- Dances With Bears - https://johnhelmer.org -

RUSSIAN BULLDOGS UNDER THE URANIUM RUG

By John Helmer in Moscow

Can outsiders like Rio Tinto see who commands, who follows, in Russian uranium sector planning?

It was Winston Churchill who once epitomized what he didn’t know of Russians, and what he didn’t like, by describing them as bulldogs fighting under a rug.

In the Russian uranium business, the rug has been pulled so tightly, it has proved difficult to count the dogs involved, let alone identify them by name or authority. It’s one reason why the South African government, plus major international uranium miners like BHP Billiton, Rio Tinto, and Cameco, have found themselves in negotiations for uranium projects with the Russians — without being confident of who among them has the power to follow up their intentions, and implement their undertakings.

In the case of Rio Tinto, the problem appears to have been compounded by fierce internal divisions among Rio executives ambitious to make deals, but reluctant to share the limited intelligence they have with their own colleagues. Here it seems to have been a case of bulldogs on rugs barking at bulldogs under rugs.

On October 4, the Kremlin did a little unexpected rug-lifting and bulldog-counting, introducing to the State Duma (parliament) another draft of legislation to create the Rosatom state shareholding corporation. This bill, following on a draft almost a year old, transforms and incorporates the federal government ministry known as Federal Atomic Energy Agency, also known as Rosatom. Though long expected, and much discussed, there is still no published text of the new bill; enactment is unlikely to be complete before next January, and if this year’s infighting provides a clue, not until after the presidential election due next March.

Before the corporation can take legal form, however, it seems clear that its chief executive will be Sergei Kirienko, the ex-prime minister who has been serving as head of Rosatom the bureaucracy. Watching him as chairman of the board will be Sergei Sobyanin, the current chief of the presidential staff in the Kremlin; Sobyanin has also been serving as chairman of the state-owned uranium processor, TVEL Corporation, one of the constituent elements of the Russian uranium administration.

Kirienko, an expert at rug-pulling, was the Boris Yeltsin-appointed prime minister, who presided over the collapse of the rouble in August 1998, when the Russian treasury defaulted on its bonds, and a group of powerful commercial bankers lost rigged bets on the rouble exchange rate, closing their doors against their depositors. Kirienko then departed on an extended vacation to Australia, where, not long before, it has been reported, the proceeds of an emergency, multi-billion dollar loan from the International Monetary Fund to the Yeltsin treasury had mysteriously passed through the Australian banking system on their way to somewhere else.

Rosatom Inc. is likely to be vested with 100% of the shares of Atomenergoprom (“Atomic Energy Industry”), also known as Rosatomprom, consolidating uranium mines, ore-enrichment plants, nuclear fuel production and exports, and nuclear power reactors into a muscular state champion. But after a year of drafting and dithering, it is still unclear exactly how the holding will consolidate Russia’s four uranium mines and concentrators; two chemical plants; TVEL, the monopoly producer of nuclear fuel; and Tenex, the exporter of nuclear fuel cycle products and services. Nor have the final decisions been put into legislative form to settle how much autonomy for share sales, borrowings, securitization, and foreign uranium dealings the constituent units of the holding will be allowed.

Like the recently founded state corporations Rosnanotech, Russian Technologies and VEB Development Bank, Rosatom will be directly subordinate to the government, but also financially independent. The corporation will be responsible for atomic energy generation, plus nuclear defense and scientific research. Weaponry, research and some safety measures will be financed by the federal budget. Other capital requirements will be commercialized. What shareholdings of Rosatom, or of the constituent units, may be privatized has not been decided yet. Nor is it clear how the Unified Uranium Mining Company (UUMC), consolidating the state’s uranium mines by government decree and preliminary legislation, will function within the new structure.

UUMC is the seventh largest holder of uranium ore reserves in the world, trailing Australia, Kazakhstan, US, Canada, South Africa, and Brazil. TVEL is the third largest producer of nuclear fuel, after Areva of France and British Nuclear Fuel.

On account of the protracted delay in legislative enactments and presidential signatures, Kirienko and his internal rivals, the bosses of TVEL, Tenex, and UUMC, have been attempting to lay down their own markers for financial and operational autonomy. Tenex has been signing joint-venture exploration or concentrate processing deals with Mitsui, BHP Billiton, Rio Tinto, Cameco, and others.

The drive by Tenex to find new uranium to mine at home and abroad (Kazakhstan, South Africa, Namibia, and Canada) stems, in part, from the desire to take the domestic lead within the nuclear industry complex vis-a-vis TVEL and UUMC; and also from the imperative, issued by the Kremlin, to find new sources of uranium ore to meet ambitious long-term plans for increasing nuclear reactor capacity. Last year, the federal government set a target of increasing nuclear power generation in the country from 15% of total energy supplies at present to 25%, driven by the construction of some 40 new reactors.

If these state bulldogs have yet to resolve their fights over mandates and authority, the Russian oligarchs with interests in energy and power are also engaged in their own under-the-rug deals. They want to capture long-term stakes in new reactors for discount-price energy supplies to their smelters. So far, Tenex has announced memoranda of understanding with Victor Vekselberg, minority shareholder in the aluminium holding, UC Rusal, whose other interests are grouped in the Renova holding.

In February, Tenex reached an agreement providing that the Namibian government will issue uranium mining licences to Vneshtorgbank (VTB), a Russian state bank, and Renova. These are located in the Erongo area, north of Rio Tinto’s Rossing mine. If the prospecting turns into a mine plan, the two Russian companies will form a joint venture with Tenex and with the Namibian government.

Exactly why Renova, with no experience in mining uranium and no record of spending any cash in Africa, should be needed in such a venture is unclear. Still, it seems Vekselberg has persuaded Kirienko that he has a role to play, and that Kirienko is amenable for his own reasons. According to a Tenex source, “uranium in Africa is always connected with other types of metals, like gold. So Tenex is not interested in mining there by itself, and does not have its own licenses. But Renova could go there for what they need and get uranium as the by-product. That’s when Tenex will perform in the JV with its technologies and knowledge base.” Tenex says it has also signed a separate understanding with Renova to pursue uranium exploration opportunities in South Africa, in association with Harmony. About that, Harmony is making no comment.

Most recently, there has been talk that Alisher Usmanov, an oligarch-sized figure with interests in steelmaking and iron-ore mines, has been pursuing uranium opportunities across the Russian border. According to a source close to Tenex, Usmanov has shown interest in uranium assets in Mongolia. OIther gossip suggested he has been looking in Kazakhstan, offering to be helpful to international miners.

But Usmanov queered his pitch in Kazakhstan two years ago, attermpting to draw a local iron-ore mine into an alliance that would first cut off supplies to Russian steelmill Magnitogorsk; redirect the concentrates at higher price to China; pick up additional iron-ore mines in Ukraine; and maybe even challenge Magnitogorsk’s owner, Victor Rashnikov, for control of his mill company. The scheme blew up, badly burning Usmanov, and reinforcing Rashnikov’s position with the authorities of both Kazakhstan and Russia.

It is “nonsense”, according to Tenex, that a major international uranium miner would think of allying with Usmanov to pursue uranium licences in Kazakhstan. But apparently quite sensible for Tenex to sign on with Usmanov’s partner, Vassily Anisimov, and agree to mine the Budenovsky uranium deposit in Kazakhstan through a Netherlands-registered company, in which Usmanov may be a silent shareholder. A year ago, in October 2006, Tenex disclosed that it had created the Akbastau joint venture, with the target of mining 3,000 tonnes of uranium concentgrate by 2015, 6,000 tonnes by 2010. reserves at Budenovsky are estimated at 280,000 tonnes. Tenex reports that it holds a stake in the JV of 25% plus one share; the Kazakh state through Kazatomprom, 50%; and 25% minus one share held by Effective Energy (Netherlands). Tenex is committed to buying all the output of the new mine.

Anisimov has publicly admitted he is a shareholder in Effective Energy. It is not clear whether he is the only one. It is even less clear why Tenex needs a commercial go-between in Kazakhstan, like Anisimov or Usmanov, any more than Vekselberg is required in southern Africa. Initial studies of the Budenovsky project indicate a capital requirement for mine start-up of up to $150 million. The share of this likely to be sought from Effective Energy would be $37.5 million. In relation to the bankability of Budenovsky itself, and the creditworthiness of Kazatomprom and Tenex, this money is too small to be useful.

So what is the role of private entrepreneurs in the new round of Russian uranian mining deals? No-one in Moscow will say. The rug over those bulldogs isn’t budging.