Why Aluminium Smelters Get Built Next to Power Plants, Not Mines
A smelter's financing case depends on locking in decades of cheap electricity, not securing bauxite, a genuinely different capital structure.
Financing a new aluminium smelter is a different exercise from financing a new copper or cobalt mine, because the single biggest recurring cost on the other side of the ledger is electricity, not ore.
Long-term power contracts as the real financing instrument
Because electricity can represent a large share of a smelter’s ongoing operating cost, covered on this material’s mining and economics pages, lenders and developers typically require long-term, fixed-price power purchase agreements before a smelter gets built, locking in the CFt side of the equation for decades rather than leaving it exposed to spot electricity markets. This is why new smelting capacity clusters specifically around cheap, stable, long-term power sources, hydro in Iceland and Norway, gas in Bahrain and the UAE, coal in parts of China, rather than around bauxite deposits.
Why this decouples smelter location from mine location
A mining company’s financing decision and a smelter’s financing decision can be made by completely different actors in completely different countries, connected only by a shipping contract for alumina, covered on this material’s mining page. This is a genuinely looser coupling between the extraction and processing financing decisions than exists for cobalt or copper, where the same or closely related companies often control both stages.
Sources: smelter financing structures and power purchase agreements are widely reported in industry and financial press; NPV is a standard corporate finance and industrial project evaluation tool.