(From left) Rusal Chief Executive Officer and CEO to-be of the new merger, United Company of Rusal, Alexander Bulygin; Sual's main owner Viktor Vekselberg and Rusal owner Oleg Deripaska, attend a news conference in Moscow yesterday. Rusal will own 66 per cent of a new merged aluminium company that plans to list shares in London within 18 months. - Reuters

MOSCOW, Russia (AP):

Russia's OAO Rusal dethroned Alcoa Inc. as the world's biggest aluminium producer yesterday after announcing a three-way merger that will create a US$30 billion (euro23 billion) giant with 12 per cent of global output.

The deal underscored the rise of Russia's commodities-based industries, which have reaped the benefits of low costs and soaring world prices, as well as the ambitions of Rusal's billionaire owner Oleg Deripaska.

The new company - which will absorb Rusal's Russian rival Sual, as well as the Alumina assets of Swiss-based commodities trader Glencore - will include smelters and refineries across Russia as well as facilities in China, Guyana, Australia, Ireland, Jamaica, Italy and Sweden.

"We have created a truly great company here, a company that has the potential to be the flagship for the Russian mining industry," said Sual's President, Brian Gilbertson, a South African who will be non-executive board chairman at the new Rusal.

While the deal has yet to receive regulatory approval from Russian authorities and the European Union, company officials said they hoped it would be tied up by April 2007.

Under the terms of the agreement, Rusal will issue new shares to acquire Sual, which is controlled by metals and oil tycoon Viktor Vekselberg, as well as the Glencore assets.

Sual and Glencore will hold 22 per cent and 12 per cent stakes respectively in the new company.

Analysts have said that the three companies complement each other perfectly. Sual has large holdings of bauxite, aluminium's raw material. Rusal, meanwhile, has the biggest smelters and access to cheap electricity - the main cost in the business and its chief competitive advantage on the world stage.

As such, the deal essentially reunites Russia's aluminium industry after its carve-up in the chaotic privatisation's of the 1990s that followed the Soviet Union's collapse.

Speaking at a news conference announcing the deal, Vekselberg said the new company planned to carry out an initial public offering in less than 18 months, most likely in London.

Increased production

Rusal director Alexander Bulygin said the expanded Rusal will produce nearly four million tons of aluminium per year and has plans to ratchet up output to over five million tons by 2009 to 2010. That would eclipse the 3.55 million tons that Alcoa reported in 2005. Bulygin said the company expected annual revenue of US$10 billion (euro7.9 billion).

Under the terms of the agreement, Bulygin will become the new company's chief executive. The company will have an 11-man board comprising six representatives of Rusal, two from Sual, one from Glencore and two independent directors.

While hailing the deal, Gilbertson stressed it is yet to receive official approval.

"There are number of challenges that lie ahead. The deal it has to be approved by the various regulatory bodies and that always takes a bit of time; there are hurdles that you have to get across," said Gilbertson, a one-time CEO at mining giant BHP Billington.

Keeping the vision

Russian regulatory approval is expected to be a formality - both Deripaska and Vekselberg have met with president Vladimir Putin recently and analysts say they have good relationships with the Kremlin.

While the merger involves two privately-held Russian companies, observers said that it nonetheless is in keeping with Putin's vision for the economy.

"With the extractive industries the Kremlin clearly favours consolidation and for Russian companies to become bigger global players," said Chris Weafer, chief strategist for Alfa Bank in Moscow. "That allows Russia to enjoy the economic benefits of size and also gives the Kremlin political leverage."

As well as creating a formidable global player, the deal realises a goal of Deripaska, 38, who has navigated the often-bloody waters of the Russian aluminium sector to create Rusal, together with billionaire Chelsea soccer club owner Roman Abramovich, in 2000. Abramovich has since sold his share.

Vekselberg gained broad notoriety in 2003, when he purchased a collection of 15 Czarist-era Faberge eggs for US$100 million as part of a campaign to bring home Russia's cultural heritage. He made his fortune - US$10 billion according to Forbes magazine - from Sual and his interest in BP PLC's Russian joint venture TNK-BP, currently Russia's number two oil producer.