By John Helmer in Moscow

Noone, least of all Dmitry Pumpyansky, should be faulted for not anticipating exactly when the oil and gas bubble would burst. But what can be said of Pumpyansky’s calculation that he had at least two more years of defying gravity, and no hedge against the risk that he might be wrong?

Pumpyansky, who turns 45 years of age shortly, is the figure who managed the creation of TMK, Russia’s largest alliance of steel pipemills (ticker TMKS:LI), out of murky origins, and with associates who are now best left unnamed. His acumen is undoubted; so was his good fortune. Between October 2006 and November 2006, TMK jumped in price from $4 billion, when Pumpyansky arranged to buy out his Russian partners, Sergei Popov and Andrei Melnichenko, to $7 billion, which was the market capitalization of the company at its London initial placement offering (IPO). In the twenty months that followed to June 2008, TMK doubled its value to $9.4 billion.

By then Pumpyansky, the number-3 pipemaker in the world after Tenaris (Argentina, TS:US) and Vallourec (France, VK:FP), had set his sights on matching, besting, buying out, or swapping his stake into one of the other two. For that he needed to become bigger, and more international. And for that he needed to borrow money. The idea was impeccable; the timing was off. According to a new report issued in Moscow today by Troika Dialog, a Russian investment bank, Pumyansky led TMK into a serious miscalculation of financial and trade risks. These have placed the company today in dependence on favour from the Kremlin — favour which Pumpyansky has been unable to demonstrate on the way up.

Pumpyansky individually, or with others, controls 77% of TMK’s stock; 23% is the currently estimated free float. Market capitalization of TMK today is $720 million. Yesterday it was $835 million. Tenaris is currently at $12 billion and rising; Vallourec, $4 billion, and also on the up. From the banking point of view, it is difficult to catch a falling star, and put it into your pocket.
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by John Helmer - Thursday, January 22nd, 2009
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By John Helmer in Moscow

The wave of bad news that has been expected to hit, and keep on hitting Novorossiysk, Russia’s leading outlet on the Black Sea — weakening rouble, falling cargo volumes in and out, dwindling revenues –struck first in November. But it seems it didn’t return to strike the port in December.

Oddly, investor sentiment towards the port, the only Russian seaport publicly listed in Europe (NMTP:RU, NCSP:LI), was blowing fair when the port prospects were foul; and has reversed itself since January 1.

Novorossiysk is the largest sea-port operator in Russia by total cargo turnover – it accounts for 18% of total sea cargo operations in Russia. It is one of the top-10 seaports in Europe by volume, and one of the top-3 for oil shipments. All the company’s terminals are located in Novorossiysk, except for one container terminal, which operates in the Kaliningrad region on the Baltic Sea.

The latest throughput figures for Novorossiysk port as a whole show that the impact of the global financial crisis struck heaviest in November. After registering cargo volume of 101 million tonnes for the 11-month period to November 30, up 1% on the same period of 2007, the port then reported that November cargo volume fell 15%, compared to October. Among the worst affected of the port terminals and stevedoring companies was NUTEP, which belongs to the National Container Company; it reports a drop in turnover of 33% month to month, despite an overall gain in container movement in November at other terminals of the port of 29%.

Cargoes most affected by the November downturn at Novorossiysk were ores, down 100%; nonferrous metals, down 41%; sugar, down 29%; mineral fertilizers, down 26%; grain, down 17%; and crude oil — the dominant cargo for export through Novorossiysk — down 16%.
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by John Helmer - Wednesday, January 21st, 2009
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By John Helmer in Moscow

Russian oligarchs are famously bad as bird-fanciers.

As corporate takeover tacticians, when times were good, they were reluctant to share their premiums in buy-sell transactions. Not for them, the proverbial wisdom that what is good for the goose is good for the gander. Taking the latter bird’s position, they preferred to believe that what might be bad for the goose should be especially advantageous for the gander.

In the short history of Russian business tactics, it has often turned out that way. But now that times have turned bad, and the oligarchs have burdened their public companies with debt they cannot repay, while putting their own assets out of reach, they prefer to believe that what is bad for the gander should be even worse for the goose.

This explains the curious contradictions in a carefully arranged public statement by one of Russia’s largest steelmakers on January 20, Alexander Abramov of Evraz. While begging the international stock markets and his bankers to treat him gently, promising a swift revival of profits, and rapid rise in asset equity value, he issued an aggressive ultimatum to Beijing and Singapore. Unless China’s DeLong and Best Decade Holdings agree to slash their asking price for their steelmill, Evraz will walk away from its year-old takeover offer.

Abramov, chief executive of Evraz, described in a Moscow newspaper statement today [January 20] that last year’s agreement by Evraz to take over DeLong Holdings is conditional on renegotiation of the asset price. Asked if Evraz will go ahead with the takeover, Abramov said: “Yes, but we will have to agree on a different price Why overpay? Do not expect irrational behavior from us. We have positive greed in that sense.”
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by John Helmer - Tuesday, January 20th, 2009
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By John Helmer in Moscow

There can’t be too many young children, who were still awake when the Ukrainian gas pantomine finished its traditional January run on Monday evening in Moscow. The problem was that those presiding at the curtain-fall, the Prime Ministers of Russia and Ukraine, and the heads of their respective gas companies, couldn’t deliver lines that, despite all their earlier run-throughs, would satisfy a simple-minded grown-up.

As the Kremlin clock was edging past 6:30 pm, on Monday, Gazprom officials were saying they could not confirm the precise terms of the agreement on resumption of gas deliveries to Ukraine, which had been announced by Prime Ministers Vladimir Putin and Yulia Tymoshenko after their meetings on Saturday and Sunday. All that Gazprom was able to say was that negotiations were still continuing between Gazprom and its Ukrainian counterparty, Naftogaz Ukrainy; that the pricing and delivery terms had not been signed; and that deliveries would not resume until the signatures hit the paper.

Seven minutes later, the flags were up, the pens were wet, contract papers were flourished, and Putin and Tymoshenko announced something very big. Russia and Ukraine, they said, had agreed on a 10-year gas supply from now until the year 2019. What will happen for the next three months, however, remained almost as foggy as before. Only now everyone will be able to peer through the murk with their gas-fires blazing. How and who will pay the new bill, and what exactly it will come to, is no better known now than before this gas stoppage began.

If there had been any other outcome, this wouldn’t be the great old panto Russian-Ukrainian gas relations have always been.
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by John Helmer - Monday, January 19th, 2009
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By John Helmer in Moscow

It is commonplace for foxes to take chickens where they find them. It is rare for the fox to stay on, and appoint himself chief executive of the hen-house. It is unprecedented for the fox to sell the bird carcasses for a premium to the poulterer.

From inside the coop, blood and feathers are now flying at one of the world’s largest miners of bauxite, and producers of alumina and aluminium — United Company Rusal. After failing in the autumn to persuade Chinese investors to rescue the company, Oleg Deripaska, the controlling shareholder, is close to handing over his control stake to the Kremlin on highly lucrative terms — for himself.

Unexpectedly on Sunday, Rusal announced on its website that Deripaska has replaced Alexander Bulygin, his veteran administrator and loyal friend, as the chief executive of UC Rusal. Bulygin has been demoted into a non-executive role, supervising the board of one of Deripaska’s many sub-holdings, En+.

The company announcement cites Deripaska as saying: “Alexander Bulygin has headed RUSAL for more than five years. Under his management the company, which was the largest Russian aluminium producer, became the leader of the world’s aluminium industry, a truly global company with diversified and one of the most competitive operations in the global metal and mining sector. I am confident that Alexander’s experience in consolidating assets and executing large deals will be applied in full in his new role.”

The website also claimed that Deripaska “was already the CEO of RUSAL for a three year period after the company was established in 2000. In the following years he took an active part in the company’s development as a member of the Board of Directors. Now his role as CEO will be focused on providing for the sustainable development of the company under the conditions of the global financial crisis and implementing a series of crisis management measures.”
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by John Helmer - Monday, January 19th, 2009
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By John Helmer in Moscow

Market speculation in Moscow turned sharply negative for Uralkali, Russia’s dominant potash producer, on Wednesday this week, as the share price was slashed 8% to $1.67 on the Russian Trading System (RTS). This followed a modest drift upward in international trading of the shares, while the RTS was closed for the long Russian New Year holiday.

The pressure on Uralkali stems from the failure of high Russian government officials to release the results of a commission of inquiry into fault, penalties, and costs of the two-year old collapse of Uralkali’s Mine-1 at Berezniki, in Perm region. The commission, which was initiated on October 29, has already missed several announced release deadlines during December.

Initial government investigations of the Mine-1 subsidence in October 2006 ruled that the loss of the mine and its potash reserves was force majeure.

The Ministry of Natural Resources said Thursday the current commission “is still working”, and it declined to say when it would finish. Yevgeny Anoshin, spokesman for the investigating organ, the Federal Environmental, Engineering, and Nuclear Inspection Service (Rostekhnadzor), told FW: “the commission is still processing data. The decision will not be made before the end of January.” He did not explain the reason for the delay of another month. This is significant because industry sources in Moscow do not believe the commission has uncovered fresh technical data that were unavailable to the first commission of inquiry, or to the December 26 session of the commission, when officials last met to review the decision materials.

The issue for the commission, according to these sources, is what are the full costs of the Mine-1 loss, and who should be liable to pay them.
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by John Helmer - Friday, January 16th, 2009
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By John Helmer in Moscow

After Far Eastern Shipping Company (Fesco), Russia’s dry-cargo fleet leader, lost 22% off its share price in the past week, Moscow investment bank Renaissance Capital has issued an investment warning that the plummeting rate for container shipping between Asia and Europe “creates a major headwind for FESCO”.

Fesco (ticker FESH:RU), based in Moscow and Vladivostok, is the most important of the Russian commercial fleets serving the Sino-Russian, Asian and Pacific dry-cargo routes.

According to the Rencap report, written by maritime analyst Paul Roger, rates now being quoted in Hong Kong for shipping some container types from Asia to Europe have hit zero. Much of Fesco’s shipping line income is directly affected by this rate movement.

Separately, National Container Company (NCC), the largest of Russia’s container terminal companies, half-owned by Fesco, reports today there was a collapse of container volumes at its three terminals in the European part of Russia during December. The First Container Terminal (FCT) of St.Petersburg, the largest in the country, reports that for the month, the terminal handled a total of 86,944 Teu [twenty-foot equivalent units], down almost 3% compared to December 2007. But refrigerated container movements at the terminal, in which Russian food imports are transported, fell by 30%, compared to December 2007, to just 7,603 Teu.

The results were much worse for NCC’s terminals on the Black Sea. At Novorossiysk, NCC’s terminal reports a drop of 21% in Teu volume in December last, compared to a year earlier. Despite months of growth early in the year, the Ilychevsk terminal, on the Ukrainian coast of the Black Sea, reports that it handled 48% less container volume in December, compared to 2007.
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by John Helmer - Thursday, January 15th, 2009
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By John Helmer in Moscow

Roman Abramovich’s holding company Millhouse has obliged two of its Russian steelmaking partners, Alexander Abramov and Alexander Frolov, to buy an indirect stake of 9.99% in Highland Gold Mining. No explanation for the move has been issued, either by Highland Gold, or by Millhouse; or by Abramov and Frolov, who made their acquisition through a private company called Tremadon.

No details of the transaction value have been disclosed.

Highland Gold (ticker HGM:LN) told Minesite through spokesman Dmitry Yakushkin that there has been “an indirect change. Practically, this doesn’t concern [our] company.” He said Abramov’s and Frolov’s company had bought a 9.99% stake in Highland Gold from Primerod, the company through which Abramovich’s holding controls its 32% stake in Highland. This is the largest stake in the AIM-listed mining company, which has suffered an 85% loss in its market value over the past year; it is now worth less than $180 million. According to Yakushkin, “the pie-chart [of shareholders] remains the same. Millhouse still has 32%.”

Millhouse also controls the Evraz steel and coal and iron-ore mining group, Russia’s largest steelmaker. Last month, Abramovich forced changes in the Evraz board resulting in the demotion of Frolov, who was replaced as board chairman by Abramov. This followed a severe loss of market confidence in Evraz’s capacity to refinance its foreign loans, and an emergency bailout from the state VEB bank to save Evraz from forfeiting US steelmill assets to its banks. Evraz has also been funded by the Kremlin to pay its Russian tax bill.
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by John Helmer - Thursday, January 15th, 2009
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By John Helmer in Moscow

With a 17-line announcement the Toronto-listed Archangel Diamond Corporation (ADC), a De Beers-affiliated company, has cancelled its agreement to mine diamonds in the Arkhangelsk region of northwestern Russia. Almost twenty years of exploration and mining effort, including the first major diamond discovery in western Russia for a century, have been abandoned.

ADC shares (ticker AAD:CN) dropped 32% in Toronto trading on Monday, following the disclosure, and are now priced at 9 Canadian cents.

A press release from ADC claims the company has withdrawn from the Russian project, because the Russian government has failed to meet deal implementation deadlines, which expired during the holiday period.

The ADC announcement says that “in connection with its proposed acquisition of a 49.99% equity interest in OAO Arkhangelskoe Geologodobychnoe Predpriyatie (“AGD”) from OAO LUKOIL(“LUKOIL”) (the “Transaction”) described in the Corporation’s news release dated April 16, 2008, Archangel has exercised its rights to terminate and has terminated the Share Purchase Agreement (“SPA”) between LUKOIL, the Corporation and De Beers Societe Anonyme dated April 15 2008… because two conditions precedent to the SPA have not been fulfilled by the long stop date of December 31 2008…The Board of Archangel is now considering future options for the Corporation including financing options and a potential resumption of the litigation currently suspended.”
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by John Helmer - Thursday, January 15th, 2009
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By John Helmer in Moscow

Oleg Mitvol, Russia’s well-known mining regulator and gadfly to Aim-traded stock values, has filed a half-dozen lawsuits in Moscow, challenging the terms of his removal from his functions. And he appears to have Deputy Prime Minister Igor Sechin on his side.

The legal and political moves follow months of effort by Vladimir Kirillov, who as the new chief of Russia’s mine licence inspectorate, Rosprirodnadzor, has tried to fire Mitvol, his independent deputy. In the annals of the federal Ministry of Natural Resources, Mitvol’s resistance is unique, as is the apparent reluctance of the minister, Yury Trutnev, a former provincial governor backed by the LUKoil oil company, to intervene in the contest of wills, and in the conflict beneath the surface of Russia’s use-or-lose resource licensing policy.

Way back on 18th June, the state newsagency Itar-Tass reported that Mitvol had been “stripped of his water, forest, and ecological supervision powers, which have constituted most of his competences”. This was the first sign of an apparent official decision, following informal efforts from new boss Kirillov, dating back to last February, to press Mitvol to resign. An anonymous source was cited by Itar-Tass for its information. It was also reported that “according to the source, the Rosprirodnadzor chief, Vladimir Kirillov, has no intention of submitting a motion to the government, in the shape of Natural Resources Minister Yuri Trutnev, for re-appointing Mitvol as his deputy.” Itar-Tass quoted Mitvol as saying: “As far as I know, in a future staff list, yet to be authorized, the position of a fourth deputy, that is, of yours truly, is absent.” So at least there was some agreement on that score.

Then in July, Mitvol was forced to vacate his office at the Ministry of Natural Resources, and lost his secretaries. He remained contactable only on his personal mobile telephone, and he had lost access to his official files and to the ministry’s licence and reserves database. At the time, a spokesman for the ministry confirmed that Mitvol was no longer in his office.
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by John Helmer - Wednesday, January 7th, 2009
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