Mining Giant May Be Hard Sell In Recession
Russia's metals elite, with debts in the billions of dollars, will have trouble convincing the state to join them in forming a national mining champion when the government has to plug holes in a budget deficit.
A stake in a Russian equivalent of the world's largest miner, BHP Billiton, would appeal to a government fiercely protective of its mineral reserves. But the state has signaled its reluctance to bail out business as it preserves cash to survive its first recession in 10 years.
To secure state support, analysts say, indebted billionaires such as Vladimir Potanin, Oleg Deripaska and Alisher Usmanov must first settle their own differences and present the Kremlin with a feasible blueprint for a profitable Russian mining giant.
«The government didn't ask for all this. These guys have driven a car into a ditch, and they want the government to try to help them get it out,» said Rob Edwards, mining analyst at Renaissance Capital.
In offering the state part ownership of a combined entity, metals company owners are seeking a way to offload some of the huge debts they accumulated when commodity prices were high and access to loans was much easier.
«The state has the intention of supporting industry in general, not particular companies or people,» said Nikolai Sosnovsky, metals and mining analyst at UralSib.
Merging Russia's metals giants is not a new idea. Deripaska, who built his aluminum company into the world's largest, spoke of such a concept last year when Rusal bought into Norilsk, the world's largest nickel and palladium miner.
At the height of last year's commodity boom, a three-way merger with Metalloinvest, Usmanov's iron and steel company, would have created a miner worth more than $100 billion.
A diversified company -- particularly one with Kremlin support -- would be able to earn huge revenues from exports, more adept in handling commodity price swings and better-equipped to fund ambitious expansion projects.
«Such a company would be able to finance big projects. Even Norilsk Nickel, for example, couldn't finance a $2 billion or $3 billion project without taking huge risks,» Sosnovsky said.
Potanin, the billionaire with the biggest stake in Norilsk, is preparing proposals for swapping debt for a stake in a bigger company, his spokeswoman said last month.
Various proposals have leaked into the media, from a straightforward merger with Metalloinvest to a six-firm colossus uniting the coal mines of Mechel and the steel mills of Evraz Group with the potash mines of Uralkali and state-controlled titanium producer VSMPO-Avisma.
The companies involved have officially declined comment or spoken vaguely of considering all options.
Norilsk, at the heart of every proposal, is not in «concrete discussions» about creating such a company, although ideas have been proposed by shareholders, CEO Vladimir Strzhalkovsky said.
And the Federal Anti-Monopoly Service has said it will not support the creation of a mining giant part owned by the state.