A Breakthrough Approach to Aluminium Smelter Development:The VSFb Inc. Concept VSFb Inc. is seeking a cash equity investment of US$ 0.75 million This Presentation is an abstract of a more comprehensive presentation available for workshops with corporate clients. The present format has been prepared for Venture Capital Investors Due Diligence is available on all facts and figures stated in this presentation
VSFb Inc.offers a low risk, high return, easy exit strategy forVenture Capital Investors • VSFb Inc. combines 2 bankable processes: • 70 ktpy State of the Art VSS Søderberg • 400MW Circulating Fluidized Bed Boiler Power Plant burning low grade coal or petroleum coke • It promises a capital cost of 1/4th the cost of prevailing technologies, an operating cost lower than 75% of existing aluminium smelters, and compliance with future OSPAR Emission Standards
VSFb Inc. - Core Sponsors • GEAN Overseas, Inc.(Atlanta, GA)has been active in professional strategic services to the primary aluminum industry since 1981. • KTD, L.L.C.(Spokane WA)is an independent, privately held engineering firm specialized in primary aluminium. It originated from the spin-off of Kaiser Technology Department to its employees in 1998. • K + T Engineers, Ltd. (St. Gallen, Switzerland) (Dr. Hans O. Bohner, Principal and Founder) has been providing consulting services addressing engineering and technology issues in primary aluminium for over 15 years. GEAN Overseas, Inc.K+T Engineers Ltd.
VSFb Inc. Corporate Sponsors REEL Group (France), Hencon BV (Netherlands), Ross Controls (US) and Power Jacks Ltd. (UK) are pre-committed to invest roughly 50% of cash equity needs. ALSTOM Power and ALSTOM Environmentare committed to supply the power plant and emission control System Hydro Aluminium, Elkem Aluminium and Russian Aluminium, the 3 most experienced producers in Soderberg Technology, have validated all assumptions on which VSFb Business Plan is based.
World Aluminium: Demand exceeds Supply for structural reasons. • Global Steel Production ~800 MM tpy • Global Aluminium Production 28 MM tpy • 1900 – 1970 Al Production Doubled Each Decade • In 1900 it took 100 MWh to produce 1 tonne of Aluminium • In 1970, only 14 MWh/tonne of Aluminium • Since 1970, No Significant Progress
Global Context • Aluminium v Steel Price Trends • 1900 1 t Aluminium equal to 15 t Steel • 1970 1 t Aluminium equal to 3.5 t Steel • 2001 1 t Aluminium equal to 4 t Steel • During Last 3 Decades, Aluminium Has Lost Competitiveness. How come?
Ratio of Primary Aluminium to Steel Prices Since 1910 Source for 1910 to 1991: Metal Statistics (AMM) 1992-present: Al - HG Cash Price (LME) Steel - CF Carbon 1018 Bar (AMM)
Pre 1970 Aluminium Prices: Downwards Trend Imposed by Alcoa1972 1st Oil Crisis: The trend reverses.Péchiney emerges as controlling highly energy efficient technology1978 LME Starts quoting Aluminium Prices - Pricing policy dominated by Traders Last 3 Decades, Industry de-concentrating: New generation of producers and new, smaller players are also emerging: Aluminium is and remains an attractive market… LME Introduction
Global Context • If the Mainframes of All Automobiles Manufactured in the World (40 Million Units) Were Made in Aluminium (Replacing Steel), World Consumption Would Jump to Around 45 MM tpy. • Several attempts made: failures have been due to unstable and unpredictable metal prices. • If All Electrical Conductors Used in an Automobile Shifted From Copper to Aluminium (to Save Weight), the Requirement Would Be for an Extra 1 MM tpy.
Industrial Context • Aluminium Demand: Strong Global Growth • Long term trend 1.5% per annum (higher in recent years: >5% in 2003-06, 2.5% next 10 years) • LME prices are going up: from $1,200 to 1,700 within a few years • Mega Smelters • 250,000 tpy cell lines • 2, 3 even 4 lines contemplated • Consolidation Of Major Primary Producing Companies • Alcoa acquired Alumax and Reynolds (US), Alumix (Italy), Inespal (Spain); • Alcan acquired Alusuisse, and now Péchiney; • Hydro Aluminium acquired VAW. • Corus Aluminium, last independent European, is for sale (3/04). • While new, smaller players keep emerging.
Industrial Context • Last 15 Years Have Seen: • New Capacity ~ 300 ktpy Green & Brown • Refit/Revamp ~ 130 ktpy • Shutdowns ~ 30-60 ktpy • Between 1990 and end 2003, world capacity has increased by 2.01%/year • Between 2000 and end 2003, world capacity has increased by 2.33%/year • Based on projects already in progress or forecast, world capacity will increase by some 2.5%/year • The VSFb Inc. concept addresses a niche of one 70 Ktpy mini-smelter per year and fills the gap between supply and demand.
Technology Context • Aluminium is produced by the Electrolysis (Reduction) Process of Aluminium Oxide (Alumina) called Hall-Heroult Process (1880) • New Capacity ~ 300 ktpy Green & Brown • Refit/Revamp ~ 130 ktpy • Shutdowns ~ 30-60 ktpy • Alumina is most often extracted from Bauxite Ore through the Bayer Solvent Extraction Process. • Bauxite is abundant and available in a multitude of existing mining sites. Many known reserves are not exploited yet (Guinea…) • Aluminium production is energy intensive: the industry traditionally located its plants near sources of low cost, excess energy (hydro-electric, excess gas generated by oil refining, low cost coal, etc.)
The Mini-Smelter is filling the gap • 2 Approaches To Smelting Technology In Competition Since 1927: • Prebaked Anode (PBA) Technology (1880): Used by some 140 smelters • Søderberg Technology (1927): Used by some 90 smelters • 20 plants operate both technologies • The Mega-smelter Approach has favored The Prebake Approach since 1972 (Last Søderberg were built in early 70’s) • Yet, one large, competitive aluminium producer just completed its 8th Søderberg Potline (CPA, Brazil) • The Mega-Smelter is competitive if energy supply at less than 20 mills is guaranteed for 10 years. The world is running out of sites allowing such a supply. • The VSFb Concept addresses countries which are in the opposite situation: Energy shortages, high energy rates, growing demand. We estimate this market at at least one mini-smelter per year, with first start up in 2009.
Issues with Current Approach • Greenfield Smelter Costs At Least US$4,000+/tpy • Capital intensity - significant increase since 70’s • Approximately 1.0Bn US$ per facility phase • Limited number of main engineering contractors with sufficient balance sheet to carry construction • Key Requirements for Siting a Smelter • Electrical supply of 450 MW and up are difficult to locate and expensive to build • Developed, stable, Grid System not common • Proximate Port Facility requires developed infrastructure • Most Production Exported • Little scope for value added within country compared with total investment
Issues with Current Approach • Aluminium is perceived as “Subsidized” by utilities: World aluminium smelters pay an average of 20 mills (2 US cents) / kWh (Alcan in Canada 4 mills, Middle East and Icelandic smelters 12 mills…) for their energy. • This figure is under typical conversion costs of generation, and way under any utility’s total costs, overburdened by marketing costs, distribution costs, poor capacity utilization, political/lobbying costs… • Many aluminium smelters already owning their Power Plant are aware that real generation costs are much lower, and benefit from trading excess energy to local utility. • Only 4% of present aluminium capacity procures energy from the grid.
Issues with Current Approach • Negative Political Perception means endless, uncertain and ruinous exploratory studies, negotiations, lobbying efforts… • Malaysia: total pre-operative expenses since 1988 between $400 and 500 million, and still no smelter to show… • Chile: The misfortunes of Noranda with Puerto Aysen… • Guinea: First viability study in 1937… • Oman, Qatar, Saudi Arabia, Libya… • Gladstone/Aldoga (Australia): Going, not going? Russian, or Chinese?
The key roadblock is Energy • Risk to Investors • Significant $ amounts to be financed before one can obtain a political decision: grant the energy contract • Complexity of Financial Engineering as consequence (“World Bank” Guidelines) • Country risk increases equity requirement and interest rates • Risk factors mainly associated with political uncertainty regarding the future of long term power contracts
Building Blocks Of the VSFb Inc. Approach • Addressing Power Supply Issues • Addressing Facility Size Issues • Addressing Siting Issues • Addressing Risk Issues • Addressing Investor Issues
The VSFb Mini-Smelter will produce three times the energy that it consumes • 400 MW Capacity • 130 MW for Smelter • 270 MW for Grid • Clean, Coal Burning, Circulating Fluidized Bed Boiler (CFBB) Plant • Capital Cost $1,000-1,250/kW depending on location • Capable of using low grade coal or better petroleum coke…
Design of a Fluidized Bed Boiler using limestone as reagent to convert polluting gases
Coal Prices:goal is $20-22/MT during first 5 years, then will go down with use of alternative low grade fuels
Addressing Facility Size Issues • Smaller Size Proposed • Importation of prepared anode material: Anode Paste only • Best available Søderberg Technology as basis • Facility Comprises 1 Pot Line and Metal Casting Facilities only, plus one Coal Fired Power Plant (FBB) • Minimal Support Infrastructure Required
Why a Fluidized Bed Burner Power Plant? • Circulating Fluidized Bed Burner Technology is hottest investment since 2000 because of Emission Regulations • All effluents except CO2 are converted to a solid, inert material usable by the Cement Industry • Alstom Power world leader supports the project • Even lowest grade Petroleum Coke can be used, is presently dumped by refineries • CFBB is suitable for small Power Plants: 400MW.
Prebake: Anodes Baked Elsewhere, consuming precious gas or light oil in costly Baking Oven Needs a complex Rodding Shop, or imported rodded anodes at high cost Anode mass is made up from several individual blocks Faraday Efficiency up to 96% Energy consumption of 13.5 kWh/kg without counting Baking Energy Consumption Capital costs (greenfield): $ 4,000-5,000/tpy Low flexibility (10-15%) in case of Load Management Søderberg Anode baking critical part of cell operation. Energy Consumption of 15.0 kWh/Kg. Baking energy is included in the Electrical Power consumed by the Cell Anode mass is a single unit Faraday Efficiency up to 93% with demonstrated potential for improvement Capital costs: No greenfields since the early 70’s. Gean-KTD proposes less than $ 3,000/tpy Bad reputation regarding pollution and safety & health issues (PAH, HF, CnFn…) High flexibility (2/3rd) in case of Load Management Key Differences Between Pre-Bake & Søderberg Cells
Yet, a few existing Soderbergs already demonstrate: • Faraday: 93% • Compliance with future OSPAR guidelines • Anode Effect reduced to level of the best PBA’s • …and we can design to better performances, using multiple proven solutions, if we address a Greenfield
Mini-Smelter Design Objectives • Production Capacity - 70,000 tpy • Nr. of Pots (for 70ktpy) - 200 • Operating Amperage - 130 kA • Current efficiency - >= 92.0% • Energy efficiency - <= 15.1 AC-kWh/kg • Cell life - >= 2000 days • Net Carbon - <= 0.50 #C/#Al • Productivity - >= 300 tons/man-year • Total capital cost - <= $3,000 per ton • Conversion cost - <= $1,100/t Al(2002 figures)
Fuel Gas Alloying Agents H.S.P. Pitch Dry Anode Mix Alumina Potlines Aluminium Fluoride Casthouse Liquid Metal Fluorspar Soda Cryolite/Bath Electric Power Off Gas Waste (Dross) Pot Offtake Gas Secondary Alumina Finished Product Potroom Fume Treatment Plant Waste New Cathodes Spent Cathodes Potlining Treated Gas To Stack Waste Lining Material Alumina Søderberg Smelter Process Flow Diagram
Why 70,000 tpy? • Michelin Tires’ aluminium consumption for vehicle wheels: 50 Ktpy • YKK’s Consumption: 40 Ktpy • Malaysian consumption in 1988 when the Bintulu Greenfield Smelter was planned for the first time: 70 Ktpy. (Now 300 Ktpy and no smelter yet…) • Renault Motors’ consumption: 80 Ktpy • Comcraft Group’s consumption through its Metal Building Businesses in Southern Africa: 80 Ktpy • There is clearly an advantage to sizing the smelter under 100 Ktpy and 70 Ktpy is a good conceptual number which may vary a little from site to site.
Smelter Conceptual Capital Costs US$ Million Figures - Based on Emerging Market Labor Rates
Operating Cost Drivers • Alumina • Usually LME driven range 11.5 – 13.5 % of 3 month Aluminium Price • Current global shortage of Alumina has spiked prices • Price Paid for Power • Current trend is up • 20 mills is not tenable • Coal price trends are stable • Anode Paste Sources • Several suppliers accessible. Expected: $300/t?
Conceptual Facility Economics • Lower Breakeven Cost • Significantly lower capital invested • Lower Operating Cost • Anode baking avoided • Butt recycling avoided • Anode rodding avoided
Addressing Technology Challenges • It was only after the successful combination and application of proven technologies by Alcoa, Pechiney, and later on Hydro and VAW, including: • Modern process control • Point feeders • Dry Paste Technology Improvements • State of the art anode adjustments • Magnetic Compensation that the step change in current efficiency performance to a level of 92% to 93 % has been achieved. La Coruna Smelter in Spain (Alcoa), Lista (Elkem-Alcoa) and Karmoy (Hydro Aluminium) in Norway, and others. • Industry indications are that 94% is being approached… but with negative emission effects. • The main development will be on fuel nature and quality: from $20/t plus shipping to $10 and lower
Addressing Power Supply Issues: Contracting with local Utility • Utility needs will increase with time: from 47% utilization rate up to 50, 55 and more • Propose a “Buy or Pay” Deal at Low Rate for a Minimal Annual MWh Consumption • Propose a Rate Equal to Utility’s Full Generation Cost on Top (Typically Around 38-55 Mills/kWh) • Propose a “Load Management Program” for Peak Hours: Smelter Will Reduce Output to Trade Extra Energy at Premium Rate • Eventually Propose a BOOT Contract • Modular Concept will allow expansion of the power capacity by steps of 130 to 200 MW as smelter and local economy grow.
Addressing Siting Issues • The Energy Siting Constraint is eliminated • Increases possibilities for locating near end-users • Requirement For Proximate Port Facility Only • Need For Large Stable Grid Removed • Supporting local development opportunities • Perception of supportive investors
Potential Sites To Be Explored • Could include • North America - notably Canada • Developing Countries Needing Energy • Brazil, Indonesia, Peru… • Ex-Communist Countries Needing Revamping plus extra Energy Capacity • Croatia, Baltic Republics, Poland, Bulgaria, Lithuania… • Developing Countries With No Primary Aluminium Experience • Vietnam, Tunisia, Madagascar, Morocco… • Indian Ocean area, Thailand, Philippines… • Central America… • Close to clusters of downstream users • Taiwan, Portugal, Mexico, Turkey… • Our 10 year simulation of future Capacity in Primary Aluminum shows clearly a niche for at least 1 Mini Smelter per year
Addressing Risk Issues • Total Capital Required Significantly Reduced • Simplifies financial engineering • Loan syndication • Equity aggregation • Generation of Power Supports Many Local Governments and Industry Needs and Increases Host Country Support • Many More Investment Friendly Smelter Sites to Chose From • May reduce equity requirement • May reduce interest rates
Addressing Site Investor Issues • Increased Possibility to Site Facility Near Downstream User/Investors • Increased independence from major suppliers, security of supply • Small Size Easier to Syndicate Equity
Potential Site Investor Characterization • Aluminum and Alumina Producers • Small to Medium Sized Downstream Consumers • Automobile • Packaging • Building Materials • Wire and Cable • Local Institutional Investors