United Company Rusal, the world's largest aluminum producer cut production and costs in the first quarter of 2009 by US$554 million, which represents around 50 per cent of its goal this year in overall cost savings of US$1.1 billion.
The Russian company plans to cut 2009 output by 500,000 tonnes of aluminum, or 11 per cent of last year's production.
In April it announced that it cut the average production cost of aluminum per tonne by more than 23 per cent between December 2008 and March 2009, and it expects a further 26 per cent reduction by the fourth quarter of 2009.
Output of the intermediate product alumina declined by 25 per cent year-on-year in the first quarter, and the company is forecasting alumina output cuts to reach 3.9 million tones, or a 34 per cent reduction over last year's production.
Production of bauxite fell by 34 per cent in the first quarter to three million tonnes. Overall the company plans to cut bauxite output by 5.6 million tones in 2009.
UC Rusal, the biggest bauxite producer in Jamaica accounting for 55 per cent of total output, has temporarily suspended the operations of the Windalco, Kirkvine and Ewarton bauxite/alumina plants, as well as operations at the Alpart alumina plant in Nain, St Elizabeth, which is jointly owned with Norwegian-based Hydro.
Long-term supply contracts
There was no breakout of the numbers to indicate whether Jamaica factored in the savings.
Rusal has also suspended alumina production at Eurallumina refinery in Italy, and cut volumes by 25 per cent at the Aughinish refinery in Ireland.
The company has also indicated that it cut its energy costs by more than 19 per cent in the first quarter by signing long-term supply contracts, as well as the introduction of energy-saving technology.
Management costs were cut by 60 per cent and raw material costs fell by 35 per cent during the same period.
In terms of its financial position, company officials have stated that first quarter profits were close to zero, but the forecast is that Rusal will emerge with a small profit at the close of the current financial year.
The company believes that the aluminum market has bottomed out, but expects global demand to remain low until the end of 2009, with some aluminum surplus in 2010.
It also expects aluminum prices to remain at around US$1,400 per tonne in 2009, rising to between US$1,600 and US$1,700 in 2010, and further to US$2,000 per tonne or higher in 2011, due to production cuts, robust demand from China, as well as a weaker dollar.
Loan repayments
The Oleg Deripaska-controlled company agreed with its foreign lenders in March to a two-to-three month freeze on loan repayments on a significant portion of its total debt of US$16.8 billion (including Russian debt).
It also agreed to swap US$2 billion owed to Mikhail Prohorov's ONEXIM group for Rusal shares, and restructured an addition US$800 million debt to ONEXIM.
The company announced in mid-May that it expects to secure an extra seven to eight years to repay its US$7.4 billion debt to its international lenders, and that it would not surrender a stake in the company as payment.
Oleg Mukhamedshin, UC Rusal's director for capital markets told Reuters news agency that the company is negotiating the final conditions. However, it is already clear that they will get the loans extended for seven to eight years, with a grace period that had not yet been finalised, but is expected to be at least two years.
Rusal also hopes to reach an agreement shortly to extend its US$6.6 billion debt repayment to Russian banks, including the state-owned VEB, its single biggest Russian lender, as well as resolving a dispute with Russian's Alfa Bank, which did not sign on to the 'standstill' agreement and is demanding repayment of Rusal's debt.
Mukhamedshin noted that UC Rusal would be taking steps overthe next three to four years to reduce its debt to levels that would be considered 'normal' - in other words a ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) of 3x or less.
These steps might include an initial public share offering, a plan that was originally mooted when the company was first formed in March 2007.
"If some creditors want to participate in the IPO process, they will be able to buy shares, but we are not discussing converting debt into equity or other securities," said Mukhamedshin.
renee.shirley@yahoo.com