S&P praises nickel miner Norilsk’s finances, stable outlook

S&P praises nickel miner Norilsk’s finances, stable outlook

Standard & Poor’s credit analysts have rated the world’s largest nickel miner Russia’s Norilsk Nickel ”stable” with a ”BBB-”, citing its reserves, large-scale production, product diversification and costs.

Moscow-based analysts Elena Anankina and Tatiana Kordyukova also rated Norilsk favorable for its strong market position, low debt and prudent financial policy.

Nevertheless, S&P warned of the risks of doing business in ”Russia’s weak institutional, legal and regulatory environments,” and expressed concern about ”Norilsk’s exposure to volatile commodity prices and significant capital-expenditures plans.”

Norilsk is the world’s largest producer of nickel (19% of world production) and palladium (45%), the fourth largest producer of platinum (11%) and mines 3% of global copper.

S&P’s analysis noted that Norilsk has never been subject to material tax or regulatory claims. However, it is exposed to volatile commodity prices, which are only ”partially offset by good product diversification, because metals prices tend to correlate.”

With 92% of its first-half 2006 revenues coming from exports, a fair degree of autonomy concerning infrastructure needs, and its position as the largest employer and taxpayer in the regions in which it operates, Anankina and Kordyukova suggested that the company is well-positioned to address risks of operating in Russia. Nonetheless, the analysts expressed a degree of concern regarding its concentrated shareholding structure (53% owned by Mikhail Prokhorov and Vladimir Potanin); the strategic importance of its minerals to the Russian government, and the dependence of Norilsk’s mining business on Russia’s regulatory regime. Prokhorov and Potanin placed in the top 100 of Forbes World’s Richest People for 2006.

S&P feels that Norilsk’s liquidity is strong, noting that the ”group generates massive FOCF [Free Operating Cash Flows].” The company has almost no short-term debt with $1 million in cash and $1.2 billion of committed and $700 million of uncommitted credit lines. ”Liquidity is fully sufficient to cover the planned share buyback of about $975 million (to be made before December 17, 2006) and interim dividends of about $477 million on income from the first nine months of 2006,” they said.

The analysts explained that their stable outlook ranking reflects their expectation that ”Norilsk will continue its prudent financial policy and benign relations with government authorities, including through the next parliamentary and presidential elections.” Meanwhile, they also predicted that the group will focus on developing its core facilities and avoid any substantial debt-financed acquisitions.

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