Andrei Kozitsyn

The period of accelerated consolidation of metallurgical corporations in Russia is over. Companies, which only yesterday were distinguished for persistence and determination in their actions, are now behaving cautiously and are making each step dependent on domestic market conditions, the general state of the country’s economy as well as on the political situation. In an interview with Eurasian Metals Andrei Kozitsyn, the general director of the Ural Mining & Metallurgical Company (UMMC), which is the leader in Russia’s copper market, explained the reasons for such an abrupt change in tactics.

EM: In the middle of last year you announced your resignation as the general director of Uralelektromed JSC citing the need to concentrate on managing UMMC. What tasks did you set for yourself and what did you manage to accomplish?
AK: Combining responsibilities for leading the company and its largest enterprise was really hindering my work at UMMC. Besides, there are formal rules, which took effect after the official legal registration of the UMMC Holding Ltd. Since then, I have been totally engaged in managing business activity of the company as a whole.
During this time two most important tasks have been accomplished: first, to secure consolidation of assets and, second, to ensure on this basis the transfer of all managerial functions from the enterprises to the UMMC Holding. All in all, the Holding’s structure incorporates 22 enterprises. By now, fourteen of them have already handed the appropriate authorities over to the management company. The level of the share capital consolidation for this group can be defined as «a qualified majority». The further consolidation process will be determined by decisions of shareholders’ meetings as well as by external factors, such as market conditions, above all.

EM: During the previous period, from 1999 to 2001, your company was dynamically expanding: the ever growing number of new enterprises fell in the sphere of its influence. At present, the expansion has in fact stopped. Is this a temporary stop or growth opportunities have already been exhausted?
AK: The structure growth is not that important per se. Sometimes it is much more advantageous to make investments in the available production potential and develop the existing technologies than to acquire new additional enterprises. All depends on the economic expediency.
In my opinion, it is no secret to anyone that the majority of metallurgical enterprises in Russia are using technologies based on achievements of the 1970s, i.e. of the last century. It is highly probable that the so-called «new» acquisition may turn out to be a plant of yesteryear, which, beside all, is burdened with promissory notes. And the first thing that a new owner has to do is to deal with creditors and start modernization. Thus, the question arises: is not it better to arrange new production facilities using free space or even to build them at a new site than to buy «old walls with debts»?
It can be stated that a certain revaluation of values took place at UMMC. And, probably, we were not alone in this: other Russian companies are also developing the same way.
Besides, we should complete consolidating the available assets and start raising the company’s capitalization. After that we could take a break and contemplate further directions of activity: whether to expand the company through turning to other kinds of business or to develop the existing directions by working out more extended and complex schemes.

EM: For three years now you have been trying to get a license for developing the Udokan copper field but so far all your attempts have been fruitless. Who is putting obstacles?
AK: Formally, the problem is how to choose the way of providing the license. It might be obtained by a company, which offers better terms of developing the field, if there is a tender, or a higher price, if there is an auction. Since the case in point is the unique field that is strategically important to the country’s economy, the majority of officials from State structures propose to hold a contest with participation of Russian companies only. This position is supported by the chairmen of both Houses of the Russian Parliament, it is shared by the governor of the Chita region, where Udocan is located. And there are appropriate orders by the Russian president.
Hence, a way of licensing can certainly be determined because there is a compliance with the constitution’s principle of «two keys», which requires a simultaneous agreement of the Federation’s and region’s authorities on subsoil use. Practically all relevant offices, including the Ministry of Natural Resources and the Ministry of Industry, have given their consent. The Ministry of Economy is the only one that has objections: it insists on holding an auction. Because of these objections the start of developing Udokan is being postponed again.
Frankly speaking, I just do not understand why the position of only one Ministry happens to be more important than the position of others. However, its opinion can be taken into account too. If the Ministry of Economy, as its representatives state, cares about budget receipts, let it determine the amount of a one-time payment that should be made by a company, which receives a license, and let it be one of the contest’s conditions.

EM: Currently, there is kind of a gold rush in Russia. It has drawn companies, which have nothing to do with this specific industry. For example, Norilsk Nickel, which has never before dealt with gold, has already become the first by volumes of mining it and it keeps buying new fields. It is interesting to know plans of your company: after all, UMMC has the full cycle of getting noble metals, including the affinage production. In particular, it would be interesting to know why you decided to close down the Nevyansky mine at a time, when prices for gold reached the highest level?
AK: The mine will not be closed. It will continue operations but we will have to cut down the personnel by 40%. There have been losses of profit since last year. And it is not a matter of prices. The mine’s reserves, which were approved in the Soviet times, turned out to be overvalued. To put it simply, the amount of gold stated in the license is not physically available and we are not going to work with gob. That is why three sections of the hydraulic mining are closed. There remains one section. As well as two dredges.
Most likely we will refrain ourselves from participating in the gold rush. One should clearly understand that there are large fields in Russia, which are very hard to get developed and operations there require an enormous input. Like the Sukhoy Log gold ore field. But, on the other hand, there are a lot of small fields of noble metals with reserves of one to two tons and a possible level of mining from 50 to 100 kg a season. There is no much interest. And, what is more, just to get a license one should go through so many bureaucratic procedures that this little interest just disappears for good.

EM: What was the end result of the property conflict connected with the Karabash Copper Smeltery, which UMMC laid claim to? There were many court hearings, scandalous protests, much noise in the mass media. And suddenly everything calmed down.
AK: The court procedures were completed practically to the very end. We won the last appeal to court. After that the other conflicting side started negotiating with us and bought out assets that belonged to us.

EM: There is an impression that your competitors are beginning to encroach upon your interests. First, there was a withdrawal of a structure from UMMC, which supplied copper scrap and which switched raw material flows over to the Kyshtym Electrolytic Copper Plant (KMEZ). Then, this plant and the corporation Kazakhmys set up a joint venture, which is aimed at wining the competition with your company over the Udokan field. Is there any connection between these events?
AK: Yes, they are certainly connected because the actual owner of both the trading company that sells scrap and KMEZ, as well as an active participant of the joint venture with Kazakhmys is one and the same person. That is Igor Altushkin. His company is becoming a serious market player. Capacities of KMEZ to produce refined copper are sufficient to ensure the output of 80,000 tons a year. With the start-up of a new copper plant, which this company built in the city of Novgorod, the output will increase up to 120,000 tons.
It is quite natural that UMMC will have additional problems, of course. The new company is our direct rival. And that is the long and the short of it. The basis for the coming rivalry will be, above all, a competition in the raw material market since the growing shortage of raw materials is the very acute problem for both of us.

EM: At the beginning of this year the plant SHAAZ owned by your company introduced the innovation technology to make the motor vehicle radiators CuproBraze. To what extent your market expectations connected with this technology and, accordingly, your investments have been justified?
AK: It is too early to talk about results. The recoupment of this project will take longer than half a year or a year. Our Russian market should still get accustomed to products’ new quality. Everything, which is made under the CuproBraze technology, symbolizes the 21st century while everything, which is produced on the mass scale today by Russian radiator plants and is used by automakers, belongs to the last century. At present, Russia’s production of motor vehicles is supported by high import duties that restrict the import of foreign models. But the time is running out. In two to three years Russia will at long last enter the World Trade Organization and, then, the customs barriers should be lowered.
The maker of KAMAZ trucks is buying our radiators because it wants to enter foreign markets, including those in Europe, where the Euro-2 and Euro-3 standards are in effect. That is why it is time to stop waiting and start changing Russian standards. Then our products will be in full demand at prices, which are actually formed during the process of putting them out.

EM: How successful are other promising projects of reprocessing copper to get finished products, particularly, drawing rod into wire?
AK: The line to produce the wire Niehoff has been in operation just for a year and so far everything has been all right. At present, its monthly sales amount to 600 to 700 tons. It can be expected that next year the line will reach its design output, which is to total between 10,000 and 12,000 tons a year. As far as the further development of making products of rod is concerned, we do have such a program. But before we take another step and reach the next technological level, we will be watching closely how things are in the market. Today it is obviously overloaded. The major players there are the electrical industry’s enterprises that are putting out cable-and-conductor products of the mediocre quality. Unfortunately, so far the majority of consumers are looking at the price only and that is why the cable, which is produced in primitive conditions and which is nondurable and unsafe, finds a ready market. But I think that, nevertheless, life will force people to give preference to high quality, which, naturally, costs more.