Good afternoon, and welcome to Hydro's conference call on the results from the internal and external review of Alunorte. We presented the main findings of the reviews earlier today, and links to webcast and presentation material, including reports, can be found at hydro.com. We will start this conference call with a short introduction by President and CEO Svein Richard Brandtzæg, followed by a Q&A session, also joined by CFO and Interim Head of Bauxite and Alumina, Einar Kallevik, together with Head of Internal Task Force, Tom Westby, and Head of Corporate Environment, Julama Silvana Daris. With that, I'll leave the word to you, Svein Richard.
Good afternoon. I'm pleased that we can finally present to you the facts and circumstances related to the heavy rainfall in mid-February and the situation at Alunorte, as explained by the findings from the both, the internal task force and external third-party review performed by SGW Services. I'm hopeful that these new reports will serve as important basis for discussions to resolve this critical situation. Based on internal and external findings, I am first and foremost pleased that we now can conclude the following. There's been no overflows from Alunorte's bauxite residue deposit areas. There's no indication or evidence that Alunorte has contaminated local communities of Barcarena. Like we have said, we did have a controlled but unlicensed discharge of partly treated rainwater through the internal canal, the Canal Velho into the Pará River.
The report shows that this has not had any significant or lasting environmental impact to nearby rivers. The report show that we have room for improvements in the following areas: water management and treatment capacity, preventive maintenance and upgrades, and emergency preparedness plans and trainings. We have already announced or implemented several corrective actions at Alunorte, a few examples are short-term improvement of the water management systems and treatment capacity, maintenance systems, as well as emergency preparedness plans and training, investment of NOK 500 million in the refinery water treatment system, increasing treatment capacity by 50%, and basin capacity in water treatment plant by 150%. Update of emergency procedures, including review of the communication practices for local communities during and following emergencies.
Third-party environmental study on quality of air, water, springs, soil, and forest, and strengthening of local and central environmental resources and competence. We will further implement several additional technical, environmental, and social measures to position Alunorte as the benchmark alumina refinery in the global industry, and some areas are maintenance and equipment upgrade, including measures to address improvement potentials identified in the report. Around NOK 250 million to support the broad collaboration of social change in Barcarena, called the Sustainable Barcarena Initiative. Alunorte has also committed to invest in access to clean water in Burajuba, Bom Futuro, and Vila Nova, as well as providing medical assistance and water distribution to 1,800 families in local communities. Alunorte is also engaging with the communities to develop and implement short-term social projects. Before I end my introduction, a few words on the process.
As you know, there are several administrative, political, and legal proceedings ongoing, making this a highly complex and demanding process. Hydro is in a constructive dialogue with the government of Pará, seeking for a solution at Alunorte, but it is currently too early to estimate when we can reach an agreement that allows us to resume full production. Thank you, Svein Richard. Operator, we're now ready for questions.
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Daniel Major of UBS.
Oh, hi there. Thanks for the call. Two questions. Just firstly on the unlicensed use of the canal. Can you give us a sense of sort of how regularly in the past this has been used? I mean, obviously, you didn't have the license this time, but is this something that was used on a regular basis in the past? How abnormal sort of was the use of the facility? The second thing I was sort of trying to get sense of, I mean, you obviously stated that you haven't actually done anything wrong specifically in this instance, but there's quite a large uplift in spending as a consequence.
I mean, I'm just trying to get a sense of this is a sort of admission that the systems weren't in place correctly beforehand, or is it a sort of response to try and get the license back as soon as possible? I'm just trying to get a bit more color on the magnitude of spend. Obviously, you said you can't give any specific timelines on the getting the license back, but maybe you could give us a bit more color on the kind of key moving parts before the license is, was re-granted. Thanks.
Thank you, Daniel. With regard to the last question with regard to spendings, I would say that we have to do some spendings now to make sure that we get the license back and full production resumed. For example, we cannot let the management that are not being in a similar situation during next rain season that they have to using Canal Velho, for example, for unlicensed discharge of rainwater. That is something the authorities is also very much focusing on that we now improve the technical standards. We are sure that even if there is a 10,000 year rain, the plant can operate safely. There are some maintenance issues that anyway would have to be done, and that is what we also now are addressing.
Some pipes and tubes and some maintenance work. There is also some, I would say simple housekeeping activities that we are going to do, some improvements on some internal areas, which does not necessarily cost too much, but the major investment is in fact the water treatment capacity that we need to expand. With regard to the social project, that is also in fact part of the requirement from the authorities. We have very good dialogue now I will say with the local authorities, also SEMAS, the local environmental authority, in addition to the Pará state, the governor, and his staff. There are some expectations with regard to support for the local societies.
That, I would say the in total, I would say this is the investment we are doing, I would say, over a 10-year period, the social projects, which would be then the contribution that we are now demonstrating, also the commitment to just help the, and support the people living nearby Alunorte. With regard to the Canal Velho, maybe, tomorrow can answer that, Tom.
I think it was basically it was used once last year, and frequent times this time. When it comes to the question about the capacity need or not, I think the judgment we've done is that we need definitely more capacity for the water treatment plant at Alunorte. Basically, the environment we see these days when it comes to the number of or the amount of rain coming in certain periods. We want to make a new water balance study also for the whole plant based on the latest information we have on the climate actually. Yeah.
sorry, just to follow up. You've used it in a fairly regular course of action, the canal, if you used it once last year? It wasn't uncommon to use it.
No, it's been used, but, last year it was used once, one day.
Before that, if you think about in the past, historically, in the early days, Canal Velho was used frequently, and it was licensed to use it for discharge of rainwater.
Straight out, yeah.
Straight out.
Basically today, all water catchment in Alunorte is taken through this water treatment system. Nothing is going. While previously we could actually say that it's different waters, different places.
Okay, thanks. Just any color on the timeline, in terms of what are the key items on the critical path to getting the license back?
That is the question everybody's asking about. We cannot give you any firm feedback on that. Of course, this is the main task for us now is to make sure that we bring it back on track here as soon as possible. I cannot give you any indication of a timeline there.
Okay, thanks.
We'll take our next question from Jason Fairclough of Bank of America Merrill Lynch.
Good afternoon, gentlemen. Thanks for this opportunity. Just two quick ones from me. You mentioned, Sven Rikard, that you have a constructive dialogue with the government of Pará. We do see some other examples in Brazil, where we have agreements that are made that don't necessarily include all the appropriate levels of government. We run into some complicated jurisdictional issues. You might be having that issue with regards to your licensing of the DRS-2. I guess the question is, what are you doing to make sure that you have all the required authorities involved in this process? Second one, just, you know, to come back to this. In terms of looking to the next data point, my understanding is that we should have another version of the external consultants report sometime the 2nd week of May.
Is that correct?
Yes, towards the start of May. Yes.
That is, regard to the last part of the question. Yes. With regard to the dialogues, Jason, good afternoon. With regard to the dialogues we have with the authorities in Pará, of course, we have had a problem with Ministério Público. That is one body. I would say we have very good dialogue with the governor and his people, and also SEMAS locally. With regard to DRS-2, that is a license that has been challenged by IBAMA, which is the federal environmental authorities. IBAMA has challenged SEMAS about the mandate of SEMAS to give us the license to operate.
We have a license to install and commission the DRS2, and it's still under commissioning. According to the schedule, we will have a license for operations in the end of the year. We have a license in place, in fact, for not only installing, but also commissioning. This is an issue between SEMAS and IBAMA, we hope that can be solved. With regard to the other bodies that we are discussing with, of course, if SEMAS now conclude that the technical standards and the expectation on the social side is in place, there is still a legal body that has to accept that we are taking production up to 100%. It's still, you are absolutely right.
It is complex, but we are working it with that every day.
Okay. All right. Thanks for your time and appreciate the update.
We'll take our next question from Menno Sanderse of Morgan Stanley.
Yes, afternoon. A couple of questions. First on DRS2, Svein Richard, can you just clarify if the company is using it, yes or no? Because I thought IBAMA applied with the courts to basically stop the company from using it. Although it's an issue between SEMAS and IBAMA, if that statement I made is right, then it seems to be an issue that has big consequences for Norsk Hydro. This needs to be solved in some shape or form. Secondly, the federal prosecutors with which you have now gone to court seem to be very hung up or intent on using this Evandro Chagas Institute report. Why is that? Why is that for them the standard reports to be used?
Thirdly, when do you go to cold stacking for 50% of capacity? Because it's now half way over mid-April nearly, and two weeks ago, the company stated that it needed to go to cold stacking to maintain the integrity. Obviously that may mean have some consequences for the overall variable cost and fixed costs. Is it a bit more insight on the timeline there would be great?
Okay. Thank you, Menno. Good afternoon.
Hi.
With regard to the DRS2, we are able to use the water system in DRS2, but we cannot use the red mud deposit area in DRS2 and the press filter. That is the situation. The benefits with the using the water treatment system or the water reservoirs is that it has a tremendous capacity. I would say that if we couldn't use that during the crisis days whenever it was heavy rainfall, then it could be a crisis down there and very difficult environmentally for with regard to possible leakages.
Right.
It's handled very well due to the fact that we can use the water handling system for DRS2. Again, we are working, of course, hard now to bring back DRS to the press filter and also the storage system. We can still run the plant also only with DRS1. That can be done. Of course, the intention is, of course, to come back and use DRS2. From an environmental point of view, DRS2 is and the press filter is the state-of-the-art technology. It's the driest stacking system you can have for red mud deposits. That is also something we are trying to educate local authorities. It's less costly.
Right.
It's the best we can. Of course, with regard to cost, I'm not sure if I understood your question, but with regard to the fact that we are now running 50% capacity, means that we are rolling output from different production lines. All production lines is operative as it is now, but we are rolling between them.
Yes.
If we now see after some weeks that, will take months and not weeks, then it may be that we come to a decision to curtail some lines. If we do that, it will take several months to bring it back again. That's why we keep them rolling now because we are still a bit optimistic about the outcome. Now it's difficult, but we hope that we could bring production back, of course, sooner than later. Again, if it drags out now for weeks, and we see that this is now, we are talking about that it could take months, then to cut down cost, we will absolutely evaluate curtailment of some of the lines.
Also, of course, about 80% of the cost in Alunorte is variable. We are still in a fairly good shape with regard to the cost situation, taking into account that the alumina price has increased by more than $100. It's not that bad, but of course, we would like to see 100% capacity as soon as possible here.
Yeah. Okay. I was actually referring to some media articles which stated that the company may go to curtailing mid-April because it has been already 2 months since the assets have been run at 50%. You're saying that's not necessarily correct, that media coverage?
That depends very much on the progress we see in the negotiations with authorities in Pará.
Okay. Okay.
The last question was with respect to the federal prosecutors and their focus on the Evandro Chagas Institute report and why they think that is the main, the gold standard of reporting.
Yeah, that's a very good question. We got the question about that in Oslo today during the press meeting, and it was answered quite well with a comment from the representative from SGW, the environmental third party company we are using. He said if you have a report from a company that is accredited for this kind of and certified for this kind of measurements, and you have a report from a company that is not certified for this kind of measurements, which report will you trust? The problem with the Chagas report is that, well, there are several things we can comment on there, and I'm not sure maybe Giuliana you could mention some of them.
Yeah. Yeah, I guess on the, on the question as to why they are keen to only use the Evandro Chagas report as a benchmark, obviously I can't, I can't comment on that. What I can comment on is the fact that both Hydro and the number of external consultants that have reviewed the document have expressed concerns both about the robustness of the data present in the IEC report and the conclusions drawn in the IEC report on the basis of that data. Now, the key reason that we have concerns about the robustness of the data is, as
just pointed out, the fact that the IEC is not accredited, and as a result, that throws into doubt both the sampling methodology and the results they get from it. Even if they had been accredited, and even if the results were reliable, what we also have concerns about is the conclusions they have drawn because they have failed to contextualize the conclusions. I can give an example. For example, they say that they have found traces of heavy metals in the communities. What they failed to mention is put this into context by saying that these traces of heavy metals are well below both the legal limits in Brazil and international standards set by the World Health Organization when it comes to drinking water.
There is a discrepancy there between the results, even if we were to trust them, and the conclusions that they draw based on those results.
Great. Thanks.
We'll take our next question from Daniel Lurch of Exane.
Hi. Thanks so much for taking my questions. Just two quick ones for me. Coming back to this question on idling a number of alumina lines, could you quickly give us an estimate? Assuming Brazilian authorities are slower than expected or the talks are dragging on, if you have to shut down 3 lines by the end of the month, to restart them, the whole process, how long would that take you? Is there a time which you could put behind that? My second question is, there have also been media reports of community groups requiring health tests for the local population around the plant. My question is: What do you think of these requests?
Do you think the authorities will require or will wait for the results from these tests or take them very seriously in their, in their consideration in addition to the environmental studies which you presented today? Is that, is that an issue which is outside of your discussions at the moment? Thank you.
Thank you, Daniel. With regard to your first question, if we decide, after some weeks now that, based on the negotiations, if it is going slower than what we see now and that we see that it will take months, then we will curtail lines at Alunorte. They're still keeping 50% production but, curtail temporarily some lines. With regard to if we then get the message that now we can come back to 100%, it will take 2-3 months to get back to full production. Just for your information about timeline there.
With regard to the health checks, and also the I would say the also the fact that we have now also initiated environmental study to get more facts on the table with regard to background data on metals in drinking water, for example. I think, well, these are very complex projects that will require time. For example, the environmental project that we have started now to do more basic analysis of the area, it will take about 2 years. The health checks will be done. I think this is not directly correlated to the 100% capacity question. It is more the authorities want us to support it.
With regard to the environmental review, the long-term environmental review, that is something we decided on even before.
Mm.
This crisis. That was an something we want to do ourselves, independent. Then suddenly this rainfall happened. It's not less interesting to do it now. These things I don't regard as directly a function of the or correlated to the 100% capacity question.
Okay. Thank you.
once again, that is star one to ask a question. We'll go next to Matheus Santos from Banco do Brasil.
Yeah. Hi. Thanks for the opportunity. I'd like to clarify the situation you guys came forward with in March 19th regarding the Albras channel. We understood that, the channel was supposed to be reviewed by SGW as well, but as per the report published today, it. I think you guys will comment on this on May, on the second week of May, just to make sure that's the case. Thanks.
Okay. absolutely, yes. That is the case. If I understood your question correctly-
Okay.
is whether that will be covered by scope two.
Okay. Yeah, because the report today, published today mentions that it's outside SGW scope, and we understood that they would review the adjacent areas as well.
Yes. Well, what they have reviewed and what is in scope of SGW review is Alunorte's contribution to Albras channel. What is not within their scope is Albras contribution to Albras channel. Those are two separate things.
Okay. Okay, great. Thank you.
Once again, that is star one to ask a question.
Okay. As there seems to be no further questions, we can end this call. Thank you for joining us today. If you have any follow-up questions, please do not hesitate to contact us. Thank you, and have a nice evening.
This concludes today's call. Thank you for your participation. You may now disconnect.