Hydro to adjust value of primary aluminum assets

Citing challenging alumina market conditions and Australian power price insecurity, Norsk Hydro ASA plans to report total impairment losses of approximately 5.9 billion Norwegian krone ($571.8 million) in in its fourth quarter 2023 results.

The Norway-based producer of aluminum and hydro-energy will write down the value of: goodwill tied to its bauxite & alumina (B&A) business unit in Brazil; property, plant and equipment related to the Alunorte alumina refinery and Paragominas bauxite mine in Brazil, as well as deferred tax assets tied to that business unit; and property, plant and equipment related to the Tomago primary aluminum plant in Australia, in which Hydro owns about a 13 percent stake.

“The impairments are regarded as adjusting items in Hydro’s Alternative Performance Measure Adjusted Net Income and will not reduce the dividend for 2023” the company says in a note to investors.

“The bauxite and alumina operations are a key enabler for Hydro to pioneer the green aluminum transition by significantly reducing the upstream carbon footprint. In the short and medium term, we see challenging alumina markets and weak cash flow generation in B&A coming from market volatility in times of geopolitical turmoil, impacting the current valuation of the assets,” Hydro President and CEO Hilde Merete Aasheim says.

Hydro also operates numerous recycled-content aluminum production and extrusion plants in Europe and in the United States, with its secondary production capacity rising in the U.S. None of those plants have been targeted for value impairment.

“Longer term, we expect a higher share of greener earnings in B&A, as we reduce the carbon emissions from our operations, while growing our greener product portfolio sold at premium pricing,” Aasheim adds, possibly referring to the company’s growing recycled-content aluminum portfolio.

“These expected earnings are not included in current valuation for impairment testing purposes, in line with accounting rules."