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LSE: BRIEF-Russia's Highland Gold sees output rising in 2010

MOSCOW, Feb 3 (Reuters) - Highland Gold:

* Mnogovershinnoye mine produced 163,208 oz of gold in 2009, up 2.7 pct yr/yr

* Novoshirokinskoye mine to produce first concentrate in Q1 2010

* Sees total output in 2010 at 200,000-210,000 oz of gold and gold equivalents

(Moscow Newsroom, + 7 495 775 12 42, moscow.newsroom@reuters.com)

Cbonds.info: S&P: Russian Diamond Miner ALROSA Ratings Reinstated After Providing Financial And Operating Data; Rated 'B+/B'; Outlook Pos

MOSCOW (Standard & Poor's) Feb. 2, 2010--Standard & Poor's Ratings Services said today that it had reinstated its long-term corporate credit rating on Russian diamond miner ALROSA Co. Ltd. (Alrosa) at 'B+' and the short-term rating at 'B'. We suspended the ratings on April 7, 2009. For further details, see the article titled "Russian Diamond Miner ALROSA Co. Ltd. 'BB-/B' Ratings Suspended On Lack Of Current Operating And Financial Data," published April 7, 2009, on RatingsDirect. The outlook is positive. The reinstatement follows our receipt of sufficient financial and operating data on Alrosa to surveil the company and assess ratings.

We also reinstated our 'B+' rating on Alrosa's $500 million Eurobond and 'B' short-term rating on Alrosa's commercial paper program. The '4' recovery ratings on the Eurobond was also reinstated.

The 'B+' long-term rating is based on Alrosa's stand-alone credit profile, which we assesses at 'CCC+', as well as on our opinion that there is a "high" likelihood that the government of the Russian Federation (foreign currency BBB/Stable/A-3, local currency BBB+/Stable/A-2; Russia national scale 'ruAAA') would provide timely and sufficient extraordinary support to Alrosa in the event of financial distress. ," said Standard & Poor's credit analyst Andrey Nikolaev.

Our view of a "high" likelihood of extraordinary government support is based on our assessment of Alrosa's:
• "Important" role for the Russian economy, reflecting its monopoly position in diamond mining in Russia and its status as the largest employer and taxpayer in Yakutia (the Republic of Sakha {BB/Negative/--; Russia national scale 'ruAA-'}), which, together with local governments, controls 40% of the company.
• "Very Strong" link with the Russian Federal government, its 50.02% shareholder, which controls its strategy and operations. Our assessment of the link with the government is also based on senior government officials' high degree of involvement--including that of Russian Deputy Prime Minister and Finance Minister Alexei Kudrin as the company's chairman in Alrosa's strategic decision-making.

Our assessment of the likelihood of timely and sufficient extraordinary government support is further underpinned by support provided in 2008-2009 through substantial loans from state-owned JSC VTB Bank (BBB/Negative/A-3; Russia national scale 'ruAAA') and Alrosa being able to sell its diamonds to the State Diamond And Precious Metals Reserve (Gokhran).

Our view of a 'CCC+' stand-alone credit profile is based on our assessment of Alrosa's business risk profile as "weak" and its financial risk profile as "highly leveraged"

Alrosa's business risk profile is constrained by the commodity-type nature and capital-intensiveness of the diamond-mining industry, which was exacerbated by the weak demand for rough diamonds in 2009. Business risk is further constrained by the harsh operating conditions in Yakutia, where Alrosa's operations are concentrated.

Alrosa's business risk profile is supported by the diamond-mining industry's concentrated structure, where the two largest players control about 70% of the world market. The industry also has high barriers to entry due to scarcity of diamond deposits and capital intensiveness. Alrosa's key competitive advantage is a substantial and high-quality reserve base. The company enjoys a 25% global market share and a near monopoly in Russia.

Alrosa's financial risk profile is pressured by "very weak" liquidity in our view and a highly leveraged capital structure.

On the positive side, the new management appointed in third-quarter 2009 was able to substantially decrease debt in the second half of 2009 through sales of noncore assets and positive free operating cash flow generation. We also understand that the peak of investments in underground mining passed in 2007-2008 and we anticipate that the company should be able to generate neutral or positive free operating cash flow in 2010-2011. We therefore expect leverage to gradually decrease, although this will depend on the stabilization of diamond market conditions.

The positive outlook reflects the possibility of an upgrade in the next six to 12 months, if Alrosa is able to meaningfully improve its liquidity through long-term debt issuance and if diamond-market conditions remain stable," said Mr. Nikolaev..

"For the rating upside to materialize, we would expect the company to generate at least neutral free operating cash flow in 2010 and gradually deleverage

Should the company be unable to access the capital markets as planned, or if its cash flows decline materially in 2010, we might lower the ratings.

Ratings downside could also appear, if the currently "very strong" link with the government weakens.

BG Capital: Vnesheconombank buys out US$ 1bn in IUD debt

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BG Capital

Russian state-owned lender Vnesheconombank reportedly bought out nearly US$ 1bn in debt from Industrial Union of Donbas (IUD) to help the metals holding restructuring other ST debt, according to a report in Delo this morning. In late December, a group of Russian investors acquired a 50%+2 stake in IUD, and partial financing for the sale was provided by Vnesheconombank. In addition, the newspaper said the new co-owners last week provided the necessary funds to pay US$ 20mn in loan interest payments for November, December, and January. IUD's key assets include Ukrainian mills Alchevsk Steel (ALMK) and DMK Dzerzhinskoho (DMKD), as well as Hungary's Dunaferr Group and Poland's Huta Czestochowa.

BG Capital: The news supports our view that IUD's new owners will begin supporting the holding and its key steel sector assets with fresh financing. According to our estimates, IUD's total debt stands at around US$ 3-3.5bn, US$ 450mn of which is maturing in 2010. In addition, IUD has approximately US$ 250mn in loan interest payments due this year.

VTB Capital: Acquisition of 20% in Sistema-controlled Indian SSTL reportedly to be introduced into 2010 state budget

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VTB Capital

positive, as part of roll-out capex might be financed via equity

news: Vedomosti has this morning quoted Dmitry Pankin, the Deputy Minister of Finance, as saying that the sale of 20% in SSTL (Shyam Teleservices LTD), an Indian telecommunications operator controlled by AFK Sistema, might be completed as soon as this year. According to Pankin, the Ministry of Finance is making the respective corrections to the state budget for this year while agencies involved in the transaction had agreed their positions.

our view: Sistema is targeting 2010-12 capex for SSTL of USD 2.5bn. Were almost 30% to be covered via equity injections, that would significantly contribute to the operator's financial standing. We therefore view the potential transaction as positive for the holding. Last year, the federal budget assumed spending USD 676mn on acquiring the stake in SSTL (based on the valuation of USD 3.13bn by the Russian Property Fund), while on 10 December SSTL's EGM approved the sale to Russian Property Fund of 19.8%. Were this to happen, the transaction would lead to Sistema's stake in SSTL decreasing from 74% at present to 54.1% (another 26% belongs to an Indian partner). Anastasia Obukhova

Wednesday, 03 Feb 2010

Severstal said that fourth quarter output reached 4.62 million tonnes, up by 47% YoY.

MMK said fourth quarter crude steel output reached 2.56 million tonnes up by 55% YoY.

Evraz reported a 31% YoY fourth quarter production increase

Mechel said its steel output rose by 31% YoY.

Mr Boris Krasnojenov analyst at Renaissance Capital said that "Mechel continues to operate at a 100% utilization rate in its steel division. The company posted maximum long steel output at its Chelyabinsk site in December over the last 6 months of 2009."

Steel makers in Russia, the world's fourth largest producer, have suffered from a decline in orders from crisis hit domestic sectors such as construction and automobile manufacturing. While domestic demand remains weak, Russian steel mills were able to return to pre-crisis production levels late last year by increasing export sales.

Although the YoY comparatives look extremely favorable, most QoQ figures were flat or negative. This is largely due to seasonal demand declines from the construction industry and other sectors. Severstal's fourth quarter steel production was up 2% from the third quarter, Mechel's output was up 3%, Evraz was up 0.3% and MMK was off 10%.

Uralsib analysts wrote that Russian exporters raised prices by 5% to 10% in January, the first price increase since November. They added that FOB Black Sea export hot rolled coil prices are currently about USD 550 per tonne.

The bank's analysts wrote that "Russian domestic prices tend to trade at import parity, and consequently, we see scope for further increases in domestic prices on the back of higher export prices. Although the global steel market is still in the seasonally weak winter period, rising export steel prices highlight steel traders and producers' upbeat expectations, which do not currently correspond with the weak demand from various end markets, including construction, autos, machinery and pipes."

(Sourced from www.reuters.com)