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IN BRIEF
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*** Kazakhmys, Kazakhstan's biggest copper producer, was reported this week to be holding preliminary talks on a merger with Metalloinvest, the Russian metals conglomerate controlled by billionaire Alisher Usmanov. Usmanov also this week bid for rights to the strategic Udokan deposit in Russia's Chita region, possibly looking to copper to strengthen its diversified base ahead of an expected merger with Arctic mining and smelting giant Norilsk Nickel. A merger with Kazakhmys would allow Metalloinvest, Russia's largest iron ore producer, to more efficiently develop Udokan were it to win the tender. Sources suggest any merger between the Russian miner and London-listed Kazakhmys could take the form of a reverse takeover, and that the publicly floated copper producer could raise additional capital to Metalloinvest's proposed fall IPO.
*** Metalloinvest's Udokan bid was also strengthened this week by news that the iron ore holding and the newly-formed Rostekhnologii could team up to develop the copper field. President Dmitry Medvedev on July 14 signed a decree establishing the state technologies corporation and its head, Sergei Chemezov, said that an agreement with Usmanov on a JV to develop the deposit in the event of a successful bid has already been reached. If this happens, Rostekhnologii expects to receive at least a 25% interest in the consortium to be formed with MMC Norilsk Nickel and Metalloinvest. Rostekhnologii's involvement in the field would compliment its work in the neighboring large Erdenet copper field, which lays across the border in Mongolia.
*** Rostekhnologii's metals assets will not be limited to copper, with the corporation also holding a 66% stake in VSMPO-Avisma, the world's largest titanium producer. Rostekhnologii announced this week that it will be setting up a JV with aircraft producer Boeing to produce finished titanium articles. Boeing's 787s are now made almost exclusively from VSMPO titanium and the JV backs up last year's $1 billion plus titanium supplies deal between them companies.
*** VSMPO-Avisma also this week signed contracts to supply titanium products to Airbus and EADS worth $4 million and valid through 2020. The companies are also considering the possibility of processing titanium products at the VSMPO Avisma facilities in order to create an integrated titanium supply chain starting from raw material and ending with the completed product. VSMPO-Avisma has also asked the government to abolish the 6.5% export duty on ingots and slabs made from titanium alloy, asking that they be considered a high-tech product. The company currently exports 70% of its products.
*** Russia's second largest bank, VTB, expects to earn $50 million from the sale of its 10.6% stake in Yakutia-based Alrosa, down from earlier estimates suggesting figures more than seven times that amount. The transaction is to be completed by Q308. The government last month regained control over the diamond monopoly, the world's fourth largest producer, through a supplementary share issue.
*** ArcelorMittal Kriviy Rih, formerly Kryvorizhstal, has said Mittal Steel Germany GmbH fulfilled all of the investment commitments it took on in 2007 when it signed an agreement on the purchase of a 93% stake in the steel plant and has called for constructive dialogue with the Ukrainian State Property Fund as the protracted dispute over the company rumbles on. Kriviy Rih made a statement to this effect in response to claims to the contrary sent to the country's government by the Property Fund. The Fund named a lack of upgrades to coking plants and desulfurization facilities among its complaints. The dispute will be settled at the International Commercial Arbitration Court if the Fund's request that the government pay the court's 72 million hryvnia registration is met.
*** The Serbian government this week announced pre-qualification for a third tender to sell the RTB Bor copper smelter. However, the division of Russian billionaire Oleg Deripaska's Basic Element, which bid at the first two tenders, is ineligible to participate. SoyuzMetalResource only produced 1,683 tonnes of copper in concentrate in 2006 - nowhere near enough to make it eligible to bid at the latest tender, which required bidders to have produced more than 80,000 tonnes of copper in concentrate and/or 100,000 tonnes of refined cathode copper last year.
*** Russia's Natural Resources Ministry has prepared a draft resolution defining the commercial activities that are banned in areas lying close to Lake Baikal for submission for government approval. Under its proposals, the ban would only apply to commercial activities that have not been registered before the document takes effect. This would mean it would apply to the Kholodninskoye project led by East Siberian Metals (ESM). The polymetal deposit, which contains almost a half of Russia's listed zinc and a quarter of its lead reserves, has run into environmental difficulties before, with environmental protection watchdog Rosprirodnadzor earlier threatening to revoke the license to the field held over a failure to submit the feasibility study for the project on time.
*** Two major Russian coking coal producers are hiking their concentrate prices in the second half of 2008, with Raspadskaya upping prices 57% to $220 per tonne in medium- and long-term contracts on average. Raspadskaya expects the price rises to provide it with high financial results in the full year on the back of an expected increase in sales to 9.8 million tonnes. Peer Belon is also reported to be considering its own 63% rise to a $230-$270 per tonne range.
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Kazakhmys, Metalloinvest holding preliminary merger talks
LONDON. (Interfax) - Kazakhmys, Kazakhstan's biggest copper producer, is holding "very preliminary discussions about a possible combination of its business with a third party," the company said in a statement issued July 14.
These negotiations "may or may not lead to an offer for Kazakhmys," the statement says.
"The discussions are at a very early stage and, consequently, there is no certainty as to the terms and structure of such a transaction nor that an agreement will be reached between the parties. Any transaction would be subject to shareholder approval," it says.
The Financial Times said on its Alphaville website on Monday that Kazakhmys was holding merger discussions with Metalloinvest, the Russian metals conglomerate controlled by billionaire Alisher Usmanov.
"The deal is being structured as a reverse takeover and should see Mr Usmanov emerge with a controlling stake in the enlarged business, which would be re-listed on the London Stock Exchange. The merged company is expected to have a market value of around $50 billion, with Lehman Brothers providing the primary corporate finance advice," the FT said.
Kazakhmys denied there would be a reverse takeover.
The FT said the composition of the new company's board of directors is still under negotiations, but it will have to take into account that Kazakhmys board chairman Vladimir Kim controls 45% of the company. The Kazakh government also owns a 15% interest in the company.
Metalloinvest has declined comment on the report.
Kazakhmys stock soared 8.2% to 1,544 pence on the London Metal Exchange upon news of the possible merger.
If the merger takes place on the core of the listed Kazkhmys, it would automatically make Metalloinvest a public company. Thus, the potential deal could become a kind of alternative IPO for Metalloinvest. Market analysts, however, say a share placement by Metalloinvest would simplify the merger procedure since Usmanov's company would receive a market appraisal.
Metalloinvest has expressed interest in copper assets on several occasions. Last week, Mikhailovsky GOK (MGOK), a major iron ore producer from Russia's Kursk region and a member of the Metalloinvest holding, applied to bid at a tender for the rights to the big Udokan copper field in Russia's Chita region. If Metalloinvest wins the tender, the state corporation Russian Technologies could team up to develop the field. Russian Technologies views its possible involvement in Udokan and the development of its mining and metallurgical sector in general in the context of synergy with the Russian-Mongolian Erdenet copper mining joint venture, which could become part of the corporation. In addition, Russian Technologies has a verbal agreement with MMC Norilsk Nickel co-owner Vladimir Potanin, who would also take part in the tender.
Kazakhmys is Kazakhstan's largest copper producer. The corporation consists of four production companies: Zhezkazganstvetmet, Balkhashtsvetmet, Vostoktsvetmet, Karagandatsvetmet. It also has oil and gold producing subsidiaries.
Kazakhmys said at the end of March that it was holding preliminary talks with the Kazakh government and had discussed various options, including the possible acquisition of new upstream assets in Kazakhstan in exchange for the Kazakh government acquiring a stake in the corporation.
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Rostekhnologii, Metalloinvest could team up to develop Udokan
MOSCOW. (Interfax) - Alisher Usmanov's Metalloinvest holding and the state corporation Russian Technologies (Rostekhnologii) could team up to develop the big Udokan copper field in Russia's Chita region.
Mikhailovsky GOK (MGOK), a major iron ore producer from Russia's Kursk region and a member of the Metalloinvest holding, has applied to bid at a tender for the rights to Udokan, a source at a profile agency told Interfax. Metalloinvest's press office confirmed a bid application had been filed in MGOK's name.
A highly placed source at Rostekhnologii told Interfax that the corporation had reached agreement with Metalloinvest to form a joint venture to develop Udokan if the bid is successful. "We've reached agreement with Metalloinvest to form a joint venture to develop the Udokan field if it wins the tender," the Rostekhnologii source said.
The source said that Rostekhnologii viewed its possible involvement in Udokan and the development of its mining and metallurgical sector in general in the context of synergy with the Russian-Mongolian Erdenet copper mining joint venture, which could become part of the corporation.
Vladimir Potanin's Interros holding has also expressed an interest in Udokan. Interros and Alisher Usmanov's Gallagher Holdings said in May that participation in the Udokan project might be an aspect of their cooperation in the framework of understandings regarding partnership in the creation of an international mining and metallurgical company holding.
Rostekhnologii expects to receive at least a 25% interest in the consortium to be formed with MMC Norilsk Nickel and Alisher Usmanov's Metalloinvest in the event they win the tender on rights to big Udokan field.
Rostekhnologii would contribute the state holdings in Mongoltsvetmet and Erdenet to the consortium, corporation head Sergei Chemezov said in an interview with Vedomosti newspaper published on July 14.
"We plan to contribute those assets to the consortium that will be formed with Norilsk Nickel and Metalloinvest if they win the tender on rights to the Udokan copper field. The size of our stake in the consortium will depend on the estimate of investment in Udokan. I think that this will be on the order of $1.5 billion-$2 billion. But in any case, Rostekhnologii will receive no less than 25%," he said.
Rostekhnologii hopes to sign an agreement with Metalloinvest soon. It currently has a verbal agreement with Norilsk Nickel co-owner Vladimir Potanin. "There is the concern that United Company RUSAL (UC RUSAL), which owns a 25% stake in Norilsk Nickel, may veto this agreement. But if the Norilsk Nickel board approves participation in a consortium with us and Metalloinvest, we can only welcome that. Particularly since [Norilsk Nickel] has copper assets in Chita region that it could contribute to the consortium," Chemezov said.
Rostekhnologii is interested in mining because "copper fields also produce rare earth metals which can be used in special steel alloys," Chemezov said. "Prices on those metals are rising fast. And one of our assets is Russpetsmetal," he said.
Chemezov denied that Rostekhnologii has its eyes on Norilsk Nickel itself.
The Udokan tender takes place on September 17.
Tender applications have been submitted by Norilsk Nickel, Oleg Deripaska's Soyuzmetalresource, Mikhailovsky Mining and Beneficiation Plant (a company in the Metalloinvest group), Mikhail Prokhorov's interests, and the Russian Copper consortium made up of Russian Railways (RZD), Ural Mining and Metallurgical Company and the Russian Development Bank.
The starting price in the tender is 4.5 billion rubles. The winner will receive a 20-year license to the field.
It is thought Udokan could produce up to 187,000 tonnes of copper, or 15% of Russia's annual production of the metal. Up to 180,000 tonnes of copper would be processed each year under the project.
Rosnedra has said that as of January 1, 2008, Udokan contained B+C1 reserves of 14.43 million tonnes copper and C2 reserves of 5.52 million tonnes. The ores have a Cu content of 1.56%.
Udokan is one of the world's biggest copper deposits. It was discovered in 1949 and its reserves have been listed three times.
Norilsk Nickel's Giprotsvetmet institute possesses the most complete data about Udokan's reserves. The institute has been reappraising the field's reserves since the first quarter of 2007 and expects to complete its work at the end of 2009.
It is thought Udokan could produce up to 187,000 tonnes of copper, or 15% of Russia's annual production of the metal. Up to 180,000 tonnes of copper would be processed each year under the project.
Rosnedra has said that as of January 1, 2008, Udokan contained B+C1 reserves of 14.43...
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