Russian Aluminium (Rusal) has scored two provisional victories in the past week, the first to sell to US aluminium leader Alcoa two aluminium rolling-mills for about $220 million; and the second to buy a 20% stake in Queensland Alumina Limited (QAL) for $401 million, plus assumption of $60 million in debt.

Just how provisional these deals are for Rusal may not be clear for some time, while the Russian and Australian governments, and Rusal's rivals in Australia, complete their due diligence.

According to an announcement issued on November 1 by the Russia's Anti-Monopoly Service (FAS), a 6-month old bid by Alcoa to buy the Rusal plants in the Samara and Rostov regions has been approved. "Our decision will be positive," the statement quoted FAS head Igor Artemyev as saying. "We shall give our approval to Alcoa for the purchase of the Samara aluminum] plant and the Belokalitvenskoye association [Belaya-Kalitva Metallurgical Plant]. But we shall impose conditions of behaviour." Asked what conditions the FAS has decided on, Konstantin Dorokhin, the FAS spokesman, said these have not been finalized. "That will be decided and announced within a week," he said.

In a joint announcement on May 6, Alcoa and Rusal said that they had agreed on the sale and purchase of the two mills, Samara and Belaya Kalitva.

Russian sources estimate the sale price at between $200 and $250 million, approximating one year of revenues for the two plants. "Closing, subject to government approvals, is expected to be completed by June 30," the Alcoa-Rusal statement claimed. An Alcoa source has said that in the proposed structure of the Rusal deal, the shares of the two Russian mills would be vested in a new corporate entity called Prime Alum, and the shares of the latter then sold to Alcoa. "Rusal has set up the shares in Prime Alum," the source said, "and we will be purchasing those shares. It is a legal technicality."

This structure could be modified by the Russian government to allow Alcoa to acquire a smaller shareholding, but whether Alcoa would accept that is uncertain. In recent moves in the power engineering, oil, and mineral sectors, the Kremlin has signaled that will not approve foreign takeovers of Russian companies that are judged to be strategic in their sectors. Because of the importance of aluminium supplies to Russia's defence industries, there has been speculation that defence-related production at the plants might have to be quarantined from the takeover, or Alcoa's stake reduced.

Asked if among the deal conditions his agency will impose, the FAS may require any change in the shareholding structure to reduce Alcoa's stake from 100%, Dorokhin told The Russia Journal "for that decision we need a week, too. Next week our [agency] will finalize its decision and the restrictions list."

Earlier this year, initial FAS approval of a takeover of the Russian turbine manufacturer, Power Machines, by Siemens of Germany was modified by senior officials of the Russian government, and Siemens accepted a minority stake, instead of a controlling one. Alcoa spokesman Kevin Lowery told The Russia Journal last week "we have not been asked by the FAS or any other agency of the Russian government to revise the terms of our deal with Rusal."

Dorokhin was asked if Artemyev's approval, announced by FAS yesterday, had been cleared by the Prime Ministry. "It's already approved," he said. "We are speaking only after a meeting on the governmental level." The office of the Prime Minister was not available to confirm the terms and conditions.

A senior government source told The Russia Journal that the inter-ministerial meeting, at which FAS submitted its report on the Rusal-Alcoa deal, gave a "preliminary" approval. He said that this decision could be changed.

The Samara Metallurgical Plant is one of the world's largest producers of aluminium semi-fabricates, sheet products, forgings and castings, with a design capacity of 800,000 metric tons per annum. In 1998 it was producing at just 10% of that capacity. Output was raised to 199,404 tons in 2002, but last year, Rusal admits, it fell by 13% to just under 174,000 tons. That is just 22% of capacity.

The Belaya Kalitva Metallurgical Plant is much smaller, with design capacity for 250,000 tons of rolled products. Production in 2003 was just 41,430 tons; that was up 8% on the 2002 result, but just 17% of capacity.

Twenty-four hours following Artemyev's statement, Rusal had not posted an official announcement of its own, confirming the Alcoa sale.

However, the Rusal website has confirmed that on October 28 the group made the winning bid for assets in QAL owned by the bankrupt Kaiser Aluminium of the US. Rusal outbid by $1 million Swiss trader Glencore. According to Rusal, "the successful bid provides for a base price of US$401 million in cash, subject to certain working capital adjustments, plus purchase of Kaiser's alumina and bauxite inventories and the assumption of Kaiser's obligations in respect of approximately US$60 million of QAL debt. Kaiser also will transfer its existing alumina sales contracts and other agreements relating to QAL to Rusal. Rusal said that the acquisition of this stake in QAL, the largest alumina refinery in the world, is an important step in RUSAL's drive to enhance its self-sufficiency in raw material supplies." The US court supervising Kaiser's bankruptcy must certify the auction result at a hearing on November 8. Rusal also acknowledged that the deal would require "customary closing approvals including those by lenders and certain regulatory authorities. The transaction is targeted for a closing in the first quarter of 2005."

QAL's Gladstone alumina refinery is reported to be the largest in the world, with a maximum capacity of 3.65 million metric tons per annum. The principal shareholder in the plant is the Comalco unit of Rio Tinto, which has a 42% stake, and Alcan -- now the largest aluminium company in the world -- with 38%. Both shareholders must approve the Rusal bid in order for the deal to close. In addition, the Australian government will review the Russian stake before it issues its decision.