Hydro purchase bauxite with $4.9bn from vale

May 3, 2010 - Betting on a boom in aluminum demand, Norwegian producer Hydro announced on Sunday a purchase of Brazilian mining giant Vale's aluminum with $4.9 billion can secure bauxite supplies to last for a century. Vale SA, the world's largest iron ore miner and a leader in nickel, will get $1.1 billion in cash and a 22 % stake in Hydro.
This biggest ever foreign acquisition will give Norsk Hydro a leading Brazilian bauxite mine and the world's biggest alumina refinery.
Hydro said this is the right strategic decision and industry surveys showed that demand for aluminum would grow by 76 % between 2010-2020, that gaining better access to bauxite. Alumina would help Hydro expand their production base within aluminum smelting if they gain more low-priced natural gas for this energy-intensive industry.
"Vale will benefit from integrating its resources in an organization with both upstream and downstream activities and we expect to grow more in this new organization than we would have independently," said Martins, Vale's Executive Vice President.
Vale said it lacked access to low-cost sources of power generation, one of the main costs in aluminum production, giving it no prospects for growth. Hydro's access to cheaper power would make it more competitive and thereby create more value for Vale shareholders.
As part of a consortium Vale bid last month for the rights to build a massive 11,000 megawatt hydro electric dam in the north of the country but it lost out to a rival consortium comprised of several smaller firms.
Analysts said Vale had joined the bid in order to source power for its aluminum operations but it was not clear whether it was the outcome of the auction which prompted the firm to sell the assets.