Email This Post - Print This Post Print This Post

By John Helmer in Moscow

A new London investment company called Vallar is being floated by two men whose most recent claim to public trust is what they have done, or advised doing with Russian money — Nathaniel Rothschild with Oleg Deripaska’s company Rusal, and James Campbell as a director on the Evraz board — that’s Roman Abramovich’s money, along with Eugene Shvidler, and Alexander Abramov.

Deripaska is Russia’s most indebted man. His aluminium monopoly UC Rusal crashed in 2008 with more than $17 billion in obligations, while his energy, automotive, and other holdings had debts of another $5 billion. Evraz crashed with about $10 billion in debt. After Gazprom and Rosneft, state-owned energy companies, Rusal and Evraz were, and still remain, Russia’s biggest debtors. But unlike Gazprom and Rosneft, the aluminium and steel groups were close to insolvent, and had to be rescued by state bailouts. With global aluminium and steel prices volatile and weak, they continue to depend heavily on Kremlin favour.

According to London sources, Deripaska’s personal wealth also dematerialized. Atticus Capital, Rothschild’s investment fund, is believed in London to have been managing some of Deripaska’s proceeds from the operation of Rusal and related assets. When Deripaska’s assets and Atticus both crashed, it isn’t clear what happened to the money. Those who have watched Rothschild and Deripaska together claim to have seen the former’s tongue tied, and his knees bent in the direction of the latter. Officially, Rothschild is chairman of Rusal’s international advisory board (his father Jacob Rothschild has been an ordinary member of the same board). Rothschild junior is also chairman of the board of En+, the private Deripaska vehicle through which his stake in Rusal is managed.

The Wall Street Journal described what happened when Atticus crashed from $20 billion under management at the close of 2007 to about $3 billion in August of 2009, when Rothschild’s partner in the operation, Timothy Barakett, wrote to say he was closing down the Atticus Global fund, and liquidating what was left. “I am very proud of the Atticus Global track record,” he said in his letter to his investors. He claimed the fund had lost 13% during 2008; that its return to investors was flat over the previous 3 years; that it had earned 9.3% over 5 years; 13.6% over a decade. Barakett and Rothschild were reported to be handing back $3 billion from Atticus Global, and resigning. That left just $1.2 billion in the Atticus European kitty, to be managed by others.

The Journal quoted Barakett as preferring his children to his investors. “He said he grew tired of chasing returns and wants to spend more time with his young children. ‘I’ve wondered, ‘Do I really want to be on this treadmill forever?’ he said. ‘Losing clients’ money, he takes it very personally, and I think this has been eating him up inside. As an investor, I’m disappointed. But as a friend, I fully respect his decision,’ said Glenn Dubin, who runs Highbridge Capital Management and was among Atticus’s first investors.”

Just before the crash, Rothschild (right image) and Barakett had been criticized by fund investors for segregating a billion dollar stake in the Deutsche Börse. The investors said the money had been diverted in such a way as to give the fund management the advantage over investors of being able, allegedly, to ‘side-pocket’ the cash. The fund countered that its managers had been privy to confidential information, and that side-pocketing was required in order satisfy legal restrictions on how the fund could trade such shares.

If part of Deripaska’s fortune might have been lost in the Atticus bust, then the participation of Rothschild as a “cornerstone investor” in the Hong Kong Stock Exchange listing of Rusal shares in January of this year might be part of the payback. If so, the Rothschild stake in Rusal could be Deripaska’s money, or part of what Deripaska and Rothschild might have agreed was owing after the Atticus liquidation. The Rusal prospectus says only that one of the “cornerstone investors” in the sale of 10% of Rusal was NR Investments Limited… the principal investment vehicle of the Honourable Nathaniel Rothschild.” He is reported (Rusal prospectus, page 316-317) as paying US$110 million for 71.9 million shares – 4.5% of the placement. According to the prospectus, “none of the Cornerstone Investors are [sic] related to each other and are [sic] independent third parties vis-à-vis the Company.”

Rothschild was asked whether “he personally, or individually, or through entities he owns or controls, [is] the subject of money or payment claims from Oleg Deripaska, his person or entities he owns or controls?” He responded through a spokesman with “no comment”. Sources familiar with Rothschild are emphatic that there are no financial disagreements between him and Deripaska.

“Mr. Deripaska is not and has never been an investor in Atticus, and Atticus has never had any business dealings” with the Russian investor, an Atticus representative is reported as telling the Wall Street Journal. That is indubitably true if Deripaska made investments from a bank account with his name on it.

If it is difficult for investors to assess the nature and profitability of Rothschild’s business with Russians, how about his partner in the Vallar venture, James Campbell?

Campbell’s published bio says that “Mr. Campbell holds a BSc in Physics and Mathematics from Queen’s University Belfast and an MA from the University of Cambridge in Engineering Management.” During the larger part of Campbell’s career at Anglo American, South Africa’s most important company, he is remembered as having insisted on being addressed as Doctor.

The South African media have reported what happened in June of 2001, when Campbell was competing for the top job at Anglo American. “When the in-fighting commenced among those who thought themselves best fitted to replace Julian Ogilvie Thompson [JOT], Campbell’s hat was always in the ring. Sartorially inelegant, lacking in the kind of international sophistication usually attached to Anglo’s good and great, Campbell held what he himself considered an unbeatable ace – he “knew” about mining while his greatest challenger, Tony Trahar, didn’t.

As it turned out, Trahar (silver-haired, tall, poised and well groomed) inherited the chair from JOT (silver-haired, taller, confident). The talk about town was that Campbell was, nevertheless, being “looked after,” whatever that means. And, for a while, Campbell certainly seemed happy enough – aside, that is, from his contretemps over the Australian nickel producer Anaconda, and from which he retired with a bloodied nose.

Then, suddenly, Campbell was gone (June last year). Why? Media speculation at the time agreed that the Anaconda debacle had poisoned his well. Neither Anglo nor Campbell ventured any comment. They have remained tight-lipped since then.

But what has now emerged – and my sources, though disparate, are usually reliably informed – is that Campbell went because he lied about his qualifications. The extent of my information is limited but I understand the doctorate he claimed was mythical – somehow, this was picked up, months later, as a result of Anglo’s change of domicile and listing in London.

Quite aside from anything else, what’s surprising is that Campbell avoided detection for so long. He may even have deluded himself into believing his academic fantasy would never see the light of day. All he would say when I called him yesterday was “That’s a side issue.” ”

Another South African report noted that Campbell had spent his entire post-graduate career at Anglo American, but that when he left at the 26-year mark, he “merited no thank you from the board and no testimony to his contribution to the growth of the company’s base metals and coal divisions.”

Finsbury, a London public relations firm which represents Vallar, was asked to describe the circumstances of Campbell’s ouster; whether Campbell (image below) had claimed to have a doctoral qualification; whether he thinks South Africans are biased against him; and whether prospective shareholders of Vallar should understand that Campbell would never mislead them about a good thing.

The response reflects Shakespeare’s maxim — from the mouth of Falstaff who had been pretending to be dead – that discretion is the better part of Vallar. Finsbury also represents Atticus and Deripaska’s Basic Element Holding. Finsbury is tied to Rusal by another umbilical cord – the PR agency is owned by the WPP group, whose board chairman is Philip Lader. Lader is listed as an independent director on the Rusal board.

“We believe”, a Vallar spokesman says, that “James Campbell is a first-rate mining executive and he has an outstanding track record and experience…”

At page 49 of the prospectus Vallar is circulating to what it terms qualified investors, it is reported that “until the end of 2001 Mr Campbell had represented that he was the holder of a doctorate, but he has not used or accepted the use of the title [since then]. Mr Campbell has experienced adverse publicity as a result of such representations.”

Campbell’s association with the Russian oligarchs appears to have begun when he lent himself to the initial public offering (IPO) of the Evraz steel and coal-mining group in London. Campbell is recorded as joining the Evraz board in April of 2005. The IPO followed two months later. But the real shareholdings of the Russians who controlled the company at the time turned out to be subject of controversy, litigation threats, and confidential, out of court settlements. Abramov, one of the Evraz founders, paid out at least one, possibly more claimants, who charged him with failing to honour shareholding trust obligations to them.

Campbell withdrew from the Evraz board in mid-2009. In the interval, the share price was driven upward on a wave of premium priced, highly leveraged steel, alloy, and mine acquisitions in North America, Central Europe, and South Africa. At listing, Evraz was worth $5 billion. At peak in May of 2008, it was up to $50 billion. Just six months later, when the market realized that Evraz’s debt service obligations had driven its revenues perilously close to insolvency, the market cap was just $1.6 billion. In trading between the time Campbell left the board a year ago and now, Evraz’s worth has hovered between $10 billion and $11 billion. If Campbell stands for a strategy of leveraging shareholder capital to make shareholder gains, the Evraz story speaks for itself.

Inside Russia, Evraz’s drive to extract more volume and more profit out of its coal-mining operations has led, as Prime Minister Vladimir Putin recently intimated, to a string of fatal methane gas explosions and the worst mine safety record in the country — one of the worst in the world.

Announcement of intention to raise £600 million and list on the London Stock Exchange’s Main Market

• Newly incorporated company intended, after listing, to acquire a single major business or significant operational asset in the global metals, mining and resources sector
• Focus on regions and commodities where extensive network and strong prior operating and investment experience of the Vallar Team can be leveraged
• Placing price £10 per Ordinary Share
• Closing of the order book, publication of the Prospectus and allocations expected on or around 8 July 2010

Vallar, a Jersey incorporated company, today announces its intention to proceed with a placing of its Ordinary Shares to institutional investors (the “Placing”) to raise gross proceeds of £600 million. Application will be made for the Ordinary Shares to be admitted to a Standard Listing on the Official List of the FSA and to trading on the London Stock Exchange’s main market for listed securities (“Admission”).

Following Admission, Vallar intends to acquire a single major company, business or asset that has significant operations in the global metals, mining and resources sector (the “Acquisition”).

The Company expects to focus principally on regions and commodities where it can leverage the extensive network and strong prior operating and investment experience of the Vallar Team within the sector. As such, the focus regions include the Americas, Russia, Eastern Europe and Australia, and potential commodities include base metals, coking coal, iron ore and thermal coal (and may also include gold, silver, uranium and associated co-products or by products). Other regions or commodities may also be considered where the Directors believe the opportunity presents an attractive investment. A prospective target for the Acquisition has not yet been identified.

No Shareholder approval will be sought to make the Acquisition. The Acquisition will be subject to board approval, including a majority of the Independent Non-Executive Directors (listed below)

This announcement is an advertisement and does not constitute or form part of, and should not be construed as, an offer to sell or issue, or a solicitation of any offer to buy or subscribe for, any securities, nor should it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. This announcement is not a prospectus. Investors should not subscribe for or purchase any securities referred to in this announcement except on the basis of information in the Prospectus to be issued in due course by the Company in connection with the admission of the Ordinary Shares to the Official List of the FSA and to trading on the London Stock Exchange plc’s main market for listed securities. Copies of the Prospectus will, following publication, be available from the Company’s registered office. In the event of any discrepancy between this announcement and the prospectus in its final form, the prospectus will prevail. The information contained in this announcement is for background purposes only. It is not the purpose of this announcement to provide, and you may not rely on this announcement as providing, a complete and comprehensive analysis of the Company’s financial or commercial position or prospects.

Vallar accepts responsibility for the completeness, verification and accuracy of the information contained in this announcement.


“The proposition we have put together combines the ability to source the exciting investment opportunities that exist within the metals, mining and resources sector with a flexible structure and decision making process that will allow us to react more quickly than our competitors. We believe the fundamentals of the commodities sector make a compelling case for investment”(Nathaniel Rothschild)


“After a number of years of consolidation, the mining industry is entering a phase of streamlining and we think many attractive targets will become available. The team we have assembled means we have the operational expertise to add value for the benefit of our shareholders” (James Campbell)

According to the promotional claims that have been placed in the London financial papers, if the stock listing raises its target of ₤600 million ($900 million), the plan is to make one or more asset acquisitions, leveraging those and the Vallar shares into a fund of between ₤2 billion and ₤5 billion ($3 billion to $7.5 billion). So what might prospective investors in Vallar have to look forward to, if Rothschild and Campbell have Russian assets in mind?

Their choice of the Vallar name is one clue. In the ancient Roman military practice, the legionary who managed to be first to clamber over the enemy’s rampart was awarded, dead or alive, the corona vallaris – the crown of the rampart. But note the hostile intent: Rothschild and Campbell may be
aiming at attacking Russian assets.

According to the Vallar release, there is a target. “[The] newly incorporated company intended, after listing, to acquire a single major business or significant operational asset in the global metals, mining and resources sector”. And the location? Vallar says it intends to “focus on regions and commodities where extensive network and strong prior operating and investment experience of the Vallar Team can be leveraged.” This could be South Africa, Australia, Canada, anywhere, including Russia.

Two or three Russian mining assets, which immediately suggest themselves, are small fry. Deripaska has already tried to sell shares in his Russian molybdenum miner, Strikeforce Mining and Resources (SMR). But last May his attempt to find Hong Kong Stock Exchange buyers at a target valuation of around $800 million failed; the placement was pulled before the share and its prospectus were approved.

Then there’s Highland Gold, a modest Russian asset which has been bounced around between Abramovich, the Evraz group, and Peter Munk – the Barrick Gold chairman and another of Rothschild’s friends in the Atticus operation; Rothschild sits on the Barrick board. Highland had been intended to be Barrick’s shot at taking some of Russia’s biggest gold deposits, but as that prospect has grown more unlikely with time, Munk has managed to sell down to 20%. Counting Abramovich’s and Abramov’s stakes (32%), plus management, the chipmunks control two-thirds of Highland Gold’s shares, and might be glad of a premium offer to exit. But despite the rise of the gold price, Highland is worth only half of what it was four years ago; and its market capitalization is ₤468 million ($936 million) – below Vallar’s target.

If gold is what Vallar is after, then there is an outside chance that it could be thinking of combining Highland Gold with the collection of assets put together by Alexei Mordashov, owner of unlisted Severstal Gold and controlling shareholder of Toronto-listed High River Gold. Mordashov has been hoping to sell Severstal Gold in an IPO later this year, and has reportedly engaged JP Morgan Cazenove as lead arranger. The target valuation being floated in the markets is between $1.5 billion and $2 billion. That’s almost Vallar-sized, and if Highland were thrown in, Vallar would be on its money target.

Vallar claims it is looking for “three types of opportunity: A stable producing asset where the owner has an identifiable issue, such as requiring additional management or operational expertise, that the Vallar Team is well placed to address. A business that requires a capital injection and operational expertise to execute a significant expansion plan. [And] simplification of a complex and diverse group through application of corporate finance and structuring expertise.”

A deal with Severstal Gold might make two paydays for JP Morgan Cazenove. That’s because Vallar, according to its initial announcement, is being advised by Ian Hannam. As one of JP Morgan Cazenove’s dealmakers, Hannam was involved in the attempt Rusal made in mid-2007 to list on the London Stock Exchange. Hannam’s mandate was not from Deripaska, however, but from the SUAL partners, and minority shareholders in Rusal, Victor Vekselberg and Len Blavatnik. At the time, Hannam blamed Deripaska for the listing problems before the Financial Services Authority (FSA), the UK regulator. One of those problems, Hannam intimated, was that the Russian government did not provide prospective shareholders with a warranty against future renationalization of the company. When it withdrew from the listing attempt, Rusal blamed “market conditions”

Since that failure, JP Morgan Cazenove has been less than enthusiastic about Rusal. Company fund managers were dead-set against buying Rusal shares in January, when the Hong Kong listing took place.

Again according to Vallar, this is what it aims to do if, with shareholder trust and the Rothschild credit card, it manages to take control of its target. “Following the Acquisition, the Company intends to generate shareholder value through optimising the target’s capital structure, implementing disciplined operational improvements, undertaking targeted investments within the target’s operations, recruiting and retaining experienced and specialist industry personnel for key management positions and pursuing strategic “bolt-on” acquisitions to increase scale in the operating business to compete effectively and improve profitability.” That’s City of London lingo meaning: “we are smarter than they are, and can make more money than they can”.

It sounds remarkably close to what Deripaska has been telling the world he can do if he takes control of Norilsk Nickel, Russia’s largest mining company. That hostile takeover bid was revived a few weeks ago, after Rusal started selling its shares. Since then it has become clear that the current and future price of aluminium; the value of the rouble; asset revocation in Guinea; Michael Cherney’s litigation threat in London; and the crash of Rusal’s market capitalization are all combining to undermine the confidence of the Kremlin and Rusal’s bankers that their rescue of Rusal will pay off.

If Deripaska has the influence over Rothschild that was apparent to invitees at the roadshow dinners the two hosted early this year, or if Rothschild believes Deripaska has Russian state backing, then indeed Vallar may be raising money in order to move on Norilsk Nickel. Add to Rusal’s 25% stake another 25% shareholding for Vallar – at today’s price, that would cost at least $7.5 billion – would give control on paper. But it would also mean that with a free float of about 30% mostly in foreign institutional hands, Norilsk Nickel would become a foreign-controlled company.

This is an outcome which the Kremlin has already intervened more than once to prevent. The $4.5 billion state loan to Rusal, which Prime Minister Putin arranged in November 2008, was expressly intended to prevent default on the foreign bank loan that had made the initial purchase of the 25% Norilsk Nickel stake possible, and block forfeit of the stake to the lenders. Then in December 2009, the state bank commitments to buy Rusal shares headed off the possibility of a large Libyan purchase, or the collapse of the listing entirely and more bank defaults.

So, is it realistic for Vallar to be planning to attack this particular rampart? Ahead of a Russian battle as chancy as this one, are the Vallar men smoking something?

Even siege fighters as professional as the ancient Romans always preferred rearguard action to frontal attack. If they managed to get the keys to the castle-gate from an insider, then that was less costly, less risky than rolling out the bombardment engines and ordering the troops over the top. Back in 2007 Hannam of Cazenove tried, but failed, to negotiate something like that from the Kremlin, but Deripaska and Vekselberg couldn’t deliver. This time round, Deripaska might be assuring the Prime Minister and the President that if Vallar and Rusal are permitted to form an alliance for the takeover of Norilsk Nickel, then in due course Vallar may turn out to be a Russian-controlled vehicle, not the foreign entity Rothschild’s advertisement might imply.

Leave a Reply