EDITOR: | September 12th, 2013 | 5 Comments

Why Russia’s Far Eastern REE Gambit Will Succeed

| September 12, 2013 | 5 Comments
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russia reeUnder the headline “Russia to invest $1 billion in rare earths to cut dependence on China,” Reuters reports that:

“Rostec and IST group, an investment company belonging to Russian tycoon Alexander Nesis, have agreed to invest $1 billion in rare earths production by 2018, they said in a statement on Tuesday.

Rostec aims to cover Russian demand for these raw materials by 2017, the company added.

‘The (Russian) President (Vladimir Putin) and the government have set a task to expand rare earths production as Russia’s stocks are almost depleted,’ a source in state industrial and defense conglomerate Rostec told Reuters…”

That’s the top line, as the saying goes. Dig a little deeper, and there is strong reason to bet on the success of the new Russian REE venture. IST’s partner, Rostec, is headed by Sergei Chemezov, former KGB colleague of Vladimir Putin during the latter’s Cold-War-era East German tour. The secretive state conglomerate controls hundreds of subsidiaries in Russia’s defense technology sector.

As part of the deal, IST will gain control of more than 80,000 tons of rare earth-bearing monazite concentrate that has been sitting in a Central Urals warehouse since Soviet days. These “monocyte sands” have been stashed in a state reserve facility, reportedly put there by direct order of Stalin’s ruthless chief of secret police, Lavrentiy Beriya.

In contrast to US mine projects, saddled with a world-worst permitting process that runs seven to ten years, Reuters and other news reports simply state that mining will commence in 2017. With the right investors, it appears Russian mine permitting has its own E-Z Pass lane. With Mr. Nesis at the helm, the project has an industrial oligarch whose other companies — that’s Nesis, beaming as President Putin signs the first freight car to roll off the line of a Nesis plant — have earned the Russian President’s praise.

putin_at_tikhvin_opening

Russian President Vladimir Putin

Of course a large part of business success is knowing not only when to jump into a new venture, but when to exit an old one. On this front, Mr. Nesis is a remarkably shrewd investor. Initially a 9.9% investor in Ukraine’s Uralkali — the potash producer in the news now, as its CEO has been arrested in Belarus — Nesis trimmed his stake by over 4% in April, when shares were trading around USD$36, (netting around $1 billion) and exited Uralkali altogether in mid- to late-June, when the share price was hovering around USD$32 (another take of nearly $1 billion). Little more than a month later, Uralkali’s shares dropped to a low of USD$21; a month after that, Uralkali’s CEO was arrested in Minsk. Suleiman Kerimov, the oligarch who back in 2010 took an equal stake to Mr. Nesis when they bought into Uralkali, is now subject to an arrest warrant in Belarus, and just this week is reported to be shopping his stake in the company.

If that all seems very hard to follow, that’s the point: Don’t expect much transparency for the new Russian REE venture, at least in its present configuration. Russia’s Far-Eastern REE play is a strategic matter, which means it stays close to President Putin’s inner circle, with all the palace intrigue that comes with that.

The big picture: like China, Russia is taking steps to secure its supply of a strategic group of elements, critical to technology and military applications. That they will do it in “the Russian way” should come as no surprise. Let’s reserve our surprise for how little top-level attention critical metals issues receive in Washington.


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Comments

  • Dave

    How about Stans Energy?

    September 12, 2013 - 2:28 PM

  • Veritas Bob

    I’m not clear how much of the $1 billion investment is 1) to obtain control over and 2) process the concentrate in the Urals warehouse vs. other rare earth production activities (to include mining).

    September 12, 2013 - 3:22 PM

  • J. Best

    Am I the only one who finds it interesting that Nesis managed to get out in the ‘nick of time’ as they say. Appears as though he saw where this was headed… or should I say knew where this was headed?

    September 12, 2013 - 4:02 PM

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  • Stephan B. Feibish

    To me the take away is that Russia’s stocks are becoming depleted. What’s a billion in this business 🙂

    September 23, 2013 - 6:36 PM

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