Is Norilsk Really Selling Its SWC Stake?

My  Oct. 22, 2008 article discussed the breaking news that Norilsk Nickel (NILSY.PK) was open to offers to buy its majority stake in Stillwater Mining (SWC), America's only PGM mine. Yesterday, as the news spread, SWC's share price plummeted 25% on fears that Norilsk was dumping its shares, which could then depress the share price.

However, upon further research, I am growing more and more suspicious about the credibility of the news story. It could well be a false rumor, after all. I still do not have a definite confirmation or denial of the authenticity of the original news story, but I will discuss why I now suspect the story could be a false rumor.

1. SWC is Norilsk Nickel's very important strategic asset. It has not sold a single share, and would never sell, unless Norilsk is extremely desperate for some cash and it couldn’t get a loan from a bank. I still believe that it has credit lines to pull. If the company really needs to sell assets, there are plenty of less important overseas’ assets that it could sell that could raise more cash than the meager $230M it would get for its SWC stake.

2. The source of the news story is suspicious. The news story was first carried by The Moscow Times and immediately mentioned on Yahoo by a mysterious cjlu4585, at 21-Oct-08 09:18 pm EDT, which is 04:18am Oct. 22, 08 Moscow Time. The original news story was dated Oct. 22. How would the story be published so early during the day, at 4:18am, and promptly cached?

3. The author of the original citation was anonymous. CJLU4585 used a curious URL to refer to the original article. When click on the link, there is no mention of author near the title of the story: http://www.themoscowtimes.com/article/600/42/371831.htm. Also, take note of the number 600 in the URL link. If you replace it with other numbers, like 599 or 601, it still links to the same story, and the author’s name does appear. It is only when you use 600 that the author’s name does NOT appear. This is very strange.

4. There was no confirmation of the story. The hometown newspaper of SWC also carried the story from the Moscow Times but said that SWC was never informed by anyone from Norilsk about what was detailed in this news story. Everyone got this news from the original Moscow Times piece. There is no press release from Norilsk, no direct confirmation from any official in any of the companies involved, and no other media corroborated the information from the Moscow Times.

5. The writing of the original news story was non-professional and contained many obvious errors. It referred to Mr. Oleg Lobanov as Chief Financial Officer [CFO], which is a commonly used term in western corporations, but not in Norilsk. Mr. Lobanov's official title is Deputy General Director for Economy and Finance, which is very different from a CFO.

The story said Mr. Lobanov made the comment during a conference of finance executives. It did not say what conference it was and where it was held. Why would Moscow Times be the only media invited, as no other media carried the story? Why would Norilsk reveal it through such a casual comment by Mr. Lobanov, instead of in a more formal way? Why weren’t any of the parties involved informed about it?

The cited percentage, 55.4% stake in SWC, was incorrect - it's more like 53.5%. Do you think that Mr. Lobanov would get that percentage wrong?

The South African company, "Empala Palladium,” was mentioned twice in the story. It should be Impala Platinum (IMPUY.PK). Mr. Lobanov, an industrial insider, would never make such a mistake. The rumor maker probably did not get the name right. Since the name was referred to twice, it was not a typo.

Until we get further confirmation from Norilsk or Stillwater, I am now highly suspicious of the originality of the original story, and persuade readers to do their due diligence to find out the truth. The possibility that someone deliberately spread the rumor in a deliberate effort to manipulate SWC share price, cannot be ruled out. If this is confirmed to be a rumor, I shall take actions to report criminal act of involved parties to the SEC and other authorities.

I am a value-based investor and strive to get all my information and facts correct and tell readers what I truly believe is correct information. I am always fully responsible for everything I say. If I inadvertently helped spread a rumor, my apologies to all who might have been mislead. I still do not know whether the original story is true or false, and will provide updates as soon as I find out more information from the parties involved.

Disclosure: The author is heavily invested in SWC and PAL, the world's only primary palladium producers. The author does not currently own shares in Norilsk Nickel.

Comments

[Mark Anthony:]

The author of the Moscow Times news article said he/she called "Empala Palladium" and left a phone message which was not returned. If he/she tried to look up the correct phone number to call, he/she would not have gotten the company's name so wrong. The whole thing looks more and more like a hoax now.

www.themoscowtimes.com...

2008 Oct 23 10:50 AM

[one taste:]

Mark,

Thanks for your ongoing research and opinion. Don't worry about spreading rumors, as this is everywhere now...
platinum.matthey.com
tradingmarkets.com
steelguru.com
ipmi.org
billingsgazette.net
...and in my judgement is probably true.

The 25% selloff for SWC *was* breathtaking -- I had the unfortunate timing of opening a position the day before -- but was not too much more than some other mining shares, for example FCX. Norlisk will likely be able to find a cash rich mining buyer and knows it cannot resort to dumping its shares on the open market, so other than the desperate times this situation points to it may end up not having much negative effect on the share price.

Looking at this situation and the other articles at the moscow times site, it is more clear to me just how widespread and serious the credit crunch is: Gazprom is having cash flow difficulties and large metals companies are not paying their electric bills.

Btw, I liked the comment in the moscow times story that their investment in SWC hadn't worked out as they had hoped, in part due to the "environmental sensitivity" and high labor costs in the US. And part of their plan going forward is the "optimize" salaries at Norlisk. Well, God bless America and the rest of the free world, and I'll take my 25% loss, thank you.

2008 Oct 23 01:10 PM

[SWC Ore Miner:]

I have been following your story, as this subject is very important to me. I am a Miner at stillwater and plan to ask alot of questions of the Project Manager

Thank you

2008 Oct 23 02:41 PM

[Paul Fekula:]

I just spoke to my people at the Moscow Times. The reporter was there. The story is true. Down the line it just got a bit distorted in the west. Apparently he is open to bids but not seeking any. Two very different things. Nevertheless, no rumors here. It came out of Lobamov's mouth.

2008 Oct 24 07:56 AM

[Mark Anthony:]

Paul:

Thanks for your info. So looks like Norilsk is willing to sell SWC if there is a good bid, but they are not actively trying to solicite offers. In any event, nickel price dipped below $4 a pound today, compare with the $25+ per pound in May last year. Norilsk is losing heavily and they must be short in cash. I just can't see how they can avoid the inevitable conclusion they MUST shut down the Norilsk mine, or why would there be any incentive for them to continue to operate at heavy loss?

SWC Miner:

As share holder of SWC, I appreciate the hard work of you guys. Without your productive labor, SWC is worth nothing. I want to see the company prosper. I do not want to see you guys having to be laid off, like the folks at PAL, even temporarily.

One thing, tell your folks, you can do to keep your jobs, is to talk to your managers and use their connection to Norilsk to prompt them to shut down or at least reduce production amid the low nickel price. That's in the best interest of Norilsk itself and in the best interest of SWC, and in the best interest of the whole metal industry.

Also encouage SWC to device ways to divert a considerable portion of palladium production to meet investment demand. Lots of folks want to buy the metal but have no access. SWC and PAL can help meet investment demand.

2008 Oct 24 11:25 AM

[notsosmart:]

so you think you can depend on what russian management says? LOL.you cant even depend on what american management says.its your cash-you want to give to the russians-ok.

2008 Oct 24 11:55 AM

[jse17:]

Mark,

Another brilliant piece and thank you!

On another subject, pay a professional researcher to do the heavy lifting and write the thesis. You can do it!

2008 Oct 25 09:39 AM

[Zooka:]

I believe 75% of SWC's production is contracted out already. Doesn't leave a lot of room for more palladium/platinum for individuals.

2008 Oct 25 11:20 AM

[Diegojames:]

I would like to buy palladium bars- but where in California
Diegojames
Northridge
PS thanks for research, Long GMO, TC-Thompson Creek-, Dennison Uranium, re entering FCX and looking a near term rebound in metals,

2008 Oct 29 09:22 AM

[LE:]

To the author: as much as I find your posts interesting to read (and only time will tell whether they were prescient), the sheer volume of your postings makes one wonder what your real motivation is.

2008 Nov 10 08:07 AM

[lc_william:]

Even if Mark Anthony is correct today, he is the boy who cried wolf.

He has been touting PAL and SWC for several years now. Based on the price of PAL and SWC, Mark has lost everyone, I repeat EVERYONE money. If he is so attuned to global markets, he should have seen the strengthening of the USD and the global slowdown.

These are the two real reasons that Palladium, Platinum and all other dollar denominated assets have gotten crushed yet, for the most part, he appears to skate around global demand destruction and no mention whatsoever of the strengthening USD.

In your December 13 article at $3.58 per share you were absolutely convinced that this price was the bottom (in fact, your article was titled "calling the bottom"). Now the price is down to just over $1. What do you have to say to those investors that invested $10K and are now left with just over $3K... a nearly 70% loss in under 1 year.

Think if you had pushed the opposite way and told all investors to short all of your SWC / PAL ideas or buy put options -- you'd be crowned a genius and we would follow you like the pied piper.

Mark - as you continue to avoid reality and pump dead metals, when do you plan on acknowledging the USD strengthening and global demand destruction?

2008 Nov 11 11:27 AM

[Mark Anthony:]

ic_williams:

If there is a genius who could have predicted that PGM metal prices would fall, back at the end of February, despite of ongoing electricity crisis in South Africa and production disruption, and that US dollar would rally despite of the Fed printing like there is no tomorrow, then I will follow your genius. But no such genius exists. No one can predict short term moves.

If you believe the US dollar will continue to move up and precious metals will continue to drop, despite of most of them except for gold are already below marginal production cost, then I urge you to follow your own conviction and sell all your precious metals and stocks, and hoard US dollar cash.

I continue to exam all the fundamentals of PGM metals, and continue to believe they are extremely bullish, so I continue to hold on. For those who could not hear the pain, please sell and go away, just don't come back to get hurt a second time. I suffer heavy loss myself but I hold on as I don't see a good reason why should I sell.

Automakers facing a liquidity squeeze must have sold off their precious metal stockpile to raise cash. This put them in a very vulnerable position as they are now completely at risk of any supply discruption. They have to panic buy at some point. It was rather foolish that they sold the metals at far below production cost, and later on need to pay much higher prices to buy them back.

2008 Nov 12 10:12 AM

[Canbyte:]

I certainly like the way you take your lumps and work to get past it. As for the low prices, I think we should start looking at the short side as being the culprit. Immoral shorts create fictional duplicates of anything they short, including futures. Abolish shorting now.

www.deepcapture.com/

2008 Dec 21 12:45 PM

[Mark Anthony:]

Norilsk Nickel finally provided a DEFINITE and official debunking of the rumor that it was going to sell its stake in SWC. Read here:

www.themoscowtimes.com...

Quote: "The company has NO plans to sell Billings, Montana-based Stillwater Mining, the only U.S. producer of platinum and palladium, and is seeking alternative suppliers for its Finnish Harjavalta refinery to substitute for the Australian mines that were suspended, according to Pivovarchuk."

So the rumor back in October 22, 2008 was proven to be completely FALSE and a DELIBERATE SCAM spreaded by some with hidden agenda, just as I predicted. Amazing that they can get away with such dirty tricks unpunished.

Feb 22 04:07 PM