp-up is currently being hampered by technical challenges related to the cooling water system for the steam turbines under the power plant contract with General Electric/Doosan. These challenges are unrelated to the August 2010 power outage, but could lead to an eight-week delay from the earlier plan to reach full production by the end of first quarter, with full production now expected to be reached from June 2011.
  • Total capital expenditures in 2011, including sustaining and growth investments into Vale's aluminium assets, are expected to be about NOK 5.0 billion, down from NOK 6.7 billion in 2010. This includes investments in Qatalum of NOK 4.0 billion in 2010. Sustaining capital expenditures are expected to be NOK 3.5 billion in 2011.
  • Following a 19 percent growth in primary aluminium demand in the world outside China in 2010, Hydro expects a further growth in the range of 7 percent in 2011, 3-6 percent in 2012 and an improved supply and demand balance. China is expected to remain balanced in primary aluminium for the coming years.

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