Seek, and ye shall find:
Russian nickel miner is reminting itself
RAO Norilsk hopes a restructuring and financial help from
Europe and Asia will keep it on top, ALLAN ROBINSON says
ALLAN ROBINSON
Friday, September 22, 2000
Russia's RAO Norilsk Nickel does not plan to stand idly by while offshore rivals embark on a multibillion-dollar capital spending spree this decade that could erode its market share.
With the advice of Germany's Deutsche Bank, Norilsk is restructuring its assets to pave the way for a badly needed financing, mainly from European and Asian banks, said Terence Ortslan, a mining analyst with TSO & Associates of Montreal.
Norilsk, the world's largest nickel mining company, can't be ignored as a competitor by the major companies in the Canadian mining industry. It supplies about one-third of the world's palladium and about 20 per cent of platinum, copper and nickel from its mines in Siberia.
Mr. Ortslan said there is no questioning the professionalism of Norilsk's management. "These are very sophisticated operators."
Its chief nickel mining rivals include Toronto-based Inco Ltd. and Falconbridge Ltd., the world's No. 2 and 3 producers, respectively, and Australia's fast-growing Anaconda Ltd.
All have major projects and expansion plans under way.
Inco expects to make a decision by the end of the year about whether it will go ahead with the $1.4-billion (U.S.) Goro project in New Caledonia in the South Pacific that will employ new technology on open-pit laterite nickel ores. It also wants to proceed with the Voisey's Bay project in Labrador and Newfoundland where a three-stage development program could cost $2.6-billion (Canadian).
Falconbridge is investigating a huge laterite deposit in New Caledonia, which one analyst estimates could cost as much as Inco's venture there.
Anaconda, which has huge undeveloped nickel deposits in Western Australia, is the world leader in employing acid-leach and pressure technology at its new mines to extract nickel from laterite ores.
That is the competitive environment facing Norilsk.
This week, the company said it would transfer all of its mining assets to a subsidiary in order to streamline its operations before trying to borrow $1-billion (U.S.), Bloomberg News reported.
The plan is part of a longer-term proposal by Norilsk to modernize its mining assets by 2010. It wants to undertake a $3.5-billion modernization program, which could include investments abroad.
This investment comes after years of exploitation and a lack of development of new ore bodies and replacement of rundown equipment.
However, the smelting operations are fairly modern. "The biggest problem for Norilsk is the underground operations," Mr. Ortslan said.
By putting the mining assets into a separate subsidiary, the banks will have greater control in monitoring the flow of capital in and out of the business, and an easier time assessing its credit worthiness, Mr. Ortslan said.
For Norilsk, the timing couldn't be better.
As a result of high commodity prices, Norilsk "will have a terrific, spectacular year," Mr. Ortslan said. He estimates the company will generate free cash flow in excess of $3-billion in 2000.
Norilsk reported that its first-half income tripled to 30.5 billion rubles ($1.1-billion U.S.) from 10.5 billion rubles a year earlier.
Nickel prices have been healthy this year. At a recent $3.90 a pound, nickel is trading at close to its highest level in five years.
Palladium and platinum prices have soared to $725 and $596 an ounce, respectively, close to their record highs. Both traded at about $350 an ounce in mid-1999. Rising demand by the automotive industry and reduced shipments from Russia have caused prices to soar.
"It may not all go into nickel," David Davidson, a Toronto-based mining analyst with Newcrest Capital Inc., said of Norilsk's investment plans.
He expects the company will concentrate on developing the platinum and palladium side of its business. Generally, platinum and palladium are a byproduct of nickel smelting, but in Russia those metals tend to be found in the copper-bearing deposits, he said.
Norilsk said its shareholders will be able to swap stock next year for shares in OAO Norilskaya Gornaya Kompaniya, one of its largest units, which will control all of the mining assets.
Interros Holding Co. of Russia owns 55 per cent of Norilsk, with 23 per cent held by foreign investors, 10 per cent by management and employees and the rest by other shareholders, according to Brunswick UBS Warburg.
The restructuring also may be aimed at making it harder for the government to reverse the sale of the company to Interros in the mid-1990s, analysts told Bloomberg. The federal prosecutor in June started investigating the 1995 sale of Norilsk shares that gave Interros control, alleging it broke laws on Russian state asset sales.
Vladimir Potanin, the head of Interros, might be trying to strengthen his position at the expense of foreign shareholders, analysts said.
But the proposal has its critics. James Fenkner, an equity strategist at Troika Dialog told Bloomberg that Mr. Potanin's real objective is to dilute the holdings of minority shareholders. "I would challenge anyone to find one case of a share swap in Russia that had been positive for minority shareholders."
Estimates of the extent to which current Norilsk shareholders' stakes will be diluted ranged from 11.5 to 25 per cent, Bloomberg reported. |
