AluNews - July 2013

Ghana’s Aluminium Project To Create 2.3 Million Jobs

Ventures - July 31st, 2013,

Ghana’s Integrated Aluminium Project, which has been described as the key to growing the economy with a capital injection of an estimated $8 billion, will reportedly create about 2.3 million jobs.
The integrated project also involves the construction of an aluminium refinery to refine the rich bauxite deposit into alumina at Nyinahin, a town in Ghana’s Ashanti region.
The alumina would then be processed into aluminium by the Volta Aluminium Company (VALCO), and sold to the several downstream industries as aluminium ingot and billet, with consultations already taking place to identify suitable investors to lead the project, sources close to government reveal.
The Nyinahin mine with bauxite deposits of 700metric tonnes, valued at $17.5 billion, is estimated to create about 98,000 jobs, while the aluminium refinery – expected to produce about 350metric tons of alumina – will generate about 19,000 jobs.
However, this can only be achieved if sustainable power supply is dedicated to the Integrated Aluminium project via VALCO.
Indications from some aluminium and steel companies like Aluworks, Western Rod, Tema Steel, packaging companies and the numerous aluminium accessories manufacturing industries show a high eagerness for the sector to take off to reduce the cost of importation of raw materials and offer the convenience.
The decision to dedicate hydro power to aluminium smelting is not only crucial to reduce the cost of generation but also important if Ghana is committed to creating more jobs and reducing the level of youth unemployment.
Dr. Kwabena Donkor, a former Minister of Energy expressed his excitement, especially the use of Ghana’s salt and limestone resources in the Northern and Western region in the manufacturing of aluminium.

No solution in sight for Vedanta's woes

Business Standard - July 30th, 2013,

Amid the overwhelming opposition to the Niyamgiri bauxite mining project at the recently held gram sabhas, Vedanta Aluminium is in a quandary on a sustainable alternative for its one-million-tonne Lanjigarh refinery. Though the company has applied for prospecting licences and mining leases at 26 sites in a 150-km radius of the Niyamgiri Hills, it feels a solution to its raw material concern is unlikely.
“Most of these sites are unexplored. To be optimistic, the average period from an application for a mining lease to allotment and getting all statutory approvals is seven-eight years. To start operations, this may stretch to more than a decade,” said a senior Vedanta Aluminium official. “Also, there is no guarantee there won’t be any Niyamgiri-type agitation at a new location, as the bauxite sites along the Eastern Ghats have the same topography — hilly terrain, jungles, tribals and their sacred places.”
“So, it will not be sustainable to run the refinery so long (for about a decade) by sourcing bauxite from outside the state,” he added.
In December 2012, the company had shut the Lanjigarh plant. On July 11, operations were restarted by procuring bauxite from Jharkhand, Chhattisgarh and Maharashtra. However, bauxite imports are now bleeding the refinery, with transportation and logistics costs putting an additional burden of Rs 600 crore a year on plant operations.
Amid all this, the company is now pinning its hopes on a report by an inter-ministerial group formed by the state government to address the long-term raw material supply constraints of industries in the state. Recently, the group gave its report to Chief Minister Naveen Patnaik, who is expected to present it before the cabinet for discussions.
To overcome raw material woes, the company has also urged the state government to expedite the processing of pending applications of state-owned Odisha Mining Corporation (OMC), especially those of bauxite leases in non-forest areas. These applications are either at the prospecting licence or mining lease stages. The mines include Maliparbat, Karnopodikonda, Ballada, Kakrimali, Hatimali and Majhingamali in Koraput district, Kisunmali in Kalahandi district and Choranimaribhata-A, Choranmaribhata-B, Siadimala-east and Siadimali-west in Rayagada district.
The company hopes to sign an agreement with OMC to secure raw material for its project. OMC, the primary casualty in the Niyamgiri debacle (the mine was in its name), is nonchalant on the outcome of the gram sabhas.
“We are not bothered about the gram sabhas. We are not interfering in the process which is being conducted according to the Supreme Court direction,” says Saswat Mishra, OMC’s chairman and managing director. He declined to comment on a course of action.
The indifference of the state government, particularly OMC, towards the recent developments related to Niyamgiri has made the company uneasy about its investments in the state, even as its parent, Vedanta Resources, prepares to face shareholders at its annual general meeting in London on August 1.
Including Rs 5,000 crore invested in the Lanjigarh refinery, the company has spent Rs 50,000 crore in a 0.5-million-tonne aluminium smelter, a 1,215-Mw captive power plant and a 2,400-Mw thermal power complex with independent power producer status.

Chalco to benefit from aluminium capacity cut

Commodities - July 30th, 2013,

Investor Mark Mobius said Aluminum Corp of China is a "good long-term bet" as one of the few producers of the metal set to benefit from the government's plans to reduce overcapacity.
The mainland ordered more than 1,400 firms in 19 industries including aluminium to ease oversupply, according to a July 25 statement from the Ministry of Industry and Information Technology.
While Chalco, China's biggest aluminium maker, would be able to raise the capital it needed as the government began to "winnow out" smaller producers, other companies would "fall by the wayside", Mobius said.
"Chalco will be the one left standing," said Mobius, executive chairman of Templeton Emerging Markets. "The government doesn't want to see this excess capacity in the country."
Chalco's American depositary receipts (ADRs) fell 2.7 per cent to US$8.16 in New York on Monday, extending this year's drop to 31 per cent. The ADRs traded 0.3 per cent below the Hong Kong shares. Each ADR equals 25 underlying shares in the Beijing-based company.
Units of Franklin Resources, Templeton's parent company, have a combined stake of about 31 per cent in Chalco.
The ministry raised the minimum output requirement on alumina projects using imported bauxite to 800,000 tonnes from 600,000 tonnes in rules set in 2007, in new industry guidelines released last week. Producers must use their own money to fund at least 40 per cent of their projects and are encouraged to have integrated hydropower or coal-fired power plants.
Chalco's coal-powered plants were helping the firm become "vertically diversified", Mobius said.
Chalco reported a net loss of 975 million yuan (HK$1.2 billion) in the three months to March while sales rose 1.9 per cent to 34.2 billion yuan. The loss may narrow to 5.8 billion yuan this year from 8.2 billion yuan in 2012, according to the average estimate of analysts.

Odisha tribals set to block Vedanta bauxite project

Reuters - July 29th, 2013,

Vedanta Resources Plc's (VED.L) plans to mine bauxite to feed its alumina refinery in Odisha have suffered a blow after a majority of local residents voted against mining around the hills they consider sacred.
Failure to source bauxite from within the state might force the London-listed company to reconsider its 1-million-tonne-per-year plant, which has already been shut several times due to a shortage of the raw material.
The project has drawn the anger of rights groups internationally and highlights the difficult task India faces in balancing economic development with the need to cushion hundreds of millions of poor from the fallout.
Seven out of 12 villages whose opinion the Odisha government sought on the orders of the Supreme Court have rejected mining in the area, a top government official and witnesses said.
"The villagers have so far said no to the mining project," the official, who requested anonymity as he was not authorised to talk to the media, told Reuters on Monday.
The Supreme Court in April ordered the state to submit a report based on the views of the villagers to the federal environment and forest ministry within three months.
The ministry, which had earlier opposed the project, would make the final decision two months thereafter on whether Vedanta and partner Orissa Mining Corp Ltd (OMC) can go ahead with mining, the court had ruled.
"People sue-motto (on their own) came to the meeting and spoke against the project in their own tribal languages," said Siddharth Nayak of Green Kalahandi, an organisation protesting against mining in the area.
"The whole Niyamgiri hill is our god and we will protect it at any cost," Nayak said.
The remaining five villages are to share their views by August 19, the government official said.
"The environment ministry can reject the mining, taking into consideration the decision of even only one gram sabha (village council meeting)," he said.
A ministry official did not immediately comment.
Ajit Yadav, Vedanta's legal head, told Reuters the company could do little apart from waiting for the environment ministry to decide. He declined to comment on the fate of the project.
"Today's vote surely means the end of Vedanta's plans to mine the Niyamgiri hills," said Amnesty International's Ramesh Gopalakrishnan, who added that he was present at several of the meetings.
The Lanjigarh plant in Kalahandi district, about 450 km (280 miles) from state capital Bhubaneswar, has been struggling to source bauxite since its commissioning in August 2007.
The company recently restarted the plant after a shutdown of nearly seven months as it sourced bauxite from other states, but executives have said that cannot be sustained unless it acquires the raw material in Odisha.

VALCO: Ghana to lose over $350 billion if…

Ghana Web - July 27th, 2013,

Ghana could lose over $350billion of revenue from the bauxite industry if measures are not put in place to establish a refinery and integrate the various players in the precious minerals’ value chain.
This is according to the Volta Aluminum Company (VALCO).
A conservative estimate of Ghana’s bauxite is reported to be about 700 million tonnes.
VALCO which currently exports most of its output is calling for the establishment of a bauxite refinery in Ghana which will form a part of the Aluminum integration project.
Deputy CEO of VALCO, Daniel Acheampong speaking on the Citi Breakfast show said, establishing the refinery is our best bet to sustaining the industry.
“Ghana has bauxite resources at Kibi and Nyinahin that if mined and exported, will fetch Ghana about $17.5 billion, but currently Ghana’s bauxite that is mined Ayawaso goes for $25 (per tonne) on the world market. Because we are not the people mining as a country, the royalties we get is just peanut- maybe just about $2 or $3 (per tonne) or thereabout.”
In his analysis, Mr. Acheampong said Ghana would be better off the country focused mining bauxite itself.
“But if Ghana decided to just concentrate on just mining the bauxite only, we will get about $17.5 billion. I think we have grown and so we will want to add value so that the refinery will not have to import bauxite. So if we had a refinery in this country and mined the bauxite, this is going to give us about $122milion.”
He pointed out that if the smelter is taken off-take it, “then that alone is going to give this country about $350billion.”

Australia's Northern Territory Seeks New Gas Deal With Rio Tinto

The Wall Street Journal - July 26th, 2013,

MELBOURNE - The government of Australia's Northern Territory has backed out of a deal to supply natural gas to Rio Tinto PLC's (RIO) struggling Gove alumina refinery, casting doubt over the future of an operation that is by far the biggest employer in a remote northern community.
Adam Giles, chief minister for the territory, Friday said his government is instead proposing a dual fuel option whereby it would sell less gas to the plant to balance the use of more costly heavy fuel oil that Rio Tinto's operation currently relies on.
Rio Tinto had threatened to close the unprofitable refinery before the Northern Territory's former chief minister, Terry Mills, in February agreed to divert contracted supplies of gas for the company to use as an alternative power source for the Gove plant. The Gove refinery and bauxite mine are part of aluminum operations that Rio Tinto in 2011 bundled into its Pacific Aluminium unit, one of several assets it is seeking to sell.
"Under Pacific Aluminium's original plan, Northern Territory taxpayers would have faced a massive 3.2 billion Australian dollar ($3 billion) gas pricing risk and the possibility of energy shortages in the long term," Mr. Giles said in a statement published on the government's website. That deal would have threatened the territory's credit rating and led to higher energy prices for customers of government-owned Power & Water Corp., he added.
A spokesman for Pacific Aluminium said the company was considering the implications of the government's decision.
"Due to the rising cost of heavy fuel oil, coupled with a high exchange rate and low alumina price, the refinery has sustained heavy losses for some time. An affordable energy solution for Gove refinery is needed to secure its long-term viability," the spokesman said.
Mr. Giles said the earlier agreement was conditional on due diligence that revealed an unacceptable risk to the territory's economy and taxpayers.
Under the new proposal, the government would sell 13 petajoules of gas a year for up to 15 years, rather than divert 25 petajoules over 12 years from Power & Water.
"We understand the importance of the refinery to the local community and the territory economy and we are confident this is a better, longer-term solution," Mr. Giles said.
He said the territory was seeking the support of the federal government for its plan.
The Gove refinery and mine is the largest private employer in the Northern Territory, with roughly 1,400 employees and contractors. It is located 650 kilometers east of Darwin on the Arafura Sea, near the mining town of Nhulunbuy, which has a population of 4,500. According to Pacific Aluminium, Gove produces more than 8.2 million metric tons of bauxite and 2.7 million tons of alumina a year.

Bosnia's Aluminij agrees power supply deal with Slovenian trader

Reuters - July 26th, 2013,

Bosnia's aluminium smelter, Aluminij Mostar, which has struggled to keep going due to high electricity costs, said it has secured an advantageous 100 megawatt (MW) power supply deal for the rest of 2013 with Slovenian electricity trader GEN-I.
"The price agreed with GENI-I, including the transmission cost, will be lower from any contract we have had so far," Aluminij General Manager Ivo Bradvica said in a statement on Friday. The company did not disclose the price.
The deal will help Aluminij, in the southern town of Mostar, continue production after it had threatened in June to halt operations due to high power costs and low metal prices.
It marks the first time Aluminij, Bosnia's only aluminium smelter, has bought power on the open market. Bosnia's state-run power utility EPHZHB supplies it with an additional 125 MW of electricity at 49.3 euros ($65.25) per megawatt-hour (MWh).
Aluminij accounts for more than half of the country's metals output and its potential closure could have hit thousands of jobs across the Balkans, where many aluminium processors rely on its supplies.
The smelter has repeatedly urged the government to subsidise the price of power, which accounts for more than 60 percent of the cost of producing a tonne of aluminium. The plant produces around 160,000 tonnes of aluminium a year.
On June 17, the government of Bosnia's Muslim-Croat federation struck an ownership structure deal with the smelter, under which the state and Aluminij's shareholders each hold a 44 percent stake in the firm while the remainder is owned by the Croatian government. ($1 = 0.7555 euros)

Gas to Gove still a pipedream

AJM - July 25th, 2013,

The future of Gove alumina refinery remains uncertain, with plant owner Pacific Aluminium and potential pipeline contractor APA Group unable to agree on funding for construction of the pipeline needed to keep the ailing operation afloat.
In February, the Territory government agreed to underwrite the $1.2bn bill for the gas pipeline and committed to release part of the Power and Water Corporations’ gas supply to power Gove’s operation for 10 years.
Gas supply to Gove would enable the plant to switch from diesel for its power generation, providing significant long term cost reductions.
However, according to the Northern Territory News, APA Group will not commit to construction costs.
"We'll get involved with owning or operating," APA Group managing director Mick McCormack said.
"Pacific Aluminium control the project, they're arranging to have the pipeline built."
In response, Pacific Aluminium’s spokesman was equivocal at best: "Given the commercial arrangement is not yet complete, we are not in a position to comment at this time.”
The Gove alumina refinery is the Territory’s largest employer, with around 1,500 jobs. The nearby town of Nhulunbuy, population 4,000 is built on the refinery’s success.
Pacific Aluminium’s parent company, Rio Tinto, has previously announced it would sell the refinery, which has been estimated to run at a loss of around $30m a month.
However unless someone is prepared to stump up the cash for the infrastructure upgrades needed to streamline operations, the future of the refinery remains in limbo.

Smelter's future uncertain

The Southland Times - July 24th, 2013,

Electricity contract talks between Meridian Energy and owners of the Tiwai Point aluminium smelter, Pacific Aluminium, are continuing.
The smelter's future is uncertain as the talks, which began last year, drag on.
The smelter could close in coming years if cheaper prices are not negotiated - a loss which could affect up to 3000 Southland jobs.
A Pacific Aluminium spokesman said yesterday the company would make an announcement when the talks concluded.

UPDATE 2-China sets stricter rules to rein in bloated aluminium sector

Reuters - July 24th, 2013,

HONG KONG - China has tightened regulations for operating smelters in its bloated aluminium sector, including setting stricter limits on power consumption and emissions, in a move that could hit output of the metal in the world's top producer.
Beijing has been issuing broadbrush rules aimed at reining in overcapacity in sectors such as aluminium and steel for about a decade, but plans have usually faltered due to resistance from local governments anxious to boost growth.
But China's new leaders appear to getting more serious over the issue with the new requirements issued by the Ministry of Industry and Information Technology giving new energy consumption and emission limits, industry sources said.
While it is unlikely that all local governments will follow the rules, the bulk of aluminium smelters that do not meet the requirements would try to upgrade facilities, the sources predicted.
That could mean million tonnes of capacity could be shut gradually for upgrading before the end of 2015, which could slow production and support global prices which have fallen more than 11 percent so far this year.
Longer term, the upgrades could increase exports by improving efficiency, they added, though the government is also pushing for mergers and restructuring in the sector.
The ministry will publish a list of firms that meet the new requirements and they would receive help such as bank credit, according to a statement on the ministry website (www.miit.gov.cn).
The statement said tackling overcapacity would be a priority in the second half of the year as China targets sectors such as steel, cement, shipbuilders and glass making - all of which have suffered production gluts and pressure from a slowing economy.
The new rules for aluminium also include a ban on the construction of new smelters in environmentally sensitive areas and raising the production capacity of alumina refiners that use bauxite imports, the ministry said.
China has more than 27 million tonnes of aluminium smelting capacity currently.
ELECTRICITY CONSUMPTION
Electricity accounts for about 40 percent of the production costs for smelters in China.
Under the new rules, power consumption for new and upgraded aluminium smelters will need to be below 12,750 kilowatt hours per tonne for the liquid form and 13,200 kwh for ingots, while consumption for existing capacity will be required to be below 13,350 kwh and 13,800 kwh, respectively.
In Henan, the main aluminium producing province, the bulk of smelters use less than 14,000 kwh to produce one tonne of primary aluminium currently, said Zhang Chenguang, an analyst at information provider SMM.
He could not provide an estimate for the amount of Chinese capacity using more than 13,800 kwh.
A manager at a large aluminium smelter said some smelters had anticipated the power consumption limits and had upgraded in the past two years.
The average consumption rate in China was 13,800-13,900 kwh currently, down from around 15,000 kwh two years ago after the addition of more modern capacity, he estimated.
An executive at a smelter in the southwestern Guizhou province said its plant consumed 13,800 kwh and it was building another smelter using 13,400 kwh.
"The new requirements in theory is tougher than previous rules. But will this axe be used? We'll have to wait and see if this happens," the executive said.

Rio Tinto Alcan: 2013 production figures vastly improved on previous year

Aluminium International Today - July 24th, 2013,

Figures released by the Strategic Resource Institute show that Rio Tinto Alcan has increased production of bauxite, alumina and aluminium for Q2 2013 when compared to the same period last year.
Bauxite production was up by 21%, alumina production up by 15% and aluminium production also up by 15%.
The global mining giant expects its share of bauxite, alumina and aluminium production in 2013 to be 34Mt, 7.3Mt and 2.5Mt respectively.
In terms of its H1 2013 performance, the company has recorded a 16% increase in bauxite when compared with H1 2012, a 7% increase in alumina and a 14% increase in aluminium.
Pacific Aluminium figures, on the other hand, paint a gloomy picture with bauxite production in Q2 2013 down 4% on the same period in 2012, alumina production down 30% and aluminium production down 5%.
Where half year figures are concerned, Pacific Aluminium's bauxite output remained static while alumina production was down 20% and aluminium down 6%.
Rio Tinto Alcan attributes its success to strong operational performance driving higher volumes at its Weipa bauxite mining facility, increased capacity at its Yarwun aluminina refinery in Gladstone and improved third party demand.

Involve Odisha villages in mining decision: BJP

Daiji World - July 23rd, 2013,

Bhubaneswar - BJP vice president Jual Oram Tuesday urged the government to hold gram sabhas (meetings) in all villages in Odisha's Niyamgiri hills to take a decision on the bauxite mining project in the region.
Vedanta has set up a one million tonne per annum alumina refinery at Lanjigarh in Kalahandi district, about 600 km from here. However, it could never operate the plant at full capacity due to shortage of bauxite, the key raw material used to produce alumina.
Vedanta had entered into an arrangement with the state government for supply of bauxite through a state agency from nearby Niyamgiri hills, but the move was challenged by anti-displacement groups.
The Supreme Court April 18 asked the state to go to gram sabhas to understand the religious and cultural aspects of tribals in the region.
The apex court's forest bench, headed by Justice Aftab Alam, said the gram sabhas would look into the religious and cultural aspects of the (Dongaria Kondh) tribals in the region in three months' time and take a decision.
The state government decided to hold meetings in 12 villages between July 18 and Aug 19. Tribals have voted against mining in the region.
The state's Scheduled Tribes and Scheduled Castes Development Minister Lalbihari Himirika said the government selected the villages as per the court order.

June global daily average aluminum output flat on month at 68,100 mt/day: IAI

Platts - July 22nd, 2013,

Global primary aluminum output averaged 68,100 mt/day in June, flat from 68,100 mt/day in May but higher than 67,700 mt/day in June 2012, figures released Monday by the International Aluminium Institute showed.
Total production in June (30 days) was 2.042 million mt, down from 2.112 million mt in May (31 days) but higher than 2.030 million mt in June 2012.
Production for January-June 2013 was 12.355 million mt at an average of 68,300 mt/day, compared with 12.439 million mt in the first six months of last year.

Rio Tinto Alcan’s production up thanks to Yarwun demand

The Observer - July 22nd, 2013,

RIO Tinto Alcan has boosted bauxite production by 21% in the second quarter of the year, compared to the same quarter in 2012.
Strong operational performance has driven higher volumes at Weipa, as bauxite requirements from the expanded Yarwun refinery at Gladstone increased, along with third party demand.
Meanwhile, Rio's alumina production was 7% higher in the same period, with greater refining capacity at Yarwun.
Aluminium production was up 15%.
In 2013, Rio Tinto Alcan's share of bauxite, alumina and aluminium production is expected to be 34 million tonnes, 7.3 million tonnes and 2.5 million tonnes, respectively.

Alcoa COO to Rein In Aluminum Smelters, Production?

Metal Miner - July 19th, 2013,

Alcoa promoted its global primary products (GPP) CFO Roy Harvey to COO so that he can oversee the company’s smelter and refinery business.
“In his new role, Harvey would focus on the day-to-day operations of Alcoa’s 22 aluminium smelters and nine alumina refineries worldwide, as well as bauxite assets in Australia, Brazil, Jamaica, Suriname, Guinea and, soon, Saudi Arabia,” according to miningweekly.com.
Perhaps he’ll shut a couple of them down to help bring the global market back into balance? (With China still pumping out aluminum like nobody’s business, Alcoa’s potential shutdowns may be peanuts…)

Dongaria Kondhs say no at first meeting

Business Standard - July 19th, 2013,

The Dongaria Kondh tribe of this hill village has given a thumbs-down to the proposed bauxite mining project atop Niyamgiri Hills, a natural resources treasure trove the tribals consider too sacred to part with.
The project is crucial for raw material for Vedanta Aluminium’s one-million-tonne alumina refinery at Lanjigarh, as well as its aluminium smelter upstream projects and power complex at Jharsuguda, with a combined investment of Rs 40,000 crore.
In the first palli sabha (gram sabha) conducted here to decide the fate of the project, the Kondhs unanimously voted against it.
“No Dongaria Kondh of this village would back bauxite mining atop Niyamgiri Hills” was the refrain, as 38 of the 46 eligible voters who turned up for the assembly meet, conveyed their opinions. This followed 20-odd participants of the palli sabha feverishly pitching for safeguarding the rights of the Kondhs.

Norsk Hydro second quarter 2013: Result down on lower aluminium prices and power production

Market Wired - July 18th, 2013,

OSLO - Second quarter 2013: Result down on lower aluminium prices and power production
Hydro's underlying earnings before financial items and tax was NOK 518 million in the second quarter, down from NOK 1,077 million in the first quarter of 2013, as lower aluminium and alumina prices and seasonally lower power production weighed on results. Bauxite and alumina production was affected by power outages.
* Underlying EBIT NOK 518 million
* Lower alumina and aluminium prices
* Lower result in Energy, mainly from seasonally lower production
* Production in Bauxite & Alumina affected by power outages
* Increased volumes lift result in Rolled Products
* Aluminium demand growth outlook 2-4% outside China
"Although the global macroeconomic situation remains challenging, aluminium demand is expected to continue to show solid growth this year. Hydro maintains its outlook for a balanced aluminium supply and demand in 2013," Hydro's President and CEO Svein Richard Brandtzæg said. Underlying EBIT for Bauxite & Alumina declined compared to the first quarter, mainly due to lower LME-linked alumina prices and reduced bauxite production. Alumina production declined further from weak levels experienced in the previous quarter following external power outages affecting the Alunorte refinery.
"Hydro's main focus is on our company-wide improvement efforts, where one of the key priorities is to implement actions to stabilize and lift production following the power outages that caused production disruptions at Alunorte," said Brandtzæg. The production disruptions will initially affect Bauxite & Alumina's improvement program "From B to A", but Hydro expects to reach savings of NOK 1 billion by end-2015, in line with original plans.
Primary Metal delivered lower underlying results for the second quarter, primarily due to lower realized aluminium prices. Underlying EBIT for Metal Markets was stable compared to the previous quarter. Compared to the first quarter, underlying EBIT for Rolled Products improved, impacted by seasonally higher volumes partly offset by lower margins. Operating costs per metric tonne declined. Underlying EBIT for Energy declined compared to the first quarter mainly due to seasonally lower production following high production levels in the first quarter.
Operating cash flow was NOK 1.0 billion for the second quarter. Net cash used for investment activities amounted to NOK 0.5 billion. Dividends paid in the quarter amounted to NOK 1.7 billion. Hydro's net debt position amounted to around NOK 1.3 billion at the end of the second quarter. Reported earnings before financial items and tax amounted to NOK 375 million in the second quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative losses and positive metal effects amounting to NOK 74 million in total, rationalization and closure cost of NOK 86 million and divestment gains of NOK 16 million. In the previous quarter, reported EBIT amounted to NOK 705 million including net unrealized derivative losses and positive metal effects amounting to NOK 294 million in total and rationalization and closure costs of NOK 78 million.
Loss from continuing operations amounted to NOK 713 million in the second quarter including a net foreign exchange loss of NOK 1,291 million. In the previous quarter, income from continuing operations amounted to NOK 254 million including a net foreign exchange loss of NOK 115 million. Income from discontinued operations amounted to NOK 48 million in the second quarter including rationalization and closure costs of NOK 77 million. In the previous quarter, income from discontinued operations amounted to NOK 9 million including rationalization and closure costs of NOK 40 million.
Hydro has sold forward around 50 percent of its expected primary aluminium production for the third quarter of 2013 at a price level of around USD 1,850 per mt. This excludes volumes from the Qatalum plant.

$1 Billion Alumina Smelter in West Kalimantan Kicks Off

Jakarta Globe - July 17th, 2013,

Well Harvest Winning Alumina Refinery — a joint venture between Indonesian conglomerate Harita Group and China’s Hongqiao Group — started construction of its $1 billion smelter in Ketapang, West Kalimantan, on Wednesday.
“This marks the development of the first alumina smelter in Indonesia,” Susilo Siswoutomo, deputy energy and mineral resources minister, said at Wednesday’s ground-breaking ceremony.
The 2-million-ton-per-annum smelter will produce alumina, or aluminium oxide, used mainly in the manufacturing of aluminium metal. The chemical compound can also be used as an abrasive due to its hardness, or as a refractory material owing to its high melting point.
Liu Feng Hai, Well Harvest’s president director, said the smelter would be built in two phases, the first targeted for completion in 2015. The initial phase is expected to cost around $500 million and will leave the facility with a capacity of about 1 million tons annually.
The second phase, planned to be completed in 2017, will double the smelter’s initial capacity, while also doubling the total investment.
Harita Group chief executive Lim Gunawan Haryanto said the smelter would process bauxite, or aluminium ore, from the company’s mines.
Harita owns 26 mining permits over 350,000 hectares in West Kalimantan, with proven bauxite reserves of some 700 million tons. The company is also involved in nickel and coal mining, palm oil plantations and shipping, with Singapore-listed palm oil producer Bumitama Agri one of its cash cows.
Harita owns 30 percent of Well Harvest through its subsidiary Cita Mineral Investindo, while Hongqiao owns the rest.
Output from the smelter will be sold on the domestic market and it is especially intended to supply Indonesia Asahan Aluminium (Inalum), an Indonesian-Japanese joint venture, Lim said.
Harita was among Indonesian miners rushing to avoid a government ban on the export of raw materials that will be enforced from next year. The ban aims to add more value to the country’s natural resources by processing them domestically.
Thamrin Sihite, coal and minerals chief at the Energy and Mineral Resources Ministry, last week said the government would grant a three-year extension to mining companies that showed commitment in establishing processing facilities here.
Meanwhile, Sulawesi Mining Investment, a joint venture between Chinese Tsingshan Holding Group and Bintang Delapan Group, will increase its investment in a ferro-nickel smelter project in Morowali, Central Sulawesi, by 50 percent to $1.5 billion, a government official said on Tuesday.
The first phase of the project will have an annual capacity of 300,000 tons.

Bell Bay smelter jobs cut

The Mercury - July 16th, 2013,

THE struggling Bell Bay Aluminium smelter will cut 18 jobs as it continues to face "extremely challenging" market conditions.
General manager Ray Mostogl said the decision followed a streamlining of work on site that had resulted in increased efficiencies and cost savings in the maintenance area.
Six of the roles being reduced are currently vacant. Employees in affected positions will be offered other roles or redundancies.
"Aluminium prices remain very low and we are working with employees, contractors and suppliers to identify efficiencies and cost savings to help make the smelter viable," he said.
The cuts come despite the smelter achieving a record production level in 2012.
The Bell Bay smelter is part of Pacific Aluminium group which has been put on the market by Rio Tinto.
The smelter lost $4.5 million in the 2011 year - the last year the company reported the Bell Bay smelter's result to ASIC.
Mr Mostogl said the recent easing of exchange rates had provided some relief, but the more significant decline in aluminium prices required the smelter to continue increasing efficiency and reducing costs.
"Bell Bay Aluminium has worked co-operatively with employees, contractors, suppliers, and local industry groups to achieve its best ever safety performance, record production levels and significant cost savings during the past 12 months," Mr Mostogl said.
Last year the smelter had about 580 employees.

Rio Tinto Alcan receives binding offer for its St. Jean-de-Maurienne aluminium smelter and Castelsarrasin casting facility in France

Canada Newswire - July 13th, 2013,

MONTREAL - Rio Tinto Alcan has received a binding offer for its St. Jean-de-Maurienne aluminium smelter and Castelsarrasin casting facility in France from the German aluminium producer, TRIMET. Rio Tinto Alcan will respond to this offer following consultation with the relevant works councils. The terms of this binding offer are confidential and are conditional upon the appropriate regulatory approvals and completion of an energy and partnership arrangement with EDF (Électricité de France) followed by a partnership agreement with the BPI (Banque Publique d'Investissement).
"This is an important step towards the contemplated divestment of the St. Jean-de-Maurienne and Castelsarrasin assets. It was made possible through constructive dialogue with both TRIMET and the French Government, particularly the Ministry of Industrial Renewal," said Jacynthe Côté, chief executive of Rio Tinto Alcan. "The sale of these facilities underscores our strategy to streamline Rio Tinto Alcan, through the divestment of non-core assets, so that it is focussed only on our lowest cost businesses."
In 2012 the St. Jean-de-Maurienne aluminium smelter produced 93,000 tonnes of primary metal. It employs 480 people.
The Castelsarrasin facility is a casting centre that produces aluminium wire for mechanical and welding applications. It employs 35 people and annually produces around 8,000 tonnes of finished product.
TRIMET Aluminium SE is Germany's largest aluminium producer. Founded in 1985, TRIMET employs about 1,900 people that produce, cast, market and recycle aluminium in 12 sites with an international marketing network.

Vedanta restarts Odisha alumina refinery

Business Today - July 11th, 2013,

Vedanta Aluminium (VAL) has restarted its 1 million tonne per annum alumina refinery at Lanjigarh in Odisha, about seven months after the company had shut down the unit due to scarcity of bauxite.
VAL is a unit of Anil Agarwal-led Vedanta Resources.
"We have started operations of the alumina refinery. We have to limit its capacity utilisation up to 60 per cent capacity now which will stabilise gradually," Mukesh Kumar, president and chief operating officer of VAL, said on Thursday.
VAL's refinery, which required 10,000 MT of bauxite every day, was shut down on December 5, 2012.
"The refinery operations resumed at 9:30 am. First, the captive power plant was put on stream," he added. The company was trying to source bauxite from different places, Kumar said.
Sources said the aluminium major has revived its plant by procuring bauxite from Jharkhand, Chhattisgarh and Gujarat.
Though the state government had committed to make raw materials available for VAL's refinery, it failed to keep promises as the proposed bauxite mining, atop Niyamgiri Hills in Lanjigarh area, faced legal hurdles.

Bahrain: Alba boosts sales and production for H1 2013

Aluminium International Today - July 11th, 2013,

Higher production has enabled Aluminium Bahrain (Alba) to increase overall sales for H1 2013 by 1.9% over the same period last year. The company sold 454kt of metal and announced that it's year-to-date production figures were up 2% on the previous year, reaching 452kt compared with 443kt in 2012.
The company capitalised on value-added products, which, it claims, accounted for 66% of total shipments compared with 65% last year.
CEO Tim Murray attributed the company's success to a focused marketing strategy and enhanced productivity.
Alba will release its Q2 2013 results on 29 July.
In total, Alba produces 890kt of aluminium, 50% of which is supplied to Bahrain's downstream industries. The remaining 50% is exported to the Middle East, Europe, North America, the Far East and South East Asia.

High-cost Victorian aluminium smelters could go under Alcoa cuts

Manufacturer's Monthly - July 10th, 2013,

US-based aluminium maker Aloca has confirmed that its Victorian smelters are being considered for closure as it comes under pressure to reduce production.
Alcoa reported a second-quarter net loss of $US 119 million this week, and has said that it would end high-cost smelter production as part of a 15-month review of its capacity announced in May.
"We've got high-cost capacity in Australia, we've got high-cost capacity in southern Europe and we've got some higher-cost capacity in parts of Brazil," The Australian reports CFO Bill Oplinger as telling investors during a conference call earlier this week.
The company’s two Victorian smelters, at Port Henry and Portland in Victoria, are two of its most expensive in the country. According to Aloca, these produce 30 per cent of the country’s aluminium.
Port Henry, open since 1963, is the most expensive of the two and is being kept open by Victorian state and federal government subsidies. The assistance was given on the condition that the smelter would be kept open until mid-2014.
Alcoa’s CEO Klaus Kleinfeld said under-performing operations would be shed and others in the industry should consider acting similarly.

WA refineries safe: Alcoa

The West - July 10th, 2013,

Alcoa has hosed down any suggestion that the dire state of commodity markets could lead to the closure of its WA alumina refineries, despite the company confirming this week its Victorian smelters were under review for possible closure.
Alcoa operates three refineries in WA - at Pinjarra, Wagerup and Kwinana - and has a bauxite mining operation in the Darling Range.
In an analyst conference call early this week, Alcoa chief financial officer Bill Oplinger said low commodity prices meant the company was continuing to "evaluate anything on a cash basis to determine whether we shut it down over the next few months at the current price levels".
Alcoa chairman Klaus Kleinfeld said the company would not hesitate to act on high-cost operations.
"We are very committed to acting and I wish that this would be indicative to every company that's playing in our industry," Mr Kleinfeld said.
A spokeswoman for Alcoa said yesterday those comments referred only to a review of the company's smelting operations, announced in May and expected to run for about 15 months.

VALCO crucial to our industry - Aluworks MD

Ghana Web - July 10th, 2013,

Shutting down VALCO will affect about 200 entities in the aluminium industry and all its downstream sectors, risking numerous jobs in the value chain, Kwasi Okoh, Managing Director of Aluworks Limited, has told the B&FT.
Reacting to the World Bank’s proposal to Government to shut down VALCO, which enjoys massive state subsidies on power, Mr. Okoh said the suggestion is “incorrect”.
“They have made their suggestion and it is incorrect. It will affect the country’s manufacturing base, which is already very low,” he said.
“Government is not going to sit down for the industrial base of this economy to reduce even further, because people need jobs. The only way to keep jobs is for industry to grow bigger to provide more of them,” he added.
In the World Bank’s estimation, VALCO’s continued operation has a high economic cost for the country and Government should stop the hidden power subsidy it gives the aluminium smelter, which the Bank said harms the viability of power sector utilities.
But Mr. Okoh’s remarks support other voices of opposition to the World Bank’s suggestion, including Mr. Emmanuel Armah Kofi Buah, the Energy Minister, who said Government sees VALCO as a catalyst to industrialise Ghana’s economy for stronger growth.
Aluworks, which sources aluminium ingots -- its key raw material - from VALCO, sold 7,843 tonnes of aluminium products in 2012; down from 8,754 tonnes in 2011. Despite this 12 percent shortfall in volume terms, in value terms the net shortfall was 0.07 percent as the company earned revenues of GH¢49.68million, compared to GH¢49.72million in 2011. This came about as a result of a significantly higher tonnage of gross value added aluminium discs sold in 2012 than in 2011.
“The year 2012 proved to be a difficult year for exports. However, it is pleasing that in 2013 we have seen a resurgence of orders from Nigeria on the back of the closure of rolling mills in that country; so Nigerian customers with an eye for quality are turning to Ghana for supplies, which we will nurture and hope to solidify into a strong trend,” Mr. Okoh said.
Last year, Aluworks exported 2,468 metric tonnes of aluminium products, earning US$7.88million, compared with 3,852 metric tonnes in 2011 for which US$13.5million was earned.

Norsk Hydro ASA : Hydro takes seat on board of Brazilian Mining Institute

4-Traders - July 9th, 2013,

This month, Ibram raised its representation from 11 to 15 members and also designated Hydro as a member of the Special Committee on Mining of the National Confederation of Industry (CEM/CNI), as the representative of the bauxite industry.
Andreia Reis, head of Business Relationship and Development in Hydro's Bauxite & Alumina business area.
Andreia Reis, head of Business Relationship and Development in Hydro's Bauxite & Alumina business area, will be the company's representative in both institutions. She has an appointment scheduled for the next day 9, in Brasília, capital of Brazil, when there will be another round of discussions on the proposed new Mining Framework.
"We are very pleased with this new moment. The designation of our company as a member of both the Board of Directors of IBRAM and the Special Committee on Mining of CNI, represents a significant step not only for Hydro but also for bauxite mining, once we can make the sector become more competitive in Brazil," Reis says.
Ibram
Founded in 1976 as a private, non-profit organization, Ibram represents and promotes the mineral industry, contributing to its national and international competitiveness.
It also promotes sustainable development in the sector and the use of best practices in occupational safety and health of workers, and to stimulate research, development, innovation, providing forums for the exchange of knowledge and experiences as well as for the discussion of issues of interest to the mining industry and the national and international standardization of their products.
CNI
CNI is the representative of the Brazilian industry, an economic sector that accounts for a quarter of the national economy, employs one in four workers with a formal contract and is responsible for a third of investments in research and development of the country.
Currently, CNI brings together 27 industry federations, the states and the Federal District, and approximately 1,300 unions across Brazil.

Alcoa upbeat on aluminium prospects

Live Mint - July 9th, 2013,

Alcoa Inc.’s June quarter earnings do reflect some of the troubles faced by the global aluminium industry but it’s not the picture of doom that some may have feared. The company has painted a positive outlook for the industry in 2013, despite the concerns one may have about China’s appetite for metals.
Alcoa’s primary aluminium business saw a 7% sequential decline in price realization and it also suffered from higher costs, which resulted in a 57% decline in its adjusted Ebitda (earnings before interest taxes depreciation and amortization, a measure of operating profit) per tonne. Its alumina and engineered products and solutions businesses did well, though the global rolled products business was affected by the fall in metal prices. Adjusted Ebitda declined by 10.7% sequentially but the company’s results were a bit better than analyst estimates and its share rose on the NYSE by 1.4% on Monday.
Domestic investors should be happy to know that regional metal premiums have remained steady. Of bigger interest to them, will be Alcoa’s prognosis for the aluminium industry and end-user markets. Alcoa has maintained its earlier forecast of 7% growth for aluminium consumption in 2013, despite continuing worries about China’s economic slowdown and its impact on metals. The company sees demand continuing to come from end-user industries, especially aerospace.
Alcoa has also revised its estimate about the aluminium market’s demand-supply balance in 2013, chiefly due to curtailments of output by producers. After its December quarter results, it had forecast a surplus of 535,000 tonnes, but that has now been revised to a deficit of 315,000 tonnes. A combination of delays in additions to capacity and an increase in production cuts, chiefly in China, is responsible for the shift. But production cuts in China also mean it would import less alumina than projected earlier. That has led to expectations of a surplus situation for alumina during 2013.

Montenegro launches bankruptcy proceedings at smelter

Reuters - July 8th, 2013,

A Montenegrin court has launched bankruptcy proceedings at the country's single biggest industrial employer, indebted aluminium plant Kombinat Aluminijuma Podgorica (KAP), a court official said on Monday.
Proceedings were set in motion over a 24-million euro ($30.8 million) debt to Deutsche Bank, the deputy head of the Commercial Court in Podgorica, Dragan Rakocevic, said in a statement.
The Adriatic state last month asked the court to consider bankruptcy for the smelter, which is co-owned by the state and the Central European Aluminium Company of Russian billionaire Oleg Deripaska. KAP employs 1,200 people and accounted for 4.7 percent of Montenegro's economic output last year, but is nursing a total debt of some 350 million euros.

Cape Alumina's Pre-Feasibility Study delivers positive returns for Pisolite Hills

Proactive Investors Australia - July 7th, 2013,

Cape Alumina's (ASX: CBX) Pisolite Hills project has already been declared a Project of State Significance by the Queensland Government, with the project now delivering 'attractive financial returns'.
Signficantly, the study forecasted that at full production it could produce at an FOB cash operating cost of around $23 per tonne of product bauxite (excluding royalties).
A major advantage for the project is that the higher alumina content of Cape York bauxite provides a pricing premium when compared to Indonesian bauxite prices.
An updated Pre-Feasibility Study (PFS) for the company’s Pisolite Hills Mine and Port project (Pisolite Hills), has confirmed the technical and economic feasibility of as a 7.5 million dry product tonnes per annum bauxite mine producing high-quality, export-grade bauxite over a life of 14 years, based on a 134 million tonne bauxite resource.
Of the resource, 67% is in the higher confidence Measured or Indicated categories.
The project is located on the western Cape York in far North Queensland and estimated to have a capital cost of $396 million and an internal rate of return of 25.6%.
Cape Alumina is now potentially in a position to tap the bauxite demands of China, with prices having strengthened and remain firm.
Also helping Australian bauxite companies is Indonesia’s 20% export tax (applied since July 2012) which has added about US$4-5/t to the cost of Indonesian bauxite.
Indonesia has legislated to ban bauxite exports from 12 January 2014.
At the end of March 2013, Cape Alumina had around $3 million in cash.
Key outcomes
- The shallow, free digging bauxite averages 2.4 metres, and ranges up to 6 metres in thickness, with an average overburden depth of 0.4 metres resulting in very low strip ratios.
- The proposed mine fleet includes front-end loaders and mine trucks, to load and transport the raw bauxite to the beneficiation plant, and road trains to transport the bauxite product to Port Musgrave.
- Run of mine raw bauxite will be washed in three 650 tonne per hour beneficiation plants which incorporate crushing, sizing, screening and conveying.
- Transhipping of the bauxite product is a key value driver for the operation and the use of 6,000 to 10,000 tonne barges, loading 71,000 tonne Panamax or 166,000 tonne Cape-size vessels, has been incorporated in the design.
Bauxite Hills project / Cape Alumina Consortium
Cape Alumina said that the Bauxite Hills project (around 50 kilometres north-west of the Pisolite Hills project), with a 60 million tonne bauxite resource, will continue to be evaluated and progressed and is likely to be considered as a second stage development once Pisolite Hills is in production.
Development of Bauxite Hills in conjunction with Pisolite Hills will bring significant synergistic benefits.
Also, Cape Alumina continues to lead the Cape Alumina Consortium which is bidding for the world-class Aurukun bauxite project on western Cape York, approximately 50 km south of Weipa.

Ghana’s Metal Sector Shows Impressive Growth

SPY Ghana - July 7th, 2013,

The heart of the aluminium sector is the Volta Aluminium Company (Valco), once a leader in West Africa but now fully owned by the government after foreign investors pulled out in the past decade. The plant’s decline has been largely linked to a lack of power, and it is operating just one of its five potlines, meaning that it produces around 40,000 tonnes of aluminium annually, 20% of its 200,000 tonne capacity.
But in April, John Abdulai Jinapor, deputy minister-designate for the Ministry of Energy and Petroleum, said assessments of Valco suggested that, with adequate power supply, it could run all five potlines and return to profitability – and indeed again make a major economic contribution. With ample deposits of bauxite, Ghana could rise as aluminium producer, though infrastructure connecting bauxite mines to manufacturing facilities is in need of an upgrade.
One of Valco’s major customers is Aluworks, which purchases around 10,000 tonnes of aluminium each year. While input supply is not a problem for the company, Aluworks, like steel manufacturers, faces stiff competition from low-price Chinese imports, E Kwasi Okoh, managing director at Aluworks, told OBG. However, Okoh is confident about the future. “Thanks to a young population and deficit in housing stock, demand for aluminium products in West Africa will remain strong and continue to increase in the coming years. Aluworks has plans to expand and is already doing so to meet expected growth in demand,” he said.
Ghana is still a relatively low-income country, so it is not surprising that its metals market is price-sensitive and tends to attract inexpensive imports, particularly at a time when Chinese companies are looking to shed aluminium inventories. But with strong demand both domestically and in the wider region, there should be scope for the local industry to flourish, and foreign investments in steel and signs of optimism in the aluminium sector bode well. Nonetheless, a resurgence is likely to require substantial public investment in infrastructure and power supply, as well as reforms to strengthen the business environment.

Alcoa Earnings Preview: Low Prices And High Inventory Levels Will Weigh On Results

Trefis - July 5th, 2013,

Smelting Capacity Cuts And Debt Rating Downgrade
In May, Alcoa announced that it would cut about 11% of its smelting capacity, or 460,000 tonnes, over the next 15 months. It is taking this step in response to a 33% drop in aluminum prices since 2011. The facilities where this exercise will be carried out have not been decided upon yet, but it will focus on its most expensive plants and those subject to the risk of rising energy or regulatory costs. The company operates smelters in the U.S., Canada, Brazil, Australia and Europe.
As of now, Alcoa already has an idle smelting capacity of 568,000 tonnes, or 13% of the total. Cutting down further on capacity will cause its market share to decline if others don’t follow suit.
Despite the capacity cuts announced by Alcoa, Moody’s lowered the company’s senior unsecured rating on about $8.6 billion worth of debt to Ba1 from Baa3. It cited a prolonged slump in aluminum prices and the unlikely prospects of a near term recovery as reasons for the downgrade. Alcoa will find now find it costlier to raise funds in the market through new debt issues, due to higher yields it would have to offer to compensate for the lower credit rating. Also, refinancing its existing debt will now be costlier.
The downgrade may also put a question mark over Alcoa’s continued presence in the Dow Jones Index. It is only the second company in the last 30 years to have its debt rating cut to junk and its market value of about $9 billion is less than one-third the value of Travelers Cos., the second smallest company in the Dow. Also, aluminum consumption in the U.S., as a percentage of the overall Gross Domestic Product (GDP), has declined over the last five decades. While it represented 0.2% of the U.S. GDP in 1959 when Alcoa joined the DJIA, today it constitutes just 0.02%. This trend is mirrored in Alcoa’s steadily declining share of the Dow, from 2% 10 years ago to 0.4% today.

Harita, Hongqiao Ready to Start Work on W. Kalimantan Bauxite Smelter

Jakarta Globe - July 5th, 2013,

Well Harvest Winning Alumina Refinery — a joint venture between Indonesian conglomerate Harita Group and China Hongqiao Group — will build a bauxite smelter worth $1 billion in Ketapang, West Kalimantan, the Harita chief executive said on Thursday.
The 2-million-ton-per-annum smelter will absorb 2,000 workers, CEO Lim Gunawan Haryanto told reporters gathered at national Industry Ministry offices.
Lim, one of Indonesia’s wealthiest citizens, said he met with Industry Minister M.S. Hidayat to request the ministry’s participation in a ground-breaking ceremony. He said the joint venture is 30 percent owned by Harita, through subsidiary Cita Mineral Investindo, and 70 percent by Hongqiao.
Harita Group operates in nickel, bauxite, coal mines, palm oil farming and shipping, with Singapore-listed palm oil producer Bumitama Agri one of its cash cows.
Cita Mineral Investindo was listed on the Indonesia Stock Exchange last year, while Hongqiao Group’s primary business is manufacture of aluminum products.
Lim said the project would have two separate phases, the first of which was to kick off later this month. By its targeted completion in 2015, the initial phase is expected to soak up $500 million in investment and result in an initial smelter capacity of about 1 million annual tons.
The second phase would begin in 2016 and double that initial capacity while also doubling total investment. The output will be sold to the domestic market and is especially intended to supply the needs of Indonesia Asahan Aluminium (Inalum), an Indonesian state-Japanese joint venture.
“Only if there is some unabsorbed output, will we export it,” Lim said.
Indonesia has a 41 percent stake in Inalum while 59 percent belongs to the Nippon Asahan Aluminium consortium. Indonesia, however, plans to by out the Japanese shareholder entirely this year in November when the current contract expires.
Panggah Susanto, a director general at the industry ministry, said Harita and Hongqiao Group’s investment was part of Indonesia efforts to move up the natural resources value chain by adding value to mining products.

BHP Billiton, analyst differ on power pricing regime for aluminium smelters

Mining Weekly - July 5th, 2013,

Any major change to the electricity pricing regime for mining major BHP Billiton’s aluminium smelters in Richards Bay will have a severe impact on the smelters’ commercial viability and sustainability, which could cause significant job losses and, therefore, have a major impact on the South African economy, the mining company states.
According to research done in 2012 by South African economic analysis and business modelling services consultancy Econometrix, the BHP Billiton Bayside and Hillside smelters jointly created 7 000 jobs in KwaZulu-Natal (KZN), primarily in the Richards Bay area, positively impacting on the livelihood of more than 33 000 people in northern KZN, BHP Billiton communications and external affairs VP Lulu Letlape tells Mining Weekly.
“A series of Econometrix reports have demonstrated that the aluminium smelters play an important role in the country’s industrialisation process and in the promotion of local downstream and sidestream beneficiation,” Letlape says.
The 2012 Econometrix report states: “The aluminium industry has given rise to a downstream industry. Sales to the downstream industry total 278 000 t, worth R6.7-billion. It is highly likely that, if the aluminium smelting industry had not developed in this country, the downstream industry would not have developed to the extent it has.”
However, energy analyst Chris Yelland believes that the BHP Billiton smelters are, in fact, subtracting value from the local economy, as these smelters are highly energy intensive and, according to him, no true beneficiation takes place.
“No bauxite is mined in South Africa and the conversion of bauxite into alumina is also done in Australia. The alumina is then shipped to Richards Bay, where it is turned into aluminium using reduced energy tariffs, after which the aluminium is exported once again. Producing aluminium is an energy-intensive process and, therefore, one could argue that BHP Billiton is in effect exporting electricity during a time when South Africa is experiencing a shortage,” Yelland says.
However, Letlape opposes Yelland’s view, stating that BHP Billiton currently supplies 70% of South Africa’s aluminium needs.
In October last year, State-owned power utility Eskom submitted a request to the National Energy Regulator of South Africa (Nersa) to review the appropriateness of its legacy contracts with BHP Billiton, which date back to 1992, when South Africa had a significant generation-capacity surplus. This review process is still continuing, with dates for public hearings on the topic not yet announced.
Eskom informed Mining Weekly that, as it was still waiting for Nersa to publish Eskom’s application on its website and set a date for the public hearings on BHP Billiton, the power utility was not in a position to comment on the impacts of the contracts at this stage.
The contracts covering the special pricing arrangements between Eskom and Hillside Aluminium for Potlines 1 and 2 were signed on November 11, 1992, and came into effect on July 30, 1995. The pricing contract was signed for a 25-year period, effectively expiring in 2020.
The negotiated pricing agreements deviate materially from any current standard Eskom tariffs. The energy and demand rates are directly proportional to the current aluminium price measured in dollars per ton and the rand:dollar exchange rate, Yelland explains.
“There is no escalation or link to either the US Producer Price Index (PPI), the South African PPI or to Eskom’s cost of generation or transmission and there are no top or bottom limits to the energy or demand price,” he adds.
Letlape adds that, as the contracts are linked to the price of alumina and the dollar exchange rate, according to the 2012 Econometrix report, “[as a result of] globalisation, prices are increasingly influenced by world pricing trends – prices progressively become more market related and in traded commodities become aligned to international prices and imported goods”.
She explains that the contracts were designed to promote industrial development and absorb some of the excess generation capacity when South Africa’s electricity reserve capacity was at more than 40%, following the construction of new power stations by Eskom in the late 1980s.
“Policymakers were of the opinion that Eskom would not be able to absorb the excess capacity through normal economic growth for many years, even decades,” she says.
The formula used to determine the electricity price for Potlines 1 and 2 was favourable for BHP Billiton and Eskom at the time, Yelland says.
“Through this contract, BHP Billiton managed to hedge the risk it faced as a result of the fluctuating price of aluminium. Linking the price of electricity to the aluminium price would mean that, when the price of aluminium dropped, the smelters’ electricity costs would also decrease, which would enable BHP Billiton to keep its profits constant,” he adds.
However, South Africa did not build new power generation capacity for a couple of decades, as expected, which meant that the surplus on which the contracts with BHP Billiton were based dropped significantly.
“Currently, there is a shortage of supply in electricity, which makes marginal costing inappropriate,” Yelland says, adding that, as the price of aluminium has dropped considerably, the rate of exchange is such that Eskom is receiving less than its primary energy costs.
“In recent times, the electricity price for Potlines 1 and 2 has been less than half of Eskom’s current average cost of supply and less than Eskom’s current cost of primary energy.”
In addition to the contract signed in 1992, another electricity supply contract, containing the special pricing agreements for Hillside Potline 3, was signed on December 10, 2001, with electricity supply starting on June 30, 2004.
“Unlike Hillside Potlines 1 and 2, the energy and demand rates for Potline 3 are not linked to the aluminium price in dollars per ton or to the rand:dollar exchange rate. Instead, the initial energy and demand rates are those of the 2001 Eskom Nitesave tariff, which increased at the beginning of each subsequent year after 2001 based on changes in the South African PPI,” says Yelland.
The effect of the negotiated price agreement for Hillside Potline 3 is to lock the energy and demand prices, starting at the 2001 levels that are widely acknowledged as being significantly below Eskom’s average cost of supply and, thereafter, to escalate the 2001 prices yearly only by the South African PPI, while the balance of customers in South Africa suffer massive yearly electricity price increases of many times the official inflation rate, as Eskom moves to cost-reflective pricing.
However, Letlape points out that the benefits of the contracts should be judged over their entire term as opposed to a single point in time.
“Eskom has also benefited significantly from the agreements. BHP Billiton’s assessment of the cumulative benefit to Eskom from 1995 to 2008, when Eskom had excess capacity, is in excess of R26-billion. Eskom would not have earned this profit, had the smelters not been built,” the mining company states.
A comparison of the tariffs paid by the smelters against the standard industrial tariff (Megaflex) from 1995 to 2010 showed that the contracts worked as designed. For much of the first half of that period, the smelters paid higher tariffs than those stipulated by Megaflex, in rand and cent terms, and for the remaining period the smelters paid lower tariffs than those stipulated by Megaflex.
“It was only from 2011, when Eskom’s prices rapidly escalated and the aluminium price fell, in line with collapsing world commodity prices, that the two tariffs went out of line. Future tariffs will be determined by future aluminium and rand: dollar rates,” Letlape explains, adding that BHP Billiton is confident that the aluminium smelters will continue to contribute positively to the South African economy and Eskom’s bottom line.”
Eskom is obliged to declare its estimated forward losses on the remaining extent of its contracts with BHP Billiton in its financial statement.
“On the basis of the remaining extent of the contracts, Eskom calculated a total estimated forward loss of R5-billion,” Yelland says.
Eskom determined the R5-billion by comparing the tariff that BHP Billiton will pay over the remainder of the contract, based on its current tariff and the assumptions made about the rand:dollar exchange rate going forward, with what the aluminium smelters would have paid, had they been on the Megaflex tariff that other large industrial companies pay, he explains.
However, Letlape adds that Eskom has also made it clear that these assumptions could change and Eskom could again gain from the contracts.
Further, there is also a dispute between Eskom and BHP Billiton regarding the termination date of the Potlines 1 and 2 contract. BHP Billiton argues that the contract period was extended by another eight years when the Potline 3 contract was signed, while Eskom believes the Potlines 1 and 2 contract ends in 2020.
“If one reads the Potline 3 contract, it does state that the new contract amends and replaces the previous Potlines 1 and 2 contract, which indicates that BHP Billiton might be correct. However, if this is the case, Eskom’s liability will be even higher than is currently estimated,” Yelland points out.
However, Nersa ensures that electricity tariffs are such that all reasonable costs incurred by Eskom are covered and, therefore, any loss Eskom will make is effectively carried over to electricity consumers.
“We currently pay higher electricity tariffs, as a result of a contract that is expected to result in a loss of R5-billion over the next eight years,” Yelland says.
However, BHP Billiton is oppo- sing the cancellation of the contracts, stating that “BHP Billiton believes in the sanctity of contracts and expects Eskom to uphold the contracts, which were entered into in good faith by both parties”.
Should the contracts be cancelled, operating the smelters would become much more expensive, making it difficult for BHP Billiton to stay in business, Yelland points out.
He adds that, in his opinion, it would not harm the South African economy if the smelters were to close down.
“South Africa does not have a surplus of electricity and, therefore, the basis on which the aluminium smelters were built and the contracts drawn up no longer exists. BHP Billiton’s aluminium smelters in South Africa and Mozambique use 9% of the kilowatt hours generated in South Africa and contribute 5.6% to the maximum electricity demand and yet they do not contribute significantly to the economy through beneficiation or job creation,” Yelland reiterates.
“Therefore, I would suggest that shutting down the operations, effectively releasing 9% of South Africa’s electricity, which can then be used by other operations, might in fact contribute more to the local economy,” he says.
However, Letlape emphasises the contribution BHP Billiton is making to the South African economy, adding that demand at BHP Billiton’s South African smelters – Hillside, which uses 1 140 MW, and Bayside, which uses 175 MW – together account for 3.2% of Eskom’s net installed capacity and 3.7% of its maximum demand.
“In addition to job creation, BHP Billiton spent R290-million on community development between 2008 and 2012, which includes education, health, sports and recreation and enterprise development,” the company states, adding that it continues to contribute signifi- cantly to ports authorities and spent R4.2-billion on local suppliers, including Eskom, in 2012.
The smelters also continue to make an important contribution to the South African economy and, at present, continue to fulfil their commitment to a 10% power reduction on a voluntary basis.
“There is also interruptibility provisions in the contracts with which BHP Billiton fully complies. Eskom load-sheds the smelters to assist in maintaining power supply in South Africa over peak periods with no compensation for loss of production during that period,” she adds.
“Further, BHP Billiton’s aluminium contribution to taxation amounts to 0.5%, or R12-billion, of South Africa’s gross domestic product; R550-million a year in corporate tax; a R1.5-billion yearly contribution to the tax base, including personal taxes; and an additional R230-million a year in the form of pay-as-you-earn tax, unemployment insurance and skills development levies.

Aluminium industry faces challenges, says report

The Peninsula - July 5th, 2013,

DOHA - The Middle East’s aluminium industry is in an advantageous position, and can play a key role in industry consolidation and the development of new globally active players, shows a new report by The Boston Consulting Group (BCG). The Middle East’s strategic position is supported by the recent $15 billion merger of Dubai Aluminium (Dubal) and Emirates Aluminium (Emal) to create Emirates Global Aluminium, the world’s fifth-largest aluminium producer.
The GCC aluminium market’s cost advantage is supported by its proximity to Europe, Asia and Africa and growing aluminium demand from the construction, packaging, transportation and industrial sectors. We are seeing local players make strategic movements both upstream and downstream as they build viable value chains and further aluminium-driven manufacturing, the report noted.
“To become profitable and generate attractive returns for their shareholders in this environment, aluminium companies must adopt a more aggressive approach to confronting the industry’s challenges,” said Knut Olav Rød, BCG partner. “We believe this more aggressive approach must be implemented on the industry level as well as the company level.”
Looking forward, BCG asserts that the Middle East’s aluminium industry will need to explore some key issues, including how much additional smelting capacity will be beneficial to the region and the global market, the new developments on downstream and new products, the role GCC companies can play in mitigating Chinese supply effects, GCC as destination for Chinese smelter investments, how GCC aluminium companies can further improve cost position and whether a truly global aluminium company will be headquartered in the GCC.

Surface Mining as Primary Extraction Process for Bauxite Production

Bulk Solids Handling - July 4th, 2013,

In the northern region of Brazil, in the city of Paragominas, in the state of Pará, a Wirtgen type 2500 SM Surface Miner is revolutionizing bauxite production. The machine, the first of its type in Brazil, has been in operation there since March 2011.
The “Mineração Paragominas” mine is 64.6 percent owned by the aluminum producer Hydro, with the Brazilian company Vale owning the remaining 35.4 percent of shares.
Economy and Efficiency
With a cutting width of 2500 mm and a cutting depth of up to 600 mm, the Wirtgen Surface Miner can produce some 800 t of bauxite per hour. The 100 t machine runs on more than 1000 hp. The 11 m discharge conveyor transfers the material directly to the dump truck – with no other mining equipment, such as excavators or wheel loaders, required. “The 2500 SM produces as much as two or three conventional mining sets,” explains Cláudio Morgado, Maintenance Manager at Mineração Paragominas. “That not only lowers production costs but also makes working in the mine safer.”
Surface Mining – Sound Environmental Practice and Sustainability
In surface mining, mineral raw materials are recovered with no drilling or explosives – a special cutting roller cuts and crushes the rock before it is loaded by robust conveyor systems into the dump truck. Surface miners thus save not only time and money, but also energy. In addition, the material extraction is also vibration-free. The low noise and dust development in surface mining mean a further advantage over conventional methods. “Naturally we want our work to be profitable, but our corporate goals also include bringing good business together with sound environmental practice and sustainability. We can achieve exactly that with the Wirtgen Surface Miners,” says Agnus Delagado, General Manager Mining at Mineração Paragominas, regarding the advantages of the surface mining method.
Customized Service Solutions
The remote location in the Amazon region and the 24-hour use of the machine demand a seamless local service infrastructure. For that reason the local Wirtgen Group dealer Deltamaq operates a service support center directly in the mine. Service technicians, warehouse specialists and applications experts are constantly at work ensuring smooth equipment operation. All service technicians receive regular training at Wirtgen’s main plant in Germany.
Working to Expand Capacity
Convinced both by the Wirtgen Group’s customer service concept and the surface miner’s performance, the mine operators have decided to add two more type 2500 SM Wirtgen Surface Miners in Paragominas. Since the middle of 2012, a total of three Wirtgen Surface Miners have been in use for Mineração Paragominas. Surface mining is thus completely replacing the previous conventional extraction methods.

Alba announces completion of Pot Lines 1 and 2

AME info - July 4th, 2013,

Aluminium Bahrain B.S.C (Alba)'s commitment to boost productivity, increase capacity and enhance reliability of Pot Lines 1 and 2 were bolstered with the successful completion of Pot Lines 1 and 2 Rectiformers Replacement - one of the first brown field projects of this magnitude anywhere in the world.
The entire project - managed by Alba Power Project Department with their primary contractor Alstom Grid SAS - was completed with over 1 million work hours without a single Lost Time Injury (LTI).
Alba's Chief Executive Tim Murray complimented the project team on this achievement during a ceremony held recently at the Alba Club.
Present at the event were Alstom Grid SAS Commercial Vice-President - Near & Middle East Region, Mazen Hamadallh, Director Operations - Power Electronics Applications, Eric Lecaille along with other senior officials from Alstom Grid SAS.
Alba's Power Station Director, Amin Sultan, Project team leader PK Kasinathan and members of the Power Project department who were involved in the rectiformer replacement project were also present at the event.
The new units were custom made for Alba by Alstom Grid SAS. They are packed with 30% higher capacity equipment while some units are being installed with cross-connection facilities to provide additional back-up power to Pot Lines 1 - 3.
Commenting on the rectiformer replacement project, Alba's Power Station Director, Amin Sultan, said, "The completion of this project will secure continued supply of power to pot lines 1 - 3, and thus, accommodate the recent increase in metal production, and also, the planned growth in productivity at the plant. The team faced severe challenges during the project execution phase and yet were able to complete the entire project without a single lost time injury. I would like to congratulate for this accomplishment, and for demonstrating that placing safety as a priority does produce results."
Alba contracted Alstom Grid for the replacement of the Pot Lines 1 & 2 rectiformers in mid-2008. The project involved the replacement of 10 rectifiers that are responsible for providing the power supply to Pot Lines 1 & 2. It took nearly five years for Alstom Grid SAS to manufacture and install ten units, that is, five for each pot line. The project objectives were accomplished without major interruptions to production from the two pot lines.

Press Metal mitigated by insurance, Samalaju ramp-up

Borneo Post - July 3rd, 2013,

KUCHING - Despite Press Metal Bhd’s (Press Metal) Mukah smelting plant being out of commission due to the blackout last week, analysts believe this will not leave much impact for the group in the long term period, partly mitigated by the ramping up of its Samalaju smelter.
On Monday, Press Metal announced on Bursa Malaysia that its subsidiary, Press Metal Sarawak Sdn Bhd (Press Metal Ssarawak) suffered a sudden shutdown of its primary aluminium production lines at its Mukah smelting plant due to a major power outage that occured at approximately 5.40pm on June 27, 2013 in Sarawak.
The power outage lasted for almost six hours, leading to a significant drop in temperature of the production pots.
“Although power has been restored, Press Metal Sarawak was unable to resume metal production as solidification had taken place in the reduction cells of its potline despite its management and staff working tirelessly around the clock to salvage the pot,” the statement highlighted.
At the time of this announcement, Press Metal noted that none of the pots could be salvaged while its management was unable to estimate the full impact and consequences of the incident but will be closing the smelting plant to facilitate major reconstruction works.
It is noted that Press Metal Sarawak has in place adequate insurance coverage and has initiated engagement with its insurers to ascertain the damage and the cost of the reconstruction works. Consequently, the subsidiary has issued a notice to its affected customers that a force majeure event had occured at its Mukah smelting plant, thereby impacting the supply of aluminium products to such customers.
RHB Research Institute Sdn Bhd analyst Ng Sem Guan in a note on the group noted that in addition to adequate insurance coverage, the ramping up of its Samalaju smelter – which is 2.66 times larger and way more efficient than its Mukah operation – will also partly mitigate any immediate losses.
“While this incident will dent Press Metal’s earnings in the short term, most of the shortfall will be compensated by insurance, which will then lessen the impact on the stock’s long term discounted cash flow (DCF),” Ng explained.
“As we are assuming a six-month halt in Press Metal Sarawak’s operation, which is likely to wipe out its FY13 earnings, we classify its fixed and overhead costs during the period as exceptionals and cut our FY13 core profit forecast by 14.8 per cent,” he added.
“All said, we have decided to be prudent in terms of valuations by raising the discount to our fully diluted conservative DCF from 20 per cent to 30 per cent, from which we derive a new fair value of RM2.90. We urge investors to look beyond this temporary blip and buy into any share price weakness.”
In a separate note, AmResearch Sdn Bhd maintained its earnings forecast and valuations for Press Metal for now, pending further details.
We think Press Metal would be able to claim insurance and could utilise its production in Bintulu to deliver products to the affected customers,” it said. “Nevertheless, we have computed the impact of the closure of its Mukah plant for six months, which would reduce its forecast financial year 2013 (FY13F) net profit to RM36.8 million from RM138.4 million previously.
“Core fully-diluted earnings per share would also fall to 7.2 sen from 22.2 sen previously. However, the actual shortfall could be less as our rough estimates assume status quo for electricity cost during the period. We maintain our fair value of RM3.60 per share as we have not changed our FY14F forecasts, pending further details from management.”

China in search of more bauxite

Proactive Investors - July 3rd, 2013,

China is on the look out for more bauxite supplies, with concerns over a possible export ban from Indonesia, according to Platts.
Indonesia is a major supplier of bauxite to China, accounting for 70-80% of the country's total imports.
In May 2012, Indonesia tightened export policies and imposed an export tax of 20% on bauxite, in a move to encourage more foreign investment in its local industry.
Indonesian bauxite prices are also high now pegged at $50-55/mt CIF China basis, up from $43-45/mt in first half of 2012 before the country's export policy changed.
The higher prices in turn affect alumina refiners, China is turning to other Asian and African countries to lock in supply.

Government Asked To Shut-down VALCO-World Bank

SPY Ghana - July 3rd, 2013,

The World Bank has said that in the current context of load-shedding, it would be far more economic for Government to shut down the Volta Aluminum Company (VALCO), the state-owned aluminium smelter, and provide the power to other consumer segments that pay tariffs closer to the true cost of supply.
In the bank’s estimation, VALCO’s continued operation has a “high economic cost” for the country and Government should stop the “hidden” power subsidy it gives VALCO, which harms the viability of power sector utilities.
If, on the other hand, Government decides to keep VALCO, electricity consumers should not be expected to bear the additional cost-burden of the VALCO subsidy, the bank said in a new energy sector report.
Dr. Kwabena Donkor, Chairman of the Parliamentary Select Committee on Mines and Energy, has however kicked against the proposal, telling journalists at the launch of the report that some 600 people risk losing their jobs if VALCO is shut down.
VALCO, he said, provides raw materials for Aluworks and other industries, and closing down the company will affect those other businesses.
“If we close VALCO down, we will be decreasing our manufacturing base — which is already very low. If anything at all, we should be looking at increasing our manufacturing base. Without VALCO, there would have been no Akosombo to start with. VALCO was the off-taker that secured funding for the Akosombo Dam.”
The World Bank report argues, however, that “not only does VALCO pay an extremely low tariff, but even so VALCO has failed to pay VRA and GRIDCo in full, and has significant payment arrears with them.”
VALCO, according to the report, cannot be viable if it pays the full cost of electricity supply. “At present, Government has chosen to prop-up VALCO by providing it electricity at a subsidised rate — at a time the country is undergoing power cuts. The total subsidy from the low power tariff is estimated to be around US$150million per year,” the World Bank stated.
“Government has also not honoured its commitment to VRA to make up for the revenue shortfall between the Bulk Supply Tariff and the VALCO tariff, with the result that the onerous burden of the VALCO subsidy has to be borne by VRA, and thereafter the other power consumers in Ghana.”
The establishment of VALCO was as a result of the vision of Ghana’s first President, Dr. Kwame Nkrumah, to establish an integrated aluminium industry in the country. Erratic power supply in the country has however bogged down the company, making it produce way below capacity and at some points being shut down.
To bring the company about, the Nkrumah Government partnered the late Edgar Kaiser, Chairman and Founder of Kaiser Aluminium & Chemical Corporation (KACC), who was the majority shareholder of VALCO.
The company, which began in 1964, is currently owned 100 percent by the state; and although it is said be operating only one out of its five pot-lines currently, the erratic supply of power across the country has hit the heavily power-dependent company hard. If all five pot-lines of the company were operating, it could produce 2,000 metric tonnes of alumina per day at a market price of between US$2,500 to US$3,000 per metric tonne, Government sources say.

Vedanta sources bauxite to re-start refinery in Odisha

The Economic Times - July 2nd, 2013,

BHUBANESWAR - Vedanta Aluminium Ltd (VAL) Tuesday said it has received about 35,000 tonnes of bauxite from Gujarat to re-start its alumina refinery in Odisha'sKalahandi district at lower capacity.
"We have started getting bauxite from Gujarat. We will build a buffer stock of at least one and half lakh tones of bauxite to re-open the refinery," a senior company official told IANS.
Another shipment of the same quantity from Gujarat is also likely to reach within the next 10 days, he said.
The company had shutdown the one-million-tonne per annum alumina refinery at Lanjigarh, about 500 km from here, Dec 5 due to shortage of bauxite, the key raw material used to produce alumina.
VAL requires three lakh tonnes of bauxite per month to run the refinery at full capacity.
The official said the company is planning to re-start the plant at 60 percent capacity this week as it expects to get a regular flow of bauxite from Chhattisgarh, Jharkhand and Gujarat.
Vedanta wants to mine bauxite from Niyamgiri Hills near its refinery but its clearances are mired in litigation.
It has also applied for several other bauxite reserves in the state, but none of them have materialised so far. It has been trying to run the plant by buying bauxite from different states.

Power grid close to tipping point

Eye Witness News - July 2nd, 2013,

JOHANNESBURG – Electricity had to cut at one of BHP Billiton’s aluminium smelters last week, power utility Eskom said on Monday.
This after nationwide power demand outstripped supply.
An agreement between the two companies enables Eskom to cut power at BHP’s energy-intensive smelters if the national grid approaches tipping point.
Energy analyst Chris Yelland said this amounted to load-shedding.
“When you exercise the interruptibility clause of your contract with BHP Billiton, you are shedding load.”
The national power grid reserve margins are at an all-time low.
Yelland says this means there may still be rolling blackouts, despite promises by Eskom to prevent load-shedding.