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BHP Billiton follows Rio in holding hands with Norilsk - room for three under the ice sheets?

Published by MAC on 2006-06-15

BHP Billiton follows Rio in holding hands with Norilsk - room for three under the ice sheets?

15th June 2006

Following in the footsteps of its rival Rio Tinto (as scrutinised in a February London Calling), BHP Billiton has secured an alliance with Russia's largest mining company, Norilsk Nickel, to explore the northwest Russia and western Siberia. Of course it is being described as a win-win deal (when in business these days is a deal anything but?). However, with the ink barely evaporating in the Moscow summer sunshine, the same questions that were asked of the Rio deal seem to be true of the BHPB deal.

Given it's self-professed Corporate Social Responsibility credentials, one has to wonder whether BHPB feels comfortable linking up with such a notorious polluter as Norilsk, to operate in a country that has a poor record of dealing with affected 'minorities'. Will the off-spring of any partnership listen to the CSR chiding of one of its parent's (especially if it all just looks like hot-air melting so much of the taiga)?

BHPB has been very unspecific on which commodities the alliance would explore for (although we know they are of course searching for those ever-more elusive 'World class deposits'). Nor would the company be drawn on the initial expenditure BHP Billiton would bring to the partnership. John Helmer, of Mineweb, in an intriguing article suspects it may be more of a share-price holding sleight of hand trick. "With BHPB's shares falling more sharply than they have in five years, [CEO Chip] Goodyear may be bidding to convince his shareholders to hang on for a big break in Russia". I am sure the indigenous communities living in northwest Russia and western Siberia hope it remains only a pipe-dream, rather than any of the above actually laying pipe-lines.

BHP Billiton and Russia's Norilsk Nickel sign mining agreement

13th June 2006

RIA Novosti

MOSCOW - MMC Norilsk Nickel [RTS: GMKN] and BHP Billiton have signed an agreement on prospecting and developing mineral resources in Russia, the companies said in a joint news release Tuesday.

The Russian metals giant and the Anglo-Australian group, the world's largest mining company, said in a joint press release that under the agreement, signed on Monday, the companies would jointly prospect for and mine several commodities in targeted areas, initially focusing on northwestern Russia and West Siberia.

BHP Billiton chief executive, Chip Goodyear, said: "This alliance with Norilsk Nickel is a win-win and provides significant growth opportunities for both companies. This is an important step for BHP Billiton and represents a diversification of our geographical base. We look forward to working with our new partner in Russia."

The statement said that the project would make use of Norilsk's experience in Russia - it is the world's largest producer of nickel and palladium with market capitalization of around $25 billion - and BHP Billiton's project development expertise and world-class technology. The Australian company is the world's largest mining company with operations in 25 countries and market capitalization at around $130 billion.

Through the agreement, the companies will establish joint exploration and development companies, in which the Russian company will hold 50% plus one share, and BHB Billiton 50% minus one share.

Norilsk Nickel CEO Mikhail Prokhorov, said: "We are excited by the opportunity to work in close partnership with BHP Billiton to accelerate the development of Russia's mineral resource potential."

BHP decides to play Russian roulette

Andrew Trounson, The Australian

14th June 2006

As the global scramble for mineral resources hots up, BHP Billiton has finally put its wariness towards investing in Russia behind it, forming an exploration joint venture with the country's largest mining company, nickel and platinum giant MMC Norilsk.

BHP is following the footsteps of rival Rio Tinto, which formed a similar exploration alliance with Norilsk in January.

In the wake of Russia's descent into financial crisis in 1998, BHP quit the country, effectively abandoning its small portfolio. It only began having a new look when aggressive former chief executive Brian Gilberton took over from Paul Anderson in 2002.

But with commodity prices having boomed and new large-scale development projects thin on the ground, miners are having to venture into politically riskier geographies.

Russia is mineral rich, with significant oil, gas, nickel, coal, palladium, platinum, gold and iron-ore resources, as well as having a large aluminium industry.

It says much for MMC Norilsk's bargaining power that the world's largest mining company has been limited to an alliance giving it only 50 per cent, less one share, in any finds. It is similar to Norilsk's deal with Rio Tinto that gives it a 49 per cent stake in projects.

But at the same time the two global miners will probably feel comfortable ceding control to Norilsk, given the higher political risks in Russia.

Investor faith in Russia has been shaken in recent years by the state virtually taking control of oil giant Yukos.

The company's former chief executive Mikhail Khodorkovsky, a political critic of President Vladimir Putin, now languishes in a Siberian penal colony after being convicted of fraud and tax evasion.

But Russian companies are increasingly trying to adopt the corporate governance standards of the West. Mr Gilbertson is now president of Russian aluminium company Susal, while former WMC boss Andrew Michelmore is on the board of local rival Rusal.

"This is an important step for BHP Billiton and represents a diversification of our geographical base," chief executive Chip Goodyear said after a signing ceremony in Moscow. BHP and Norilsk will target a "a range of commodities" in northwest Russia and western Siberia.

Rival miners share partner

Jamie Freed, The Age

14th June 2006

RIVALS BHP Billiton and Rio Tinto will be sharing a joint venture partner after BHP signed an exploration and development alliance with Russian mining heavyweight Norilsk Nickel.

Rio signed a similar groundbreaking deal with Norilsk in January which the investment community has widely praised.

The rival miners will be searching different geographic regions for the next generation of world-class deposits through their separate alliances with Norilsk.

BHP will target a range of commodities in north-west Russia and western Siberia, while Rio is searching for gold, copper and other metals in eastern Russia and south-east Siberia.

Norilsk is the world's biggest nickel and palladium producer and has a market value of $US25 billion ($33 billion). It is also a major producer of platinum, copper and cobalt.

But the company has been looking for Western partners to help it develop other commodities across Russia's huge geographical expanse.

In turn, BHP and Rio have been looking beyond heavily explored mining centres such as Australia, North America and South Africa to ensure a continued development pipeline of world-class projects.

"This is an important step for BHP Billiton and represents a diversification of our asset base," BHP's chief executive, Chip Goodyear, said of the Norilsk deal in a statement yesterday.

BHP lost millions of dollars on unsuccessful exploration in Russia in the 1990s. The company pulled out of the country but decided to open a Moscow office under Mr Goodyear's leadership in 2004.

Both BHP and Rio seem to have decided it is easier to be a minority partner with a local company than to have independent operations in Russia.

Any joint venture companies formed with Norilsk will give the Russian partner a majority stake of 50 per cent plus one share, while BHP will hold 50 per cent minus one share.

As part of their deal, Norilsk and Rio formed a company called RioNor Exploration in April. Norilsk holds 51 per cent of RioNor and Rio owns the rest.

"I would envisage we would start to spend millions of dollars this year and increase that in subsequent years as we find targets for drilling," Rio's chief executive, Leigh Clifford, said in February.

However, he has emphasised that Rio remains a conservative company. Most of its assets are in Australia and North America.

Although BHP and Rio seem to have locked up huge amounts of territory under their deals with Norilsk, a spokesman for the Russian company said it was open to deals with other foreign miners.

"We are constantly looking at possibilities for further development of the business in Russia and abroad and seek to involve partners where it is mutually beneficial," Norilsk spokesman Victor Borodin said.

"Russia is too large to be covered by two companies."

BHP shares fell $1.48, or 5.5 per cent, to $25.25, while Rio shares fell $2.87, or 4 per cent, to $70.90 on a losing day for the local sharemarket.

BHP Billiton Eyes Russian Uranium Market

Planet Ark

15th June 2006

ST PETERSBURG - BHP Billiton Plc/Ltd, the world's largest miner, aims to become a supplier of uranium to Russia in the next few years, the company's chief executive said. Chip Goodyear said Rosatom, Russia's atomic energy agency, would be a potential customer after BHP Billiton increased mining at its Olympic Dam project in Australia, which he said held 34 percent of the world's known uranium resources.

"What Gazprom is to natural gas, we are to uranium," Goodyear told Reuters late on Tuesday after meeting with Russian President Vladimir Putin and international business leaders.Russia's state-controlled gas monopoly, Gazprom, is the world's largest gas producer.

Canada's Cameco Corp is currently the world's biggest producer of uranium, prices of which have quadrupled since late 2003 as high oil prices and attempts to reduce greenhouse gas emissions revitalise the nuclear fuel industry.

"As Russia's uranium and nuclear business and capacity continues to grow in the years ahead, they are going to need ... uranium supply," Goodyear said.

"We are about to go through a big expansion at Olympic Dam and make a decision to triple uranium production, so we need to find markets," he said. "Rosatom is a potential customer." Goodyear said Olympic Dam, a South Australian mine that BHP Billiton acquired through its takeover of WMC Resources Ltd., was 10 times larger than the next-biggest known uranium discovery.

Production costs were low, he said, as the uranium was mined as a byproduct of copper and gold production at Olympic Dam.


Goodyear said nuclear energy would account for a significant part of the growth in world energy consumption, particularly as countries try to reduce greenhouse gas emissions.

The spot price for a pound of uranium oxide, or yellowcake, has risen nearly 20 percent since the start of 2006 to $43 on June 1, data from Ux Consulting Co., a leading publisher of uranium orices and forecasts, showed.

"I can't predict the price, but I can say the demand side looks good and the supply side is also constrained," Goodyear said.

"When you have a resource like we have, it is just a question of developing it and finding the customers."

Goodyear said he also expected strong long-term demand for industrial metals as developing economies became more urbanised.

"You are going to get dips and bumps along the way but that is part of what the commodity business is all about," he said.

"Your consumers continue to need you to convert the product into a metal that goes into a product that goes into the television sets and the air conditioners, because that fundamental demand is there."

He added: "The supply side is delayed in its response".

BHP Billiton announced on Tuesday it was teaming up with Norilsk Nickel, the world's largest nickel and palladium miner, to explore for minerals in northwestern Russia and western Siberia.

Story by By Guy Faulconbridge

BHP Billiton y MMC Norilsk Nickel aúnan fuerzas en Rusia

13th June 2006

MADRID- BHP Billiton, la mayor compañía minera del mundo, y MMC Norilsk Nickel, la mayor minera de Rusia, han anunciado esta mañana la creación de una alianza para explorar y desarrollar los recursos mineros de Rusia.

Ayer los presidentes de ambas compañías firmaron un acuerdo que establecía los términos formales que marcarán su cooperación. Las actividades de explotación irán seguidas del establecimiento de compañías locales conjuntas que desarrollen proyectos específicos, compañías que estarán participadas al 51% por MMC Norilsk Nickel y al 49% por BHP Billiton.

La alianza permitirá a ambas compañías maximizar sus beneficios. Los conocimientos de MMC Norilsk Nickel para garantizar el éxito en Rusia vendrán complementados por la experiencia en exploración global y desarrollo de proyectos de BHP Billiton, que también aplicará las últimas tecnologías.

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