By John Helmer in Moscow

De Beers has agreed to sell its controlling stake in Archangel Diamond Corporation (ADC) to a North American investment fund which aims to intensify the litigation campaign in the US and Europe against LUKoil and Archangelskgeoldobycha (AGD), the two Russian companies charged with raiding the Grib diamond pipe.

At a board session on Friday, a bid by De Beers to call in a $10 million loan, and put ADC into liquidation, was topped by an offer to repay the loan, ADC’s remaining creditors, and conserve the company and its minority shareholders. Had the liquidation plan gone ahead, the latter would have lost everything.

ADC has yet to make an announcement, identifying who has made the offer which the board has accepted, or the terms. It is believed the offer comes from a lawyer-managed US fund, which is well-known as an investor in high-value litigations, with a strong record of winning large settlements for the cases it has taken on.

At this point, the fund appears to be paying about $14 million to clear ADC’s debts, and committing itself to a litigation budget of another $10 million, in order to pursue claims against the Russians of $4.8 billion; this sum includes $30 million in ADC’s direct investment in the exploration and testing of the Grib pipe; $400 million in lost profits according to ADC’s 40% stake in the halted mining venture; $800 million in profits lost from other diamond pipes within the Verkhotina-area exploration and mining licence; and $3.6 billion in triple punitive damages under the Colorado state racketeering statute.

The most recent De Beers valuation of the Grib pipe, based on early 2008 diamond prices, puts the project’s mineable value between $8 and $10 billion.
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by John Helmer - Monday, June 1st, 2009
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By John Helmer in Moscow

Russia’s Chief Prosecutor’s office has acknowleded that putting Somali pirates ashore for trial in Kenya is no longer an option, unless the Kenyan courts are replaced by a fully funded international tribunal.

Responding to questions from Fairplay, Alexander Zvyagintsev, the deputy prosecutor-general, has issued the longest official statement on the piracy issue since the Russian Navy despatched a destroyer squadron to patrol the waters off Somalia last year. According to Zvyagintsev, the 29 pirates captured by the Admiral Panteleyev on April 29, following an armed attack on a Russian oil tanker, included 12 Pakistanis, 11 Somalis, and 6 Iranian nationals; he claimed their excuse of being fishermen is not credible.

But Zvyagintsev did not disclose what has been done with the men. Russia is unlikely to put them on trial in Moscow, he hinted. Sending them to the Kenyan courts is also unlikely, because he said Kenya will have “serious problems” in trying up to 100 men already charged there with pirate offences off Somalia.

Rejecting “extreme unilateralism” as a policy, Zvyagintsev said the pros and cons of an international piracy tribunal have yet to be resolved by negotiation with the African coast states, and the Group of Eight states. Zvyagintsev said that he will be meeting with prosecutors from the other G8 states in Rome over the weekend to consider what is to be done next. Among the legal problems the G8 lawyers are discussing is the problem of sufficient evidence to secure convictions against the Somali pirates. Noting that “the legislation of many states does not provide the possibility of prosecuting the criminal liability of foreign citizens and persons without citizenship for crimes of piracy committed out of the [territorial or juridictional] limits of these states, [and so] there is the issue of how implement criminal prosecution using the mechanisms of international law.”
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by John Helmer - Monday, June 1st, 2009
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By John Helmer in Moscow

In the chapbooks of the medieval Finns, it was reported that pygmies lived in the Arctic Sea regions. The men there were dwarfed, so the Finns and Lapps thought, because of the effect of the North Pole and ice cap as a low-hanging roof over the world that made it impossible for normal-sized men to walk about. What they lacked in stature, though, the Arctic pygmies were suspected of making up for in aggressiveness. If they couldn’t find men to fight, they would attack flocks of cranes, riding on the backs of goats.

Not a great deal is known about a company called CITCO Waren-Handelsgesellschaft except that it has a handsome office in Vienna at number 8, Nussdorfer Platz; and there trades refined gases in liquid form, such as propane and butane; as well as nitrogenous fertilizers, other petrochemicals, and synthetic rubber. The company website reveals that it employs at least 15 people, and in 2007 had turnover of $1.88 billion. A presentation in Monaco last year claimed that CITCO has a 60% share of the liquefied gas trading market in the world.

Does CITCO’s obscurity rate it a pygmy by Arctic standards?

During May, it was reported in more than one Russian news medium that the company had been bought by Sibur, a petrochemical holding which belongs to Gazprom, the world’s largest producer and exporter of gas, and Russia’s largest company. Sibur spokesman Rashid Nureyev refused repeated questions to confirm this fact, or the price Sibur has paid. Sibur’s financial reports run a year in arrears, and its cross-shareholdings and related-party dealings within the Gazprom group, which include Gazprombank and Gazfond, leave open the possibility that the acquisition will never be publicly accounted for.
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by John Helmer - Friday, May 29th, 2009
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By John Helmer in Moscow

Sergei Vybornov, the chief executive of Alrosa since February 2007, is likely to be replaced, sources close to the company have told Polished prices.com. An announcement is expected to be made before the annual general meeting of Alrosa shareholders, scheduled for three weeks’ time, on June 20.

Vybornov’s spokesman has been refusing to answer his telephone, or respond to questions about the replacement, although Russian diamond industry figures have been speculating about it for weeks.

On Tuesday, Vybornov summoned reporters from Bloomberg to his office in a demonstration that he is still at the helm. He was not asked, and he didn’t say, whether he intends to remain at his post.

Bloomberg reports that Vybornov repeated an earlier announcement, following the last round of executive and shareholder meetings this month, that Alrosa has cut mine output so far this year by 4% from last year’s level. Vybornov was also reported by Bloomberg as saying that about two-thirds of this year’s production will be offered to the state stockpile agency, Gokhran. The state’s buying price has not been disclosed, but it appears to be close to cost.

If this sales plan holds, the sale to Gokhran would represent about $1.6 billion in target value. Altogether, the Alrosa Supervisory Board confirmed on May 14 that it plans $2.1 billion in production value this year; the company does not issue output figures in carats, nor releases an average per-carat price supporting its announcements of production and sales targets.
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by John Helmer - Friday, May 29th, 2009
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By John Helmer in Moscow

The Federal Antimonopoly Service (FAS), Russia’s anti-trust watchdog, announced this week that it has opened an official investigation of the State Customs Service (FTS).

The head of the FAS, Igor Artemyev, is a careful St. Petersburg apparatchik, who has made a 5-year career of running the anti-trust agency without getting out of step with his superiors. So it is surprising that the trust-busters have opened fire on the Customs men; it is understandable that it has taken them six months for them to pluck up the courage. The Customs agency is headed by Andrey Belyaninov, whose first career was in the KGB; and who came to the FTS in 2006, after running Russia’s arms export monopoly.

The target is an action the FTS ordered late last year to close down most of Russia’s customs clearance points at ports shipping ferrous scrap for export abroad. This measure has brought Russian scrap exports to a virtual halt in the Russian fareast, and cut the volume of exports to a trickle on the Black and Azov Seas.

Citing a provision of the antimonopoly legislation which bans administrative orders that hinder competition and limit free trade, and also a complaint from a scrap industry lobby organization, FAS issued a release this week, announcing it will commence its proceedings on June 10. A public statement by FAS, dated May 26, noted that the agency “suspects that FTS Russia violated the Federal Law «On Protection of Competition» by adopting acts that lead to restricting competition on the market of export of ferrous metals and limiting the rights of economic entities for selling, buying, otherwise acquiring or exchanging goods in the Russian Federation.”

Dmitry Kotikov, chiefspokesman for the State Customs Service, told CRU Steel News: “I can’t comment on the spot. We are aware of this information. I think our official position will be presented [on June 9].”
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by John Helmer - Thursday, May 28th, 2009
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By John Helmer in Moscow

The Mechel steel and coal group has failed for the second time in two months to agree with its bankers on repayment of a year-old $1.5 billion loan. The news, first issued in Moscow as trading commenced on the New York Stock Exchange, where Mechel is listed, dropped the share price by 2% by mid-afternoon.

The obligation was first undertaken for a one-year term in March of 2008, when Mechel bought the chrome miner and refiner, Oriel Resources. The debt became overdue on March 20, and was extended for 50 days until May 15.

Before that deadline, the company told Reuters it was thinking of issuing unsecured bonds worth a total of 45 billion roubles ($1.35 billion). This was not announced officially by the company, which also did not tell Reuters the purpose of the bond issue.

On May 14, a press leak by the company to Reuters claimed that Mechel would meet its refinancing deadline by paying $500 million in cash, and rolling over the balance of $1 billion on a longer-term arrangement. The cash outlay was reported as coming from Gazprombank. This indirectly state-owned bank has been reported, again without confirmation from Mechel, as having loaned Mechel $1 billion some time in the first quarter.

A report by Renaissance Capital to brokerage clients on May 15 claimed “we expect an official announcement from the company on the debt restructuring situation today.” No disclosure materialized. At the time, according to Renaissance Capital analyst Boris Krasnojenov, the reported claim that Mechel had resolved its refinancing problem was “positive for Mechel provided the refinancing is actually agreed upon… we identified successful refinancing of Mechel’s $1.5bn bridge loan as one of the key drivers of the stock. Mechel’s ADRs on NYSE were up 5.5% yesterday [May 14]. The positive impact of the news will largely depend on the details of the refinancing scheme.”
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by John Helmer - Tuesday, May 26th, 2009
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By John Helmer in Moscow

Following the weekend European Union (EU) summit meeting with Russia in Khabarovsk, Gazprom chief executive Alexei Miller warned yesterday in Moscow that if the Ukraine cannot pay the tab for past-due bills for gas, or for future deliveries for winter storage, and if the European Union won’t lend the money, Gazprom may cut off the supply once again.

Miller is reported Tuesday in a Moscow newspaper as acknowledging that Ukrainian payment delays are currently “very, very difficult”. He adds that Gazprom doubts that the Ukrainians can cover the arrears, or the cost of filling the gas storage. The costs were estimated during the EU session as between $4 billion and $5 billion.

If the arrears aren’t cleared, Miller said the supply agreement between Moscow and Kiev signed last in January provides for Gazprom to require new gas to be paid for ahead of delivery.

To European leaders, President Dmitry Medvedev said it was up to the EU to help the Ukrainians finance gas imports, if Brussels wants to resolve the conflict over gas movement. “There are no problems on our part,” Medvedev said. ” Let the one who pays for the gas offer assurances.” In parallel, Prime Minister Vladimir Putin meeting Ukrainian Prime Minister Yulia Tymoshenko, said: “We have applied to the European Commission with this question [of providing financial support to Ukraine]. We got the answer through a minister of finance, ‘We have no money for Ukraine.’ ”

by John Helmer - Tuesday, May 26th, 2009
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By John Helmer in Moscow

Fitch, the international ratings agency owned by the Paris-listed Fimalac, has issued a downgrade notice for Severstal, lowering its issuer default and senior unsecured ratings from BB to BB-. The agency has also placed Severstal on a further watch for the possibility of deteriorating financial information leading to a further downgrade.

A report issued by Fitch says the action reflects the “view that Severstal’s profitability and credit metrics will deteriorate in 2009-2012 to levels that are not consistent with a ‘BB’ rating. EBITDA margin dropped to -5.7% and 7.4% in Q109 and Q408 respectively, from an average 23%-24% in 2006-2008. Fitch forecasts that EBITDA margin will remain in single digit in 2009-2010. Fitch is also concerned about uncertainty surrounding steel product volume and pricing trends over 2009-2010, especially in the automotive and construction sectors to which Severstal is most exposed. ”

Responding to Severstal’s financial report this month, disclosing that Severstal North America made a $243 million Ebitda loss in the first quarter, and to this site’s publication last week of borrowing covenants in Severstal’s 2013 and 2014 Eurobonds, Fitch has announced: “Severstal’s attempts to restructure its US assets have failed to improve the performance of its North America division, which in Q109 reported an EBITDA margin of -25%… Fitch expects Severstal’s 2009 profitability to remain under pressure and to materially weaken from 2006-2008 levels. As a result, the agency believes that Severstal could breach covenants under various facilities.”

Fitch told the market it will “assess expected developments in Severstal’s key markets and the adequacy of anti-crisis measures announced by management to reduce financial and operational risks.”
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by John Helmer - Monday, May 25th, 2009
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By John Helmer in Moscow

Russia has seized a shipment of Egyptian oranges at Novorossiysk port, after discovering Mediterranean fruit-fly infestation. The orange move has been reported in the Russian media as tit for tat for Egyptian moves to seize three shipments of Russian wheat since May 13.

Rosselkhoznadzor (RSN), the government’s food and farm product inspectorate, confirmed that the imported oranges have been impounded, but said this is not a retaliation for last week’s arrest by the Egyptian prosecutor-general of Russian wheat. Alexei Alexeyenko, the RSN spokesman, said the arriving citrus was inspected, and after the pest was found, the shipment has been quarantined and fumigated. In time, it will be allowed to be delivered to the consignees.

Alexeyenko also told Fairplay that two weeks after the Egyptians claim to have found infestation in 137,000 tonnes of arriving Russian wheat, there is still no official report from the government in Cairo of any contamination; and no official Egyptian government complaint. He said RSN has run special laboratory checks on grain from the same source as the wheat exported to Egypt, but no trace of weevil infestation has been found.

Alexeyenko said that traditionally, Egypt buys medium quality (4th and 5th class) wheat. “It always corresponds to the GOST [state inspection standard] and to the quality indicated in the [sale] agreement.” Alexeyenko reflects government thinking in Moscow that the Egyptian seizures are a ruse to cut the trading price of the Russian grain in the Egyptian market, and to favour competing exporters from other countries. The timing, he said, is related to the World Grain Summit, when world grain producers and buyers will assemble in St. Petersburg on June 6.
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by John Helmer - Friday, May 22nd, 2009
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By John Helmer in Moscow

Alexei Mordashov, controlling shareholder and chief executive of the Moscow-based Severstal group, has set a sale price on the group’s North American assets of $3.6 billion, according to a source close to the company. Lazard Freres is the investment banking firm advising Mordashov on the deal.

The disclosure comes after press leaks of talks Severstal North America (SNA) has been holding with potential buyers. These have included talks with AK Steel for the Warren, Ohio, mill; with Nucor for the SeverCorr minimill in Mississippi; and with CSN, Essar, and ArcelorMittal.

Severstal is refusing to comment on the negotiations, but bank sources have been speaking to the industry press. They are reported as telling The Deal Reporter early this month that “other than its SeverCorr mini-mill …Severstal’s North American assets are considered nothing spectacular, and the company is likely to struggle to find an entity willing to take on the entire portfolio in the current climate.”

CRU Steel News has been told that the only interest so far shown in Mordashov’s sell-off proposal has come from Nucor. The source claims that Nucor’s interest is limited to SeverCorr. But Mordashov has been told that no deal is possible now, and that the price must come down to cost. No other steelmill in the Severstal North America (SNA) portfolio has attracted buying interest to date, the source claims.

Severstal’s financial reports indicate that atotal of about $1.9 billion in debt matures this year, and must either be repaid or refinanced. In February already, the group repaid $325 million in Eurobond obligations; and must repay another $480 million by year’s end. In 2010 Severstal will have another $900 million in debt repayments. Then between 2010 and 2013, about $4 billion in debt will reportedly fall due.

Although Severstal has indicated confidence it has enough cash on hand, and current cashflow, to handle this year’s repayments, the Eurobond loan agreements which Severstal signed are putting pressure on Mordashov to remove losses from his current balance-sheet by sellingloss-making SNA mills. At the same time, the loan covenants sharply curtail the company’s refinancing and restructuring options.
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by John Helmer - Thursday, May 21st, 2009
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