Rusal warns of investment risk

RUSSIAN aluminium giant Rusal has slammed the investment ­climate for value-adding minerals processing, saying the key advantages Australia once enjoyed around energy and sovereign risk were being destroyed.

“The industry in Australia is faced with development hurdles that pose significant obstacles for investment,’’ Rusal’s Australian chairman, John Hannagan, told The Australian.

He said that the hurdles — including the previous Labor government’s carbon tax and the Howard government’s renewable energy target — had the effect of destroying Australia’s key advantage in minerals processing and competitive energy.

The Labor opposition has said it will block the repeal of the carbon tax, and according to Mr Hannagan, the RET would add more than $80 million annually to the aluminium industry’s costs if left unchanged in the Abbott government’s review of the scheme.

Tough pricing conditions in the industry have seen Rio Tinto announce the closure of alumina production at its Gove operation in the Northern Territory, and Alcoa close its Point Henry smelter in Victoria.

Mr Hannagan said Australia’s high cost of construction and a stubbornly high exchange rate also put future investment at risk.

“As a global commodity business Rusal looks for investment opportunities in all areas of its business units and makes those investment decisions on the basis of risk weighted capital return. Against that yardstick, investment conditions for the aluminium sector (bauxite mining, alumina refining and aluminium smelting) in Australia are extraordinarily difficult,’’ Mr Hannagan said.

Rusal’s dissatisfaction with the investment climate has prompted the group — a partner with Rio Tinto in the QAL alumina refinery in Gladstone where the carbon tax is costing an estimated $25m a year — to explore for new investment opportunities in Indonesia.

Rusal — the world’s biggest aluminium company that produces almost 10 per cent of the global aluminium output — has signed a memorandum of understanding with Indonesia’s Arbaya Energi for a partnership covering bauxite mining and alumina production opportunities in West Kalimantan.

The move in to Indonesia followed the January start to the country’s ban on exports of bauxite unless there is local value-adding through additional processing, be it to the intermediate product of alumina or aluminium metal.

Australian companies, including Rio at Gove, have seen the Indonesian ban as a chance to crank up exports of bauxite, particularly to China, which has been the most reliant on Indonesian supplies.

But Rusal has demonstrated a willingness to get on board with Indonesia’s value-add push, with its dissatisfaction with the Australian investment climate a key factor. “It needs to be understood that the Indonesian government has not simply imposed a blanket ban on the export of ores. The current Indonesian government policies are for mineral ore exports to be conditional on some local processing — in the case of bauxite, refining,’’ Mr Hannagan said.

“While there is still some uncertainty around aspects of the new policy we would expect greater clarity after the 2014 Indonesian elections are completed.

“This new development means that Australia will compete directly with Indonesia as their bauxite/alumina policy matures.’’

Bauxite prices in to China have moved from an average of $US50 a tonne at the start of the year to more than $US60 a tonne, with prices as high as $US95 a tonne paid by the Chinese to secure replacement supplies because of the Indonesian ban.

“Our MOU with Arbaya Energi reflects Rusal’s need for reliable sources of alumina from the ­Pacific basin,’’ Mr Hannagan said.

“Indonesia, understandably wants to get industrial development and job creation from its extensive bauxite reserves.’’