Highlights

• Revenues increased by over 11% to $14.3 billion compared with $12.9 billion in 2006
• Overall investment rose by 45%, amounting to $2.9 billion
• Aluminium production increased by 6% to 4.2 Mt
• Output of high value-added casthouse products increased by 16% to about 2.1 Mt
• Alumina production rose by 5.1% to more than 11.3 Mt
• Bauxite mining production was maintained at 17.3 Mt.

Figures for 2006 reflect the combined results of United Company RUSAL, formed through the completion of the merger of RUSAL, SUAL and Glencore’s alumina assets. Figures are preliminary and may be revised following audit completion.

Commenting on the results, Alexander Bulygin, CEO, United Company RUSAL, said: “2007 was a successful year and an important milestone in the company’s history. We integrated the production assets of the united company in less than six months and achieved significant production and financial growth. UC RUSAL has maintained its position as the world’s largest aluminium and alumina producer by completing large scale projects, such as the launch of new production capacities at the Khakas aluminium smelter and modernisation of existing smelters, including the construction of two new potrooms at the Irkutsk aluminium smelter. In addition, we started construction of the Taishet and Boguchansk aluminium smelters and began expanding our captive power base by initiating hydropower, coal and nuclear power projects that will support our industry leading position in the long term.

“The two key global trends of consolidation and diversification provide the opportunity for us to leverage our competitive advantages. In order to support the further growth of our business and value of our company, we intend to develop as a global diversified metals and mining corporation and secure a position among the top five largest metals and mining giants. The agreement to acquire 25% plus one share of Norilsk Nickel is the beginning of the process of creating Russia’s first global metals and mining company by consolidating non-ferrous industrial assets. In 2008, we will focus our efforts on achieving this ambitious goal.”

2007 was not an easy year for the global aluminium industry. On the one hand, the 12 month average price of primary aluminium hit a new historic high of $2,640/t. Global demand rose by over 10% due to unprecedented demand from China, Japan, and other countries in Asia as well as from Europe. On the other hand, we witnessed a minor decline in the price of primary aluminium caused by the growth of production of aluminium in the US as previously idled smelters were restarted and then the pace of domestic consumption declined as the slow down of economic growth in the US started. The rising cost of energy during the year, in particular the increase of oil prices, increased the costs of aluminium production and led to additional capital expenditures being required for the construction of new aluminium smelters.

The 6% growth of primary aluminium production and 16% increase in value added casthouse production resulted from UC RUSAL’s launch of full capacity at the Khakas aluminium smelter and ongoing projects to modernise equipment and expand production, including casthouse modernisation and technical renewal of equipment at aluminium smelters.

The increase in alumina production of 5.1% was a result of the completion of the modernisation of the Achinsk and Nikolaev refineries, as well as the optimisation of production processes at Eurallumina.

The 28% growth of aluminium foil production is due to the launch of full capacity of the ARMENAL foil mill on schedule.

In 2007 investment in modernisation, expansion and equipment retooling of production capacities amounted to over $1.3 billion. This includes research & development expenditure which amounted to about $100 million, including the development of technical solutions to optimise production and technology of all of the group’s aluminium smelters, alumina refineries, service centers and hydropower construction projects.

The company completed large scale modernisation of its casthouse production allowing it to increase the share of value-added products almost tenfold since 2000 to 50% of total aluminium production. The investments in the project amounted to approximately $130 million.

Within the framework of the large scale environmental modernisation programme at the Krasnoyarsk smelter aimed at reducing the level of hazardous production emissions by 30%, the smelter’s potrooms were equipped with automated alumina point feeders. Subsequent monitoring, conducted in autumn 2007, showed that the efforts resulted in an 82% decrease of perfluorochemical emissions per tonne of aluminum produced. The volume of capital investment in modernization of this smelter amounted to more than $85 million.

In the summer 2007 UC RUSAL initiated an ecological modernisation programme at the Bratsk smelter, the world’s largest aluminium smelter. The first stage of the project, amounting to approximately $350 million, is planned to last four years and will be completed in 2011. An initial $12 million was invested in 2007 into the project.

In 2007 the company completed the process of equipping the Sayanogorsk aluminium smelter with dry gas purifying facilities that capture up to 99.5% of harmful emissions, preventing them from reaching the atmosphere. The goal of the project was to minimise the level of emissions and improve the ecological indicators of the plant. The capital investment in the plant amounted to $105 million in 2007.

The Nikolaev refinery modernisation project to increase alumina production to 1.7 Mt/y continued and is expected to be completed by 2009. In the framework of the project, construction of the new red mud disposal area No. 2 was completed last year enabling an expansion of alumina production.s Total investment in this project is forecast at $170 million, of which $85 million was committed in 2007.

UC RUSAL invested about $1.6 billion to diversify the company’s business and create new production capacities.

A controlling stake in the ALSCON aluminium smelter in Nigeria was bought. The company completed the retooling of the plant and started the testing phase. Production launch is scheduled for February of this year. The total investment in this project will amount to approximately $300 million over the three year period.

The construction of two new potrooms with combined capacity of about 170,000 t/y at the Irkutsk aluminium smelter was completed. The launch is scheduled for the beginning of 2008. The total investment in the project amounts to more than $600 million.

The Khakas aluminium smelter reached full capacity. The total investment in the project amounted to around $750 million. The joint project of HydroOGK and UC RUSAL to construct Boguchanskaya Hydropower Plant continues in the framework of the Boguchanskoye Energy and Metals Complex construction project.

The construction of the Boguchansk aluminium smelter began as part of the Boguchanskoye Energy and Metals Complex project. The smelter’s planned capacity is 600,000 t/y. Also, UC RUSAL initiated the construction of the Taishet smelter in the Irkutsk region. The total investment in the planned 750,000 t/y aluminium smelter will be some $2 billion.

In April 2007 UC RUSAL and Federal Nuclear Power Agency (ROSATOM) signed a Memorandum of Understanding on the joint implementation of long-term investment projects. The document provides for the detailed exploration of opportunities to establish an energy and metals complex in the Far East comprising a nuclear power plant and an aluminium smelter.

In October 2007 UC RUSAL signed a co-operation agreement with the government of Russia’s Saratov region for the construction of the world’s largest energy and metals complex, including a nuclear power plant and an aluminium smelter.

In November 2007 UC RUSAL signed a Memorandum of Understanding with Kazakh Samruk Holding to establish a joint venture to develop the Ekibastuzskoye coal field in the area of Bogatyr and Severny coal mines in the Pavlodar region, both in the Republic of Kazakhstan. The parties will produce coal to serve the Kazakh and Russian markets.

The company says “this year will not be easy for the aluminium industry. A number of factors are expected to lead to poor conditions for the world aluminium market and an increase of production expenses in 2008. The major impact will be the forecast slowdown of consumer demand in the USA and a possible recession plus the reduced competitiveness of imported products because of the weak US dollar.  These factors will negatively influence domestic demand for aluminium and may lead to lower demand for aluminium from US largest trade partners. In addition, the significant increase in the price of energy resources, in particular oil, will negatively influence the cost of aluminium production throughout 2008, decreasing its profitability.  

“On the other hand, China is expected to reduce exports of aluminium in 2008, continue its active urbanisation and become a net importer. The increased cost of energy and raw materials, higher construction costs for new aluminium plants, as well as tougher environmental legislation requiring the use of environmentally friendly metals should stimulate the demand and provide new opportunities for aluminium. Growth of demand for aluminium is expected to be at least 7-8% per annum.

“In this situation, one of the company’s top priorities will be further optimisation of expenses in order to maintain its position as one of the most effective aluminium companies in the world. Another important priority of the company will be the completion of the acquisition of 25% plus one share of Norilsk Nickel and further efforts to develop the company into one of the world’s largest metals and mining corporations.    

The company is the global leader in the aluminium industry, accounting for approximately 12% and 15% of global production of aluminium and alumina respectively. It sells its products in 70 countries worldwide and employs 100,000 people in 19 countries, across five continents.