Norilsk Says Mining Giant Just Idea so Far

Norilsk Nickel is not in "concrete discussions" about creating a mining giant in which the Kremlin would own a stake, although ideas have been proposed by shareholders, the company's chief executive said.

Several metals billionaires, hit hard by the financial crisis, have proposed merging their firms in various schemes that would allow the state to part-own a diversified miner in exchange for absorbing most of the owners' debts.

"If the government and the owners find the optimum consolidation scheme for all, then management will fulfill it," Norilsk Nickel chief executive Vladimir Strzhalkovsky said Thursday.

"Nevertheless, there are no concrete discussions right now, [there are] only different propositions from shareholders."

Norilsk, which produces about a fifth of the world's nickel, is widely expected to be at the center of any such merger. Its largest shareholder, Vladimir Potanin, has proposed swapping some of his debt for a stake in a larger company.

Media have reported that such a scheme could also involve Metalloinvest, the iron and steel firm founded by billionaire Alisher Usmanov, as well as steelmakers Evraz Group and Mechel and potash miner Uralkali.

"The purpose of consolidation shouldn't be to pool debts or shift them to a more financially stable company but to gain the real benefit of working together," Strzhalkovsky said.

"For example, the diversification of risks by expanding the product mix -- when the price of one type of product falls and the price of another rises."

Strzhalkovsky did not describe any of the ideas or name any potential merger partners.

Russian media have reported that the state could contribute VSMPO-Avisma, the world's largest titanium producer, to such a company. VSMPO-Avisma is majority owned by state conglomerate Russian Technologies.

The Federal Anti-Monopoly Service said Tuesday that it was opposed to the idea of merging Norilsk with several Russian miners.

"There is no prospect in such a merger other than unloading debts to the state," said Alexei Ulyanov, head of the service's industry department. But he said the body might be prepared to examine a merger between Norilsk and Metalloinvest.

In a separate interview with business daily Kommersant, Strzhalkovsky said the company's situation was better than that of its peers after the recent ruble devaluation and the scrapping of export tariffs on copper and nickel.

"With the dropping of export tariffs on copper and nickel, I expect our operating profit to be $1.6 billion to $1.8 billion [in 2009]," he said. "Earlier, we expected $1.2 billion."

Strzhalkovsky also said he did not see any synergies in merging metal and steel assets in a possible mining giant.

"Steel and base metals work in the same cycle," Strzhalkovsky said. "A price rise in steel inevitably leads to a hike in nickel prices and the reverse is also true."