PFP: 12 years under the European management

In 2014 PFP processed 1, 427 thousand tons of wet ore that was processed into 18,6 thousand metric tons of nickel. In 2013, PFP produced 1, 561 thousand metric tons of wet ore which was processed into 21,184 metric tons of nickel.

Managing director of Solway Investment Group Dan Bronstein explains to Capital why international investment group purchased a bankrupted plant 12 years ago and how the Group managed to revive it and turn into the profitable business.

- How was Solway Investment Group created and how it developed over the years?

The history of Solway Investment Group dates back to the mid 1990s. By the year 2000 Solway Group consolidated a successful portfolio of several metal businesses in Russia, including a number of aluminum assets. By 2003 the total annual production capacity of the Group’s assets exceeded 180 thousand tons of metal per annum. Aluminum assets were sold to SUAL in 2006. SUAL was one of the largest aluminum groups in Russia and now a part of RUSAL GROUP – a major world scale aluminum producer.

We started reinvesting money gained from the aluminum deal into ferronickel production all over the world including Ukraine. In 2003 we purchased corporate rights on Pobuzhskiy Ferronickel Plant (PFP) that had been bankrupted by the previous owner. Back then the plant was out of production for some time. Once in a while the owner made efforts of reviving the plant by using silicate ore with the low percentage of Nickel to restart the production process. Those attempts were non effective and very expensive. We purchased the plant and invested over USD 100 million into modernizing the processing technology for adjusting it to the imported ore, with the higher percentage of Nickel. In 2004 the plant was restarted at its full capacity and hasn't stopped since, therefore we still continue following our long-term investment program introduced back then.

- How did you purchase assets in other countries?

In 2005 we acquired two mining assets in Macedonia that produced copper, lead and zinc concentrates. These two are still in our portfolio and we are one of the major international investors in Macedonia today. We have also purchased other assets there but sold them later.

The latest investment portfolio also contains assets in Indonesia and Guatemala. Last August we completed construction of one of the biggest ferronickel plants in Central America. The project is based on the expertise we gained from owning and successfully managing Pobuzhskiy Ferronickel Plant in Ukraine. The project is nearly the same but the economy is based on the ore mined out locally. Within the following 2 – 3 years we are also planning to develop another similar project in Indonesia.

Solway Investment Group is the biggest private nickel producer in the world today. We are aiming to double our production capacity after Indonesian plant is put in action and therefore become one of the world's top-ten nickel producers.

- What's your position on the top list now?

We are currently amongst the top 20 nickel producers, but aiming to be the 7th or 8th.

- Are there Russian roots in your company?

Solway Investment Group is a Cyprus-based international industrial group with a 100% EU capital and operational offices in Luxemburg, Switzerland and Estonia. The Group comprises a number of core investments and operations focused primarily on the metals and mining sector – particularly nickel mining and production. The Group conducts operations in Macedonia, Ukraine, Indonesia and Guatemala.
When choosing the new assets for investments we are considering their potential profitability, not their geographical location. At the end of 1990s – early 2000s there were great possibilities in Russia. Today, after consolidating all our assets in base metals and ferronickel we can see more profits in the western countries.

- How can you explain that your interests have always been in base metals, mining and ferronickel production? Was it linked to your education?

Historically our stakeholders have been trading aluminum. As we became the major buyers from a number of producers, we gained some significant technological expertise. We created an in-house staff of technologists and became quite knowledgeable in these industries along the way.

- How did you choose where to invest?

Our principles are not complicated at all. As I said before, we first look at the economic potential of the asset. Secondly, we consider the amount of investments we can afford allocating at that moment. Thirdly, there should be some kind of 'big idea' behind the investment. With PFP we knew that the plant had bankrupted, but we also knew how to revive it and turn it into a profitable business. We realized that we had to stop locally mined out ore and modernize the facility in a way for it to be able to process imported raw materials.

Actually, we were looking for a cherry on a pie in each of the assets we consider for investments. The asset should have been challenging and in need for the expertise we could offer them. We have never tested any successfully operating business with a 10 year profit plan. We have always considered businesses where we could come and do something that would change their economy for better.

- Have you always been motivated by professional passion or a good price and discounts could also start your heart beating?

Of course, the matter of price plays a key role. Development of any of the family businesses is based on their own cash flow. We have never had any significant borrowings, even today after some major investments made within two years, we only have a 1.5 debt/EBIDTA ratio. This is a very rare case for our industry, therefore we always had financial stopper for the entrance fee.
The main motivation for us is the need for our managing or technological expertise that is lacking for some reason in the asset considered. I guess we can say that professional passion is our driver.

- Could you disclose the amount of investments made by the Group within the years of existence?

I would repeat it once more. The Group has always been developing by reinvesting profits. This is why we have been following a well-considered development plan for the last 15 years. I cannot tell you the exact figure now, but we definitely exceeded USD 1 billion in saved investments.

- What is the advantage of diversifying your assets in different countries? Considering that we are talking about developing markets?

We have an asset in Ukraine – the country in political and economical crisis. We also have assets in Macedonia, Guatemala, and Indonesia. Potentially each of these countries can enter the crisis. But the whole group will still stay in a good shape.

Apart from that, while diversifying our businesses we can still employ technologies we successfully tested in the other countries. That can be done by the professionals we previously worked with for more than 10 years in a row. This was exactly the case for the Guatemalan project, as we used the key experts from PFP to revive quite a challenging business within just two years. In fact, we are using our geographical diversity to transfer our experience from one country to another.

It also minimizes any problems with raw materials. We have been buying raw ore for PFP in Indonesia for 8 years. In June 2014 Indonesia closed its market for the external buyers. If we did not have a project in Guatemala, we would have stopped the plant in Ukraine. It is nearly impossible to find ore on the World’s market.

- How was your asset in Ukraine developing recently?

Within the recent few years the plant's production capacity varies between 18 – 22 thousand tons of Nickel or 100 – 200 thousand tons of ferronickel. Before that the plant's production capacity was much lower, as the furnace construction was a bit outdated. In 2008 -2009 right in the middle of economic downturn we started the investment program aimed at modernizing one of the two furnaces. In cooperation with Canadian Hatch Company – the leader in Nickel industry - we managed to increase its production capacity twice. In 2010 after the modernized furnace was put in action at its full capacity we manage to triple Nickel production at PFP. The result before renovation was 13 – 14 tons of Nickel per year.

- Have you been investing the Group's money in Ukraine or you used any other financial instruments?

- Mainly those were our own investments from accumulated profits. We also attracted an aimed loan from the Uranian office of one of the International banks. In 2009 Nickel market price went down. This investment allowed us to grow PFP's production capacity and overcome the crisis with minimum losses. We did have to subsidize the plant but we saved it from stopping production. This also helped both - the plant and the neighboring town - to keep a 100% employment rate.

- Do European roots of the Group help negotiating with the banks?

That is a big advantage! Due to the latest political and economical events banks hardly consider any capital investments in Ukraine. Even financing trade deals is ranked as highly risky investments. At the same time our production process is very long. It starts with loading the ships with raw ore in South America and ends months later with delivering the final product to the customer. Meanwhile we still have to pay for delivering, processing etc. and this needs to be credited. None of the banks is ready to support Ukrainian businesses nowadays. As an International company we get loans. So, being a part of International Group really helps PFP today.