UC RUSAL suspends aluminium production at the ALSCON smelter

UC RUSAL (SEHK: 486; Euronext: RUSAL/RUAL; Moscow Exchange: RUALR/RUALRS), the world’s largest aluminium producer, announces the decision of ALSCON Board of Directors to temporarily suspend the smelting operations at the plant.

During the meeting on 11 March 2013 of the Board of Directors of ALSCON, 85% of which is owned by UC RUSAL, a decision was taken to suspend aluminium production at the plant. Before this decision was taken, RUSAL had been covering the plant’s losses in the expectation that a sustainable gas supply would be made available enabling ALSCON to operate at its full capacity.

Today, despite all measures undertaken by the Company, ALSCON does not have a reliable and continuous gas supply. Aluminium production at the plant is deeply loss-making, which renders it impossible to fully utilize the existing capacities.

The on-going situation around the illegal attempts to challenge RUSAL’s rights of ownership to the plant and the recent decision of the Supreme Court of Nigeria to cancel the sale of ALSCON shares to RUSAL impede long-term investment in the smelter. In particular, legal issues relating to ownership renders it impossible to sign long-term contracts, hinders development, obstructs implementation of structural, production, and material improvements, and impedes performance of obligations.

The decline of aluminium prices on the LME in 2012 by 15.7% has resulted in the significant share of global aluminium production falling below breakeven point. To minimize the negative impact of such external factors, RUSAL has focused on long-term efficiency and cost control, but the negative market environment and low LME price level have affected the operations of RUSAL’s subsidiaries. In particular, the global market situation exacerbated ALSCON’s losses and was a factor in the decision to suspend operations, optimization of production capacities being a necessary measure in response to the situation in global aluminium industry.

Despite the continuing uncertainty around the plant, ALSCON will continue to generate electricity. During the suspension period, the main efforts of the Company will be focused on securing continuous gas delivery, obtaining judicial determination that RUSAL is the rightful owner of ALSCON, and preparing to restart operations.

The Company’s decision will not affect the social stability or standard of living in the region. The Company is committed to minimizing any negative consequences of the suspension for the personnel and local communities of Ikot Abasi, Nigeria, where the smelter is located.

While keeping the power plant in operation, the Company will provide financial compensation for those employees who terminate their employment at the plant in accordance with the existing Collective Agreement. RUSAL also guarantees that all employees who are currently residing in ALSCON’s housing estates will continue to reside in the Company’s houses and will maintain their power and water supplies. ALSCON will abide by all contracts with the local companies of the Ikot Abasi region and will continue all social programmes in the areas of education, healthcare, youth support and sports.

RUSAL notes that the suspension of operations is a temporary measure, one necessary to avoid completely shutting down of the plant. Smelting operations will resume as soon as the legal uncertainty has been resolved and the continuous power supply has been secured.