By John Helmer in Moscow

A bid to revive the Russian mine prospects of Toronto-listed Archangel Diamond Corporation (ADC), and head off liquidation by De Beers, failed over the weekend with the disclosure that a US and UK hedge fund operated by Elliott Management Corporation and Elliott Advisors was withdrawing its offer to buy a controlling share in ADC and clear its debts to De Beers.

An announcement by ADC, issued to the market on June 15, says: “Archangel Diamond Corporation… announces that it has received notice from the investor group under the non-binding private placement term sheet announced June 4, 2009 that the investor has determined not to proceed on the terms contemplated in that term sheet and has, therefore, terminated it.”

Despite the fact that negotiations between the investor group, De Beers and ADC have been under way for some time, ADC has not publicly identified Elliott as the bidder. This is Elliott Management Corporation, which is headquartered in New York, and was founded by a lawyer, Paul Singer, in the 1970s. The hedge fund has been reported to be managing almost $13 billion in investor funds, but the company website provides no information. A subsidiary, Elliott Advisors, based in London, has also been involved in the De Beers buyout bid.

No reason has apparently been given by Elliott for withdrawing its interest in ADC, which did not publicly confirm the offer until June 4, three days after Polished Prices.com reported it.
(more…)

by John Helmer - Monday, June 15th, 2009
No Comments »

By John Helmer in Moscow

A client alert was issued Thursday by Deutsche Bank analyst Olga Okunova, warning that even if the Mechel Group succeeds in refinancing a $1.5 billion loan, which has been overdue since March, the group faces serious cash shortage and debt service problems this year and next.

Mechel has made new information available to shareholders and banks, though not in a public news release, ahead of the scheduled annual general meeting (AGM) of shareholders on June 30. This identifies problems with creditors, who have loaned Mechel $2 billion for the purchase of fareastern coal mining assets, including Yakutugol, which the group controlled by Igor Zyuzin won at a state auction in October 5, 2007.

Mechel won the large but relatively undeveloped assets with a bid ofRb58.196 billion (then $2.3 billion), defeating Arcelor Mittal and Alrosa. Zyuzin then raised $2 billion in new loans to finance the acquisition. The money was provided in the form of a 5-year loan for $1.7 billion, secured for repayment by coal exports; and a smaller 3-year loan of $300 million, apparently secured by shares. The original lenders were ABN AMRO, BNP Paribas, Calyon, Natixis, Sumitomo Mitsui Banking Corporation Europe Limited, Société Générale Corporate & Investment Banking, and Commerzbank Aktiengesellschaft. Sumitomo had already been identified as a financial backer for Mechel to expand its coal output, and exports to Japan, from the Yakut coalfields. The assets included the issued share capital of Yakutugol (75% of the statutory issued share capital minus one share), Elgaugol (68.86% of the statutory issued share capital), and the real estate complex of a railway and a road from the Zeysk Railway Station (Far Eastern Railway) in Zeysk to the Elga coal deposits.

It appears from the latest Deutsche Bank report that the five-year term of the loan, requiring repayment in 2012, was foreclosed by the banks, because of loan covenant breaches by Mechel that have not been disclosed before.
(more…)

by Editor - Friday, June 12th, 2009
No Comments »

By John Helmer in Moscow

Russia’sconsumer protection service has issued a ban on imports of milk and dairy products from Belarus. Although the reason given publicly appears to apply to imports from the Ukraine, Lithuania, and Latvia, their milk trade has so far not been interrupted. This has encouraged speculation that the Kremlin is using the milk bottle to strike at Belarus President, Alexander Lukashenko.

TheRussian dairy product import market is worth about $6 billion per year, Moscow agriprod experts say; Belarus holds the largest share of about one-third, while Finland, New Zealand, Germany, and other European sources account for the remainder. Virtually all of Belarus’s milk exports go to Russia, so the sudden cutoff, which started Saturday and widened on Tuesday, is financially costly to the government in Minsk.

The head of Rospoterbnadzor (RPN), Gennady Onishchenko, claims the problem is that Belarus has failed to update the product information required by six-month old Russian package disclosure regulations. But his spokesman refuses to explain why non-compliance by other Baltic state exporters has not been hit with bans. A publication by RPN on May 29, reporting on package check for domestic dairy products, as well as imports, found that five Russian regions had no packaging that met the new rules, while 13 regions were reporting less than 50% compliance. Even in Moscow, the RPN report suggests, one product package in five being sold lacked the right information labels.
(more…)

by John Helmer - Wednesday, June 10th, 2009
No Comments »

By John Helmer

At a hearing on June 9, the Australian Federal Court issued filing deadlines, and ordered a hearing date in August for adjudication of the clash between manganese miners, OM Holdings (OMH) of Singapore and Stratford Sun Ltd, a unit of Consolidated Minerals. It is the first skirmish over the tactics OMH has been employing to preserve current shareholder control in what is increasingly viewed as a test of strength in the global manganese market that supplies China’s steelmills.

China rules the world of steel — biggest producer, biggest consumer, and until this year, biggest exporter. Manganese is vital to steel production, because it is an alloy that hardens the metal for most industrial applications. So China also rules the world of manganese, which is concentrated in Australia and two southern African countries; and also the price of manganese; and thus, the share price of the manganese mining companies.

But if a China-linked, publicly listed manganese company — one of the only pure manganese miners in the world — wants to block buyers of its shares in the marketplace from buying, and shareholders from holding the management to account, can anyone lift the bamboo curtain, and oblige the company to follow the market governance rules? For the first time, that’s a question for the Australian Federal Court to decide.

More importantly, the action, which commenced hearing this week in the Perth division of the court, is a curtain-raiser on an even larger play — this one is about how the world of manganese is being prepared for a redistribution of shareholding ownership and control, in which big actors, like BHP Billiton, Australia’s most powerful enterprise, are contemplating their exit, while challengers from all over the mining world calculate their opportunity to move in. Because the price of manganese is so volatile, the potential in a new carve-up of global manganese is high risk, but also high profit. But for the dominant Chinese steelmakers, volatility and unpredictability for inputs like manganese should be curbed, if possible. So, will the Chinese act directly to buy up manganese miners now, while they are relatively cheap? Or will they act indirectly, having regard for the way the direct approach to buying resource companies can trigger popular backlash and political resistance in countries like Australia, South Africa, the US, or Russia?
(more…)

by John Helmer - Tuesday, June 9th, 2009
No Comments »

Alrosa has issued the following statement, dated June 8, through a Russian internet publication, www.rough-polished.com:

“ALROSA intends to bring a case before the Court of the United Kingdom claiming damage to the company’s commercial interests due to the publications by John Helmer posted on the PolishedPrices website. The Russian diamond mining company has already engaged the Mezhregion Bar Association to prepare this lawsuit.

As ALROSA informed rough-polished.com, the company “believes that publishing materials on would-be changes in its management with reference to some unnamed sources is directly damaging the company’s commercial interests while ALROSA is concluding long-term contracts.”

“Indeed, the company’s important customers had anything but simple experience interacting with ALROSA, when the rules and principles of mutual relationship were not transparent providing enough grounds for all kind of rumours,” ALROSA stressed.
(more…)

by John Helmer - Tuesday, June 9th, 2009
No Comments »

By John Helmer in Moscow

A new ratings report by Fitch has declared Alrosa, the state-owned Russian diamond miner, to be twice as profitable — as measured by Ebitda margin — than global leader, De Beers.

Alrosa doesn’t issue production figures for its mines by carat, but claims a 25% share of global diamond mine output by value. Diamond sales in 2008 have been reported at $2.8 billion. Anglo American, a part-owner of De Beers, reports that the latter produced last year about 48 million carats, and holds a 40% global mine market share. De Beers’s sales in 2008 were $6.9 billion.

According to the report issued by Fitch on May 21, Alrosa’s advantages include its lower rouble cost structure and state financial backing. “The company’s EBITDA margin is 30%, on average, ” according to Fitch analyst Sergei Grishunin, “which exceeds the EBITDA margin of market leader De Beers, which had an EBITDA margin of 17% in 2008 and 2007.”

According to Grishunin, the value of the Kremlin’s financial support for Alrosa this year will include Rb45 billion in procurement of rough diamonds for the state stockpile agency Gokhran in the first half of the year; and Rb44 billion in financing from the state VTB Bank for covering some of Alrosa’s maturing obligations to foreign lenders. At the current exchange rate, these inputs are worth $1.5 billion and $1.4 billion, respectively.
(more…)

by John Helmer - Monday, June 8th, 2009
No Comments »

By John Helmer in Moscow

There wasn’t much that the two Steptoes could ever agree on in the near-50 year old English comedy series about the scrap business — except that they would have sold out, if anyone was buying.

There is nothing at all comical about the Rashnikov family. But now brother Victor has managed to arrange the sale of his and his brother Sergey’s scrap business, one of the largest in Russia. The buyer, you might say without joking, is in the family.

Magnitogorsk Metallurgical company (MMK), operator of Russia’s largest steelmill, has reported this week that it has “acquired 99.99% of ZAO Profit – the largest metal scrap collector and processor in Russia. The acquisition of the strategic raw material supplier will significantly strengthen MMK security in terms of raw materials supplies.” The deal is reported to have been agreed at a board of directors meeting two weeks ago, on May 20.

The company announcement discloses that Profit’s financial results from scrap trading will be consolidated in MMK’s international accounting standards reports from the second half of 2009. Profit is also reported as supplying 75% of the ferrous scrap volume of about 5 million tonnes per annum, required by MMK.

The announcement omits to disclose the seller, or the transaction price.
(more…)

by John Helmer - Friday, June 5th, 2009
No Comments »

By John Helmer in Moscow

The Russian government and the association representing Russian grain exporters in Moscow appear to have backed down from claims that Egypt wrongfully seized several cargoes of Russian wheat last month.

Until now, the public position, according to Arkady Zlochevsky, spokesman for the Russian Grain Union, was that Egyptian claims to have found weevil infestation in 137,000 tonnes of grain arrested at the ports of Safaga and Damietta, were false. He told Fairplay the affair was an attempt “at internal political manipulation in Egyptian government circles.” He added that Russian grain traders believed the seizures were a form of pressure to lower the Russian price at state grain tenders; and a bid by the Egyptian industry to reallocate shares in their market in favour of domestic or foreign rivals.

Russia provides about one-quarter of Egypt’s annual grain imports, more than double the next largest exporter, India. This year, Moscow has been planning to ship 3 million tonnes of grain to Egypt. But there is acute pressure on the Russian state stocking agency to move the grain out of silos and into the export trade, because this year’s new harvest is expected to be another bumper one.

Last year’s crop totaled 108 million tonnes, a 15-year record. And unless room is quickly cleared in the silos this month, there will be no room to store the incoming crop. Forced and discounted selling is inevitable. This dynamic has convinced some importing countries to defer their purchases until the exporters cut their prices.
(more…)

by John Helmer - Thursday, June 4th, 2009
No Comments »

By John Helmer in Moscow

You don’t have to be a child with an especially good memory to remember this one, which is pre-Mother Goose:

Jack Sprat could eat no fat.
His wife could eat no lean.
And so between them both, you see,
They licked the platter clean.

What four hundred years of nurses, mothers, and cooks have done to twist the meaning shouldn’t obscure the original moral of the tale – when it comes to appetite, rapacity will usually clear the plate ahead of modesty.

What attorneys for a Canadian shareholder in High River Gold (HRG:CN) have told stock market regulators in Vancouver and Toronto recently is that, when it comes to the management of the company and its share price by its Russian owner, Alexei Mordashov, there’s something decidedly unbalanced about the way HRG has been handled since Mordashov’s takeover of last November.

HRG is a Toronto-listed junior with four operating gold mines in Russia and Burkina Faso, and two mine projects in development. It has currently attributable production of about 300,000 ounces per annum, and is cashflow positive. Attributable gold reserves were estimated in February by Dan Hrushewsky, HRG’s investment relations director, at 2.2 million oz, with silver reserves at 5.2 million oz. A subsequent release from the company on March 17 reported a MICON expert audit of gold reserves at the Zun-Holba and Irokinda mines (Buryat region of southeastern Siberia). Altogether, counting the Bissa gold project in Burkino Faso and the Prognoz silver project (Sakha region of fareastern Siberia), and converting silver reserves into gold equivalent, HRG’s gold equivalent reserves and resources, on the Canadian NI 43-101 basis, add up to 6.1 million oz.
(more…)

by John Helmer - Tuesday, June 2nd, 2009
No Comments »

By John Helmer in Moscow

De Beers has agreed to sell its controlling stake in Archangel Diamond Corporation (ADC) to a North American investment fund which aims to intensify the litigation campaign in the US and Europe against LUKoil and Archangelskgeoldobycha (AGD), the two Russian companies charged with raiding the Grib diamond pipe.

At a board session on Friday, a bid by De Beers to call in a $10 million loan, and put ADC into liquidation, was topped by an offer to repay the loan, ADC’s remaining creditors, and conserve the company and its minority shareholders. Had the liquidation plan gone ahead, the latter would have lost everything.

ADC has yet to make an announcement, identifying who has made the offer which the board has accepted, or the terms. It is believed the offer comes from a lawyer-managed US fund, which is well-known as an investor in high-value litigations, with a strong record of winning large settlements for the cases it has taken on.

At this point, the fund appears to be paying about $14 million to clear ADC’s debts, and committing itself to a litigation budget of another $10 million, in order to pursue claims against the Russians of $4.8 billion; this sum includes $30 million in ADC’s direct investment in the exploration and testing of the Grib pipe; $400 million in lost profits according to ADC’s 40% stake in the halted mining venture; $800 million in profits lost from other diamond pipes within the Verkhotina-area exploration and mining licence; and $3.6 billion in triple punitive damages under the Colorado state racketeering statute.

The most recent De Beers valuation of the Grib pipe, based on early 2008 diamond prices, puts the project’s mineable value between $8 and $10 billion.
(more…)

by John Helmer - Monday, June 1st, 2009
No Comments »