“Rusal” reduces, closes, delays

The fall in aluminum prices below the cost of production in "Rusal" led the company to a loss of $ 458 million in the second quarter, made it to increase the scales of industry cuts, as well as reflect on the delay of  Boguchansky aluminum fabric start. The Board of Directors of "Rusal" approved the closure of an aluminum production in western factories, which should reduce the cost by $ 30 per ton, but the effect appears only in the middle of 2014.

"Rusal" may delay the set off of the Boguchansky aluminum fabric (BoAZ) till 2014, as the first deputy general director Vladislav Soloviev said yesterday in a conference call with analysts. According to his words, this issue is being discussed with the partners in the project - "RusHydro" and VEB, which provides project financing.

BoAZ ( with the capacity of about 600 tons of aluminum per year), together with the Boguchan GES (BoHPP, 3 MW) forms Boguchansky Power (BEMO), which is owned by "RusHydro" and "Rusal” on a parity basis . Total project cost is $ 5 billion. "Rusal" reported in June that Boaz was 75% built, it invested $ 862 million, and for the launch of the first stage another $ 749 million are required. The company expects to receive first metal in November. "We are reviewing the financial part, and after the revision finally decide when we start production," - Mr. Soloviev said yesterday.

Director of Strategy and Business Development in "Rusal" Oleg Muhamedshin added that the company is now also "does not invest a lot of money," in the construction of the Taishet aluminum smelter, which launch was postponed by "Rusal" last fall.

"Rusal" is reviewing its investment on the background of poor market conditions and their own financial results. At the end of the second quarter, the company had a net loss of $ 458 million versus $ 19 million profit in the previous quarter (although $ 234 million of them - paper losses). The company explains it with the deterioration of falling prices for primary aluminum in the second quarter by 6.7%. The average price of aluminum on the LME for this period was $ 1,835 per tonne, below the production cost of "Rusal" ($ 1,911 per ton). However, the premium for the supply of the metal reached a record $ 271 per tonne. Net debt of "Rusal" by the end of the second quarter was $ 9.88 billion, its ratio to EBITDA - 11,8. Until the end of the year the company has to pay $ 400 loans.

Reasons for the delay of Boaz launching are connected not only with the lack of financial resources. The Principal owner and CEO of "Rusal" Oleg Deripaska believes that the decline in the production of aluminum only can throw the industry out of crisis. "Rusal" said yesterday that the program cuts of aluminum production in 2013 increased up to 357 thousand from 300 thousand tons, which were announced in March. The Board of Directors approved a stop of aluminum production at the least efficient fabrics of Western Division (Volgograd, Uralsk, Theological, and Volkhov Nadvoitsy). According to the CFO of "Rusal" Evgeny Kornilov, it will allow the company to reduce the total cost about $ 30 per ton, but this effect will be felt until mid-2014.

In 2013, "Rusal" plans to produce 3.8 million tons of aluminum (9% less than in 2012), and in 2014 - 3.7 million tons. However, the outlook for 2014 does not presuppose the volume of Boaz to be small, a representative of "Rusal" said.

Sergey Donskoy from “Societe Generale” said that the delay of Boaz launch was expected. Moreover, the start of production at the fabric would not significantly impact on the consolidated financial results of the company; because almost all the profits would pay off the loan in VEB (his project financing is not included in the total debt of "Rusal"). It is difficult to estimate the real cost of aluminum production stop in western fabrics because of possible fluctuations of the ruble, the cost of bauxite and other inputs, as the analyst said. According to Mr. Don words, the third quarter for "Rusal" will be worse because of the drop in aluminum prices till the August, but the company will be able to cover their need for money due to dividends from the "Norilsk Nickel" and operating cash flow.