Rusal Plans Merger With Norilsk After Buying 25% Stake

Rusal, the Russian aluminium giant, is to buy a 25 per cent stake in Norilsk Nickel as part of its attempt to become one of the worlds largest diversified mining companies.

Rusal will buy the stake from Mikhail Prokhorov, a Russian oligarch, and is then expected to follow that up with a full bid for Norilsk.

This would turn Rusal into not only the worlds largest aluminium producer but also a diversified resources company to rival BHP Billiton, Brazils Vale (formerly CVRD) and Rio Tinto.

A merged Rusal-Norilsk would be the worlds fourth-biggest miner and have an estimated market capitalisation of more than $100 billion (£50.4 billion), making it larger than Anglo American.

Rusal is acquiring the Norilsk stake after Mr Prokhorovs partner and co-owner in the nickel miner, Vladimir Potanin, failed to raise $15.7billion to buy the shares. Mr Potanin hired Citigroup last month to raise $10 billion from banks in London but this plan was scuppered by turmoil in the credit markets.

He is thought to have raised about $5 billion from two Russian banks but this was insufficient. He announced yesterday that he would not exercise his option to buy Mr Prokhorovs shares.

Mr Prokhorovs investment vehicle, Onexim, will sell his shares to Rusal in return for 11 per cent of the enlarged company and a cash bonus.

ABN Amro, BNP Paribas, Credit Suisse and Merrill Lynch will provide financing to Rusal to pay for the cash component of the consideration. Mr Potanins investment vehicle, Interros, will retain its 25.3 per cent stake in Norilsk for the moment. A spokesman said yesterday that Mr Potanin was not opposed to the idea of merging with Rusal.

Alexander Bulygin, chief executive of Rusal, said: “We intend to create Russias first global diversified metals and mining company. Our company will join the ranks of the worlds top five mining giants, providing significant growth for the company to its shareholders and reinforcing the international reputation of Russia as a strong industrial state.”

Norilsk controls 20 per cent of the worlds nickel market and half its paladium. It also produces copper, zinc and platinum and mining analysts consider it to have some of the best resources in the world.

Robin Bhar, analyst at UBS, said: “Being a one-commodity producer is not as good as being diversified, so for Rusal it makes perfectly good sense. It is about mirroring BHP and Rio, getting closer to the model theyve used.”

The Kremlin is thought to want to exert greater control over Norilsk so a merger with Rusal is likely to receive official blessing. Rusal is owned by Oleg Deripaska, an oligarch who is close to both Vladimir Putin and Mr Putins likely successor, Dmitry Medvedev.

The Kremlin was instrumental in arranging the merger of Rusal with Sual, another Russian aluminium company, earlier this year to create the worlds largest producer of the metal. Mr Putin is thought to want to establish Russian national champions in the resources sector.

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