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Russian Aluminum

January 28, 2004

RUSAL reports continued production growth and cost reductions in 2003

MOSCOW 28 January, 2004 – RUSAL, one of the world’s leading aluminium producers, today reported continued growth across all product groups and significant cost reductions for 2003 as the company continued its modernisation programme and efficiency drive.

RUSAL’s primary aluminium production rose in 2003 by 4.3% to 2,588,931 tonnes compared to 2002, helping the company to maintain its leading position among the world aluminium majors. Substantial progress was made in reducing reliance on contract raw materials. Approximately 60% of RUSAL’s smelters needs in alumina were covered by RUSAL-managed sources in 2003, compared with 46% in 2002. The company anticipates this rising to 63% in 2004.

The emphasis on building direct long-term relationships with customers helped RUSAL to consolidate its sales: over 60% of RUSAL sales are now via direct contract with customers.

The re-orientation towards a market-driven strategy successfully resulted in a 12% rise of value-added casthouse products.  As part of its ongoing quality control, the company introduced new LME-registered aluminium RUSAL brands.

Commenting on the results Alexander Boulygine, CEO, said, “I am  pleased with the company’s performance in 2003.  We have continued the growth trend across all our product groups, successfully established long-term relationships with our customers and managed further cost efficiencies.  On the domestic front, we have taken active measures to secure our energy and transportation costs, including an agreement with the Russian Railways Ministry to fix our railway tariffs until the end of 2011.

“I am particularly excited about the new smelter at Sayanogorsk, which is the culmination of our consolidation efforts over the past three years.  This expansion demonstrates the belief we have in the future of our business, as it will be the first smelter built in Russia in the past 15 years. ”

Turning to the company’s outlook for 2004, Mr Boulygine continued: “Our focus for 2004 will be on strengthening our raw materials base, continuing to expand our market share in all our product groups and developing our technological expertise.”

RUSAL’s revenues increased by over 12% to $4.5 billion from $4.0 billion in 2002.  Sales outside the Russian Federation accounted for $3.7 billion ($3.4 billion in 2002).  The contributing factors for the improvement were a  4.3% rise in aluminium production, improved product mix and sales margins and an almost 6% rise in average LME aluminium prices.  Capital expenditure for 2003 rose to $230 million from $160 million in 2002. 

RUSAL raising its efficiency

RUSAL’s cost efficiency programme realised further cost reductions.  Energy costs continued to increase slowly and an integrated energy saving programme at the smelters and the Achinsk alumina refinery led to energy savings worth $5 million.  The Novokuznetsk smelter entered the Russian Federal Wholesale Electricity Market in October and so far has reduced its energy costs by 4%. RUSAL has also reduced the risks of on-going Russian energy system reforms by securing long-term direct agreements with regional energy companies. 

RUSAL’s comprehensive restructuring programme continued to increase the efficiency of operations and maximise asset values. This programme includes divestiture of non-core businesses and reorganizing auxiliary operations, some of which are to be divested as well. The creation of RUSAL Service Centre allowed the consolidation of 80% of the servicing and maintenance functions at RUSAL plants. This has helped standardize operations (i.e. reduce the number of cell types), increase quality and efficiency as well as optimise costs. Some maintenance services such as electrical and power equipment repair as well as general repair and construction services have been outsourced.

The restructuring programme contributed to a 2003 workforce reduction of 9.1%, bringing total employment to 63,000 compared with 69,400 in 2002.


Modernisation: The guarantee for further growth

RUSAL cemented its efforts in guaranteeing future production growth through the modernisation of existing production facilities and developing brownfield projects.  The smelter modernisation programme continued apace with cell amperage rises at all RUSAL’s smelters, conducted by the newly created RUSAL Engineering and Technological Centre (ETC).  This enabled the Sayanogorsk and Krasnoyarsk smelters to post a 10% and 4.5% production improvement on figures for 2002 respectively. 

Dry anode technology was introduced in the pot lines at the Krasnoyarsk, Bratsk and Novokuznetsk smelters and new dry scrubbers installed at the Krasnoyarsk smelter.  Along with increased operational efficiencies, this will also help to reduce the environmental impact of the operations. 

The feasibility studies for upgrading the Sayanogorsk and Krasnoyarsk aluminium smelters were completed.  Hatch, the Canadian engineering company also completed the feasibility study for RUSAL’s most ambitious and cost-effective project, the construction of the 300 000t/y Sayanogorsk smelter extension, which is the first major aluminium expansion in Russia for the past 15 years.  Construction will start in 2004.
 
Continuing its drive for technological excellence, RUSAL acquired Russia’s leading research organisation All-Russian Aluminium and Magnum Institute (VAMI).  This will help strengthen the company’s R&D potential together with RUSAL ETC.

The ETC’s efforts last year resulted in the development of the first Russian-made 300 kA cell at the Sayanogorsk smelter, which was tested during the year.  This sets a new standard for power consumption and longevity.

Other highlights

Changes in RUSAL’s ownership structure took place last year representing the acquisition of a further 25% stake in the company by shareholder Basic Element from shareholders represented by Millhouse Capital, raising BasEl’s ownership to 75%.  

There was a significant increase in bauxite and alumina production from the Guinea operations due to the integration of the Friguia Alumina Refinery.  Improved labour productivity at the Compangnie de Bauxites de Kindia refinery led to a 13% rise in production.

Construction of ROSTAR-Vsevolzhsk can plant was completed in December 2003.  It has a planned capacity of 1,700 million 0.5 liter cans a year.
 
Starting in April 2003 RUSAL supplies the Tajik Aluminium smelter (TadAZ) with alumina and helps the plant to sell its primary aluminium, which allows the company to benefit from low energy production costs. RUSAL also participated in the plant’s modernisation by investing $45 million of working capital.


Outlook for 2004

RUSAL forecasts a strong year for aluminium consumption growth in 2004 with overall demand increasing by between 5 – 7 %. Western markets are forecast to post modest growth of 4 - 5% while Chinese demand growth of 15 - 18% will be met in full by increased domestic production. Globally, the automotive and packaging sectors will remain strong whereas, in North America, construction related demand will continue the positive trend of 2003.
 
RUSAL will continue to position its sales to leverage its developing production capabilities. In 2004, value added products will comprise 32% of the primary aluminium sales mix with a resultant reduction in commodity exports of 112,000 tonnes compared to 2003. With over 60% of sales contracted directly with consumers, channels to market will be further developed in 2004.

The Friguia refinery in Guinea will expand its capacity to 1,400,000 tonnes.

Construction of the Sayanogorsk expansion will begin with the laying of foundations.  The expansion is due to be completed by March 2006 at a cost of roughly $700 million. 

Industrial production will begin in the end of January at the $72 million ROSTAR-Vsevolzhsk aluminium can plant, which will meet the growing needs of the Russian beer and soft drinks industry. 

Dry anode technology installation will continue next year with the main focus on the Krasnoyarsk  smelter, where the launch of a $100 million investment program is expected to result in a 55,000-ton production rise, together with reductions in harmful emissions.

RUSAL intends to develop a new alumina sintering technology for low grade bauxites as an alternative to Bayer.  This will substantially reduce production costs.  VAMI and RUSAL’s Engineering and Technological Centre will also work on new cell technology and new 320 kA cell design, which it aims to trial by the middle of 2005.

Consolidation of RUSAL is expected to be completed by redemption of the plants’ stocks from minority shareholders.

The restructuring programme started in 2003 will continue, with more auxiliary services (high-voltage gear repair and diesel machinery production and repair) to be outsourced. This will lead to further reductions in personnel.
 

Table 1 – Production results (metric tons, unless otherwise noted)

Products

 

Q4/2003

 Q4/2002

2003

 2002

Yr on Yr Change (%)

Yr on Yr Change (tones)

Bauxite*

1,234,337

519,809

4,351,421

1,822,935

138.70

2,528,486

Alumina*

1,244,122

551,800

2,981,918

2,161,000

37.99

820,918

Primary aluminium & value-added casthouse products

664,932

632,461

2,588,931

2,482,434

4.29

106,497

Aluminium semi products

48,589

61,837

214,764

221,728

-3.14

-6,964

* - The sharp increase in bauxite and alumina production is due to the addition of the Friguia alumina refinery facilities in Guinea.

Table 2 – Bauxite & Alumina (metric tons)

Refineries

2003

2002

Yr on Yr Change (%)

Compagnie de Bauxites de Kindia (Guinea)

2,071,437

1,822,935

13.63

Alumina Company of Guinea– bauxite

2,279,984

 

 

Alumina Company of Guinea– alumina

731,918

 

 

Achinsk Alumina Refinery

1,052,000

1,034,500

1.69

Nikolayev Alumina Refinery

1,198,000

1,126,000

6.39

Table 3 – Primary Aluminium (metric tons)

Smelters

2003

2002

Yr on Yr Change (%)

BratskAluminium Smelter (BrAZ)

930,539

915,882

1.60

KrasnoyarskAluminium Smelter (KrAZ)

903,491

864,872

4.47

Sayanogorsk Aluminium Smelter (SAZ)

459,002

413,864

10.91

NovokuznetskAluminium Smelter (NkAZ)

295,899

287,814

2.81

Table 4 - Downstream Production Units (metric tons unless otherwise noted)

Plants

2003

2002

Yr on Yr Change (%)

Samara Metallurgical Plant

173,868

199,404

-12.81

BelayaKalitva Metallurgical Plant

41,430

38,447

7.76

Sayansk Foil Mill

35,304

33,369

5.80

Armenal

10,476

5,372

95.01

ROSTAR (beverage cans, in pieces)

994,753,000

809,145,000

22.94

ROSTAR (ends, in pieces)

1,506,929,000

1,448,360,000

4.04

DOZAKL (cans, in pieces)

57,870,000

82,174,000

-29.58

DOZAKL (ends, in pieces)

111,480,000

99,745,000

11.77

- END -

About RUSAL
RUSAL, a world leader in aluminium production was formed in March 2000 from the merger of a number of the largest smelters and other aluminium producers located in the CIS. The company accounts for 75% of Russia's primary aluminium output and 10% of the global primary aluminium output. RUSAL is a fully vertically integrated company with a complete production cycle from bauxite mining and the production of raw materials, to the production of primary metal, semi-products and aluminium-based end products. RUSAL is headquartered in Moscow.

For further information:
www.rusal.com
Eugenia Harrison, Moscow, +7 095 720 5170, or zharrison@RUSAL.ru;
Fred Harrison, London, +44 (0) 20 7431 7517, or fharrison@ansdellconsult.com;
Stan Neve, New York, +1 212 333 3810, or sneve@brunswickgroup.com


 

 

 

 

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