The deal is expected to close in 2024
Moscow. March 15. INTERFAX – Rusal has made an advance payment of 5% of the total estimated value of the stake in the capital of Chinese alumina producer Hebei Wenfeng New Materials Co. (HWNM), the Russian company said in its annual report.
The advance payment, as of the end of 2023, was $13 million. Based on this amount, the company may pay about $260 million for a stake in the Chinese alumina producer.
Rusal signed an agreement to purchase 30% of the Chinese company in October 2023. The deal price is 1.911 billion yuan (about $267 million), but may be adjusted depending on the size of HWNM’s working capital and debt at the time of closing, Rusal specified. In any case, the price should not exceed 2.5 billion yuan (about $349.2 million).
The deal will provide the company with access to alumina supplies at a competitive price, Rusal explained. Closing of the deal is dependent on the approval of the Chinese authorities, corporate actions and the consent of HWNM’s creditors. Rusal and Hebei Wenfeng Industrial Group Co., which controls HWNM, will enter into a shareholder agreement.
HWNM owns an alumina plant located in Hebei Province, with a capacity of 4.8 million tons of metallurgical alumina. Rusal will receive a share in the plant’s production proportionate to its share in the capital. Thus, the Russian company can lay claim to approximately 1.4 million tons of alumina per year. For comparison, Russia’s annual alumina import volume is about 4.3 million tons.
In 2022, Rusal lost access to the Nikolaev Alumina Refinery and alumina supplies from Australia – these sources together accounted for about 40% of alumina consumption. Alumina supplies from Ireland, where Rusal’s Aughinish alumina refinery is located, are also limited.
Rusal restored alumina supplies through purchases on external markets, which could maintain production continuity without losses, but led to an increase in costs, the company said in a press release following the results of the 2023 IFRS report.
In an effort to meet raw material needs and reduce costs, Rusal announced in 2023 the construction of a new alumina refinery in the Leningrad Region, the first stage of which is planned to have a capacity of up to 2.4 million tons per year. Rusal plans to import bauxite from its enterprises in Guinea to this plant.
Rusal’s share in HWNM production roughly coincides with the estimated volumes of alumina that Rusal purchases on the market (around 1.4 million tons), meaning that the purchase of a stake in the Chinese enterprise could fully cover the needs of the Russian company, explained independent industrial expert Maxim Shaposhnikov.