Elkem has operations in the primary aluminium, energy, silicon metal, foundry products, microsilica, carbon, calcium carbide and solar energy industries. Its markets are largely major industrial countries and to a growing degree newly industrialised countries, while its production plants are located in Europe, North America, South America and Asia.
Elkem was consolidated from 1 January 2005. Figures for 2001-2004 are from Elkem’s accounts.
Elkem’s operating revenues totalled NOK 9,128 million
in 2005, compared with
NOK 9,334 million in 2004. The energy business reported strong growth in operating revenues due to a high level of hydropower production in Norway. In the aluminium business, operating revenues were largely at the same level as in 2004. Higher market prices for aluminium were offset
by marginally lower sales volumes and the effects of the metal and currency hedging programme. The decline in operating revenues for the silicon-related units is due to poorer market conditions for silicon metal and ferrosilicon.
Operating profit before amortisation for 2005 amounted to NOK 1,154 million, down NOK 107 million from the year before. Both the energy business and primary aluminium achieved strong results in 2005. The energy business’s performance improved as regards both hydropower production and trading, while the primary aluminium business benefited from high market prices and improved operations. The silicon-related units posted significantly lower profit in 2005. The markets for silicon metal and ferrosilicon weakened considerably during the year due to stronger competition from low-cost countries like China. At the same time, raw material prices, particularly for power and coal, were higher than in previous years, making it necessary to reduce capacity by closing down smelting furnaces. Focus on the production of high-purity silicon metal for the solar cell industry was further intensified in 2005.
Through its 50 % interest in Elkem Aluminium ANS, Elkem is one of Europe’s leading primary aluminium producers in high-margin niches. Production takes place at the plants in Mosjøen and at Lista.
The primary aluminium business achieved operating profit before amortisation of NOK 452 million, up from NOK 430 million in 2004. This improvement is largely due to strong market prices and improved operational efficiency.
The market for aluminium strengthened significantly in the course of the year. The average price for aluminium for three-months’ delivery on the London Metal Exchange (LME) was USD 1,900 (USD 1,721 in 2004). Volumes delivered to customers totalled 317,000 tonnes, which is a reduction of 2,000 tonnes compared with the previous year. This decline is ascribable to more difficult conditions on the aluminium profiles market.
The price of aluminium varies considerably over time. To increase the predictability of future cash flows, Elkem Aluminium hedges the prices of both the USD and metal for future delivery. As of 31 December 2005, 215,000 tonnes of metal were sold forward at an average price of USD 1,635 per tonne. Losses realised on metal hedges in 2005 amounted to NOK 146 million (NOK 142 million in 2004). Unrealised losses at the end of the year amounted to NOK 641 million (NOK 272 million in 2004), spread over the period 2006-2009. Gains realised on USD hedges in 2005 totalled NOK 170 million
(NOK 190 million in 2004). At year-end the unrealised gain on currency hedges was NOK 17 million.
At the start of 2005, work began on expansion of an anode production facility in Mosjøen, Norway. Total investments in this facility will amount to around
NOK 2.2 billion. The plant will meet the need for anodes at Elkem Aluminium Mosjøen and Alcoa’s new aluminium plants in Iceland. Elkem Aluminium
will provide 36 % of the investment, which is equivalent to its share of planned production.
The energy business consists of hydropower production and power trading. Elkem’s Norwegian hydropower plants are located in Salten, Bremanger and Sauda. Elkem also owns a 50 % interest in Industrikraft Midt-Norge. Its energy operations also include power plants in West Virginia, USA. An option agreement has been entered into for the sale of the plants in the first half of 2006.
The energy business reported operating profit before amortisation of NOK 571 million in 2005, which is a rise of NOK 171 million. Power production was substantially higher than normal due to high inflow in western and northern Norway. The company produced a total of 3,324 GWh of power in Norway, up 597 GWh from 2004. Annual production at the run-of-the-river plant and coal-fired power plant in West Virginia, USA, totalled 656 GWh (794 GWh in 2004). The price of power on the Norwegian spot market averaged 23.5 øre/KWh, compared with 24.2 øre/KWh in 2004.
Work commenced on upgrading the Saudefaldene hydropower plant in the first half of 2005. Elkem originally applied for a licence to produce approximately 1,050 GWh of new power, but the project was scaled back to around 490 GWh of new power during the processing of the licensing application. Work on the project has progressed well during the year and construction is expected to be completed in 2008.
The silicon-related business comprises silicon metal products, foundry products, microsilica, carbon, calcium carbide and solar-grade silicon.
Elkem is one of the world’s largest producers of silicon metal used for applications in the chemical, aluminium and electronics industries. At year-end the company’s production base consisted of five smelting plants in Norway. Elkem’s foundry products comprise specialised products for the foundry industry and standard ferrosilicon for the steel industry. Production of carbon products takes place in Kristiansand, Norway, and at two plants in Brazil, a plant in China and a plant in North America. Elkem Materials sells microsilica products based on raw materials from Elkem’s silicon metal and ferrosilicon plants and on raw materials purchased from smelting plants in every region of the world. Elkem Solar also reports under the silicon-related business area. Elkem’s stake in REC is consolidated as an associate. This reporting area also covers Elkem’s central technology function, R&D activities and logistics.
The silicon-related units reported operating profit before amortisation of
NOK 131 million, compared with NOK 431 million in 2004.
Several structural measures were implemented in 2005 to improve Elkem’s profitability and strategic position in the silicon metal industry. At Elkem Thamshavn in Sør-Trøndelag, Norway, investments were made in the first half of 2005 to convert a large smelting furnace to silicon metal. This is now the largest silicon metal furnace in the world. In December, the plant in Alloy, West Virginia, was sold to Globe Metallurgical. At the same time an option agreement was entered into for the sale of the associated hydropower plant to the D.E. Shaw investment fund. In the fourth quarter of 2005 a decision was also made to wind up the Elkem Fiskaa silicon metal plant in Kristiansand. It has also been decided to wind up the Elkem Meraker silicon metal plant in Nord-Trøndelag County, Norway. The winding-up processes have begun and will be completed in the first half of 2006. Restructuring provisions of NOK 75 million were made in the fourth quarter in relation to these processes.
Market conditions for silicon metal were extremely difficult in 2005. Sales prices for silicon metal declined significantly during the year, while raw material prices were poorer than in previous years. Smelting furnaces were closed in Norway in order to reduce the company’s exposure. The market price of ferrosilicon used in foundry products declined substantially in 2005. The smelting plant in Iceland also had operational problems. The microsilica business performed well in 2005, mainly due to increased volumes and a larger percentage of special products. Results for the carbon business were stable in 2005, while the calcium carbide business improved strongly as a result of the restructuring measures that have been implemented.
A great deal of work was done in 2005 on Elkem’s project to manufacture high-purity silicon metal for the solar cell industry. A total of NOK 144 million was invested, of which NOK 59 million was capitalised during the year.
Rolling ingots for the packaging and transport industries, extrusion billets for the construction and transport industries and foundry billets for foundries that cast components for the automotive industry.
Major consumer and producer of power in Norway and one of the main players on the Nordic power market.
Silicon: Production of metals used by the chemical industry to produce silicones, by the electronics industry as a basis for the manufacture of semiconductors, and by the aluminium industry as an alloying meta.
Foundry products: Production of special alloys for the foundry sector. The main customer groups are the automotive industry,
pipe manufacturers and other mechanical industries.
Microsilica: Used as an additive in concrete, structural and refractory materials for drilling in the petroleum industry and for tunnel sealing.
Carbon: Production of electrically calcinated anthracite and Søderberg electrode paste for use in the metallurgical processing and other industries.
Calcium carbide: Used in the industrial gas, iron and steel industries.
Solar: A research project for the manufacture of high-purity silicon metal for the solar cell industry. REC is involved in the entire value chain for the production of solar cells.
Measuring levels in the electrolytic furnace at Elkem Aluminium Mosjøen
