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MOSCOW – Despite a threat to take “strategic and tactical steps” against Anglo-Dutch steelmaker Corus, Moscow entrepreneur Alisher Usmanov is bluffing, and not for the first time.

Usmanov made his threat in a report appearing in the March 16 issue of the Financial Times, which was characteristically impressed by the Russian bravado, and just as characteristically forgetful to report his record. A similar, if less inaccurate report appeared in the March 15 issue of Metal Bulletin, a London industry publication, quoting an executive at
Gazprominvestholding, a company controlled by Usmanov on behalf of co-investors and creditors from the old and new managements of Gazprom.

Usmanov is based in Moscow, but he has been buying into UK-based Corus, one of the world’s largest steelmakers, through a Cyprus-registered company, Gallagher Holdings. He reportedly claims that the threatened steps would be taken to increase his influence at Corus, unless he is given a seat on the board.”With a stake of more than 10 per cent, I think I can and must know what is going on in the company”, Usmanov is quoted as saying. He also hinted that one form of threat might be to “secure a special resolution at a meeting of shareholders.”

A Moscow steel industry source has responded by telling me “that sounds like a real threat. In reality, I don’t see any major angles for Usmanov to exploit.” The source believes Usmanov’s real strategy is the opposite of what he is saying in public. That is, he is positioning his Russian steelmaking interests for sale to Corus, and not for buying into Corus. “He’s not a steelmaker,’ the source says. “He is a financial investor. He’s looking for an exit venture. This could be a joint venture with Corus, with a sale option. Or it could be a direct sale.”

To date, Corus has declined to comment on Usmanov’s statements. As Usmanov’s Gallagher Holdings steadily built up his stake in Corus in the past year to just over 11% at present, Corus has consistently refused to agree to seating Usmanov on its board. Corus officials have also refused to discuss whether they have any interest in buying steel semi-fabricates, other products, or iron-ore from the Usmanov plants. They will not even respond to rumours, floating in Moscow last month, that Usmanov had met with Corus CEO Philippe Varin.

Reacting a month AGO to statements from Corus that Usmanov would not receive a board seat for his stake, Usmanov told me through his aide that “getting representation on the board of directors of Corus is not an aim in itself for Usmanov, as he has come to Corus for the long term, and wants to work without haste.” This month he’s been in a hurry to pull the Financial Times’s leg.

Usmanov has two main assets. He acquired control of the Oskol Electro-Metallurgical Plant and the Lebedinsky Iron-Ore Combine through his alliance with senior executives of Gazprom, when it was under the control of Rem Vyakhirev; it was a time when the two men were looking for a way of converting debts owed to Gazprom for gas supplies into cash-producing assets outside Gazprom’s direct control.

When the Putin administration began its reorganization of the company two years ago, many of these figures followed Vyakhirev out the door. Usmanov admitted to associates at the time that he was feeling potential pressure on his assets from the new Gazprom management, as the new CEO Alexei Miller made an inventory of what Vyakhirev had done with Gazprom’s assets and asset disposals. A Moscow source claims that that was then. The situation at Gazprom has now changed, he believes, and Usmanov is well-connected there again. An industry source adds “there is no major internal threat” from the Miller management to Usmanov.

A quick study of steel industry realities in Russia and in England demonstrates why Corus has had little to talk to Usmanov about. There is next to no prospect of sales of Oskol steel products to Corus. As for iron-ore, Lebedinsky, currently Russia’s largest iron-ore mine, is at maximum output capacity. The mine produced 20 million tonnes in 2003, up 6% on 2002; it exported about 30% of that total, according to plant data. As iron-ore supplies dwindle worldwide, mostly under pressure of demand from the Chinese steelmaking industry, Russian producers have been tempted to export. However, the domestic steelmakers are also intent on protecting Russian reserves and output from sale abroad. Vertical integration steps to bring iron-ore mines within all of Russia’s major steelmaking groups are under way. Usmanov knows enough not to fight against that tide, or he will be swept away.

“There is not enough iron ore at Lebedinsky to give Usmanov leverage,” a source told me. “They cannot increase their exports significantly. They could decrease exports for domestic sales.”

If Usmanov were to divert domestic iron-ore to Corus, that would be likely to provoke a political fight with steelmakers more influential than Usmanov. These are led by Vladimir Lisin, who controls the IMovolipetsk Steel Combine, the major domestic consumer of Lebedinsky’s iron-ore.

Usmanov has previously told me before that his share-buying strategy is aimed at acquiring control of Corus in the long run. If, however, he is aiming at reversing his Russian assets into Corus, as Moscow sources believe, the asking price is likely to be at least $1 billion for Lebedinsky alone. That is the market capitalization recently estimated in a report by Brunswick UBS in Moscow.

Political sources in Moscow do not believe that, even if Corus were interested in such a deal — there is no sign of that at present — a foreign steelmaker would be permitted by the Putin administration to buy control of a major iron-ore reserve like Lebedinsky.

The interpretation that Usmanov is moving aggressively on Corus, in order to prod the Corus board into buying him out, is reinforced by a parallel attempt Usmanov and his associates have made in the diamond sector. There Usmanov has led the attempt to prevent the De Beers-owned Archangel Diamond Corporation (ADC) from acquiring licence rights to a lucrative diamond deposit ADC discovered in Arkhangelsk region in 1996. Although Usmanov has publicly claimed that he wants to develop the mine himself, it is believed by those close to the dispute that Usmanov’s tactics are aimed at raising the price at which he can sell the asset back to De Beers, or to a rival diamond miner.

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