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DANCES WITH BEARS
New card in
Russian risk poker
By John Helmer
MOSCOW - In an ambitious declaration of
intention in Moscow this week, Roddie Fleming, managing
partner of Fleming Family & Partners (FF&P), and
a well-known City of London financier, announced that he
will invest in a Russian aluminum company to create a
fresh challenger to international miners Anglo-American,
BHP Billiton and Rio Tinto.
Or did he exactly?
For Fleming, who was joined at a press conference by
Viktor Vekselberg, chairman of Siberian Ural Aluminum
Holding (SUAL), gave no estimate of the investment he is
planning, or its source. The two men did say that they
have agreed on a plan to diversify beyond the aluminum
sector.
Through a still to be valued and funded
merger, they said that they will draw investment from
the interests of the Fleming family, and from what
Fleming described as "various clients of FF&P".
Vekselberg suggested that Fleming's role will be to
guide the new company to an international flotation in
2004.
This is the latest of three apparent
investment deals which Fleming has announced in recent
months, beginning with the acquisition by South Africa's
Harmony Gold of a stake in Highland Gold, a brand new
junior miner which was floated to investors on the
London Alternative Investment Market in December.
Highland claims its largest asset is a Russian goldmine
called Mnogovershinnoye in the Russian region of
Khabarovsk, although how the asset was acquired, and
from whom, remain a mystery, particularly in the
Khabarovsk region. Not much new money was raised in
London, but the price at which it was managed by Fleming
was a boon to the founding stakeholders.
The
Fleming group has also said that it has received a
mandate from Alrosa, Russia's largest diamond miner, to
raise finance for mine investment. Until now, Alrosa has
been considered such an uncertain quantity that no-one
outside Russia has been willing to lend to it, except on
terms that assure the security against default is safely
offshore.
In each case, Fleming's strategy has
been to package a risky Russian asset, about which
little is known, for sale to Western mining investors
who are persuaded the package is solid enough, no matter
how volatile the contents. In the recent short history
of gambling by the stock exchanges of the world on
Russian mining resources, it has always been said that
the quality of the venture depended on the reliability
of the Russian partner. Without that, Russian mining
assets had a habit of evaporating, or being stolen.
Fleming has come up with a new twist, suggesting that
his own reliability is the guarantee, plus the discreet
disclosure that Fleming's Russian partners are
well-known oligarchs, like Roman Abramovich and Mikhail
Fridman. Fleming and Vekselberg (who works for Fridman)
say that they have agreed to create a new international
company into which the assets of SUAL, Access
Industries, and Fleming's will be merged. "SUAL as a
vertically integrated company will be transformed into a
diversified company which will also have assets in the
ferro-nickel, tantalum and coal sectors," Vekselberg
said.
The announcement contemplates at least 12
months of further valuations and negotiations to
consummate the deal. If implemented, it would be the
first major international investment in Russia's
high-risk, conflict-prone nonferrous metal sector. Also,
it may become either the first occasion on which a major
Russian metals group has sold down its stake to a
minority; or the first time Western mine financiers have
agreed to risk significant money for a minority stake in
a Russian metals company since the gangs stopped
shooting at each other.
SUAL is Russia's second
largest producer of aluminum, trailing Russian Aluminum
(Rusal). It also controls Russia's largest supply of
bauxite, and has the potential to match or exceed
Rusal's alumina production. However, SUAL has been short
of the capital required to expand production to full
capacity at its Middle Timan bauxite deposit, or to
build an associated alumina refinery. The new deal,
announced on Wednesday, links the assets of Access
Industries, already a major shareholder in SUAL, with
Fleming's mineral assets. It also provides a vague
commitment from Fleming himself to raise the
billion-dollar Western funding that has so far eluded
SUAL.
No prices, investments, or values for the
deal have been disclosed. According to Vekselberg, they
have still to be decided. "Depending on the final
results of the evaluation [of assets] and the financial
contribution [from Fleming]," Vekselberg said, "Fleming
will get up to 23 percent of the shares in the new
company."
Roddie Fleming said in Moscow that the
new venture amounts to "the creation of a new
diversified mining company, which offers serious
competition to three major mining companies - BHP-B, Rio
Tinto and Anglo American." Unlike Vekselberg, he seemed
to promise a foreign takeover of the Russian business,
promising a radical overhaul of SUAL's management. "We
will develop the corporate structure of SUAL also
through inviting a large group of foreign managers and
introducing international corporate standards in
operations of the company. We expect that a new company
of world class will be established in Russia."
Among international aluminum producers, Reynolds
was the last to attempt that in an abortive mid-1990s
effort to manage the sheet and foil businesses of
Rusal's predecessor, Sibirian Aluminum. Alcoa, the
global aluminum leader, then made a bid for the Bratsk
aluminum smelter, Russia's largest. But it was rejected,
and Rusal's Russian shareholders took over instead. In
Moscow, FF&P sources listed its current mineral
assets as including the Moa ferro-nickel project in
Cuba, which is under development with a 65 percent
Fleming stake, and a 35 percent holding by a Cuban state
nickel enterprise; and the Marropino tantalum project
located in the eastern Zambezi region of Mozambique.
Access Industries, whose controlling shareholder
Len Blavatnik is a stakeholder and board director of
SUAL, proposes to contribute to the new venture two
Kazakh coalmines which it owns - Bogatyr and Severny.
Access, which operates primarily in the US, acts as
SUAL's lead international aluminum trader.
(©2003 Asia Times Online Co, Ltd. All rights
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