Norddeutsche Affinerie AG

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Norddeutsche Affinerie AG

Hovestrasse 50
D-20539 Hamburg
Germany
Telephone: (49) (40) 7883-0
Fax: (49) (40) 7883-2255
Web site: http://www.na-ag.com

Public Company
Incorporated: 1866 as Norddeutsche Affinerie-Gesellschaft AG
Employees: 3,612
Sales: EUR 1.9 billion ($2 billion) (2002)
Stock Exchanges: Frankfurt
Ticker Symbol: NDA
NAIC: 331411 Primary Smelting and Refining of Copper; 331423 Secondary Smelting, Refining, and Alloying of Copper; 331421 Copper Rolling, Drawing, and Extruding

Norddeutsche Affinerie AG (NA) is the world's largest recycler of scrap copper and the fifth-largest producer of refined raw copper (copper cathodes). Based in Hamburg, Germany, the company ranks number three in the European market for copper wire rod, the material from which copper wire is produced. As a smelter that does not own ore mines, NA processes a great variety of copper-containing raw materials from different sources, concentrating mainly on copper concentrate made from ore, and charges a processing or refinement fee. NA is also a major producer of sulphuric acid (a by-product of copper production), iron silicate stone, and precious metals. NA's subsidiary Prymetall is a major manufacturer of half-finished copper products and holds a 50-percent stake in Schwermetall Halbzeugwerk, a leading producer of sheet copper. Copper accounts for roughly four-fifth of NA's metal sales, while the rest is derived from selling by-products of copper production, including lead, silver, and gold. The majority of the company's common stock is widely spread among institutional and private investors.

Smelting Silver and Gold in the 18th Century

Founded in 1866, Norddeutsche Affinerie AG is one of Germany's oldest joint stock corporations. However, the company's roots reach almost a whole century further back. In 1770, Hamburg's Senate approved the application of Marcus Salomon Beit to operate a small silver and gold smelting operation. The application of the 36-year-old Jewish-Portuguese entrepreneur came at a time when the value of money was fluctuating a great deal and many citizens—as well as banks—called for a new, stable silver currency. Although it took another 20 years until such a currency was finally introduced, Beit's smelter got enough business from its main client—Hamburger Bank—to survive. Around 1790, Marcus Salomon's brother Raphael Salomon joined as a business partner. At that time, Hamburg evolved as Europe's center for trading in silver, Hamburger Bank became the main institution for regulating the city's currency exchange, and the Beit brothers' smelter was the most important of its kind in Hamburg. Raphael Salomon Beit carried on the business after the founder's death and introduced new technology for separating the precious metals with the help of sulfuric acid, which was refined by his two sons John Raphael and Lipmann Raphael and later by their nephews, physician and chemist Ferdinand Beit and his brother Siegfried.

A new chapter of the Beit company—then called L.R. Beit & Co.—began in the middle of the 19th century, when the rise of industrialization brought about an increased demand for copper. The Beits already had some experience with copper as a byproduct from smelting old coins and metal ore from a number of small southwestern German copper mines they owned. Together with entrepreneur Johann Caesar Godeffroy, who owned an ocean shipping business, and merchant Siegmund Robinow, a relative, the Beits founded a copper smelter on the Steinwerder, an island in the river Elbe in Hamburg's harbor in 1846. The following year, the Elbkupferwerk —the "Elbe copper plant"—started smelting South American copper ore, which was shipped there by Godeffroy; later, the plant began smelting ore from Swedish and Australian mines. The company made profits almost right away and developed into a healthy business.

The gold rushes in California and Australia and the discovery of new deposits of silver and silver-enriched copper around 1850 resulted in a massive influx of precious metal into the European economy. The sudden economic boom inspired the owners of the Elbkupferwerk. In 1853, they decided to expand the plant and include a larger gold and silver smelter. However, a number of unfavorable circumstances doomed the endeavor to failure. It took three years to get the new facility approved by the city authorities—with many strings attached, for smelting was a "dirty business" that involved a great deal of chemicals, fumes, and toxic waste. When the approval finally came in 1856, the Elbkupferwerk was merged with the Beit business and transformed into a public stock corporation to finance the expansion. An outside investor, the Leipzig-based Allgemeine Deutsche Kreditanstalt, was won over by Ferdinand Beit's father-in-law, a banker in Frankfurt am Main. Allgemeine bought half of the shares of the new Elbhütten-Affinier- und Handelsgesellschaft, while Godeffroy and Beit held 25 percent each. After the necessary capital was secured, the completion of the new plant was greatly delayed because the machines needed were not delivered on time. Meanwhile, the Crimean War—in which France, England, and Turkey were allied against Russia—came to an end in 1856, after which there occurred an economic downturn that resulted in a decline in copper prices and demand. A financial crisis followed that brought Godeffroy to the verge of bankruptcy before he was bailed out by a wealthy aunt. At the same time, the stream of immigrants he had shipped to Australia began to slow down and diminished the number of trips his ships took there to bring back Australian copper ore. As the supply of copper ore dried up, the Elbkupferwerk ran out of raw material and was finally shut down in 1865.

A Second Start in 1866

One year before the economic crisis of 1857, Johann Caesar Godeffroy was one of the co-founders of a new bank in Hamburg, Norddeutsche Bank, which later became Germany's largest bank. Godeffroy became president of the bank's advisory board and Ferdinand Beit, then technical director of Elbhütten-Affinier- und Handelsgesellschaft, also joined the board. When the plant had to be closed in 1865, Godeffroy and Beit looked for a way to rescue the Beit family's smelter and asked Norddeutsche Bank for financial help. The bank saw a chance to obtain direct access to precious metals, which could be traded or used as a financial asset, and went along with Godeffroy and Beit's plan. Beit's smelter was taken out of the formally still existing Elbhütten-Affinier- und Handelsgesellschaft and re-founded as a joint stock corporation. On April 28, 1866, the new entity was officially registered as Norddeutsche Affinerie AG. Norddeutsche Bank held roughly three-quarters of the company's share capital, Allgemeine Deutsche Creditanstalt held one-fifth, and the rest was held by four advisory board members of Norddeutsche Bank.

Despite political turmoil—mainly Prussia's war against Austria in 1866 and the Franco-Prussian War of 1870–71—the Breit family's smelter (now called Norddeutsche Affinerie, or simply NA) continued to reap healthy profits. Once again, the introduction of a new currency gave the business a major boost. After the German Empire had been formed in 1871, a new gold-based currency replaced the old silver-based one. The new German government assigned NA to smelt all outdated coins, most of which contained a significant proportion of copper along with about 30 percent silver. This contract was so large that the company had to expand its capacity. New smelting facilities were built on two newly purchased properties. In addition, NA took over a precious metal smelter with two sites, H.A. Jonas, Soehne & Co., in 1874. Ferdinand Beit's death in 1870 ended the Beit family's involvement in NA.

The development of a new technology—the separation of precious metals with the help of an electrical current, which was called electrowinning—contributed to NA's financial success and dynamic growth in the late 19th century. It was principally due to the efforts of chemist Emil Wohlwill, who began experimenting with this technology in 1871, that NA gained a significant competitive advantage for several decades. When Wohlwill, who was contracted to run the company's research laboratory, saw the first dynamo machine at the World Exhibition in Vienna in 1873, he had it shipped to Hamburg and used it for his experiments. Wohlwill focused his experiments on finding a better way to separate the copper and silver contained in the old German coins, because conventional mechanical separation was not very economical for this task. In 1875, NA ordered a larger dynamo machine for Wohlwill's experiments. One year later, the first installation for electrowinning copper started operations, producing about 21 kilograms of copper per hour.

With the help of this new technology, NA processed old silver coins worth 1.8 billion marks, yielding 11.5 million pounds of fine silver, until the end of 1879. Through the new process, NA's profits skyrocketed, enabling the company to pay between 36 and 55 percent in dividends to its shareholders.

A New Location and a New Leader in the Early 1900s

Until the end of the 19th century, smelting silver and gold remained NA's most important business, and the company established a reputation for high quality. However, as industrialization progressed, NA transformed itself from a smelter of precious metals into a supplier of raw materials for industry, specifically metals and related chemicals.

Company Perspectives:

We stand for customer value, technological advantage, strong earnings, innovative power, and a leading position in environmental protection. The combination of copper production and the further processing into copper products and customized special solutions makes the NA-Group unique: two segments, fitted perfectly to one another. Our subsidiaries and shareholdings complement them ideally. Thus we occupy central market segments on the copper value chain. We guarantee our partners the best service and greatest value possible at every stage.

After all attempts to revive the production facilities of the former Elbkupferwerk on Steinwerder eventually failed, Elbhütten-Affinier- und Handelsgesellschaft was liquidated in 1884. More than 100 years old, the Beit family smelter remained NA's main production facility. However, the plant in Hamburg's Elbstrasse was not only run down and technically outdated, it had also been a constant nuisance for the people living in the neighborhood and offered no space for expansion. Therefore, plans for a brand-new larger production facility were developed in 1907. It soon became clear, though, that NA's financial resources were not sufficient to realize such a project. Two strategic partners and investors were found in Frankfurt-based metal trading firm Metallgesellschaft (MG) and in gold and silver smelter Deutsche Gold- und Silberscheideanstalt vorm. Roessler (Degussa), which financially backed the erection of a brand-new smelter in Hamburg's Peute industrial park, another island in the Elbe river. In the spring of 1910, NA's share capital was increased to include the two new shareholders, with MG and Degussa holding a 25 percent stake and Norddeutsche Bank holding about 39 percent. The remaining shares were held by private shareholders. Three months later, a brand-new copper-electrowinning facility started operations at the new location. Over the next four years, more and more facilities were added. Finally, in 1913, the old Elbstrasse plant was shut down.

Less than two years after the move, World War I broke out. During the five-year duration of the war, metal production and distribution was administered by the German War Ministry. In 1915, NA received a large contract from the ministry and agreed to double its production capacity for copper. The expansion was subsidized by the German government. In 1916, Norddeutsche Bank gave up its stake in NA and MG and Degussa became the company's major shareholders. During the war, NA workers who served in the army were replaced by prisoners of war. In 1919, NA shut down its silver smelting operations and transferred the silver-containing materials from the copper electrolysis to Degussa, where it was refined. The agreement lasted until 1923, but NA was not able to regain its earlier importance as a silver smelter.

As a result of World War I, Metallgesellschaft and Degussa lost an important metal smelter in the Netherlands near Antwerp. This turned out to be advantageous for NA, which was further expanded to take its place. In 1920, MG sent one of its executive directors, Felix Warlimont, to Hamburg to evaluate NA's future prospects. Warlimont, a metal-refining specialist, was appointed NA's CEO in the same year. Under his leadership, the existing facilities were expanded and modernized and new facilities were added to the Peute plant. To make NA competitive on the world market, Warlimont paid special attention to employing a mix of smelting processes, thus enabling the company to process a great variety of raw materials. He also focused on creating a modern, more efficient transportation system on NA's premises. By the mid-1930s, the company's product range had greatly expanded. Besides electrolytically purified copper, silver, gold, and platinum, it produced, nickel, tin, antimony, selenium, lead, and other metals, as well as alloys, copper powder, metal salts, and sulphuric acid. Slag from the smelting process was sold as construction material. By that time, NA also owned the ground on which the new facilities were built and was able to purchase additional land.

Growth and Destruction During and After World War II

After NA had survived the galloping inflation of the early 1920s and the economic depression that started in the fall of 1929, the company again became a crucial supplier to Germany's war industry during World War II. Again, metal became a major ingredient for the war economy. When raw material supplies from abroad began to dry out, the German government launched a national campaign asking the German people to donate metal. Everything from frying pans to church bells was shipped to Hamburg and melted and refined by NA. The company also produced aluminum powder that was used for making ammunition. Soon NA was not able to find enough workers and started employing forced labor from France, Belgium, the Netherlands, and Russia. Until the last few months of the war, NA's production facilities remained undamaged by the many Allied bombings of Hamburg. However, on November 4, 1944, an American bombing attack during work hours destroyed a number of facilities. Miraculously, only two NA employees were killed during the attack. However, two-thirds of NA's workforce was left without a roof over their heads. It was the scarcity of workers, fuel, and electricity that finally led to the shutdown of NA's last working facilities in February 1945. Two months later, British Allied troops marched into Hamburg.

Key Dates:

1770:: Marcus Salomon Beit opens a silver smelter in Hamburg.
1866:: Norddeutsche Affinerie AG is founded and acquires the Beit family business.
1876:: The company pioneers copper-electrowinning.
1910:: Metallgesellschaft and Degussa become NA shareholders.
1913:: The company moves its operations to the Peute industrial park.
1920:: Felix Warlimont becomes NA's CEO.
1924:: NA begins the mass-production of sulphuric acid.
1926:: British Metal Corporation becomes a major NA shareholder.
1928:: The company takes over pesticide manufacturer Chemische Fabrik von J.E. Devirent A.G.
1932:: The company starts making copper powder.
1949:: NA's new facility for the continuous casting of copper goes into operation.
1963:: The company takes over local competitor Zinnwerke Wilhelmsburg.
1972:: NA's continuous cast wire rod production begins.
1985:: A major investment program for modernization and environmental protection is launched.
1988:: Major shareholder Metallgesellschaft becomesNA's sales agent.
1994:: Metallgesellschaft's industrial leadership of NA ends.
1998:: The company goes public on the Frankfurt Stock Exchange.
1999:: NA acquires a majority stake in German competitor Hüttenwerke Kayser AG. 2002: The company takes over Prymetall GmbH & Co. KG and sells its chemicals and metal powder subsidiaries.

After the war, NA's management fought fiercely for the company to be taken off the war reparations list and finally succeeded in mid-1946. The company's close connection with one of England's leading metal firms, the British Metal Corporation Ltd. (BMC), which became a major NA shareholder in 1928 when MG and Degussa each sold a 13-percent share, helped secure NA's first postwar contracts. At the same time, NA entered the pesticides and fertilizers market when the company started producing Dichlorodiphenyltrichloroethane (DDT), the basic chemical ingredient for many pesticides, in mid-1947. In 1928, NA had acquired a majority stake in pesticide manufacturer Chemische Fabrik von J.E. Devirent A.G., located in the southern German town Zwickau, and moved its production facilities to NA's Peute location. Devirent, which was later integrated into NA as a separate business division, used NA's DDT for making different kinds of pesticides.

After the currency reform in 1948, NA's smelting operations were back into full swing. Fortunately, the company was able to protect its reserves of metal concentrate from the attempts of different authorities to reallocate them. At the same time, the continuous repair work during and after the war paid off, and many facilities were in working condition by that time. In 1949, NA's new facility for the continuous casting of copper went into operation. Instead of mold-casting, the new technology allowed the final copper product to be put out in a continuous strand. The main advantage of this process was that the copper could be shaped according to a customer's specifications, including different forms such as round and square bars, sheets, strips and foils, as well as different dimensions.

While the chronic shortage of workers NA had been struggling with during World War II and in the first years after the war ended with the currency reform of 1948, the relief was short-lived. With standards of living constantly rising during the 1950s and 1960s, NA found it more and more difficult to recruit workers who were willing to work under the tough conditions of a metal and chemicals processing plant that required round-the-clock shifts. In 1958, the company established a shuttle bus for workers from Hamburg's surrounding areas. When that measure proved insufficient, NA started hiring workers from abroad. The first 228 foreign contract workers from Spain, Italy, and Greece were employed by NA in 1960. Five years later, the number of foreign workers, so-called Gastarbeiter, or guest workers, had roughly doubled. By 1973, the number of such workers was approaching 40 percent of the company's total production personnel.

In the 1960s, NA laid the groundwork for further expansion in the decades that followed. In 1963, the company took over Zinnwerke Wilhelmsburg GmbH, a smaller Hamburg-based copper smelter that nonetheless competed with giant NA. Within 12 months, NA closed down the former competitor's production plants and moved part of them onto its own grounds. By 1966, the size of NA's premises had grown more than sevenfold compared with the area the company occupied when it first moved to the Peute. One year later, that area doubled again when NA was able to acquire a large property nearby. This step enabled the company to build even bigger and more modern production facilities throughout the 1970s and 1980s.

Continuous Improvements after 1970

For NA, the 1970s were a decade of further expansion and modernization. A brand-new integrated copper foundry and smelter with an added-on sulphuric acid plant started operations in 1972. In the same year, NA took on the manufacture of continuous copper cast wire rod, a semi-finished product used to make copper wire. The company also became a major recycler of scrap copper after it had acquired a stake in Hamburg-based CABLO GmbH fuer Kabelzerlegung, a company that recycled copper cable and wire, in 1968. The recycling capacity for copper was further expanded during the 1990s through the construction of new recycling plants. By 1993, NA's "secondary" copper production from recycled scrap copper accounted for roughly one-third of the company's total copper output.

With environmental concerns mounting, NA focused on decreasing the environmental impact of its production facilities throughout the 1980s and 1990s. A major program to achieve that goal was launched in 1985. The company invested in new installations that purified process, waste, and rain water and reduced harmful emissions of toxic dust and gases into the air. Another area in which the company invested was recycling, including the re-use of process energy and the further processing of former waste products into saleable materials. The environmental program was accompanied by the continuous modernization of NA's production processes in terms of technology and efficiency. Altogether, the company invested about DM1 billion from the late 1980s until the end of the 1990s.

Beginning in 1987, NA's shareholder structure underwent major changes. In that year, the Australian international mining and metal processing conglomerate Mount Isa Mines Holdings (MIM) acquired 30 percent of NA's share capital. The company took over British Metal Corporation's 20 percent share and bought another 10 percent from Degussa. One year later, Metallgesellschaft took over control of the sale of NA's products. In September 1993, MG transferred its share in NA to one of its subsidiaries, Canadian copper producer Metall Mining Corporation (MMC), which became independent from MG in 1994 and was later renamed Inmet Mining Corporation. The year 1994 marked NA's independence from long-term shareholder MG. In 1998, major shareholder Degussa founded a joint venture with NA that focused on the refining and selling of precious metals. The new company was called Degussa-NA Edelmetall GmbH. In June of the same year, NA went public. By February 1999, the shares of MIM, Inmet Mining, and Degussa had shrunk to 10 percent each, while institutional investors held 30 percent; the remaining 40 percent was widely spread among private investors. One month later, Dresdner Bank acquired the stakes from MIM and Inmet Mining. By 2002, the bank's share had shrunk to 8 percent, while Hüttenwerke Kayser's parent company, L. Possehl & Co., held a 10 percent stake.

Throughout the 1990s and in the first years of the 21st century, market conditions remained extremely volatile. In the early 1990s, NA profited from the construction boom in the eastern German states that had joined the Federal Republic of Germany. However, for most of the decade Germany's economy grew only moderately and went into a recession in 2001. With Germany's construction industry being NA's single biggest market, the smelter's sales were closely linked to its development. Another significant factor that impacted NA's earnings was the world market prices for copper. Even as a "smelter for hire"—one that does not own ore mines and therefore gets paid refinement charges for the service of smelting by the owner of the raw material—it depended on the demand for copper, which is closely connected with its price. A third major influence on NA's revenues was the value of the U.S. dollar—the currency in which the smelter is paid—which dramatically fluctuated between 1991 and 2003. As a result, NA's growing output, made possible by a copper smelting capacity expansion of more than one-third, often failed to translate into higher sales or profits. In an attempt to cut costs, the company laid off almost one-third of its workers in the second half of the 1990s.

Until the late 1990s, NA grew mostly internally. Further growth now became problematic due to limitations of physical space and the increasing hostility of Hamburg's inhabitants and its "green lobby" towards the company, which was seen as a major polluter. In the late 1990s, NA began to focus on external growth through acquisitions. In 1999, the company took over Germany's second largest copper producer, Hüttenwerke Kayser AG (Kayser) in Lünen, NA's main competitor in the area of scrap copper recycling. Kayser, which employed about 700 workers, slipped deeply into the red in 1998 when copper prices dropped sharply.

The 1990s also confronted NA with mounting energy costs, which were attributable in part to such factors as additional production capacity, environmentally friendly installations which required more energy, and, late in the decade, by rising taxes on the use of primary energy and fuels. When Germany's government launched a new law that significantly raised NA's energy cost, the company announced that it would spin off all of its less energy-intensive activities with about half of the company's employees into an independent business division.

A major slump in sales and profits hit NA in 2001 and worsened in 2002 and 2003, mainly because of severe losses in the copper products division. However, despite worldwide copper production overcapacities, NA's CEO since 1994, Werner Marnette, saw the company's future as promising. NA's raw material supply was secured by long-term contracts until about 2010. Marnette projected a strong demand from worldwide investments in infrastructure projects and telecommunications—two copper-intensive industries—with North America and Asia being important growth regions. He also saw NA well positioned geographically by its proximity to one of the world's major ports and to several of the most industrially developed countries on the global scene. To further enhance NA's position in the copper value chain, he was looking for strategic partners in the copper products industry. A major step in that direction was the acquisition of Prymetall GmbH & Co. KG, a major manufacturer of unfinished copper products, in 2002. The acquisition also gave NA access to Schwermetall Halbzeugwerk GmbH & Co. KG, a leading manufacturer of sheet copper, in which Prymetall held a 50-percent stake. Also in 2002, NA sold its subsidiaries in the field of chemicals and metal powder, MicroMet GmbH Pulvertechnologie and Spiess-Urania Chemicals GmbH, which the company had spun off into independent units in 1999, to focus on its core business: the production of copper and copper products.

Principal Subsidiaries

Hüttenwerke Kayser AG; Retorte Ulrich Scharrer GmbH; CABLO Metall-Recycling & Handel GmbH; Prymetall GmbH & Co. KG; Schwermetall Halbzeugwerk GmbH & Co. KG (50%); Deutsche Giessdraht GmbH (60%).