A Breakthrough Approach to Aluminium Smelter Development: The VSFb Inc. Concept VSFb Inc. is seeking a cash equity investment of US$ 0.75 million This.

A Breakthrough Approach to

Aluminium Smelter Development:

The VSFb Inc. Concept

VSFb Inc. is seeking a cash equity investment of

US$ 0.75 million

This Presentation is an abstract of a more comprehensive presentation available for workshops with corporate clients. The present format has been

prepared for

Venture Capital Investors

Due Diligence is available on all facts and figures stated in this presentation

VSFb Inc. offers a low risk, high return, easy exit strategy for

Venture Capital Investors

VSFb Inc. combines 2 bankable processes:

• 70 ktpy State of the Art VSS Søderberg

• 400MW Circulating Fluidized Bed Boiler Power Plant burning low grade coal or petroleum coke

It promises a capital cost of 1/4th the cost of prevailing technologies, an operating cost lower than 75% of existing aluminium smelters, and compliance with future OSPAR Emission Standards

VSFb Inc. - Core Sponsors

GEAN Overseas, Inc. (Atlanta, GA) has been active in professional strategic services to the primary aluminum industry since 1981.

KTD, L.L.C. (Spokane WA) is an independent, privately held engineering firm specialized in primary aluminium. It originated from the spin-off of Kaiser Technology Department to its employees in 1998.

K + T Engineers, Ltd. (St. Gallen, Switzerland) (Dr. Hans O. Bohner, Principal and Founder) has been providing consulting services addressing engineering and technology issues in primary aluminium for over 15 years.

GEAN Overseas, Inc. K+T Engineers Ltd.

VSFb Inc. Corporate Sponsors

REEL Group (France), Hencon BV (Netherlands), Ross Controls (US) and Power Jacks Ltd. (UK) are pre-committed to invest roughly 50% of cash equity needs.

ALSTOM Power and ALSTOM Environment are committed to supply the power plant and emission control System

Hydro Aluminium, Elkem Aluminium and Russian Aluminium, the 3 most experienced producers in Soderberg Technology, have validated all assumptions on which VSFb Business Plan is based.

World Aluminium: Demand exceeds Supply for structural reasons.

Global Steel Production ~800 MM tpy Global Aluminium Production 28 MM tpy 1900 – 1970 Al Production Doubled Each

Decade In 1900 it took 100 MWh to produce 1

tonne of Aluminium In 1970, only 14 MWh/tonne of

Aluminium Since 1970, No Significant Progress

Rising Aluminium Prices

Global Context

Aluminium v Steel Price Trends 1900 1 t Aluminium equal to 15 t Steel 1970 1 t Aluminium equal to 3.5 t Steel 2001 1 t Aluminium equal to 4 t Steel

During Last 3 Decades, Aluminium Has Lost Competitiveness. How come?

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YearSource for 1910 to 1991: Metal Statistics (AMM)1992-present: Al - HG Cash Price (LME)

Steel - CF Carbon 1018 Bar (AMM)

Ratio of Primary Aluminium to Steel Prices Since 1910

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LME Introduction

Pre 1970 Aluminium Prices: Downwards Trend Imposed by Alcoa1972 1st Oil Crisis: The trend reverses.Péchiney emerges as controlling highly energy efficient technology1978 LME Starts quoting Aluminium Prices - Pricing policy dominated by TradersLast 3 Decades, Industry de-concentrating: New generation of producers and new, smaller players are also emerging: Aluminium is and remains an attractive market…

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YearAluminum/Steel Long-Term Trend

Ratio of Primary Aluminium to Steel Prices 1972-2000

Global Context

If the Mainframes of All Automobiles Manufactured in the World (40 Million Units) Were Made in Aluminium (Replacing Steel), World Consumption Would Jump to Around 45 MM tpy.

Several attempts made: failures have been due to unstable and unpredictable metal prices.

If All Electrical Conductors Used in an Automobile Shifted From Copper to Aluminium (to Save Weight), the Requirement Would Be for an Extra 1 MM tpy.

Industrial Context

Aluminium Demand: Strong Global Growth Long term trend 1.5% per annum (higher in recent years: >5% in

2003-06, 2.5% next 10 years) LME prices are going up: from $1,200 to 1,700 within a few years

Mega Smelters 250,000 tpy cell lines 2, 3 even 4 lines contemplated

Consolidation Of Major Primary Producing Companies

Alcoa acquired Alumax and Reynolds (US), Alumix (Italy), Inespal (Spain);

Alcan acquired Alusuisse, and now Péchiney; Hydro Aluminium acquired VAW. Corus Aluminium, last independent European, is for sale (3/04).

While new, smaller players keep emerging.

Last 15 Years Have Seen: New Capacity ~ 300 ktpy Green & Brown Refit/Revamp ~ 130 ktpy Shutdowns ~ 30-60 ktpy

Between 1990 and end 2003, world capacity has increased by 2.01%/year

Between 2000 and end 2003, world capacity has increased by 2.33%/year

Based on projects already in progress or forecast, world capacity will increase by some 2.5%/year

The VSFb Inc. concept addresses a niche of one 70 Ktpy mini-smelter per year and fills the gap between supply and demand.

Industrial Context

Aluminium is produced by the Electrolysis (Reduction) Process of Aluminium Oxide (Alumina) called Hall-Heroult Process (1880)

New Capacity ~ 300 ktpy Green & Brown Refit/Revamp ~ 130 ktpy Shutdowns ~ 30-60 ktpy

Alumina is most often extracted from Bauxite Ore through the Bayer Solvent Extraction Process.

Bauxite is abundant and available in a multitude of existing mining sites. Many known reserves are not exploited yet (Guinea…)

Aluminium production is energy intensive: the industry traditionally located its plants near sources of low cost, excess energy (hydro-electric, excess gas generated by oil refining, low cost coal, etc.)

Technology Context

2 Approaches To Smelting Technology In Competition Since 1927:

Prebaked Anode (PBA) Technology (1880): Used by some 140 smelters

Søderberg Technology (1927): Used by some 90 smelters 20 plants operate both technologies The Mega-smelter Approach has favored The Prebake

Approach since 1972 (Last Søderberg were built in early 70’s) Yet, one large, competitive aluminium producer just completed

its 8th Søderberg Potline (CPA, Brazil) The Mega-Smelter is competitive if energy supply at less than

20 mills is guaranteed for 10 years. The world is running out of sites allowing such a supply.

The VSFb Concept addresses countries which are in the opposite situation: Energy shortages, high energy rates, growing demand. We estimate this market at at least one mini-smelter per year, with first start up in 2009.

The Mini-Smelter is filling the gap

Issues with Current Approach

Greenfield Smelter Costs At Least US$4,000+/tpy

Capital intensity - significant increase since 70’s Approximately 1.0Bn US$ per facility phase Limited number of main engineering contractors with

sufficient balance sheet to carry construction Key Requirements for Siting a Smelter

Electrical supply of 450 MW and up are difficult to locate and expensive to build

Developed, stable, Grid System not common Proximate Port Facility requires developed infrastructure

Most Production Exported Little scope for value added within country compared with

total investment

Issues with Current Approach

Aluminium is perceived as “Subsidized” by utilities: World aluminium smelters pay an average of 20 mills (2 US cents) / kWh (Alcan in Canada 4 mills, Middle East and Icelandic smelters 12 mills…) for their energy.

This figure is under typical conversion costs of generation, and way under any utility’s total costs, overburdened by marketing costs, distribution costs, poor capacity utilization, political/lobbying costs…

Many aluminium smelters already owning their Power Plant are aware that real generation costs are much lower, and benefit from trading excess energy to local utility.

Only 4% of present aluminium capacity procures energy from the grid.

Issues with Current Approach

Negative Political Perception means endless, uncertain and ruinous exploratory studies, negotiations, lobbying efforts…

Malaysia: total pre-operative expenses since 1988 between $400 and 500 million, and still no smelter to show…

Chile: The misfortunes of Noranda with Puerto Aysen… Guinea: First viability study in 1937… Oman, Qatar, Saudi Arabia, Libya… Gladstone/Aldoga (Australia): Going, not going?

Russian, or Chinese?

The key roadblock is Energy

Risk to Investors Significant $ amounts to be financed before

one can obtain a political decision: grant the energy contract

Complexity of Financial Engineering as consequence (“World Bank” Guidelines)

Country risk increases equity requirement and interest rates

Risk factors mainly associated with political uncertainty regarding the future of long term power contracts

Building Blocks Of the VSFb Inc. Approach

Addressing Power Supply Issues Addressing Facility Size Issues Addressing Siting Issues Addressing Risk Issues Addressing Investor Issues

The VSFb Mini-Smelter will produce three times the energy that it

consumes

400 MW Capacity 130 MW for Smelter 270 MW for Grid

Clean, Coal Burning, Circulating Fluidized Bed Boiler (CFBB) Plant Capital Cost $1,000-1,250/kW depending on

location Capable of using low grade coal or better

petroleum coke…

Design of a Fluidized Bed Boiler using limestone as reagent to convert polluting

gases

Overview of Pressurized Fluidized Bed Power Plant

Coal Prices: goal is $20-22/MT during first 5 years, then will go down with use of alternative

low grade fuels

World Competitive Market for Energy Costs, 2002

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Addressing Facility Size Issues

Smaller Size Proposed Importation of prepared anode material:

Anode Paste only Best available Søderberg Technology as

basis Facility Comprises 1 Pot Line and Metal

Casting Facilities only, plus one Coal Fired Power Plant (FBB)

Minimal Support Infrastructure Required

Why a Fluidized Bed Burner Power Plant?

Circulating Fluidized Bed Burner Technology is hottest investment since 2000 because of Emission Regulations All effluents except CO2 are converted to a

solid, inert material usable by the Cement Industry

Alstom Power world leader supports the project

Even lowest grade Petroleum Coke can be used, is presently dumped by refineries

CFBB is suitable for small Power Plants: 400MW.

Key Differences Between Pre-Bake & Søderberg Cells

Prebake: Anodes Baked Elsewhere,

consuming precious gas or light oil in costly Baking Oven

Needs a complex Rodding Shop, or imported rodded anodes at high cost

Anode mass is made up from several individual blocks

Faraday Efficiency up to 96%

Energy consumption of 13.5 kWh/kg without counting Baking Energy Consumption

Capital costs (greenfield): $ 4,000-5,000/tpy

Low flexibility (10-15%) in case of Load Management

Søderberg Anode baking critical part of

cell operation. Energy Consumption of 15.0

kWh/Kg. Baking energy is included in the Electrical Power consumed by the Cell

Anode mass is a single unit Faraday Efficiency up to 93%

with demonstrated potential for improvement

Capital costs: No greenfields since the early 70’s. Gean-KTD proposes less than $ 3,000/tpy

Bad reputation regarding pollution and safety & health issues (PAH, HF, CnFn…)

High flexibility (2/3rd) in case of Load Management

Yet, a few existing Soderbergs already

demonstrate:

Faraday: 93% Compliance with future OSPAR

guidelines Anode Effect reduced to level of the

best PBA’s …and we can design to better

performances, using multiple proven solutions, if we address a Greenfield

Mini-Smelter Design Objectives

Production Capacity - 70,000 tpy Nr. of Pots (for 70ktpy) - 200 Operating Amperage - 130 kA Current efficiency - >= 92.0% Energy efficiency - <= 15.1 AC-kWh/kg Cell life - >= 2000 days Net Carbon - <= 0.50 #C/#Al Productivity - >= 300 tons/man-year Total capital cost - <= $3,000 per ton Conversion cost - <= $1,100/t Al (2002

figures)

KTD

Generic Mini-Smelter Sketch

Søderberg Smelter Process Flow Diagram

Aluminium Fluoride

Alumina

Fluorspar

Electric Power

Cryolite/BathSoda

Alloying Agents

Fuel Gas

Waste

Waste

Treated GasTo Stack

New Cathodes

Spent Cathodes

Alumina

Lining Material

Secondary Alumina

Pot Offtake Gas

H.S.P. Pitch Dry Anode Mix

Waste(Dross)

FinishedProduct

Liquid Metal

PotlinesPotlines

PotliningPotlining

CasthouseCasthouse

Potroom Fume Potroom Fume Treatment PlantTreatment Plant

Off Gas

Evolution of Aluminium Technology Since 1900

Faraday Efficiency of Reduction Cells

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Archaic Prebaked Soderberg

Prebaked 50 - 100kA Prebaked 180 - 300kA

Energy Use Producing Aluminium

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Archaic Prebaked Soderberg

Prebaked 50 - 100kA Prebaked 180 - 300kA

Why 70,000 tpy?

Michelin Tires’ aluminium consumption for vehicle wheels: 50 Ktpy

YKK’s Consumption: 40 Ktpy Malaysian consumption in 1988 when the Bintulu

Greenfield Smelter was planned for the first time: 70 Ktpy. (Now 300 Ktpy and no smelter yet…)

Renault Motors’ consumption: 80 Ktpy Comcraft Group’s consumption through its Metal Building

Businesses in Southern Africa: 80 Ktpy There is clearly an advantage to sizing the smelter under

100 Ktpy and 70 Ktpy is a good conceptual number which may vary a little from site to site.

Smelter Conceptual Capital Costs

PLANT AREA COST ESTIMATE

REDUCTION PLANT 86.0

MATERIAL HANDLING AND RECEIVING 1.7

METAL PRODUCTS 12.5

PLANT POWER, UTILITY AND SERVICE SYSTEMS

17.8

NON-PROCESS FACILITIES 6.0

SITE DEVELOPMENT AND FACILITIES 10.0

INDIRECT COSTS 48.0

CONTINGENCY 12.0

TOTAL 194.0

US$ Million Figures - Based on Emerging Market Labor

Rates

Operating Cost Drivers

Alumina Usually LME driven range 11.5 – 13.5 % of 3

month Aluminium Price Current global shortage of Alumina has spiked

prices Price Paid for Power

Current trend is up 20 mills is not tenable Coal price trends are stable

Anode Paste Sources Several suppliers accessible. Expected: $300/t?

Conceptual Facility Economics Lower Breakeven Cost

Significantly lower capital invested Lower Operating Cost

Anode baking avoided Butt recycling avoided Anode rodding avoided

It was only after the successful combination and application of proven technologies by Alcoa, Pechiney, and later on Hydro and VAW, including:

Modern process control Point feeders Dry Paste Technology Improvements State of the art anode adjustments Magnetic Compensation    

that the step change in current efficiency performance to a level of 92% to 93 % has been achieved. La Coruna Smelter in Spain (Alcoa), Lista (Elkem-Alcoa) and Karmoy (Hydro Aluminium) in Norway, and others.   

Industry indications are that 94% is being approached… but with negative emission effects. 

The main development will be on fuel nature and quality: from $20/t plus shipping to $10 and lower  

Addressing Technology Challenges

Addressing Power Supply Issues: Contracting with local Utility

Utility needs will increase with time: from 47% utilization rate up to 50, 55 and more

Propose a “Buy or Pay” Deal at Low Rate for a Minimal Annual MWh Consumption

Propose a Rate Equal to Utility’s Full Generation Cost on Top (Typically Around 38-55 Mills/kWh)

Propose a “Load Management Program” for Peak Hours: Smelter Will Reduce Output to Trade Extra Energy at Premium Rate

Eventually Propose a BOOT Contract Modular Concept will allow expansion of the

power capacity by steps of 130 to 200 MW as smelter and local economy grow.

Addressing Siting Issues

The Energy Siting Constraint is eliminated Increases possibilities for locating near end-users

Requirement For Proximate Port Facility Only

Need For Large Stable Grid Removed Supporting local development opportunities Perception of supportive investors

Potential Sites To Be Explored

Could include North America - notably Canada

Developing Countries Needing Energy Brazil, Indonesia, Peru…

Ex-Communist Countries Needing Revamping plus extra Energy Capacity

Croatia, Baltic Republics, Poland, Bulgaria, Lithuania… Developing Countries With No Primary Aluminium Experience

Vietnam, Tunisia, Madagascar, Morocco… Indian Ocean area, Thailand, Philippines… Central America…

Close to clusters of downstream users Taiwan, Portugal, Mexico, Turkey…

Our 10 year simulation of future Capacity in Primary Aluminum shows clearly a niche for at least 1 Mini Smelter per year

Addressing Risk Issues

Total Capital Required Significantly Reduced Simplifies financial engineering

Loan syndication Equity aggregation

Generation of Power Supports Many Local Governments and Industry Needs and Increases Host Country Support

Many More Investment Friendly Smelter Sites to Chose From May reduce equity requirement May reduce interest rates

Addressing Site Investor Issues

Increased Possibility to Site Facility Near Downstream User/Investors Increased independence from major

suppliers, security of supply Small Size Easier to Syndicate

Equity

Potential Site Investor Characterization

Aluminum and Alumina Producers Small to Medium Sized

Downstream Consumers Automobile Packaging Building Materials Wire and Cable

Local Institutional Investors

Thank you for your interest.