Dangers Ahead for Russia's Norilsk

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The recent financial crisis certainly makes business harder for companies like Norilsk, the world’s biggest palladium and nickel producer. Palladium producers expect 12-year lows next summer, and nickel producers keep cutting back production. To make matters worse, Norilsk expects the road to become rockier. Yesterday, the firm’s chief executive, Vladimir Strzhalkovsky, announced that the company’s profit will likely fall 75 percent in 2009.

Norilsk plans to maintain current levels of production next year, but expects to invest $600 million less and close its least profitable plants. In addition, Strzhalkovsky broke the news yesterday that stockholders will not receive dividends this year, which might come as a shock to stockholders after a history of high dividend payment. “In 2007, Norilsk paid 112 rubles ($4) per ordinary share in dividends and 120 rubles per share in 2006,” the Moscow Times explains.

Although we reported last month that leading aluminum maker UC Rusal hopes to eventually merge with Norilsk, the producer now expresses personal hopes: that a state-owned, government company will buy Rusal’s 25 percent stake in the company. When the stock fell 30 percent earlier this year, Rusal noted that dropping share prices couldn’t convince them to sell their stock, but Norilsk leaders are desperate for a solution. Although Strzhalkovsky was “visibly upset” yesterday about the possible 75 percent drop, he expressed faith that the government could help through tax measures and increased liquidity. For example, a four percent decrease in value-added tax could save Norilsk $240 million next year.

Until then, the stock keeps plummeting: “Norilsk, which has seen its MICEX-listed shares plummet by 75 percent since May and nickel prices tumble to $10,250 per ton from $51,600 per ton last year, posted a net income of $2.7 billion in the first half of this year, 33 percent less than in 2007,” according to the Moscow Times.

–Amy Edwards

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