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EVRAZ STILL UNABLE TO SELL HIGHVELD STEEL; DEAL TIMING APPEARS TIED TO SOUTH AFRICAN REACTOR PURCHASE FROM ROSATOM

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By John Helmer, Moscow

Evraz, the steelmaking group owned by Roman Abramovich (third figure from left) and Alexander Abramov (fourth from left), has just issued a notice to the Johannesburg Stock Exchange that it has been unable to complete the proposed sale of its South African unit, Highveld Steel & Vanadium, by a December 31 deadline. First announced on March 27, the heavily indebted Evraz said the terms of sale for its 85% shareholding in Highveld called for the acquiror, a South African company called Nemascore, to pay a purchase price of $320 million. Prior to the deal announcement, the Evraz stake had been valued in the market between $106 million and $135 million. Since March the market value of the stake has failed to reach 50% of the transaction price; it is currently just $138.4 million.

The new announcement acknowledges that closure of the sale has been postponed three times already, and that six cautionary notices have been issued to the Johannesburg market. Neither Evraz nor Nemascore has explained the reasons for the delay, claiming this is prevented by a non-disclosure agreement covering their deal. In its December 19 announcement, Evraz claims that a “due diligence process is still progressing”, and that the “Transaction is expected to be concluded towards the end of Q1 2014.” The story of Nemascore and its ties to the South African President, Jacob Zuma, can be read here [1].

Speaking at an August 29 briefing, Pavel Tatyanin, senior vice president for international business at Evraz, claimed the reason for the delay was a bank borrowing problem for the South African buyer, a black empowerment group created just before the transaction was disclosed in March. Nemascore, Tatyanin said, “was taking a little longer time to put together a financing package [because] it is a large transaction in the South African context”, adding “there is progress in our negotiations there”.

In its latest operational report, Evraz said that in the third quarter the steel mill suffered from insufficient supply of high-priced electricity to its furnaces. The volume of pig iron output contracted by 8.4% from the second quarter to 145,000 tonnes; crude steel volume was down 9.4% to 144,000 tonnes; finished steel production came to 127,000 tonnes, down 5.8%. The one gainer in the mill’s portfolio of steel products was construction steel, whose volume rose 31.5% to 50,000 tonnes, while the average sale price of the product contracted quarter on quarter by 10.2% to $689 per tonne. The reduction in pig iron output also impacted on the volume produced of primary vanadium, a valuable steelmaking alloy. At the South African works, this dropped in the September quarter to 1,473 tonnes, down 22.9% from the June quarter.

On August 23, Highveld issued an insolvency warning, saying “there are matters that may cast significant doubt about the ability of the Company to continue as a going concern. Labour stability, health of the market and production stability continue to pose a threat to the operations of the Company. The Company continues to utilise credit lines that are not committed and payable on demand.”

South African sources reveal the government’s Industrial Development Corporation (IDC) is refusing to guarantee the financing for Nemascore to make its takeover of Highveld. Russia’s state-owned bank VTB is believed to be considering a loan to Nemascore if the South African Government will issue an acceptable repayment guarantee.

The VTB loan is also reported to be tied to a commitment from the South African Government to buy nuclear reactors from the Russian state nuclear power company, Rosatom, headed by Sergei Kirienko (first figure on left). The text of an inter-government agreement for that transaction was initialled in Johannesburg on November 26. For that story, click [2]. South African and Russian officials claim the reactor agreement will be finalized by February 15.