With speculation rising about a shareholders’ dispute over control of Norilsk Nickel, CEO Vladimir Strzhalkovsky, is mostly concerned not about the outcome of the battle, but Norilsk Nickel’s real future performance.
Russia's biggest miner Norilsk Nickel is currently the subject of a fierce fight for control, with the tycoons Oleg Deripaska and Vladimir Potanin both owning 25% of the group and each wanting to buy the other out, although neither wants to sell.
The world's richest nickel-copper-palladium sediments are deposited in the Norilsk area. And the production facilities of Norilsk Nickel stretch out beneath the mountains, dominating the town and providing much of the local employment. This may be the birthplace of the company, but the conglomerate has spread from its Soviet-era roots with interests across the world, in countries such as Australia, South Africa and Finland.
Like many other commodity producers, Norilsk was hit hard by the financial crisis. However, according to Leonid Krupnov, a chief engineer at Nadezhda metallurgy plant, this region has coped quite well.
“Our plant has overcome the crisis quite successfully. There was a constant demand for our production on the global market. That’s why we didn’t decrease volume of our production during the hard times,” Krupnov claims.
Not all of Norilsk Nickel's factories were so fortunate, however, with the company reporting a 27 per cent drop in revenue to US$10.2 billion last year. Still the group retains its leadership on the world market, accounting for more than 20 per cent of global nickel output, more than ten per cent of cobalt production and three per cent of copper.
Thousands of tonnes of metal go through the factory’s smelter every day, feeding such industries as metallurgy, construction and engineering with nickel and copper. The Russian mining giant provides about two per cent of the country’s GDP and about just as much is estimated Norilsk Nickel's impact on the environment.
Vladimir Strzhalkovsyk, CEO of Norilsk Nickel, is keen to modernize and is promising to spend nearly half a billion dollars next year on cleaning up operations. But the CEO is primarily worried about how the shareholder battle for control of the company will impact on capital expenditure. Whether it is Oleg Deripaska or Vladimir Potanin who ultimately comes out on top, Strzhalkovsky says Norilsk should not be used as a cash cow.
“The situation is quite difficult as you know. There are several ways shareholders and managers view it. Some think you should take all you can now without thinking about the company’s future. Other shareholders, who are in for the long term, think that such a policy would slow down the company’s development and would have delayed its development in the future. I believe we may also face a negative impact if all the money is spent on dividends. Dividends should be paid, but in adequate volumes that do not impede the company’s further development,” says Strzhalkovsky.
Allegations of mismanagement of the company are somewhat hard to substantiate. Its production costs and profitability are comparable with international competitors, but Norilsk does face a challenging future. Its resource base is shrinking and the price of extraction rising. The chief of NorNickel wants the company to focus on what he calls “investment into the mountain”. However that is unlikely to happen until the conflict between the owners is resolved.