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IN BRIEF
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*** General director of aluminum giant UC RUSAL Oleg Deripaska said this week that he does not need financial help from the state. Deripaska said the state should be left to deal with social problems and rather than bail out corporations, and that bankruptcy legislation should be brought up to date. He said manufacturers themselves should cut costs and launch new low-cost but quality products, and that increased competitiveness and domestic demand are key to recovery. He said RUSAL, the world's largest aluminum producer, will support initiatives by several governments to stabilize the aluminum industry and that RUSAL plans to reach a stand-still agreement on debt with foreign banks and sign it in early March. He also urged a cautious approach towards Arctic mining and smelting giant Norilsk Nickel because almost half of the company's shares are in free float, saying talks with Interros and Onexim are ongoing to restore the fair price of the company as soon as possible.
*** Magnitogorsk Iron & Steel Works, one of Russia's biggest steelmakers, this week secured a 12-billion ruble credit line from the country's biggest lender, Sberbank, to finance the construction of its high margin Mill 5000, focused on the pipe industry. It also announced that it sees a 27% drop in output in 2009 and an even greater drop in sales revenue as the country's ferrous metals sector continues to be hit hard by the ongoing global financial slump. MMK's chief beneficiary, Viktor Rashnikov said also that MMK will not pay a final dividend for 2008 because output had plummeted in the fourth quarter and because funds were needed for the company's anti-crisis program. In addition, MMK has called off a proposed joint venture with Italy's Magnetto Automotive to produce stamped auto components.
*** Polymetal this week announced its first JORC-compliant resource estimates for the Birkachan and Oroch properties in the Magadan region. Both properties were part of the deal in which Polymetal acquired the Kubaka mine from Kinross Gold in 2008. Russia's biggest silver producer said Birkachan contained a total resource of 17.51 million tonnes of ore and the Oroch property a total mineral resource of 1.93 million tonnes of ore, with substantial potential for further exploration. The resource estimate supports Polymetal's development plan for Birkachan, which is currently the subject of a feasibility study, developed to bankable standards and planned for completion during Q4 2009. The scope of the feasibility study assumes the development of an open-pit mining operation where Run-of-mine ore is split into two processing streams with high-grade material trucked to and processed at Kubaka mill while low-grade material will be dump leached on the mine site.
*** State nuclear corporation Rosatom this week signed a deal with the government of the mineral-rich Republic of Yakutia to build a uranium mine at the Elkon field which will eventually be capable of supplying a quarter of the Russian nuclear power industry's uranium. The deal envisions investment projects related to the development of the Elkon uranium province, the construction of a mining complex and the construction of four floating nuclear power plants to supply electricity and heat to northern districts of Yakutia and will create approximately 12,000 jobs. The project will in part be funded by the state Investment Fund. Yakutia boasts 6% of the world's total proven uranium reserves.
*** New World Resources, Central Europe's sole listed coal miner, announced this week that it sees the proposed acquisition of a 24.99% stake in Ukrainian iron ore and pellet producer Ferrexpo as key to creating a regional champion, with the economic crisis likely to present further attractive opportunities in the market. NWR said it sees Ukraine's economy as conducive to M&A activity, especially for the export of natural resources on the back of a weakening hryvnia. Poland and Ukraine are the only countries in the CEE region with significant coal reserves and a paring of NWR's chief assest Czech coalminer OKD and Ferrexpo would mark a step towards creating a carbon steel raw materials business that will diversify NWR's earnings and enhance its regional footprint. As part of the tie-up, the board of NWR is proposing the admittance of Konstantin Zhevaho, the majority owner of Ferrexpo, to its ranks as a non-executive director. NWR company's shareholders will vote to approve Ferrexpo's purchase of 24.99% of shares for 126.6 million pounds from RPG Industries SE on April 28.
*** Russia's biggest coking coal producer Mechel said this week it will need $1 billion-$1.5 billion to round off its coal projects over the nexy five years, a source at the coal and steel group told reporters. The group said it sees things in the metallurgical segment of its business, where it is less involved, as more straightforward - with figures needed being in the field of a few hundred million dollars. Mechel also announced it was thinking of asking for state funding for the Elga coal project in Yakutia back in September, and that it will only bring a partner into the project as a last resort. South Korean companies are believed to have expressed particular interest, and Mechel this week signed an agreement with Hyundai Steel on deliveries of up to 300,000 tonnes of coal as part of a number of deals with Seoul.
*** Mechel, one of Russia's few mining majors yet to buy assets in the United States, this week reached agreement with the family of businessman James Justice to buy 100% of U.S. coal producer Bluestone Coal for a cash consideration of $425 million plus 80 million new preferred shares. Estimates place the cost of the whole deal at $655 million-$675 million, way below the price of $4 billion believed to have been under consideration when the parties started negotiations last year.
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Deripaska says companies don't need state help
MOSCOW. (Interfax) - Oleg Deripaska, the general director of aluminum giant United Company RUSAL (UC RUSAL), said the state should be left to deal with social problems and rather than bail out corporations, and that bankruptcy legislation should be brought up to date.
Leave the state alone
"The state should be left alone. We don't need its financial aid. In fact we're trying to pay off debt to the state as quickly as possible. We already have the means to do this. Some people say we'll get help, other are saying we don't need it. We've launched our own efficiency drive and we've already negotiated the most difficult phase of optimization and cutbacks," Deripaska said in an interview with Interfax and the Vesti TV news channel.
"The state can't stand in for the market. Government orders can, for example, support the automobile industry. But in order to show more or less decent results in the fourth quarter, manufacturers themselves have to cut costs and launch new low-cost but quality products.
One example is a new vehicle based on the GAZ auto plant's Gazelle. The new vehicle, intended for farmers, "will be a hit," Deripaska said. It will start at $6,000 and we'll arrange for the deposit to be $800," Deripaska said.
Deripaska said a meeting of the State Council in Irkutsk devoted to support for the real sector raised the issue of modernizing bankruptcy procedures. "We had dialog with several company bosses, who suggested using bankruptcy as a way of freezing payments. Our position is that we don't intend to bankrupt any of our enterprises because today's bankruptcy process would inflict huge losses on them. Bankruptcy must be fairer. If one company with minimal debt pops up and can put another into bankruptcy this is going to result in heavy losses. Bankruptcy law must not be changed in such a way as to prevent creditors from recovering their debt but, given the whole range of problems that face an enterprise - problems to do with its value, how much its assets are really worth - the size of the claims should definitely be commensurate with the size of its business for a company to go through proceedings. Yes, a creditor is capable of initiating bankruptcy, but the question is where will it end? You can't put companies through the mangle."
"You could jump into that river and never get out. There's a lot of trust in Russian companies both here and in the West. If we start behaving badly this will, of course, complicate things in a big way. Particularly because emerging from this crisis depends partly on investment - that is we need to attract foreign investors, and for that we need to prove both that we are competitive and that we are honest and dependable. But creditors are in the same boat as ourselves and its important to maintain dialog and produce a clear image of what is going on here," Deripaska said.
Deripaska cited Chapter 11 bankruptcy in the United States, where a company that is unable to pay its creditors off can still operate while negotiating with those creditors and paying off debt in installments. "I think some legislative initiatives will be made in the next month or so," he said.
Faith in the ruble
"The State Council discussed the causes of today's problems in detail. The president and governors are already talking about life after the crisis. You can and must cut costs. Of course you need to fight for every kopeck. And the main thing right now is how to survive. We have no chance of emerging from crisis unless we become more competitive and domestic demand picks up. I don't think this crisis will be a matter of one or two quarters. It will be systemic, and its main results remain to be seen. The crisis has exposed the weakness of our economy from the point of view of the balance between domestic manufacturing and domestic consumption. We need to overcome these difficulties as quickly as possible. The solution used to be so easy - if you needed money, you sold commodities, if you needed loans, you went West, and if you needed to build something quickly you imported. Now there'll be less money around and fewer opportunities, too, and we'll have to look for this inside the country itself."
Deripaska also floated the idea of setting up state banks to finance industry. "Money is coming from Sberbank, VEB, VTB and, strange as it may seem, Rosselkhozbank. But some commercial banks, some of which will lose clients after the crisis, are milking companies that they have done business with for eight years for all they can."
"It's very disappointing that we are turning the ruble into a means of converting revenue into forex. The domestic market will be the main source of profit for us all in the next even years. The ruble and the faith we have in amid lingering uncertainty lingers over whether there'll be any short-term improvement in the external markets is a healthy sort of uncertainty, one that will encourage us to develop our own manufacturing, tidy our costs up and offer consumers something new. We need to be thinking about the ruble, its value and its durability, not about inflation. I think the dollar will have an entirely different value nine months from now - this is possible for purely objective reasons.
RUSAL intends to agree on debt moratorium early March
Deripaska said his own flagship business, UC RUSAL, planned to reach a stand-still agreement with foreign banks and sign this in early March.
"I think that we will agree in early March," Deripaska, who...
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