Bystrinsky spin-off in doubt due to dividend differences among Nornickel shareholders - -sources
MOSCOW. Sept 17 (Interfax) - The spin-off of MMC Norilsk Nickel's (Nornickel) Bystrinsky copper and gold mining project in favor of Nornickel shareholders could be in doubt; at the very least it is being held up, as the matter has not been referred to the board of directors half a year after the deal was announced, several sources close to the Nornickel shareholders told Interfax.
One of the shareholders, UC Rusal , said the very expediency of the transaction was still a matter for discussion between the partners to the shareholders agreement.
Nornickel owns 50.01% of the Bystrinsky project, which includes the Bystrinskoye deposit and the Bystrinsky Mining and Processing Plant or Bystrinsky GOK in the Trans-Baikal Territory. Bystrinsky's other shareholders are Interros unit CIS NRF Holdings with 36.66% and United Resources Limited, a division of Hopu Investments, with 13.33%.
It was announced at the end of March that Nornickel's main shareholders, Interros subsidiary Whiteleave, Rusal and Crispian, which is owned by Roman Abramovich and his partners in Evraz Group, had reached a preliminary agreement to spin off the Bystrinsky project in favor of all Nornickel shareholders.
It was reported that Nornickel's management would draft a plan to spin the asset off and put it before the board of directors. The whole process might take around two years, given the need to obtain regulatory approvals and go through the necessary corporate procedures.
Following the spin-off, Nornickel shareholders would receive shares in a Bystrinsky project that is listed on the Moscow Exchange . Rusal would get a 14% stake in Bystrinsky. Subsequently, Rusal might sell its stake in Bystrinsky to Interros for $570 million.
A Nornickel representative said the shareholders planned to put the issue before the board promptly, but this has not yet happened due to Rusal's stance.
"The economic feasibility of the transaction is still a matter for discussion between the partners, especially in the present environment," said Maxim Poletayev, Rusal deputy CEO and a member of the Nornickel board of directors. "We are not ruling any scenarios out. The main criterion for us is that the decision fully meets the interests of Nornickel and Rusal," he said.
One source close to the Nornickel shareholders said Rusal would block the Bystrinsky spin-off, making the deal contingent on a new dividend formula, under which payouts would remain high. "Unfortunately, in its attempt to gouge out a new aggressive dividend formula, Rusal is blocking all of the Interros initiatives," the source said.
The dividend formula in the Nornickel shareholder agreement, which expires at the end of 2022, calls for paying out 60% of EBITDA. Interros and Nornickel senior management repeatedly proposed to Rusal, a party to the agreement, that dividends be based on free cash flow, which would have reduced payouts to shareholders amid growing capital expenditures on projects to develop the ore base and an environmental program. Vladimir Potanin, the head of Nornickel and owner of Interros, has said he hopes the shareholders would be able to agree on a new formula after 2022, although there were still some differences of approach regarding how aggressive the dividend policy should be.
"The possible Bystrinsky spin-off is a logical continuation of the development of this project, which has significant potential. Its geographical location, its proximity to one of the largest sales markets, China, and the unique ore base make the option of an independent future of this asset the most profitable outcome for all shareholders of Norilsk Nickel. The market will also fairly assess the prospects of this project," Rusal's Poletayev said when the spin-off was announced.
At the time, the parties were resolving their differences regarding the calculation of 2020 dividends and settle for a buyback, during which Rusal received $1.4 billion from the sale of a portion of its stake in Nornickel.
Nornickel decided against forming the Arctic Palladium joint venture with Russian Platinum to develop platinum-group metals on the Taimyr Peninsula in the spring of this year due to differences between the parties. Rusal did not give its backing to the project as it considered Nornickel's contribution to the JV to be disproportionate. Rusal later said it might go back to the project, but according to Nornickel, the deal can no longer be carried out in its former configuration.
Bystrinsky is one of the largest mining and processing operations in the Russian Far East, with a processing plant with capacity for 10 million tonnes of ore per year. The project produced 63,000 tonnes of copper and 241,000 ounces of gold in concentrate in 2020, posting EBITDA of $717 million on revenue of $1.004 billion.