22 August 2003 02:20
Norilsk Stock Sees Its Fortunes Shine
Bolstered by expectations of global economic recovery and a labor strike at the mines of its major international
competitor, Norilsk Nickel has seen its fortunes soar.
Its market capitalization is a notch below $9 billion, meaning the company is about five times bigger than it was at
its previous, pre-crisis peak in 1997. This is the largest gain over the period of any of the blue chip stocks,
excluding Yukos and AvtoVAZ, two companies that only joined the top tier of publicly-listed firms in the last couple of
years.
But analysts are saying the company will hold on to its gains only if expectations of global economic recovery
materialize.
"Mining stocks attract a lot of attention in the current environment," said Coast Sullenger, a fund manager
with Lombard Odier Bank in Geneva. "Norilsk Nickel is a case in point."
Morgan Stanley's worldwide cyclical index, which only measures stocks that are highly sensitive to swings in
output, has risen 45 percent since mid-March versus the broader S&P 500, which gained 25 percent, according to
Investor's Business Daily.
"Mining stocks are trading higher on expectations of economic recovery," said Ingrid Sternby, metals
analyst with Barclays Capital in London. "They've been going up on the back of improving leading
indicators."
After two years of economic slowdown, in July consumer durable goods production in the United States rose 2.3 percent
after a 1 percent gain in June, and construction starts for new single-family homes hit a 17-year high in July.
Ideally, investors would prefer to snap up physical assets themselves, but equity is easier to acquire than, say, a
platinum mine, so speculators betting on economic growth add mining shares to their portfolios, Sternby said.
Nickel prices have been on the rise since the fourth quarter of 2001, reaching a 3 1/2-year high of $9,825 per ton
Wednesday, an increase of more than 70 percent from December 2001.
Platinum prices were $5 below a 23-year high of $708 per ounce Thursday.
Norilsk's spectacular rise has also been fueled by a three-month labor strike at Canada's Inco, which
claims some 20 percent of global nickel sales.
Worldwide, Norilsk commands 22 percent of the nickel market, 45 percent of palladium, 10 percent of platinum and 10
percent of cobalt.
However, it may well be that hopes of recovery do not soon materialize, in which case Norilsk is poised to start
going downhill.
"What we hear from many [mining] companies is that there is no sign of demand picking up," Sternby from
Barclays Capital said. "This is why we expect the upward trend to be choppy."
The company stock closed at an all-time high of $40.75 Thursday.
Zenith Bank set its 12-month target for Norilsk at $45 per share, up from earlier expectations of $36 per share.
"It may be that prices drop from current levels, but we revised upward our fair price for the company, seeing a
deficit of nickel and platinum on international markets," said Sergei Suverov, head of research at Zenith Bank.
Earlier this year, Norilsk acquired the only U.S. platinum producer, Stillwater Mining, as well as the Matrosov gold
mine in the Magadan region, increasing its presence in the sector.
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