Billionaire Bets on Rare-Earth Metals After Uralkal Exit

Billionaire Bets on Rare-Earth Metals After Uralkal Exit

Billionaire Alexander Nesis made a fortune from gold, silver and banking. His next target: producing rare-earth metals from material discarded as Russia developed an atomic bomb in the 1940s. Nesis’s ICT holding company is in a venture with state-owned Rostec to fast-track production of rare-earths, using thorium-bearing concentrate kept stockpiled for more than 60 years. The partners also plan to bid for Tomtor in the Siberian republic of Yakutia, a deposit that has more than 150 million metric tons of ore containing rare-earths and is among the largest in the world, Nesis said in an interview in Moscow.“Once we have the technology and the best deposit, we will have a competitive position in this segment,” he said. The cost of the project could reach about $1 billion in the next five to six years, helping Russia develop its first production of rare earths, used in items from iPhones to hybrid cars.

Nesis has a net worth of $3.3 billion, according to the Bloomberg Billionaires Index, including his stake in gold producer Polymetal International Plc and, until July, OAO Uralkali (URKA), the world’s largest potash producer. Nesis, 50, disposed of the last of the 12 percent stake he controlled in Uralkali just days before the Russian company broke up a potash marketing partnership with Belarus, sending stock prices of producers around the world tumbling.

His bet on Uralkali was based on the expectation its combination with rival OAO Silvinit, completed in 2011, would deliver returns, Nesis said. “Once we saw that the value of the merger was realized in the share price, we started to sell.”

Belarus Feud

Nesis’s companies sold a third of the Uralkali holding in August 2012 and another 33 percent at the start of this year. The disposal of the rest was completed in July, including about 4 percent sold by banks as arrangements Nesis put in place to hedge against a drop in the stock were triggered. That happened a few days before Uralkali on July 30 withdrew from the Belarusian Potash Co., which accounted for about 40 percent of global shipments, sparking a feud with Belarus President Alexandr Lukashenko.

Uralkali shares dropped 19 percent on the day of the announcement and are now 6 percent below the pre-breakup price. Nesis’s timing means his potash investment was a success, according to estimates by VTB Capital.

“We think Nesis could have ended up with $1 billion of profit, even after paying back any debt he had against the stake,” Elena Sakhnova, an analyst at VTB in Moscow, said by phone.

Atomic Bomb

Nesis’s ICT controls 50 percent plus one share of TriArkMining, the venture with Rostec. ICT’s partner was set up in 2007 with the aim of promoting new technologies at state enterprises and has stakes in more than 600 companies.

TriArkMining has bought from Russian stockpiles about 82,000 tons of monazite concentrate, which contains thorium, an alternative to uranium as a nuclear fuel, and rare-earth metals. The supplies were left unused from the 1940s, when the Soviet Union decided against using thorium in favor of uranium to developing nuclear weapons.

The concentrate was shipped to Krasnoufimsk, north of present-day Kazakhstan, where it was stored until the ICT venture bought it this month. It contains about 7 percent thorium and 55 percent rare-earths, compared with the maximum of 5 percent that occurs naturally in ore, Nesis said.

That’s high-enough for TriArkMining to go straight to rare-earth production, skipping the phase of laboratory testing that new projects usually face, Nesis said.

‘Favorite Project’

China, supplier of 90 percent of the world’s rare earths, has imposed export quotas since 1999 to help conserve resources and reduce pollution. The U.S., the European Union and Japan complained in March last year to the World Trade Organization about China’s limits on shipments of rare earths, a group of 17 chemically similar elements also used in wind turbines and hybrid cars.

Polymetal (POLY), which he founded in 1998 and where he controls about 17 percent, remains his “favorite project,” Nesis said. Polymetal should build on its status as a low-cost producer by acquiring more mines at prices depressed by bullion’s decline to as low as $1,200 an ounce in June, according to the billionaire.

Since 2008, Polymetal has increased its production to the 40 tons of gold equivalent projected for 2014 from 18 tons. This was made possible by the financial crisis, which pushed down asset values and enabled the company to buy explored deposits that were untapped at the time, like Maiskoye, Sopka Kvartsevaya and Varvarinskoye in Kazakhstan, Nesis said.

London Listing?

It is time for Polymetal to buy new assets again to set up a “super resources base,” he said. “I would support it as shareholder.” Expansion would help Polymetal’s position as an industry leader in terms of costs, he said.

ICT’s transportation unit started a $1 billion rail-car manufacturing plant near St. Petersburg last year, and set up a leasing company. ICT is developing railroad equipment to take advantage of increasing demand for cargo transportation in Russia. Combined, the unit’s plans may prompt a need to raise capital, Nesis said.

“It can’t be excluded that in three years we will list our United Wagon Company on the London Exchange to get funding.” The unit may be worth $2 billion to $3 billion, he said.

Nesis has also agreed to buy a stake of more than 40 percent in real estate company 01 Properties from entrepreneur Boris Mints, he said. The company, which pulled a proposed $425 million London initial public offering last year, buys offices and rents them out under seven-year contracts at fixed rates.

In June, the billionaire announced plans to build a $1.2 billion urea plant near St. Petersburg to make 1.2 million tons of urea, a feedstock for plastics, fertilizers and adhesives, and 300,000 tons of ammonia a year. He expects the project to have some of the lowest production costs in the industry.

To contact the reporters on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net; Alex Sazonov in Moscow at asazonov@bloomberg.net