The biggest event on the Russian metals market in 2007 was the scandalous division of Norilsk Nickel between Vladimir Potanin and Mikhail Prokhorov, the key shareholders with 28.2% and 25.3% in the metals conglomerate respectively.
The market capitalization of Norilsk Nickel, which accounts for more than 20% of global nickel output, over 10% of cobalt and 3% of copper, and 96% of Russia's nickel production, has risen 40% since the start of the year, to about $40 billion.
Oleg Deripaska's aluminum giant RusAl, which became the world's largest aluminum producer after a March merger between RusAl, rival Sual and Swiss Glencore's alumina assets, is taking over Norilsk Nickel. Potanin and Prokhorov will now have to decide the future of their other joint asset, Russia's largest gold mining company Polyus Gold.
The two billionaires decided to split their empire, whose main asset is Norilsk Nickel, in early 2007. Initially, Potanin was to buy out Prokhorov's stake, but the growing metal prices increased the holding's price and the divide between the two former partners. They could not agree on the price.
On November 21, Prokhorov's Onexim investment fund offered Potanin 25.1% of Prokhorov's stake in Norilsk Nickel at $15.7 billion, to be purchased within 30 days. This is considerably more than the market value of the stake, $13 billion.
But two days later Prokhorov agreed with Deripaska to exchange the stake for 11% of RusAl shares and an undisclosed sum of money, which experts put at $9-$13 billion. The transaction could be concluded only if Potanin refused to use his preemptive right.
Potanin therefore needed to find $3 billion more than Deripaska to buy the stake by the deadline. He tried to take out a loan in Russia and abroad, but Russian banks do not have so much money, while foreign banks did not dare, or decided not to give the billionaire the mind-boggling sum because of the global liquidity crisis.
On December 21, Potanin said he would not buy out the blocking stake from Prokhorov. Several hours later, RusAl announced that its deal with Prokhorov would go through as planned. It can be completed in the first quarter of 2008, after the regulators approve it.
Experts say that RusAl will want to take over the whole of Norilsk Nickel, where minority shareholders own about 38% of shares. An 8% stake is held jointly by Prokhorov and Potanin, who are likely to auction it.
RusAl might offer Potanin to sell his blocking stake on similar conditions, but the billionaire can find a way to stop the deal between RusAl and Prokhorov, although this is improbable, or sell his take to a state company.
Most experts believe that the final say in the issue belongs to the Kremlin. The merger of Norilsk Nickel and RusAl would benefit Russia, which would have its first diversified mining and metallurgical asset with global ambitions.
The two companies produce different metals and are leaders in their segments, complementing each other. Moreover, a united company would have more possibilities to find money for their projects and a bigger potential for international mergers and acquisitions.
A united company of RusAl and Norilsk Nickel, with a capitalization of around $100 billion, would be the fourth largest in the global non-ferrous metals market after Australia's BHP Billiton and Rio Tinto and Brazil's CVRD. These global giants have entered the path of mergers and diversification, which is the main argument in favor of creating a similar company in Russia.
The future of another of Potanin and Prokhorov's joint asset, Polyus Gold, Russia's largest gold producer with a capitalization of around $9 billion, is to be decided in 2008. The "bitter friends" own it according to the same scheme as in Norilsk Nickel.
It was initially planned that the gold producer would go over to Prokhorov. But he could not offer Potanin the required sum, and therefore they decided in December to auction their 7.4% stake. They immediately received offers from two major bidders, Musa Bazhayev's Alliance and Suleiman Kerimov's Nafta Moskva.
However, the stake may still be sold to either Potanin or Prokhorov, because gold prices are growing as quickly as the prices of nickel and palladium, and neither man wants to part with such a profitable asset.
The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
