Norilsk Nickel acquires U.S. mining firm

Russian metals giant Norilsk Nickel is to take a majority holding in the U.S. mining company Stillwater in a $341 million deal by means of a new share issue, the company announced Nov. 21.

Norilsk Nickel will pay $100 million and provide some 876,000 ounces of palladium valued at $241 million dollars in exchange for a 51 percent share-holding in Stillwater, it said in a statement.

The palladium will be sold in stages, depending on market conditions, and the cash used to reduce the U.S. company's debt.

The deal is to be finalized in the first half of next year, and the final arrangement is likely to see Norilsk's participation rise to 56 percent.

The price of palladium is currently at its lowest level in four years, with motor manufacturers sharply reducing their orders because of the irregularity of supplies and the volatility of prices.

Norilsk Nickel CEO Mikhail Prokhorov said the company was "extremely pleased" with the deal.

"This is our first investment in North America, and we intend to make it a success," he said.

Stillwater's chairman said the sale of the company, the sole U.S. producer of palladium and platinum, "is in the best interests of shareholders and partners," enabling it to link up with "a strong and knowledgeable partner in the platinum group metals markets."

An analyst with the Aton investment group said the takeover was a "positive development" for Norilsk.

It would "likely increase Norilsk's domination of the palladium market and provide it with an inexpensive entry into the largest market for the metal," the analyst said.

Richard Morgan, analyst with the British magazine Mining Journal, said the deal would benefit both companies because there was an "obvious fit" between them.

Norilsk is rich in palladium but "has been struggling to sell palladium to motor-vehicle manufacturers under long-term contract," leading to a large stockpile of the metal, Morgan said.

Stillwater, on the other hand, "essentially represents a marketing franchise ... to the large U.S. motor industry, with long-term contracts already in place."

Vasily Nikolayev, analyst with the Troika Dialog bank, noted that Norilsk would now "be closer to its American clients. Stillwater has very good contacts with all the U.S. auto constructors."

Based in Columbus, Montana, Stillwater is quoted on the New York Stock Exchange. Its production of platinum group metals in 2002 is estimated at 640,000 ounces.

Its reported profit last year was $66 million on sales of $277 million.

Norilsk Nickel, based in Russia's far north, produces 45 percent of the world's output of palladium and 10 percent of total world production of platinum. It forms part of the Interros holding headed by businessman Vladimir Potanin and last year reported net profits of $469 million on sales of $3.4 billion.

The deal still requires approval by Stillwater shareholders and the U.S. regulating authorities.