MOSCOW (Mineweb.com) – The official debut in Moscow this week of Brian Gilbertson as the new chief executive officer of SUAL International is the third swallow to fly.
The first was Ian Cockerill’s Moscow round with Vladimir Potanin in April, following Norilsk Nickel’s purchase of a 20% stake in Gold Fields, with the promise of acquiring more. The second was AngloGold Ashanti’s purchase in June of a 29% stake (plus a 51% earn-in right) in Trans Siberian Gold, the London-listed junior with gold properties in Krasnoyarsk and Kamchatka regions. Are these the swallows that signal the unprecedented summer alliance of South African miners with Russia’s mining industry? Or are they the birds that have flown the South African coop?
Gilbertson, the well-known SA executive who built his reputation as an international dealmaker at Billiton and then BHP BiIitton before moving to London in 2003 to chair the Indian miner Vedanta and provide consulting advice to Lonmln, has been quietly working on SUAL’s behalf for some time.
SUAL International, the international arm of Russian aluminium, alumina and bauxite producer, Siberian Ural Aluminum, is controlled by Victor Vekselberg, one of Russia’s most-powerful businessmen. Gilbertiton replaces fellow South African Chris Nerval, who had been CEO of SUAL International since vekselberg launched the new company in January 2003, along with partner Roddie Fleming, head of the London-based Fleming Family & Partners (FF&P). “SUAL as a vertically-integrated aluminum company will be transformed into a diversified company which will also have assets in the ferro-nickel, tantalum and coal sectors,” Vekselberg said at the time. International banking sources believe that Nerval accomplished little to attract either assets or investors to hit the $3-bn in capital targeted at the time of the launch of the Vekselberg vehicle. The sources are divided in their opinion of whether Gilbertson will prove to be more successful.
SA sources claim Gilbertson has already begun deal-making talks on vekselberg’s behalf, introducing him to Anglo American and to Lonmin several months ago. The latter is reportedly one of several merger or reverse-listing options Vekselberg is pursuing as he, like other Russian oligarchs, seeks international protection for hisbRussian assets and dividend income, in the wake of the Kremlin’s assault on the oligarchs at home. Vekselberg himself visited Johannesburg in February at the invitation of the SA foreign ministry; his spokesman, Bill Spears, declines to identify the business contacts he made. The company has acknowledged that Vekselberg has set up an SA branch of one of his companies, Renova, in an effort to develop black empowerment deals and to secure support in Pretoria. As Mineweb has already reported, Potanin is pursuing a similar SA strategy with a Russian cutout, based in Johannesburg, named Andrei Dubina.
Gilbertson will be based in Moscow. His appointment to SUAL follows a controversy in July with Vedanta, which removed him as board chairman after accusing him of a conflict of interest in his dealings with SUAL. “According to the international practice of corporate management, SUAL actively involves highly-skilled experts having big international experience if it does not contradict the standard rules of business,” SUAL’s spokesman Alexei Prokhorov was quoted as telling Moscow newspaper Vedomosti, when Vedanta’s concerns about Gilbertson’s link to SUAL first surfaced.
Gilbertson is the newest and most prominent of the non-Russians, who have been engaged to manage the oligarch-controlled companies, sit on their boards of directors, direct their legal and accounting departments, negotiate their borrowings, plan their mergers and acquisitions, or persuade investors to buy their shares and bonds. But can he and the others feel financially secure in managing Russian operations whose internecine complexity requires forensic skills that are way beyond their ken? In Gilbertson’s case, since SUAL apparently has not obtained – or will not acknowledge – directors’ and officers’ liability insurance cover for him, he may be directly and personally at risk of investoNifigation claims. What western executive would risk his reputation and personal fortune in taking a position in these enterprises that would expose them to the type of liability claims now filed against Russian oil company Yukos, its shareholders, American executives, and auditors? What insurance company would write a policy to protect Gilbertson in the event of a lawsuit against Vekselberg in future?
For starters, Gilbertson’s new job will oblige him to assess whether Vekselberg is powerful enough to secure the government backing in Moscow, without which there will be nothing Gilbertson’s offshore strategy can accomplish. For Gilbertson to be able to do that – and in the process second-guess his own employer – will require him to recruit two key allies in the Russian government – the new Minister of Natural Resources, Yury Truеtnev, and the Kremlin’s advisor on mining policy, Vladimir Litvinenko.
Trutnev signaled last week that he might be willing, in a campaign of press statements and newspaper leaks, he declared his independence of Litvinenko, whose official title is Rector of the St.Petersburg State Mining Institute. Trutnev was appointed to his ministerial post in March; he had been serving as the governor of Perm; in his early career he had an oilfield engineering background.
According to Moscow press reports, and statements by Trutnev, his ministry is proposing three new measures for adoption by the State Duma. The first is a limitation on the rights of foreign mining companies to bid for Russian mineral deposits. The second is the takeover by the federal government of the two-key system for licensing mineral and oil deposits, eliminating the role of the regional governments; and a new territorial limit of no more than 100 square kilometres for exploration permits for mineral deposits; territorial restrictions for onshore and offshore oil tracts have also been proposed.
A draft of these measures has leaked from the ministry, following a public statement by Trutnev of his intentions. Trutnev’s proposals stop short, however, of banning foreign companies from certain mineral or oilfield deposits that were well defined in the Soviet period, a position which Litvinenko has taken regarding Sukhoi Log, Russia’s largest unmined goldfield in the Irkutsk region. Litvinenko told Mineweb in January that Sukhoi Log‘s a “considerable deposit with a complicated geological structure. Preference should be given to domestic companies. Only in the absence of domestic contenders, foreign investors should be invited on the same conditions as the Russian contenders”. In public Trutnev said recently that “although there are situations when the state should protect the national interests in sphere of natural resources usage, such situations should not be resolved by administrative methods, and should be necessarily registered in the law,” The small print of Trutnev’s proposal would allow foreign miners to bid for Sukhoi Log, so long as they register Russian subsidiaries to do so.
In practical terms, Trutnev’s position favours Highland Gold, a London-registered gold miner, with Barrick Gold of Canada, as a minority shareholder; and Trans Siberian Gold, another London-listed junior with powerful South African AngloGold Ashanti as its partner. Trutnev’s measure would also favour the oligarchs, Potanin and Vekselberg, signaling his approval of their potential foreign listings through Gold Fields and perhaps, in Gilbertson’s case, Lonmin.
Litvinenko’s position is hostile towards the oligarchs. Calling for the adoption of a mineral and mining code “on the model of developed countries with a market economy”, Litvinenko told Mineweb in January that he favours limiting foreign investment to the processing segment of the resource sector. As for mining, he said he backs “a system of privileges and preferences for the domestic companies. He also said that he is opposed to allowing foreign investors to take shareholding control of Russian mining enterprises. Sale of shares outside Russia can be allowed, Litvinenko said, but control should be vested in a “golden share” held by the Russian government. Applying this limit on divestment by the Russian oligarchs was urgent, he said, in the cases of “Gazprom, United Energy Systems, important petroleum companies, Norilsk Nickel, and many other companies.”
Litvinenko – believed by western miners in Moscow to be much more powerful behind the scenes than Trutnev – has also been pressing for a tougher approach to the award of mining licences and to policing licence compliance. On this point Trutnev appears to agree. But Litvinenko declined to say this week whether he backs Trutnev’s proposal to allow foreign miners to register local Russian subsidiaries to qualify for Soviet in their place.
Albert Avetikov, spokesman for Polymetal, Russia’s second-ranked gold miner, recognizes Trutnev’s proposal for what it is. The new concept of the natural resources law,” he told Mineweb, “is not limiting foreign companies to participate in domestic licences, It wilt just allow for government to exercise control a Iittle better,”
Norilsk Nikel, Russia’s largest mining company and largest gold miner, told Mineweb through spokesman Elena Sherbinina: “the company did not gave me a straightforward position towards the draft law. Currently, I cannot comment, Yevgenia Komfeva, spokesman for Urals Mining and Metallurgy, the second-ranked copper producer after Norilsk Nickel, dismissed the reported controversies in the press by noting that “the law will start to work not earlier than the spring of 2005, according to Trutnev’s words, and so it is too early to draw any conclusions. Until then a lot of what has already been announced could be changed or reversed.”
Trutnev’s spokesman Nadezhda Kleymenova responded: “It is too early to discuss the draft of the law at this stage, and so I will not comment now. The press is too sensitive to all changes in the law. We are working and trying to create the best conditions for Russian companies to work; and also to remember that we are an open market, and must do everything on the basis of equality.” When Gilbertson picks up the telephone on his brand-new Russian desk, he will be testing just how much equality Vekselberg’s fortune will buy him.