consmin chooses strange partnersin this deal

http://www.mineweb.net/mineweb/view/mineweb/en/page36?oid=19260&sn=Detail

DEALS UNDER SCRUTINY
Fiddlers under the roof – Vekselberg, Deripaska and Gilbertson
Asset claims shadow Rusal IPO and Consmin takeover bid
Author: John Helmer
Posted: Tuesday , 10 Apr 2007

MOSCOW -
With a little more bulge at the waistline, and a little more bush in his beard, Victor Vekselberg would be a dead ringer for Tevye the Milkman, hero of Fiddler on the Roof, Broadway's most famous musical about Russia. The fiddler of that tale was a symbol of survival in the rough days in Russia, before the Communist Revolution.
In the fifteen years since that revolution was reversed, starting in 1992, Vekselberg has survived especially well. You might say that Victor's theme song has taken all the conditional out of Tevye's famous refrain, If I were a Rich Man:
Lord who made the lion and the lamb
You decreed I should be what I am
Would it spoil some vast eternal plan
If I were a Wealthy Man?
But as a fiddler, according to complaints that are being tested in the courts of Russia and other jurisdictions, Vekselberg is a schemer of a different sort, allegedly converting other people's assets to make them his own. He denies this, and so does his most important lieutenant for the past two years, Brian Gilbertson. Both are about to ask the London market to believe them - Vekselberg in a main board listing of bauxite and aluminium producer, United Company Rusal; and Gilbertson in an AIM listing of the merger between manganese, chromite, nickel and iron-ore miner Consolidated Minerals (Consmin) and Pallinghurst Resources.
The allegations are also a test for JPMorgan Cazenove, which is believed to be seeking a mandate for the Rusal IPO; and which, on March 30, was formally named by Consolidated Minerals as its global broker, replacing Numis Securities.
Eleven months ago, according to one of Russia's wealth charts, Vekselberg possessed a fortune of $9.7 billion. Another wealth tracker, Forbes Russia, estimated it at $10 billion for 2006; that was double his fortune in 2005. According to Forbes also, Vekselberg occupied the 5th rung of the Russian ladder of fortune. These estimates are all based on the attributable value of Vekselberg's stakes in aluminium and bauxite producer SUAL; oil company TNK-BP; and conglomerate holding company, Renova. Vekselberg should soon be in a position to know exactly what his paper is worth, because he is selling out - converting his SUAL stake into 22% of the newly merged United Company Rusal, and then selling a sizeable share of that in a London IPO; selling his shares in TNK-BP for cash, probably to state owned oil company Rosneft; a big chunk of Renova's power stakes are also up for cash sale.
Buyers from Vekselberg, however, are obliged to ask the simple question - are the assets he's selling lawfully his? And not only buyers - Vekselberg's quondam rival, now erstwhile partner in United Company Rusal, Oleg Deripaska, is also facing similar challenges to the legality of his claim to the assets comprising his 66% stake in the new company.
A source close to them both has told Mineweb that, in their negotiations of merger terms, each agreed to give the other the following discount-premium offer: if asset claims are settled with compensation payments, then the concomitant loss of value in the merged company must be compensated. Either Vekselberg may gain shareholding at Deripaska's expense, or vice versa; or they may pay each other the money their asset troubles have caused.
There are two pending claims, one against Vekselberg, involving an alleged fraud in SUAL's takeover of the Volgograd Aluminium Plant; and one against Deripaska by his former partner and godfather, Mikhail Chernoy, over a trusteeship agreement granting Chernoy a 20% stake in the pre-merger Russian Aluminium (Rusal) company, its capital value and its dividend stream; according to Chernoy, that sums to about $5.2 billion.
The case against Vekselberg's companies has been moving through the Russian courts, and is now being prepared for filing abroad. The case against Deripaska was filed in the UK High Court last November 24. Mineweb has reported the detail of both cases before.
The case claims set out allegations and particulars, which lawyers and bankers, who have been invited to prepare the marketing of the new Rusal shares in a London listing, cannot avoid investigating, especially not if they are subject to the supervision of US Government regulators. Both Vekselberg and Deripaska concede they are in an awkward position there. Vekselberg renounced his US green card (permanent immigration visa) and limits his exposure to US court claims already pending against him, alleging fraud and theft of an oilfield. Through a spokesman, Deripaska has acknowledged being banned from entering the US for several years; a ban which UK and Australian officials have also corroborated, while they waived it for Deripaska to cross their frontiers. But the US visa he was granted between 2005 and 2006 has not been renewed. Lawyers for Deripaska in the UK have drawn up affidavits claiming he is almost never at his Belgrave Square house, or in his country home besides.
In Deripaska's case, it was his butler who may prove to be the Achilles heel, jurisdictionally speaking. Sources close to the Chernoy case say that, following the High Court filing late last year, detectives shadowing Deripaska warned process servers that he was on his way from his aircraft to his home at 5 Belgrave Square, in London. When his car pulled up, the process server made his move, and Deripaska scuttled for the tradesman's entrance of the mansion. It was the butler at the front-door who took Chernoy's writ - and he has subsequently testified that he gave it to Deripaska. The High Court will hear argument from lawyers in the case over whether Deripaska has been lawfully served, and the case may commence. If the judge rules in favour of Deripaska's butler, the lawyers go into further argument over whether Chernoy's claim to have executed his shareholding deal with Deripaska in London allows the High Court to adjudicate the dispute. When and if the case comes to trial on the merits, Deripaska will testify that the signature on the agreement with Chernoy isn't his.
Registration of offshore companies, and initial placement offers (IPOs), also expose Vekselberg and Deripaska to government regulators and courts. Announcing the intention to sell shares in the new Rusal on the London Stock Exchange is an open invitation for those who claim their assets were fiddled to apply to the UK courts to retrieve them. Deripaska may have already proved that he is fleeter on foot that his Belgravia butler, but his and Vekselberg's acquisition tactics are now catching up with them.
Brian Gilbertson, one of South Africa's best-known businessmen, says he had nothing to do with any alleged unlawful asset takeovers when he was chief executive of SUAL, the Russian aluminium company controlled by Vekselberg. What Gilbertson did, or didn't do, knew or didn't know, during his time in Russia may be a footnote, as far as the Russians are concerned. But Australian shareholders, and regulators may be much more interested, when they review this month and next Gilbertson's takeover bid for Consolidated Minerals (Consmin) of Perth.
According to public announcements that began in February, Gilbertson and a South African associate Arne Frandsen have proposed a friendly takeover by their Pallinghurst Resources of Consmin. Details of where Pallinghurst's A$300 million cash offer is coming from are scarce. Gilbertson has told Consmin he is "targeting $1 billion of equity commitments"; that doesn't sound like the money is either in Gilbertson's pocket, or in Pallinghurst's bag, at least not yet. Brisbane-based AMCI, controlled by Hans Mende, has been identified by Gilbertson as one of his backers for the Consmin takeover. Six weeks ago, AMCI sold its Australian coal assets to CVRD of Brazil for A$835 million; subtracting net debt, it appears to have A$678 million cash on hand. Some of that appears to be buying Mende a seat on the board of the post-takeover Consmin. The Western Australian media have also reported rumours that Gilbertson's bid is being backed by Vekselberg as a silent partner in Pallinghurst.
South African sources have told Mineweb they believe Gilbertson may have converted Vekselberg's promise to pay him a multi-million dollar bonus for a successful share listing for SUAL, because Gilbertson couldn't deliver on the IPO; and because Vekselberg was reluctant to concede the obligation to pay the reward. Gilbertson declines to say if he and Vekselberg have settled for a promise from Vekselberg to deliver several dozen million dollars into Pallinghurst's capital. Vekselberg's spokesman also prefers not to answer questions on the matter.
With or without Vekselberg, however, Gilbertson's credibility is the driver of Pallinghurst's takeover of Consmin; if he succeeds in creating the new company, to be listed in London and Frankfurt, Gilbertson and his associates would control it with 60% of the shares. But first the Australian, then the London market, must decide whether Vekselberg's and Gilbertson's acquisition record in Russia warrants trust.
Gilbertson's name appears as one of the alleged defendants accused by Ralco, a 17% shareholder in the Volgograd Aluminium Plant, one of the key production assets taken over by SUAL soon after Gilbertson became chief executive of SUAL in Moscow in August 2004. Ralco says it was swindled out of its shareholding stake, and the Volgograd smelter fraudulently incorporated by SUAL between 2000 and 2005. Ralco's complaint has been before the Russian courts already. Asked what had happened to the Volgograd shares, Gilbertson told Mineweb: "I am satisfied that SUAL acted lawfully during the period of my tenure as President, and as you know, we had a well-staffed legal department to ensure that that was the case."
Gilbertson's contract with SUAL began in August 2004. It ended at the start of this month, when SUAL agreed to merge with rival Russian Aluminium (Rusal), owned by magnate Oleg Deripaska. Gilbertson, who had been first choice to become chairman of the board of the new United Company Rusal, was dropped, and Vekselberg, who controls about 22% of the new company, has been named the new chairman.
For several years, Ralco has been pursuing both SUAL and Vekselberg's holding Renova through the Russian courts, alleging they contrived the takeover of the Volgograd plant, using false-front companies that have since disappeared; forgery of documents presented in the Russian courts; false testimony; and fraudulent share transactions. The Russian authorities have investigated and substantiated some of Ralco's evidence, but Russian court rulings in Ralco's favour have been impossible to pursue, because the culprit companies have disappeared, or are empty of assets. International litigation to go after the alleged culprits has been in preparation instead.
The Volgograd smelter is an important asset in the merger deal between SUAL and Rusal. That deal officially closed, according to an announcement from the two companies, on March 27. Vekselberg was quoted by Rusal last week as claiming the new company "will promote a world class corporate governance structure, enabling us to meet the highest international standards..."
First built in 1959, and upgraded since then, aluminium production from Volgograd is estimated to account for 17% of SUAL's pre-merger output. In the merged Rusal, it comprises at least 4% of metal production. At the start of 2005, Renova, Vekselberg's personal holding company, announced the takeover of the smelter by SUAL: "The process of incorporating OAO Volgograd Aluminium (VgAZ) into OAO SUAL Group has been completed," Renova's website says. "On 31 December 2004 VgAZ became a subsidiary of OAO SUAL. The incorporation of VgAZ was the final step in consolidating the aluminium assets that followed an agreement signed between SUAL Group and the management company, SevZapProm, in December 2002. Under the agreement, VgAZ and the subsidiaries of OAO Metallurg, Volkhov Aluminium and Pikalevo Alumina, were integrated into the SUAL Group production chain two years ago. In 2004 OAO SUAL was re-organised to integrate these companies. On 30 September 2004, Volkhov Aluminium and Pikalevo Alumina became subsidiaries of OAO SUAL."

"The re-organisation of OAO SUAL and integration of VgAZ was based on a decision taken at an extraordinary general meeting (EGM) of shareholders on 31 August 2004. An absolute majority at the meeting voted in favour of the incorporation of VgAZ into OAO SUAL. On 15 December 2004, an amended charter was adopted at an EGM of OAO SUAL's shareholders to reflect this re-organisation. On 31 December 2004 the Uniform State Register noted the termination of activities at VgAZ. This formal procedure finalised the consolidation of OAO SUAL Group and VgAZ, its eighth subsidiary."
That states the legal position in Russia, as Vekselberg sees it, and also Gilbertson. Ralco's position in the Russian courts has won rulings from the bench, and Ralco sees the legal position differently. This is a challenge to the plans Vekselberg and Deripaska have announced to publicly list and sell their shares in the London IPO. Investment bankers claim the new company should hit a valuation of $30 billion.
Ralco has identified Gilbertson and Vekselberg, along with two others linked to both SUAL and Renova; plus 18 companies that fall under Russian, US and UK jurisdiction.
Ralco charges that its 17% stake in the Volgograd smelter was first diluted illegally, and then taken in a regional court case far from Moscow, when debts and evidence were fabricated, and the judge misled, while Ralco was kept in the dark, and "represented" at a court hearing by an impostor paid by Ralco's attackers. Ralco estimates the value of its stake at more than $40 million, and it has the option to seek treble damages if it can prove racketeering.
A string of two Russian and one Cyprus-registered companies has also been identified as participating in the alleged scheme to convert Ralco's shares into SUAL property in the months just before Gilbertson took office, and in the following six months.
Gilbertson acknowledged in mid-2005, almost a year after he took over at SUAL, that he was aware of the Volgograd smelter case and the Ralco claims. He said he was appointing a new legal counsel at SUAL to look into the affair. Maxim Goldman took this position in July 2005.
In November 2004, after Gilbertson's engagement and following a Volgograd regional court ruling, which had invalidated the dilution of Ralco's shareholding, SUAL had said through a spokesman: "concerning Volgograd Aluminium, we are sure our partners are in the right. Beyond this, we do not wish to add anything further."
That's as kosher as Tevye the Milkman could have wished for - unless it's wishful thinking.