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Metalloinvest

Metalloinvest
Based in Moscow, Cyprus, British Virgin Islands
Active in Russia, Chile, Papua New Guinea
Targeted base metals, deep sea minerals, copper, precious metals, gold

Metalloinvest, a massive Russian conglomerate built on iron ore is majority-owned by Russian billionaire, Alisher Usmanov (see also Gallagher Holdings Ltd).

It's not only the country's largest iron-ore miner, but also (as of June 2012) owned 4% of Norilsk Nickel, the world's largest nickel and palladium miner (See: Oleg Deripaska).

In 2010, Usmanov was the third richest Russian oligarch [FT 14 February 2011]. By Spring 2012, his personal wealth had climbed to £12.3 billion. This was, according to Forbes' magazine (April 2012),"easily the biggest increase of anyone on the [Forbes] Rich List".

(Nontheless, six months later, according to The Guardian, Viktor Vekselberg had pipped Usmanov to the post as Russia's richest individual).

Usmanov’s portfolio of business interests now includes timber, telecoms and internet companies. In August 2012, Metalloinvest signed a 270 million euro (US$340 million) contract with Siemens AG and Midrex Technologies Inc. for the expansion of hot briquetted iron output in Russia.

The three companies intend to increase production at the Lebedinsky mine in Central Russia by constructing a new 1.8 million metric ton-capacity plant - "the world’s largest", according to a joint statement [Bloomberg, 3 August 2012].

Just over a month later, Metalloinvest's first-half net profit almost tripled (to US1.31 billion), mainly due to the sale of its transportation business, Metalloinvesttrans, to the Russian freight operator Globaltrans [Reuters 28 September 2012].

Although Metalloinvest planned to go public in 2008, most likely with a listing on the London Stock Exchange, Usmanov cancelled the plan due to the financial crisis. And it's still tryng to reduce its debt burden, which rose 38 percent by the end of June 2012, to $6.12 billion - which the company ascribed primarily to "the plunge in iron ore and steel prices during the first six months of 2012." [Reuters ibid].

In order partly to reduce its indebtedness, in February 2008 Metalloinvest submitted a proposal (believed to have been put together by Dresdner Kleinwort) to merge with Norilsk Nickel. [MJ 29 February 2008]

A year later, Usmanov again proposed a tie-up between Metalloinvest and Norilsk Nickel, in order to make him the largest shareholder (at 37%) in a merged giant ferrous metals company which could have become the world’s largest of its kind. Under the proposal, Metalloinvest's 75% share of its huge Udokan copper deposit would also go towards the combine, and the Russian government would hold a minimum stake of 25% [Reuters, 2 February 2009].

In April 2008, Metalloinvest acquired shares from its subsidiary Gazmetall (qv) “for investment purposes only” in the leading sea bed copper and gold “massive sulphide deposits” exploration company Nautilus Minerals Inc [Gazmetall statement, 20 August 2008] which is operating offshore of Papua New Guinea.

It did this through its wholly-owned Metalloinvest subsidiary, Epion, which then held 22.4% of Nautilus. [Hemscott 14 February 2009].This was reduced to 21% the following year [Marketwire 7 September 2010]. (Nautilus is registered on the LSE AIM and TSX; its other major shareholders are Teck Cominco Ltd and Anglo American plc).

In July that year, Metalloinvest Holding Co completed a US$585 million payment for its now wholly-owned Udokan copper-silver project in eastern Siberia [MJ 2 October 2010].

In October 2010, Usmanov was said to be in talks with Japan's Mitsui conglomerate, prior to the planned listing of Metalloinvest on the London Stock Exchange in 2011.If the deal had been successful, Mitsui would not only have acquired a significant share of the Russian mining giant - and rights to market its output in Asia - but also significantly increased the "benchmark" value of Usmanov's outfit - potentially increasing this to US$30 billion, and placing the company instantly among the FTSE Top 100.

For this putative transaction, Usmanov was advised by Merrill Lynch and Mitsui by Lazard Asset Management LLC [The Independent, 24 October 2010].

Mr Usmanov's fondness for a presence in London is mirrored not only by his eagerness for a London Stock Exchange listing.

Through his "Red and White Holdings" investment vehicle he is also a 30% shareholder in north London's legendary Arsenal Football Club (US businessman Stanley Kroenke owns around two-thirds of the club) [CityAM, 28 September 2012).

In November 2010, Metalloinvest signed an agreement with Shanghai Baosteel Group Corp - the world's second biggest steel producer - to supply the latter with 2 million tonnes of iron ore and pellets during 2011 [MJ 26 November 2010].

Metalloinvest's most promising new project is almost certainly the Udokan copper mine in Transbaikal territory, where its huge deposit is been prospected through its subsidiary, Baikal Mining Company LLC [MJ 26 August 2011].

In late 2011, the company announced that this project contains probable reserves estimated at 795 million tonnes of copper [MJ 2 December 2011].

In late March 2012, Usmanov announced that Metalloinvest's "debut non-convertible interest-bearing bonds", worth US$508 million, had been "oversubscribed" [MJ 23 March 2012].

Two months later, Baikal Mining Company LLC was granted a US$300 loan by Russian state development bank, VEB, to develop the Udokan mine [MJ 18 May 2012].

Among Usmanov's other holdings is his telecoms group, Megafon [CityAM 19 November 2012].

On 30 April 2013,Bloomberg reported that Usmanov, had "moved control of most of his $20 billion fortune last year to a holding company based in the British Virgin Islands...The company, USM Holdings, controls the billionaire’s most valuable asset, Metalloinvest Holding Co., Russia’s largest iron ore producer, through two Cyprus-based subsidiaries, USM Steel & Mining Group Ltd and USM Investments Ltd, according to Metalloinvest’s annual report".

Bloomberg also stated that Usmanov had "bet big on Apple, investing $100 million on a rebound of the company’s stock".

Added Valery Tutykhin, an attorney with John Tiner & Partners, a Geneva-based law firm, specialising in wealth management: “Offshores are the main tool for Russian businessmen to protect their assets from state authorities, rivals and all kinds of raiders.” Commented Bloomberg: "All of Russia’s 20 richest people -- who have a combined net worth of more than $227 billion...control a portion of their fortune through holding companies registered outside of their home country.

"The billionaires, most of whom built their fortunes during the violent and unpredictable post-communist economic environment, use the entities to manage, preserve and conceal their wealth -- a tactic that has drawn the ire of Russian President Vladimir Putin" [Bloomberg 30 April 2013].

Usmanov told Bloomberg that:“The formation of a single holding company enables us to optimize business processes, enhance the efficiency of managing subsidiary companies, and provide more opportunities to access international capital markets” [Bloomberg ibid].

Artem Toropov, a senior associate at Goltsblat added that: "Cyprus-based entities allow [the oligarchs] to benefit from lower tax rates available under the double-tax avoidance treaty signed by the Mediterranean island nation and Russia in 1998. Cyprus also caps taxation of dividends paid from Russia at 5 percent and allows tax-free cash transfers to the British Virgin Islands" [Bloomberg ibid}.

Commented Bloomsberg: "[This] also allows [Usmanov] and his associates, Ardavan Farhad Moshiri and Vladimir Skoch, to whom longtime Usmanov partner Andrey Skoch transferred the assets, to pay less tax and avoid the Russian legal system".

Steven Philippsohn, a senior partner at PCB Litigation, a London-based firm that helps banks track offshore assets held by Russians, points to the British Virgin Islands (BVI) as an equally attractive destination to Cyprus, for the oligarchs money, "because they find [the British Virgin islands]' legal system, which is based on British law, more attractive than their own" [Bloomberg ibid.

And, according to Andrey Goltsblat, managing partner of Moscow-based Goltsblat BLP, the Russian practice of the international law firm Berwin Leighton Paisner: “The Russia-Cyprus-BVI structure is the most attractive form of holding company” [Bloomberg ibid].

By July 2014, Metalloinvest Holding (Cyprus) Ltd had become the largest single shareholder (28%) in Nautilus Minerals (see above) which, after resolution of a conflict with the Papua New Guinea government was expecting to commence its Solwara-1 deep sea exploration project by 2016, with the Papua New government initially holding 15% of the projects equity.

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