Materials, extraction | Technology & innovation

Rusnano moves into metals, with $214m Russian Magnesium deal

29 Apr '11
Oleg Kouzbit, Online News Managing Editor

After three years of searching, Russian Magnesium has found a major investor—Rusnano. The RF-owned innovation agency has put up $214m in exchange for the controlling stake in the Urals-based company’s new next-gen magnesium factory. With Rusnano aboard, VEB Bank and others are expected to also become investors at later stages.

Russian government-owned Rusnano, the primary funder of nanotechnology in Russia, is getting into the magnesium business. Its 65.48% stake in Russian Magnesium, worth a reported $214m, will be used to help the firm set up large-scale magnesium production in the Urals region.

When the deal is finalized this coming June, Switzerland’s Minmet Financing, currently Russian Magnesium’s largest shareholder, will be diluted from 50% to 25% plus one share. The Sverdlovsk region and Uralasbest, now owning an aggregate 50%, will now be minor players with a 4.76% stake each.

Planning: from zero to leadership

Russian Magnesium’s new factory will have a projected capacity of 70,000 tons of magnesium and its alloys, and a reported 90,000 tons of silica a year. The plant is expected to break ground in late 2011 in the town of Asbest, with phase 1 scheduled to get on stream in 2013.

According to Russian Magnesium CEO Anatoly Shchelkonogov, the factory’s beginning production will be 22,000 tons of magnesium and about 30,000 tons of nano-particles of silicon oxide a year.

The future facility will reportedly utilize a unique $30m magnesium extraction technology enabling the company to produce the metal “at an exceptionally low cost.” With this competitive advantage the project owners hope to start selling an estimated $500m worth of magnesium a year and eventually outstrip US and Chinese suppliers, as well as the neighboring Perm region (currently Russia’s largest magnesium provider), as the world’s number one producer of this strategic metal.

A long and winding road

Russian Magnesium, a domestic leader in this sector, was set up in 2004 to specifically build and run a new magnesium factory, using as raw material waste piles from regional asbestos producer and shareholder Uralasbest.

From the very beginning the project was plagued with delays. Kicking off originally in 2007 it was supposed to launch its phase 1 by 2011. However, financial difficulties, exacerbated by the global crisis, put a brake on the plans. Some work resumed in early 2010 only to be put on hold again last fall pending more clarity with investors.

Uncertainties seemed unending until last week when Rusnano confirmed its decision to become Russian Magnesium’s largest shareholder. Other potential investors that were making headlines in 2010 in connection with the Asbest-based plans had apparently dropped off. They included the Czech Export Bank, Russia’s Sberbank and an unnamed Chinese investor.

Looking for more investors

The company may need as much as $700m to complete its project and is reportedly talking with VEB Bank as well as investors who previously expressed interest. The company is also considering bond issues and/or an IPO to complete the ambitious project.

Russian commercial banks are typically wary about investing in many nano-projects. However, with a ban on magnesium exports to the U.S. lifted, and strong global demand, they appear to be more willing.

Sverdlovsk’s new nanostructured economy

The Asbest project will be one of an estimated 45 R&D and production facilities in the Sverdlovsk region that regional officials want to consolidate into 16 nano-industrial production complexes. From 2015 on the complexes are reportedly expected to generate at least $355m in annual sales.

In addition to manufacturing companies, the future nano-cluster will also involve regional universities. According to authorities, some of the 16 complexes are already operational. Initially, they were start-ups that universities and businesses spawned to fill the need for nanotech innovations in the chemical, pharma, forestry and mechanical engineering sectors.

With ample support from the Sverdlovsk region and Rusnano, and global demand for magnesium growing an estimated 8-10% a year, analysts predict a bright future for Russian Magnesium—and are counting on this new nano-cluster program to keep it that way.
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