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Norsk Hydro (OSL:NHY) Hydro and the metals and mining company Vale have agreed to construct a new alumina refinery in northern Brazil, strengthening Hydro's future alumina supply in line with its growth strategy.
Under the agreement, which is a conclusion of a memorandum of understanding (MoU) signed by the parties in July 2007, Hydro will hold a 20-percent share in the refinery, expected to start production in 2011. The agreement has now been approved by the board of directors of both companies.
"To secure raw material for our aluminium production is a key element in Hydro's growth strategy," says Hydro President and CEO Eivind Reiten. "A stake in a major alumina refinery in this resource-rich area is a strategically important step in our aim for solid positions across the entire aluminium value chain," he says.
The new refinery will be located close to Belém in the state of Para, approximately 5 km from Alunorte, the world's largest alumina refinery, owned 57 percent by Vale and 34 percent by Hydro. The initial production capacity of the refinery will be 1.86 million tonnes per year of alumina. The new refinery has potential for future capacity expansions to reach up to 7.4 million tonnes per year.
The total investment cost in the project's first stage is estimated at USD 2.2 billion. Hydro's share of the investment will be 20 percent.
Construction is expected to begin in October 2008. Hydro will have the right to participate with the same share in all future expansions, expected to follow after 2011.
Bauxite for the new refinery will be delivered by Vale from its operation in Paragominas, in Para, through capacity in the existing bauxite slurry pipeline, currently partly supplying Alunorte.
Hydro and Vale in August officially opened the third expansion of Alunorte, bringing capacity at the refinery up to 6.3 million tonnes per year of alumina.
Alumina is the key raw material in the production of primary aluminium, which makes it vital for Hydro to hold a solid equity position in this input factor.
