Russia to create world's biggest aluminum maker
Thursday, August 31, 2006, 10:55
Russia's two biggest aluminum companies plan to combine, creating the world's largest producer of the metal and giving President Vladimir Putin influence over world aluminum prices. Putin approved a proposal for OAO Russian Aluminium, known as Rusal, to buy smaller rival OAO Sual Group, said a presidential spokesman who asked not to be identified because the accord hasn't been announced. Swiss commodity trader Glencore International AG's alumina assets will also be included in return for a stake in the new company, he said. By adding Sual, valued at $3.3 billion on Russian stock exchanges, Rusal owner Oleg Deripaska will create a company that pours more aluminum than Alcoa Inc., now the world leader. „The government's long-term drive has been to establish national champions, as we have seen” in energy, said Tim Brenton, political analyst at Renaissance Capital in Moscow. „It's Russia's long-term strategy to project power abroad through these companies.” Rusal, Sual and Glencore signed a non-binding accord Aug. 25, the Financial Times reported earlier yesterday. Rusal, controlled by Deripaska through his holding company, Basic Element, will buy Glencore's alumina assets by issuing new shares and will own 64.5 % of the new company, with Sual 21.5% and Glencore 14 % respectively, the FT said.
Soaring commodity prices have caused metals and mining companies worldwide to consolidate, with more than $100 billion of takeover offers made this year. Aluminum prices today rose 1% to $2,495 a metric ton, up 9.6% this year, trailing the 71% jump in copper and a more than doubling in nickel. Aluminum's gains have been limited as China, the world's largest producer and consumer of the metal, raised production and curbed imports. The combined Russian companies would produce about 11% of the world's aluminum, excluding recycled material. Consolidation in metals follows Putin's drive to place energy assets under the state-controlled oil and gas companies, OAO Gazprom and OAO Rosneft Oil Co. Putin met Deripaska three weeks ago, one of the Russian leader's regular gatherings with the country's most powerful businessmen. Rusal's owner was added yesterday to the committee organizing Russia's bid to host the 2014 Winter Olympics in the Black Sea resort of Sochi. „We expect and hope that Mr. Deripaska will take the combined company public,” said Vladimir Zhukov, senior analyst at Alfa Bank in Moscow. „He'll make much more money having his company public.”
Combined, Rusal and Sual produced 3.71 million tons of aluminum last year, surpassing the 3.55 million tons at New York-based Alcoa. Alcoa, with 2005 revenue of $26.2 billion, will remain the largest by sales. The Russian companies had combined sales last year of $9.4 billion, based on data posted on the companies' Web sites. Rusal has been seeking to acquire companies that produce alumina, the raw material used to make aluminum. Glencore, the world's largest commodities trader, buys and sells base metals including aluminum, nickel, copper, zinc and lead. The company had sales of $91 billion in fiscal 2005, up from $71 billion a year earlier, and has stakes in mines, smelters and metals refineries.
Rusal is short of bauxite, the raw material refined into alumina. Sual, which produces two-thirds of Russia's bauxite, doesn't have enough capacity to process all of it into aluminum. By acquiring Glencore's aluminum assets, Rusal will gain alumina production in Jamaica and Ireland, which can produce about 4.75 million tons a year. About two tons of alumina are used to produce one ton of aluminum. Alfa's Zhukov said the deal represented an ideal way for Glencore to get cash for its aluminum business. „Rusal needs the security of alumina supply,” said Peter Richardson, chief metals economist at Deutsche Bank AG, in Melbourne. Any merger „will go far in entrenching Rusal's growth in alumina.” Russia benefits from low prices for energy, which generally represent 25% to 40% of the cost of producing aluminum. Rusal's two biggest smelters get their electricity from Soviet-built hydropower plants.
Putin is using cash from record oil prices to increase Russia's industrial power and boost state control of key industries. Oil and gas assets are being consolidated into state-controlled Gazprom and Rosneft, while state-owned weapons exporter Rosoboronexport said Aug. 12 it has agreed to buy VSMPO-Avisma, the world's biggest titanium producer. Government support also extends to private business. Putin backed a plan in May for steelmaker Severstal to merge with Luxembourg's Arcelor SA, creating the world's biggest steel company. The merger fell through in June when Mittal Steel Co. won the takeover battle. Deripaska is Russia's sixth-richest man, with a fortune Forbes magazine estimates at $7.8 billion. He has extensive interests in the automotive industry, owning OAO GAZ, a producer of light commercial vehicles which bought British van-maker LDV Ltd. on July 31. Sual is owned by Viktor Vekselberg, Russia's fourth-richest man with $10 billion, according to Forbes. The combined company may sell shares in London within three years, the FT said. It will be chaired by Brian Gilbertson, the former BHP Billiton Ltd. chief executive officer who heads Sual, and run by Rusal CEO Alexander Bulygin, the newspaper reported.
Rusal announced yesterday it plans to complete a buyout of minority shareholders in its Russian plants by the end of this year. The plan includes the Krasnoyarsk, Bratsk, Novokuznetsk and Sayanogorsk aluminum smelters, the Achinsk and Boksitogorsk alumina refineries, and the All-Russia Aluminium and Magnesium Institute, the company said. Sual shares last traded on Aug. 28, when they fell 1.5 % to $1.29. Rusal's 7.2% ruble-denominated bonds advanced 0.1 or l ruble per 1,000 rubles ($37.40) of face value on the Micex exchange in Moscow as of 3:58 p.m. The yield declined 0.05 percentage points. (Bloomberg)