By John Helmer in Moscow

In Robert Louis Stephenson’s version of the way English pirates used to issue shareholder summonses for asset distributions, the Black Spot was a ink-blot, spilled on the page of a bible, and delivered by a blind-man. You could hide from the delivery, but not from the consequences.

A second attack on the Mechel group by Prime Minister Vladimir Putin on Monday evening has increased the market perception that Igor Zyuzin, the controlling shareholder of the specialty steel and mining group, is facing a government-assisted breakup of his assets.

He may be alone in a cardiological clinic at the moment. But Mechel isn’t alone, as mid-level government officials have now been emboldened to press a campaign in favour of increasing their tax-take from ferrous and nonferrous metal exporters; and against tax optimization schemes used by the Russian non-ferrous metal exporters, such as the tolling used by United Company Rusal.
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by John Helmer - Tuesday, July 29th, 2008
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By John Helmer in Moscow

The collapse of Mechel’s share price (MTL:US), following a direct attack by Prime Minister Vladimir Putin on the company and its owner, Igor Zyuzin, for its coking coal price tactics, has generated a market-wide apprehension that strong, and stronger, measures are in store for mill profits and their proprietors’ health.

On Friday, the Russian index fell 5.6% on the day, but some steelmakers dropped further. According to the London Stock Exchange trading data, Novolipetsk fell 7.2%; Severstal, 6.7%; Evraz, 5.5%; and Magnitogorsk Metallurgical Combine, 4.4%.

As Moscow trading ended on Friday, and US trading opened, Mechel issued its first official statement; this followed a day of no comment from spokesman, Ilya Zhitomirsky. The statement said: “Mechel shares the concerns of the Government of the Russian Federation, steel plants and metallurgical industry in regard to the growth in prices for steel products and raw materials in the recent time. As was previously announced, Mechel has started the process of forming long-term commercial relationships with key partners and has signed a number of agreements for delivery of its products to the end of this year. Mechel is ready for cooperation with federal authorities of the Russian Federation and, if required, will provide complete information on any arising issues.”
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by John Helmer - Monday, July 28th, 2008
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By John Helmer in Moscow

Mechel metal & mining group threatened by price-rigging charge.

There is an old Russian expression that the only way to run anything is “sknutom i pryanikom” — with the club or the cake.

Prime Minister Vladimir Putin was therefore doing what comes traditionally when, yesterday in a provincial river town, at a policy session on steelmaking, he berated the Mechel group (ticker MTL:US) — Russia’s fifth largest steelmaker and largest coking coal miner — and its owner, Igor Zyuzin.

Zyuzin’s steel business benefits from two vital forms of government protection — penalty duties on imports of European stainless steel, and an export tax on steel scrap; the former removes price competition from the European product entering the Russian market; the latter helps lower export demand and enables domestic mills to buy scrap for their furnaces at a lower price. Mechel’s coal reserves — on which the company’s market capitalization depends — benefited last year when the Kremlin ruled that major foreign bidders, such as ArcelorMittal, should be excluded from the state auction of Sakha region coal assets.

On Thursday morning, Mechel’s market cap was $17 billion; by evening it was $9.5 billion. This is the one of the largest one-day crashes in privately held Russian corporate value since Putin launched the state campaign against the Yukos oil company, and Mikhail Khodorkovsky, in the autumn of 2003.
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by John Helmer - Friday, July 25th, 2008
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By John Helmer in Moscow

On most indicators the first full financial report issued since Sergei Vybornov took command of Alrosa in February 2007 indicates modest retreat.

Sales totalled Rb90.7 billion; converted to US dollars at the December 31, 2007, rate, this is equivalent to $3.7 billion. The result marks a 4% decline in Alrosa revenues, compared to 2006.

Cost of sales diminished slightly to Rb51.4 billion ($2.1 billion), and royalty payments were cut in half to Rb4.8 billion ($196 million).
Net profit was Rb16.2 billion ($659 million), a drop of 6% compared with 2006.

Operating profit, before increased financing costs and income tax were taken, amounted to Rb24.4 billion ($995 million). This trailed the result for 2006 by just Rb109 million ($4.4 million).
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by John Helmer - Wednesday, July 23rd, 2008
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By John Helmer in Moscow

MOSCOW – It is the clash of the titans of the global nickel, aluminum, copper, bauxite, cobalt and platinum markets – Vladimir Potanin’s Norilsk Nickel, Russia’s largest mining company, versus Oleg Deripaska’s United Company Rusal, the world’s biggest aluminum producer.

Deripaska, Russia’s richest man, is seeking to take over Norilsk, but his campaign has run into an unprecedented series of international court rulings, blowing the whistle on his business tactics. Blackening reputations, a court in Britain has ruled, is a red-card offense – whether committed in Russia, England, Switzerland, West Africa or Central Asia.

Hong Kong’s market regulators are obliged to follow carefully, because Rusal has publicly said it may try to sell its at present unlisted shares on the Hong Kong market if it fails to gain admission to the London Stock Exchange. No significant Russian company has previously listed on the Hong Kong exchange (HKEx) while, with the exception of the HSBC and Standard Chartered banks, there are no large non-Chinese companies on the bourse that are also co-listed outside Asia.
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by John Helmer - Wednesday, July 23rd, 2008
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By John Helmer in Moscow

Eurochem, Russia’s diversified fertilizerproducer owned by Andrei Melnichenko, and still unlisted, has unveiled a series of ambitious plans to challenge Russia’s two largest potash miners, Uralkali (URKA:RU) and Silvinit (SILV:RU).

According to Eurochem sources, the company will move from zero now to planned production of 2.3 million tonnes of potash (potassium chloride) by 2012; and 4.6 million tonnes by 2015; with resource capacity of more than 6 million tonnes of potash by then.

Uralkali has announced that by 2011 it will be producing 7 million tonnes — with additional capacity potential from its Mine-5 still under study. Silvinit is currently producing at 5.5million tonnes of potash per annum. In May, Silvinit told shareholders it is planning an increase of output to 6 million tonnes by next year. A combination of Silvinit with Acron, a producer of complex fertilizers (NPK), at a planned new mine at Verkhnekamskoye, would add an unmeasured volume to their combined potash capacity; the number has yet to be defined by feasibility studies now under way.
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by John Helmer - Tuesday, July 22nd, 2008
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By John Helmer in Moscow

Lundin looks set for replacement on the Ozernoye base metals project.

Lundin Mining Corporation (ticker LMC:US) is adamant that it will say nothing at all about its two-year old zinc and lead project in Russia, one of the largest in the world.

Speculation that Lundin, a Canadian listed and Swedish controlled polymetallic miner, may be contemplating a voluntary exit from the Ozernoye, in the southeast Siberian region of Buryatia, was encouraged by a red-light paragraph in the company’s annual report for 2007, issued this past March. “The Company has initiated a review of whether evolving investment terms, license amendment progress, and local issues meet the Company’s criteria for ongoing involvement.”

On June 6, shortly before the company moved its headquarters from Vancouver to Toronto, a Toronto newspaper warned that “Lundin could sell Russian zinc mine.” On June 10, a Moscow newspaper reported more accurately – since there is no mine, only drilling, proving and feasibility works – that Lundin was considering the sale of its 49% interest in the project, while its 51% Russian partner, East Siberian Metals(MBC), a subsidiary of the Moscow-based Metropol investment group, is thinking of a new Russian partner. Metropol is controlled by Mikhail Slipenchuk.
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by John Helmer - Monday, July 21st, 2008
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By John Helmer in Moscow

Russians go to court for to oust CEO Dudley.

In the middle of 17th century Paris, Savinien Cyrano de Bergerac (that’s the real one, not the 19th century stage character), wrote a fantasy about a voyage to the moon.

To get there, he describes several contrivances, in addition to his own. One, which reportedly delivered the biblical prophet Elijah, involved a large magnetic ball and an iron chariot. To propel the latter into the sky, and thence to the orbit of the moon, the prophet tossed the ball into the air, so that magnetic force would draw the chariot after it. He was obliged to keep catching and tossing to sustain the upward momentum. When it was within gravitational range of the moon, the magnetic ball was tossed downward, and then upward again, in order to break the speed of the chariot’s fall.
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by John Helmer - Sunday, July 20th, 2008
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By John Helmer in Moscow

Russia’s Evraz steel group makes bid for Cape Lambert iron-ore.

Speculation that the Evraz group (EVR:RU), Russia’s largest steelmaker, is preparing a takeover bid for Cape Lambert Iron Ore Ltd (CFE:AU), the West Australian junior miner, drove the latter’s share price up by 9% in the first day of trading, and another 7.5% today.

Cape Lambert has issued a statement that its board has been meeting Evraz and Merrill Lynch in Singapore, following the disclosure that Evraz had bought a 16% stake in the company early in the week at a price of 73 Australian cents. The current share price is 86 cents, making for a market capitalization of A$324 million.

According to one of Cape Lambert’s directors, the Australians told Evraz and their bankers that for a takeover, they will require a 64% premium over Evraz’s initial acquisition price, or A$1.20 per share.

Evraz, with a market capitalization of $37.6 billion, traded up 2% on Thursday’s news, after falling almost 3% for the week, 8% on the month.
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by John Helmer - Friday, July 18th, 2008
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By John Helmer in Moscow

Russian steel and mining group faces government investigation after announcement of spinoff and IPO plan for coal-mining and ferroalloy units

The Mechel group (MTL:US, NYSE; MTLR:RU, RTS) — Russia’s leading specialty steelmaker and one of the leading producers of coking coal in the world — has lost 5% off its Moscow-listed share price on Thursday, following the public announcement two days earlier that it is under Russian government investigation for price-rigging and other anti-trust violations.

Russia’s Federal Anti-Monopoly Service (FAS) announced on July 15 that it has opened an inquiry into price-rigging and other anti-trust violations by the Mechel Group’s coal division. The move is the first ever taken by Russia’s anti-trust watchdog against coking coal suppliers to the Russian steel industry.

Mechel is very sensitive to signals from the federal government, as the steel division has been a takeover target for two years past. For the time being, Mechel is claiming it knows of no complaints from clients regarding its coking coal supply or price policy. The company spokesman has also announced that “we haven’t received any official documents about the case.”
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by John Helmer - Friday, July 18th, 2008
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