Rio Tinto loaded the capacity of the QAL plant owned by Rusal under a tolling agreement

Rio Tinto loaded the capacity of the Queensland Alumina Limited (QAL) alumina refinery, owned by Rusal, under a tolling agreement, without waiting for the end of the litigation between the companies over this asset. Rusal believes that Rio Tinto had no right to take control of the Australian plant, where the Russian company owns 20%. A decision in the case is expected soon.

Rio Tinto uses part of the capacity of the Australian alumina refinery QAL, which is de jure owned by Rusal, under a tolling agreement. The Australian-British concern disclosed such information in its annual financial statements. In tolling, one of the parties transfers raw materials to the counterparty, receiving finished products from him. Rio Tinto owns 80% of QAL, and Rusal owns 20%.

Rusal lost control of its stake in QAL last year. In March 2022 Australia banned export to Russia of alumina and aluminum ores. Then in April, Rio Tinto CEO Jacob Stausholm announced the end of commercial relations with Russia. The company then claimed 100 percent control of QAL. The Russian company, through its structure Alumina & Bauxite Company Ltd (ABC), filed a lawsuit in the Federal Court of Australia against Rio Tinto, challenging the loss of control over its stake in QAL.

According to a Kommersant source, in its claim, ABC claims that the QAL decision to apply the step-in procedure with Rio Tinto was not properly initiated and constitutes a violation of obligations to ABC under the joint venture agreement.

The step-in procedure allows the beneficiary to take the place of the other party in respect of the rights and obligations under the contract, usually in the event of a serious breach of it. Court hearings took place in May-June 2023, and a decision is expected in the near future, the source said. Rusal and Rio Tinto did not comment on this.

Rio Tinto does not include alumina produced at Rusal’s QAL facility in its reporting. According to Rio Tinto, QAL produced 3.4 million tons of alumina in 2022, 2.7 million of which came from the Australian-British concern. Based on current market prices, a batch of alumina produced at Rusal’s facilities is valued at $231 million. The Russian company faced a shortage of alumina last year due to the loss of its facilities in Australia and forced to buy alumina, mainly in China. Rusal is now planning to solve the problem, having built for 400 billion rubles. a new alumina plant in the Leningrad region with a capacity of 4.8 million tons per year, but its commissioning will take ten years.

Lawyers interviewed by Kommersant believe that Rusal has a chance in a dispute with Rio Tinto. So far, the legal status of a 20% stake in Queensland Alumina has not been determined, as well as the basis for control over it by Rio Tinto, says Kirill Nikitin, head of the Vegas Lex law firm.

Rio Tinto could obtain control over Rusal’s share on sanctions grounds only as a result of a decision by a state body or a competent court. However, the lawyer emphasizes that such decisions were not reported, therefore, it can be assumed that the share was received by Rio Tinto on other grounds, which may cast reasonable doubt on the legality of such actions. In favor of this, Kirill Nikitin believes, speaks the content of the request sent by the court to Rusal: it is aimed at clarifying the specific circumstances of compliance by the parties with the established restrictions, which, according to the lawyer, indicates a potential disagreement of the court with the “automatic” withdrawal of shares based on national ownership of the company or its shareholders (see “Kommersant” dated December 6, 2022). According to the lawyer, if Rusal regains control over the asset, the company will be able to compensate for the losses incurred, including in the form of lost profits.

Evgeny Zainullin