RusAl in the Black Thanks to Norilsk Stake, Aluminum Prices

Russian Aluminum CEO Oleg Deripaska, standing, announcing the metals company’s results for last year at a news conference in Hong Kong on Monday.

United Company RusAl said Monday that it returned to profit in 2009 after demand for aluminum began to recover in the second half and the value of its stake in Norilsk Nickel more than doubled.

RusAl, the world's largest aluminum producer, posted a full-year profit of $821 million, compared with a net loss of $5.98 billion a year earlier, the company said in a statement.

The profit came despite a 48 percent drop in revenue — to $8.17 billion, from $15.69 billion in 2008 — after aluminum prices collapsed and sales weakened. Earnings before interest, taxes, depreciation and amortization were $596 million, down 83 percent from the year-earlier figure of $3.53 billion.

The miner, whose largest owner is CEO Oleg Deripaska, also managed to trim its 2009 operating loss to $63 million, from $1.23 billion a year earlier, the statement said.

RusAl attributed the improved results to an aggressive cost-cutting program, while noting that the main swing toward profit was thanks to the strong revaluation of its blocking stake in Norilsk.

The shares' market value increased by 123 percent last year to $6.71 billion, from $3.01 billion in 2008, the company said.

After accounting calculations, profit from revaluing its stake in Norilsk was $1 billion, RusAl said. The company also said it expected to gain $400 million from its share of income at Norilsk, the world's largest producer of nickel and palladium.

"The net profit of $821 million was only possible due to the share in profits of associates, such as Norilsk Nickel," said Dmitry Smolin, a metals and mining analyst at UralSib.

The $1.4 billion was a noncash profit, meaning that RusAl's adjusted net loss was $600 million, he said.

RusAl acquired the stake of 25 percent plus one share in Norilsk from Mikhail Prokhorov's Onexim Group in April 2008, a cash-and-equity deal that ballooned RusAl's debt just before metals and stock prices crashed.

Shortly after the deal, RusAl's management began criticizing Norilsk's operations and pushing for a merger of the two mining giants, over objections from Norilsk's other main shareholder, Vladimir Potanin's Interros holding.

Potanin and Deripaska, then RusAl's majority owner, made peace in November 2008, agreeing that they would not discuss a merger for three years and that beneficiary owners of their companies would not join Norilsk's board.

RusAl raised eyebrows last week by announcing that Deripaska was a candidate to join Norilsk's board.

But Deripaska's plan to merge the two companies is unlikely to be realized, said Denis Nushtayev, a metals analyst at Metropol.

"Norilsk Nickel's management and Interros are unlikely to support this idea because RusAl's debts are really large," he told The Moscow Times.

Since taking the helm at RusAl in January 2009 to oversee its debt restructuring, Deripaska has decided to add another corporate post to his responsibilities. RusAl said Monday that he would take over as CEO at En+ Group, the metals and power unit of his Basic Element conglomerate.

Deripaska will replace Vladislav Solovyov, who was appointed first deputy CEO at RusAl. Solovyov will focus on increasing the company's efficiency and improving production and financial performance.

"2009 was a year of transformation for UC RusAl. It was also one of the toughest on record for the global economy, commodity markets in general and, in particular, the aluminum industry," Deripaska said in the statement.

"We took decisive action … significantly reducing costs and reshaping the company," he said. "We improved our balance sheet by reaching agreement with our lenders on the terms of a comprehensive $16.6 billion debt restructuring with more than 70 banks. We also completed the preparatory work to enable our IPO to proceed."

RusAl raised $2.24 billion in the January listing in Hong Kong, paying down $2.14 billion of its estimated $14.9 billion of debt.

The company reiterated on Monday that it had exceeded its 2010 repayment target, cutting debt to $12.9 billion with "$3.3 billion remaining to be repaid to lenders for the company to meet the target due by the end of 2013."

The miner also said it was optimistic about its performance this year, with demand set to continue its recovery.

"I am confident that our competitive advantages, supported by the increasing value of the Norilsk Nickel investment and positive aluminum price momentum, which is expected to continue in 2010, will drive the value of the company forward in the interest of all shareholders,” Deripaska said.

RusAl expects Norilsk Nickel to show good results this year, paying its first dividends in two years. Given Norilsk's positive performance, it "can well afford to pay good dividends to shareholders," which might allow RusAl to pare its debt further, Deripaska told Bloomberg in Hong Kong on Monday.

The company's own cash flow should be much better this year, with RusAl projecting aluminum prices to remain above $2,000 per metric ton, compared with an average of $1,668 last year. RusAl's production costs were $1,471 per metric ton in 2009, the statement said.

Aluminum prices crashed along with demand from industry in late 2008 and early 2009, falling beneath $1,300 in February 2009, from highs of more than $3,300 in July 2008.

Three-month contracts on the London Metal Exchange settled at $2,406 on Monday.

Given the gradual market recovery, RusAl said it planned to increase aluminum production by 3 percent this year.

Last year, the company had to cut output at its least-efficient smelters, with aluminum production falling 11 percent to 3.9 million metric tons. Output of alumina, a key aluminum component, dropped 36 percent last year to 7.29 million metric tons.

RusAl said it restarted mothballed capacity at some aluminum smelters in the first quarter of 2010. The company said in a separate statement that it planned to restart Jamaican alumina refinery Ewarton Works in June.

RusAl's Hong-Kong traded shares closed up 0.9 percent on Monday at 9.48 Hong Kong dollars ($1.22), outperforming the local Hang Seng Index, which fell 0.3 percent.