NORILSK, Russia (AP)
earing fireproof coveralls, Ilya Dmitriyev plods past a smelter that belches smoke and gushes molten metal, the chief product of this gritty patch of Arctic tundra where the air tastes of sulfur and concrete apartment blocks crumble on the shifting permafrost.
This is the home of Norilsk Nickel, a former slave labor camp — once part of the dictator Josef Stalin’s infamous gulag — that is now the gray capital of Russia’s glittering new metals empire.
Since President Vladimir Putin came to power in 2000, oil and natural gas have fueled Russia’s economic rebirth, creating a generation of young Russian billionaires. Now metal is Russia’s latest natural resource bonanza.
The rise of the industry has delighted investors but has caused disquiet among foreign security analysts. Some fear Moscow might use its vast mineral wealth as a tool for coercive diplomacy, the way many believe the Kremlin has used oil and gas supplies to punish Western-leaning former Soviet nations.
As the output of Chinese and Indian factories surged last year, the price of nickel leapt 64 percent to an average of $24,155 per ton on the London Metal Exchange, more than doubling Norilsk Nickel’s profits. While the price has retreated from a high of more than $50,000 per ton in May, it now trades at around $29,000 a ton.
Workers such as Mr. Dmitriyev have benefited. Wages here rose 40 percent in April, and Norilsk’s smelter workers now earn about $1,500 monthly — triple the national average.
But the big winners at Norilsk are the company’s two 40-something shareholders, the cautious Vladimir Potanin and the flamboyant bachelor Mikhail Prokhorov.
In the past year, their personal fortunes more than doubled to more than $13.5 billion each, according to Forbes magazine. Russia’s top five metals magnates — including Mr. Potanin and Mr. Prokhorov — saw their combined net worth jump 70 percent last year, to $66 billion, Forbes said.
Through Norilsk, these two men control half of the world’s output of palladium, which is used in catalytic convertors, and one fifth of its nickel — a key ingredient in stainless steel.
Prices have risen sharply for most metals Russia produces, not just nickel. Copper is up 30 percent this year. Average aluminum prices rose 36 percent last year; the metal is now trading 8 percent above the 2006 average. Iron ore prices have doubled in the past three years. Meanwhile, Russia’s low electricity rates and wages have made mining companies more profitable than their competitors abroad.
Russia’s mineral wealth has few rivals. Local legend holds that as God scattered riches around the world, his hands froze when he came to Norilsk and dropped all he was carrying.
Record profits have driven a wave of acquisitions. Of the $9.5 billion spent on acquisitions by Russian companies last year, metals companies accounted for 84 percent, Russian Mergers & Acquisitions magazine reports. This year, that figure could double.
In June, Norilsk acquired control of a Canadian mining operation, LionOre, in a $6.4 billion deal — the largest-ever Russian purchase overseas. The deal adds nickel mines and processing plants in Australia, South Africa and Botswana to the company’s portfolio.
Norilsk also controls Stillwater Mining Co. of Montana, the only U.S. platinum and palladium miner. This year it paid $408 million for the Cleveland-based OM Group Inc.’s nickel assets in Australia and Finland.
Norilsk Nickel was created to strengthen Stalin’s regime, but like so many Soviet mammoths it was sold for a song by President Boris Yeltsin to politically connected bankers in the 1990s.
Analysts praise Mr. Potanin and Mr. Prokhorov for streamlining a sprawling, debt-laden colossus into a modern multinational. The company controls mines and refineries in eight countries and employs tens of thousands of workers across the globe.
But it is just one of Russia’s metals titans.
More than 12 percent of global aluminum output comes from the privately owned UC Russian Aluminum, the world’s biggest producers of the vital metal. Russia’s state-owned mines and stockpiles account for 20 percent of the world’s uranium, more than any single country. A mining company controlled by the state arms exporter, Rosoboronexport, is the world’s biggest producer of titanium.
Without titanium from Russia’s VSMPO-Avisma, Boeing Co.’s 787 Dreamliner and Airbus’ A350 XWB couldn’t fly, analysts say. The metal is also critical to Lockheed Martin Corp.’s F-35 Joint Strike Fighter, an advanced fighter-bomber being jointly developed by Britain and the United States.
In the West, there is quiet concern Russia will use its clout in the metals market to help consolidate its geopolitical power.
“Due to Russia’s actions on the non-ferrous metals markets, there have been claims of manipulation or dubious behavior,” Robert Larsson of the Swedish Defense Research Agency wrote in a report. “As the sector by and large is shielded from insight and data are secret or unreliable, it is hard to assess, but it is clear that Russia’s impact on the markets is substantial.”
Metals are too easily moved around for Russia to cut off supplies to a single country, as it can with piped gas. But any interruptions at mines like Norilsk’s would have a huge effect on markets.
“A Russian decision, or threat, to cut off supplies of minerals would certainly drive the world price up — probably significantly,” said Liam Anderson, co-author of the book, “Strategic Minerals and Global Geo-Economics.”
Disruptions in nickel or aluminum supplies, he said, “would have a trickle-down effect throughout the global economy.”
For now, Norilsk Nickel is ostensibly free to act independently. Outside Russia its shares trade in the United States, Britain and Germany. Some of them are held by investment funds, about 22 percent is held by the Bank of New York as ADRs. But the company may be less independent of the Kremlin than it seems, and even this nominal autonomy may not last.
The company has long been rumored to be a Kremlin takeover target.
Mr. Prokhorov, a 6-foot-7 playboy, has pledged to sell his stake by the end of the year to Mr. Potanin, his longtime business partner. That would give Mr. Potanin, a more politic figure, 52 percent of the company, and he has said it wouldn’t be “a tragedy” if the government bought up Norilsk.
Tycoons who cross the Kremlin find their businesses scrutinized, or even the target of criminal investigations. More than a dozen are wanted in Russia and are living abroad.
A Kremlin spokesman declined to comment on the possibility.
Mr. Prokhorov’s withdrawal was announced shortly after French police detained him at a posh Alpine ski resort in France on suspicion of involvement in a prostitution ring. In the end, no charges were filed, but the incident became tabloid fodder in Russia and abroad. He left his post as general director in April.
The company said Mr. Prokhorov had long planned to sell his stake. But industry watchers suspect the Kremlin used the case to force Mr. Prokhorov out.
“Norilsk clearly stands out as one of Russia’s strategically important companies, where the state doesn’t have a significant equity stake,” said Chris Weafer, chief strategist with Moscow’s Alfa Bank.
That could change, he said. “Rather than sitting in the Kremlin saying, ‘This is what we would like you to do,’ it’s much better to sit on the board and say, ‘This is what we’re going to do.’ ”
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