Norilsk Nickel To Pay in Cash and Precious Metals

For the USA's only palladium producer
According to Bloomberg, Russia’s Norilsk Nickel has completed negotiations on the purchase of 51% of Stillwater Mining Company’s shares, the US’s only palladium producer.

According to a joint statement of the companies, the cost of the deal will make up 341 million dollars. At that, Norilsk Nickel will pay 100 million dollars in cash and 876 thousand ounces of palladium, which is equivalent to 241 thousand dollars, for 45.5 million shares for a new Stillwater emission. Thus, total volume of Norilsk Nickel investment will make up about 341 million dollars. The end price of Stillwater shares at the New York Stock Exchange made up 7.48 dollars as of November 19. When the bargain is struck, total amount of Stillwater shares in circulation will make up 89.1 million of common shares. The investment bank UBS Warburg LLC was a financial adviser of the Russian company in the bargain. Stillwater’s adviser was J. P. Morgan Securities Inc.

According to the agreement, on the condition that the price of Stillwater shares is below 7.5 dollars per share for the next 15 days after the bargain is struck, Norilsk Nickel is obliged to make a tender proposition to Stillwater shareholders within 30 days and offer them up to 10% of the shares in circulation for 7.5 dollars per share. As a result of it, Norilsk Nickel’s share in Stillwater may reach 56%.

Experts consider the bargain to be rather successful from a financial point of view. First, Norilsk Nickel paid only 7.5 dollars per Stillwater share, at a time when the price could have been even 20 dollars just a couple of years ago. This relatively low price for the shares is explained by the fact that currently palladium shares are at their lowest level for the past four years.

Palladium is mostly used in the production of car accelerators, which is used to clean exhaust. Earlier, platinum was used instead of palladium for this purpose, which was certainly twice expensive than palladium. Car producers started using palladium only in the early 90s when Russia began exporting the metal on an industrial scale. Currently, Russia is the world’s largest palladium producer. The metal is also produced in the South African Republic, but all the same, palladium is called “Russian metal” all over the world.

For several reasons, palladium exports from Russia abruptly reduced in the mid-late 90s, which resulted in a considerable deficit of the metal on the world market. Traders immediately took advantage of the unfavorable situation and sent up the palladium price from 300 to 1,200 dollars per ounce. As a result, car producers, which are famous for their cautiousness and long-term planning for many years in advance, gradually recommenced usage of platinum: although platinum is more expensive than palladium, but it is more stable than the “Russian metal.” Consequently, the price and the demand for palladium drastically reduced. Currently, palladium price is only about 279 dollars per ounce, but it made up 1,090 dollars at the beginning of 2001.

Director of the Norilsk Nickel department for work with investors Sergey Polikarpov told PRAVDA.Ru that the purchase of Stillwater Mining Co. will not only increase palladium supplies to the USA (America consumes about 40% of the world’s total palladium supply), but will also allow the use of reserves already accumulated. In Polikarpov’s words, Norilsk Nickel considers the purchase a very profitable deal, and not only because of the shares’ attractive cost. Sergey Polikarpov says: “In fact, we purchased Stillwater Mining Co. for 100 million dollars plus palladium, which is no problem for Norilsk Nickel.”

Stillwater Mining Co. president Francis McAllister said that the bargain will allow his company to join efforts with a strong company “which is very experienced in this business.” “I think that our clients will treat the deal as an opportunity for a more stable inflow of palladium,” he added.

The deal between the Russian and the American companies presupposes that Stillwater will negotiate the purchase of at least one million ounces of palladium from Norilsk Nickel per year in order to further distribute it among its partners in the network of long-term contracts. Experts mention that Stillwater Mining Co. successful in concluding many long-term (and wonderfully hedged) contracts for palladium supplies, which by the way guarantees Norilsk Nickel with a sure market for many years.

For reference: Stillwater Mining Company (Columbus, Montana) is the USA’s only palladium and platinum producer and also the largest producer of the platinum group metals outside South Africa and Russia. As of the end of 2001, the company’s developed and estimated reserves made up 25 million ounces of metals of the platinum group. It is expected that about 640 thousand ounces of metals of the platinum group will be produced in 2002, and the showing is expected to reach 700 thousand ounces in 2004. According to the results of the nine months of 2002, the total spending on production of one ounce of palladium made up 279 dollars.

Dmitry Slobodanuk PRAVDA.Ru

Translated by Maria Gousseva

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