Russia's OAO Norilsk Nickel will take a major step forward in its quest to create a top gold producer when its shareholders vote Sept. 30 on a plan to spin off its gold assets into a separate company that would become an acquisitions vehicle.
The decision by Norilsk to carve out its gold assets and list the new firm abroad forms part of a growing trend among Russian energy and mining companies of taking advantage of foreign investor appetite for their shares. That, in turn, is providing such firms with the financial means to acquire assets outside of Russia.
Moscow-based Norilsk, already the world's top producer of nickel and palladium with $7 billion in sales last year, has spent this year consolidating all its gold-mining activities within ZAO Polyus, the Siberian gold mining company it bought nearly three years ago for $226 million. To this, Norilsk said it will add its 20% investment in South Africa's Gold Fields Ltd. and $200 million of cash, creating a company with $2.8 billion of assets and no debt.
On Sept. 30, Norilsk hopes its shareholders will approve a plan to accept one Polyus share for every Norilsk share held. Shareholders who vote against the spinoff would have the right to redeem their shares for 1,855 rubles ($65.14) per share. Deutsche UFG — Deutsche Bank AG's Russian venture with Moscow's United Financial Group — has been appointed adviser for the spinoff.
Norilsk feels the time is right for such a move, given that gold prices were recently at a 17-year high before a falloff last week, there are few Russian publicly traded mining firms, and those that are traded tend to be undervalued compared with their foreign peers despite having significant reserves because the industry is still relatively undeveloped.
In April, Polyus Gold will apply for a listing on one or more of the Russian stock exchanges and in May apply for a listing on a foreign exchange, "most probably New York and maybe Toronto," said Yevgeny Ivanov, president of Polyus, in a recent interview.
Once a foreign listing has been secured, the company's international expansion can "become a reality," Ivanov said.
Polyus will begin life as one of the world's top 15 gold producers, with annual production of around 1.1 million ounces. But Norilsk aims to lift Polyus into the top five of gold producers within five years.
The company will achieve this partly through organic growth by acquiring gold deposits especially at home, where it is well placed to take advantage of Russia's fragmented gold mining industry, huge untapped deposits and unfriendly investment climate that scares off many foreign miners. Indeed, Polyus last week said it bought stakes in three gold producers in Russia's Yakutia region from the Alrosa Investment Group for "less than $285 million." And next year the Russian government will put up for tender the Sukhoi Log, a field with estimated reserves of more than 33 million ounces.
However, "to take us into the top 5 producers by 2010 we must surpass 5 million ounces per year, then we need M&A," said Ivanov.
Norilsk wouldn't comment on any potential acquisitions. But it is well-placed to snap up domestic rivals given that it is Russia's largest gold producer with more than 5 times the production level of its nearest competitor. |
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