By John Helmer in Moscow

With the end of the year 2008, the last of the legendary diamond cartel deals has sunk back into the murk from which it originated when Cecil Rhodes created his African Diamond Syndicate in 1873.

Forced three years ago by a ruling of the European Commission (EC) to halt trading of rough diamonds, De Beers and Russia’s diamond miner Alrosa have wound up a series of trading agreements that date back — most of them secret, some open — for almost 50 years. Although the EC ruling was subsequently overruled by the European Court of Justice, De Beers and Alrosa decided separately that their best interests would be served if, from now on, they produce and trade competitively. From January 1, Alrosa will no longer sell and export a fixed quantity or value of rough diamonds each year to De Beers.

At peak, in the 1990s, De Beers was buying more than a billion dollars’ worth of Russian rough from Alrosa through official channels, and doing profitably on the leakage, or unofficial trade, as well.

Before January is out, it will also be clear whether the Russians have decided to roll up De Beers’s coattails, and oust Archangel Diamond Corporation (ADC), a De Beers-controlled Canadian subsidiary, from its position as co-owner and operator of the newest of Russia’s diamond mines in the Arkhangelsk region of northwest Russia.

Does this mean that the Russians believe that Alrosa, which accounts for about one-quarter of the global supply of mined diamonds, is better positioned to weather the market-wide collapse of diamond value than De Beers, which controls about 40% of diamond output? Because Alrosa is backed by Russian state financing, treasury guarantees, and the capacity of the state stockpile to absorb Alrosa’s diamonds until they can be sold, the answer is a tentative yes. Therein lies the potential for a revolution in international diamond clout.
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by John Helmer - Saturday, January 3rd, 2009
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By John Helmer in Moscow

Alrosa, Russia’s state-owned diamond miner, has reported that rough sales this year have slipped by 1.1%, and will slip by ten times that margin in 2009.

Alrosa, a wholly state owned shareholding company controlled by the federal government, does not issue production and financial results by the half-year or quarter. It also does not disclose conventional production data by diamond weight (carats). Like-for-like comparisons by carat, mine source, and year are also not available. Instead, production results are cited in ore tonnage excavated, and in US dollar value terms for diamonds recovered, making precise volume comparisons impossible. Announcements of result data are timed arbitrarily, and executives do not respond to detailed questions.

In the latest press release posted on the Alrosa website, rough sales by Alrosa, excluding its share of sales of production from the Catoca mine in Angola, are reported as totaling $2.76 billion. This was reported in a Russian news agency citation from Alrosa CEO Sergei Vybornov as a decline of 1.1% on the 2007 level. It is also down on the sales projection by the board three months ago of $2.85 billion.

The information provided in the Alrosa Annual Report for 2007 is unclear. In Vybornov’s report to shareholders at the opening of the report, and in the sales section of the report, Alrosa’s rough sales revenues were given for the year as totaling $2.79 billion; this comprised $2.13 billion for Alrosa’s wholly owned mines in Sakha; and $663.1 million in sales from the Nyurba mine, whose equity is equally divided between Alrosa and the Sakha regional government. The figure for the main mines was reported as falling 4.3% from the 2006 result, while the Nyurba figure was rising by 3.8% on 2006.
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by John Helmer - Saturday, January 3rd, 2009
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By John Helmer in Moscow

In a report issued this week, Troika Dialog, a Moscow investment bank, warns that a combination of operating financial risks, debt problems, and new coalmine costs will impact negatively on Mechel, the fifth-ranked Russian steelmaker and leading coking-coal producer. The report comes after last week’s trading on the Moscow stock exchange had slashed Mechel’s share price by 19% to $3.93.

This week, Mechel has dropped another 8% to $3.62. The current market capitalization of the group is $1.5 billion, down by almost 90% since the start of this year — a bigger loss of value than has been suffered by its Russian peers.

The report by Troika steel analyst Mikhail Stiskin concludes that “the stock is trading at a premium to international and Russian peers on forward multiples, which in our view is not justified by the fundamentals. Mechel (ticker MTL:US) has considerable financial leverage and major capex commitments, stretching its balance sheet and exerting pressure on cash flows. We also see a risk of significant losses in the group’s steel division, which is well known for its earnings volatility, and note that a big chunk of the company’s value is represented by the Elga [coalmine] project, which has serious execution risks.”

Mechel, which is controlled by Igor Zyuzin, has been reorganized into three semi-autonomous groups for steelmaking, ferrous alloys (including nickel), and mining (including coal and iron-ore). Earlier in the year, Zyuzin had been planning to spin off and separately list the alloys and mining divisions, in part to recoup the multi-billion dollar costs of the acquisition this year of the chrome mining and refining assets of Oriel Resources; and the purchase at a a state privatization auction in October 2007 of the Elgaugol and associated coal deposits in the fareastern region of Sakha. The ferroalloy and coal transactions cost $1.5 billion and $2 billion, respectively.
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by John Helmer - Tuesday, December 30th, 2008
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By John Helmer in Moscow

Russia’s leading mining company, and one of the leading suppliers of nickel to China’s stainless steelmills, may be facing further revenue and profit cuts in 2009, as the international nickel price continues to fall, and inventories of the metal grow.

However, political intervention by the Kremlin has ended a hostile takeover attempt aim,ed at Norilsk Nickel (ticker GKMN:RU) by Oleg Deripaska’s aluminium company, Rusal, allied with a former shareholder in Norilsk Nickel, Mikhail Prokhorov. A new 13-man board lineup, voted by Norilsk Nickel shareholders under Kremlin supervision last Friday, rejected Prokhorov’s bid for election, and limited Deripaska to 4 out of 13 seats.

An alliance between government nominees and controlling shareholder, Vladimir Potanin’s Interros group, provides a 7-man majority of votes on the new board, thereby ending months of uncertainty and conflict.

The Norilsk Nickel share price has responded this week, climbing 3% in Monday trading in Moscow and New York to $67; this is a gain of 9% on the week.

At the same time, the LME price of nickel has continued testing early-December lows; it is currently ranging between $9,755 and $9,925 per tonne. It is exceptional for Norilsk Nickel’s share price to move up when the nickel commodity price is coming down. The correlation between the two was suspended in the middle of the year when conflict between the three major shareholders of the Russian company, Potanin, Prokhorov, and Deripaska reached its peak.
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by John Helmer - Tuesday, December 30th, 2008
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By John Helmer in Moscow

Before the global collapse of mine commodities and mining equities in the autumn of 2008, Mineweb, the Johannesburg-based mining publication, suffered a meltdown in asset valuation. Then, in July 2008, it incurred the worst cash loss in the publication’s history.

The publisher and editor-in-chief of Mineweb is Alec Hogg. With Louise Hogg — his ex-wife, now a resident of Ireland — Hogg is the controlling shareholder of Moneyweb, the South African listed company (ticker MNY:SJ), which owns Mineweb. Each of the Hoggs individually holds a 24.4% stake. The single largest shareholder, with 25.1%, is Mvelaphanda, the South African conglomerate controlled by Tokyo Sexwale. According to Mvela’s representative on the Moneyweb board, Lindikhaya Sipoyo, the explanation for what has happened at Mineweb is still “in discussion”.

Hogg has told public shareholders that the cost of a defamation case, brought against Mineweb in London by Sergei Generalov, a Russian owner of a Georgian mining company called Madneuli, caused the cash loss. Hogg hasn’t disclosed his own role in the affair, or explained how it happened that, nine months before the settlement was announced, Hogg himself had refused to negotiate a no-cost deal with the Russian.

Nor has Hogg explained to shareholders that over several years, he has actively sought international sale offers for Mineweb, rejecting three in a sequence when each one elicited a significantly lower price than its predecessor. The first offer was for $5 million, according to the man whom Hogg asked to arrange the sale. The second was for more than $2 million; and the third, negotiated in London this past June, was for $1.5 million. Hogg initially accepted each of them; only to change his mind, and then refuse.
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by John Helmer - Monday, December 29th, 2008
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By John Helmer in Moscow

A Russian government effort to end special lobbying by major company shareholders, chief executives, sector cabinet ministers, and regional governors has either just ended; or else it has failed, because there isn’t enough government cash or credit for to satisfy everyone, and the political cost of saying no to some of the applicants is too high for the Kremlin to acknowledge publicly.

The Russian government website published yesterday a list of 295 companies, which have been identified as approved by a government commission on stabilization measures in the current crisis. The practical meaning of the approval list is unclear, however.

The commission has been headed by First Deputy Prime Minister Igor Shuvalov and Economic Development Minister Elvira Nabiullina. Their committee was appointed by President Dmitry Medvedev. According to a public statement by Shuvalov, a total of Rb3.2 trillion ($110 billion) may be required to prevent widespread insolvency and company collapse.

Russian reports indicate the new list was modified in discussions with Prime Minister Vladimir Putin and his deputy, Igor Sechin, whose proposal for the approved companies was different. Putin chairs the board of Vnesheconombank (VEB), which has been issuing bailout loans to Russian companies facing heavy foreign debt redemptions. Sechin is in charge of the energy, mining and natural resource sector, and chairman of the board of Rosneft, Russia’s leading oil company.
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by John Helmer - Friday, December 26th, 2008
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By John Helmer in Moscow

A meeting of the Gas Exporting Countries Forum (GECF) in Moscow this week has agreed on an organizational charter and a new headquarters, but stopped short of including all the gas exporting majors, and did not attempt to introduce a scheme for price controls for gas exports. But there was a quiet surprise the media have overlooked.

Western press coverage of the meeting focused on the price control issue, which the attending ministers dismissed as impossible to implement, and not on their agenda. “The difference between OPEC and the forum is very simple,” the Algerian energy minister Chekib Khelil was reported as saying. “OPEC looks at today, what happens on the market and makes the decision. The [gas] forum, of course, looks on today because it has to, but it’s more forward looking. It cannot control the volumes and price for the next 10 years because it’s locked into long-term contracts and also the price of gas is locked into oil.” Khelil is also president of the Orgganization of Petroleum Exporting Countries (OPEC).

The Moscow session of GECF fell short of representing all of the world’s leading gas exporters, since Brunei, Indonesia, Iraq, Malaysia, Turkmenistan, and the United Arab Emirates did not attend.

The top-3 gas producing countries in Moscow — Russia, Iran and Qatar — control an estimated 59% of global gas reserves; the missing group, including the US, which has shunned the GECF from the start, controls about 13%.
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by John Helmer - Wednesday, December 24th, 2008
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By John Helmer in Moscow

The sudden death, announced Tuesday, of Guinea’s 25-year president, Lansana Conte, threatens to uproot United Company Rusal from its lucrative bauxite mining concessions in the west African republic of Guinea. The bauxite reserves, whiuch Rusal controls, are among the largest and most valuable in the world, and are vital to supply Rusal’s aluminium smelters.

A threat to the longstanding Russian position in Guinea creates a new opportunity for Chinese aluminium concerns, as well as for Middle East and North American rivals.

“While Lansana Conte is the president of Guinea, I don’t think anything could happen with Rusal’s licenses there,” said a Moscow specialist on African politics, Vladimir Zaitsev, president of Rosafroexpertiza. He was speaking in November, when Conte, who has been ailing for many years, was still alive. Conte, he added, was “well-known for supporting Rusal there.” Earlier this year, Zaitsev added, Rusal’s involvement in accidents that caused chemical and oil spills “went unnoticed, and with the help of President Conte, the local regulatory commissions created to investigate went nowhere.”

Wire service reports from the Guinean capital Conakry indicate that, following the announcement of Conte’s death in the evening of December 22, a group of Guinean soldiers forced entry into the state radio headquarters, and broadcast a communique, declaring the constitution and government institutions suspended. The statement claimed a ruling council will be installed shortly to name a president, prime minister and a new government to fight corruption.
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by John Helmer - Tuesday, December 23rd, 2008
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By John Helmer in Moscow

Herbert Smith is the large London-based law firm whose role in representing the Tajikistan Aluminium Company (Talco) has helped set one of the highest fee-charging cases in the UK High Court in recent history. The law firm also helped itself to some of the judge’s personal notes and papers in the case. That discovery led Justice Stephen Tomlinson to publicly rebuking Herbert Smith’s counsel in the case, Murray Rosen, just days before the case was settled out of court on November 27.

The UK High Court case began as a claim by Talco alleging fraud and mismanagement by Avaz Nazarov and others, who traded with the plant until they were ousted at the end of 2004. Nazarov filed a counter-claim, accusing the Talco management of fraud, forgery, and a scheme to force the plant to operate at a loss, while the profits of its aluminium exports were channeled through companies in the British Virgin Islands (BVI).

International banks, and the US and Norwegian governments, have become embroiled in the affair.

In June of this year, the International Monetary Fund (IMF) issued a public report ordering an independent international audit of Talco’s accounts, and charged the company with “most worrisome financial operations [which] remain nontransparent.” The IMF also ordered the establishment of “a special monitoring unit at the ministry of finance”, whose mandate will include identification in Talco’s books of “untapped tax revenues and hitherto hidden contingent liabilities.”
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by John Helmer - Tuesday, December 23rd, 2008
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By John Helmer in Moscow

Oleg Mitvol, Russia’s well-known mining regulator and gadfly to AIM-listed stock values, has filed a half-dozen lawsuits in Moscow, challenging the terms of his removal from his functions. And he appears to have Deputy Prime Minister Igor Sechin on his side.

The legal and political moves follow months of effort by Vladimir Kirillov, the new chief of Russia’s mine licence inspectorate, Rosprirodnadzor, has tried to fire Mitvol, his independent deputy. In the annals of the federal Ministry of Natural Resources, Mitvol’s resistance is unique; as is the apparent reluctance of the minister, Yury Trutnev, a former provincial governor backed by the LUKoil oil company, to intervene in the contest of wills, and in the conflict below the surface of Russia’s use-or-lose resource licensing policy.

On June 18, the state newsagency Itar-Tass reported that Mitvol had been “stripped of his water, forest and ecological supervision powers, which have constituted most of his competences”. This was the first sign of an apparent official decision, following informal efforts by Kirillov, commencing in February, to press Mitvol to resign. An anonymous source was cited by Itar-Tass for its information. It was also reported that “according to the source, the Rosprirodnadzor chief, Vladimir Kirillov, has no intention of submitting a motion to Natural Resources Minister Yuri Trutnev for re-appointing Mitvol as his deputy.” Itar-Tass confirmed Mitvol as saying: “As far as I know, in a future staff list, yet to be authorized, the position of a fourth deputy, that is, of yours truly, is absent.”
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by John Helmer - Tuesday, December 23rd, 2008
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