Owner of Aughinish warns of uncertainty over future

The owner of Limerick-based aluminium producer Aughinish Alumina has warned of "material uncertainty" over its future after posting a $3.2 billion loss - its worst annual performance since 2008.

Rusal, the world's largest aluminium producer, controlled by Oleg Deripaska and listed in Hong Kong, confirmed that it had asked lenders to delay a repayment due next month on part of its $10 billion net debt pile.

The company’s Irish subsidiary Aughinish Alumina employs 450 workers at its Shannon estuary refinery.

It said that it expected to complete long-running negotiations with its banks to amend the terms of its debt, but warned that there could be no certainty it would succeed.

“Management acknowledge that these conditions result in the existence of a material uncertainty with respect to the group’s ability to continue as a going concern,” the company said.

Rusal's auditor, KPMG, included an "emphasis of matter" paragraph in its report on the company's earnings statement to draw attention to the issue.

Rusal’s difficulties highlight the plight of Russia’s metals sector as it struggles under the burden of a slowing economy, weak commodity markets and the imposition of sanctions from the west.

However, the company is also emblematic of the global aluminium industry, where overcapacity and high stocks have pushed prices to their lowest level in more than four years.

Rusal’s $3.2 billion loss was exacerbated by $1.9 billion in writedowns and restructuring charges as it closed high-cost plants in an attempt to reduce costs. It was its worst annual performance since a $6 billion loss in 2008.

The company’s aluminium production fell 7.6 per cent from 2012 to 3.9m tonnes, while its production cost per tonne fell 3.6 per cent over the year to $1,864. Benchmark aluminium prices today were trading at $1,753 a tonne.

Mr Deripaska, chief executive, said the company had “gone through a difficult, but important transformation” and predicted resilient demand for aluminium.

Rusal has been weighed down by high debts since it spent $14bn to buy a stake in Norilsk Nickel in 2008 just before metals prices tumbled in the financial crisis. It underwent a huge restructuring in 2009, but has remained highly leveraged.

The company had succeeded in restructuring loans of $4.9 billion from Sberbank and $660 million from Gazprombank, it said. It also received, in February, $400 million in prepayment financing for alumina from Glencore Xstrata, which holds an 8.75 per cent stake in the company and is its single largest trading counterparty.

However, it has yet to reach unanimous agreement with a syndicate of lenders on restructuring $3.7 billion of pre-export finance facilities. Sources said that only a handful of banks had not yet agreed to new terms, which would waive mandatory repayments on Rusal’s debt until 2016.

Rusal yesterday received a surprise boost when it won a court battle over proposed new London Metal Exchange trading rules, which the aluminium producer said had helped to push down prices.

Rusal’s shares, which have fallen 74 per cent since its 2010 flotation, rose 2.9 per cent.

Financial Times