In an ambitious declaration of intention in Moscow on Wednesday, Roddie Fleming, managing partner of Fleming Family & Partners (FF&P), and a well-known London financier, announced he plans to invest into a Russian aluminum company to create a fresh challenger to international miners Anglo-American, BHP Billiton, and Rio Tinto.

Fleming, who was joined at a press conference by Viktor Vekselberg, chairman of Siberian Ural Aluminum Holding (SUAL), gave no estimate of the investment he was planning, or its source. The two did say they have agreed on a plan to diversify beyond the aluminum sector.

Through a merger that is still to be valued and funded, they said they would draw investment from the interests of the Fleming family, and from what Fleming described as "various clients of FF&P."

Vekselberg suggested that Fleming's role will be to guide the new company to an international flotation in 2004.

This is the latest of three apparent investment deals Fleming has announced in recent months, beginning with the acquisition by Fleming's Harmony Gold of a stake in Highland Gold, and the flotation of the latter last month on the London Alternative Investment Market (AIM). Highland says its largest asset is a Russian gold mine called Mnogovershinnoye.

The Fleming group has also said that it has received a mandate from Alrosa, Russia's largest diamond miner, to raise finance for mine investment.

In each case, Fleming's strategy has been to package a risky Russian asset, about which little is known, for sale to Western mining investors.

Deal to diversify SUAL

Fleming and Vekselberg said they have agreed to create a new international company into which the assets of SUAL, Access Industries, and Fleming's will be merged. "SUAL as a vertically integrated company will be transformed into a diversified company which will also have assets in the ferro-nickel, tantalum and coal sectors," Vekselberg said.

However, analysts in London reacted by expressing doubt over the ownership status of some of the assets.

FF&P sources in Moscow listed under their current mineral assets the Moa ferro-nickel project in Cuba, which they said is under development with a 65 percent Fleming stake and a 35 percent holding by a Cuban state nickel enterprise; as well as the Marropino tantalum project, located in the eastern Zambezi region of Mozambique.

But Platts, a specialist metals publication, quoted a source as saying "maybe FF&P accidentally got its facts wrong or it is involved in the very early stages of a new nickel project in Cuba. I haven't heard that FF&P was involved in a nickel project in Cuba until now."

"To date," the source continued, "Canadian resources company Sherritt and Anglo-Australian mining, metals and oil giant BHP Billiton are the only companies that have made public their investments in Cuba. Sherritt shares the Moa Nickel ferronickel joint venture with the Caribbean island's government, while BHP Billiton shares an interest in the San Felipe mine with a state-owned enterprise."

Information scanty

Information on the Mozambique project is equally scanty. According to Platts, nobody at FF&P — which is privately owned — would comment on its role in base metal production Wednesday and referred calls to Brunswick, a London-based public relations firm. But Brunswick was unable to provide further details on FF&P's ferronickel or tantalum projects.

The announcement by Fleming and Vekselberg is expected to involve at least 12 months of further valuations and negotiations to consummate the deal. If implemented, it would be the first major international investment in Russia's high-risk, conflict-prone nonferrous metal sector. It may also become either the first occasion on which a major Russian metals group has sold down their stake to a minority — or the first time Western mine financiers have agreed to risk significant money on a minority stake in a Russian company.

SUAL is Russia's second-largest producer of aluminum, trailing Russian Aluminum (Rusal). It is part-owned by Mikhail Fridman's Alfa Group, so that any major change in SUAL's management or ownership must have his approval.

SUAL also controls the largest Russian supply of bauxite, and has the potential to match or exceed Rusal's alumina production.

However, SUAL has been short of the capital required to expand production to full capacity at its Middle Timan bauxite deposit, or to build an associated alumina refinery.

The new deal, announced Wednesday, links the assets of Access Industries, already a major shareholder in SUAL, with Fleming's mineral assets. It also provides a vague commitment from Fleming's to raise the billion-dollar Western funding that has so far eluded SUAL.

No prices, investments, or values for the deal have been disclosed. According to Vekselberg, they have yet to be decided.

"Depending on the final results of the evaluation [of assets] and the financial contribution [from Fleming], Fleming will get up to 23 percent of the shares in the new company," Vekselberg said.

Radical overhaul

Fleming said in Moscow the new venture amounts to "the creation of a new diversified mining company, which offers serious competition to three major mining companies — BHP-B, Rio Tinto and Anglo-American."

He promised a radical overhaul of SUAL's aluminum business. "We will develop the corporate structure of SUAL also through inviting a large group of foreign managers and introducing international corporate standards in operations of the company. We expect that a new company of world class will be established in Russia."

Asked to identify the proposed new chief executive of the Fleming-SUAL joint venture company, SUAL sources told TRJ he is "a non-Russian citizen." Asked if this meant Len Blavatnik, controlling shareholder of the Renova and Access Industries companies and part-owner of SUAL, the sources said no. They refused to comment on the names of other well-known international miners.

Access Industries proposes to contribute to the new venture two Kazakh coal mines which it owns — Bogatyr and Severny. Access, which operates primarily in the United States, acts as SUAL's lead international aluminum trader.