Putin’s South African Visit Spawns Multi-Billion Dollar, Long-Term Industrial Investment Prospects

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Researched by Industrial Info Resources (Sugar Land, Texas). On a ‘mover and shaker’ visit to South Africa this week, Russian president Vladimir Putin said that Russia’s treasury reserves were growing so fast that he could hardly keep track. The reserves grew by $80 billion in the last six months and now are estimated at $300 billion. He said that Russia was anxious to make major investments from the cash pile and added that he and the powerful, top executive group on the South African visit had not come for sentimental memories, but were in the country to discuss business deals. The last remark was an allusion to the fact that a number of South Africa’s ANC-led government and new business elite had received education and military training in the old U.S.S.R., when in exile from South Africa’s apartheid-era government.

With South Africa and Russia holding 95% of global platinum group metal resources between them, and through De Beers (Johannesburg, South Africa) and the Russia’ Alrosa (Moscow) control of the direction of the global diamond market, there was a good basis for mutually supportive deals. Analysts of the growing relationship between the two countries also focused on the fact that, in terms of geopolitics, both countries could present a ‘bipolar’ profile between the West and the East. The possible downside of being bipolar was not dwelled upon, as the business mood was upbeat.

Among a number of across-the-table deals signed during the visit was a joint exploration agreement between De Beers and Alrosa, which will see both companies exploring in Russia and Africa. This benefits De Beer’s prospects, as they have to scale down diamond purchases from Alrosa from a target of $800 million per annum to zero by 2009 in agreeing with the terms of the European Commission’s antitrust ruling. With potentially more reserves than Botswana, Russia will provide De Beers with an opportunity to offset the loss of purchases from Alrosa while cooperating with the company in exploration and the following production in Russia’s home territory. In the current financial year, De Beers will invest $100 million on exploration in southern and central Africa, Canada, Russia and India.

A $1 billion investment by Russia’s Renova (Moscow) on a manganese project in South Africa is now in the pre-feasibility stage and will entail the construction of a mine in the Northern Cape Kalahari Desert region producing up to 3 million tons of ore per annum. The ore would then go to the new trade port of Ngqura and a smelter at the adjacent Coega special industrial zone on South Africa’s East Indian Ocean coast with a capacity of producing over 250,000 tons per annum of ferromanganese. The five-year project would see the smelter starting to operate with an initial capacity of 150,000 tons per annum as other assets were brought into the deal. South Africa holds 80% of global reserves of manganese and Renova has 49% of United Manganese of Kalahari.

Before leaving South Africa, Renova signed a MoU (memorandum of understanding) with state power utility Eskom for power supplies to the project and other agreements with railfreight utility Transnet for transport of coal and raw materials to the smelter and with the Ngqura Port management.

Renova’s billionaire owner Viktor Vekselberg said that one of the group companies is interested in the southern African country’s power generation development and the possibility of constructing an aluminum smelter. Currently, the decision is awaited from Alcan (NYSE:AL ) (Montreal, Quebec) on whether it will go ahead with the $2.5 billion 600,000 tons per annum smelter project at Coega, which it inherited in the Pechiney takeover in 2003. This decision is now expected by the end of this month, and while official noises are positive, Vekselberg and Renova’s SUAL are waiting and watching. Interestingly, the new chairman of the Rusal-Sual (Moscow) aluminum merger is Brian Gilbertson, ex-Billiton chief, and Johannesburg hometown boy, who is known to like being where the ‘rubber hits the tarmac’ in global-scale deals. In June, SUAL, with aluminum and gold mining interests in Russia, indicated that it saw South Africa as a launching pad for larger African investments.

During the visit, a SA-Russian business council was formed to drive investment between the two countries and a commercial trade and funding cooperation agreement was made between Russia’s Vnesheconombank and local bankers.

A future meeting was set up for cooperation in the nuclear energy field, which will be attended by the chairman of Russia’s atomic energy institution.

Russian investment in South Africa’s gold and mining industry began some years ago, but the Putin visit and his large, high-level delegation’s handshake and eyeball dealing with South Africa’s President Mbeki, ministers and business decision makers, has moved the investment and industrial cooperation prospects onto a wider, long-term horizon.

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