Bogolyubov shows steel in global pursuit of manganese

By bne IntelliNews August 16, 2011

Graham Stack in Kyiv -

Manganese may not have the same ring to it as oil, gold or even iron ore, but Ukraine's banking and fuel magnate Gennady Bogolyubov, co-founder of Privat Bank and its associated industrial group, earmarked the metal over a decade ago as a way of getting exposure to China's addiction to steel.

Manganese is a non-substitutable ingredient in the steel production process, which accounts for around 90% of demand for the metal. And five years after Bogolyubov's first foray into the metal, it featured on a survey of objects worldwide that the US regards as crucial to its security, as revealed by a diplomatic cable published by the Wikileaks site. The list cited both the Australian and Ghana manganese ore assets now mined by Bogolyubov, as well as Ukrainian ferroalloy refining capacities that process ore.

Experts put Bogolyubov's market share of global manganese ore production at 10% and of ferroalloys - the step up in the refining process - at 20-30%. And Bogolyubov's Australia-listed Consolidated Minerals (Consmin) concern is now locked in a corporate struggle to set up the world's largest manganese ore play, one that would be capable of setting prices on the market.

Privat group's manganese interests started as a domestic story. It was a dispute over ownership of Ukraine's manganese refining assets in August 2005 that split the alliance between the then president Viktor Yushchenko and his prime minister Yulia Tymoshenko, which derailed the "Orange Revolution" that had brought them both to power at the beginning of the year.

The winner was Privat group, who with Tymoshenko's support took the Nikopol Ferroalloy plant from Viktor Pinchuk, son-in-law of the previous president Leonid Kuchma. Then, as the Chinese boom went into overdrive, pushing up steel prices and raw materials, Bogolyubov went global in the pursuit of manganese assets. He first took control of Australia-listed manganese miner Consolidated Minerals in 2007 for $1.2bn after an epic 18-month buyout battle, and has since added assets in Romania and the US.

Down under

Most manganese ore mining is the preserve of the diversified global mining giants such as BHP Billiton and Xstrata. Consmin and another Australia-listed miner OM Holdings are the dominant purely manganese plays. Given Privat group's reputation for hostile takeovers, there was no surprise when, within months of taking over Consmin, Bogoluybov built up a 11.7% stake in OM Holdings, which is headquartered in Singapor and owns a ferroalloy refinery in China in Qinzhou.

Bogolyubov's move was denounced as a hostile takeover by OM's board of directors, which changed its articles to protect against Bogolyubov, who launched lawsuits in response. Peace then suddenly broke out in April 2010, with the sensational announcement of merger plans between Consmin and OM to create, "the world's second largest low-phosphorous siliceous high-grade manganese ore producer."

But in October 2010, the two sides announced that talks had ended without agreement and hostilities quickly resumed. In April, OM announced a $400m share issue in Hong Kong, which Bogolyubov claimed was intended to dilute his stake and so tried to block with a court action in Australia. The Ukrainian was not the only minority fearing dilution it seems: since the announcement, the OM share price has plummeted by 30%, lending grist to Bogolyubov's mill.

On July 6, as a number of court proceedings and investigations in Australia and Hong Kong took their toll, OM called off the share issue, referring to adverse market conditions, and handing Bogolyubov a major victory.

Now the Ukrainian is leading the charge calling for an extraordinary general meeting (EGM) meeting to make changes to the OM board. "The performance of OM in the midst of a global mining boom, and overall strong demand for manganese is unacceptable, and shareholders need to enact board change now," Bogolyubov said August 2, according to Consmin's press service.

Bogolyubov's references to "the identity of key shareholders" are thought to refer to concerns that OM's key shareholders are in fact mainland Chinese interests, rather than the Singapor married couple Low Ngee Tong and wife Heng Siow Kwee, who claim they are the majorities.

OM responded by refuting the allegations, and pointing to technical non-compliance with stock exchange regulations for an EGM requisition, in particular because Bogoylubov exceeded a 1,000-word limit by 300 words. Bogolyubov's representatives say this is only true if the word count includes the annexed biographies of two proposed new independent directors.

OM CEO Andreas Toth was quoted by Australian media as describing Bogolyubov's EGM move part of "an endless supply of legal and corporate antics to frustrate, slow down, undermine and de-stabilise the company from executing its strategic initiatives at a critical point in time."

Toth had some good second-quarter results to support him, with the company reporting a "record-smashing" output of 261,000 tonnes in the second quarter from its mainstay Bootu Creek mine in the Northern Territory, Australia - 14% ahead of any previous figure. But the results only brought a short respite to the share price fall.

OM now has until August 15 to call the EGM, after which date Consmin claims it has the right itself to call a meeting. Bogolyubov is pushing for executive chairman Low Ngee Tong and an independent director, Tan Peng Chin, to be replaced by two upstanding and plausibly independent Australians as directors, with the risk that if his demands are denied, the share price will drop further.

Things thus seem topsy-turvy: down under Privat group is positioning itself as a fighter for transparency; in Ukraine the group has long been known for its opaque ability to control management and finances at the country's biggest oil producer Ukrtatnafta, despite the state being the majority shareholder.

However, one thing stays the same whether north or south hemisphere: Privat group's uncanny ability to get what they want.

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