Investment bankers, financial community and FT analyst’s all become very nervous after aluminium giant UC Rusal announced its 3Q2012 financial data. Rusal’s earnings before interest, tax, depreciation and amortisation fell four-fifths to $130m in the third quarter from a year ago, their lowest since its 2010 listing — discloses Financial Times analysis.
Reasons for concern are mainly connected with LME price for aluminium which slumped to the lowest ever minimum of $1,918. In such conditions cost control is critical for Rusal, same as the ability to trade at higher-than-LME prices. Rusal has done its best to beat itself a premium to LME of $226 per tone, what partly absorbed the losses.
However, in current financial situation of UC Rusal, the Norilsk conundrum which is lasting for ages now weighs more heavily on investors: net debt is over 20 times annualised third-quarter EBITDA.
Even with record-low financial results UC Rusal was able to generate enough Free Cash Flow to the Firm, equaling to $416 million. Working capital decline allowed company to unleash addition $159 million. Besides, cutting CAPEX to $87 million Rusal had formally received positive cash-flow on accounts for 3Q2012 in the amount of $205 million. Rusal’s debt due to be paid in 2013 equals approximately $0,9 billion which company with current fundamentals can probably service without additional help from the banks.
Giving current situation on the market main concern for investors is further decline of aluminium prices on LME caused by introduction of new aluminium capacities in China. Chineese added new 3 million tons of capacities since beginning of 2012, what can be accounted to 75% of total Rusal’s annual production. These loss making plants were subsidized by Chinese government and crashed the world’s market. Chinese initiative resulted in a 450,000t surplus on the market and caused LME aluminium price recession.
Now Rusal had to pray it won’t fall first, as company’s main plan is to stay afloat while other 25% of worldwide’s producers who also became lossmaking due to Chine will went bankrupt.
* – This article originally appeared on Tilde Finance and has been republished with permission.