Page 1 of 2 Putin wades into tungsten mire
By John Helmer
MOSCOW - This is the strange tale of a mining company which no one admits to
owning, at least not in the far eastern Primorsk region of Russia, where it is
the principal source of work and income, not to mention cancer exposure, for
the village of Svetlogorye ("Clear Mountain", population 700); and where, until
very recently, the mine turned out almost all the tungsten in ore and
concentrate form that Russia produces.
Stranger still is the intervention last month of Prime Minister Vladimir Putin,
ostensibly to rescue unpaid and starving tungsten miners. At his direction, his
subordinates have fixed the payoff of the miners for a pittance from the
regional budget, making sure they did so in the spotlight of the Russian media,
which had taken an interest in the miners' fate.
Off stage, a more valuable transaction has been arranged, as
Moscow's representative to the region and the regional governor ordered the
transfer of the tungsten mine assets from a bankrupt entity no one claims to
have been able to locate to a company in which a federal parliamentary deputy
has a stake but about which he remains steadfastly silent.
At stake is one of the largest single tungsten reserves in the Far East, in a
sector being driven by the gap between China's growing demand for tungsten and
the deficit of supplies available. At last year's peak price for tungsten,
Svetlogorye may be holding up to a quarter of a billion dollars' worth of
unmined metal.
The mining company, Russian Tungsten (in Russian, Russkiy Volfram), is the
owner of one of the major deposits of tungsten in the world. It also appears to
have just passed into the control of Vasily Usoltsev, a two-term deputy of the
Russian parliament, who is avoiding questions about why the strategic mine
collapsed last year and how it happened very recently that a mining group he is
associated with managed to take over the mine from an offshore company
registered in the middle of the Indian Ocean, in the Seychelles.
Tungsten in its fabricated state, because of its super-hardness, conductivity
and high temperature resistance, has many applications - from light bulbs and
cathode-ray tubes to electron microscopes, rocket engines, radiation shields,
bullets, grenades, and missiles. The principal mine source for the ore and
concentrate in Russia is Russian Tungsten at Svetlogorye in the east. At the
other end of the country, at Nalchik, in the Russian Caucasus, ZAO Wolfram is
Russia's sole refiner of tungsten metal.
Details of who owns ZAO Wolfram are as hard to come by, and the owners are as
shy in giving their names, as at the Svetlogorye mine.But the Wolfram smelter
company acknowledges the relationship between the two. The former used to own a
shareholding in the mining company but now says it was sold. To whom isn't
disclosed. After that, and until the Svetlogorye mine stopped producing, ZAO
Wolfram says that Russian Tungsten has been its principal source of tungsten
ores and concentrates.
US Geological Service (USGS) calculations suggest that China holds the world's
largest reserves of tungsten, about 1.8 million tonnes, and mines the largest
volume - about 41,000 tonnes in 2007 and 2008. Canada and Russia are next in
the USGS table, with reserves of 250,000 to 260,000 tonnes; Canada mined about
2,800 tonnes last year; Russia about 3,200 tonnes, if the USGS estimates are
accurate. As Chinese consumption jumped, China started importing tungsten
concentrates and scrap, while the government in Beijing imposed financial
disincentives for exports of most tungsten materials.
In a rare interview in 2007, a source at ZAO Wolfram told Asia Times Online
that about 30% of his smelter's output is sold domestically while the rest is
exported to the European Union, the United States and Japan. He said the plant
has built capacity to produce 8,000 tonnes of tungsten in several forms per
year, but lack of imported ores has sharply curtailed production for many
years.
"The absence of raw material on the market leads to the problem of our
inability to fully load all capacities," Fyodor Fedorenko, head of ZAO
Wolfram's marketing department, said. The main source for the Nalchik smelter
has been the Russian Tungsten mine; as demand for Russian exports rose in 2006,
imports also grew - from Mongolia, Canada and Brazil. Wolfram acknowledges that
the dwindling supply of mined tungsten domestically has meant that it has had
to increase imports of ore. In 2007, this was made more profitable by a Kremlin
decision to remove a 5% import duty on tungsten.
Both the smelter and the mine have reported better days - as they were before
the crash of last autumn destroyed demand for steel, and thus metals like
tungsten used in steel. At the end of the Soviet period, Russia was turning out
more than 4,000 tonnes of the metal per annum. During that time, Tyrnauz and
Lermontovskiy mined roughly equal volumes to comprise the total. Over the past
decade, ZAO Wolfram says it has tried to open new upstream deposits of tungsten
at Kyzyl-Tau, in Mongolia; at Tyrnauz, in the Russian Caucasus; and at
Kholtoson, in the Buryat region. Prospecting at Kyzyl-Tau was called off for
lack of commercial feasibility and an equity stake in the project sold.
That left Wolfram dependent on Lermontovskiy. But even before the crash, the
mine at Svetlogorye was in bad trouble. In June 2008, the mine workers went on
a hunger strike, claiming they had not been paid wages from before the start of
the previous winter. It is unclear what the production was for at least a year
before that. According to the head of the local miners' trade union, Leonid
Otnaikin, and reports from the local and Moscow business press, the holder of
the mining license, OAO Lermontovskiy GRK (ore-mining company) went into
official bankruptcy in 2004. Two years later, in June 2006, its assets were
acquired by a Moscow company called Vist-Avto Center, and since that name meant
quite another line of business, it was renamed OOO Russian Tungsten.
The transaction details were murky and have been challenged in court claims by
regional state bodies, including the tax service, the state property fund, and
the general prosecutor. The new company's shareholders appear to have decided
not to spend much money. That was unlawful, according to a union source.
Margarita Usova, head of the department of information and analysis for the
Federation of Trade Unions of the Primorsk Territory, says: "The Russian
legislation does not allow a company in a town-forming or town-sustaining
enterprise not to pay salary, and does not allow the sale of such enterprises
[without authorization]." She said that although this situation was obvious
more than a year ago, the local authorities did nothing "except for fire safety
measures".
"Our employer is in Moscow, nobody explains anything," Otnaikin was reported as
saying during a miner protest in June of 2008. "The enterprise doesn't have a
CEO - in the last three months three CEOs were replaced. But we know about that
only by reading about the orders; we did not see any one of them." Without
wages, current payments, or fresh investment from the proprietors, the mine and
the village collapsed.
The unions appealed to Putin for a state takeover of the mine. Putin then
visited the region in April of this year and according to local media reports
agreed with the Primorsk governor, Sergei Darkin, that something would be done
and that a new proprietor would be arranged for the plant. But who owned the
plant when Putin intervened?
According to reports in a Vladivostok newspaper, the nominal owner was a man
named Alexander Martynov, whom the newspaper tracked down to a street address
in Moscow, but couldn't find him there. Attempts by the regional authorities to
find him in person also proved in vain.
Notwithstanding, Martynov reportedly continued sending management instructions
by email to the mine office at Svetlogorye. The instructions were to eliminate
costs, fire workers, liquidate the enterprise. His authority, according to the
newspaper reports, came from the chief executive of Granite Management Ltd,
Annabelle Jean-Louis. Granite Management apparently owned Russian Tungsten and
was giving Martynov his marching orders. Granite Management was registered at
an office in Victoria House, Victoria, on Mahe island, in the Seychelles. The
takeover by Granite Management appears to have been formalized in September
2007.
A Primorsk region reporter, Larisa Gerina, who has been covering the tungsten
mine disaster, said that Martynov was understood in the area to be the official
owner. But the person in charge at the site was another - Anton Rodionov. On
March 23 this year, Gerina said it was Rodionov who gave the order to liquidate
the mining operation and lay off the workers. Rodionov claimed Martynov's
authority for his actions; Martynov claimed the authority of Granite
Management. This then triggered the protests, which reached Putin's ears a few
days later. Putin told Darkin either to enforce the performance of
Lermontovskiy's mining licence or cancel it for non-compliance with the
production requirements.
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