Deripaska, Abramovich to Create Metals Giant
By Yuriy Humber
Staff Writer
MOSCOW — Oleg Deripaska and Roman Abramovich, the original founders of Russian Aluminum, could be on track to rejoin forces, this time as partners in a diversified metals and mining giant.
As two sources confirmed Wednesday that RusAl was moving to merge with SUAL and Glencore to create the world’s biggest aluminum producer, an official close to the negotiations said the combined company would not stop there.
The official said RusAl would float shares in London within three years and use the cash to diversify into a metals and mining leader much like Australia’s BHP Billiton.
“Seeing Roman Arkadyevich [Abramovich] come in at Evraz, we see great possibilities for future cooperation,” said the official, who declined to be identified because he was not authorized to speak about the issue with the media.
Abramovich and his partners bought 41.2 percent of Evraz, the country’s top steelmaker, in June, prompting many industry players to predict a looming Kremlin-backed consolidation of national steel assets.
While any plans for a Russian-style BHP Billiton are clearly in the early stages at best, the creation of such a metals powerhouse would be in line with a Kremlin drive to form corporate giants out of the ashes of former Soviet state assets that were broken up and privatized in the 1990s. The Kremlin has blessed the creation or expansion of several national giants, including in oil (Rosneft), gas (Gazprom), aviation (United Aircraft Corporation), banking (Vneshtorgbank), cars (AvtoVAZ) and telecommunications (Rostelecom).
Deripaska, the sole owner of RusAl, will announce a merger with domestic aluminum-making rival SUAL and the alumina assets of Swiss commodity trader Glencore in about a month, the official close to the deal said.
A Kremlin spokesman confirmed Wednesday that the tripartite deal had been approved by President Vladimir Putin, Bloomberg reported.
The three parties signed a nonbinding agreement on the deal last week, under which RusAl would take 64.5 percent in the new company, while SUAL would get 21.5 percent and Glencore 14 percent, the official said.
RusAl would have the option of buying out Glencore’s stake in three years, the Financial Times reported.
The deal would create a $30 billion company, the world’s leading caster of aluminum and the world’s second-largest producer of alumina, the raw material from which the metal is made.
The company would produce 4 million tons of aluminum and 11 million tons of alumina. RusAl CEO Alexander Bulygin would remain CEO in the new company, while SUAL CEO Brian Gilbertson would become chairman, the official said. Gilbertson is the former CEO of BHP Billiton. The company would look to float on the London Stock Exchange within three years.
Officials at RusAl, SUAL and Glencore declined to comment. Basic Element and Renova, the holding companies through which Deripaska and SUAL’s majority shareholder, Viktor Vekselberg, own their aluminum assets, also declined to comment.
RusAl is the world’s third-largest producer of aluminum, after U.S.-based Alcoa and Canada’s Alcan. SUAL is the world’s sixth-largest aluminum producer. Glencore is a long-time partner of RusAl and has worked with SUAL as a commodity trader.
Glencore also is growing to be one of the country’s largest oil traders, and it played a key role in building up the oil company Russneft.
Glencore owns four alumina refineries in the West Indies, Italy and Ireland. Earlier this month, a 35-member delegation from RusAl visited Glencore’s Jamaican refineries for about two weeks.
Glencore’s and SUAL’s alumina would satisfy a 30 percent deficit at RusAl and allow RusAl to expand its aluminum casting capacities even further.
“It gives them a guarantee for future growth,” said Igor Prokopov, head of NP Aluminum, an industry consultancy.
Still, overtaking Alcoa as the leading smelter of primary aluminum — rather than aluminum products, which Alcoa and Alcan would continue to dominate — could be just the start.
After the IPO, “the next logical step for RusAl would not be to expand in the aluminum sector, but to acquire a diversified metals portfolio, starting with copper and zinc,” the official said.
The “second round” of consolidation could see the emergence of a precious and ferrous metals holding that would act as a “world champion” in the sector, the official said, naming Evraz under Abramovich as an attractive merger target.
Abramovich, the Chukotka governor and owner of the Chelsea football club, parted ways with Deripaska in 2003 after he sold his stake in RusAl.
Last year, Abramovich, Russia’s richest man with an estimated $18 billion fortune, sold the oil company Sibneft to state-controlled Gazprom for $13.1 billion and maintained only small business interests in the country until his company Millhouse bought into Evraz in June.
With Abramovich back in metals and known to be eager to consolidate the domestic steel industry, a path could be opening up for a reunion with Deripaska.
Millhouse spokesman John Mann said any talk about a tie-up was “pure speculation.” Evraz vice president Irina Kibina said, “I have only one thing to say: Evraz is steel.”
A major international firm has economic leverage worldwide, which — once the state has a direct stake in the company — can translate into political leverage for the Kremlin.
“The government is busy creating its national champion companies,” said Chris Weafer, chief strategist with Alfa Bank. “The Kremlin will want to see them as big and global as quickly as possible. That suits the Kremlin’s economic and political objectives very well.”
While the state has a “champion” in almost every key economic sector, it noticeably lacks on in the metals and mining sector.
A person close to RusAl suggested the advantages of drawing various domestic metals and mining assets into one holding included national pride about being a world leader and ease in raising large funds through loans or capital markets.
Several Russian metals firms are looking to diversify, noted a senior executive with an international diversified metals and mining firm. “We’ve found it to be a big boon. With a diversified set of commodities, you’re better placed during the price cycle,” the executive said.
A diversified company would not be reliant on the price of any one metal, and would benefit from a more stable revenue outlook and the ability to transfer skills between operations.
A RusAl rival, Norway’s Norsk Hydro, works in oil, gas and electricity and runs a hydro aluminum unit.
Nonetheless, a combined RusAl-SUAL-Glencore is not really comparable to BHP Billiton or British-Australian Rio Tinto, some industry insiders said.
BHP Billiton and Rio Tinto focus on upstream operation — the extraction of ore — not on metal production. Their aluminum casting is relatively minor, while RusAl’s bigger rivals Alcoa and Alcan have built up a vertically integrated company that touches mainly on aluminum-related business.
“Perhaps, other metals assets could be collected by BasEl,” Prokopov said. BasEl’s assets include Batu Mining, a precious metals miner in Mongolia, and Zhany-Zhyldyz Gold Limited, a miner, in Kyrgyzstan.
|
Ïåðåâåñòè íà ðóññêèé
Print this article
