The Group benefits from its unique base of tightly-integrated assets

Located in close proximity to each other, in order to establish its global leadership in both power and aluminium production.

With 15.1 GW installed hydro power capacity, the Group is the largest privately held hydro generator in the world. RUSAL is the world’s largest aluminium producer outside of China and the second largest aluminium group globally with annual production of 3.7 million tonnes of aluminium in 2016.

The composition of the Group’s assets and operations, both in terms of the industries and concentrated location in which the Group operates, enables En+ Power and RUSAL to achieve strategic synergies.

The Group’s scale allows it to actively manage the flow of aluminium products, alumina and other raw materials within the Group and proactively plan the Group’s energy generation and consumption targets. This enables the Group to optimise capacity utilisation and maximise efficiency at its smelters, refineries and power plants.

The Group has a number of competitive strengths that have enabled it to expand significantly over the last several years, and that these strengths will continue to provide it with competitive advantages in the future.

Vertically integrated green business model

Aluminium smelting is a highly energy-intensive process. The Group’s key competitive advantage for creating value through vertical integration lies in the close match of the electricity needs of RUSAL and the electricity production of En+ Power.

As well as this supply-demand complementarity, the Group benefits from a natural internal currency hedge and coordination of growth and capital expenditure opportunities.

Unique asset base and operational excellence contributing to cost leadership

The favourable geographic characteristics of the Group’s assets and the integration of its aluminium and power operations are the key drivers contributing to its global low cost leadership.

Sources of renewable energy production, HPPs in particular, have lower variable operating costs when compared to generators reliant on fossil or nuclear fuel.

The Group’s power operations are predominantly located in Siberia, Russia, where they benefit from the abundant water resources of the Angara and Yenisei river cascades. The Group also benefits from the scale of its hydro power plants, operating three out of the five largest HPPs in Russia and the twenty largest HPPs globally. Because of the geographic characteristics of the area where it operates, scale and the efficient management of its power plants, En+ Power has lower operating costs compared to other companies engaged in hydro generation. As a result, RUSAL also enjoys access to low-cost and abundant hydro power generation, allowing RUSAL’s aluminium smelters to retain their competitive position on the global cost curve, while competition for energy supply continues to put pressure on the cost base of other aluminium producers which rely more heavily on thermal or gas generation. As a result, RUSAL’s average aluminium costs per tonne were USD 1,333 in 2016, ranking RUSAL in the first quartile of the aluminium industry cost curve.

The Group’s leading low cost position makes it less vulnerable to fluctuations in the price of aluminium allows more flexibility to maintain production at optimal levels.

Strong cash flow generation

The Group has established a track record of free cash flow generation that has enabled it to pay increased dividends to its shareholders in recent years. The Group’s power operations generate a stable base for free cash flow from operating activities through dividends from its power subsidiaries. The combined free cash flow of the Group in dollar terms is less susceptible to currency fluctuations than the free cash flows of RUSAL and En+ Power individually. The Group’s Free Cash Flow is supported by RUSAL’s continued focus on higher-margin value-added products, as well as dividend payouts from Norilsk Nickel.

Upside potential from multiple catalysts

Global aluminium consumption is expected to grow from 59.7 million tonnes in 2016 to 73.2 million tonnes in 2021 according to Company analysis, translating into a 4.2% compounded annual growth rate, and contributing to an increase in primary aluminium deficit from 0.7 million tonnes in 2016 to 2.1 million tonnes in 2021. Aluminium demand is driven by a diverse set of industries, with transport and construction sectors collectively accounting for over half of world aluminium consumptions in 2016.

As the largest aluminium producer outside of China, RUSAL is favourably positioned to capture this incremental demand. RUSAL is in the process of constructing two large aluminium smelters, which, when completed, will increase production capacity by up to 1.6 million tonnes. In 2016, the BEMO Project, with a total designed capacity of approximately 600 thousand tonnes of aluminium per annum, was commissioned with production of 149 thousand tonnes of aluminium per annum, with additional production of 149 thousand tonnes of aluminium per annum expected to be operational in 2018. In May 2017, RUSAL decided to resume the construction of Taishet aluminium smelter, which had been suspended in 2009. It is expected that Taishet will have production capacity of up to 983 thousand tonnes of aluminium per annum once completed.

As the largest power producer in the Siberian region, En+ Power is also well positioned to capture the benefit of an increase in the electricity demand that would be triggered by the completion of both projects, estimated at up to 20.7 TWh.

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