MOSCOW, Russia (AP):

Russia's two biggest aluminium makers are planning a merger that will create the world's largest producer of the metal, the Kommersant business daily reported yesterday.

OAO Rusal and SUAL Group, which produced 2.7 million tons and 1.05 million tons of aluminium respectively last year, will announce the merger in October, the paper reported.

Output

If completed, the combined company's output would exceed US-based Alcoa Inc and Canada's Alcan Inc, which each produces around 3.5 million tons per year.

Kommersant cited an unidentified partner of SUAL owner Viktor Vekselberg as saying that the two companies had signed a memorandum of understanding and that the deal had received the blessing of President Vladimir Putin, which meant it would not be opposed by antitrust regulators.

Neither company would comment Monday.

"We do not comment on speculation," SUAL spokesman Alexey Prokhorov said.

Vera Kurochkina, a spokeswoman for Rusal, also declined to comment on the report or confirm whether talks were under way.

A merger appeared to run counter to previous comments by SUAL that it may hold an initial public offering.

SUAL said Monday that it was still examining the IPO option, Dow Jones Newswires reported.

Shareholders

Kommersant quoted the partner as saying that Rusal owner, Oleg Deripaska, would receive 75 per cent in the company while Vekselberg and other SUAL shareholders would get 25 per cent. Rusal is already the world's No. 3 aluminium producer.

Forbes magazine has valued Vekselberg and Deripaska's fortunes at US$10 billion (euro 8 billion) and US$7.8 billion (euro6 billion) respectively.

Olga Okuneva, a metals analyst with the Deutsche UFG investment bank, said that a possible merger between the two companies had long been rumoured and if both owners were behind the deal it could go ahead swiftly.

"It all depends on how firm the agreement is and whether or not they got this approval from the Kremlin, which is key of course," Okuneva said.

Dmitry Kolomytsyn, an analyst at the Moscow brokerage Aton Capital, told Dow Jones Newswires the deal would make sense for both companies. "It would allow them to compete on a global scale."

Kolomytsyn suggested that SUAL's preparations for an IPO may be a contingency plan in case the merger failed to go through.