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MOSCOW (Mineweb.com) – The Faberge Easter eggs, which Viktor Vekselberg has bought from Forbes in New York and has brought back to Russia as his peace offering to the Kremlin, may also come in useful as pacifiers, now that Vekselberg has gone to war again with fellow aluminium oligarch, Oleg Deripaska.

After appearing to agree to a no-raiding pledge a year ago, Siberian Ural Aluminum (SUAL), owned by Vekselberg, and Russian Aluminum (Rusal), owned by Deripaska, have clashed anew. This time the fight – similar to the last one in late 2002 – is over shareholding control of the aluminium sector’s tidbits, the Volkhov aluminium smelter and the Pikalevo alumina refinery.

Maxim Titov, spokesman for SUAL, said that recently Rusal had outbid SUAL for a 14% state owned shareholding in OAO Metallurg, a Russian company which owns Volkhov and Pikalevo. Titov acknowledged there is a conflict between SUAL and Rusal over the 14% share sale, but he declined to say at what price Deripaska had bested Vekselberg for the shares.

The unexpected share raid is embarrassing for Vekselberg because, without the shares, he cannot claim that SUAL has bankable ownership of its assets, and without that credibility, he cannot go to the international markets with his plea to investors to cash him out of SUAL. Who would give Vekselberg a billion dollars for assets he doesn’t control tightly enough to prevent his most deadly rival from capturing?

The answer to this question has been so troublesome that Chris Norvaf. head of Vekselfoerg’s foreign flotation venture SUAL International, has made himself unavailable to answer questions for a year now. Behind the scenes, he has commissioned South African mining consultants. SRK, to do a new inventory of SUAL assets, as if to freshen them up, after financial advisor Fleming Family & Partners, has spent an unsuccessful year trying to market them.

Titov has also confirmed that a recent shareholder meeting called in St. Petersburg, failed to proceed, because of the conflict between the two groups. Rusal is seeking a seat on the board of Metallurg. SUAL blocked the shareholders from meeting on a technicality.

The Volkhov smelter, in the Leningrad region, is the oldest, and smallest, of Russia’s primary aluminium producers, it was first constructed in 1932, but it has been upgraded as recently as 1999, and has annual output capacity of 50,000 tons per annum. Production in 2003 was 22,600 tons. That figure is just 3% of SUAL’s metal production for the year. It is even more minuscule compared to Rusal’s production numbers – just 0.9%.

The Pikalevo refinery, also in the Leningrad region, was started at the same time. But operations were postponed because of the German invasion until 1959. It is the smallest of Russia’s refineries, and last year turned out 249,130 tons of alumina, the vital raw material for producing aluminium metal. Pikalevo alumina comprised 12% of SUAL’s output. To Rusal, however, which is starved for alumina produced in Russia, Pikalevo represents almost one-quarter of what Rusaf is able to produce tor itsetf.

With local partners, SUAL owns about 80% of the shares in the two production units. It has been aiming to consolidate full control of the units, and make them wholly-owned subsidiaries of the SUAL group. The Rusal acquisition badly frustrates that plan. It also puts potential pressure on SUAL to make its alumina available to Rusal at prices that are more attractive than the imports Rusal is also obfiged to depend on,

Deripaska has made raids against Vekselberg before, less for raw material gains, and more to sabotage SUAL’s corporate consolidation plans, and greenmail Vekselberg into paying a high price to be left alone.

In January 2003 SUAL declared victory over Rusal, following a three-month long contest over a 32% shareholding in the Nadvortsk smelter. Alexei Goncharov told me at the time that SUAL had reached an agreement to buy the shareholding, which Rusaf had acquired from two Nadvortsk directors in October of 2002. He confirmed that the fight over Nadvoitsk had been a bitter one,

In November of 2002, Gulzhan Moldazhanova claimed Rusal wanted to buy into Nadvoitsk in order to have a source of aluminium dose to consumers in the remote northwestern wastes of Karelia. Moldazhanova was at the time Rusal’s director for corporate development Nowadays she manages Rusal’s cashflow and corporate lending programme from a seat at Basic Element, Derlpaska’s holding company. In the weeks that followed her remarks, Rusal spokesman Yevgeny Ivanov attacked SUAL in the press for withholding aluminium claimed by Rusal as shareholder; SUAL denied the charge, and criticized Rusal’s media tactics,

Nadvoitsk produces just 76,000 tons of aluminum,

SUAL hinted at the time that Deripaska’s raid was a violation of a gentleman’s agreement between Vekselberg and Deripaska that neither man would attack each other’s aluminium business. Deripaska, the Vekselberg group suggested, was no gentleman. But neither group has ever admitted how much the raid cost Deripaska, nor how much Vekselberg paid to make it go away.

Asked if SUAL plans to buy out the Rusal stake in Volkhov and Pikalevo, Titov gays he cannot “comment on how this situation will be solved.” Rusal’s Moscow office refused to say anything.

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