Aug. 12 (Bloomberg) -- Russia's state-run weapons exporter agreed to buy VSMPO-Avisma, the world's biggest titanium producer and a supplier to Boeing Co., tightening President Vladimir Putin's grip on his nation's natural resources.

Rosoboronexport will acquire more than 51 percent of VSMPO, based in Verkhnaya Salda in the Ural mountains, the arms seller's Chief Executive Officer Sergei Chemezov said yesterday on the sidelines of a reception organized by Boeing in Moscow.

``All the agreements and contracts have been signed, we just have to pay the money now,'' Chemezov said. He declined to put a value on the deal.

Putin is using cash generated by record oil prices to increase government control of key industries. Russia's leader served in the KGB in east Germany at the same time as Chemezov, now a presidential ally. Boeing signed an accord yesterday to secure supplies from VSMPO and expects to spend $18 billion on Russian titanium in the next 30 years.

Shares in VSMPO, which produces 30 percent of the world's titanium, rose 0.5 percent in Moscow to 5,930 rubles yesterday, valuing the company at 68.4 billion rubles ($2.6 billion).

Boeing Accord

Boeing and VSMPO signed an agreement yesterday to make titanium parts in Verkhnaya Salda for Boeing commercial airplanes including the 787 Dreamliner. Titanium is used in weapons, airplanes and golf clubs.

Chief Executive Officer James McNerney beat rival Airbus SAS in orders by a 4-to-1 margin in the first half of this year as fuel-conscious airlines picked Boeing's 787 Dreamliner amid production delays at Airbus. Alan Mulally, Boeing's commercial airplane chief, met Putin after the contract signing.

``We will, from our part, support the development of your business in Russia,'' Putin told Mulally, according to the president's Web site at www.kremlin.ru.

VSMPO supplies about 40 percent of the titanium used by Boeing and 60 percent by Airbus, the world's two largest airplane makers. Rosoboronexport will honor all existing contracts after the takeover and will seek to reinvest profit to accelerate titanium production growth, VSMPO CEO Vladislav Tetyukhin said at yesterday's reception.

VSMPO exports 75 percent of its production and its biggest clients are Chicago-based Boeing and Toulouse, France-based Airbus. The Russian company in May announced a $1 billion titanium supply contract with European Aeronautic, Defence & Space Co., which owns 80 percent of Airbus, for shipments through 2011.

Putin, Control

Putin is reasserting state control over industries that had been sold off after the collapse of the Soviet Union. Russia has used assets from OAO Yukos Oil Co., bankrupted by back-tax claims, to help build up government-owned oil and gas companies OAO Rosneft and OAO Gazprom.

Rosoboronexport last year gained control of OAO AvtoVAZ, Russia's biggest carmaker and the local partner of General Motors Corp.

After completing the acquisition, Rosoboronexport may sell less than 10 percent of VSMPO's shares in the second quarter of next year and list the stock in Moscow, New York and London, Tetyukhin said. Tetyukhin and VSMPO Chairman Vyacheslav Bresht had been the controlling owners of the titanium producer.

Rosoboronexport's subsidiaries are buying offshore companies that were holding Tetyukhin's and Bresht's stakes and by the end of August those transactions will be complete, Chemezov said.

Tetyukhin, who had held 30 percent in VSMPO will retain less than 5 percent in the company, Chemezov said. Bresht is selling all of his 30 percent stake and will leave the metals maker, Chemezov said.

The share sale would be used to recoup some of Rosoboronexport's expenses and make VSMPO more transparent for investors, Tetyukhin said

VSMPO expects to increase production 11 percent this year to 23,500 metric tons. By 2012, the company plans to be producing 46,000 tons of titanium ingot, wire, forged material and machine parts a year.

To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net

Last Updated: August 11, 2006 16:27 EDT