Era of $100 Billion Mining Company Dead, Billionaire Says

United Co. Rusal’s billionaire owner Oleg Deripaska said the age of huge diversified miners that can afford to lose billions of dollars on minerals like aluminum is over as investors seek focused businesses with rational output.

“They were buying different assets without proper thinking,” Deripaska said in an interview in St. Petersburg. “I think that those $100 billion companies are in the past.”

Excess supply from companies that subsidize their aluminum units has added to net losses at Rusal, the world’s largest producer of the metal, for the past two years.

BHP Billiton Ltd. and Rio Tinto Group, valued at more than $100 billion each, are among mining companies seeking to sell underperforming assets after the end of a commodity boom that spurred an industry spending spree. Glencore Xstrata Plc Chief Executive Officer Ivan Glasenberg last year said his peers had “really screwed up” by swamping the market with new mines.

“We have these multiproduct companies, big conglomerates, which actually create a lot of pain for our market,” Deripaska said in St. Petersburg. “Because most of them focus on something, for example iron ore, and they don’t care, they could write off billions of dollars from balance sheets from aluminum divisions and other divisions.”

Investors Realize

Shareholders are also moving away from diversified miners in favor of companies concentrating on a main market, he said.

“Investors realize there’s no need to have these conglomerates,” the billionaire said. “They need to be split and there will be more value released toward the shareholder. We need to have very rational output planning and only people focused on markets like aluminum companies can do it.”

Bank of America Corp. raised Rusal to a buy this month on rising aluminum premiums and as global supply excluding China turned to a deficit, ensuring higher demand and prices. Goldman Sachs Group Inc. and VTB Capital raised it to a buy in April.

“We see iron ore market facing a collapse in prices by the third quarter, which will make the life for multi-products companies much harder,” Deripaska said.

Rising Premium

While average aluminum futures on the London Metal Exchange were lower compared with the fourth quarter, the premium to the market price, which buyers pay for swift delivery, rose about 27 percent, helping producers to improve performance.

The world aluminum deficit will reach 1.3 million metric tons this year, while future demand will be supported by use of the light metal by carmakers instead of steel, Deripaska said. “We see aluminum demand growing at a pace up to 6 percent per year,” he said.

Rusal won a court ruling against changes to warehousing rules by the London Metal Exchange that were due to come into force on April 1, though the LME has a right to appeal. Hedging is too risky because of the difficulty of forseeing the premium paid for faster delivery, Deripaska said.

“What we want is another discussion with the market players on how the market should be regulated,” he said. Rusal and the LME had “some contacts” recently but the exchange isn’t ready to reach a deal until a final court ruling, he said.

Rusal is talking to lenders on refinancing $4.75 billion. “Nobody demands to pay back the debt,” Deripaska said. “We just need time to finalize an agreement and it will be done by middle of June when the waiver from the banks expires.”

Before it's here, it's on the Bloomberg Terminal.