London Calling - July 9 2004

London Calling! July 9 2004

London Calling updates the Life (and fortunes) of Brian

The world's highest paid mining executive (as of 2003) has been unceremoniously shown the door by India's most ruthless minerals exploiter. Brian Gilbertson, former part-time chair of Vedanta and, before that the man who engineered the world's biggest mining merger between BHP and Billiton, is now expected to take the helm at SUAL, Russia's second biggest aluminium producer.

Vedanta's CEO, British-based non-resident Indian Anil Argarwal, gave Gilbertson the short straw on July 6th, just three weeks before the company's first annual general meeting.

Ironically, the bluff South African is being sacked for precisely the reason Agarwal invited him to Vedanta in 2003. Gilbertson is likely to be used by SUAL to promote a listing on the London Stock Exchange, just as he did successfully for the Indian company last December (and for BHPBilliton two years before). Agarwal is clearly irked that SUAL is a potential rival to his homespun outfit in the aluminium stakes.

It was barely a month ago that Vedanta launched a new rights issue to bring its disreputable Lanjigarh alumina plant on stream. The grand plan includes a large scale mine cut into a sacred hill range, and a possible smelter. Project construction has already incensed thousands of local, mainly tribal, people in eastern Orissa because of peremptory seizure of their land, destruction of their homes, and the brutal dumping of families in a corporate colony. However the float was largely ignored by investors. Vedanta then offered an equity, or product sharing stake, in Lanjigarh to some of the world's largest aluminium companies, including the two biggest (Alcoa and Alcan-Pechiney) and BHPBilliton.

Though SUAL may not have been on Vedanta's shortlist of future partners, the Russians can't have been far from Gilbertson's mind at the time. Backed by the World Bank's IFC and the European Bank for Reconstruction and Development (EBRD) SUAL has embarked on a massive four fold expansion of its 71,000 tonnes/year smelter in Arctic Murmansk; it will doubtless soon be in the market for lots more alumina.

It's a fair assumption that, with Gilbertson now in disgrace and Anil in high dudgeon, any previously-mooted tie-up between SUAL and Vedanta is as dead as the land surrounding Vedanta's copper smelter in Tamil Nadu. But who can tell? In love, war, and at the depths of shady mine financing, anything can happen. The two men are cut from the same cloth, woven out of almost equal parts of hubris and greed.

To Viktor - the spoils

Gilbertson got seven million quid when they popped the champagne over the bows of Vedanta seven months ago. To you and me this sounds a pretty package. It's small beer for Brian, however - especially when held up against the US$50 million he's said to have been offered by SUAL to bring the Russian conglomerate to the London market. But now Gilbertson faces a potentially much greater challenge. The US and UK funds which backed the "End of Knowledge" (that's "Vedanta" translated into English) were prepared to overlook Agarwal's tawdry history. Riding roughshod over trade unionists, the Indian constitution, environmental precepts and indigenous rights is readily ignored if it makes ready cash.

Investors will prove much more wary about backing a huge Russian conglomerate controlled by yet another oligarch, which has as little corporate governance as those businesses under the thumbs of men like Khodorokovsy, Fridman and Ramon Abramovich. SUAL's founder, Viktor Vekselberg, is now the third richest man in Russia (Or it it the fifth? - you can never tell with these jet setting asset-movers). How did he reach such giddy heights so quickly?

One of the steps on his ladder was the lucrative 2003 merger between British Petroleum (BP) and TNK, owned by Mikhail Fridman's Alfa group, Len Balavtnik's Access- and Vekselberg's Renova.. Two months back, the three men were involved in an unseemly scrabble to get early payment of the £3.75 billion in shares they'd acquired from BP. According to the British company, the oligarchs agreed on the shares being handed over in three instalments, and they had already received a $2.6 billion handout.

Now the troika wants the rest of the money "It is well known" commented the Russian Journal in May, "that Fridman, Vekselberg and Blavatnik, had wanted a cash-only sale." However the instalment plan was "insisted on by BP to protect it from the danger that had been revealed by BP's due diligence, and in US and other court records, alleging massive theft of oilfields by TNK, fraud, and money laundering allegations by a number of former partners in TNK through a network of corporate fronts from Liechtenstein to Panama. The leak has also triggered speculation that the Russians are afraid that the Kremlin may be getting ready to levy a substantial tax charge against them through TNK" A TNK spokesman dismissed the speculation as "hypothetical" but the Russian Journal suggested it would "[raise] questions which Fridman, Vekselberg and Blavatnik are now unwilling to answer.

This isn't the first time Vekselberg has apparently ducked issues of financial probity. Incensed creditors in 2002 demanded seizure of fabulous Fabergé eggs which Vekselberg bought for more than forty million greenbacks from Malcolm Forbes in the USA. The creditors claimed he'd siphoned off their accounts held with the Pervy Gorodskoi Bank into an off-shore company affiliated to the Moscow-based Alliance Bank, of which Vekselberg owned the major share. Viktor was accused of using some of the proceeds to cart the world's most precious eggs diamonds back to triumphant display in Moscow. At the start of July, Moscow's Interfax News Service announced that police had told it Vekselberg's Renova group was now under investigation for "premeditated bankruptcy" designed to cheating the creditors. The Russian Federal Security Service promptly denied the accusation while Vekselberg has threatened to sue for libel.

The Yukos membrane

But if Viktor considers he can get away without Fabergé egg on his face, last week he and his fellow oligarchs got a bigger shock, following the filing of a class-action suit in New York.

The charges were laid against Yukos Oil, its chief financial officer (CFO), representatives in the UK and US, the company's auditor, PriceWaterhouseCoopers (PwC) - and, of course, the now-notorious jailed Khordokosky and fellow major shareholders. Lying, swindling other investors, tax evasion, transfer pricing by setting up paper intermediaries. You name it - Yukos "aided and abetted by auditors at PriceWaterhouseCoopers (PwC)" is accused of committing it. (Equally reprehensible, one might think, is the accusation made this week by Mineweb columnist, John Helmer, that some newspapers have benefited from concealing allegations of these criminal acts from their readership. "It is thus not surprising that the Financial Times of London buried the details of the new US court claim in a single sentence" declared Helmer on July 7th).

Although Vekselberg, Abramovich and others of his ilk, aren't cited in the New York suit, Helmer optimistically claims it will put "an end to all attempts by the Russian oligarchs to cash out of their vulnerable Russian assets into UK or US-registered securities, and launder the proceeds of their Russian crimes into ostensibly clean western bank accounts, real estate, and other forms of wealth. For as everyone knows, the massive tax evasion that was practiced at Yukos has been the standard operating procedure for the building of all the Russian oil, mineral, metal and mining fortunes that have been amassed by the likes of Roman Abramovich, Oleg Deripaska, Vladimir Potanin, Victor Vekselberg, and Mikhail Fridman.

Thus, "a similar shadow" falls over negotiations by Oleg Deripaska's Russian Aluminium (Rusal) to borrow $800 million from a syndicate of international banks and "over Victor Vekselberg's plan to float his SUAL International corporation under the leadership of Brian Gilbertson, and trade its shares with those of another Johannesburg or London-listed company."

Phlegmatic English

But Vekselberg is not the only puppet-master jerking SUAL's strings. He owes a great deal to one of London's best-known, but least transparent, dynasties - Fleming Family & Partners. FF&P is headed by the Anglo-Russian banking magnate Roddy Fleming, nephew of the deceased James Bond creator, Ian Fleming. The family now holds 49% of SUAL - and quite a few other mining assets too.

As Mineweb said last year, "[W]herever you follow the [Russian] track, you're likely to come up against [FF&P]". The brothers' biggest coup at the time had been buying into the Mnogovershinnoye gold mine in Khabarovsk. "How the asset was acquired, and from whom, remains a mystery. particularly in the Khabarovsk region." said Mineweb. "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."

John Helmer of Mineweb also commented then upon the Fleming strategy: "In each case" he said "...[it] 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... 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 or Mikhail Fridman".

Once he'd added Viktor Vekelsberg to his Big Buddy list, Roddie Fleming was truly up and flying with an "audacious Russia gambit" to invest in SUAL which, according to Helmer, threatened to make FF&P a "rival to Anglo-American BHP Billiton, and Rio Tinto".

Of course that strategy will take time, and no doubt many more devious moves, to implement. However the Flemings already have plans to put into SUAL, their nickel project in Cuba, and a tantalum mine they've grabbed from Mozambique, in order to diversify its asset base.

East Enders

Who said there are no colourful London-based mining magnates after the departures of Lonrho's Tiny Rowland many moons ago, or Rio Tinto's Robert Wilson last year? (Though it's true Bob's chosen colour was often an uninspiring grey). Now there's not only the Flemings, but also Peter Hambro - another investor turned Russian resource rifler. And, of course, there's wily Mr Agarwal and his recent nemesis, the even more astute Gilbertson.

Brian's not only flown the jolly roger for the pirate barque, SS Vedanta 2003. He's also endeared himself to Lonrho's platinum-plated successor, Lonmin. Should, as seems likely, he now bat for SUAL (albeit braving storms of controversy and even litigation) he'll have the pleasure of kicking numerous balls around with the shifty Flemings. (It so happens that the chair of Fleming family and partners is John Craven, the chair of Lonmin). In June, SUAL was said by the Moscow Times to be taking aim (along with Vladimir Potanin's Norilsk) at all sorts of mineral ventures in South Africa. And, from Caprivi to the Cape, this is Brian's stamping ground par excellence.

With all that in prospect, Gilbertson won't lose much sleep over this week's breach with Agarwal. At least, Vedanta's CEO didn't chuck his digital diary at him, threatening to wipe him off the planet - as he had done two years previously when bidding farewell to another recalcitrant colleague.

There was always the prospect Brian would have simply picked it up and walked out, calmly leafing through its pages.

[Sources: Gilbertson's role in Vedanta, Lonmin, BHPBilliton: FT 6/7/2004; background to Lanjigarh: London Calling, December 2003; Vedanta seeks partners for $1bn refinery FT 9/6/2004; expansion of SUAL: Planet Ark (Reuters) 3/6/2003; TNK and BP wheeler-dealing: FT 5/4/2004; The Russia Journal 11/5/2004; eggs and fraud: Sophia Kishkovsky on TheArtNews.com, 2002; US lawsuit ends oligarchs sprint for cash: Mineweb 7/7/2004; Flemings share of SUAL: Moscow Times, 21/4/2004; Fleming's recent history: Mineweb 20/2/2003; Sual and the IFC/EBRD, Mining Journal 4/7/2003; John Craven, and FF&P in Cuba and Mozambique, FT 5/6/2004; SUAL and Norilsk in South Africa, The Moscow Times, 10/6/2004]

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