With Sanctions Lifted, Rusal to Invest in U.S. Aluminum Mill
(Bloomberg) -- Just months after being freed from U.S. sanctions, Russia’s largest aluminum maker plans to invest in a new aluminum rolling mill in Kentucky.
United Co. Rusal, controlled by billionaire Oleg Deripaska until the U.S. Treasury forced him to reduce his stake earlier this year, intends to invest up to $200 million in the plant being built by closely held Braidy Industries. Rusal will also supply the mill with unfinished aluminum from plants in Siberia.
The Kentucky mill will sell rolled aluminum to the American auto industry, giving Rusal a better foothold as carmakers use more of the lightweight metal to improve fuel efficiency. The investment also demonstrates Rusal’s confidence the sanctions crisis is firmly in the past, but by acquiring a major U.S. asset the company gives the government potential leverage should it fall under scrutiny again.
A year ago, Rusal was on the brink of collapse after the Treasury effectively barred the world’s second-largest aluminum producer from the global financial system because of its connection to Deripaska. The sanctions roiled the global aluminum market as consumers scrambled to find ways to replace the metal they feared they could no longer buy from the Russian company.
After intensive lobbying by Gregory Barker, the Englishman who chairs Deripaska’s erstwhile holding company En+ Group, the Treasury agreed to end sanctions in exchange for an agreement the tycoon would give up control over the company. Deripaska, still under personal sanctions, remains the largest shareholder.
Braidy Chief Executive Officer Craig Bouchard said he isn’t worried about the perception of buying metal from the Russian company and said the focus should be on the help the venture will give to a U.S. region hard hit by the closure of coal mines.
“I’m aware of what happened, but it never entered my conversation or mind,” Bouchard said in a telephone interview. “I’m not a politician, it’s all about the business, and I have 10,000 families in Appalachia riding on my shoulders, and anyone that can help me rebuild Appalachia is my friend.”
Barker said Rusal has historically been the second-largest aluminum supplier to the U.S., and that won’t change in the aftermath of the sanctions.
“This partnership will help create manufacturing jobs in the U.S.,” he said in a telephone interview.
Rusal became interested in the Kentucky project because of its long-term potential, and the prospect of combining low-cost, low-carbon aluminum with Braidy’s technology, Barker said.
“The bottom line is if it wasn’t going to be Rusal, at this scale it would probably have to be Chinese aluminum,” he said. “The key differentiator here is that our aluminum is 3.7 tons of carbon to create 1 ton of aluminum and Chinese aluminum is highly polluting at 22 tons of carbon for one ton of aluminum. It’s a very, very clear division.’’
Braidy announced two years ago that it planned to build an aluminum mill in eastern Kentucky as demand for the metal grows in the U.S. automotive and aerospace markets. Bouchard said the price tag, originally pegged at $1.3 billion, is now up to about $1.7 billion. The 2.5 million square-foot facility, expected to open in 2021, will be the first U.S. greenfield aluminum mill project in more than 30 years, he said.
Bouchard, who backed the Trump administration’s tariffs on aluminum and steel imports imposed last year, said Rusal will ship its aluminum from overseas and Braidy will pay the 10 percent levy.
“I can’t get 200,000 tons from any other producer, there’s not one guy in Canada, the Middle East, Japan or the U.S. that can supply that amount of slab to us, it just doesn’t exist,” Bouchard said, explaining why the Rusal deal makes sense. “And low-carbon aluminum is even more rare. We could not have scaled this amount without Rusal.”
Bouchard said Rusal’s investment in the mill won’t require a review by the Committee on Foreign Investment in the U.S. because it’s a greenfield investment. The agency vets whether proposed acquisitions of and investments in U.S. businesses by overseas companies pose national security threats.
“The CFIUS laws were written very explicitly to exclude greenfield projects, so foreign companies may invest in U.S. greenfield projects without a requirement for CFIUS review,” Bouchard said. “They’re just like anyone else now.”
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