How will the UC Rusal performance affect the launch of the Taishet plant

UC Rusal has launched in the Irkutsk region the first Taishet Aluminum Plant (TaAZ) with a capacity of 428,500 tons per year, the company said on December 17.

Investments in the project amounted to about 100 billion rubles, of which 45 billion rubles. – syndicated loan from VGB (30 billion rubles) and Gazprombank (15 billion rubles). The rest is own funds. Taking into account the Boguchansky Aluminum Plant, which works within the framework of the BEMA joint project with Rushydro, and the Khakassia Aluminum Plant launched in 2006, TaAZ became the third aluminum plant built in Russia after the collapse of the USSR. The cost of three projects is 250 billion rubles.

Construction of the Taishet Aluminum Plant began in 2007. The first metal was planned to be produced in 2009, but two years after construction began it was frozen due to the global financial crisis of 2008. Aluminum prices fell and UC Rusal focused on keeping working finding funding for Taishet. Work on TaAZ resumed only in 2011. The plant will produce primary aluminum and high-tech alloys based on it, which will account for up to 80 percent of total production. To supply energy to the plant, En + Group also built the Ozernaya substation with a capacity of 1,500 MW for 13 billion rubles. In addition, UC Rusal is building an anode factory in Taishet worth more than 52 billion rubles.

According to a report by UC Rusal for 2020, the production capacity of the group’s enterprises is 3, 8 million tons of aluminum per year. At the same time in 2020 the company made 376 million tons of metal. Thus, the launch of the first phase of Taaz can increase aluminum production by more than 10%. After the commissioning of the second stage of the enterprise, its capacity will reach 962,000 tons per year, it will be the third largest after Krasnoyarsk (capacity – 1.02 million tons per year) and Bratsk (capacity – 1 million tons per year) aluminum plants.

UC Rusal’s net profit under IFRS for the first six months of 2021 amounted to $ 2.02 billion, for the same period in 2020 the company showed a loss of $ 124 million. The company’s revenue in January-June amounted to $ 5.45 billion against $ 4 billion in the first half of 2020 – (growth of 35.7%). The adjusted EBITDA for the first half of the year was $ 1.3 billion against $ 219 million a year earlier (a 6-fold increase). The company’s net debt at the end of the first half of 2021 – $ 4.1 billion (-26.3% by the end of 2020). Last year saw a decline in financial performance of UC Rusal: revenue fell 11.8% to $ 8.6 billion, EBITDA – 9.8% to $ 871 million, net income – 20.9% to $ 759 million.

According to Yuri Solovyov, First Deputy President and Chairman of the Board of ZGB Bank, TaAZ will increase Russian aluminum production by more than 10% over the next five years. According to the head of the director of the rating service of the NRA Sergei Grishunin, the output of the company in the Irkutsk region at full capacity is possible over the next two or three years. According to NRA estimates, even with the loading of Taaz at 50%, UC Rusal’s revenue due to the launch of the plant could grow by $ 1, 1 billion (based on current metal prices), EBITDA – $ 200 million per year.

Alexei Pavlov, chief analyst at Opening Investments in the Russian market, notes that a 10% increase in aluminum production by UC Rusal is possible as early as 2022. He estimates the additional contribution to EBITDA at $ 400 million. Glushakov adds that by the time the first stage of the plant reaches full capacity, Taishet will bring the company an additional 8% of revenue and the same – to EBITDA.

On December 17, aluminum futures on the London Metal Exchange (LME) traded at $ 2645 per 1 ton. The rise in aluminum prices was also affected by the general increase in energy prices. On October 15, for the first time since July 2008, the price of 1 ton of aluminum surpassed the $ 3,200 mark, but then began to fall.

“Now is a good time to increase production, because the market has not seen such high prices for aluminum for a long time,” says Glushakov. He adds that the project will remain profitable even in the event of the expected correction in aluminum prices in the coming years. The cost of metal in the global market, according to Grishunin, is supported by the high price of electricity (energy costs for aluminum production can reach 30% in cost. – “Gazette”).

A representative of UC Rusal believes that problems with the sale of Taaz products should not arise, as the global aluminum market remains in short supply. The metal may be in demand in both the European Union and the United States, Grishunin agrees. At the same time, China has managed to reduce energy prices, so the local aluminum industry, in his opinion, will be able to compensate for shortfalls in September – November 2021 on their own.

Vasily Karpunin, head of the information and analytical content department of BCS Mir Investitsii, adds that the plant will have a very low carbon footprint due to the use of electricity from Siberian hydroelectric power plants.

On the Moscow Stock Exchange, shares of UC Rusal as of 18.00 Moscow time decreased by 2.5% before the close of the previous trading session (to 67.3 rubles). According to Karpunin, the news of the launch was expected, so it did not have a significant impact on stock quotes. But in the long run, the increase in operating performance will have a positive impact on the cost of securities, he said.

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