Summary

• Hydro has entered into an agreement to combine the majority of Vale’s bauxite, alumina and aluminium assets with Hydro’s existing business.
• The transaction transforms Hydro into a fully integrated global aluminium company securing the company's bauxite supplies in 100-year perspective.
• Vale will receive a total consideration comprising USD 1.1 billion in cash and new Hydro shares equivalent to 22 percent ownership of its outstanding shares.
• As of April 30 and considering assumed net debt, this equates to a total consideration of USD 4.9 billion.
• Following the transaction, Hydro will have a long position in bauxite and alumina, the key input factors for aluminium production in addition to energy.
• To partly finance the transaction, support the company’s investment grade rating and capacity to implement future projects, Hydro intends to launch a fully underwritten rights issue of NOK 10 billion (approximately USD 1.75 billion).

The transaction

The transaction will provide Hydro with high-quality assets in Brazil, comprising full control and ownership of Paragominas, one of the largest bauxite mines in the world, 91 percent ownership in the world’s largest alumina refinery Alunorte, 51 percent ownership in the Albras aluminium plant and 81 percent ownership in the CAP alumina refinery project.

The combination will considerably strengthen Hydro’s position in bauxite mining and alumina refining, which, along with energy, are the most important input factors in aluminium production. The high quality and efficient cost base of the contributed assets will also significantly improve Hydro’s financial position.

Vale will at closing of the transaction contribute 60 percent in Paragominas, 57 percent in Alunorte, 51 percent in Albras and 61 percent in the CAP alumina refinery project in return for a consideration comprising USD 1.1 billion of cash and 22 percent of Hydro’s outstanding share capital at that time. Hydro will also assume USD 0.7 billion of net debt within the contributed businesses as of December 31, 2009. Prior to the combination, Hydro already has 34 percent ownership in Alunorte and 20 percent ownership in CAP.

Hydro has the right to take over the remaining 40 percent stake in Paragominas in two installments, in 2013 and 2015 respectively, against a cash payment of USD 0.2 billion for each installment. In total, around 3,600 Vale employees will become part of Hydro as a result of the transaction, representing significant addition of competence, expertise and skills within bauxite, alumina and aluminium operations.

Vale, the world’s second-largest metals and mining company, will receive 22 percent ownership in Hydro as part of the combination, extending the close to 40 years partnership between the two companies from their current joint ownership in the Alunorte alumina refinery, the MRN bauxite mine and the CAP alumina refinery project.

The transaction also comprises additional bauxite licenses, a volume off-take agreement for Vale’s 40 percent stake in the MRN bauxite mine, in which Hydro holds 5 percent ownership, and an alumina sales contract portfolio.

The rights issue and the private placement towards Vale are subject to approval by Hydro's general meeting of shareholders. The transaction with Vale also needs the consent of joint-venture partners in Vale assets, as well as regulatory approvals. Hydro considers the regulatory risks attached to the combination to be limited.

The closing of the transaction with Vale is expected in fourth quarter 2010.

According to the agreement, Vale cannot increase its ownership in Hydro beyond the 22 percent contributed as part of the transaction, will retain its shares in Hydro for at least two years after the transaction closes and following the two-year period not sell shares constituting more than 10 percent of Hydro’s issued shares to any single buyer or group.

Vale will have one representative on Hydro’s Board of Directors, subject to approval by Hydro's governing bodies prior to closing of the transaction.

Hydro has hedged the majority of the net aluminium price exposure in the contributed assets until the end of 2011, amounting to 670,000 tonnes with an expected average price of about USD 2,400 per tonne for the entire period.

”This transforming and value-creating combination takes Hydro to a new league in the global aluminium industry. The deal will secure Hydro equity bauxite and alumina ownership and significantly improve our competitive position, making us more financially robust and well-positioned for growth,” said Hydro’s President and CEO Svein Richard Brandtzæg.

“Vale is highly recognized for its strong social and environmental track record and its commitment to transform mineral resources into sustainable development. Hydro will continue to build on these high standards,” Brandtzæg added.

Projects in Hydro's growth pipeline include the construction of the CAP alumina refinery and the expansion of the Paragominas bauxite mine in Brazil and a possible second phase of the Qatalum aluminium plant in Qatar. In Norway, Hydro will continue to develop the Holsbru hydropower project and the plan for a new recycling plant at Karmøy.

Rights Issue

Hydro’s largest shareholder, the Norwegian state, represented by the Ministry of Trade and Industry, owns 43.8 percent of the issued shares and is supportive of the transaction and the rights issue. The Ministry of Trade and Industry will put forward a parliamentary proposition to participate for its pro rata share of the rights issue, which is expected to be obtained by mid-June 2010. The Government Pension Fund Norway (Folketrygdfondet), owner of 5.9 percent of the issued shares, is supportive of the combination and the rights issue, and has entered into an agreement to underwrite and subscribe for its pro rata share of the rights issue.

The remaining share of the rights issue is underwritten by Citi, DnB NOR Markets and BNP Paribas, subject to customary terms and conditions.

Hydro will call for an extraordinary general meeting, which is expected to be held towards the end of June 2010, shortly after the expected parliamentary approval of the rights issue. The subscription price in the rights issue will be set shortly before the extraordinary general meeting. The subscription period will commence shortly following the extraordinary general meeting, with the rights issue targeted for completion in July 2010.

At closing of the combination and following the rights issue, a private placement to Vale of 22 percent of Hydro’s outstanding shares will result in the Norwegian state’s ownership in the company being reduced from 43.8 percent to approximately 34.5 percent.

Description of contributed assets

Paragominas is the world’s third-largest bauxite mine with a current annual capacity of 9.9 million tonnes. A planed expansion to supply the CAP refinery will increase Paragominas' capacity to 15 million tonnes.

Alunorte is the world’s largest alumina refinery, with a first-decile conversion cost profile and an annual capacity of 6.3 million tonnes. Hydro already owns 34 percent of Alunorte, and will increase its stake to 91 percent following the transaction.

Albras is a hydro-powered aluminium plant operating in the second quartile of the industry cash cost curve, with an annual capacity of 455,000 tonnes. Hydro will own 51 percent of Albras as a result of the transaction.

The CAP project is an alumina refinery under development, with an initial annual capacity of 1.86 million tonnes. The project has an expansion potential up to 7.44 million tonnes per year, with bauxite supply primarily from Paragominas. Hydro already owns 20 percent of CAP, and will increase its ownership to 81 percent following the transaction.

All of the assets to be contributed are located in Brazil.

USD million	2007	2008	2009
Revenues	2,389	2,662	1,871
EBITDA	887	734	22
Depreciation	(103)	(149)	(202)
EBIT	784	585	(179)
Income (loss) before taxes	967	343	141
Net income	751	283	107
Net income attributable to minority shareholders	328	97	86
Net income attributable to Hydro shareholders	423	186	21
	Dec. 31,  2007	Dec. 31, 2008	Dec. 31, 2009
Total assets	5,376	4,854	6,172
Total liabilities	1,427	1,465	1,608
Non-controlling interests	1,738	1,470	2,012
Majority equity	2,212	1,918	2,552
Total equity	3,949	3,388	4,564

The financial information for the assumed interests has been derived from Vale’s audited consolidated financial statements, which has been prepared in conformity with US GAAP. The information represents carve-out combined financial information for the historical operations, assets and liabilities covered by the transaction, prepared by Vale management. The condensed combined financial information is not audited.

Expected timeline

• Early June: Publication of information memorandum
• Late June: Extraordinary general meeting in Hydro
• Late June: Publication of prospectus
• July: Rights issue completed
• End-2010: Transaction closing

Press conference, analysts and investor
presentation, conference call

• May 2, 1700 CET: Press conference with webcast (in Norwegian) at Hydro’s Oslo headquarters.
• May 3, 0900 CET: Analyst and investor presentation with webcast (in English) at Hydro’s Oslo headquarters.
• May 3, 1600 CET: Telephone conference for the international financial market. Phone-in details will be made available on www.hydro.com

Financial and legal advisors

In connection with the transaction, Citi is serving as Hydro's financial advisor while law firms Thommessen AS and Latham & Watkins LLP are serving as legal advisors.

In connection with the rights issue, Citi, DnB NOR Markets and BNP Paribas will act as joint global coordinators and joint bookrunners to Hydro, while Thommessen AS and Latham & Watkins LLP will serve as legal advisors.

• Press contacts
  Contact: Halvor Molland
  Cellular: +47 92979797
  E-mail:   Halvor.Molland@hydro.com
  
  Contact: Erik Brynhildsbakken
  Cellular: +47 41751271
  E-mail: erik.brynhildsbakken@hydro.com
  
  
• Investor contact
  Contact: Stefan Solberg
  Cellular: +47 91727528
  E-mail:   Stefan.Solberg@hydro.com

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Cautionary note

Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions, investments or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, (d) various expectations about future developments in Hydro’s markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by “expected”, “scheduled”, “targeted”, “planned”, “proposed”, “intended” or similar statements.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause our actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not limited to: our continued ability to reposition and restructure our upstream and downstream aluminium business; changes in availability and cost of energy and raw materials; global supply and demand for aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro’s key markets and competition; and legislative, regulatory and political factors. 

No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

This announcement is not an offer for sale of securities in the United States or any other country. The securities referred to herein have not been registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), and may not be sold in the United States absent registration or pursuant to an exemption from registration under the U.S. Securities Act. Hydro does not intend to register any portion of the offering of the securities in the United States or to conduct a public offering of the securities in the United States. Any offering of securities will be made by means of a prospectus that may be obtained from Hydro and that will contain detailed information about the company and management, as well as financial statements. Copies of this announcement are not being made and may not be distributed or sent into the United States, Canada, Australia, Japan or any other jurisdiction in which such distribution would be unlawful or would require registration or other measures.

In any EEA Member State that has implemented Directive 2003/71/EC (together with any applicable implementing measures in any member State, the “Prospectus Directive”), this communication is only addressed to and is only directed at qualified investors in that Member State within the meaning of the Prospectus Directive.

This announcement is only directed at (a) persons who are outside the United Kingdom; or (b) investment professionals within the meaning of Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”); or (c) persons falling within Article 49(2)(a) to (d) of the Order; or (d) persons to whom any invitation or inducement to engage in investment activity can be communicated in circumstances where Section 21(1) of the Financial Services and Markets Act 2000 does not apply.