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*** UC RUSAL said this week that it is aiming to reduce debt to all creditors by $5 billion within four years by holding and IPO and with operating cash flow. The world's biggest aluminum and alumina producer suggested it could float within the next couple of years as markets recover and its Boguchany project and Taishet and Boguchany smelters are commissioned. RUSAL will be looking to achieve its pre-crisis debt level of 3XEBITDA in four years, if not before. The company also plans to reach loan restructuring deals with Russian and foreign lenders in the next few weeks, including with VEB, which now holds a seat on the RUSAL board. However, one item the company is not considering to help clear its debt is the selling of its blocking stake in Arctic metals giant Norilsk Nickel, currently being held as collateral under the VEB loan.
*** The Central Bank of Russia, other banks and mining companies now have the right to export platinum and raw material containing PGMs independently, according to a presidential decree published this week amending a statute on imports and exports of precious metals, gemstones and raw material containing precious metals. However, state unitary enterprise Almazjuvelirexport, which was set up in 1998 post-crisis to aid the stabilization of Russia's finances and used to hold the exclusive right to export such products, including for Norilsk Nickel and the CB, will apparently continue to be the sole exporter of refined metal. However, there is confusion regarding the amendment and which previous resolutions it rescinds, leaving Almazjuvelirexport warning that unless clarity over who is authorized by the government to export is introduced the situation could cause a bureaucratic mix-up which could bring exports of raw materials containing platinum to a halt.
*** Russia may tie the export duty on nickel to market prices for the metal, Norilsk Nickel General Director Vladimir Strzhalkovsky said this week. The export duty on the nickel is currently set at 10%, after temporarily being set at zero in February in light of dramatic reductions in prices. Revenue from nickel exports has already been written into the budget: 4.5 billion rubles a year in 2010-2012. The artic mining and smelting giant is currently discussing a differentiated export duty with the state to find a scale tied to price changes, as is currently the case with oil. Meanwhile, steelmaker Severstal has sent proposals to the government to increase import duty on hot-rolled steel plate and on raising the existing 15% price preference for Russian steel producers bidding at state procurement tenders.
*** The Mechel coal and steel group has this week been pushing forward with moves to strengthen its Asia portfolio. Mechel has signed a memorandum of cooperation with Japan's Mitsui & Co, Mechel under which the two companies will cooperate in the marketing and sale of metal production and resources, including coal, all types of ferroalloys, pig iron, billet and other types of iron and steel products. The organization of JVs in the production of ferrous and non-ferrous metallurgy and other areas are also planned. Mechel is also set to open a representative office in the South Korean capital Seoul. Although Mechel has no production assets in South Korea, the country is one of its biggest markets and it recently secured a large five-year contract to supply coking coal to Hyundai Steel.
*** Rosnedra this week stripped a company called LLC Rover of three coal mining licenses in the Kuznetsk basin for not producing enough coal. The regional administration said the licenses are to be revoked effective August 13 for a lack of observation of license terms as coal had not been mined at the properties. Rover lost other licenses to deposits in July. MMK and Evraz looked at Rover's coal assets three or four years ago, when they were valued at around $200 million with coal prices at $55. Kommersant warns the decision to strip Rover of its licenses could set a precedent for all Russian coal companies, which had to reduce production by 25%-30% because of the economic crisis, but it said experts believe no similar sanctions are likely to be imposed on other companies.
*** Russian uranium mining holding Atomredmetzoloto announced this week that it will this year invest 220 million rubles in a project to develop the Itmanov placer. The placer is part of the Lukoyanov titanium-zirconium sands deposit in the Nizhny Novgorod region and Russia currently does not mine either of the metals commercially, meaning its nuclear industry has to import all it needs. ARMZ now plans to commission a mine capable of processing 1.5 million tonnes of raw material per year by 2014 - enough to meet the entire needs of TVEL, Russia's nuclear fuel corporation. ARMZ also this week signed loan agreements with Sberbank for a total of 3 billion rubles.
*** MSCI Inc. this week opted against adding steel producer Evraz to its Russia Index following a quarterly review. There were no additions to the index aside from pipeline monopoly Transneft, despite analysts saying they thought Evraz in particular had a good chance of being included by virtue of its GDR placement at the beginning of July. They said inclusion would have given MSCI one more reason to request information about Evraz and that not including it in the index would be tantamount to ignoring the sector's biggest company. The fact that Evraz is registered in Luxembourg and therefore a foreign company was thought to be an obstacle, but this has not stopped other such companies being listed in the past.
*** Polyus Gold has entered into a technical alliance with Kinross Gold to continue the joint assessment of the Nezhdaninskoye deposit in Yakutia and to explore other opportunities for exploration and development in the country, the No, 1 Russian gold producer said this week. Polyus said that if all aspects of the project are covered, including energy supply, a complex costing approximately $1 billion and capable of producing around 12 tonnes of gold per year might be built at Nezhdaninskoye. Polyus and Kinross have also agreed to conduct joint exploration work on a non-exclusive basis. Under the terms of the agreement, it is expected that Kinross' investment in the technical alliance will total approximately $20 million over 24 months. Meanwhile, Kinross might have become Russia's second biggest gold miner in the first half of 2009, behind Polyus, after producing 368,541 attributable gold equivalent ounces at the Kupol mine in Chukotka.
*** Signs of the shoots of recovery in Ukraine's troubled steel industry are beginning to appear a year after decline set in and the outlook is improving - output could fall just 20%-24% in 2009, 10% less than year-to-date figures in most sectors. The revision comes as markets outside Ukraine pick-up somewhat, and as the government's anti-crisis measures, centered on bringing down costs and creating internal demand for metal, are starting to pay dividend. Ukraine's ferroalloy industry is also showing signs of revival and although production figures at the country's main producers are still way down on last year, the market has improved markedly this month after prices in Europe unexpectedly jumped more than 100 euro a tonne, a rise which caught many producers off guard. Ferroalloy smelters say they had hardly any stockpiled metal and were unable to keep up with orders, despite working flat out. and NFW, Ukraine's biggest producer, has a full order book for September.
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RUSAL aims to cut debt $5 bln in 4 yrs, partly with IPO
MOSCOW. (Interfax) - United Company RUSAL (UC RUSAL) aims to reduce debt to all creditors by $5 billion within four years by holding and IPO and with operating cash flow, Oleg Mukhamedshin, the Russian aluminum giant's Director, Capital Markets, said in an interview with Interfax. The company also plans to reach loan restructuring deals with Russian and foreign lenders in the next few weeks, however it is not thinking of selling its blocking stake in MMC Norilsk Nickel to help clear its debt.
RUSAL still mulling IPO
RUSAL at the end of June said it had agreed a long-term debt restructuring deal for $7.4 billion in debt with an advisory committee of international creditors. One of the conditions was that the company reduces debt to all creditors by $5 billion in four years.
"We're thinking about an IPO as one source for reducing the main debt. We haven't dropped this idea," Mukhamedshin said. "In fact we think this would be absolutely realistic in the next couple of years: the markets will recover, and we'll finish building the Boguchany hydro-plant with RusHydro and might also commission the Taishet and Boguchany aluminum smelters. RUSAL will be in great form and we'll again be the sector's leading company. We'll hold a very effective IPO," he said.
RUSAL "might also consider selling non-core assets," but this would have a minor role.
"The second most important source of debt repayment would be our operating cash flow," Mukhamedshin said.
United Company RUSAL was formed in the spring of 2007 through a merger between Russian Aluminium (RUSAL), Siberian-Urals Aluminum Company (SUAL) and the alumina-related assets of Switzerland's Glencore. Oleg Deripaska retained control of the merged company, and Mikhail Prokhorov, another Russian billionaire, joined minority shareholders SUAL and Glencore in the spring of last year after selling his blocking stake in Norilsk Nickel to RUSAL.
An agreement to hold an IPO was reached while the united company was still being formed, but the financial crisis has delayed these plans. RUSAL officials have said on several occasions that the company is technically prepared for an IPO.
Four-year plan
Mukhamedshin also RUSAL could achieve its pre-crisis debt level of 3XEBITDA in four years, if not before.
The terms for the long-term rescheduling deal regarding the $7.4 billion debt reached at the end of June include the possibility of RUSAL refinancing the debt on market terms if the aluminum company deems this more advantageous.
"Our plans for the next four years, if not sooner, include achieving a level of debt that does not exceed 3xEBITDA. It all depends on aluminum prices on the LME, and these are still pretty volatile," he said.
"Aluminum was trading at $1,400 a tonne two months ago, but is now approaching $2,000," he said.
Mukhamedshin said RUSAL was fairly conservative when making forecasts, and had therefore "projected a four-year debt reduction." "But if we see today's sort of prices, we might be able to achieve 3xEBITDA much sooner," he said.
RUSAL could return to its pre-crisis debt level - the sort of level "which enables us to calmly refinance our credit portfolio" - in four years or sooner, he said.
"From then on we have the option to either refinance the remainder through our creditors for three years, or, if market terms are better than those offered by our current creditors, to do this on the market itself," Mukhamedshin said.
"As for the terms, we need to look at what they were pre-crisis. We were raising funds at LIBOR plus 100 basis points or less. There was also the Eurobond market, where Russian companies could borrow at 5% pa. These were normal conditions for the company," Mukhamedshin said, adding that RUSAL forecasts the capital market will fully recover in four years, but very possibly sooner.
VEB loan
Mukhamedshin said RUSAL aimed by the start of September to prolong a loan of $4.5 billion from Vnesheconombank (VEB) by one year.
"We're looking at a one-year extension for those who think credit needs to be extended. The [VEB] supervisory board has decided that rates must be market rates, that is they must correspond to rates for a certain borrower, coordinated with the other creditors, including international banks. And we're currently discussing what the rates for VEB will be next year," he said.
The VEB board at the end of June gave its general approval to the possibility of extending by 12 months, if the need arises, loans that is issued to Russian companies and banks at the end of last year and early 2009. VEB will be guided by market rates when extending the term of loans, and the key terms of the loans must be agreed upon when the loans are prolonged.
RUSAL borrowed the $4.5 billion from VEB last autumn to refinance an earlier, western bank loan that it used to buy the blocking stake in Norilsk Nickel. VEB holds the Norilsk stake, like stakes in a number of aluminum smelters, as loan collateral.
VEB has received a seat on the boards of directors of two United Company RUSAL (UC RUSAL) aluminum smelters, Krasnoyarsk and Bratsk.
The VEB representative on both boards will be Andrei Sapelin, who is the head of VEB's department on industry. RUSAL, the sole owner of the smelters, elected the new member of the boards on August 11.
VEB First Deputy CEO Anatoly Tikhonov already has a seat on the RUSAL board.
Russian banks
RUSAL aims to reach agreement on debt rescheduling with other Russian lenders, including Alfa-Bank, within weeks, Mukhamedshin said.
"We expect to reach a rescheduling agreement with the Russian banks by the middle of September," he said, adding that this process differed from talks with the western lenders.
"There were more than 70 western lenders, and four Russian ones [not including VEB], namely Sberbank, VTB, Gazprombank and Alfa-Bank, with which dialog has been quite active. In this case, there won't be a uniform agreement as such. We're holding talks with each of the banks, and they are at a fairly advanced stage," Mukhamedshin said.
Conceptually, the terms for the Russian banks ought to be identical to the terms set by the western banks, he said. "It's obvious - there are no arguments for some creditors getting advantages over others. All banks agree on this, and pari passu must be preserved in any restructuring," he said.
"Otherwise the whole thing collapses," he added.
There is one difference - the cost of capital is different at Russian banks, he said. "However from the point of view of the...
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