Page 162 - RusRPTDec21

Rusal and the new demerged company. The new company would get aluminum smelters in Bratsk, Irkutsk, Novokuznetsk, Volgograd and Kandalaksha (1.8mn tonnes of aluminum production in 2020, or 47% of Rusal total volumes, on our estimates), as well as alumina refineries (2.8mn or 35% of 2020 alumina production) and mining assets (38% of total 2020 bauxite production) in Russia. Meanwhile, Rusal would keep aluminum smelters in Krasnoyarsk, Sayanogorsk, Taishet, Khakas, Boguchansky and Sweden (2.0mn tonnes or 53% of 2020 aluminum production), the alumina refineries and mining assets located outside Russia (65% and 62% of 2020 production of alumina and bauxite respectively), as well as enterprises of the downstream division (production of aluminum foil, car wheels, powders, etc.). Rusal also proposed renaming the company "AL+" and included this issue in Rusal AGM's agenda in June.
Evraz has held a Capital Markets Day, which featured the company’s senior management team. The key focus was on the potential coal demerger, and the company confirmed that shareholders would be offered a cash alternative to Raspadskaya shares, though it said details would be disclosed later.
The company also does not rule-out interim dividend payments for 9mo21; however, a BoD discussion on the matter might be only at the end of November or early December (we expect a DY of some 6-7% at a 100% FCF payout). Evraz also updated its project pipeline for the steel segment, planning to spend some $1bn capex per annum in 2021-26 and targeting organic EBITDA growth by 2026 at $630mn, though the economics look tight. Overall, our take is positive, mostly driven by confirmation of a cash offer alternative to Raspadskaya shares to shareholders upon demerger.
Cash option confirmed for shareholders on coal assets demerger, timing delayed to 1H22. Management confirmed that upon the demerger, shareholders would receive a cash alternative to Raspadskaya shares. There was no clarity on the structure and timing, or on the paying party (whether Evraz, Raspadskaya itself or major shareholders). The timing of the deal also shifted to 1H22, though this was already priced-in, we believe.
Project pipeline until 2026 targets $630mn organic EBITDA growth, though the economics look tight. Evraz reiterated its intention to construct a flat rolling mill at ZSMK with 2.5mnt capacity, though the capex consideration increased to $767mn ($308/t), up from $650mn in 2019. The company targets a gain of $130mn in EBITDA per annum, looking for the majority of sales to come from the domestic market. On our numbers, however, such a volume increase on the domestic market (which now consumes 15mnt/a) might pressure prices, while exporting products could generate only a $30/t margin, almost halving the projected EBITDA gain. The Pueblo rails upgrade planned gain, meanwhile, is limited to $70mn at $726mn capex, though this does not account for green energy usage. Other smaller project economics, with $915mn capex and $430mn gain, also look tight on first glance, though no details were given. Overall, we see certain risks to achieving the $630mn organic EBITDA growth target; however, we acknowledge that
162 RUSSIA Country Report December 2021 www.intellinews.com