IN THE NEWS

BARRICK COVERAGE

bull Barrick Gold Corp Subsidiary Minera ABX Exploraciones SA Signs Deal With Paramount Gold - Reuters

bull Argentina Veladero kicks off ndash La Nacionbull Inauguran una mina de oro ndash INFOBAE Diariobull Inauguran mina de oro y plata en Argentina de Barrick Gold ndash Agencie EFE

INDUSTRYOTHER

bull FOCUSMining Cos In Indonesia View Newmont As Test Case - Dow Jones International News

bull Canadian Mining Company Buying Rival for $10 Billion - The New York Times bull Hand must fulfil new Incos promise - The Toronto Star bull NORILSK NICKEL to Lose Preeminence - Noveconbull Rich rewards for riding rollercoaster - A new model for participation by foreign

companies has been seen in recent months driven by political priorities - Financial Times

Barrick Gold Corp Subsidiary Minera ABX Exploraciones SA Signs Deal With Paramount Gold 130 words 11 October 2005Reuters

Minera ABX Exploraciones SA a subsidiary of Barrick Gold Corp announced that Paramount Gold Mining Corp has entered into a Letter of Intent with to acquire a minimum 51 interest in the Linda property located in the Department of Ayacucho South Peru The agreement calls for a two-year work commitment including a total of 6000 meters of drilling of which 2000 meters is a firm commitment during the first year of the deal Once Paramount has completed the above requirements they will have acquired a 51 interest in the Property and will remain the operator of the project as long as they maintain a majority interest

Argentina Veladero kicks off 98 words 11 October 2005La Nacion

This week the mining project Veladero starts up run by Canadas Barrick Gold The mine is not far from the Chilean border in the province of San Juan and possesses estimated reserves of 128 million ounces of gold In whats left of 2005 the aim is to extract 55000 ounces whilst over the next three years Barrick Gold will move up to 700000 ounces annually Veladero becomes the project number 140 in mining exploration and development in Argentina with sector investment of US$5bil expected over the next decade

Inauguran una mina de oro459 words 12 October 2005INFOBAE Diario

El ministro de Infraestructura Julio De Vido y el gobernador de San Juan Joseacute Luis Gioja inauguraron oficialmente ayer la actividad de una mina de oro en Veladero que produciraacute durante este antildeo entre 50000 y 55000 onzas lo que significaraacute ingresos anuales calculados en u$s200 M de exportaciones La mina ubicada en la localidad de Veladero a 350 kiloacutemetros de la capital sanjuanina tendraacute 17 antildeos de vida uacutetil El proyecto se llama Mineriacutea Responsable y es la primera operacioacuten de la compantildeiacutea Barrick en el paiacutes En el acto de inauguracioacuten De Vido destacoacute que la mina que demandoacute una inversioacuten de u$s540 M emplearaacute a cuatrocientas personas en forma directa y a otras 4000 de manera indirecta

En total el proyecto generoacute 3000 empleos directos y para la etapa de produccioacuten estiman otros setecientos puestos de trabajo en forma permanente El primer lingote que produjo la mina de 1780 gramos fue donado a la gobernacioacuten como homenaje a los logros de tantas voluntades al servicio del desarrollo minero y econoacutemico del paiacutes indicaron los directivos de la compantildeiacutea licenciataria en una carta enviada al gobierno provincial En su discurso De Vido dijo que ya estaacute en ejecucioacuten el plan para la construccioacuten de 10000 viviendas en la provincia para los proacuteximos tres antildeos junto con obras de cloacas y rutas en todo el distrito provincial

La prioridad es el trabajo la inclusioacuten social y el medio ambiente aseguroacute De Vido en respuesta a las quejas de un sector de la poblacioacuten que estaba en contra de la implementacioacuten de la mina Hoy es un diacutea de fiesta para San Juan y la Argentina porque este proyecto genera expectativa de maacutes trabajo y maacutes inclusioacuten social expresoacute el ministro Y agregoacute Esto es posible en el contexto de un paiacutes que se estaacute desendeudando que tiene superaacutevit fiscal primario y que toma al desendeudamiento y el superaacutevit como poliacuteticas de Estado destacoacute el funcionario

Consideroacute tambieacuten que la Argentina estaacute viva y en progreso y los anuncios se concretan y le pidioacute a la empresa que cuide el medio ambiente pero fundamentalmente al pueblo Por su parte Gioja recalcoacute que se protegeraacute el medio ambiente con una ley inviolable y sostuvo que los

sanjuaninos encontraron la receta maacutegica para transformar el oro en progreso Ademaacutes del ministro de Planificacioacuten y del gobernador en la ceremonia estuvieron presentes tambieacuten el gobernador de Catamarca Eduardo Brizuela del Moral el secretario de Mineriacutea de la Nacioacuten Jorge Mayoral y directivos de la empresa Barrick encargada de la explotacioacuten de la mina

Inauguran mina de oro y plata en Argentina de Barrick Gold267 words 11 October 20051707Agencia EFE

Buenos Aires 11 oct (EFECOM)- El ministro de Planificacioacuten de Argentina Julio de Vido inauguroacute hoy las operaciones del proyecto minero Veladero en el que participa la firma canadiense Barrick Gold y que demandoacute una inversioacuten de 600 millones de doacutelares

El yacimiento situado en la provincia de San Juan (oeste de Argentina) a 4000 metros sobre el nivel del mar tiene una vida de unos 17 antildeos de produccioacuten y se preveacute que genere en promedio 700000 onzas anuales de oro y plata durante los primeros tres antildeos de operacioacuten

De Vido destacoacute la importancia del proyecto en cuanto a la generacioacuten de empleo la preservacioacuten del medioambiente y el desarrollo con inclusioacuten social

Para Argentina la mineriacutea es una poliacutetica de Estado comentoacute el ministro

Subrayoacute que Veladero aportaraacute ingresos por 200 millones de doacutelares anuales viacutea exportaciones y constituye el primer proyecto minero de tamantildeo internacional que se pone en marcha bajo el gobierno de Neacutestor Kirchner y el tercero de estas caracteriacutesticas en la historia del paiacutes

Greg Wilkins presidente de Barrick Gold recordoacute que Veladero fue descubierto hace 10 antildeos en uno de los entornos fiacutesicos maacutes desafiantes del mundo y dijo que en la iniciativa se aplican tecnologiacuteas de uacuteltima generacioacuten en materia de produccioacuten y preservacioacuten del medioambiente

El proyecto ha generado 4000 empleos en su periacuteodo de construccioacuten y daraacute trabajo a otras 850 personas en la inminente etapa de produccioacuten cuyo destino seraacute el mercado externo en su totalidad EFECOM

FOCUS Mining Cos In Indonesia View Newmont As Test Case By James Attwood Of DOW JONES NEWSWIRES 889 words 12 October 2005Dow Jones International News

SYDNEY (Dow Jones)--Despite a string of terrorist attacks against western interests in Indonesia foreign mining operators and prospective investors in the country are more concerned about legal uncertainties than security risks industry participants said Wednesday

According to multinational mining companies and analysts a criminal trial involving Newmont Mining Corp (NEM) the worlds biggest gold producer is of greater significance to Indonesias appeal as a mining destination than terrorism

In the trial which reconvenes Friday Denver-based Newmont is charged with dumping mercury and arsenic from its Minahasa Raya mine into Buyat Bay on the northern tip of Sulawesi making local villagers sick

Newmonts Indonesia country manager Richard Ness faces up to 10 years in jail if found guilty

The Newmont case will be a benchmark for current and potential future investors in the resources sector to gauge what kind of risk theyre facing said Standard amp Poors principal sovereign analyst for Indonesia Agost Benard

Meanwhile Muslim fundamentalist terrorism against westerners in the country is unlikely to find its way to remote mine sites staffed mainly by locals said analysts and miners

If we assume its the same terrorists with the same aims then I dont think mining interests will be likely targets said Benard

Although conceivably mining interests could become targets for other reasons such as local interests who for one reason or another are against projects or try to extract some kind of rent from the operators

Security Still A Big Risk For Mining Companies

Australias largest independent gold producer Newcrest Mining Ltd (NCMAU) has firsthand experience of Indonesian social unrest with bloody clashes between Christians and Muslims during the construction of its mine on Halmahera Island 3000 kilometers east of Jakarta

Tensions have eased since then but according to Tony Palmer managing director of Melbourne-based Newcrest security remains the greatest challenge in Indonesia I get concerned for our people thereWho knows what could happen

The recent terrorist attacks and the Newmont case however dont necessarily make Newcrest any less likely to get involved in new projects in Indonesia he said

One of the things weve done to mitigate risk is just to stay as low-profile as possible If you go to Jakarta you wont find a Newcrest office there and if I go there I go practically unannounced Palmer said

But SampPs Benard said the Newmont case if perceived to be flawed would have an impact on the countrys investment risk

Newmonts Australian managing director Paul Dowd blames anti-mining NGOs for funding a campaign that sparked the case He said scientific evidence shows that tumors skin rashes and dizziness among locals are likely the result of poor nutrition and hygiene rather than any poisoning

No matter the outcome Newmont is highly unlikely to vote with its feet on the issue given its $2 billion commitment in the Batu Hijau mine on Indonesias Sumbawa Island analysts said

However the worlds biggest gold miner may be less inclined to get involved in new projects in the country especially if Ness is found guilty

What sort of mining company wants to put their employees at risk when the evidence is clear that there has been no breach of environmental laws said Haydn Dare a partner in Freehills a legal firm representing Newmont

Others arent so convinced Indonesian authorities are acting capriciously in the case

Its unfortunate but I think there is more to that story than were all hearing from Newmont said Milan Jerkovic chief executive of Australias Straits Resources Ltd (SRLAU) which operates the Sebuku coal mine in Indonesia

Jerkovic said terrorism and the Newmont case would have little impact on Straits ability to raise funds for its Indonesian operations but said the company will look to build its asset base in less risky Australia before pursuing anything else in Indonesia

Case Puts Focus On Indonesian Legislation

The legal uncertainties spurred by the Newmont case also put the spotlight on Indonesias legislative uncertainties for foreign investors

Jerkovic and others are looking forward to a long-awaited mining code still under review that would replace the current work contract system with lease status thereby offering some tenure certainty

The current system means some work contracts require foreigners to reduce their ownership in projects to below 50 after a certain time Investors also complain of nuisance taxes created by provincial or local authorities

The new law while apparently still at an early stage of the legislative process is expected to boost the appeal of mining projects to prospective financial backers and unlock more of the countrys geological wealth

SampPs Benard said the overall operating environment in Indonesia still compares unfavorably with that of its neighbors but is slowly improving

Legal issues tax uncertainties security risks - these things dont change overnight Benard said

Even if you have an administration that is serious about improving investment conditions - and the current government is - you cant expect fast change

-By James Attwood Dow Jones Newswires 612-8235-2957 jamesattwooddowjonescom

Canadian Mining Company Buying Rival for $10 Billion By IAN AUSTEN 557 words 12 October 2005The New York TimesLate Edition ndash Final

OTTAWA Oct 11 -- Inco a Canadian mining company said Tuesday that it would acquire a rival Falconbridge to create the worlds largest nickel producer in a stock and cash deal valued at 12 billion Canadian dollars ($102 billion)

Inco will pay 34 Canadian dollars or 06713 Inco shares and 5 Canadian cents for each share of Falconbridge The transaction apparently thwarts the Swiss company Xstratas designs on Falconbridge Xstrata acquired just under 20 percent of the company in August and said it planned to increase its holdings

For a good part of our shared history a lot of people have been saying You know if only these two Canadian companies could get together what a great company that could be Scott M Hand Incos chief executive said Well that day has arrived

Under the plan devised by the two companies Inco will receive $320 million from Falconbridge if the takeover is not completed

While many analysts expect that Inco will ultimately be successful there was speculation that Inco may have to increase its bid which already represents about a 21 percent premium over what Xstrata paid for its Falconbridge shares

Inco is going to get it largely because no other company can offer the same synergies said Greg Barnes a mining analyst in Toronto for Canaccord Capital which is based in Vancouver But could Xstrata be difficult and force them to pay as much as possible I dont discount that possibility

Mr Hand who will be chief executive of the combined company and Derek G Pannell chief executive of Falconbridge suggested that they had not been in touch with Xstrata However Mr Pannell who will become president said during the news conference on the deal Xstrata will have made a lot of money on this deal and they certainly should be very happy A spokeswoman for Xstrata which is based in Zug Switzerland declined to comment

The takeover is subject to the approval of two-thirds of Falconbridges shareholders but it will not need ratification from Inco stakeholders

Stock in Falconbridge which is based in Toronto rose 377 Canadian dollars or 12 percent to 3459 Canadian dollars a share The combined company will produce 735 million pounds of nickel this year the companies said Russias Norilsk Nickel the current market leader expects to deliver 540 million pounds

The two executives said they expected to see immediate cost reductions of at least $350 million a year Much of that will come from consolidation in Sudbury Ontario where both companies have their main nickel operations

In an interview Mr Hand who has been with Inco for three decades said the traditional competitive rivalry between his company and Falconbridge probably delayed a merger many thought was desirable

But I dont have that hang-up and neither does Derek he added

Hand must fulfil new Incos promise David Olive Special to The Star 847 words 12 October 2005The Toronto Star

The Canadian mining business is reasserting itself as a global player after two decades of complacency in which one of the few events to command world attention was the Bre-X Minerals Ltd scandal

Teck Corp and Cominco Ltd combined in 2001 to create a base-metals giant Two years later Montreal-based Alcan Inc bought Frances Pechiney SA eclipsing Alcoa Inc as the worlds largest aluminum producer Peter Munk has abandoned a disappointing foray in real estate to reclaim for Barrick Gold Corp its world-leading status of the 1990s

Yesterday decades-old Sudbury neighbours Inco Ltd and Falconbridge Ltd announced a proposed merger worth more than $12 billion by which the new firm regains the Number 1 ranking in nickel that the old Inco lost in the 1990s to Russias OAO Norilsk Nickel

The proposed deal might not quite be one of the greatest acquisitions in mining history as were urged to believe by Scott Hand chief executive officer of the old Inco and expected to retain the post at the new firm pending shareholder and regulatory approval of the combination Hands description would better fit the mega-mergers by which the British triumvirate of BHP Billiton PLC

Rio Tinto PLC and Anglo-American PLC consolidated a fragmented industry in the 1990s and now dominate global mining

But yesterdays deal which will likelythwart 20 per cent Falconbridge owner Xstrata PLC of Switzerland from any further designs on the nickel miner is a promising combination Too many Canadian miners have been on autopilot for years with historic lows in commodity prices giving little incentive to expand capacity and too little capital to participate in the late-1990s consolidation wave

Complicating matters were the managerial distractions at Falconbridge and the former Noranda Inc of which Falconbridge was a partly owned subsidiary The process earlier this year by which Noranda bought out the Falconbridge minority and then took Falconbridge as a name was unnecessarily complicated

During that same period Falconbridge was obliged to help Brascan Corp (since renamed Brookfield Asset Management Inc) find someone to extricate it from a business with fundamentals Brascan was never able to command even 24 years after taking control of Noranda in a hostile takeover Vancouvers Teck Cominco Ltd for one kicked the tires at Noranda but wasnt impressed enough to buy China Minmetals Corp showed an interest in Noranda but was chased away by xenophobes in Parliament and the financial media before a deal could be consummated

Inco has its own distractions For almost a decade Inco suffered chronic setbacks in bringing its massive Voiseys Bay project into production butting heads with the Newfoundland government native groups and environmentalists Meanwhile the Goro development in New Caledonia was held up by cost overruns

But its funny how the hallmark reassurances that make one gag about better times soon can sometimes be taken to the bank In recent years the booming economies of China and India have pushed metal prices to record highs Inco and Falconbridge long obsessed with cutting costs to follow the sag in prices and protect dividends are now scrambling to boost supply Prices for most metals while easing a bit of late from exuberant highs of last year are forecast to remain strong enough to justify significant capacity expansion

The new challenge is to meet rising demand Hand said

Inco finally has begun to generate cash flow at Voiseys Bay and Goro should be on line by 2008 Inco now forecasts 35 per cent growth in nickel output to almost 1 billion pounds by 2090 and a near doubling in copper production to 26 billion pounds by 2011 Inco even sees a 14 per cent jump in nickel production from the venerable Sudbury basin where nickel lodged between Falconbridge and Inco properties can be cheaply exploited using existing ventilation shafts and other infrastructure

While reluctant yesterday to talk about asset disposals Falconbridge is a grab bag of assets a legacy of Brascans lack of interest A global industry still gripped by consolidation fever offers ample opportunity to shed such operations as a lucrative but peripheral aluminum fabrication business in the United States

The focus could be nickel and copper which would account for 82 per cent of the new Incos production and merit managements full attention

Meanwhile the widely held new Inco would remain a takeover target easy pickings for BHP for instance which could buy the merged company with just two years worth of earnings

That should be all the impetus Hand needs to get long-stalled projects into production get a dozen or so proposed expansion ventures off the drawing board and realize savings at the many sites worldwide where the old Inco and Falconbridge already operate in close quarters

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

sanjuaninos encontraron la receta maacutegica para transformar el oro en progreso Ademaacutes del ministro de Planificacioacuten y del gobernador en la ceremonia estuvieron presentes tambieacuten el gobernador de Catamarca Eduardo Brizuela del Moral el secretario de Mineriacutea de la Nacioacuten Jorge Mayoral y directivos de la empresa Barrick encargada de la explotacioacuten de la mina

Inauguran mina de oro y plata en Argentina de Barrick Gold267 words 11 October 20051707Agencia EFE

Buenos Aires 11 oct (EFECOM)- El ministro de Planificacioacuten de Argentina Julio de Vido inauguroacute hoy las operaciones del proyecto minero Veladero en el que participa la firma canadiense Barrick Gold y que demandoacute una inversioacuten de 600 millones de doacutelares

El yacimiento situado en la provincia de San Juan (oeste de Argentina) a 4000 metros sobre el nivel del mar tiene una vida de unos 17 antildeos de produccioacuten y se preveacute que genere en promedio 700000 onzas anuales de oro y plata durante los primeros tres antildeos de operacioacuten

De Vido destacoacute la importancia del proyecto en cuanto a la generacioacuten de empleo la preservacioacuten del medioambiente y el desarrollo con inclusioacuten social

Para Argentina la mineriacutea es una poliacutetica de Estado comentoacute el ministro

Subrayoacute que Veladero aportaraacute ingresos por 200 millones de doacutelares anuales viacutea exportaciones y constituye el primer proyecto minero de tamantildeo internacional que se pone en marcha bajo el gobierno de Neacutestor Kirchner y el tercero de estas caracteriacutesticas en la historia del paiacutes

Greg Wilkins presidente de Barrick Gold recordoacute que Veladero fue descubierto hace 10 antildeos en uno de los entornos fiacutesicos maacutes desafiantes del mundo y dijo que en la iniciativa se aplican tecnologiacuteas de uacuteltima generacioacuten en materia de produccioacuten y preservacioacuten del medioambiente

El proyecto ha generado 4000 empleos en su periacuteodo de construccioacuten y daraacute trabajo a otras 850 personas en la inminente etapa de produccioacuten cuyo destino seraacute el mercado externo en su totalidad EFECOM

FOCUS Mining Cos In Indonesia View Newmont As Test Case By James Attwood Of DOW JONES NEWSWIRES 889 words 12 October 2005Dow Jones International News

SYDNEY (Dow Jones)--Despite a string of terrorist attacks against western interests in Indonesia foreign mining operators and prospective investors in the country are more concerned about legal uncertainties than security risks industry participants said Wednesday

According to multinational mining companies and analysts a criminal trial involving Newmont Mining Corp (NEM) the worlds biggest gold producer is of greater significance to Indonesias appeal as a mining destination than terrorism

In the trial which reconvenes Friday Denver-based Newmont is charged with dumping mercury and arsenic from its Minahasa Raya mine into Buyat Bay on the northern tip of Sulawesi making local villagers sick

Newmonts Indonesia country manager Richard Ness faces up to 10 years in jail if found guilty

The Newmont case will be a benchmark for current and potential future investors in the resources sector to gauge what kind of risk theyre facing said Standard amp Poors principal sovereign analyst for Indonesia Agost Benard

Meanwhile Muslim fundamentalist terrorism against westerners in the country is unlikely to find its way to remote mine sites staffed mainly by locals said analysts and miners

If we assume its the same terrorists with the same aims then I dont think mining interests will be likely targets said Benard

Although conceivably mining interests could become targets for other reasons such as local interests who for one reason or another are against projects or try to extract some kind of rent from the operators

Security Still A Big Risk For Mining Companies

Australias largest independent gold producer Newcrest Mining Ltd (NCMAU) has firsthand experience of Indonesian social unrest with bloody clashes between Christians and Muslims during the construction of its mine on Halmahera Island 3000 kilometers east of Jakarta

Tensions have eased since then but according to Tony Palmer managing director of Melbourne-based Newcrest security remains the greatest challenge in Indonesia I get concerned for our people thereWho knows what could happen

The recent terrorist attacks and the Newmont case however dont necessarily make Newcrest any less likely to get involved in new projects in Indonesia he said

One of the things weve done to mitigate risk is just to stay as low-profile as possible If you go to Jakarta you wont find a Newcrest office there and if I go there I go practically unannounced Palmer said

But SampPs Benard said the Newmont case if perceived to be flawed would have an impact on the countrys investment risk

Newmonts Australian managing director Paul Dowd blames anti-mining NGOs for funding a campaign that sparked the case He said scientific evidence shows that tumors skin rashes and dizziness among locals are likely the result of poor nutrition and hygiene rather than any poisoning

No matter the outcome Newmont is highly unlikely to vote with its feet on the issue given its $2 billion commitment in the Batu Hijau mine on Indonesias Sumbawa Island analysts said

However the worlds biggest gold miner may be less inclined to get involved in new projects in the country especially if Ness is found guilty

What sort of mining company wants to put their employees at risk when the evidence is clear that there has been no breach of environmental laws said Haydn Dare a partner in Freehills a legal firm representing Newmont

Others arent so convinced Indonesian authorities are acting capriciously in the case

Its unfortunate but I think there is more to that story than were all hearing from Newmont said Milan Jerkovic chief executive of Australias Straits Resources Ltd (SRLAU) which operates the Sebuku coal mine in Indonesia

Jerkovic said terrorism and the Newmont case would have little impact on Straits ability to raise funds for its Indonesian operations but said the company will look to build its asset base in less risky Australia before pursuing anything else in Indonesia

Case Puts Focus On Indonesian Legislation

The legal uncertainties spurred by the Newmont case also put the spotlight on Indonesias legislative uncertainties for foreign investors

Jerkovic and others are looking forward to a long-awaited mining code still under review that would replace the current work contract system with lease status thereby offering some tenure certainty

The current system means some work contracts require foreigners to reduce their ownership in projects to below 50 after a certain time Investors also complain of nuisance taxes created by provincial or local authorities

The new law while apparently still at an early stage of the legislative process is expected to boost the appeal of mining projects to prospective financial backers and unlock more of the countrys geological wealth

SampPs Benard said the overall operating environment in Indonesia still compares unfavorably with that of its neighbors but is slowly improving

Legal issues tax uncertainties security risks - these things dont change overnight Benard said

Even if you have an administration that is serious about improving investment conditions - and the current government is - you cant expect fast change

-By James Attwood Dow Jones Newswires 612-8235-2957 jamesattwooddowjonescom

Canadian Mining Company Buying Rival for $10 Billion By IAN AUSTEN 557 words 12 October 2005The New York TimesLate Edition ndash Final

OTTAWA Oct 11 -- Inco a Canadian mining company said Tuesday that it would acquire a rival Falconbridge to create the worlds largest nickel producer in a stock and cash deal valued at 12 billion Canadian dollars ($102 billion)

Inco will pay 34 Canadian dollars or 06713 Inco shares and 5 Canadian cents for each share of Falconbridge The transaction apparently thwarts the Swiss company Xstratas designs on Falconbridge Xstrata acquired just under 20 percent of the company in August and said it planned to increase its holdings

For a good part of our shared history a lot of people have been saying You know if only these two Canadian companies could get together what a great company that could be Scott M Hand Incos chief executive said Well that day has arrived

Under the plan devised by the two companies Inco will receive $320 million from Falconbridge if the takeover is not completed

While many analysts expect that Inco will ultimately be successful there was speculation that Inco may have to increase its bid which already represents about a 21 percent premium over what Xstrata paid for its Falconbridge shares

Inco is going to get it largely because no other company can offer the same synergies said Greg Barnes a mining analyst in Toronto for Canaccord Capital which is based in Vancouver But could Xstrata be difficult and force them to pay as much as possible I dont discount that possibility

Mr Hand who will be chief executive of the combined company and Derek G Pannell chief executive of Falconbridge suggested that they had not been in touch with Xstrata However Mr Pannell who will become president said during the news conference on the deal Xstrata will have made a lot of money on this deal and they certainly should be very happy A spokeswoman for Xstrata which is based in Zug Switzerland declined to comment

The takeover is subject to the approval of two-thirds of Falconbridges shareholders but it will not need ratification from Inco stakeholders

Stock in Falconbridge which is based in Toronto rose 377 Canadian dollars or 12 percent to 3459 Canadian dollars a share The combined company will produce 735 million pounds of nickel this year the companies said Russias Norilsk Nickel the current market leader expects to deliver 540 million pounds

The two executives said they expected to see immediate cost reductions of at least $350 million a year Much of that will come from consolidation in Sudbury Ontario where both companies have their main nickel operations

In an interview Mr Hand who has been with Inco for three decades said the traditional competitive rivalry between his company and Falconbridge probably delayed a merger many thought was desirable

But I dont have that hang-up and neither does Derek he added

Hand must fulfil new Incos promise David Olive Special to The Star 847 words 12 October 2005The Toronto Star

The Canadian mining business is reasserting itself as a global player after two decades of complacency in which one of the few events to command world attention was the Bre-X Minerals Ltd scandal

Teck Corp and Cominco Ltd combined in 2001 to create a base-metals giant Two years later Montreal-based Alcan Inc bought Frances Pechiney SA eclipsing Alcoa Inc as the worlds largest aluminum producer Peter Munk has abandoned a disappointing foray in real estate to reclaim for Barrick Gold Corp its world-leading status of the 1990s

Yesterday decades-old Sudbury neighbours Inco Ltd and Falconbridge Ltd announced a proposed merger worth more than $12 billion by which the new firm regains the Number 1 ranking in nickel that the old Inco lost in the 1990s to Russias OAO Norilsk Nickel

The proposed deal might not quite be one of the greatest acquisitions in mining history as were urged to believe by Scott Hand chief executive officer of the old Inco and expected to retain the post at the new firm pending shareholder and regulatory approval of the combination Hands description would better fit the mega-mergers by which the British triumvirate of BHP Billiton PLC

Rio Tinto PLC and Anglo-American PLC consolidated a fragmented industry in the 1990s and now dominate global mining

But yesterdays deal which will likelythwart 20 per cent Falconbridge owner Xstrata PLC of Switzerland from any further designs on the nickel miner is a promising combination Too many Canadian miners have been on autopilot for years with historic lows in commodity prices giving little incentive to expand capacity and too little capital to participate in the late-1990s consolidation wave

Complicating matters were the managerial distractions at Falconbridge and the former Noranda Inc of which Falconbridge was a partly owned subsidiary The process earlier this year by which Noranda bought out the Falconbridge minority and then took Falconbridge as a name was unnecessarily complicated

During that same period Falconbridge was obliged to help Brascan Corp (since renamed Brookfield Asset Management Inc) find someone to extricate it from a business with fundamentals Brascan was never able to command even 24 years after taking control of Noranda in a hostile takeover Vancouvers Teck Cominco Ltd for one kicked the tires at Noranda but wasnt impressed enough to buy China Minmetals Corp showed an interest in Noranda but was chased away by xenophobes in Parliament and the financial media before a deal could be consummated

Inco has its own distractions For almost a decade Inco suffered chronic setbacks in bringing its massive Voiseys Bay project into production butting heads with the Newfoundland government native groups and environmentalists Meanwhile the Goro development in New Caledonia was held up by cost overruns

But its funny how the hallmark reassurances that make one gag about better times soon can sometimes be taken to the bank In recent years the booming economies of China and India have pushed metal prices to record highs Inco and Falconbridge long obsessed with cutting costs to follow the sag in prices and protect dividends are now scrambling to boost supply Prices for most metals while easing a bit of late from exuberant highs of last year are forecast to remain strong enough to justify significant capacity expansion

The new challenge is to meet rising demand Hand said

Inco finally has begun to generate cash flow at Voiseys Bay and Goro should be on line by 2008 Inco now forecasts 35 per cent growth in nickel output to almost 1 billion pounds by 2090 and a near doubling in copper production to 26 billion pounds by 2011 Inco even sees a 14 per cent jump in nickel production from the venerable Sudbury basin where nickel lodged between Falconbridge and Inco properties can be cheaply exploited using existing ventilation shafts and other infrastructure

While reluctant yesterday to talk about asset disposals Falconbridge is a grab bag of assets a legacy of Brascans lack of interest A global industry still gripped by consolidation fever offers ample opportunity to shed such operations as a lucrative but peripheral aluminum fabrication business in the United States

The focus could be nickel and copper which would account for 82 per cent of the new Incos production and merit managements full attention

Meanwhile the widely held new Inco would remain a takeover target easy pickings for BHP for instance which could buy the merged company with just two years worth of earnings

That should be all the impetus Hand needs to get long-stalled projects into production get a dozen or so proposed expansion ventures off the drawing board and realize savings at the many sites worldwide where the old Inco and Falconbridge already operate in close quarters

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

The Newmont case will be a benchmark for current and potential future investors in the resources sector to gauge what kind of risk theyre facing said Standard amp Poors principal sovereign analyst for Indonesia Agost Benard

Meanwhile Muslim fundamentalist terrorism against westerners in the country is unlikely to find its way to remote mine sites staffed mainly by locals said analysts and miners

If we assume its the same terrorists with the same aims then I dont think mining interests will be likely targets said Benard

Although conceivably mining interests could become targets for other reasons such as local interests who for one reason or another are against projects or try to extract some kind of rent from the operators

Security Still A Big Risk For Mining Companies

Australias largest independent gold producer Newcrest Mining Ltd (NCMAU) has firsthand experience of Indonesian social unrest with bloody clashes between Christians and Muslims during the construction of its mine on Halmahera Island 3000 kilometers east of Jakarta

Tensions have eased since then but according to Tony Palmer managing director of Melbourne-based Newcrest security remains the greatest challenge in Indonesia I get concerned for our people thereWho knows what could happen

The recent terrorist attacks and the Newmont case however dont necessarily make Newcrest any less likely to get involved in new projects in Indonesia he said

One of the things weve done to mitigate risk is just to stay as low-profile as possible If you go to Jakarta you wont find a Newcrest office there and if I go there I go practically unannounced Palmer said

But SampPs Benard said the Newmont case if perceived to be flawed would have an impact on the countrys investment risk

Newmonts Australian managing director Paul Dowd blames anti-mining NGOs for funding a campaign that sparked the case He said scientific evidence shows that tumors skin rashes and dizziness among locals are likely the result of poor nutrition and hygiene rather than any poisoning

No matter the outcome Newmont is highly unlikely to vote with its feet on the issue given its $2 billion commitment in the Batu Hijau mine on Indonesias Sumbawa Island analysts said

However the worlds biggest gold miner may be less inclined to get involved in new projects in the country especially if Ness is found guilty

What sort of mining company wants to put their employees at risk when the evidence is clear that there has been no breach of environmental laws said Haydn Dare a partner in Freehills a legal firm representing Newmont

Others arent so convinced Indonesian authorities are acting capriciously in the case

Its unfortunate but I think there is more to that story than were all hearing from Newmont said Milan Jerkovic chief executive of Australias Straits Resources Ltd (SRLAU) which operates the Sebuku coal mine in Indonesia

Jerkovic said terrorism and the Newmont case would have little impact on Straits ability to raise funds for its Indonesian operations but said the company will look to build its asset base in less risky Australia before pursuing anything else in Indonesia

Case Puts Focus On Indonesian Legislation

The legal uncertainties spurred by the Newmont case also put the spotlight on Indonesias legislative uncertainties for foreign investors

Jerkovic and others are looking forward to a long-awaited mining code still under review that would replace the current work contract system with lease status thereby offering some tenure certainty

The current system means some work contracts require foreigners to reduce their ownership in projects to below 50 after a certain time Investors also complain of nuisance taxes created by provincial or local authorities

The new law while apparently still at an early stage of the legislative process is expected to boost the appeal of mining projects to prospective financial backers and unlock more of the countrys geological wealth

SampPs Benard said the overall operating environment in Indonesia still compares unfavorably with that of its neighbors but is slowly improving

Legal issues tax uncertainties security risks - these things dont change overnight Benard said

Even if you have an administration that is serious about improving investment conditions - and the current government is - you cant expect fast change

-By James Attwood Dow Jones Newswires 612-8235-2957 jamesattwooddowjonescom

Canadian Mining Company Buying Rival for $10 Billion By IAN AUSTEN 557 words 12 October 2005The New York TimesLate Edition ndash Final

OTTAWA Oct 11 -- Inco a Canadian mining company said Tuesday that it would acquire a rival Falconbridge to create the worlds largest nickel producer in a stock and cash deal valued at 12 billion Canadian dollars ($102 billion)

Inco will pay 34 Canadian dollars or 06713 Inco shares and 5 Canadian cents for each share of Falconbridge The transaction apparently thwarts the Swiss company Xstratas designs on Falconbridge Xstrata acquired just under 20 percent of the company in August and said it planned to increase its holdings

For a good part of our shared history a lot of people have been saying You know if only these two Canadian companies could get together what a great company that could be Scott M Hand Incos chief executive said Well that day has arrived

Under the plan devised by the two companies Inco will receive $320 million from Falconbridge if the takeover is not completed

While many analysts expect that Inco will ultimately be successful there was speculation that Inco may have to increase its bid which already represents about a 21 percent premium over what Xstrata paid for its Falconbridge shares

Inco is going to get it largely because no other company can offer the same synergies said Greg Barnes a mining analyst in Toronto for Canaccord Capital which is based in Vancouver But could Xstrata be difficult and force them to pay as much as possible I dont discount that possibility

Mr Hand who will be chief executive of the combined company and Derek G Pannell chief executive of Falconbridge suggested that they had not been in touch with Xstrata However Mr Pannell who will become president said during the news conference on the deal Xstrata will have made a lot of money on this deal and they certainly should be very happy A spokeswoman for Xstrata which is based in Zug Switzerland declined to comment

The takeover is subject to the approval of two-thirds of Falconbridges shareholders but it will not need ratification from Inco stakeholders

Stock in Falconbridge which is based in Toronto rose 377 Canadian dollars or 12 percent to 3459 Canadian dollars a share The combined company will produce 735 million pounds of nickel this year the companies said Russias Norilsk Nickel the current market leader expects to deliver 540 million pounds

The two executives said they expected to see immediate cost reductions of at least $350 million a year Much of that will come from consolidation in Sudbury Ontario where both companies have their main nickel operations

In an interview Mr Hand who has been with Inco for three decades said the traditional competitive rivalry between his company and Falconbridge probably delayed a merger many thought was desirable

But I dont have that hang-up and neither does Derek he added

Hand must fulfil new Incos promise David Olive Special to The Star 847 words 12 October 2005The Toronto Star

The Canadian mining business is reasserting itself as a global player after two decades of complacency in which one of the few events to command world attention was the Bre-X Minerals Ltd scandal

Teck Corp and Cominco Ltd combined in 2001 to create a base-metals giant Two years later Montreal-based Alcan Inc bought Frances Pechiney SA eclipsing Alcoa Inc as the worlds largest aluminum producer Peter Munk has abandoned a disappointing foray in real estate to reclaim for Barrick Gold Corp its world-leading status of the 1990s

Yesterday decades-old Sudbury neighbours Inco Ltd and Falconbridge Ltd announced a proposed merger worth more than $12 billion by which the new firm regains the Number 1 ranking in nickel that the old Inco lost in the 1990s to Russias OAO Norilsk Nickel

The proposed deal might not quite be one of the greatest acquisitions in mining history as were urged to believe by Scott Hand chief executive officer of the old Inco and expected to retain the post at the new firm pending shareholder and regulatory approval of the combination Hands description would better fit the mega-mergers by which the British triumvirate of BHP Billiton PLC

Rio Tinto PLC and Anglo-American PLC consolidated a fragmented industry in the 1990s and now dominate global mining

But yesterdays deal which will likelythwart 20 per cent Falconbridge owner Xstrata PLC of Switzerland from any further designs on the nickel miner is a promising combination Too many Canadian miners have been on autopilot for years with historic lows in commodity prices giving little incentive to expand capacity and too little capital to participate in the late-1990s consolidation wave

Complicating matters were the managerial distractions at Falconbridge and the former Noranda Inc of which Falconbridge was a partly owned subsidiary The process earlier this year by which Noranda bought out the Falconbridge minority and then took Falconbridge as a name was unnecessarily complicated

During that same period Falconbridge was obliged to help Brascan Corp (since renamed Brookfield Asset Management Inc) find someone to extricate it from a business with fundamentals Brascan was never able to command even 24 years after taking control of Noranda in a hostile takeover Vancouvers Teck Cominco Ltd for one kicked the tires at Noranda but wasnt impressed enough to buy China Minmetals Corp showed an interest in Noranda but was chased away by xenophobes in Parliament and the financial media before a deal could be consummated

Inco has its own distractions For almost a decade Inco suffered chronic setbacks in bringing its massive Voiseys Bay project into production butting heads with the Newfoundland government native groups and environmentalists Meanwhile the Goro development in New Caledonia was held up by cost overruns

But its funny how the hallmark reassurances that make one gag about better times soon can sometimes be taken to the bank In recent years the booming economies of China and India have pushed metal prices to record highs Inco and Falconbridge long obsessed with cutting costs to follow the sag in prices and protect dividends are now scrambling to boost supply Prices for most metals while easing a bit of late from exuberant highs of last year are forecast to remain strong enough to justify significant capacity expansion

The new challenge is to meet rising demand Hand said

Inco finally has begun to generate cash flow at Voiseys Bay and Goro should be on line by 2008 Inco now forecasts 35 per cent growth in nickel output to almost 1 billion pounds by 2090 and a near doubling in copper production to 26 billion pounds by 2011 Inco even sees a 14 per cent jump in nickel production from the venerable Sudbury basin where nickel lodged between Falconbridge and Inco properties can be cheaply exploited using existing ventilation shafts and other infrastructure

While reluctant yesterday to talk about asset disposals Falconbridge is a grab bag of assets a legacy of Brascans lack of interest A global industry still gripped by consolidation fever offers ample opportunity to shed such operations as a lucrative but peripheral aluminum fabrication business in the United States

The focus could be nickel and copper which would account for 82 per cent of the new Incos production and merit managements full attention

Meanwhile the widely held new Inco would remain a takeover target easy pickings for BHP for instance which could buy the merged company with just two years worth of earnings

That should be all the impetus Hand needs to get long-stalled projects into production get a dozen or so proposed expansion ventures off the drawing board and realize savings at the many sites worldwide where the old Inco and Falconbridge already operate in close quarters

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

Jerkovic said terrorism and the Newmont case would have little impact on Straits ability to raise funds for its Indonesian operations but said the company will look to build its asset base in less risky Australia before pursuing anything else in Indonesia

Case Puts Focus On Indonesian Legislation

The legal uncertainties spurred by the Newmont case also put the spotlight on Indonesias legislative uncertainties for foreign investors

Jerkovic and others are looking forward to a long-awaited mining code still under review that would replace the current work contract system with lease status thereby offering some tenure certainty

The current system means some work contracts require foreigners to reduce their ownership in projects to below 50 after a certain time Investors also complain of nuisance taxes created by provincial or local authorities

The new law while apparently still at an early stage of the legislative process is expected to boost the appeal of mining projects to prospective financial backers and unlock more of the countrys geological wealth

SampPs Benard said the overall operating environment in Indonesia still compares unfavorably with that of its neighbors but is slowly improving

Legal issues tax uncertainties security risks - these things dont change overnight Benard said

Even if you have an administration that is serious about improving investment conditions - and the current government is - you cant expect fast change

-By James Attwood Dow Jones Newswires 612-8235-2957 jamesattwooddowjonescom

Canadian Mining Company Buying Rival for $10 Billion By IAN AUSTEN 557 words 12 October 2005The New York TimesLate Edition ndash Final

OTTAWA Oct 11 -- Inco a Canadian mining company said Tuesday that it would acquire a rival Falconbridge to create the worlds largest nickel producer in a stock and cash deal valued at 12 billion Canadian dollars ($102 billion)

Inco will pay 34 Canadian dollars or 06713 Inco shares and 5 Canadian cents for each share of Falconbridge The transaction apparently thwarts the Swiss company Xstratas designs on Falconbridge Xstrata acquired just under 20 percent of the company in August and said it planned to increase its holdings

For a good part of our shared history a lot of people have been saying You know if only these two Canadian companies could get together what a great company that could be Scott M Hand Incos chief executive said Well that day has arrived

Under the plan devised by the two companies Inco will receive $320 million from Falconbridge if the takeover is not completed

While many analysts expect that Inco will ultimately be successful there was speculation that Inco may have to increase its bid which already represents about a 21 percent premium over what Xstrata paid for its Falconbridge shares

Inco is going to get it largely because no other company can offer the same synergies said Greg Barnes a mining analyst in Toronto for Canaccord Capital which is based in Vancouver But could Xstrata be difficult and force them to pay as much as possible I dont discount that possibility

Mr Hand who will be chief executive of the combined company and Derek G Pannell chief executive of Falconbridge suggested that they had not been in touch with Xstrata However Mr Pannell who will become president said during the news conference on the deal Xstrata will have made a lot of money on this deal and they certainly should be very happy A spokeswoman for Xstrata which is based in Zug Switzerland declined to comment

The takeover is subject to the approval of two-thirds of Falconbridges shareholders but it will not need ratification from Inco stakeholders

Stock in Falconbridge which is based in Toronto rose 377 Canadian dollars or 12 percent to 3459 Canadian dollars a share The combined company will produce 735 million pounds of nickel this year the companies said Russias Norilsk Nickel the current market leader expects to deliver 540 million pounds

The two executives said they expected to see immediate cost reductions of at least $350 million a year Much of that will come from consolidation in Sudbury Ontario where both companies have their main nickel operations

In an interview Mr Hand who has been with Inco for three decades said the traditional competitive rivalry between his company and Falconbridge probably delayed a merger many thought was desirable

But I dont have that hang-up and neither does Derek he added

Hand must fulfil new Incos promise David Olive Special to The Star 847 words 12 October 2005The Toronto Star

The Canadian mining business is reasserting itself as a global player after two decades of complacency in which one of the few events to command world attention was the Bre-X Minerals Ltd scandal

Teck Corp and Cominco Ltd combined in 2001 to create a base-metals giant Two years later Montreal-based Alcan Inc bought Frances Pechiney SA eclipsing Alcoa Inc as the worlds largest aluminum producer Peter Munk has abandoned a disappointing foray in real estate to reclaim for Barrick Gold Corp its world-leading status of the 1990s

Yesterday decades-old Sudbury neighbours Inco Ltd and Falconbridge Ltd announced a proposed merger worth more than $12 billion by which the new firm regains the Number 1 ranking in nickel that the old Inco lost in the 1990s to Russias OAO Norilsk Nickel

The proposed deal might not quite be one of the greatest acquisitions in mining history as were urged to believe by Scott Hand chief executive officer of the old Inco and expected to retain the post at the new firm pending shareholder and regulatory approval of the combination Hands description would better fit the mega-mergers by which the British triumvirate of BHP Billiton PLC

Rio Tinto PLC and Anglo-American PLC consolidated a fragmented industry in the 1990s and now dominate global mining

But yesterdays deal which will likelythwart 20 per cent Falconbridge owner Xstrata PLC of Switzerland from any further designs on the nickel miner is a promising combination Too many Canadian miners have been on autopilot for years with historic lows in commodity prices giving little incentive to expand capacity and too little capital to participate in the late-1990s consolidation wave

Complicating matters were the managerial distractions at Falconbridge and the former Noranda Inc of which Falconbridge was a partly owned subsidiary The process earlier this year by which Noranda bought out the Falconbridge minority and then took Falconbridge as a name was unnecessarily complicated

During that same period Falconbridge was obliged to help Brascan Corp (since renamed Brookfield Asset Management Inc) find someone to extricate it from a business with fundamentals Brascan was never able to command even 24 years after taking control of Noranda in a hostile takeover Vancouvers Teck Cominco Ltd for one kicked the tires at Noranda but wasnt impressed enough to buy China Minmetals Corp showed an interest in Noranda but was chased away by xenophobes in Parliament and the financial media before a deal could be consummated

Inco has its own distractions For almost a decade Inco suffered chronic setbacks in bringing its massive Voiseys Bay project into production butting heads with the Newfoundland government native groups and environmentalists Meanwhile the Goro development in New Caledonia was held up by cost overruns

But its funny how the hallmark reassurances that make one gag about better times soon can sometimes be taken to the bank In recent years the booming economies of China and India have pushed metal prices to record highs Inco and Falconbridge long obsessed with cutting costs to follow the sag in prices and protect dividends are now scrambling to boost supply Prices for most metals while easing a bit of late from exuberant highs of last year are forecast to remain strong enough to justify significant capacity expansion

The new challenge is to meet rising demand Hand said

Inco finally has begun to generate cash flow at Voiseys Bay and Goro should be on line by 2008 Inco now forecasts 35 per cent growth in nickel output to almost 1 billion pounds by 2090 and a near doubling in copper production to 26 billion pounds by 2011 Inco even sees a 14 per cent jump in nickel production from the venerable Sudbury basin where nickel lodged between Falconbridge and Inco properties can be cheaply exploited using existing ventilation shafts and other infrastructure

While reluctant yesterday to talk about asset disposals Falconbridge is a grab bag of assets a legacy of Brascans lack of interest A global industry still gripped by consolidation fever offers ample opportunity to shed such operations as a lucrative but peripheral aluminum fabrication business in the United States

The focus could be nickel and copper which would account for 82 per cent of the new Incos production and merit managements full attention

Meanwhile the widely held new Inco would remain a takeover target easy pickings for BHP for instance which could buy the merged company with just two years worth of earnings

That should be all the impetus Hand needs to get long-stalled projects into production get a dozen or so proposed expansion ventures off the drawing board and realize savings at the many sites worldwide where the old Inco and Falconbridge already operate in close quarters

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

While many analysts expect that Inco will ultimately be successful there was speculation that Inco may have to increase its bid which already represents about a 21 percent premium over what Xstrata paid for its Falconbridge shares

Inco is going to get it largely because no other company can offer the same synergies said Greg Barnes a mining analyst in Toronto for Canaccord Capital which is based in Vancouver But could Xstrata be difficult and force them to pay as much as possible I dont discount that possibility

Mr Hand who will be chief executive of the combined company and Derek G Pannell chief executive of Falconbridge suggested that they had not been in touch with Xstrata However Mr Pannell who will become president said during the news conference on the deal Xstrata will have made a lot of money on this deal and they certainly should be very happy A spokeswoman for Xstrata which is based in Zug Switzerland declined to comment

The takeover is subject to the approval of two-thirds of Falconbridges shareholders but it will not need ratification from Inco stakeholders

Stock in Falconbridge which is based in Toronto rose 377 Canadian dollars or 12 percent to 3459 Canadian dollars a share The combined company will produce 735 million pounds of nickel this year the companies said Russias Norilsk Nickel the current market leader expects to deliver 540 million pounds

The two executives said they expected to see immediate cost reductions of at least $350 million a year Much of that will come from consolidation in Sudbury Ontario where both companies have their main nickel operations

In an interview Mr Hand who has been with Inco for three decades said the traditional competitive rivalry between his company and Falconbridge probably delayed a merger many thought was desirable

But I dont have that hang-up and neither does Derek he added

Hand must fulfil new Incos promise David Olive Special to The Star 847 words 12 October 2005The Toronto Star

The Canadian mining business is reasserting itself as a global player after two decades of complacency in which one of the few events to command world attention was the Bre-X Minerals Ltd scandal

Teck Corp and Cominco Ltd combined in 2001 to create a base-metals giant Two years later Montreal-based Alcan Inc bought Frances Pechiney SA eclipsing Alcoa Inc as the worlds largest aluminum producer Peter Munk has abandoned a disappointing foray in real estate to reclaim for Barrick Gold Corp its world-leading status of the 1990s

Yesterday decades-old Sudbury neighbours Inco Ltd and Falconbridge Ltd announced a proposed merger worth more than $12 billion by which the new firm regains the Number 1 ranking in nickel that the old Inco lost in the 1990s to Russias OAO Norilsk Nickel

The proposed deal might not quite be one of the greatest acquisitions in mining history as were urged to believe by Scott Hand chief executive officer of the old Inco and expected to retain the post at the new firm pending shareholder and regulatory approval of the combination Hands description would better fit the mega-mergers by which the British triumvirate of BHP Billiton PLC

Rio Tinto PLC and Anglo-American PLC consolidated a fragmented industry in the 1990s and now dominate global mining

But yesterdays deal which will likelythwart 20 per cent Falconbridge owner Xstrata PLC of Switzerland from any further designs on the nickel miner is a promising combination Too many Canadian miners have been on autopilot for years with historic lows in commodity prices giving little incentive to expand capacity and too little capital to participate in the late-1990s consolidation wave

Complicating matters were the managerial distractions at Falconbridge and the former Noranda Inc of which Falconbridge was a partly owned subsidiary The process earlier this year by which Noranda bought out the Falconbridge minority and then took Falconbridge as a name was unnecessarily complicated

During that same period Falconbridge was obliged to help Brascan Corp (since renamed Brookfield Asset Management Inc) find someone to extricate it from a business with fundamentals Brascan was never able to command even 24 years after taking control of Noranda in a hostile takeover Vancouvers Teck Cominco Ltd for one kicked the tires at Noranda but wasnt impressed enough to buy China Minmetals Corp showed an interest in Noranda but was chased away by xenophobes in Parliament and the financial media before a deal could be consummated

Inco has its own distractions For almost a decade Inco suffered chronic setbacks in bringing its massive Voiseys Bay project into production butting heads with the Newfoundland government native groups and environmentalists Meanwhile the Goro development in New Caledonia was held up by cost overruns

But its funny how the hallmark reassurances that make one gag about better times soon can sometimes be taken to the bank In recent years the booming economies of China and India have pushed metal prices to record highs Inco and Falconbridge long obsessed with cutting costs to follow the sag in prices and protect dividends are now scrambling to boost supply Prices for most metals while easing a bit of late from exuberant highs of last year are forecast to remain strong enough to justify significant capacity expansion

The new challenge is to meet rising demand Hand said

Inco finally has begun to generate cash flow at Voiseys Bay and Goro should be on line by 2008 Inco now forecasts 35 per cent growth in nickel output to almost 1 billion pounds by 2090 and a near doubling in copper production to 26 billion pounds by 2011 Inco even sees a 14 per cent jump in nickel production from the venerable Sudbury basin where nickel lodged between Falconbridge and Inco properties can be cheaply exploited using existing ventilation shafts and other infrastructure

While reluctant yesterday to talk about asset disposals Falconbridge is a grab bag of assets a legacy of Brascans lack of interest A global industry still gripped by consolidation fever offers ample opportunity to shed such operations as a lucrative but peripheral aluminum fabrication business in the United States

The focus could be nickel and copper which would account for 82 per cent of the new Incos production and merit managements full attention

Meanwhile the widely held new Inco would remain a takeover target easy pickings for BHP for instance which could buy the merged company with just two years worth of earnings

That should be all the impetus Hand needs to get long-stalled projects into production get a dozen or so proposed expansion ventures off the drawing board and realize savings at the many sites worldwide where the old Inco and Falconbridge already operate in close quarters

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

Rio Tinto PLC and Anglo-American PLC consolidated a fragmented industry in the 1990s and now dominate global mining

But yesterdays deal which will likelythwart 20 per cent Falconbridge owner Xstrata PLC of Switzerland from any further designs on the nickel miner is a promising combination Too many Canadian miners have been on autopilot for years with historic lows in commodity prices giving little incentive to expand capacity and too little capital to participate in the late-1990s consolidation wave

Complicating matters were the managerial distractions at Falconbridge and the former Noranda Inc of which Falconbridge was a partly owned subsidiary The process earlier this year by which Noranda bought out the Falconbridge minority and then took Falconbridge as a name was unnecessarily complicated

During that same period Falconbridge was obliged to help Brascan Corp (since renamed Brookfield Asset Management Inc) find someone to extricate it from a business with fundamentals Brascan was never able to command even 24 years after taking control of Noranda in a hostile takeover Vancouvers Teck Cominco Ltd for one kicked the tires at Noranda but wasnt impressed enough to buy China Minmetals Corp showed an interest in Noranda but was chased away by xenophobes in Parliament and the financial media before a deal could be consummated

Inco has its own distractions For almost a decade Inco suffered chronic setbacks in bringing its massive Voiseys Bay project into production butting heads with the Newfoundland government native groups and environmentalists Meanwhile the Goro development in New Caledonia was held up by cost overruns

But its funny how the hallmark reassurances that make one gag about better times soon can sometimes be taken to the bank In recent years the booming economies of China and India have pushed metal prices to record highs Inco and Falconbridge long obsessed with cutting costs to follow the sag in prices and protect dividends are now scrambling to boost supply Prices for most metals while easing a bit of late from exuberant highs of last year are forecast to remain strong enough to justify significant capacity expansion

The new challenge is to meet rising demand Hand said

Inco finally has begun to generate cash flow at Voiseys Bay and Goro should be on line by 2008 Inco now forecasts 35 per cent growth in nickel output to almost 1 billion pounds by 2090 and a near doubling in copper production to 26 billion pounds by 2011 Inco even sees a 14 per cent jump in nickel production from the venerable Sudbury basin where nickel lodged between Falconbridge and Inco properties can be cheaply exploited using existing ventilation shafts and other infrastructure

While reluctant yesterday to talk about asset disposals Falconbridge is a grab bag of assets a legacy of Brascans lack of interest A global industry still gripped by consolidation fever offers ample opportunity to shed such operations as a lucrative but peripheral aluminum fabrication business in the United States

The focus could be nickel and copper which would account for 82 per cent of the new Incos production and merit managements full attention

Meanwhile the widely held new Inco would remain a takeover target easy pickings for BHP for instance which could buy the merged company with just two years worth of earnings

That should be all the impetus Hand needs to get long-stalled projects into production get a dozen or so proposed expansion ventures off the drawing board and realize savings at the many sites worldwide where the old Inco and Falconbridge already operate in close quarters

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

Hand 63 has one last shot before retirement or an Inco takeover closes his career to actually create what he kept describing yesterday as a powerhouse

NORILSK NICKEL to Lose Preeminence 99 words 12 October 2005Novecon

Russias NORILSK NICKEL will soon cease to be the worlds leading nickel supplier now that the Canadian INCO has announced the purchase of FALCONBRIDGE another Canadian nickel supplier for $106 billion When the merger is finalised INCO will become the world leader in nickel supplies and thus push NORNICKEL to No 2 The merger is to be finalised by early 2006 Russian NORILSK NICKEL has targeted a 240000-245000 tonne nickel output this year and the integrated INCO LTD a 333400 tonne output Source VEDOMOSTI October 12 2005

Rich rewards for riding rollercoaster - A new model for participation by foreign companies has been seen in recent months driven by political priorities By NEIL BUCKLEY 1486 words 11 October 2005Financial Times

Russias main stock market index celebrated its 10th anniversary last month in appropriate style by hitting a new record Investors who had bought the RTS index at its launch - and held on - would have increased their money nine times over

Look at the path of the markets progress however and it is clear just what a rollercoaster ride investing in Russia has been Few world markets have offered such rewards yet few have suffered such reverses

The two years since Mikhail Khodorkovsky the former Yukos oil chief was arrested at gunpoint on a Siberian runway have been as volatile as any

Over that time after all Russia has sentenced its most successful post-Communist businessman to eight years in jail and partly re-nationalised his oil company Russias biggest its tax police have slapped a Dollars 1bn back tax claim on its biggest foreign investor the TNK-BP oil joint venture and pursued many other companies with guerrilla-style tactics and Russia has signalled restrictions on international companies investing in its most lucrative field - oil

Yet the past six months have seen one of those extraordinary mood changes so characteristic of the Russian market

President Vladimir Putin has made conciliatory gestures to Russias remaining oligarchs and promised to improve the business climate and rein in the over-zealous tax police TNK-BPs back tax liability has been slashed by 70 per cent

With oil at over Dollars 60 a barrel boosting the earnings outlook for Russias oil companies and promised moves towards lifting restrictions on foreign investment in the free float of Gazprom the monopoly state gas giant set to bring billions of dollars of new money into the market the RTS index is soaring again and broke through the landmark 1000 barrier at the end of last month

Robert Dudley TNK-BPs chief executive captures the mood I feel the situation has improved he says There is less uncertainty today than there was six months ago As we are planning for the next five years we are not cutting back on investment This is probably the best indication of our confidence

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

So how are investors to make sense of all these contradictory signals

The trial of Mr Khodorkovsky is now seen as falling within the rules of the game Mr Putin established shortly after he came to power in 2000 By straying too far into politics Mr Khodorkovsky breached the presidents famous bargain with the oligarchs that he would overlook the dubious ways they built their business empires in the murky privatisations of the 1990s In return they had to stay out of politics stop bribing officials and pay their taxes

The second part of the Yukos attack - the forced sale of its biggest production unit Yuganskneftegaz to state-owned Rosneft - does seem part of something new That is the move by the state to reassert control of strategic sectors of the economy - above all energy and natural resources

Last months Dollars 131bn deal by Gazprom to buy Roman Abramovichs Sibneft Russias fifth-largest oil producer is part of the same trend although Mr Abramovich who had earlier tried to sell his company to Yukos seems a more or less willing seller

Another manifestation is the draft law restricting participation in tenders to exploit Russias biggest oil gas and mineral deposits to companies at least 51 per cent Russian-owned Officials say the number of fields affected would be in single digits But these are of course the most attractive assets

Gazprom and Rosneft the state-controlled twin giants of Russian oil and gas will have foreign investors - though in the minority And that seems to be the rule Few now believe a 50-50 deal like that which created TNK-BP in 2003 would be politically acceptable now Lukoil where ConocoPhillips of the US took a minority stake late last year may be the model

However officials and many foreign observers con-

cede that Russia having had an unusually open oil industry in the past decade is only moving back into line with most of the worlds biggest oil-producing countries

Its just catching up with the bad practice of the rest of the world says Stephen Jennings chief executive of Renaissance Capital the investment bank

A bid by Siemens of Germany to buy a big stake in Power Machines a turbine maker which was blocked on national security grounds as Power Machines supplies nuclear submarines would similarly have been blocked in the US and many other countries analysts add

These then are the new rules Foreign investors look likely to be allowed only minority stakes in oil and gas metals and minerals and some defence and aerospace industries

But in much of the economy - manufacturing telecoms and the booming consumer goods retail and autos sectors there seem no such barriers

With those rules in mind just how attractive a place is Russia to invest

The picture as always is mixed Record oil prices and the governments fiscal discipline have transformed public finances

Seven years after the 1998 financial crisis Russia has Dollars 150bn in gold and currency reserves including Dollars 30bn in a stabilisation fund containing windfall revenues from oil taxes A budget surplus of 7 per cent is projected this year and one of 32 per cent next year

Economic growth has averaged 67 per cent a year over six years and in spite of lower forecasts earlier in 2005 many economists now believe it could pass 6 per cent again this year

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS

The downsides include an economic reform programme that has now largely stalled

Partly that reflects a shift in the balance of power in the presidents entourage from liberals to more conservative former members of the security forces the siloviki Partly it stems from the botched implementation of social benefits changes that provoked demonstrations by pensioners in January With parliamentary elections in 2007 and presidential elections in 2008 Mr Putins team is shrinking from further potentially unpopular reforms

What was done from 2000 to 2002 was genuinely positive and important says Yegor Gaidar Russias former deputy prime minister Now the ability and willingness of the authorities to promote reform are minimal

Also with an eye on the elections the government is increasing spending significantly next year While that will see some of Russias new-found wealth at last being spent on schools hospitals and housing it risks fuelling inflation still above the governments double digit target

Corruption and bureaucracy meanwhile remain a drag on businesses particularly small and medium sized ones

Yet many investors have decided the rewards outweigh the risks In addition to the Moscow stock market rally foreign investors appetite for Russian equities has been proved by a wave of highly successful initial public offerings - mostly on the London and New York stock exchanges Russian companies have raised Dollars 4bn in IPOs in 12 months compared with Dollars 13bn in the previous 10 years

The latest IPO a Dollars 1bn offering by Novatek an independent gas producer was more than 10 times oversubscribed

Foreign direct investment in the first half was a record Dollars 93bn against Dollars 118bn for the whole of last year Coca-Cola and Heineken have made acquisitions in consumer goods DaimlerChrysler and Toyota have announced plans to build car assembly plants Dixons the UK electrical retailer took an option to acquire Eldorado a Russian chain for Dollars 19bn by 2011

You have to really try hard to stop people doing business here concludes Al Breach economist at Brunswick UBS because it is just so damned profitable to do it

Five years into Mr Putins presidency Mr Jennings of Renaissance Capital believes the president has shown himself to be a stabiliser more than a moderniser Business however has gained a momentum of its own

Many Russian companies he says are now extremely well run and there is a growing pool of talented and internationally trained Russian managers Young people who were streaming out of the country after the 1998 financial crisis are coming back

Ultimately the developing generation of businesses not the oligarchic capitalism of the 1990s and expanding middle class will bring irresistible pressure for a better business environment - and perhaps for political loosening too

The chances are high that things will keep moving in the right direction because of the changes in society says Mr Jennings At some point these conditions will demand a much more liberal and modernising leader We just dont know whether that is going to be the next one or the one after

• IN THE NEWS