Russia's Rusal Chooses Anglo Refugee Over Brian Gilbertson

Stung by a series of public misstatements, a pending UK court case, and a clash with Brian Gilbertson, Russia's giant aluminium monopoly, United Company Rusal, has selected former Anglo American executive [NASDAQ:AAUKD] Simon Thompson to become chairman of the board. The appointment was leaked in a Moscow newspaper but has yet to be confirmed by Rusal. The search for the chairman has been confirmed by sources close to the company, who told Business Day that Mike Salamon, who retired as executive director of BHP Billiton [NYSE:BHP; LSE:BLT] last year, turned down the post. Following the merger of the two Russian aluminium producers, Russian Aluminium, which is owned by Oleg Deripaska, and Sual, owned by Victor Vekselberg, Brian Gilbertson, then Sual's chief executive, was proposed as the chairman of the new company. Gilbertson has confirmed that he and Vekselberg are in dispute and may be litigating. He says Vekselberg violated his commitments. A Rusal adviser told Business Day there was a bitter fight over the Gilbertson appointment. Thompson headed Anglo American's base metals and exploration divisions, and was the internally favoured candidate to succeed Tony Trahar as chief executive when he retired. But Anglo's board passed Thompson over in favour of outsider, Alcan [NYSE:AL; TSX:AL] executive Cynthia Carroll. Thompson resigned on April 13. Sources close to Anglo think Thompson came under pressure from Carroll. Rusal has announced its intention to seek a full London Stock Exchange listing in November and set a target for market valuation of $30 billion. However, this plan is under threat from a lawsuit filed by a former patron of Deripaska, Michael Cherney, who says he has evidence of a trust agreement with Deripaska, confirming he still owns 20% of stake in the new company. Cherney is seeking billions of dollars from Deripaska, but Deripaska claims he has no obligation to Cherney. The company says Deripaska owns 66%, Vekselberg 22% and Glencore 12%. Deripaska has also said the Kremlin may take over his shareholding. Speaking of Rusal's problems in launching an initial public offering, a financial adviser to Deripaska said, "This company comes with huge baggage, which must be dealt with." At a presentation by Rusal chief executive Alexander Bulygin to metals analysts in London on June 23, the focus was on promoting the global aluminium business as an investment target, rather than Rusal as such. Rusal's attractiveness is expressed as a function of its "unparalleled access to low-cost power" and to internally priced bauxite and alumina, produced from associated mining and refining assets in Russia, Ukraine and west Africa. The presentation does not refer to the growing troubles Rusal faces at its principal source of bauxite in the Republic of Guinea, where domestic opposition to the weakening Lansana Conte regime has targeted Rusal bauxite mine concessions. Among the "exceptional portfolio of growth opportunities", the Rusal presentation identified two new bauxite mines in Guinea, Dian-Dian and Kindia-2. The seriousness of the risk Rusal is facing in west Africa is indicated by Rusal�s senior managers in Nigeria being taken hostage last month for ransom and related political negotiations. Rusal's presentation in London spoke of "world-class standards of corporate governance." The company "intends to comply with the UK Combined Code on Corporate Governance". The company also said that seven independent directors would be appointed to the new board. Two have been announced. Thompson is the third. He will face more scepticism than he was used to dealing with at Anglo American. "The senior team has extensive experience and a track record of managing growth," Rusal told the London analysts. But according to a UK high court finding by Judge Jack on November 24 2003, three on the team have a public credibility problem. They are Bulygin, raw materials division head Andrei Raikov and alumina division head Pavel Ovchinnikov. Ruling against Rusal's subsidiary, Guinea Investment Limited, in a claim brought by Tekron, a company of three influential advisers in Guinea, the judge ruled testimony from Raikov was "nonsense, which must throw considerable doubt on the rest." Of Ovchinnikov's evidence, the judge said, "I should place little weight on the relevant passages". The judicial ruling reveals that Bulygin wrote to the Guinean president, asking for his help and intimating corruption on the part of those then suing Rusal. The judge reacted sharply and said, It is apparent from these matters that under the threat of litigation in London Rusal have done what they can to blacken the names of Tekron and its principals in Guinea. "On the evidence before me, they have not only failed, but have secured indirect evidence that the government considers that Tekron have behaved properly in its relations with the government." Rusal paid Tekron the court award. But that has not been the end of high court condemnation of Rusal's business practices. In 2006, Judge Morrison ruled that Rusal was behind an action brought by the Tajikistan Aluminium Company (Talco), which Rusal had taken over and controlled since December 2004. The judge found the plaintiffs were "not the victims of fraud, they have been the perpetrators of it in this litigation. (Talco) has been involved in deliberate attempts to mislead the (Arbitration) Tribunal and have committed acts which in this jurisdiction are serious crimes. It is rare for the veracity of a major international group as big and influential as Rusal to be called into question, as the court record in London shows.