SeeTheLight

Survival of the Fittest: Save Haven Investments

Well, I am no bankruptcy expert, but he wouldn't have to sell his stock on the open market. The creditor's he owes would take his assets to cover his debts. Now they might sell those shares taken, but I doubt they would flood the market, usually in situations like this they sell them in private sales (usually under the market price). No creditor would flood the market only to see the company do a "Lehman", it simply is not in their best interests to do so.

I have seen nickel prices, and zinc, aluminum, copper, lead, tin, and all the precious metals. They are all in the toilet. Welcome to a recession, the strong survive, the weak do not.

As I published above from their June 30th financial statements, their current assets cover all of total liabilities as of June 30th, now something may have changed since then, but I haven't seen it. Also I looked at their annual report, they have only 600M in long term debt due in Nov. The rest of their debt is most in late 2009 or 2010. So they actually look to be in strong shape so long as the reports are factual, which I grant you is not a sure thing since it is a Russian company.

If you are simply speculating without any basis that is fine, it's your right to do, but so far your opinion isn't backed by anything substantial. You say the russian government has set a precedent in their handling, provide the example.

Survival of the Fittest: Save Haven Investments

@ paultaut

I agree that in this environment companies will be cutting back and shutting down mines. Furthermore, many smaller companies will get swallowed up by the bigger companies, especially ones in the development stage.

I don't own Norilsk, but based on its financial statements it seems to have enough to weather a significant downturn. Do you have any supported facts (i.e. links) to support your claim that Norilsk isn't one of them. I'd be interested in reading them, not that I plan to put any money into Norilsk.

Also, I did a search for the 2B in debt you say is owed at the end of the month. I couldn't find anything except this, which is about a Russian Billionaire who has 2B in debt owing at the end of the month and owns a 25% stake in Norilsk:

www.russia-ic.com/news.../

Survival of the Fittest: Save Haven Investments

Also one more comment on your supposition that Norilsk might not actually be considering selling their stake.

Let's assume your supposition is true, that this is a fake report (despite being reported in the Moscow Times, and picked up by the UK Guardian among other reputable newspapers).

Assuming it is fake and its someone trying to manipulate the price of SWC downward (it lost ~20% value yesterday), wouldn't Norilsk come out immediately with a press release saying that they EMPHATICALLY did not make such a statement? Most companies that just took a 25% haircut on their investment due to a false rumor would (See Apple and the Steve Jobs heart attack rumor).

No such press release has been issued, almost a full day after the "rumor" was spread.

Look, I'm not against you, in fact I am trying to help you. You are chasing after fantasies and conspiracies when the blatant facts are staring you in the face. I know you have some holy grail quest that Norilsk will go out of business and palladium will soar, but it flies in the face of the facts that are readily available.

Junior minors in this recessionary environment are risky investments. They are like the long shot horse at the race track paying 50-1. They can pay out big, but only once in a blue moon.

Good Luck. I for one am hoping that soon you will...

SeeTheLight

Survival of the Fittest: Save Haven Investments

Yes I agree, companies that are "running out of money" do have to shutdown. But a quick look at Norilsk's income statement and balance sheet as of June 30th shows the following:

Profit 6 months 2008: $2.68 Billion (US Dollars)
EPS: $14.2

Current Assets: $12 Billion (4.9B in Cash and Cash Equivalents)
Total Assets: $36 Billion (US)

Current Liabilities: $3.8 Billion (US)
Total Liabilities: $12.7 Billion (US)

Shareholder Equity: $23.8 Billion (US)

Source: www.nornik.ru/en/inves.../

Looks pretty rock solid to me. How many companies you know that can pay all their liabilities with their CURRENT assets.The $230 million in SWC represents only 1% of the total shareholder equity.

I expect that their income will fall, but 2.68B profit is a pretty good buffer before they start seeing red.

On top of their financial statements, in August the company declared a buy back of shares:

www.nornik.ru/en/inves.../

And they are paying a dividend on their shares.

Now I am no financial expert, but usually cash strapped companies do not pay dividends nor do they announce share buy backs two months earlier. Assuming they were in cash trouble, I think they might cancel those two items before fire selling assets.

I note in your update that now you are suspicious of the sale. I wouldn't be that suspicious, its a major dumping a less valuable junior. They made an investment in SWC and now they think its not going to pay off. It's called a stop loss, in all your articles and posts you say the Russians are not stupid, are they stupid enough to hold onto an asset that is rapidly losing value? Seems like they've done their DD and think its viability isn't what it was when they bought it.

That's the difference between "smart" investors and the rest. Smart investors know when to walk away from a bad investment and not be left holding the bag. I think this is the most likely scenario as oppose to the slippery slope theories you are presenting. Usually the simplest answer is the correct one.

You seem to be looking for conspiracy theories as opposed to looking at the simple facts that are omnipresent. Did you even look at the balance sheet or income statement? Anyhow, if Norilsk starts to get into financial trouble the first indicators will likely be stopping the buy back and/or cutting or suspending the dividend. Not selling assets.

To all the other people reading this article. Take this author's advice at your own peril.

Disclosure: I do not own Norilsk, SWC, or any PM stocks. I am cash heavy, but I will start a PM (likely silver) position as an inflation hedge when I start buying equities again.

Survival of the Fittest: Save Haven Investments

This article is just scary, it pays lip services to all the cons while pumping all the pros. This is article is a prime example of the fallacy of slippery slope:

en.wikipedia.org/wiki/...

Here's a consideration from a link in your rant.

"Stillwater Mining has always been a marginally profitable asset due to its environmental sensitivity and the cost of labor," said Michael Kavanagh, a metals and mining analyst at UralSib. He said Switzerland-based metals giant Xstrata and South Africa's Empala Palladium were potential buyers of Norilsk's stake.

Perhaps the Russian's are trying to sell their stake in SWC because they think it is no longer economically feasible at the current palladium prices. Let's face it, its cheaper to produce the palladium at Norilsk than with SWC. Your article only postulates on a single possibility.

A second issue. They are not going to shutdown Norilsk. To do so would effectively shutdown the company. Despite producing 45% of the worlds Palladium, the revenue derived from Palladium only makes up 10% of Norilsk's overall revenue. The majority comes ... surprise surprise from nickel. So they are not going to shutdown the mine to corner the palladium market. To do so would mean shutting down the company. Kind of hard to corner the market if you are not operating.

Third: the article then states that owning a car is a necessity. Perhaps, although many New Yorkers might disagree. Anyways assuming it is true, does your 16 year old kid require a car? Do you need to buy a new car every 2 years or can you use the car you have for longer periods.
The fact that Chevy and GM are talking merger speaks volumes to the demand destruction in the automotive industry. Arguing that a car is a necessity is like arguing that people need to wear shoes. Yes they do, but they could get by with one pair if they had to, rather than owning many pairs. The demand destruction is occurring in the discretionary car purchases, not the necessity purchases.

Look, I actually believe at some point that PGM, base metals and commodities will turn around and recover some ground (but not right away, as the deflationary pressures still outweigh the inflationary ones right now), but anyone thinking we are going to reach the bubble levels of the past year needs to take off their rose colored glasses.

This author's glasses are more red than pink.