By John Helmer in Moscow

South Africa’s Columbus Stainless Pty Ltd, the country’s only producer of stainless steel, has been targeted for anti-dumping action by a Russian steelmaker, who is himself under pressure of a foreign bank default, and takeover interest from the state.

The Mechel specialty steel and mining group, owned by Igor Zyuzin, has lobbied the Russian government for protective duties to block imports of stainless steel. Although Mechel denies lobbying, and Russian trade ministry officials have denied preparing a new import duty penalty, the ministry has published an official notice, confirming that it has commenced an anti-dumping inquiry.

Columbus confirms that it has received official papers relating to the Russian action, but declined to comment for the time being. Acerinox of Spain has a 76% shareholding in Columbus. The rest of the shares are held equally by Samancor (which is an Anglo American and BHP Billiton Plc joint venture) and the Industrial Development Corporation of South Africa, a state enterprise. Columbus is situated in Middelburg, Mpumalanga.

Stainless steel is the 9th largest export from South Africa by value, according to statistics of the Department of Trade & Industry (DTI). However, DTI reports no sales to Russia. These appear to have been recorded as entering Russia from another country office of the Acerinox group.

Last year, there was a sharp downturn in SA exports of stainless steel to R2.8 billion worldwide ($301 million); in Rand terms, this was a 75% decline from the 2007 total of R11.4 billion ($1.7 billion).

Most of the imports which Mechel is attempting to keep out of Russia originate from China. According to the latest import statistics from the Russian Customs Committee, in 2007 SA sold 10,707 tonnes of thin stainless sheet to Russia, for a declared value of $24.5 million. China sold 24,622 tonnes at $46.2 million. In the last quarter of 2008, the Russian customs data show SA sold 3,621 tonnes for $12.6 million; China sold 6,466 tonnes for $17.4 million.
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by Editor - Monday, April 6th, 2009
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By John Helmer in Moscow

This is a tale of how the appetite for assets comes full circle, and who gets carved up in the process.

Vadim Varshavsky, a deputy of the State Duma and member of the parliamentary Committee on Industry, used to own steel-producing assets as part of a larger coal and steel group, which he shared with his partner, Mikhail Gutseriyev, also a one-time member of the State Duma. Both have been much honoured. Varshavsky is a renowned collector of cognacs. Gutseriyev has won the Order of Friendship, the Order of the Mark of Distinction, and other orders and medals, including the Peter the Great National Prize, and the “Best Mayor of the Year” award.

Varshavsky’s philosophy of partnership is succinct. He told a Moscow newspaper in 2007: “I have a controlling stake everywhere, but in each project I have different partners”. Between 2004 and 2005, he and Gutseriyev had something some people call a falling-out; and others call a parting of the ways. The outcome was that they decided to divide their possessions, so that Gutseriyev took over coal assets, and then concentrated on the oil business. Varshavsky formed the Estar holding as a steel-only group. Exactly what happened hasn’t been told, except that Varshavsky told a Moscow newspaper not long after: “It’s a sad story. But I am not involved in any negotiations to buy his share, and have no intentions to acquire Russian Coal.”

As Varshavsky expanded his steel possessions, the borrowings of the Estar holding grew rapidly, By the middle of 2008, the debts were estimated at Rb11.7 billion (now worth $344 million). In the autumn that followed, a refinancing note issue didn’t succeed, and Varshavsky announced he would raise the required funds from Vnesheconombank (VEB), the state bailout bank chaired by Prime Minister Vladimir Putin. Sergei Shapovalov, a vice president of Estar, told CRU Steel News on March 16: “The talks with VEB are continuing. The issue [of the refinancing loan] has not been solved yet.” VEB declined to confirm the status or amount of Estar’s loan application.
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by John Helmer - Friday, April 3rd, 2009
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By John Helmer in Moscow

In the Russian fertilizer business, the days are gone when you could make enormous profits mixing fertilizer ingredients into sacks; loading the sacks aboard ship; and earning your profit margin between the rising export price of the sack, and the government-fixed price of its constituents in the home market.

Today, manufacturers of these mixtures, known in the fert trade as complex fertilizers or NPK, must restructure, or die. That’s in part because the export prices of nitrogenous fertilizers, phosphates and potash (NPK, with K the chemical symbol for potassium) have collapsed worldwide. In part, it’s because the Russian government has imposed export taxes to reduce the spread between external and internal prices, and cut the profit. Finally, it’s because Russian gas and other energy prices have been deregulated, and must rise towards the international level.

It is also commonsense for state administrators to reason that there is greater profit for the state, and for themselves, in regulating domestic fert supply prices to the farm sector within one or two vertically integrated fert companies, instead of the existing collection of competing gas refiners, phosphate and potash miners, and intermediary traders and distributors.

In circuses these days, the crowds pay to see the lady tame the lion. It’s been two thousand years since the Romans paid to see the lion eat the lady. Naturally, vertical integration of nitrogen-refined ammonia, phosphate and potash production into a single corporate structure makes more pleasant sense if you are on top of the incorporation, rather than on the bottom. The reason Dmitry Rybolovlev, controlling shareholder of potash miner Uralkali (URKA:LI), has been feeling so uncomfortanble for months is that he suspects the Kremlin is preparing to subordinate his company, and buy his shareholding out, in favour of the NPK producer, Acron (AKRN:LI).

Acron’s new mining unit, Salt of the Earth (real name, no joke), has been created to consolidate phosphate and potash mining licences which Acron has acquired since 2006, and which, for the time, it lacks the cash to develop. Whether it also absorbs Rybolovlev’s chunk of Uralkali remains to be seen.
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by John Helmer - Wednesday, April 1st, 2009
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1. Recently, President Medvedev urged Russian oligarchs to pay their “moral debt”? What does this mean in concrete terms?
Moral debt in Russia is a case of the three monkeys who see, hear, and speak no evil.

In theory, the Russian President means that men who seized most of Russia’s natural resource wealth more than a decade ago by a combination of corrupt and fraudulent means, and then generated vast fortunes abroad by manipulating Russia’s weak tax and capital controls, have an enormous debt to repay to the state and the economy. In practice, Medvedev does not intend to name names, let alone take any action to collect that debt, whether moral or fiscal.

Indeed, Medvedev is going to unusual lengths to protect one of the oligarchs, Oleg Deripaska, from having to honour the loan obligations he has to Russia’s state banks, as well as to a group of more than 70 commercial banks, some Russian, most foreign. If anyone in Russia carries the largest moral, as well as money debt today, it is Deripaska. Consider then why Medvedev said, at a regional conference in Irkutsk on February 20, in Deripaska’s presence: “I fully agree with what Oleg Vladimirovich [Deripaska] said about situations when the crisis leads to settling scores… There should be no situations when different structures’ rivalry can lead to the collapse of an entire group of companies…Such actions should get adequate reaction from the state. For that purpose we have one serious institution, the government of the Russian Federation … There are situations when power must be used.”

In case anyone was in doubt that Medvedev meant to reach up, and put his arm around Deripaska, he repeated the message at a Kremlin meeting on March 17. On that occasion, the president was meeting with Mikhail Fridman, controlling shareholder of the Alfa Bank group. Alfa, to whom Deripaska is overdue in repaying between $650 million and $1 billion, has led the commercial banks in launching court action in Moscow, and also in Jersey (where Deripaska registers some of his companies). Medvedev the lawyer appeared to be telling Fridman the banker: “We cannot sacrifice entire companies with many thousands of staff to meet the ambitions of certain credit organizations.”

It is one thing for a politician not to mean what he says, or to mean different things to different audiences. It is quite another thing for a politician to say things he has no power to do, with the purpose of intending to do in secret what he would not dare acknowledge in public.
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by John Helmer - Monday, March 30th, 2009
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By John Helmer in Moscow

The announcement from Mechel on March 26 that it has agreed with its bankers on a 51-day extension of time to repay or refinance a $1.5 billion loan, which fell due on March 20, has exposed a grave failure of arithmetic in the marketplace. And that’s not all.

Headlined by Bloomberg and Reuters as a two-month extension, and repeated by rote in client bulletins from the principal Moscow brokerage and investment houses, the new loan payment deadline, which New York-listed Mechel reported to the Securities and Exchange Commission, is May 15. That was just 51 days away from the signing of the new agreement — not 60 or 61, as two months usually add up to. The nervousness of the banks in setting the short deadline seems to have been obscured by the unwillingness of the market-makers and media to take out their fingers and thumbs, and check the official release from Mechel itself.

That said: “On March, 25, 2009, following negotiations with the banking syndicate which provided Mechel a one-year loan for the Oriel Resources Ltd. (United Kingdom) acquisition, an agreement for a two month payment term extension was reached. The new payment date is May 15, 2009. The prolongation period will be used to complete negotiations with the bank participants of the syndicate aiming at refinancing the bridge loan with long term instruments.”

As has been reported in the archive, Oriel is a chrome miner and refiner. Since the takeover a year ago, it has been included in Mechel’s ferroalloy division, supplying chrome to Mechel’s specialty steel diivision for the production of nickel and chrome-plated products.
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by John Helmer - Sunday, March 29th, 2009
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By John Helmer in Moscow

Far Eastern Shipping Company (Fesco) has released through a wire service a set of unaudited financial estimates for the full year 2008. The release was unusual, analysts said, and appears timed to counteract the impact of a downgrade by the Moody’s rating agency in Moscow on Thursday.

Despite better than expected revenues, as well as the earnings figure Ebitda, the shipping, ports and rail group has acknowledged a heavy writedown in the value of its fleet. In a note to clients and investors, Troika transportation analyst, Kirill Kazanli, says “the group’s bottom line is expected to range between breakeven and net loss of around $1 mln.” Fesco’s controlling shareholder Sergei Generalov, the executive chairman, issued a public statement confirming the possibility of this bottom-line loss for the year.

The company has not released a financial report for the year on its website, and spokesmen for the company refuse to answer questions about the calculation of the vessel writedown, which appears to have been taken in the fourth quarter of 2008.

The last financial report, audited by Moore Stephens, was issued for the six months to June 30 last, and posted on November 28. This identifies Raffeisen and ING as the biggest lenders to Fesco for fleet additions. With Citibank and Unicredit (Italy), these banks take up about 66% of the Fesco loan book.

As ships lose their market value, banks which have made loans for their purchase and which hold the vessels as collateral for repayment are likely to raise cash or margin calls from the borrower, or seek additional security. When asked whether it has considered margin-calls on Fesco loans, Raffeisen asked for a written letter of request, and then refused to reply. Unicredit and Citibank refused to talk about loan terms, margin-calls or vessel valuation policy.
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by John Helmer - Friday, March 27th, 2009
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By John Helmer in Moscow

In 1930, at the start of the Great Depression, a story was published in the US with the purpose of convincing children that if they worked hard, they would be rewarded. That idea being none too original, it turns out that the tale of the small anthropomorphic locomotive, who pulls a heavy line of freight-wagons over a mountain-top, was cribbed from a publication a quarter of a century before.

If your mother read it aloud to you as a youngster, you’ll remember the best parts. The first was at the shunting yard when the bigger locomotives refuse the job, and the little one chants: “I think I can. I think I can. I think can.” With tantalizing tension as he slows on the up-grade, he manages the feat, and then celebrates as he runs downhill: “I thought I could. I thought I could. I thought I could.”

High River Gold (HRG:CN) is the Toronto-listed junior who’s lived to tell this tale. Only the children in the market don’t appear to have heard it, yet.

With four operating gold mines in Russia and Burkina Faso, tw and two mine projects in development, HRG has currently attributable production of about 300,000 ounces per annum, and is cashflow positive. Attributable gold reserves were estimated in February by Dan Hrushewsky, HRG’s investment relations director, at 2.2 million oz, with silver reserves at 5.2 million oz. A subsequent release from the company on March 17 reported a MICON expert audit of gold reserves at the Zun-Holba and Irokinda mines (Buryat region of southeastern Siberia). Altogether, counting the Bissa gold project in Burkino Faso and the Prognoz silver project (Sakha region of fareastern Siberia), and converting silver reserves into gold equivalent, HRG’s gold equivalent reserves and resources, on the Canadian NI 43-101 basis, add up to 6.1 million oz.

A recent international investment bank valuation of HRG estimates it at almost $770 million. The current market capitalization, however, is C$112 million (US$91 million). This compares with Russian peer Polyus Gold (PLZL:LI) at $9.1 billion; Polymetal (PMTL:LI), $2.2 billion; Peter Hambro Mining (POG:LI), $686 million; and Highland Gold (HGM:LI), $203 million.
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by Editor - Friday, March 27th, 2009
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By John Helmer in Moscow

Russia’s steelmakers have a better chance to lift output and revenues on a recovery in export demand, especially in the China market, than on reviving domestic demand for steel. This forecast, issued in a steel sector report of March 24 by Troika Dialog investment bank in Moscow, flatly contradicts the consensus of Russian steel analysts a year ago. At that time, they told investors they were certain Kremlin spending on public works would sustain demand for steel for domestic construction and infrastructure, and so buffer the domestic steel industry against external shocks.

What a canard that turns out to be.

“Now that demand for steel is falling,” the new Troika report claims, “international trade is going to decline dramatically as well, but we think that Russian players are well positioned to claw back at market share thanks to the cost advantage, and hence protect export volumes from falling massively…On the domestic front… we expect demand to drop by around 40% in 2009 from its peak 2007 level…At the same time, we do not entertain illusions about a possible positive impact from the government economic stimulus program, which seems to be growing smaller by the day.”

The report predicts that the protectionist option may also grow in importance, as Russian mills and pipemakers apply to the Trade Ministry in Moscow for domestic injury or anti-dumping relief, primarily to keep out Chinese steel imports. “Russian producers could partly offset the drop in demand by squeezing out imports, which averaged 13% of Russian consumption last year (the same as during the entire previous decade), but this might be difficult without official support. The Russian government took the first step in January, imposing import duties on certain types of long products and pipes ranging from 15-20%, thoughthis may not be enough to put a barrier in the way of imports.”
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by Editor - Thursday, March 26th, 2009
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By John Helmer in Moscow

For weeks, Alrosa, Russia’s diamond mining challenger to De Beers, has been waiting for the appearance of a miracle to keep the mines producing at last year’s volumes, and avoid layoffs and financial damage to the fareastern region of Sakha, where Alrosa is the chief income generator.

That miracle is a secretive government agent called Gokhran. Legally a branch of the Ministry of Finance, it has a history going back three hundred years to the time when Tsar Peter the Great decided he needed something more formal than bodyguards and hobnailed chests in which to keep his treasure.

During the 1990s, Gokhran played a key role in releasing, as well as withholding Soviet-era stocks of rough diamonds, plus platinum and palladium. The result created several diamond fortunes in Tel Aviv and San Francisco; the speculative spikes in the price of the platinum group metals were the foundation on which several celebrated Johannesburg mansions and Eastern Cape beach villas were erected.

Today, much depleted in valuables, compared to fifteen years ago, Gokhran is rebuilding its strategic significance in the international diamond market. This is because it has the potential, with Russian state funding, to buy up Russian rough diamond production. Unlike the other global diamond miners, which are halting mine operations, slowing mills, and laying off miners and prospectors, the alliance between state-owned Alrosa and state-funded Gokhran has the potential to make an enormous Russian grab of global diamond market share — and keep it.

That is what Alrosa, with a 25% share of the market, is waiting for. But will Godot, I mean Gokhran arrive in time? On Thursday last [March 19], it seemed so. Russian government ministers agreed then to make a substantial increase in budget money for Gokhran to buy Alrosa’s mine output this year. It is far from clear, however, what proportion of the production will not be bought by Gokhran; and what cuts to the mine output plan Alrosa management may now be obliged to make, if any.
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by John Helmer - Thursday, March 26th, 2009
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By John Helmer in Moscow

Denmark-based fleet operator Norden has hit United Company Rusal, the Russian aluminium monopoly controlled by Oleg Deripaska, with claims for shipping contract violations since last September. The liabilities total $98.3 million. Court documents break publicly for the first time the code of silence which usually covers Russian commodity trades, the cargo owners and the shippers.

Norden chief executive Carsten Mortensen refuses to say if London arbitration to enforce Norden’s contracts has already commenced.

US court records from the southern federal district of New York show, however, that Norden is charging a Jersey-registered Rusal trading company with breaking contracts for the shipment of 2.6 million tonnes of Queensland bauxite from the port of Weipa to Porto Vesme, the alumina refinery port in Sardinia. The tariff agreed was $64.64 per tonne, making a gross charge of $167 million. For this year, the contracts specify 15 shipments of 300,000 tonnes.

Rusal, one of the leading primary aluminium, alumina and bauxite producers in the world, has said in the past that all shipping data are company secrets; the company itself is privately owned and publishes no financial reports. Trade data are kept secret, because of the complex tolling and tax schemes which Rusal uses in Russia, and in its international operations. The Australian government keeps bauxite export data confidential.

According to the US court documents, Norden went into the New York federal district court in February to attach Rusal bank funds to secure payment, in the event the London arbitration awards Norden its claim. On February 10, US judge Richard Berman ordered 15 US and international banks, including Nordea of Finland, to freeze Rusal accounts up to $93.8 million in cash value.
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by Editor - Wednesday, March 25th, 2009
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