Mercuria, Glencore explore Venalum aluminium smelter deal as Venezuela eyes production revival

Venezuela’s biggest aluminium smelter, Venalum, could be heading for a fresh start as Mercuria Energy Group Ltd. and Glencore Plc explore a potential deal that could bring new investment and operating expertise to the facility that has spent years producing only a fraction of its original capacity.

The talks come as Venezuela seeks to rebuild an industrial sector weakened by economic turmoil, power shortages and years of underinvestment. Discussions with the Venezuelan government have included the possibility of taking over operations at the Venalum smelter and securing access to the aluminium it produces, according to Bloomberg News.

Mercuria is working with private mining investment firm Heeney Capital on the potential transaction. The two companies have previously worked together on deals in Venezuela involving access to the country’s commodities and metals.

Venalum, also known as CVG Venezolana del Aluminio, is a state-owned aluminium producer based in Puerto Ordaz, Bolívar state. The smelter has capacity to produce roughly 430,000 tonnes of primary aluminium a year and is located near Venezuela’s hydroelectric power resources and bauxite reserves.

Glencore has ties to Venezuela’s state-owned aluminium industry dating back more than two decades and has previously provided financing to the country’s aluminium producers. The potential deal comes as the US seeks greater influence over Venezuela and its mineral and oil resources.

The discussions come amid a tighter aluminium market, with prices up about 9 per cent this year and hitting a three-week high earlier this month driven by supply concerns linked to tensions in the Middle East. China, the world’s largest aluminium producer, is also operating close to its government-imposed smelting capacity limit.

From a major producer to a fraction of capacity

Venalum was commissioned in 1979 by Corporación Venezolana de Guayana (CVG), Venezuela’s state-owned metals company. Its location in Puerto Ordaz allowed the smelter to benefit from cheap, clean hydroelectric power supplied by the Guri complex on the Caroní River.

CVG also owns the Alcasa smelter, Bauxilum bauxite mine and alumina refinery, and Carbonorca carbon anode plant, all located in the Guayana region of Bolívar state.

Venezuela was a major producer of bauxite, alumina and primary aluminium in the early 2000s. In 2001, the country ranked as the world’s eighth-largest bauxite producer, ninth-largest alumina producer and 12th-largest primary aluminium producer.

Venalum produced about 433,350 tonnes of aluminium in 2001, while Alcasa contributed roughly 180,000 tonnes. Between 2001 and 2008, Venezuela’s primary aluminium production averaged around 600,000 tonnes a year, with Venalum’s historic peak reaching 640,000 tonnes.

Production began declining in 2009, when Venezuela’s state power company CORPOELEC started facing underinvestment and mismanagement problems that also affected the country’s wider industrial base.

By 2014, an internal report found that only 262 of Venalum’s 905 installed cells were operating. Annual production had fallen to around 110,000 tonnes by 2015.

The 2019 blackout and aftermath

A nationwide blackout in March 2019 halted the remaining operating cells at Venalum and Alcasa. Venalum was operating only 59 of its 905 cells at the time, while Alcasa had 14 of its 596 cells in operation.

Alcasa never restarted and has remained permanently closed.  Venalum recovered only partially after the blackout, with production remaining at roughly 100,000 tonnes a year, compared with its annual capacity of about 430,000 tonnes.

For Glencore, the potential Venalum deal comes alongside its recent expansion in aluminium. Earlier this year, the company bought a 45 per cent interest in an aluminium recycling and remelting plant near Charleston, South Carolina, expanding its footprint in the US aluminium market.

No final agreement has been reached on Venalum, and the talks could still collapse, Bloomberg reported.