By John Helmer in Moscow
Reported Russian billions for Zambian copper are flash in the pan.
The prospect of several billion dollars in Russian mining investment in southern Africa cannot fail to be alluring.
But an announcement by a single newspaper in Moscow last week that three major Russian mining companies “hope to announce a major investment worth more than $2 billion in Zambia next month” triggered the reaction from miners and investment advisors alike that it’s a mirage. According to one well-known SA mining advisor, “it sounds like an unlikely story to me. Russians never actually invest their money into Africa, and especially not into Zambia.”
He claims that a major Euro-Russian ferrochrome acquisition from Samancor in SA was financed internally by SA banks and cashflow from the project itself.
A much bigger Russian promise to mine manganese hasn’t gotten that far. In September 2006, when then President Vladimir Putin was in Cape Town, Victor Vekselberg promised that his Renova group — a holding based in Moscow, with offshore registrations and a New York investment centre–planned to invest a billion dollars in a manganese mining and refining complex in the Kalahari and Eastern Cape. Almost two years later, that promise has collapsed into recriminations between the Russian and South African governments over who is to blame for a string of unmet promises, and incomplete undertakings.
Renova and its South African (SA) partner, United Manganese of Kalahari (UMK), decline to answer questions, or issue public reports on how much money has been spent on their manganese prospecting and mining sites to date. A mining source in the region, who has flown over the territory, reports that Vekselberg’s venture is extracting ore from a boxcut on one of the two farms UMK has been licensed to mine. There is also an ore stockpile; some drill rigs; and a small mobile screening plant in operation at the site.
Estimates of the capital spending on the project to date run to less than $50 million. A manganese mining source in SA told Mineweb: “without knowing how many meters have been drilled, it is impossible to estimate the capital spend. I do not believe it can be significant.”
Vekselberg and Mark Bouzuk of Investment Partner SA, his associate in the SA manganese venture, have also run into serious infrastructural problems with their plan. There is insufficient electricity to support a new mine in the Kalahari region. There is also inadequate capacity on the rail lines moving south to enable the proposed venture to deliver the manganese ore to port for export. Inadequate and costly power is one of several additional problems for a proposed alloy refinery in the south.
The Russians aren’t the only ones in the SA manganese sector facing these problems. According to a manganese mining source in Johannesburg, “the challenge for all producers from this area is the shortage of rail and port capacity. The electricity supply side for new projects is also not yet resolved.”
On May 23, at a Moscow meeting of SA and Russian government officials, the official Russian-language communique was unusually blunt in revealing “serious concerns regarding the process of realization of the Kalahari Manganese project.” Renova has declined to clarify what these concerns are. The communique said “the South African partner UMK until recently did not agree to any of the proposed schemes of financing of construction of the mine and did not propose any alternative variants.”
Despite a promise from SA Foreign Minister Nkosazana Dlamini-Zuma that “by the end of June we should conclude the financing issues,” there is speculation that Renova may want, or may be pressed, to sell its mining concession.
Another Russian mirage was reported in October 2006 from Harare, Zimbabwe. On that occasion, a Russian business group reportedly signed a pledge to invest $300 million in Zimbabwe’s power, aviation, and mining sectors. The venture appeared, from local newspaper reports, to have the backing of the Russian Ambassador to Zimbabwe, Oleg Scherbak.
A few weeks later, in December 2006, also in Zimbabwe, a Russian firm called Turbo Engineering said it was promising to invest $150 million to build hydropower plants in the country.
In Moscow, Turbo Engineering was identified as a company controlled by Vladimir Semago and Alexey Semenkov, and at one time was affiliated with another Russian company, Energopromstroi-1 (“Energy Industry Construction”). The latter had a history of project promises in Nigeria, which did not materialize. It was then sold, and according to the current general director, Ivan Kuzmin, it has “nothing to do with Zimbabwe”.
Another three months, another promise. In March of 2007, during the visit to SA of Prime Minister Mikhail Fradkov, it was reported by Russian officials that there was an agreement to invest $2 billion in a new mineral fertilizer plant in SA by the agro-industrial company Azot of Moscow and Chancellor House; the latter is an SA company associated with the African National Congress (ANC). Making the promise was Azot’s Chief Executive Mikhail Golubev.
However, at the time he was locked in a battle over who had the legal right to control the Azot company. The rival shareholder, a company called Mezhregiongas — a wholly owned subsidiary of Gazprom, Russia’s most powerful enterprise — told Mineweb it knew nothing at all of Golubev’s SA undertaking.
The Mezhregiongas sources added that, with a shareholding of at least 47%, Mezhregiongas must approve any investment project involving Azot, and it had not done so for Golubev. Gazprom and Mezhregiongas also reported that they had been in litigation for several years to secure majority control of the Azot shareholding, to enable them to take over the company’s management.
Golubev claimed at the time that he would arrange financing for the SA project with Vneshtorgbank (VTB), a state controlled bank.
Fast forward to last week when it was reported by an English-language Moscow newspaper that three Russian metals companies are hoping to announce a major investment worth more than $2 billion in Zambia in July. The source for this claim was the Russian Embassy in Lusaka.
Representatives of the three companies would visit Zambia in July to conclude negotiations on the “mining transaction,” Mikhail Afanasyev, an assistant to outgoing ambassador Anvar Azimov claimed. Azimov was also reported in a local newspaper as saying that the Russian negotiations involved multibillion-dollar companies, and that the agreement would be worth more than $2 billion.
Azimov is back in Moscow this week, but could not be contacted. The Foreign Ministry said it would take time to locate him. Speaking from Lusaka, Afanasyev told Mineweb “there are continuous Russian interests in Zambia, but this is not very quick question [to answer]. I can’t answer you whether [Ambassador Azimov] said anything regarding $2 billion in investments.”
The Moscow report speculated that Norilsk Nickel, Russia’s leading mining company and dominant copper producer, was one of the three involved in the Zambian negotiations. This is denied by Norilsk Nickel, whose spokesman told Mineweb he could confirm nothing as he has “no idea about Zambian plans for Norilsk Nickel. I think we have more important things pending now than Zambia.”
A Russian expert on Africa told Mineweb that Ural Mining and Metallurgical Company (UGMK is the Russian acronym), owned by Iskander Makhmudov, has sent representatives to Zambia to assess the prospects for a full cycle of copper production from mine to metal. UGMK is second copper producer after Norilsk Nickel, but it is running out of concentrate to keep its refineries going. It is also one of several bidders (including Norilsk Nickel, Basic Element, and Russian Technologies) for the development of Russia’s newest copper mine, Udokan.
Dmitriy Chabikin, a spokesman for UGMK, suggested the publicity is premature. He said he does “not know about the delegation to Zambia. We do not announce the projects which are not at the stage of document signing.” If there would be a real project commitment in Zambia, he added, he would know.
The second source of Russian interest in Zambia is reported by Mineweb’s sources to be the Metropol investment group in Moscow. This group includes a bank, a fund management company, and mining companies with licences for development in Russia. Sources at Metropol have also been reporting their interest in central African mining projects for several years. A licence to open Banque Miniere du Congo (BMC) in Kinshasa, in the Democratic Republic of Congo, was issued in April; after a delay of more than two years. Opening the bank would take another year, a Metropol spokesman said.
She added that there is no confirmation that the Metropol group intends a substantial investment in neighbouring Zambia.
Arlan, another Moscow-based Russian investment fund for Africa, is pursuing gold mining prospects in fareastern Russia, and uranium in Namibia. Chief executive Dmitriy Razorenov told Mineweb the reported investment in Zambia is “very interesting to read, but I never heard about Zambian investments from anyone around [Moscow].”