Russia's largest mining company, which is trying to buy majority interest in Stillwater Mining Co., says the deal should boost demand for palladium and that will help both companies.
Leonid Rozhetskin, deputy chairman of the management board for Moscow-based Norilsk Nickel, said the acquisition should stabilize volatile palladium supplies. And a stable supply should encourage U.S. auto makers to use more of the precious metal.
"This is a good deal for us, a good deal for Stillwater Mining shareholders and a good deal for U.S. consumers," Rozhetskin said during a Monday editorial board meeting at The Gazette.
The United States uses 40 percent of the world's palladium, largely in automobile catalytic converters that control pollution.
Through Stillwater Mining, the Russians are buying access to U.S. automakers. The Russians used to sell palladium in this country, but their supplies were erratic and that market dried up.
Rozhetskin said it is easier to buy goodwill with the automakers than rebuild it.
"Stillwater Mining Co. has excellent relations and Norilsk doesn't," Rozhetskin said.
Frank McAllister, Stillwater's chairman and chief executive officer, said part of the assets the Russians are buying include Stillwater's public listing on the New York Stock Exchange.
"If they have us as a public company, they have a different circumstance than if they owned us as a division," McAllister said.
Under the purchase agreement, Norilsk will sell 1 million ounces of palladium a year to Stillwater mining, which will then sell the ore to its customers.
|More on Norilsk Nickel. Norilsk Nickel is based in Moscow with
its major mine in a northern Russia mining city of 250,000
Norilsk is one of the 10 largest companies in Russia, employing 85,000 workers and having a market capitalization of $4 billion
The underground mine has more miles of tunnel than the London subway
The Russian corporation exports 91 percent of the metals it produces
This is only the second time a Russian company has made a major acquisition in the U.S. This first was when Lukoil bought Getty Petroleum, according to Dow Jones Newswires
The amount of palladium stockpiled by Norilsk is a closely guarded secret
Stillwater Mining employs 1,600 people. About 1,000 work at the original mine near Nye and 300 at the East Boulder mine. The rest work at company headquarters and the smelter in Columbus.
If the deal is completed, Norilsk will appoint a majority of members - five out of nine - on Stillwater Mining board. But, the current Stillwater management team will stay put, along with the mine's Good Neighbor agreement with area landowners and the labor contracts.One of the big players The Montana mining company is one of only three major platinum and palladium mines in the world, including Norilsk and a mine in South Africa.
Sen. Conrad Burns, R-Mont., returned recently from a trade mission to Russia where he met with Norilsk officials. Burns said he was reassured that the Russian deal will help the financially troubled Stillwater Mining.
"Stillwater Mining is a very, very important part of Montana," Burns said. "It's very important to this country as a trace mineral (producer)."
Some have raised concerns about potential homeland security problems if a foreign corporation owns controlling interest in the sole American platinum/palladium mine.
Burns said he will let the U.S. Commerce Department decide that question and will support the decision.The deal Stillwater Mining will receive $100 million in cash from Norilsk and about $241 million in Russian palladium. Norilsk will sell Stillwater 876,000 ounces of palladium at market price when the deal closes.
That means Stillwater mining could get less than the estimated $241 million. Or it could receive more money if the metal's price increases.
Prices of the metals have fluctuated widely in recent years. Palladium is trading at $240 per ounce now, down from a high of $1,100 per ounce in 2001. Platinum is selling for $604 per ounce.
After the deal is completed, Stillwater Mining agreed to double its outstanding shares, now at 43.5 million.
If the price of palladium drops after the deal is closed, Norilsk has the right to buy another 10 percent of the outstanding Stillwater shares at market price giving it a 56 percent majority interest.
Stillwater will use the cash to pay down debt and possibly expand the East Boulder mine, which is running at half capacity.Stock price takes a hit When the deal was announced Nov. 20, Stillwater stock was trading at $7.41. The stock closed Monday at $5.25. Over the past two years, the company stock has fallen 75 percent.
Since the Russian deal was announced, Merrill Lynch and Morgan Stanley have downgraded Stillwater Mining stock to neutral and equal-weight, respectively.
One Canadian industry analyst said Norilsk is paying too little, at $7.50 per share, and there is a risk shareholders will say, "Nyet" to the sale.
But Rozhetskin disagreed, saying he has to go back to Russia to explain why Norilsk is paying so much for these American mining properties.
McAllister said the deal started with a chit-chat at a mining convention in Florida last February. Now the two companies are "married at the hip."
But the deal isn't done yet. It faces several regulatory hurdles including passing approval at the U.S. Commerce Department, anti-trust concerns at the U.S. Justice Department and the U.S. Securities and Exchange Commission.
The deal also must be approved by Stillwater Mining shareholders and Russia's Central Bank.
Rozhetskin, who has excellent English and a sense of humor, said this deal is good for both companies and both countries.
"I don't see this as a risky deal at all," Rozhetskin said. "Stillwater gets the cash it needs to pay down its debt." Jan Falstad can be contacted at (406) 657-1306 or at firstname.lastname@example.org