Delay and new cost conditions may persuade De Beers to abandon the Grib pipe

By John Helmer in Moscow

Unclear conditions set for De Beers’ s new Archangelsk region diamond project, and unexplained delays by the Russian government in communicating them, are likely to trigger the cancellation of the $172 million fund-raising, held last June by Archangel Diamond Corporation (ADC). The money to finance the restart of the big diamond mining project has been held in escrow since the placement was closed on June 24. It is now likely to be returned to its contributors, who have seen the value of their shareholding in ADC fall by 60% since June.

On October 10, Russia’s Control Commission for Foreign Investment, a cabinet-level body chaired by Prime Minister Vladimir Putin, reviewed the application by De Beers and LUKoil for state approval of its joint venture to mine the Grib diamond pipe, with an estimated $7 billion in mineable diamonds. A public announcement of the approval was issued to the press by a member of the commission, Igor Artemyev; he heads the Federal Antimonopoly Service (FAS), which is the staffing agency for the commission.

The commission should have produced a signed protocol of its ruling, and sent it to De Beers and LUKoil within three days of signing. But ADC has not announced this receipt yet. FAS sources were unable to say on October 20 whether the protocol has been signed. According to the commission regulations, once the signed notice of decision has been sent to the applicants, they have 20 days to confirm their acceptance.
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by John Helmer - Monday, October 20th, 2008
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By John Helmer in Moscow

The first sign of a Russian economic crisis is a line of desperate people, pushing and shoving outside a locked door, on which a scribbled sign has been posted indicating that the cash those outside thought they owned would be unavailable until further notice.

In the classic Soviet tradition, a handful of enterprising individuals would go to the back door to see what could be arranged out of the glare of publicity and with a little bribery for those inside. There they were told the truth – their money had gone.

So far, as the financial crisis continues to engulf the world, only four or five Russian banks have gone to the wall, visibly – KIT Finance, a small St Petersburg investment institution connected to cabinet ministers; Bank Soyuz, the cash box of Oleg Deripaska’s aluminum-based holding; EvrasiaTsentr (“Eurasia Center”), a tiny Moscow lender; and Globex, a slightly bigger retail deposit bank, also in Moscow.

All have been swiftly secured, without the distress becoming too public or a line of angry depositors forming outside. The sale of Renaissance Capital, a fifth investment house, for a fraction of its pre-crisis value, was another distress sign, but not in the mass market.
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by John Helmer - Wednesday, October 15th, 2008
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By John Helmer in Moscow

Russia’s vice premier for energy and resources, Igor Sechin — who is also chairman of Rosneft, the state owner oil producer and lead exporter — met behind closed doors on the weekend with the heads of Russia’s oil and gas majors to discuss their refinancing problems.

State intervention to support the oilers’ debt rollover is likely to be followed by further support measures for the state-controlled tanker companies, which faces rising foreign debt bills for their tanker newbuilds. Sechin, who also supervises shipbuilding and ports, and is closed aligned with Gunvor owner, Gennady Timchenko, has recommended giving the oil companies a total of $9 billion via the state development institution, Vnesheconombank (VEB), so that they can refinance foreign loans over the next nine months. Analysts believe this will be divided into $1 billion for Gazprom, $1.8 bilion for TNK-BP, $2 billion for LUKOIL, and $4.2 billion for Rosneft. The final distribution of the funds will be decided at the VEB board, which is chaired by Prime Minister Vladimir Putin. The Russian oilers are believed to owe about $80 billion in foreign-sourced loans.

Gunvor has told Fairplay it is actively seeking finance to expand Timchenko’s stakes in the Baltic oil trades, including the new Ust-Luga terminal, rail transportation of oil, fleet operations, and independent gas exports.
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by John Helmer - Tuesday, October 14th, 2008
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By John Helmer in Moscow

When United Company Rusal, the international aluminium producer controlled by Oleg Deripaska, invited a 37-man delegation of Chinese reporters and cameramen to Russia last month, the aim was to get across the message that China is the central kingdom in the Deripaska empire; that as much or more investment is promised for China than Rusal has so far committed to Russia itself for the next few years.

Deripaska’s future, wrote a reporter for the Hong Kong Standard, “may depend on China. It is the mainland’s voracious appetite for raw materials that has fueled a boom in aluminum prices that is expected to continue unabated.”

Another Chinese reporter in the delegation reported Rusal chief executive, Alexander Bulygin, as describing a roadshow in Hong Kong, which Rusal ran in parallel to the media tour of Russia: “How can I not like Hong Kong. I have been there twice in the past six weeks.” That roadshow, Bulygin confided, was aimed at finding a handful of Chinese investors to buy into Rusal, ahead of a public share listing. “We plan to find a whole spectrum of strategic investors – not one, but five to seven different investors representing different sectors,” he said. The private Chinese placement was intended to sell a 2% shareholding stake in Rusal; a later IPO at selling between 10% and 20%.
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by John Helmer - Tuesday, October 14th, 2008
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By John Helmer in Moscow

Deep cuts in steel output at Russian mills have been exaggerated by some steelmakers and the press and reflect attempts by some Russian proprietors, like Alexei Mordashov, owner of Severstal, to sustain profit margins, according to industry sources.

“Although the market is not in the best mood right now, and there are real problems, I think the cutback announcements are part of a PR campaign as well,” said Lev Chesalov, an analyst at the Russian steel market monitor, Rusmet.

“The proprietors may regard the push-down on the falling share price as an opportunity to buy back their own shares. I don’t believe MMK will oust 3,000 people as has appeared in the press, or that Severstal may cut 30% of its production.”

Mordashov has ordered a 25% cut in crude steel at Severstal’s Cherepovets mill in Russia, and a 30% cut in output for October at the group’s US and Italian mills.
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by John Helmer - Monday, October 13th, 2008
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By John Helmer in Moscow

Russia’s aluminium and nickel oligarchs go to the mat for state bank funding.

A fierce battle has begun for access to state bank cash to determine who ends up in control of Russia’s largest metal and mining companies, Norilsk Nickel and United Company Rusal.

Rusal spokesman Vera Kurochkina disclosed officially in Moscow on Wednesday that Rusal has applied for a large loan from Vnesheconombank (VEB), a wholly state owned institution, which has been ordered by the Kremlin to provide stand-by financing to domestic banks in current difficulty.

In addition to banks, several Russian oil majors, plus Gazprom, have told the government they need emergency financing to enable them to refinance their external debt in the global financial crisis. LUKoil says it wants to borrow between $2 billion and $5 billion. Rosneft, which is state owned, must pay $750 million by year’s end, and a further $2.4 billion in the first half of 2009.

Trading in Russian stocks has been halted more than once this week, but based on latest figures, Gazprom is 67% off its high price, with a current market value of $117 billion; LUKoil is 62% down with a current market value of $37 billion; the respective numbers for Rosneft are 68% down and $41 billion, and for Norlisk, 83% down and $11 billion.
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by John Helmer - Thursday, October 9th, 2008
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By John Helmer in Moscow

Norilsk Nickel investigation of asset spinoff leads to questioning of shareholder intention

Mikhail Prokhorov’s holding company, Onexim, has officially confirmed that Mikhail Prokhorov will not proceed with the asset division agreement he signed on September 14 with former partner, Vladimir Potanin.

A statement issued to Mineweb by the holding’s chief executive, Dmitry Razumov, claims: “We made a proposal to Interros [Potanin’s holding company], but have not yet received an answer. The ball is in Interros’s court.” Referring to Russian press agency reports that Prokhorov had called off the deal after declaring force majeure is not explained by Razumov. Instead, his statement claims: “information on any force majeure on our side, preventing us from reaching an agreement with Interros, has nothing to do with reality.”

Mineweb reported a week ago that the deal had collapsed. A source close to the negotiations told Mineweb: “This was not a formal agreement. It was a protocol, in simple written form, not an agreement according to Russian legislation, though it may be so according to other countries.” Interros has told Mineweb it is not commenting on the terms that were and agreed and signed.
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by John Helmer - Wednesday, October 8th, 2008
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By John Helmer in Moscow

Russia’s biggest iron-ore miner defers public share sale due to global cash crisis

Metalloinvest, the Russian steel and iron-ore holding controlled by Alisher Usmanov, has failed to fix an international market value for listing and sale of its shares. This is the market interpretation after an announcement on Thursday by chief executive, Maxim Basov, that the group (also referred to as Gazmetall) will not proceed with a planned Initial Placement Offering (IPO) this year.

Basov was quoted in a Russian press agency bulletin as saying “our shareholders and management examined the possibility of conducting an IPO this autumn as an option for growth. But we decided against this. There’s a serious crisis in the world and an IPO simply doesn’t make sense.”

Usmanov holds 50% of the private shareholding; Andrei Skoch, 30%; and Vasily Anisimov, 20%. The main assets in the holding are the Ural Steel (Nosta) and Oskol steelmills, and the two iron-ore mines, Lebedeinsky and Mikhailovsky.

In February, negotiations for a merger between Usmanov and the Ukrainian Industrial Union of Donbass (IUD) foundered over valuation and control issues. At the time, Usmanov had valued his assets at $20 billion, while he insisted that a swap of shares should leave IUD with less than a 50% stake in the new, merged company.
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by John Helmer - Friday, October 3rd, 2008
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By John Helmer in Moscow

Polyus Gold waits for the green light – or is it red?

Glenn Gould, the world’s greatest pianist, and a notorious automobile driver, once admitted: “It’s true that I’ve driven through a number of red lights on occasion. But on the other hand, I’ve stopped at a lot of green ones but never gotten the credit for it.”

Mikhail Prokhorov, the Russian oligarch who controls Polyus Gold, Russia’s most valuable gold miner (ticker PLZL:RU), may not be getting all the credit he deserves. It is understandable, therefore, that through spokesmen at his Moscow holding, Onexim, and indirectly through the media, he has been publicising a number of cash demonstrations in a marketplace stripped of most of its liquidity.

There is, for example, the $500 million he paid in September, plus another $500 million or so in pledged capital, for Renaissance Capital, a Moscow investment house that strenuously denies it holds toxic obligations, or operating losses it cannot cover.

There is also €496 million for the most expensive house ever sold in France. According to sources in the Nice area and Onexim, as well as French press reports, during the summer Prokhorov sent his representatives to inspect the villa at Villefranche-sur-Mer; negotiated the price; and paid a non-refundable €50 million deposit. No trace of such a payment has been reported in France, nor notarial evidence of the deal. Onexim said Prokhorov had not bought the house in France – as of mid-August.
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by John Helmer - Wednesday, October 1st, 2008
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By John Helmer in Moscow

Smelter pollution charges fly in Rusal-Norilsk clash.

The fight for control of Russia’s largest mining company, Norilsk Nickel, has turned into a battle over smelter emissions and environmental safety.

UC Rusal (Russian Aluminium), the Russian aluminium monopoly, fired the first shot as part of its hostile takeover attempt of Norilsk Nickel, the leading nickel and palladium exporter in the world. Rusal is controlled by Oleg Deripaska; Norilsk Nickel by Vladimir Potanin. Never before have these Russian oligarchs tangled so publicly and directly with Russia’s growing ecological movements, and the internationals — Greenpeace, Greenline and Waterkeeper Alliance.

Rusal took the offensive after losing Russian government support for the takeover, following a meeting Deripaska and Potanin had with Deputy Prime Minister Igor Sechin on July 28.

On August 12, Rusal dispatched an open letter to Vladimir Strzhalkovsky, a former government administrator, and Sechin’s candidate as chief executive of Norilsk Nickel. In its letter to him, Rusal chief executive Alexander Bulygin claimed to be “seriously concerned with the environmental situation relating to production activities at Norilsk Nickel’s facilities in Russia. According to the state environmental monitoring service and international public organisations, the environmental situation at Norilsk is on the brink of catastrophe.”
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by John Helmer - Tuesday, September 30th, 2008
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