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IN BRIEF
Editor's Choice
*** Russian industrial output plummeted 14.9% year-on-year in January-April, Rosstat reported this week. Industrial decline accelerated in April, with output down 16.9% year-on-year in that month alone, considerably the biggest drop since the crisis began. Finished iron and steel roll production fell 27.7%, coke 29.5%, steel pipes 30.1% and iron ore 18.2%. Industry and Trade Minister Viktor Khristenko called the year the most difficult ever for industry, say steel has been particularly badly hit. "Investment projects at Russian metallurgical companies are in the heightened risk zone and warrant heightened attention," he said. However, his ministry has worked out priority support measures for metals companies including setting zero duties on imported high-tech investment goods that Russia does not manufacture.
*** Oleg Deripaska's UC RUSAL is now stabilizing and the aluminum giant is becoming profitable, Russia's richest man Mikhail Prokhorov told reporters this week. He said he that aluminum prices are going to rise and costs are going to fall and that he is only interested in increasing his stake in RUSAL. Prokhorov, who has earned widespread praise for his weathering of the crisis, was earlier questioned for his March decision to increase ownership in RUSAL as the metals industry struggled to come to terms with the new economic climate. Meanwhile, RUSAL is seeking to conclude a deal with its Russian and foreign creditors by the end of May and will hold a long-delayed IPO in three or four years' time.
*** Aluminum giant UC RUSAL this week rejected a proposal by Barclays Capital and creditors suggesting it transfer debt to RusHydro in exchange for a 50% stake in the Boguchansk Aluminum Smelter and the Boguchansk Hydroelectric Plant, which are being built as part of the Boguchansk Energy & Metallurgical Association (BEMO) project. The creditors suggested their proposal would That would allow partners to focus on the areas of their expertise and free RUSAL from investment commitments to the hydroelectric station, but RUSAL said it has no plans to pull out. Meanwhile, RusHydro has sent RUSAL a new investment agreement on construction of the Boguchansk Hydroelectric Plant that aims to ensure on-time financing for the project. The agreement would legally bind the project partners to provide the required investment on time and rule out a repeat of the situation at the beginning of the year, when RUSAL halted all financing and blocked payments to contractors. RUSAL earlier proposed a two-year postponement in construction of both facilities earlier this year, but a government meeting chaired by Prime Minister Vladimir Putin called the project to be finished on schedule.
*** The new board of directors at Russia's no. 1 gold miner Polyus Gold was announced this week and includes four representatives from Suleiman Kerimov's Nafta Moscow and three from Mikhail Prokhorov's Onexim Group, as well as company General Director Yevgeny Ivanov and one independent director. Vladimir Potanin's Interros no longer has representation on the Polyus board, although it and Onexim each nominated five candidates back in February. Prokhorov said on May 15 that Kerimov was a shareholder and that Polyus Gold's strategy to 2017, which envisions the construction of new recovery plants, would not alter as a result. Media reports say Kerimov, seen as a portfolio investor, owns 35% of Polyus Gold.
*** A senior official from the Chelyabinsk region this week confirmed the ChTPZ Group plans to sell the Chelyabinsk Zinc Plant - Russia's biggest zinc producer. The sale to an unnamed buyer, believed to be UMMC, should be completed by the end of this year. UMMC, Russia's second biggest copper producer, already owns the Vladikavkaz-based Electrozinc smelter and had been planning to build a zinc plant of its own in the Sverdlovsk region to process all the zinc concentrate it produces. Meanwhile, the FAS week gave regulatory approval to UMMC to buy all the shares in No. 3 copper producer RCC's Revda Nonferrous Metal Processing Plant, which specializes in medium and small diameter tubes, and alloys.
*** Mechel coal and steel group has this week reached agreement with banks to restructure $1 billion out of a $1.5-billion bridge loan the company raised to finance the purchase of Oriel Resources Ltd., although a deal has yet to be signed. Mechel will repay the remaining $500 million with a three-year loan from Gazprombank. Mechel's debt totals $5 billion, $2.7 billion of which is short-term.
*** The Central Asian country of Turkmenistan this week started up operations at the nation's first steel plant. The plant, located in the industrial zone near Ashgabat, has capacity for 160,000 tonnes of output a year and was built by a consortium of Turkish companies at a cost of $64.5 million. The enterprise, one of the largest of its kind in the region, includes steel-casting, rebar-milling and profile iron shops and scrap metal will be used as the input for the bulk of production.
TOP STORIES
Metals companies post FY08, Q109 results showing near across the board losses
MOSCOW. (Interfax) - A number of Russian metallurgical and mining companies this week posted FY08 and Q109 financials showing near across the board losses.
Gold producer Buryatzoloto was the only precious metals miner posting this week, and it reported net profit for 2008 up nearly 15% under RAS. However, Buryatzoloto controlled by Canada's High River Gold, saw Canadian GAAP net profit tumble 84%.
Steelmaker Severstal finished the first quarter with a loss of $644 million under IFRS compared with a profit of $439 million in the first quarter last year, well below forecast. Revenue in the first quarter fell 35%. The company is working to achieve a target of $1.2 billion of working capital reduction this year. The Evraz Group's Nizhny Tagil Iron & Steel Works closed the first quarter of 2009 with net losses of 368.091 million rubles to RAS, and revenue halved. Earnings and sales were impacted by lower sales volumes and narrower markets and by a drop in steel prices. MMK did not post, but could cut steel output 10%-20% this year, better than the company's previous forecast for 2009.
Arctic metals and smelting giant Norilsk Nickel closed 2008 with net losses of 86.053 billion rubles to RAS, although the results are non-consolidated and only include its Arctic Branch. The main factors behind the losses were negative revaluations of financial assets a reduction on global ferrous and precious metals. Revenue fell substantially in Q109 and net losses in the period were well down too. Despite the losses, profit margins of the company's products remained rather high.
The main Russia-based enterprises of Oleg Deripaska's UC RUSAL reduced non-consolidated net profit to RAS considerably in the first quarter of 2009. The companies said in earnings reports that the main reasons for the drop were changes to the exchange rate, higher energy prices, reduced demand for aluminum and alumina and falling world aluminum prices. Smelters did not see significant changes in earnings in FY08, however upstream divisions posted substantial reductions.
The world's leading titanium producer VSMPO-Avisma reduced net profit under RAS 57% 2008 and net profit in the first quarter fell 90%. Sales revenue at the Uralelektromed copper refinery, UMMC's flagship enterprise plummeted 37.5% in Q1 and No. 3 Russian copper producer RCC's Kyshtym Copper Electrolyte Works (KMEZ) cut sales 27% in 2008.
The four Russia-based members of Alisher Usmanov's Metalloinvest holding saw their earnings and revenues tumble in the first quarter of 2009 on lower sales volumes and prices for steel and iron ore.
The Russia-based pipe mills of TMK, one of the world's top-three oil and gas industry pipe producers, posted net losses to RAS in the first quarter of 2009, compared with profit in the same period of last year and OMK's Vyksa Steel Plant, Russia's biggest pipe mill, reduced net profit 21.8% in the first quarter. ChTPZ's Pervouralsk Plant reduced sales revenue to Russian Accounting Standards 26.6% and closed the quarter with net losses of over 800 million rubles.
Russian diamond mining monopoly Alrosa closed the first quarter with net losses of 13.434 billion rubles compared and sales revenue down two-thirds year-on-year. A drop in diamond sales - rough diamond sales came to just 7.4% of their Q1 2008 level and cut diamond sales to 23.3% - drove the shrinkage.
KRU, one of Russia's biggest coal producers reduced net profit 30.6% in 2008, but Belon boosted net profit to RAS more than 5-fold in the full year 2008, however, most of the profit was generated in the nine months ended September 30, and the company operated at minimal profit in Q4 2008. It closed the first quarter with net losses of 731 million rubles to RAS, attributed to higher cost of borrowing, negative exchange-rate difference and considerable growth in natural monopoly tariffs.
TOP STORIES
New board of Polyus Gold board includes four Nafta representatives
MOSCOW. (Interfax) - The new board of directors of Polyus Gold includes four representatives from Suleiman Kerimov's Nafta Moscow and three from Mikhail Prokhorov's Onexim Group, as well as company General Director Yevgeny Ivanov and one independent director, Polyus Gold said in a statement.
According to preliminary vote tallies from the annual shareholders' meeting on May 15, the new directors are: Mikhail Prokhorov, Zumrud Rustamova, Andrei Rodionov, Pavel Grachev, Alexander Mosionzhik, Yekaterina Salnikova, Yevgeny Ivanov, Maxim Finsky and Lord Patrick Gillford.
Grachev, Rodionov and Rustamova are managing directors of Nafta Moskva (Cyprus) Limted, and Mosionzhik is chairman of the board at Nafta Moskva.
Salnikova is deputy CFO at Onexim, and Finsky is general director of Intergeo, a company set up by Onexim.
Patrick Gillford is the only independent director.
The previous board contained two representatives of each of Vladimir Potanin's Interros and Onexim, as well as Yevgeny Ivanov, and four independent directors.
Interros no longer has representation on the Polyus board, although it and Onexim each nominated five candidates back on February 27.
Reports said at the beginning of March that Interros had sold around 20% of Polyus Gold to Kerimov. Reports said at the beginning of April that another 15% had been sold to Kerimov. Mikhail Prokhorov said on May 15 that Kerimov was a shareholder and that Polyus Gold's strategy would not alter as a result.
"I've known Suleiman Kerimov a long time and we speak a common language," Polyus Gold co-owner Mikhail Prokhorov told reporters in Yelets.
Media reports say Kerimov owns 35% of Polyus Gold. Prokhorov did not say how much Kerimov owned.
Prokhorov did say that Polyus Gold's had a strategy to 2017. "The company builds something new every 18 months," he said. Polyus Gold has "a lot of gold reserves on its books and needs to build more recovery plants," he said.
Onexim controls Polyus by virtue of its majority on the board of directors. Onexim has confirmed it owns approximately 30%, but press reports earlier talked about 35%. Interros, too, has said it owns approximately 30%, while media reports have said 35%-37%.
The board recommended the dividend waiver due to the losses to Russian Accounting Standards (RAS) caused by the depreciation of the company's securities portfolio.
Polyus paid 2.95 rubles a share or a total of 562.352 million rubles to shareholders for 2007.
Polyus closed 2008 with net losses of 3.711 billion rubles to Russian Accounting Standards (RAS) compared with profit of 563.032 million rubles in 2007. Net profit to International Financial Reporting Standards (IFRS) fell 34% year-on-year to $60.36 million.
The shareholders confirmed OOO Rosexpertiza as external auditor.
Analysts told Interfax they thought Polyus Gold's shareholders.
"You could talk about a certain degree of loyalty on Yevgeny Ivanov's part towards Onexim," said Unicredit Securities analyst Marat Gabitov. "That makes the alignment in the board roughly equal. But it's disappointing that there's only one independent director," Gabitov said.
"Kerimov and Prokhorov are on good terms, so formally the balance of forces is not particularly important. Maybe Kerimov is prepared to hand strategic management to Prokhorov," Gabitov said.
"The market sees Ivanov as Prokhorov's man, so parity has been achieved on the board," said UralSib's Nikolai Sosnovsky. "In any event Prokhorov has a strong position in the company and Kerimov has no reason to challenge that and try and run it himself. The market sees Kerimov more as a financial investor who intends to stick around at Polyus for a number of years," Sosnovsky said.
Aton-Line said in an analytical note that it regards Kerimov as a portfolio investor. The fact that Kerimov's Nafta Moskva got four seats on the board and what Prokhorov said on May 15 about the gold producer's strategy not being affected by Kerimov becoming a shareholder "backs up the assumption that Kerimov will be a portfolio investor here as with [silver miner] Polymetal. "Therefore the conflict among Polyus Gold's shareholders can be considered well and truly over," Aton-Line said.
TOP STORIES
RUSAL stabilizing, now profitable - Prokhorov
YELETS. (Interfax) - Oleg Deripaska's United Company RUSAL (UC RUSAL) is now stabilizing and the aluminum giant is becoming profitable, Mikhail Prokhorov, one of RUSAL's co-owners, told reporters in Yelets.
"Aluminum prices are going to rise and costs are going to fall," Prokhorov said. "Aluminum has already edged up from $1,050 a tonne," he said.
"I'm only interested in increasing my stake in RUSAL for now," he said.
RUSAL, like most other mining and metals companies, has been taking action to mitigate the impact of the global economic crisis. Aluminum prices have halved during the crisis and RUSAL plans to cut output of the metal 11% to 3.9 million tonnes this year, from 4.4 million tonnes in 2008.
It emerged in March that Prokhorov had increased his ownership of RUSAL to 18.5% from 14% as part of a deal to restructure RUSAL's debt to his Onexim Group. The stakes held by other shareholders will change on a pro-rata basis as the result of a share issue: En+ Group to 53.8% from 57%; shareholders in Siberian-Urals Aluminum Company (SUAL) to 18% from 18.9%; and Switzerland's Glencore to 9.7% from 10.3%.
PRECIOUS METALS
CB could start accepting gold as security for refinancing
MOSCOW. (Interfax) - The Central Bank of Russia could soon start accepting gold as security for refinancing, CB Deputy Chairman Alexei Ulyukayev said during the Association of Regional Banks AGM on May 20.
The CB will also start accepting homogenous home loan portfolios, compiled to set standards using VTB and Sberbank as depositaries.
"We'll soon be providing refinancing with this collateral," Ulyukayev said.
PRECIOUS METALS
Russia to de-classify info about CB silver reserves
MOSCOW. (Interfax) - Russia will de-classify information about the Central Bank's silver reserves.
Russian President Dmitry Medvedev has endorsed amendments to a presidential decree (#1230 of November 30, 1995, clause 66) which now states that "information about platinum-group metals, diamonds stored at the Gokhran [state precious metals and gemstones repository] and Bank of Russia, and silver at the Gokhran" is classified, but no longer silver at the Central Bank.
PRECIOUS METALS
Buryatzoloto boosts net profit 15% in 2008
IRKUTSK. (Interfax) - Gold producer Buryatzoloto, a gold producer owned by Canada's High River Gold and based in the Russian internal republic of Buryatia, boosted 2008 net profit 14.9% to 360.269 million rubles under Russian accounting standards, the company said in its annual statement.
Revenue rose 4.4% to 3.489 billion rubles. Production costs declined 1.6% to 2.683 billion rubles.
Gross profit increased 30.9% to 815.233 million rubles, sales profit was up 17.6% to 701.771 million rubles and pretax profit rose 15.5% to 502.884 million rubles.
Buryatzoloto boosted net profit under Canadian GAAP standards by 43.9% to $5.102 million in the first quarter of 2009 compared to the same period of 2008, the company said in a report.
Sales revenue grew 1.3% to $32.476 million in the period, while costs rose 0.2% to $19.111 million.
Gross profit declined 0.9% to $13.601 million and pre-tax profit grew 2.6% to $5.721 million. Earnings per share totaled $0.73 in the quarter, up 46% from the first quarter of 2008.
The company's assets were worth $146.5 million on April 1, 2009.
Buryatzoloto saw Canadian GAAP net profit tumble 83.9% to $1.886 million in 2008. Operating profit fell 9.4% to $24.419 million last year.
Undistributed net profit grew 6.4% to $80.382 million in 2008.
In 2008, Buryatzoloto spent $18.748...
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