Bauxite & Alumina Market Fundamentals

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Jørgen Melbye

Bauxite Alumina Energy Primary Casting Products

Rolling

Extrusion

Recycling

Recycling

Hydro - an integrated aluminium company

MRNBauxite Mine

Hydro ParagominasBauxite Mine

Hydro AlunorteAlumina refinery

Aluminium smelters

CAP Project

Alumina refinery

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Hydro’s global reach

Continental Europe• Leading position in aluminium and

rolled aluminium products

• Recycling

Aluminium profiles• 50% ownership in Sapa, world leader

in aluminium profiles and building systems

North America• Aluminium production in Canada

• Recycling

Brazil• World-class bauxite and alumina production

• Bauxite and alumina expansion projects

• Albras aluminium plantMiddle East• Qatalum 1 aluminium plant

• Possible expansion Australia• Aluminium production

Norway• Aluminium production

• Hydropower production

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High-quality bauxite and alumina asset portfolio

Alunorte alumina refinery

Paragominas bauxite mine

CAP alumina refinery project

Bauxite licensesRefining and mining competencies

External supply contracts

Sales contract portfolio

• 60% ownership, full financial exposure, increasing ownership to 100% by 2016

• One of the world’s largest bauxite mines

• Nameplate capacity of 9.9 million mt

• Possible expansion to 15 million mt

• Long-life resource

• 81% ownership

• Paragominas expansion to be developed in parallel

• Full utilization of the existing bauxite pipeline

• 92% ownership

• World’s largest alumina refinery

• Nameplate capacity of 6.3 million mt

• Bauxite supplied from Paragominas and MRN

• World-class conversion cost position

MRN bauxite mine

• 5% ownership

• Volume off-take agreement for Vale’s 40% stake

• Capacity 18 million mt

Chinese alumina production developmentFuelled by enormous growth in domestic production and imported Indonesian bauxite

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5

10

15

20

25

30

35

40

45

50

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Mill tons aluminaMill tons bauxiteChina production and import

Bauxite Production Bauxite import Alumina prod

Source: CRU, China Customs, Roskill, Hydro

Indonesia bauxite export ban

• As of Jan 12th 2014, all exports of bauxite

has been banned, the world’s biggest

bauxite exporter

• Masterplan for Acceleration and Expansion

of Indonesia's Economic Development

targets local aluminium industry

• During the last decade, Indonesia has

exported ~200 million tons bauxite

accumulated to China

• Some market participants are expecting

bauxite export rights during refinery

construction phase.

Full ban on bauxite and nickel exports Jan-2014 implementing 2009 Mining Law

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Traded bauxite volume, 2013

0 5 10 15

CBA

Sumber Prima

Lobindo Nusa

Hydro

Telega Bintan

Fajar Mentaya

MKU

AWAC

Mekko

Danpac

Harita

RTA

Million tons

Source: CMGroup

Indonesia

ROW

As a consequence, China is diversifying its bauxite import sources

76%

22%2%

2010

Indonesia Australia Other

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Total imports: 30 mt

68%

20%

12%

2013

Indonesia Australia Other

Total imports: 72 mt

24%

44%

32%

2014est

Indonesia Australia Other

Total imports: 37 mt

Source: China Customs, Hydro

China developing new bauxite import sourcesIndonesia ban translating to higher prices average CIF China

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Import volume by origin, million tons «Value in use» increasing more

-

10

20

30

40

50

60

70

80

2011 2012 2013 2014est

Mill tons

Indonesia Australia Other Pacific Atlantic

Delta 2014 vs 2011:Australia +8Other Pacific +7Atlantic +4

40

45

50

55

60

65

70

75

80

USD/t

Avr CIF China Value in Use

Source: China Customs, CMgroup, Hydro

New bauxite sources translating to higher costChinese bauxite import excluding Indonesia and Australia

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Import volume by origin, million tons Avr price CIF China by origin, USD/t

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2

4

6

8

10

12

2011 2012 2013 2014est

Mill tons

India Malaysia Fiji Brazil Guinea DomRep Ghana

40

50

60

70

80

90

100

USD/t Avr CIF China Indonesia

Australia India

Malaysia Fiji

Brazil Guinea

DomRep Ghana

Source: China Customs,

Short term, new sources and inventory offer reliefEnough volume, but higher cost – Long term Weipa is part of possible solution

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• Large imported inventory built up during

2012-2013, reached a maximum around

40 mln tons vs historic normal level

around 10-15 mln tons

• New bauxite sources have pushed

Chinese bauxite import to around 2-3

million tons per month, which is keeping

China with sufficient supply short term.

• Medium term, potential export projects

in Guinea and Australia in addition to

the proposed Weipa expansion(s),

could balance China’s import demand.

Inventory and import ex Indonesia No short/mid term bauxite squeeze

0

0,5

1

1,5

2

2,5

3

3,5

0

5

10

15

20

25

30

35

40

45

Import ex Indonesia

Millon tons

Inventory Import ex Indonesia

Source: China Customs, CMGroup, Hydro

Chinese bauxite demand and domestic production growing on medium term horizon

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40

60

80

100

120

140

160

180

2013 2014 2015 2016 2017 2018 2019

Million tons

Bauxite demand Domestic bauxite supply

CAGR 9.9% CAGR 4.3%

CAGR 6.3% CAGR 5.9%

But, domestic supply is expected to level off end of decade

Source: CRU

New sources balancing China medium term

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10

20

30

40

50

60

2014 2019

New Guinea

New Australia

Current export mine

Demand

CRU foresees balanced Chinese import market for 2019

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Medium term:China balanced before adding potential Weipaexpansion or return of Indonesian bauxite/alumina

Medium term:China balanced before adding potential Weipaexpansion or return of Indonesian bauxite/alumina

Short term:Imported bauxite inventories bridging period until new bauxite projects are completed

Short term:Imported bauxite inventories bridging period until new bauxite projects are completed

Source: CRU, China Customs

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Plenty of uncertainties: several factors might change and impact the expected gap for bauxite

Decrease the gap Increase the gap

Lower investments in Australia and Guinea

Less bauxite reserves in

China

Competing cost alternative

technologies

New “Indonesia”

Successive Indonesian export ban

Softer Chinese primary demand

World ex China alumina market largely balanced as China swings import levels

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-30

-20

-10

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40

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9

ArbitrageUSD/t

Monthly annualized import, mio tons

Annualized import Arbitrage

• China will continue to respond to ROW alumina price changes by adjusting imported volume. The pivot point will balance around Chinese cost of producing alumina.

• Over time, increased bauxite prices to Chinese refineries could move the pivot point upwards.

RoW

pri

ce

lo

we

rR

oW

pri

ce

hig

he

r

Source: China Customs, Platts, Hydro

What about long term bauxite price FOB/CIF China?Product quality and freight market key for project competitiveness

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FOB?

FOB?

FOB?

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Alumina price longer term, China defining price level

40

50

60

70

80

90

100

250

270

290

310

330

350

370

Nov-1

1

Dec-1

1

Jan

-12

Feb-1

2

Mar-

12

Ap

r-12

May-1

2

Jun

-12

Jul-1

2

Au

g-1

2

Se

p-1

2

Oct-

12

Nov-1

2

Dec-1

2

Jan

-13

Feb-1

3

Mar-

13

Ap

r-13

May-1

3

Jun

-13

Jul-1

3

Au

g-1

3

Se

p-1

3

Oct-

13

Nov-1

3

Dec-1

3

Jan

-14

Feb-1

4

Mar-

14

Ap

r-14

May-1

4

Jun

-14

Jul-1

4

Au

g-1

4

Se

p-1

4

Oct-

14

Bauxite, USD/tAlumina, USD/t

Alumina price Bauxite, Value-in-use

Increasing

bauxite

costs

Source: CMGroup, Platts

CAP – an attractive project when time is right

• Brazil alumina is competetive to Middle

East with large shipments

• CAP project

− Competitive cost position

− Ready to go ahead as soon as there is a clear need in the market.

Utilize large bauxite reserves in Paragominas

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