Hydro strikes a deal with Glencore to develop Alunorte alumina refinery

Hydro has struck a deal with Glencore under which Glencore would purchase 30 per cent of the Brazilian alumina refinery Hydro Alunorte and 5 per cent of the Brazilian bauxite production Mineraco Rio do Norte (MRN). Glencore will buy an extra 40 per cent of MRN, now controlled by Vale. Hydro will purchase this 40 per cent stake from Vale and promptly sell it to Glencore on a back-to-back basis, following which Hydro will no longer possess a stake in MRN.

The bauxite arrangement between Vale and Hydro will be terminated, and Glencore will continue to supply about 30 per cent of Alunorte's long-term bauxite demand from MRN after the transactions. Hydro's 2025 plan, unveiled in 2020, set a clear goal of increasing profitability and driving sustainability across the organisation. As part of the plan, Alunorte has been developed, with money allocated to maintain and enhance operations, as well as measures to boost the refinery's top quartile cost and carbon position, as well as more community participation.

"This transaction is an important step to deliver on Hydro's strategy. Proceeds from the transaction will be used for strategic growth and for shareholder distribution. Alunorte remains a core strategic asset for Hydro and is a key source of low-carbon alumina supply to our primary aluminum smelters. Hydro will continue to be long alumina, but now more balanced in relation to the demand from our aluminium smelter portfolio," said President and CEO of Hydro, Hilde Merete Aasheim.

Hydro and Glencore will continue efforts to reduce Alunorte's carbon emissions through the fuel switch project, which aims to replace fuel oil with LNG, and the electrification of coal boilers, bringing Alunorte to the first decile on the global carbon curve by 2025, positioning Alunorte as a leading supplier of low-carbon alumina. Aside from decarbonising Alunorte, the partners are dedicated to continue the development of social initiatives that will enhance the lives and livelihoods of neighbouring people.

"Our Bauxite and Alumina business area has made significant progress over the last years to bring down the footprint of producing alumina, which enables Hydro to strengthen our position in low-carbon aluminium. We look forward to becoming partners with Glencore, and their broad industrial experience within metals and mining, to further develop Alunorte," added Aasheim.

The overall net enterprise value of the transactions will be USD 1.11 billion, which will be adjusted for Alunorte's net debt as of June 30, 2023. As of March 31, 2023, the net debt for 30 per cent of Alunorte was USD 335 million. On a 30 per cent basis, the enterprise value and net debt remove asset retirement liabilities of USD 40 million.

The parties have also agreed to a post-closing price adjustment depending on Alunorte's financial performance for 21 months beginning June 30, 2023. Hydro may repay Glencore, subject to Alunorte's performance, up to a maximum of USD 55 million. The transactions are subject to regulatory clearances, as is typical. Both agreements are scheduled to close in the second half of 2023.

With 62 per cent ownership after the deals, Hydro will remain Alunorte's most significant stakeholder. Glencore will control 30 per cent of Alunorte, with the other four minority owners owning the remaining 8 per cent. Alunorte will continue to be accounted for in Hydro's financial statements. This transaction will result in no re-measurement or recognised gain.