COURT TO RULE ON DISCLOSURE OF TRANSFER PRICE OF RUSSIAN OIL

By John Helmer in Moscow

The Russian oil trading company Gunvor, controlled in Geneva by Gennady Timchenko, is facing margin uncertainties as the global oil price falls, and Russian producers respond to a profit squeeze of high taxes and rising costs.

Exactly what happens when a barrel of Urals crude moves from the wellhead into the international market, at what cost, and at what margin of profit, are three questions a recent Moscow court ruling suggests may only be disclosed if you hold 25% or more of the shares of the Russian oil company. And in the case of Rosneft, Russia’s leading producer and exporter, that is the state. A series of three lawsuits, including one to be heard in St. Petersburg next week, is seeking court-ordered disclosure of shipment volumes, wellhead oil prices, freight charges, and trade discounts allegedly granted to Gunvor last year by several exporters — Rosneft, Gazpromneft, and Surgutneftgas. According to company disclosures, the state owns 88% of Rosneft; 72% of Gazpromneft.

According to oil production results for June of this year, total Russian crude output was 9.8 million barrels per day (mbd). Rosneft led the majors with 2.3 mbd; Surgutneftgas produced 1.3 mbd (third in line behind TNK-BP); while Gazpromneft was in fifth place with 621,000 bd.
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by John Helmer - Friday, September 26th, 2008
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POTANIN IN BUY-BACK — IS DERIPASKA IN SELL-OUT?

By John Helmer in Moscow

The Bubble Metric Index (BMI) is a measure of the distance between the fantasy of money and financial reality.

In the past month, it has been weighing unusually heavily on the oligarchs who own pieces of Norilsk Nickel, Russia’s largest mining company. Especially those whose obligations have been secured by the value of commodities that have dropped in price, and by shares whose value has plummeted.

In the Russian macro-economy, the BMI can be expressed as the distance between the market capitalization of the listed stocks, as recorded on the stock exchanges, and the money supply as reported by the Central Bank. Between the year 2000 and the autumn of 2005, the two measures tracked together closely. You could say that the amount of cash available to invest correlated with the cash value of the investment. Then the market cap took off, hitting a peak of about $1600 billion in May of this year. Money supply, however, grew at a snail’s pace. When market cap was at its May high, money supply was around $600 billion. The gap between the two, lasting the thirty months from 2006 to mid-2008, is what is popularly known as the bubble, or, on account of its duration and magnitude, the MEGA-BUBBLE.
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by John Helmer - Wednesday, September 24th, 2008
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Have gas, will travel

By John Helmer in Moscow

You have to be older than Condoleezza Rice (b. November 14, 1954) to remember the first episodes of the greatest western ever to be broadcast on US radio and television. That was “Have Gun, Will Travel”, beginning in 1957. Over the following six years, in 225 episodes, the pock-marked Richard Boone, attired in black on horseback and at table, played Paladin, a classically educated, multilingual gentleman, who preferred reading poetry to cards, and who recommended settling conflicts by negotiation. When that failed, however, he used a hair-trigger Colt revolver, a concealed derringer, and a Winchester rifle, to dispose of his adversaries.

The Asian audience for the series was less than enamoured of Paladin’s comic foil, a bellhop at his San Francisco hotel called Hey Boy.

The key to Paladin’s strategy was the symbol of the knight chess piece. In one of the scripts, Paladin explained that the knight is “the most versatile on the board. It can move in eight different directions, over obstacles, and it’s always unexpected.”

This past week, while Rice spokesman at State Department fumed and snickered, the Russians entered the American hemisphere, well-armed but with peaceful intentions, to teach a Paladin trick or two.
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by John Helmer - Tuesday, September 23rd, 2008
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By John Helmer in Moscow

Analysts at Moscow’s Renaissance Capital reckon Russian asset values are priced below bargain basement.

A typo in the lead cannot take the glister off Renaissance Capital’s fresh report on Russian gold buying opportunities.

The report, by analysts Rob Edwards and Andrey Krupnik, is entitled “CIS Gold and Silver: A Golden Opportunity”. The lead paragraph says: “We believe gold is well poisoned [sic] to make further gains in the near term. This is somewhat dependent on movements in the dollar, which has reversed its bull run against the world’s major currencies.”

RenCap analyzes just three of the Russian gold producers – Polyus Gold (PLZL:RU), which is currently trading at $25, 60% down over the past three months; Polymetal (PMTL:RU) at $5, down 40%; and Highland Gold (HGM) at 76 cents, down 75%. Peter Hambro Mining (POG:LN), which is London listed, is down 41%, and currently at 741 pence.
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by John Helmer - Friday, September 19th, 2008
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Tajik publication attacks Mineweb’s Helmer and his reporting on aluminium group.

Johannesburg – On September 11, Mineweb published a report by John Helmer, entitled “IMF Attacks Tajikistan Aluminium Co – orders international audit”.

Publication followed attempts by Mineweb’s Moscow office to ask the following questions of Talco in Dushanbe:

1. According to an IMF country report for Tajikistan, issued in June, the IMF considers Talco’s non-transparency and financial control to be “most worrisome”. The IMF says: “the financial operations of the aluminum company (Talco), the largest SOE in Tajikistan, remain nontransparent.”

How does Talco respond to the criticism?
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by John Helmer - Friday, September 19th, 2008
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By John Helmer in Moscow

Russpetstal (“Russian Special Steel”, RSS), the steel affiliate of the state-owned Russian Technologies holding, has decided to acquire up to 4 new operating mills if the price is right, and it can raise the finance from Russian state banks. Details of the targets of RSS’s 18-24 month strategy were recently approved by the RSS board, and disclosed by Igor Alexeyev, deputy chief executive of RSS for strategy and finance.

In an interview this week with CRU Steel News, Alexeyev said the new strategy includes “two to three or four targets” for acquisition”, together with a target for investment into the plants RSS has already acquired.

One of the new acquisition targets may be outside Russia, Alexeyev said, the purpose of which will be to acquire specialty steel technology and management skills currently unavailable in the domestic sector. Following the collapse of demand for stainless and other specialty steels after the collapse of the Soviet Union, Alexeyev explains in a report to be presented at CRU’s stainless conference next week, there has been inadequate investment in new technology and plant facilities for state-of-the-art finishing equipment.
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by John Helmer - Thursday, September 18th, 2008
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Oligarchs put hand in till

By John Helmer in Moscow.

It is a time of extreme paradox. In Soviet style, the US Government is nationalizing its financial instututions to stave off massive default. The Russian Government, by contrast, is encouraging free-market operations to prop up the indebtedness of the oligarchs, while the Finance Ministry, having been embarrassed holding worthless Fannie Mae paper, is now proposing to invest the sovereign wealth fund in depreciating oligarch securities.

A Financial Times reporter close to Oleg Deripaska, owner of Rusal, the Russian aluminium conglomerate, reported this week that he is “facing margin calls of more than $4bn, people familiar with the situation say.” This is a reference to the financing Deripaska raised in the spring to pay part of the purchase price of Mikhail Prokhorov’s 25% shareholding in Norilsk Nickel. Also this week, Deripaska’s Moscow holding is reported as telling Reuters that it will shortly launch a China roadshow to put an improved value on the group’s mining assets. The roadshow is scheduled to follow a Hong Kong tour by the Bolshoi Theatre ballet company, sponsored by Deripaska.

The reports have suggested that if the Chinese market reaction is positive, and the price is right, Deripaska’s Strikeforce Mining and Resources (SMR) may attempt to place shares on the Hong Kong exchange. SMR mines copper-molybdenum deposits at two sites in Siberia, with capacity to lift and process 13 million tonnes of ore per annum. Two refineries in the production chain can produce up to 7,000 tonnes of ferromolybdenum per annum. The price of ferromolybdenum has been dropping, though not yet as steeply as the price of steel and aluminium.
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by John Helmer - Wednesday, September 17th, 2008
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By John Helmer in Moscow

Mining entrepreneur Mike Nunn says First African Diamonds, a company he owns, was illegally expropriated, and that he is taking the DRC government to arbitration in Geneva.

President Joseph Kabila’s review and reorganization of controversial diamond-mining licences and concessions in the Democratic Republic of Congo (DRC) apparently took a new direction this past week, with approval of a Russian proposal to develop the Sengamines project. Until April of this year, this has been under the control of South African mining entrepreneur Mike Nunn and First African Diamonds Ltd. (FAD), a company he owns.

Nunn has told Mineweb that FAD was illegally expropriated, and he is taking the DRC government to arbitration in Geneva.

Alrosa says that it has agreed to start diamond prospecting in the DRC, at Kabila’s request. But Alrosa sources say that details of the undertaking, and of a meeting Alrosa chief executive Sergei Vybornov had last week with Kabila, should be kept secret. It is Vybornov’s second meeting with Kabila this year; the first occurred, with comparably little disclosure, in March.
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by John Helmer - Monday, September 15th, 2008
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By John Helmer in Moscow

Russia’s space agency Roskosmos has agreed to launch the South African Sunbandila satellite by the end of this year at the Baikonour cosmodrome, Roskosmos sources have told Business Day. They confirm earlier statements by Foreign Minister Nkosazana Dlamini-Zuma that an earlier controversy over launch agreements between the two governments for rocketing both a civilian and a military satellite into space had been resolved.

One mystery remains, however. According to sources in Moscow, in the negotiations to resume the Sumbandila launch, the SA government agreed to permit the establishment of a Russian telemetry receiving and rocket tracking station on SA territory. However, the sources now say there is no agreement on this station, and it is not clear why.

Dlamini-Zuma said in May, during a visit to Moscow, that she and her Russian counterparts had resolved their differences on the satellite launch problem, and that she hoped to “see the launch of the satellite by the end of this year.” Ronnie Mamoepa, the Minister’s spokesman, told Business Day/Weekender that resolution of delays and disputes over the satellite launch had been the “priority” of the minister’s visit to Moscow at the time. The Russian text of the protocol, which Dlamini-Zuma and Yury Trutnev, Russia’s Minister of Natural Resources, signed on May 23 set a deadline of July “to finish consultations to find the solution to the problems connected to the launch of the satellite ZA-002”. Asked about the nature of the problems causing the delays, Mamoepa claimed they were technical ones.
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by John Helmer - Sunday, September 14th, 2008
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By John Helmer in Moscow

A new IMF report reveals for the first time where Tajikistan’s aluminium revenues are going.

The International Monetary Fund (IMF) has issued a report that is sharply critical of the Tajikistan Aluminium Company (Talco), the leading enterprise of the Central Asian republic run by President Emomali Rahmon; and has ordered an independent international auditor to check Talco’s accounts for what the IMF describes as “most worrisome financial operations [which] remain nontransparent.”

For the first time, the IMF report has disclosed how little the country’s economy — the poorest in Central Asia — earned from its principal industry, biggest electricity consumer, and most valuable exporter — in 2006 and 2007, just 17% of the value of the aluminium Talco produces and ships to foreign buyers.

The IMF action is an embarrassing curtain-raiser for President Rahmon, who directly controls Talco, and who is behind the hugely expensive UK High Court case, which Talco is waging against Avaz Nazarov and his group of companies, who were ousted from management of the Tajik smelter in 2004, on Rahmon’s order. The four-year old case, in which Talco is represented by the UK law firm, Herbert Smith, has set a UK and world record for legal costs that have now exceeded $126 million. The judge in the case, Justice Tomlinson, has ordered leading figures in Tajikistan, including the President’s brother-in-law, the leading commercial banker of Tajikistan, Hassan Saduloev, to appear for testimony on oath and cross-examination in the trial now scheduled to commence in October.
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by John Helmer - Thursday, September 11th, 2008
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