March 1, 2018 / 11:18 AM / 6 months ago

Miner ERG to more than double aluminum output by 2021

PAVLODAR, Kazakhstan (Reuters) - Kazakhstan-focused miner Eurasian Resources Group (ERG) plans to more than double aluminum output within three years, easing its dependence on alumina sales to Russia’s Rusal, as part of a $5 billion spending plan, company executives told Reuters.

A worker takes a sample of molten alumnium in a shop of Kazakh mining company Eurasian Resources Group's (ERG) Kazakhstan Aluminium Smelter JSC (KAS) factory in Pavlodar, Kazakhstan February 20, 2018. Picture taken February 20, 2018. REUTERS/Shamil Zhumatov

ERG produces 1.5 million tonnes of alumina a year, selling two-thirds to Rusal and smelting the rest into aluminum at its smelter in the city of Pavlodar in northeast Kazakhstan. It produced 254,000 tonnes of aluminum last year.

But its contract with Rusal expires at the end of next year, at which point the Russian company may in theory stop buying Kazakh alumina altogether, ERG executives say.

To prepare for that, the company is spending $800 million on smelter expansion to begin next year, adding 270,000 tonnes to its capacity by 2021.

“We will be consuming more than 1 million tonnes of alumina (annually) and our dependence on Rusal will be mostly gone,” Roman Romanov, chief executive of Kazakhstan Aluminium Smelter, said.

FILE PHOTO: Aluminium bars are seen in a shop of Kazakh mining company Eurasian Resources Group's (ERG) Kazakhstan Aluminium Smelter JSC (KAS) factory in Pavlodar, Kazakhstan February 20, 2018. REUTERS/Shamil Zhumatov

Arman Yesenzhulov, chief executive of ERG’s alumina refinery - which is located in the same city as the smelter and is connected to it by rail - said it had no plans to cut output even after the expiration of the Rusal contract.

“Our further strategy is ... to at least maintain this volume (of 1.5 million tonnes a year),” he said.

When asked if the company was looking for new long-term contracts to secure aluminum offtake, ERG said in an email it was “always open to discuss future partnerships” and was always in touch with large traders.

“At the same time, there is no immediate need to expand the markets for our products,” it said. “We sell everything we produce while output is growing.”

ERG said the main markets for its aluminum were Russia, Kazakhstan, Belarus, Uzbekistan, and countries such as Italy, Poland, Greece, Turkey and others.

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FUNDING

ERG’s capital expenditures plan also includes $200 million to boost the capacity of its ferroalloys plant by 30 percent, as well as projects in the iron ore, chrome and electric power divisions - all located in Kazakhstan.

Aside from the core Kazakh assets, ERG, which is registered in Luxembourg, has copper and cobalt assets in Africa and iron ore mines in Brazil.

Sources told Reuters last week that ERG, in which the Kazakh government owns a 40 percent stake, was working on a plan to eventually spin off and list some of its assets to help repay debt. ERG declined to comment on the report.

The assets sales will help ERG pay off some of its debt, the sources said. VTB agreed last year to extend the terms covering $3 billion of ERG’s debt to 2022. As of July 2016, ERG owed $5.8 billion to its main creditors, VTB and Sberbank.

“Following the conclusion of the agreement on debt restructuring with key creditors, ERG’s capital expenditure program can sustain significant investment in Kazakhstan,” Alexander Mashkevich, a member of the trio of Kazakh businessmen who own a controlling stake in ERG, told Reuters in an email.

“Our current debt is being repaid in line with the plan and creates no problems for the group’s (development) plans,” ERG said in a separate email. “VTB has expressed readiness to continue supporting us in the future by providing financing.”

VTB declined to comment on ERG’s statement.

Additional reporting by Tatiana Voronova in Moscow; Writing by Olzhas Auyezov; editing by David Evans

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