NEW YORK Russian metal and mining companies are focusing on lowering capital expenditures to attract investment and limit exposure, according to speakers at the VTB Capital Investment Forum in New York.
Oleg Mukhamedshin, director of strategy and business development at Moscow-based United Co. Rusal, said that his company and other major aluminum producers need to "focus on the rationalization of excess capacity," including production cuts, in order to bring supply and demand back into balance.
"Both Rusal and our peers have made certain steps to decrease production, including about 1.4 million tons of capacity idled last year, but its still not enough. I think we understand the whole industry needs more discipline," he said. "Aluminum demand is set to grow, but without further capacity cuts the crisis in the industry will only gain momentum. Thats exactly what investors are looking at: a reduction of capital expenditure and rationalization."
Meanwhile, Alexey Kulichenko, chief financial officer of Cherepovets, Russia-based OAO Severstal, said that his company is unlikely to allocate any capital for developing greenfield mining projects in the near term.
"Severstal is very conservative on debt and will continue to be, so there is no room for sizable exposures on greenfields," he said. "For us, we would need to see if there is any combination of partners to handle the exposure."
Stanislav Ploschenko, chief financial officer of Moscow-based Mechel OAO, said that the metals industry needs to attract more funding to develop new mines, and posited Russia as one of the better options for investment due to lower production costs. "The only challenge is infrastructure," he said. "In Russia, we still depend on government investment."
Wiktor Bielski, global head of commodities research at Moscow-based VTB Capital, agreed that metal and mining companies are more likely to leverage existing capital expenditures with brownfield projects than by developing greenfield projects, noting that government taxation, permitting delays and a lack of skilled labor have created "more delays, more postponements and higher costs."