10/09/2013 - 15:38

Oligarchs look for nickel exit

10/09/2013 - 15:38


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The Russians and their Ukrainian friends are going home, but before anybody cheers there’s a reason for the exit – the declining appeal of investing in Western Australia, especially its nickel industry.

Falling prices have dogged nickel for the past two years, and while there’s nothing new in the metal being cyclical there is a risk that the current downturn could trigger widespread shutdowns.

The latest developments, which could also be signalling the end of WA’s once strong relationship with Russian and Ukrainian oligarchs, started last week with the sale of a controlling interest in the iron ore miner, BC Iron, by Ukrainian billionaire Gennadiy Bogolyubov.

The news gained momentum overnight with a report of an overhaul of the world’s biggest nickel mining company, Russia’s Norilsk Nickel.

Mr Bogolyubov retains ownership of his primary WA asset, the Woodie Woodie manganese mine, though it will be under pressure thanks to the price of manganese falling by around 30 per cent over the past 12 months.

Manganese and nickel are closely related through their near-exclusive use in blending with iron ore to make speciality steels.

The Norilsk situation is just starting. And while the big Russian miner has closed most of its WA operations during the past few years, it retains an extensive portfolio of mothballed mines and potential mines, including those at Lake Johnston, near Norseman, Black Swan near Kalgoorlie, and Honeymoon Well near Leinster.

All of those assets were acquired in a series of deals before the 2008 stock market crash, including the $US7.7 billion takeover of the LionOre group, but could now be for sale as Norilsk’s controlling shareholder, Vladimir Potanin, launches an internal overhaul of his debt-laden empire.

Mr Potanin, who owns 30 per cent of Norilsk, told London’s Financial Times newspaper yesterday that he had appointed the US management consultancies, McKinsey and BCG, to advise how best to restructure the sprawling interests of the business, which started life in the 1930s as an agency of the Russian secret service, the KGB, to supply metal for armament manufacturing.

“To put it simply, the company should become modern,” Mr Potanin said. “It’s still working like a Soviet ministry.

“We had the Soviet habit of state planning. We built everything with a long-term perspective and didn’t care about what efficiency was reached at each stage.”

One of the areas likely to be cut is Norilsk’s portfolio of international assets (including Australia), either by selling or by inviting in joint venture partners.

But anyone taking up Mr Potanin’s invitation should be prepared for a Soviet-era long haul, because the man himself reckons the nickel price could stay low for a sometime.

Mr Potanin was reported by the Financial Times to have said that Norilsk was: “Bracing for nickel prices to remain at the current low levels for the short to medium term. Any recovery in price, he warns, will be limited.”

The exit of the oligarchs is a big event for WA mining, but a much bigger event could be the exit of BHP Billiton from nickel, either by closure, outright sale, or offloading into an arms-length and separately managed company.

Getting rid of its nickel business has been on BHP Billiton’s to-do list for several years, and started with the closure (and then sale) of the Ravensthorpe nickel project.

Pressure is now on the existing operations, including mines at Mt Keith and Leinster, along with the Kalgoorlie nickel smelter and Kwinana nickel refinery.

Earlier this year, BHP Billiton privately briefed friends in the media about the possible packaging of its nickel business into a $3.9 billion float, complete with tantalising references to a potentially big new discovery called Venus, which was said to be located close to its Perseverance mine at Leinster.

While some recipients of the briefings saw that as a step towards BHP Billiton expanding its nickel business, or having fresh marketing point in a nickel-focused spin-off, others saw it as an attempt to generate interest from potential buyers for the entire nickel operation.

Low prices and lack of growth potential have dulled BHP Billiton’s interest in nickel, with management preferring to focus on bulk commodities such as iron ore, coal, oil and potash.

For WA, the question is whether anyone has the courage to acquire the nickel assets of Norilsk or BHP Billiton, or whether they could be mothballed for some time due to the low nickel price and the high cost of mining in WA.


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