By John Helmer in Moscow
After six months of negotiations have failed to resolve investment and spending conditions, Victor Vekselberg’s Renova group and United Manganese of Kalahari (UMK), its South African partner, have been unable to agree on whether the project is dead, on care and maintenance, or life-support.
One result is that the Russian government appears to have downgraded its interest in the SA-Russia inter-governmental committee on trade and economic cooperation (ITEC). A session of the committee was held in Durban on Tuesday [November 25]. South Africa’s Foreign Minister, Nkosazana Dlamini-Zuma, chaired for the SA side. Yury Trutnev, the Russian Minister of Natural Resources, is usually the co-chairman, and he is attending the Durban meeting, between stops in Guinea and Namibia. Trustnev’s office told Business Day it has no information on the Kalahari manganese mine dispute.
“I don’t think anything is happening there,” a Russian analyst of Africa said of South Africa.
Vekselberg, who has a seat on the SA President’s International Investment Council, and attended its last meeting in October, refuses to answer questions about his investment promises and problems in SA. Instead, his spokesman referred to Mark Buzuk and Alexander Belokrys of Renova, who are responsible for the African operations of the group. They too refused to say what they have invested in the Kalahari manganese project, and what has happened to their conflict with Pretoria over investment terms, first reported last May.
SA manganese industry sources believe Vekselberg wants the SA government to underwrite the costs of rail transportation of the mined manganese to a new refinery, or a port outlet, in the Eastern Cape. Without that, and additional SA financing, the project, as planned and promised, is currently unprofitable to start. Refined manganese, an alloy for steel manufacture, has plummeted by a third in price so far this year, as demand falls in line with the contracting steel market.
SA sources report that an open-pit mining operation has been started by the Russians. This reportedly produces between 30,000 and 40,000 tonnes of manganese ore per month. This is trucked to Transalloys, a refinery which Renova bought from Highveld Steel last year. At least one shipment of manganese ore has been exported as a trial. Transalloys cost about R780 million ($112 million) at the time of purchase. The mining costs have been small, and also funded by Renova. The SA sources say: “we have not heard of any banks being approached, let alone any project finance facilities which may have been concluded.”
Last May, at the conclusion of the ITEC session in Moscow, the Russian text of the protocol, which Dlamini-Zuma and Trutnev signed, indicated that the manganese mining project was in serious financial trouble. Vekselberg, the billionaire owner of Renova, has been building safe-haven investments outside Russia in Switzerland, and elsewhere. According to the ITEC document, he had agreed to finance the start-up of mine construction, but on condition that there was substantial SA government and SA bank financing for the rest of the project. According to the protocol, the Russian government reported “serious concerns regarding the process of realization of the Kalahari Manganese Project.” UMK, according to the Russians, “did not agree to any of the proposed schemes of financing of construction of the mine and did not propose any alternative variants.”
According to Dlamini-Zuma, “by the end of June we should conclude the financing issues. I hope that deadline will be met. I know it’s taken a long time, but I think we are reaching the end of the tunnel.”
An announcement on the Department of Foreign Affairs website acknowledges that at the May session of ITEC in Moscow, “a commitment was made to resolve the outstanding Manganese Kalahari Project shareholder issues.” The ministry now says the Durban meeting “will measure progress” on this issue. Asked what progress there has been, Dlamini-Zuma’s spokesman, Ronnie Mamoepa, told Business Day he didn’t know, and referred to the Department of Minerals and Energy. DME Director-General Sandile Nogxina, a promoter of Renova’s investment promises for several years, declines to say what has happened to resolve the investment dispute. He also would not say how much he believes Vekselberg has invested in SA to date.
Nogxina had a high-priority meeting in Pretoria, a DME source said, and he did not attend the Durban session with the Russians.
Sources close to Renova say privately that the group has so far been more successful in pursuing manganese, as well as uranium, in Gabon than in SA.
The financial crisis is curtailing Russian ambitions abroad, the oligarchs especially, report investment bankers in Moscow and London. Vekselberg has problems, as do Deripaska in Guinea and Nigeria, and the Evraz group throughout their steel empire (which includes Highveld). “The priorities are changing, as the money runs out. Investment promises aren’t promissory notes,” a Moscow analyst said.