[A-List] Russia: capitalism's new frontier

["Michael Keaney" <michael.keaney@xxxxxx>]

Thought the experienced Russia hands might appreciate this. Also interesting
to see the continued involvement of the highly dubious Flemings, heirs to
the house that opium built.

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New card in Russian risk poker
By John Helmer
Asia Times, January 17 2003

MOSCOW - In an ambitious declaration of intention in Moscow this week,
Roddie Fleming, managing partner of Fleming Family & Partners (FF&P), and a
well-known City of London financier, announced that he will invest in a
Russian aluminum company to create a fresh challenger to international
miners Anglo-American, BHP Billiton and Rio Tinto.

Or did he exactly? For Fleming, who was joined at a press conference by
Viktor Vekselberg, chairman of Siberian Ural Aluminum Holding (SUAL), gave
no estimate of the investment he is planning, or its source. The two men did
say that they have agreed on a plan to diversify beyond the aluminum sector.

Through a still to be valued and funded merger, they said that they will
draw investment from the interests of the Fleming family, and from what
Fleming described as "various clients of FF&P". Vekselberg suggested that
Fleming's role will be to guide the new company to an international
flotation in 2004.

This is the latest of three apparent investment deals which Fleming has
announced in recent months, beginning with the acquisition by South Africa's
Harmony Gold of a stake in Highland Gold, a brand new junior miner which was
floated to investors on the London Alternative Investment Market in
December. Highland claims its largest asset is a Russian goldmine called
Mnogovershinnoye in the Russian region of Khabarovsk, although how the asset
was acquired, and from whom, remain a mystery, particularly in the
Khabarovsk region. Not much new money was raised in London, but the price at
which it was managed by Fleming was a boon to the founding stakeholders.

The Fleming group has also said that it has received a mandate from Alrosa,
Russia's largest diamond miner, to raise finance for mine investment. Until
now, Alrosa has been considered such an uncertain quantity that no-one
outside Russia has been willing to lend to it, except on terms that assure
the security against default is safely offshore.

In each case, Fleming's strategy has been to package a risky Russian asset,
about which little is known, for sale to Western mining investors who are
persuaded the package is solid enough, no matter how volatile the contents.
In the recent short history of gambling by the stock exchanges of the world
on Russian mining resources, it has always been said that the quality of the
venture depended on the reliability of the Russian partner. Without that,
Russian mining assets had a habit of evaporating, or being stolen. Fleming
has come up with a new twist, suggesting that his own reliability is the
guarantee, plus the discreet disclosure that Fleming's Russian partners are
well-known oligarchs, like Roman Abramovich and Mikhail Fridman. Fleming and
Vekselberg (who works for Fridman) say that they have agreed to create a new
international company into which the assets of SUAL, Access Industries, and
Fleming's will be merged. "SUAL as a vertically integrated company will be
transformed into a diversified company which will also have assets in the
ferro-nickel, tantalum and coal sectors," Vekselberg said.

The announcement contemplates at least 12 months of further valuations and
negotiations to consummate the deal. If implemented, it would be the first
major international investment in Russia's high-risk, conflict-prone
nonferrous metal sector. Also, it may become either the first occasion on
which a major Russian metals group has sold down its stake to a minority; or
the first time Western mine financiers have agreed to risk significant money
for a minority stake in a Russian metals company since the gangs stopped
shooting at each other.

SUAL is Russia's second largest producer of aluminum, trailing Russian
Aluminum (Rusal). It also controls Russia's largest supply of bauxite, and
has the potential to match or exceed Rusal's alumina production. However,
SUAL has been short of the capital required to expand production to full
capacity at its Middle Timan bauxite deposit, or to build an associated
alumina refinery. The new deal, announced on Wednesday, links the assets of
Access Industries, already a major shareholder in SUAL, with Fleming's
mineral assets. It also provides a vague commitment from Fleming himself to
raise the billion-dollar Western funding that has so far eluded SUAL.

No prices, investments, or values for the deal have been disclosed.
According to Vekselberg, they have still to be decided. "Depending on the
final results of the evaluation [of assets] and the financial contribution
[from Fleming]," Vekselberg said, "Fleming will get up to 23 percent of the
shares in the new company."

Roddie Fleming said in Moscow that the new venture amounts to "the creation
of a new diversified mining company, which offers serious competition to
three major mining companies - BHP-B, Rio Tinto and Anglo American." Unlike
Vekselberg, he seemed to promise a foreign takeover of the Russian business,
promising a radical overhaul of SUAL's management. "We will develop the
corporate structure of SUAL also through inviting a large group of foreign
managers and introducing international corporate standards in operations of
the company. We expect that a new company of world class will be established
in Russia."

Among international aluminum producers, Reynolds was the last to attempt
that in an abortive mid-1990s effort to manage the sheet and foil businesses
of Rusal's predecessor, Sibirian Aluminum. Alcoa, the global aluminum
leader, then made a bid for the Bratsk aluminum smelter, Russia's largest.
But it was rejected, and Rusal's Russian shareholders took over instead. In
Moscow, FF&P sources listed its current mineral assets as including the Moa
ferro-nickel project in Cuba, which is under development with a 65 percent
Fleming stake, and a 35 percent holding by a Cuban state nickel enterprise;
and the Marropino tantalum project located in the eastern Zambezi region of
Mozambique.

Access Industries, whose controlling shareholder Len Blavatnik is a
stakeholder and board director of SUAL, proposes to contribute to the new
venture two Kazakh coalmines which it owns - Bogatyr and Severny. Access,
which operates primarily in the US, acts as SUAL's lead international
aluminum trader.