Russia's OAO Rusal moved into position Monday to surpass Alcoa as the world's biggest aluminum producer, announcing a deal to create a company...
MOSCOW — Russia’s OAO Rusal moved into position Monday to surpass Alcoa as the world’s biggest aluminum producer, announcing a deal to create a company that will make an estimated 12 percent of global output of the metal.
The three-way deal underscored the rise of Russia’s commodities-based industries, which have reaped the benefits of low costs and soaring world prices, as well as the ambitions of Rusal’s billionaire owner Oleg Deripaska.
The new company — which will absorb Rusal’s Russian rival Sual as well as the alumina assets of Swiss-based commodities trader Glencore — will include smelters and refineries across Russia as well as facilities in China, Guyana, Australia, Ireland, Jamaica, Italy and Sweden.
“We have created a truly great company here, a company that has the potential to be the flagship for the Russian mining industry,” said Sual’s president, Brian Gilbertson, a South African who will be nonexecutive board chairman at the new Rusal.
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While the deal has yet to receive regulatory approval from Russian authorities and the European Union, company officials said they hoped it would be completed by April 2007.
Under the terms of the agreement, Rusal will issue new shares to acquire Sual, which is controlled by metals and oil tycoon Viktor Vekselberg, as well as the Glencore assets.
Sual and Glencore will hold 22 percent and 12 percent stakes, respectively, in the new company.
Analysts have said that the companies complement each other: Sual has large holdings of bauxite, aluminum’s raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity — the main cost in the business and its chief competitive advantage on the world stage. As such, the deal essentially reunites Russia’s aluminum industry after its breakup in the chaotic privatizations of the 1990s that followed the Soviet collapse.
Speaking at a news conference announcing the deal, Vekselberg said the new company planned to carry out an initial public offering in less than 18 months, most likely in London.
Rusal director Alexander Bulygin said the expanded Rusal will produce nearly 4 million tons of aluminum per year and has plans to ratchet up output to more than 5 million tons by 2009 to 2010. That would eclipse the 3.55 million tons that Pittsburgh-based Alcoa reported in 2005, and account for about 12 percent of global production.
Bulygin estimated the value of the combined company would be $25 billion to $30 billion and said it expected annual revenue of $10 billion.
While hailing the deal, Gilbertson stressed that it had yet to receive official approval.
“The deal has to be approved by the various regulatory bodies,” said Gilbertson, a one-time CEO at mining giant BHP Billington.
Russian regulatory approval is expected to be a formality — both Deripaska and Vekselberg have met with President Vladimir Putin recently and analysts say they have good relationships with the Kremlin.
The jailing of oil tycoon Mikhail Khodorkovsky, who sponsored opposition parties in 2003, and the parallel breakup of his Yukos oil empire have shown the potential consequences for moguls whose politics or business plans run counter to the Kremlin’s.
While the deal involves two privately held Russian companies — unlike the oil and gas industry, where the state still controls the main companies — observers said that it nonetheless is in keeping with Putin’s vision for the economy.
“With the extractive industries the Kremlin clearly favors consolidation and for Russian companies to become bigger global players,” said Chris Weafer, chief strategist for Alfa Bank in Moscow. “That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage.”
As well as creating a formidable global player, the deal realizes a goal of Deripaska, 38, who joined with billionaire Chelsea soccer club owner Roman Abramovich to create Rusal in 2000. Abramovich has since sold his share.
Vekselberg gained broad notoriety in 2003 when he purchased a collection of 15 Czarist-era Faberge eggs for $100 million as part of a campaign to bring home Russia’s cultural heritage. He made his fortune — $10 billion according to Forbes magazine — from Sual and his interest in BP’s Russian joint venture TNK-BP, currently Russia’s No. 2 oil producer.