MOSCOW (Mineweb.com) -The headline in the Moscow newspaper came straight out of Rider Haggard’s century-old adventures. “Renova masters Africa”, it said, going on to describe how Victor Vekselberg, the Russian oligarch behind the Renova company, recently visited South Africa to arrange local approval of a plan for the largest manganese mine in the world, and of another plan which he is still keeping secret.
Whether the plan is for Vekselberg to dig a new mine, or to buy one from South Africa’s Samancor will be clearer by the end of today, after Anglo American executives Tony Trahar, Barry Davison, and Philip Baum complete a round of meetings in Moscow. Baum’s office in Johannesburg confirmed that he, CEO of Anglo’s Ferrous Metals and Industries division, is in Moscow with Trahar and Davison. One meeting on their agenda, confirmed by the Russians, is with Yury Trutnev, Minister of Natural Resources.
In an announcement to the Russian media, Trutnev’s ministry has intimated that today’s session would focus on coal. Baum’s presence suggests the focus is on Samancor’s manganese and chrome. Davison’s involvement indicates that another billion-dollar deal with a Russian oligarch may be in the works. The first, done in perfect secrecy and in less than two weeks in March, saw Anglo American sell a 20% stake in Gold Fields to Vladimir Potanin and Mikhail Prokhorov, the controlling shareholders of Norilsk Nickel, for $1.16 billion.
If Anglo American is about to make a deal with Vekselberg for cash and shares, they are also about to court South African and Russian government investigations into the deal that may reverse it on national interest grounds, much as Kremlin pressure has forced the Norilsk Nickel shareholders to find an exit from their Gold Fields acquisition.
“How can a world be good,” wondered Haggard, creator of gentleman adventurer in Africa, Sir Allan Quatermain, “in which Money is the moving power, and self-interest the guiding star? The wonder is not that it is so bad, but that there should be any good left in it”.
In his quest to find a domicile outside Russia for his mining and mineral assets, Vekselberg has visited South Africa at least twice this year, according to those he met. The first time was in February and the second time, a few days ago, when he left an adventure safari arranged with Mikhail Fridman, the oligarch who heads the Alfa Bank group. In addition, those who have met him say that Brian Gilbertson, now Vekselberg’s appointee as chief executive of the SUAL group, has been calling or meeting with every major South African mineral company, looking for takeover or merger targets. SUAL mines bauxite in northern Russia, and produces alumina and aluminium, and it trades its metal according to Russian tax optimization schemes that have come under increasing scrutiny from the tax authorities in Moscow in recent weeks. Gilbertson and Vekselberg are in a hurry.
Until this month, according to SUAL’s London spokesman Bill Spears, “it is not our policy to disclose the identity of those participating in business meetings with us.” But the group has become more talkative during the visit to Pretoria by Minister Trutnev, in mid-November. Trutnev headed a delegation of Russians for the annual session of the Russia-South Africa commission on inter-government trade and economic cooperation (ITEC). Renova’s Moscow office tried to keep radio silence, refusing to identify in advance that it had joined Trutnev’s delegation. Renova, which was recently divided by Vekselberg into several sections, is nominally headed in Moscow by Alexander Zatulin. For the Pretoria meetings on November 17-18, he was in South Africa, along with Mark Bouzuk, a former Swiss-based aluminium trader who now heads Vekselberg’s drive into Africa. Bouzuk’s deputy in Moscow is Alexei Belokrys.
Ahead of his trip, Trutnev was asked by Mineweb to say if he “supports or opposes efforts by Russian mineral resource licensees) like Victor Vekselberg and Vladimir Potanin to buy stakes in South African companies, and to reverse-list their Russian assets in SA or international listings?” He declined to answer. But in Pretoria, he told a Russian reporter traveling with him that, in parallel with SA company interests in Russia, “there are also: counterpart [Russian] interests; for example, GMK Norilsk Nickel starts work with the Republic of South Africa, and the company Renova has shown interest in ciooperation.”
Exactly what work Trutnev was thinking of when he mentioned Norilsk Nickel is not clear. A team of people, led by a former Russian ambassador to Baghdad and a man identifying himself as a former KGB intelligence liaison with the anti-apartheid movement, have been introducing themselves in Johannesburg as Norilsk Nickel representatives to South Africa. So far, the only work the company has done has been to participate in the hostile takeover bid Gold Fields, which began in planning with HSBC Bank a few weeks after the March 29 purchase. That transaction is the largest single Russian investment abroad, and concomitantly the largest Russian investment ever in Africa. Following Kremlin and Central Bank review, that transaction is being reversed.
Meantime, Trutnev’s intimation of approval for the process has encouraged Renova executive Bouzuk to unveil in Moscow what he claims to be two ambitious plans Renova has for mining in South Africa. In remarks reported by Kommersant, a Moscow business newspaper, Bouzuk claimed one of the plans is still secret. The other, he said, calls for the investment of more than $300 million in a mine and ore-processing mill in the northwest of South Africa. Target, said Bouzuk, is manganese, an important metal used as a purifying and strengthening alloy for steel.
The newspaper report claims that Bouzuk described a plan in which Renova, working with a black-owned South African partner, will explore the area, which already hosts several manganese mines operated by South African interests, including the Sacco family and Samancor, a chrome land manganese mining company jointly owned by BHP Billiton (60%) and Anglo American (40%). An open-pit and underground shaft mine will produce 1.5 million tons of manganese ore, Bouzuk reportedly said, and the mill and concentrator will turn out between 400,000 and 500,000 tons of manganese.
About 80% of the world’s commercially mineable manganese ores are located in SA’s Northern Cape province, where Samancor mines at sites around Hotazel. Together, they lift up to 3.4 million tons of ore per annum. At a nearby plant, this is processed into ferro and silicomanganese According to Samancor it produces between 300,000 and 420,000 tons annually. The Renova mine target is thus substantially larger; indeed, it could be the largest manganese mine in the world so far. At current market prices, Sarmancor sells just short of $400 million worth of manganese per year, most of it to export buyers. The estimated cost of Renova’s project will be more than $300 million, according to Bouzuk.
He told the Moscow press that Renova will raise all of the funds, but will hold just 40% to 45% of the joint venture company. The balance of the shareholding will be held, he reportedly said, by “South African companies belonging to black businessmen”. They were not identified. Again according to Bouzuk, a briefing on the manganese project was made to President Thabo Mbeki and the SA government in what is described as a “closed presentation” sometime during the Russian summer. “This project has already met with the approval of the government of the republic of South Africa,” it was reported in Moscow.
Renova has been unwilling so far to provide any details of this approval process; Bouzuk has refused to answer questions. SA mining sources say they do not believe the approval reports, and they are skeptical of the project claims. In September, during a visit to Moscow of Lulu Xingwana, deputy minister of mining and minerals, she told Mineweb that she had been briefed by Renova officials, and she subsequently made a public speech endorsing Renova’s activity in South Africa. Xingwana also declined to provide any details of her endorsement. She subsequently met Trutnev during the ITEC session in Pretoria, when both appeared to endorse the Renova manganese project.
It is necessary to create “conditions for South African companies to feel comfortable in Russia, and Russian companies in the republic of South Africa, “Trutnev told the Russian news agency Tass, after his recent meeting in Pretoria with Xingwana. But according to SA executives, during his meetings in SA Trutnev concentrated almost entirely on what Russian companies want in SA There appear to have been no reciprocal demands, nor discussion, of SA corporate operations in Russia. According to the official minutes of ITEC prepared by the two governments, Russian interest in SA mining was explicitly identified as manganese and platinum.
SA sources told Mineweb that it is possible that Vekselberg is interested in bidding for existing mine assets, not in developing a new mine. An uncorroborated source has told Mineweb that Vekselberg and Gilbertson have been in discussion with Anglo American for a billion-dollar deal. A senior Anglo American told Mineweb that Samancor is for sale, and that among the potential bidders there may be a Russian. However, the source was categorical that it is Samancor’s chrome division that is for sale, and that the manganese business is not on the block. Market sources told Mineweb they have heard that an unidentified Russian group is seeking substantial financing for a SA mining project, although the rumour did not distinguish between a greenfields project and a takeover. The sources also expressed skepticism that the Renova group, which through SUAL International, has been unable to raise any finance in almost two years of trying, and has been limited in its fund-raising capability for its Russian bauxite projects, could manage the much greater capital requirements that Bouzuk has identified.
On the other hand, Russian government opposition to the expatriation of assets by the oligarchs should make it difficult for Vekselberg to add his Russian assets to a takeover or merger bid in South Africa. Growing scrutiny in Moscow of the asset consolidation and cashflow management schemes of oligarch companies, including Vekselberg’s, may be accelerating his desire to strike an offshore deal as quickly as possible. At the same time, Kremlin policy may make the move impossible – a point which, oddly, Trutnev failed to mention while he was in Pretoria.