Severstal Said to Consider IPO for Gold-Mining Unit Next Year
By Ilya Khrennikov
https://www.bloomberg.com/apps/news?pid=20601012&sid=ahiBSQbf9qvA
Dec. 16 (Bloomberg) -- OAO Severstal, Russia’s largeststeelmaker, is considering whether to sell shares of its gold-mining unit after the price of the metal rose to a record, saidtwo people familiar with the situation.
Severstal may hold an initial public offering late nextyear or in early 2011, said the people, who declined to beidentified because the deliberations are private. Severstalcreated a separate company, OOO Severstal Gold, in October tomanage assets including a controlling stake in Toronto-basedHigh River Gold Mines Ltd., one of the people said. The locationfor a potential IPO hasn’t been chosen, the people said.
Severstal’s billionaire owner Alexei Mordashov, 44, vowedin 2007 to turn the company into Russia’s third-biggest goldminer. The gold unit is worth about $1.5 billion, said BarryEhrlich, an analyst at Alfa Bank in Moscow.
“Severstal is the only steelmaker I know of that has goldassets on its balance sheet,” said Denis Evstratenko, anassociate director at Prosperity Capital Management Ltd. inMoscow, which invests in Russian companies and manages $3.5billion of assets. “From the very beginning, Severstal plannedto spin off the gold assets some day.”
Russian companies may raise more than $20 billion sellingshares in 2010 as they repair balance sheets and resumeexpansion after the deepest recession on record ends, RubenAganbegyan, president of Russian investment bank RenaissanceCapital in Moscow, said in an interview last week.
Foreign Acquisitions
An attempt by Russia’s United Co. Rusal, the world’slargest aluminum producer, to sell as much as $3 billion ofshares in Hong Kong this month failed to get approval from thecity’s stock exchange.
Severstal had $7.9 billion debt as of Sept. 30. It spent $4billion since 2006 buying U.S. and European steel assets. TheCherepovets-based company’s foreign operations haven’t beenprofitable in four straight quarters, after steel prices fell.
Severstal depositary receipts rose 56 cents, or 6.8percent, to $8.85 as of 3:24 p.m. in London. They have tripledthis year, valuing the steelmaker at $8.9 billion.
The company has 13.8 million ounces of gold resources,according to an Alfa Bank in November. Output will be as much as550,000 ounces this year, Severstal’s Chief Financial OfficerAlexey Kulichenko said in a Sept. 7 conference call.
Gold has jumped 28 percent this year as the weaker dollarboosted the metal’s appeal to investors seeking an alternativeinvestment. It traded at a record $1,226.56 an ounce on Dec 3.
Siberian Output
Severstal paid 300 million euros ($437 million) in October2007 for the Siberian gold assets belonging to investmentcompany Arlan, according to Rob Edwards, an analyst atRenaissance Capital in Moscow. It also spent $325 million in2007 and 2008 to acquire and delist London-based gold minerCeltic Resources Holdings Plc. Mordashov said in 2007 Severstalcould hold an IPO or sell the unit.
Severstal owns 50.1 percent of High River, which mines goldin Siberia and Burkina Faso. A 30 Canadian-cent-per-share offermade by Severstal to minority investors in High River failed inAugust after too few shareholders accepted the bid. High Riverclosed yesterday at 50 cents.
High River’s rally since August indicates investors areanticipating another, higher offer, said Vadim Ogneshchikov, amanager at Deutsche UFG Asset Management in Moscow.
Instead of an IPO and buying out the High River minorities,Severstal could sell its other gold assets to High River,increasing the steelmaker’s stake in the Canadian company,Renaissance’s Edwards said.
To contact the reporter on this story:Ilya Khrennikov in Moscowikhrennikov@bloomberg.net
Last Updated: December 16, 2009 10:44 EST