Metalloinvest Said to Seek Norilsk Nickel Shares for Udokan

Billionaire Alisher Usmanov’s Metalloinvest, Russia’s largest iron-ore producer, is seeking to swap its Udokan copper deposit for shares in OAO GMK Norilsk Nickel, according to three people familiar with the matter.

Metalloinvest, which already holds 4 percent of the world’s largest nickel producer, is in preliminary discussions with other Norilsk shareholders about the proposal, the people said, asking not to be identified because the information is private.

Norilsk’s largest shareholders, billionaire Vladimir Potanin and United Co. Rusal, controlled by Oleg Deripaska, signed an agreement in December on the management of Norilsk to end more than four years of conflict. Udokan contains 14.4 million metric tons of copper metal, making it one of the world’s five-largest deposits, according to Metalloinvest.

Norilsk fell 1.8 percent to 5,780 rubles, the lowest in five weeks, by 2 p.m. in Moscow, giving it a market value of 1.1 billion rubles ($37 billion). Kommersant reported Usmanov’s interest in swapping Udokan for Norilsk shares earlier today.

Metalloinvest may get as much as 2 percent of Norilsk for Udokan, Barry Ehrlich, a metals analyst at Alfa Bank, said today in a report. Such a deal would be bad for Norilsk investors because it would contradict the company’s stated goal of “minimum capex and maximum dividends,” he said.

Officials at Metalloinvest, Rusal and Potanin’s Interros Holding Co. declined to comment on the possibility of a deal.

Usmanov Criticism

The deal between Rusal and Potanin over Norilsk has drawn criticism from Usmanov, who said in December he “is not sure” that it will be beneficial to all of the company’s investors.

Norilsk, Russia’s second-biggest copper producer, ended a bid for Udokan in 2008. Copper makes up a quarter of its sales.

Metalloinvest last year estimated total development costs of the project at $8 billion. It won the tender in 2008 with a bid of 15 billion rubles ($498 million) and signed a preliminary deal with RusTech that the state-run company may get 25 percent in exchange for investments. Norilsk’s owners received an offer to join the project, RusTech’s press office said today.

RusTech Chief Executive Officer Sergey Chemezov is proposed by Metalloinvest for Norilsk’s board, to be elected on March 11.