Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (April 2011)
40 slides from Norsk Hydro Asa's investor presentation, Apr 29, 2011
Slide 1: New global Bauxite & Alumina business
New global Bauxite & Alumina business April 29, 2011
Slide 2: Cautionary note
Cautionary note Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions,
Slide 3: Strategically attractive assets
Strategically attractive assets • Long position in bauxite and alumina in resource-constrained world • New business opportunities • Positive market development since signing (3)
Slide 4: Integration process well underway
Integration process well underway • Solid management team • Global organization Successful • Headquarters, Rio de Janeiro, Brazil start • Operations, Para State, Brazil • Marketing, Lausanne, Switzerland • Workforce of 6 500 people in Brazil • Stakeholder relations well established • Authorities • C
Slide 5: Market outlook
Market outlook (5)
Slide 6: Significant aluminium demand growth expected
Significant aluminium demand growth expected Demand for primary aluminium World outside China China Million tonnes 90 80 +80% 70 37 60 28 50 40 17 37 30 31 20 24 10 0 2010 2015 2020 Fight for raw materials to continue Resource-constrained world (6)
Slide 7: 66% of bauxite reserves in 3 countries
66% of bauxite reserves in 3 countries Billion tonnes Guinea 14.9 China 2.1 Mali 0.9 1.2 0.0 4.0 India Vietnam Jamaica Venezuela 1.6 2.3 1.1 0.5 1.8 0.4 0.3 0.0 Indonesia Cameroon 1.0 0.1 1.2 0.0 Brazil Australia 8.2 9.5 5.9 2.0 Big-league (Top- 3) Total bauxite, billion tonnes: reserves, mine site
Slide 8: China dependent on bauxite imports
China dependent on bauxite imports Chinese bauxite sourcing • Domestic bauxite reserves estimated Million tonnes at 1.3-2.0 billion tonnes 115 Import 42 Domestic source • Quality of domestic bauxite resources 67 73 deteriorating 30 21 37 • Indonesia supplies ~75% of imported 19 bauxite 2005 2010 201
Slide 9: Significant alumina demand growth expected
Significant alumina demand growth expected Million tonnes 160 +80% Alumina demand 140 135 Production China 55 Production world outside China 118 120 48 100 81 80 29 80 70 60 52 40 20 0 2010 2015 2020 *2020 production world outside China includes 10 million tonnes of highly probable projects Source:
Slide 10: Alumina market expected to remain balanced
Alumina market expected to remain balanced Alumina balance world outside China, million tonnes 90 Alumina demand + export to China 6-10 80 Highly probable new capacity million Alumina production tonnes 70 60 50 40 30 20 10 0 2011 2012 2013 2014 2015 2020 Export to 3.5 3.5 4.0 4.5 4.5 5.0 China Idled
Slide 11: Upside potential and downside risk
Upside potential and downside risk +/- China demand growth +/- Demand growth outside China + Restriction on Indonesian bauxite export Long-term industry - Indian alumina capacity growth - Guinea development + Potential rise in alumina price (11)
Slide 12: Alumina market is consolidating
Alumina market is consolidating Net long alumina position, million tonnes Alcoa 4.3 Alcoa 8.0 Vale 3.0 Chalco 2.8 Glencore 2.4 BHP Billiton 2.1 Chalco 2.0 Hydro 1.5 BHP Billiton 1.9 Glencore 1.5 Kaiser 1.0 Rio Tinto 0.7 Alcan 0.8 Klesch -0.5 Sual 0.7 Rusal -0.6 Rio Tinto 0.5 Tajik -0.8 Pechiney 0.4
Slide 13: Attractive cost position
Attractive cost position Global business operating cost curve 2010 USD per tonne Alunorte stand-alone 450 400 350 300 Average - USD 243 250 200 150 100 50 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Million tonnes Source: CRU (13)
Slide 14: World-class operations
World-class operations (14)
Slide 15: High-quality asset portfolio
High-quality asset portfolio MRN Paragominas Alunorte alumina CAP alumina Alpart alumina bauxite mine bauxite mine refinery refinery project refinery • 5% ownership • 60% ownership, 100% • 91% ownership • 81% ownership • 35% ownership • Volume off-take by 2015 • World’s largest alumina • CAP refiner
Slide 16: Paragominas
Paragominas One of the world’s largest bauxite mines • 2010 production: 7.5 million tonnes • Targeting significant production increase • Possible expansion: up to 15 million tonnes • Current reserve life: 30 years • ~300 million tonnes • Long-life resource (16)
Slide 17: Paragominas – production process
Paragominas – production process • Production process • Strip mining allows for quick environmental recovery • Bauxite found in 0.5-2.5 meter layers 4-18 meters below ground • 244 km pipeline from Paragominas to Alunorte • Only bauxite slurry pipeline in the world • 15 million tonnes annual capacity
Slide 18: Paragominas – production process
Paragominas – production process Reclaimer Silo SAG mill Pumping station Classification to pipeline Tailings dam/recovered Classification water Ball mill Recrusher Vibrating screen (18)
Slide 19: Paragominas bauxite mining costs
Paragominas bauxite mining costs • Labor largest cost factor Paragominas bauxite mining costs 2010 • Influenced by Brazilian wage level • Productivity improvements Sustaining capital, 9% • Maintenance/consumables Other costs, 19% • Influenced by Brazilian inflation Labor, 25% • Energy cost – power a
Slide 20: Paragominas priorities
Paragominas priorities Bauxite production, million tonnes • Operational improvements 10 • Housekeeping and safety 9 • Improve performance stability 8 • Beneficiation plant • Dewatering filters in Alunorte 7 • Stripping ratio 6 • Recovery rate 5 • Improved production system 4 3 • Target significant p
Slide 21: Alunorte
Alunorte World’s largest alumina refinery • 2010 production: 5.8 million tonnes • Targeting stable production above 6 million tonnes • World-class conversion cost position • Modern technology • Bauxite supplied from Paragominas and MRN (21)
Slide 22: Alunorte - production process
Alunorte - production process Bauxite dewatering Steam Alumina Al2O3 Powerhouse Bauxite Caustic soda Evaporation Test tank Calcination Digestion Hydrate Classification (Al(OH)3) Precipitation Decanters Mud residue (22)
Slide 23: Excellent Alunorte alumina quality
Excellent Alunorte alumina quality • High-quality bauxite as basis • Low content of fines • Low content of non-organic materials • Iron, silica, gallium, phosphor and titanium • High degree of consistency • Low variability on high quality alumina (23)
Slide 24: Alunorte priorities
Alunorte priorities Alumina production, million tonnes • Operational improvements 7 • Housekeeping and safety • Improve plant efficiency 6 • Performance in older lines 5 • Availability of coal boilers • Dewatering filters 4 • Port costs • Improved production system 3 2 • Targeting stable production
Slide 25: Favorable integrated alumina cash cost position
Favorable integrated alumina cash cost position • Integrated alumina cash cost position 2010 Integrated alumina cash cost position 2010 • USD 238 per tonne • Alunorte, Paragominas and sourced alumina • Bauxite Sourced alumina, 8% • Cash cost to be improved as Paragominas increase production and pipe
Slide 26: Pro forma operational and financial performance
Pro forma operational and financial performance Q1 Q2 Q3 Q4 Q1 Year Bauxite & Alumina 2010 2010 2010 2010 2011 2010 Underlying EBIT (NOK million) 205 448 348 223 237 1 225 Underlying EBITDA (NOK million) 643 912 813 693 725 3 061 Alumina production (kmt) 1 394 1 521 1 442 1 448 1 336 5 805 Sourced a
Slide 27: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities on underlying EBIT Revenue impact if +/- 10% in price • ~13-14% of 3-month LME price per tonne alumina NOK million • ~One month lag 950 Cost impact Bauxite • ~2.4 tonnes bauxite per tonne alumina • Pricing partly LME-linked for bauxite from MRN Caustic s
Slide 28: Expansion projects - CAP and Paragominas III
Expansion projects - CAP and Paragominas III • Capacity • CAP alumina refinery I • 1.9 million tonnes • Paragominas bauxite mine expansion III • Up to 15 million tonnes • Time schedule • CAP refinery I planned to produce in 2015 • Paragominas expansion developed in parallel • Investment estimates an
Slide 29: Key operational priorities
Key operational priorities • Maximize synergies between Alunorte and Paragominas • Become industry benchmark in HSE and CSR • Implement integrated management system • Improve efficiency to achieve nameplate production capacity (29)
Slide 30: Commercial strategy
Commercial strategy (30)
Slide 31: Business model – volume flows
Business model – volume flows 1 000 tonnes, pro forma 2010 External sourcing 2 100 alumina External 1) 2 100 4 500 alumina sales Paragominas 7 500 Commercial Prod (100%) 7 500 operations Alunorte Internal 2) Hydro availability Prod (100%) 5 300 Hydro 2 900 alumina sales 100% 5 800 availability Alumi
Slide 32: Attractive alumina position
Attractive alumina position 1 000 tonnes 9 000 Open position not committed to sales contracts 8 000 Sourcing contracts 7 000 CAP equity 6 000 Alunorte equity 5 000 4 000 3 000 Smelter demand* 2 000 1 000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 *Sunndal 3 line assumed back in operation, N
Slide 33: Shift towards shorter contract durations
Shift towards shorter contract durations % of LME per tonne alumina for Contract durations long-term contracts <2000 2011 13.00-14.00% 13.25-15.25% 12.00-13.00% 20% 20% 25% 45% 35% 55% Long-term contracts (>6 years) Medium-term contracts (3-5 years) 1990-2000 2000-2005 2005-2010 Spot (< 2 years) Sou
Slide 34: Alumina price development
Alumina price development Historical alumina price Platts index in USD* Alumina price Alumina price USD per tonne % LME USD per tonne % LME % of LME % of LME 700 32 450 20 28 425 600 24 400 18 500 20 375 400 16 350 16 300 12 325 200 8 300 14 100 4 275 0 0 12 250 1998 2000 2002 2004 2006 2008 2010 09
Slide 35: Alumina pricing shifting from LME-link to alumina market fundamentals
Alumina pricing shifting from LME-link to alumina market fundamentals • Future pricing should reflect the fundamentals of the bauxite and alumina value chain • Bauxite, a fight for cost efficient resources going forward • Index pricing and shorter term contracts (35)
Slide 36: Hydro’s commercial strategy
Hydro’s commercial strategy • Move towards index pricing • Currently not offering medium/long-term LME linked contracts • Actively promote index pricing • Focus on contracts with 1-4 year duration • Focus on selling to end-users • Hydro’s existing combined sales portfolio • Average alumina price ~13
Slide 37: Summary
Summary (37)
Slide 38: Strong social and environmental commitment
Strong social and environmental commitment • Strategic partnerships to establish basis for multi-party dialogue • Social program/community investments based on input from stakeholders • Reforestation • World-leading experts to review rehabilitation program • Health and safety top priority • Ambition
Slide 39: Bauxite & Alumina priorities
Bauxite & Alumina priorities • Successful integration • Benchmark social and • Increase capacity utilization environmental performance • Operational excellence and • Capitalize on significant long strong cost focus position in alumina • Develop growth opportunities (39)
Slide 40: www.hydro.com
www.hydro.com