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Landsvirkjun and Nordurál sign MOU on power terms for Grundartangi expansion

August 2, 2002

The agreement is conditional on approval by the signatories’ boards of directors. Among other reservations are that Nordurál will secure raw material for the expansion and complete financing of it, an agreement will be reached on the power rate and permits will be issued for the necessary power development projects, including the Nordlingaalda reservoir.

Power requirement for the expansion 150 MW
The power required for expanding the smelter to 180,000 tpy is 1,300 GWh p.a., or the equivalent to an average of 150 MW. The MOU assumes that Landsvirkjun will procure power for the expansion by developing facilities in the Thjórsá-Tungnáa basin, and from geothermal facilities operated by Sudurnes Energy and Reykjavík Energy.

ISK 30 billion investment
The MOU specifies that Nordurál will complete agreements for the supply of anodes and alumina, which are the main raw materials for production. Project financing also needs to be finalized, and several financial institutions outside Iceland have already shown an interest in undertaking it. The first phase of the expansion project, upscaling from the present 90,000 to 180,000 tpy, is expected to cost up to ISK 30 billion based on the current exchange rate.

Nordurál intends to build two new potrooms at Grundartangi with a basic capacity of 150,000 tpy. They will be located parallel to and north of the present potrooms. This expansion is seen as the most cost-effective size for the next phase and will be undertaken in two parts. The smelter’s current operating licence allows for production capacity of up to 180,000 tpy, while one of the provisos in the MOU with Landsvirkjun is that a permit for production of up to 300,000 tpy will be approved. This spring, the Planning Agency approved the expansion of the smelter following an EIA.

Nordurál needs to add a protocol to its current investment agreement on taxes and obligations towards the central and local government authorities, including real estate taxes and corporate income tax. The company also needs to negotiate with Grundartangi harbour authority on facilities and fees for their use, following an EIA.

ISK 13 billion increase in export value
It is assumed that up to 150 new employees will be taken on at Nordurál if the proposed expansion to 180,000 tpy goes ahead. Just over 200 people currently work at the Grundartangi smelter, 85% of them resident in the towns of Akranes and Borgarnes and other neighbouring communities, and 15% in the Greater Reykjavík Area.

Based on average aluminium prices and the present exchange rate of the Icelandic króna, the expansion to 180,000 tpy will boost Iceland’s exports by ISK 13 billion per year and bring the value of Nordurál’s export production up to ISK 26 billion per year. If agreement on the expansion is reached, preparations for construction work at Grundartangi are expected to begin next year and the new phase to go on stream in 2005.

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