Alrosa Closes In On 25% Stake in Polyus

9 August 2007
Diamond monopoly Alrosa was close Wednesday to buying 25 percent of leading gold miner Polyus, extending the state's reach into another strategic industry, news agencies reported.

Alrosa is to buy the stake from Mikhail Prokhorov, co-owner with Vladimir Potanin of the Interros holding company that controls Norilsk Nickel, Interfax and Dow Jones reported.

Market sources said the dispatches were based on a leaked draft of a news release. None of the parties involved would comment on the record, but sources close to the matter said a formal statement could be imminent.

"It is true. We are just waiting for the announcement," said one mining sector analyst who spoke on condition of anonymity.

Such a deal would give state-controlled Alrosa a voting stake sufficient to block strategic decisions at Polyus, a company spun off from Norilsk Nickel whose profits rose tenfold last year to $1.2 billion.

Prokhorov has convened a Norilsk board meeting Thursday that will elect a new board of directors.

Analysts said the sale would provide an exit strategy for Prokhorov in his dispute on the splitting of assets with Potanin. There has been perennial media speculation in recent months that Alrosa would take over either Norilsk or Polyus after a former senior Norilsk executive, Sergei Vybornov, was hired to head Alrosa last year.

But Alrosa, already saddled with debts estimated at $2.5 billion, has admitted that it would not be able to afford Norilsk, which has a market value of over $40 billion. At current market prices, the one-quarter stake in Polyus would cost a more affordable $2 billion, although Alrosa would still need outside financing.

The sale would relieve Prokhorov and Potanin of the need for a complicated and drawn-out asset swap, said Olga Okuneva, a metals analyst with UFG. "The sale is an opportunity for Prokhorov to sell directly since he could not agree with his long-term partner Potanin on the valuation of individual assets."

Prokhorov's Onexim fund on Wednesday declined to comment on the possible sale of the stake.

A spokesman for Alrosa said the company would issue a statement Thursday.

Prokhorov stepped down as CEO of Norilsk Nickel in March under an agreement with Potanin to divide the business empire they control through Interros. Prokhorov's assets -- a 22 percent stake in Norilsk Nickel, 50 percent in Interros and 22 percent in Polyus -- are being managed through Onexim.

Analysts said Prokhorov's move was dictated by changing market circumstances, which has been prolonging the divorce process.

"Since they announced the split at the end of January, the price of Norilsk Nickel's shares has risen considerably," UralSib analyst Kirill Chuiko said.

Chuiko said that at current market prices, Potanin would have to pay about $10 billion for the stake.

"The trouble is that the longer the settlement takes, the higher Prokhorov's share value in Norilsk becomes and the higher the stakes for Potanin," Chuiko said. (Reuters, MT).

Source: The Moscow Times, Thursday, August 9, 2007