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Norway's Hydro buys Rio's Iceland aluminium plant in green drive

By Ole Petter Skonnord

OSLO (Reuters) - Norway's Hydro (NHY.OL) plans to buy a Rio Tinto (RIO.L)(RIO.AX) aluminium plant in Iceland for $345 million (245.46 million pounds) as part of its efforts to make its output as green as possible and bolster its position in Europe.

The proposed acquisition, which is expected to close in the second quarter, will raise its capacity to produce primary aluminium by 210,000 tonnes to 2.4 million tonnes this year, said in a statement on Monday.

Iceland generates all its electricity from hydropower and geothermal energy and the plant will enable Hydro to produce more than 70 percent of its aluminium using renewable energy, up from two-thirds of its output in November.

Producing aluminium requires huge amounts of energy, meaning it is also more cost effective to produce it using hydro-power.

"It is going to give us a competitive advantage," Hilde Aasheim, head of Hydro's Primary Metals division, said.

"This gives us as low a (carbon) footprint as possible and helps our customers who buy aluminium based on whether it is produced by renewable energy," she told Reuters.

Hydro is not interested in acquiring aluminium plants that use coal-fired power, Aasheim added.

Hydro's share price was up 1.3 percent at 1020 GMT, while Rio Tinto was up 0.7 percent.

Hydro launched a low-carbon brand of aluminium in November and expects customers from carmakers to packaging firms to pay a premium to help slow climate change.

The Icelandic plant also delivers 230,000 tonnes of extrusion ingot, used in the European construction and transport sectors, from a newly-built casthouse.

The transaction also includes Rio Tinto's 53-percent stake in an aluminium anode facility in the Netherlands and its 50-percent stake in an aluminium fluoride plant in Sweden, which are ingredients in aluminium production.

The deal helps Rio Tinto which is seeking to divest all but the best-performing units.

"The binding offer for the sale of these assets provides further evidence of Rio Tinto's commitment to strengthen our business and deliver value by streamlining our portfolio," Rio Tinto Aluminium CEO Alf Barrios said in a statement.

Rio Tinto is selling an aluminium smelter at Dunkirk in France to Liberty House, which also bought the major miner's smelter at Lochaber, Scotland.

Under the deal, Hydro would be the sole owner of the factory in the Netherlands, while the Swedish factory will be 50/50 owned with fertiliser maker Yara International (YAR.OL).

(Additional reporting by Barbara Lewis in London, writing by Gwladys Fouche in Oslo, editing by Jason Neely and Alexander Smith)