Hydro Annual Report 2011b

Further improved bauxite and alumina production
Annualized production, million mt
10
8
6
4
2
0
*Pro-forma
1H* 2H 1H* 2H
Alunorte
Paragominas
Alumina prices, as a percentage of LME, have been increasing.
Since 1990, contract prices have risen from a level of around
12 percent of LME reference prices to around 15-16 percent
in 2011. This reflects a general trend where the owners of natural
resources are taking an increasing share of profits. This
trend is expected to continue. There has also been a shift in the
alumina market towards shorter contract durations.
Cost developments
Similar to aluminium, the alumina cost curve has shifted
upwards in the last five years, increasing roughly USD 60 per
mt mainly driven by cost increases in bauxite and fuel.
Strategy and targets
following the successful integration of the vale assets and
business organization, operational stability and further
improvements are key priorities for Hydro’s new Bauxite &
Alumina business area. Our goal is to achieve continuous
incremental improvements in capacity utilization by developing
a platform of operational excellence and safe, sustainable
practices to promote responsible, cost-effective operations.
Improve the operating performance
of Paragominas and Alunorte
Our main goal in the coming year will be to continually
improve the capacity utilization and efficiency of our operations.
We will concentrate on increasing the effectiveness of
our production systems, higher productivity and more systematic
execution and follow-up of maintenance activities. Our
aim is to achieve targeted increases in production levels based
on Hydro’s strong performance culture.
Reinforce safe and sustainable business practices
The ongoing implementation of appropriate HSE and CSR
strategies reflecting our major presence in Brazil, will be at the
top of our agenda. Hydro’s mission is to create a more viable
society by developing natural resources and products in
World cash cost curve
Site cost curve 2011
In USD/t
500
400
300
200
100
Source: CRU
Alunorte
BusIness DesCrIptIon
Bauxite & Alumina
Weighted average cash cost 272
25
0
0 20
40 60 80 100
Capacity: Million ton
innovative and efficient ways. This principle will guide our
actions as we develop our new business.
Expand our bauxite and alumina capacity
Our ambition is to increase our capacity of low-cost alumina,
reinforcing our position as a leading global supplier. Projects
under evaluation include CAP, a new alumina refinery in Barcarena,
close to Alunorte, with an initial capacity of 1.9 million
metric tons and potential for expansions up to 7.4 million mt
and the expansion of the Paragominas mine to 15 million mt.
Improve the commercial value of our resource base
We support the development of market mechanisms that
evolve the pricing structure of our core products to better
reflect the fundamentals of the industry. This includes actively
promoting index pricing and working to establish a premium
for our high quality alumina.
2011 targets
• Stabilize operations at Paragominas and continue to deliver
production increases
• Stabilize production at Alunorte at a level over 6 million mt on
an annual basis
2011 results
• Operations at Paragominas stabilized with record production
of 9 million mt (annualized) in the second half of the year
• Improved operational stability in Alunorte with production over
6 million mt (annualized) in the second half of the year
2012 targets
• Continue to stabilize and improve production and operational
performance at our sites
• Further HSE improvements with a focus on high-risk incidents
Ambitions going forward
We are strongly committed to safety and to eliminating high-risk
incidents in our operations. Going forward, we intend to capitalize on
our long position in bauxite and alumina in a resource constrained
world. We intend to secure and grow our capacity to enable the
expansion of our metal business and to enhance our position in
a profitable bauxite and alumina market. This will increase our
attractiveness as a partner in new ventures and our ability to influence
the further restructuring of the aluminium industry as a whole.