By John Helmer in Moscow

Market cuts $2 billion in capital value from Russian steelmaker as US acquisitions mount up.

In a market of booming coal, coke, iron-ore and scrap prices, and still insatiable Chinese and Indian demand for steel, it stands to reason that the great vertically integrated Russian steelmaking groups, largely self-sufficient in raw materials, should be booming, too.

How then to explain why Alexei Mordashov, owner of third-ranked Severstal steel and mining group, has seen almost $2 billion wiped off the market capitalization of his company in the past week? On May 16, the commodity boom logic lifted Severstal to its historic high — $28.50, ticker CHMF:RU. On May 21, it had fallen below $26, and it is currently at $26.85.

In the interval, Mordashov bought one failing US steelmaker on Friday for $370 million; and on Monday announced a $1.1 billion offer for another.

Sinking ships usually induce exits, but Mordashov has been steadily climbing aboard, while shareholders have taken the jump. If his Monday bid goes through, Mordashov will have almost as much steelmaking capacity in the US as he has in Russia; and he can lay claim to be the fourth largest steelmaker in the US.
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by John Helmer - Thursday, May 22nd, 2008
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By John Helmer in Moscow

Independent director Lord Gillford effectively warns Polyus Board against potential asset stripping plan while emphasising his independence of the warring factions.

Lord Patrick Gillford, the influential independent on the board of Polyus Gold, Russia’s leading goldminer, has warned the board that the company is in danger of an asset stripping scheme devised by chief executive Evgeny Ivanov, and his stakeholding ally, Mikhail Prokhorov.

Gillford issued a letter following a press leak to a Moscow business news service that suggested Gillford had a vested interest in the battle for Polyus Gold with Vladimir Potanin. At present, Potanin and his Interros holding control about 34% of Polyus Gold; Prokhorov and his Onexim holding control 30%. In practice, control of the board remains for the time being with Ivanov and Prokhorov.

Gillford is the sole international independent on the Polyus board, as the two other named independents, Russians, don’t qualify. An old Etonian, Tory advisor, and career PR agent, Gillford took his Polyus seat before the company’s London float in 2006. He runs Policy Partnership Ltd. at an address in southwest London. According to the firm’s website, “we provide expert advice and sound judgement to help our clients anticipate and respond to regulatory, policy and communication challenges, both domestically and internationally.” Gillford does not hold shares or share options in Polyus. The verbatim text of his letter is as follows:
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by John Helmer - Tuesday, May 20th, 2008
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By John Helmer in Moscow

The largest oil concession in the world is changing direction as Glencore may be losing out in Russia again.

Announcements last week from Prime Minister Vladimir Putin indicate that the movement of Russian oil for export is now to be supervised by Putin’s former chief Kremlin aide, Igor Sechin, who was named deputy prime minister in charge of Russian industry on May 12.

Sechin is also to take over the entire maritime policy concession from other officials, in an ambitious bid to concentrate oil trading in Russian hands; create new Russian oil ports on the Baltic; and build a new generation of oil and gas tankers in Russian yards, which have hitherto lacked the technical capacity.

The ambition has already attracted ferociously negative reporting from the international media, which accuse Sechin, as well as Putin, of being in league with Gunvor, the Geneva-based oil trader controlled by Gennady Timchenko, who has influential business, friendship, and family ties in the Russian maritime sector.
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by John Helmer - Tuesday, May 20th, 2008
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On Saturday May 17 this site was attacked by a Russian, who left behind a trail of technical identifiers, and whose identity is known. The feedback confirms the accuracy and value of the materials posted on the site during the past week. We appreciate the backhanded acknowledgement.

by John Helmer - Sunday, May 18th, 2008
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By John Helmer in Moscow

Announcement from ADC suggests there is more value in the Grib pipe than De Beers report calculates.

Archangel Diamond Corporation (ADC), the Toronto-listed junior diamond miner, headed by De Beers lawyer Jonathan Dickman, has trapped itself in an awkward contradiction over the value of its Russian asset, the Grib pipe in Arkhangelsk region. The contradiction also appears to have been relevant to share trading in mid-May, when nearly a million ADC shares exchanged hands, causing a sharp drop in the price.

On April 29, the day after Toronto Stock Exchange trading in ADC shares recommenced after a six months suspension, ADC was reported as telling Street Wire “the company would begin technical work that would lead to what amounts to a feasibility study by 2010. A production decision would follow the expected favourable result, with engagement of contractors and the start of construction beginning early next decade” (emphasis added).

If ADC was expecting a favourable result on April 29, it did not appear to be thinking so on April 8, when the NI 43-101 Technical Report, prepared by De Beers analysts Johan Ferreira and WEolf Skublak, signed off on their Net Present Valuation of the project, along with estimates of the diamond value in the Grib pipe, if mined to the 1,000-metre level.
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by John Helmer - Sunday, May 18th, 2008
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By John Helmer in Moscow

De Beers report heightens geotechnical and political challenges in Archangel diamond mining project.

To adapt the old saw, a great many fresh girls are going to be obliged to make diamonds their best friends before Grib, Russia’s newest, and possibly largest, diamond pipe, can make enough profit to justify digging.

Located in Arkhangelsk region, one thousand kilometres northwest of Moscow, Grib was discovered in 1996; it is the largest kimberlite pipe newly found in Russia. Developed initially by Archangel Diamond Corporation (ADC), a De Beers-controlled company, it was the target of a 10-year hostile takeover by Vagit Alekperov and Alisher Usmanov, who between them control substantial Russian oil, iron-ore and steel assets. De Beers sued for recovery in Sweden and damages in the US.

With LUKoil, Alekperov’s oil company, which wholly owns the local licence-holder for Grib, Arkhagelskgeoldobycha (AGD), De Beers and ADC signed an out of court settlement a month ago. This provides for a staged development plan for the new mine, starting with a down-payment of $100 million from De Beers and ADC, once the new project framework has been approved.
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by John Helmer - Friday, May 16th, 2008
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By John Helmer in Moscow

Fate of Rusal shareholding hinges on evidence in UK, Swiss and Israeli courts

In what is shaping up as the most significant case against the Russian business oligarchy ever argued in an international court, Oleg Deripaska, Russia’s richest man, has told the UK High Court, in his defence, that he didn’t have a business partnership with Michael Cherney (Mikhail Chernoy), but he did sign an agreement with him in London, and he did pay him about $250 million.

Missed by newspapers and wire services, which failed to read the transcripts and several thousand pages of evidence presented in the High Court during two days of hearings on April 30 and May 1, Deripaska’s new defence strategy is the ancient one of the pot calling the kettle black.

Deripaska is claiming that Cherney extorted his signature, plus the payoff, in return for protection. No evidence was presented to substantiate this claim, except for references to a Russian gangster named Anton Malevsky. A parachute enthusiast, Malevsky was killed in a jumping accident in South Africa on November 6, 2001.

Mineweb has verified the cause of Malevsky’s death, according to SA Police Inspector H.J. van Wyk, and an Interpol telecopy from Pretoria: “on approaching the landing site, the wind whirled the parachute out of control and caused the landing to be fatal.”
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by John Helmer - Tuesday, May 13th, 2008
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The document is available here.

by John Helmer - Tuesday, May 13th, 2008
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By John Helmer in Moscow

Putin names his merry men, no change in the forest

The list of the new Russian government ministers, released by Prime Minister Vladimir Putin this afternoon, preserves most senior officials in their place, and keeps the precarious balance of factions, which compete for and decide Russia’s major resource concessions, and the biggest of the money-spinners, energy exports.

The immediate and obvious practical effect is that none of the established oligarchs, nor rising commercial challengers, has been able to promote his own man into the cabinet. Oil and gas, pipelines, ports, and tanker fleets remain in much the same hands that have controlled these lines of business for the past four years.

For those who may have been looking to gauge who is likely to win the major new mining concessions to be awarded this year — the Udokan copper project in Chita region, and the Sukhoi Log gold licence in Irkutsk — the new cabinet appointments suggest the same answer as before: Putin and his closest associates will encourage competitive bidding, and then decide for themselves.
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by John Helmer - Monday, May 12th, 2008
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By John Helmer in Moscow

In the good old days, when intrepid Englishmen competed with Russians for commercial and military footholds in Central Asia, the object of their Great Game was to fill the local bazaars with English manufactured goods, and extract in exchange as much treasure as the locals could be gulled into giving up.

Never in two centuries, however, was there ever an Englishmen (or Russian), who played this game, a practising lawyer. So, who could have imagined that what moves today along the old Silk Road to Dushanbe are invoices for legal services, performed in the London courts; for the price of which the great despot of the Pamirs is prepared to let his country’s people freeze for lack of money to generate electricity and pay for heat.

Mineweb reported on April 28 that Herbert Smith, one of the largest billing of the UK law firms, has been setting an English, and probably a world record, for charging the Tajikistan government more than $100 million for a 3-year court claim ordered by the Tajik President, Imomali Rakhmonov (Rahmon): here
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by John Helmer - Monday, May 12th, 2008
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