Rostekhnologia Head Seeks Mining Might
Sergey Chemezov, head of Rostekhnologia, wants to form the world's largest mining and metals company. He has reached an agreement with Vladimir Potanin and Alisher Usmanov of joint participation on the competition for the Udokan copper field license and is insisting on the transfer of the Russian shares in Mongolian Erdenet and Mongolrostsvetmet to the Rostekhnologia state corporation. Then Chemezov plans to unify his mining assets with Norilsk Nickel and take control of 9-10 percent of the world copper market and, gaining control of the Sukhoi Log deposit, begin expansion into gold production.
Kommersant has obtained a copy of letter No. RT-0300–475 of April 14, 2008, from Rostekhnologia head Sergey Chemezov to Russian President Vladimir Putin, which details the state corporation's plans to participate in a number of large-scale mining projects. The letter has been readdressed to Prime Minister Viktor Zubkov with the words “Please consider S.V. Chemezov's message and give your opinion.” Chemezov insists in his letter that the Russian shares in Mongolian Erdenet (49%) and Mongolrostsvetmet (49%) be transferred to the Rostekhnologia state corporation. “The proposal to transfer GPB Gazprombank and KOO Erdenet separate from the activities of KOO Mongolrostsvetmet [and] the integrated exploration and development of Udokan and other fields will not lead to the consolidation of resources, a significant increase in capital output ratio or an increase in the competitiveness of the companies or strengthening of the economic integration of Russia and Mongolia,” Chemezov writes.
The license for Udokan, the third largest copper field in the world, has been put up for a competition that will take place on July 17. Applications to participate in it are due by May 14. The Rostekhnologia head says that he has reached preliminary agreements with “the main shareholders of OAO GMK Norilsk Nickel [Vladimir Potanin] and the Metalloinvest holding [Alisher Usmanov] on the creation of a consortium on equal terms to participate in the given competition.” Should they win the competition, Chemezov wrote to the president, the plan is to create a mining and metals company that includes Udokan, the copper and molybdenum assets of Norilsk Nickel and the shares in Erdenet and Mongolrostsvetmet.
At the beginning of April, Russian Railways president Vladimir Yakunin announced the creation of a consortium with Vneshekonombank and Ural Mining and Metallurgy Co. for the development of Udokan.
The support of Potanin and Usmanov, major players in the industry, gives Chemezov the opportunity not only to insist on the transfer of the assets mentioned to Rostekhnologia, but also to contend for new ones. The majority of those, he indicates, are located in the Trans-Baikal, inside the Mongol-Okhotsk copper zone. Norilsk produces copper and molybdenum there. Thus, Chemezov argues, it would be logical for the consortium to develop the Sukhoi Log gold field, which is located in the same region. The Ministry of Natural resources has been planning to hold an auction for the rights to it for several years now. Natural Resources Minister Yury Trutnev has said that the auction may take place next year. “Consolidation of those deposits and resources and the creation of a unified territorial-production complex of copper-molybdenum fields, including the construction of a single metal works for the integrated processing of the concentrates of all Trans-Baikal ores and, possible, those of Erdenet, would permit the creation of one of the largest strategic centers of the copper industry in the world,” Chemezov concludes.
At Russian Railroads, Urals Mining and Metallurgy and Vneshekonombank, they are declining to comment. But it is clear that they have a serious competitor. “Sergey Chemezov's fighting style is more aggressive, Vladimir Yakunin's is more cautious, but he is a heavy weight,” noted Mikhail Vinogradov, director of the Center for Political Conjuncture. Political scientist Dmitry Oreshkin said that “It seems to me that Sergey Chemezov has gained influence in the last half a year and thereby set many against him. So it can be suggested that the consolidated actions of his opponents can reduce his influence.” Thus, at the beginning of April, Minister of Economic Development and Trade Elvira Nabiullina spoke against the transfer of the large quantity of assets to which Chemezov had laid claim to Rostekhnologia. At the Ministry of Natural Resource, they are not happy to see Chemezov in the running for the Udokan license. Kommersant's high-placed sources say that Chemezov should not receive that license, no matter who his partners are.
Potanin's alliance with Rostekhnologia is unexpected, but explainable. A month ago, Andrey Klishas, chairman of the board of Norilsk and former head of Interros, told Kommersant, “We won't buy Udokan and our plans are not changing.” Kommersant has information that Yakunin proposed a consortium to Potanin, but the co-owner of Norilsk refused him. That has been confirmed by Klishas. About two weeks ago, Metalloinvest spokesmen told Kommersant that they saw no sense in participating in the Udokan competition.
At the same time, say sources close to Potanin, he did not believe until the last moment that Mikhail Prokhorov would sell his blocking package in Norilsk Nickel to Rusal. As soon as that deal was closed, Rusal announced that it would begin a merger with Norilsk, and without the participation of Metalloinvest. The management of Norilsk close to Potanin had already declared consolidation with Metalloinvest an alternative to merger with Rusal. Klishas told Kommersant that, on Friday, he called a meeting of the board of directors for tomorrow to discuss Udokan. Sources close to Interros say that the project with Usmanov and Chemezov is “interesting” and the alliance is “possible.” Metalloinvest representatives did not answer their phones yesterday.
The creation of a consortium with Rostekhnologia would ensure Potanin and Usmanov additional support in the fight with Rusal. At the end of last week, on the day the deal with Rusal was announced, both Potanin and Prokhorov met with Putin. Sources familiar with the details of those conversations say that the new Udokan consortium was discussed. “After the story with Rusal, Vladimir Potanin will not sit with his hands folded. He has to protect himself,” comments Kirill Chuiko of Uralsib, who added that, if they are unable to come to an agreement, “they will have to fight it out to the end, including with their political connections.”
How Big Business Divided up Metallurgy
In 1995, affiliates of Vladimir Potanin's Interros acquired at a loans-for-shares auction 15 percent of Novolipetsk Steel, which was controlled by company chairman Vladimir Lisin. In 2000, Lisin bought shares from the Cherny brother Trans World Group, raising his share to 34 percent, with the intention of raising his share to the controlling level. In the course of the battle for control over Novolipetsk Steel between Interros and the company's executives, it was prevented from issuing additional stock and a number of its assets were sold. In 2002, Interros sold its shares to Lisin.
In the latter half of the 1990s, there was a significant redistribution of assets in the Russian aluminum industry. In 1997, Oleg Deripaska, jointly with Trans World Group, which controlled the Sayansky Aluminum Plant, began to take steps to squeeze its partner out of the business. At the beginning of 1998, as a result of a stock issue, reduced Trans World Group's share to 15 percent. All efforts to challenge those actions in court were unsuccessful. At the beginning of 2000, Trans World Group sold its shares in the Krasnoyarsk and Bratsk Aluminum Plants and Achinsk Alumina Refinery to structures affiliated with Roman Abramovich. He also acquired the Novokuznetsk Aluminum Plant from Mikhail Zhivilo's MIKOM after outside management was imposed there by the court. In March 2000, Deripaska and Abramovich created Rusal, Russia's largest holding from those main assets.
In 1998, a battle began between its general director Viktor Rashnikov and owner of Ural Mining and Metallurgy Co. Iskander Makhmudov for control of Magnitogorsk Iron and Steel Works. To protect himself from those attempts, Rashnikov transferred part of the shares he controlled to Magnitogorsk subsidiaries. The conflict was ended decisively only in 2007. By that time, Rashnikov had consolidated control over 87 percent of the enterprise.
All the Article in Russian as of Apr. 28, 2008