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#13 - JRL 7224
Financial Times (UK)
June 16, 2003
Stillwater on Bush and Putin agenda
By Kevin Morrison

George W. Bush and Vladimir Putin's meeting this month at the Konstantin Palace, in St Petersburg, to discuss post-war Iraq, international terrorism, the global economy, and the takeover of a Montana-based mining company, by a Russian mining group.

Sources said the conversation between the two presidents about the proposed takeover of Stillwater Mining, the largest US producer of palladium and platinum, by Norilsk, founded as one of Stalin's gulags and now one of Russia's biggest mining groups, was in the spirit of closer economic ties between the two former cold-war foes.

Norilsk have also hired Baker Botts, one of Washington's most powerful lobbying firms, in which James Baker, former US secretary of state and long time friend of the Bush family, is a senior partner.

Despite the lobbying supporting Norilsk proposal to take a controlling 51 per cent stake in Stillwater, the deal has still yet to be cleared by the Federal Trade Commission, eight months after the plan was first unveiled. The anti-monopolies commission's assessment on whether the merger breaches anti-trust laws is made problomatic by the fact that Norilsk's mine production and metal stockpiles are a state-secret, a legacy of the Soviet era.

The takeover, which is first significant deal where a Russian company takes control of a US group, is also important to the influential US auto industry as palladium is one of the few metals used for catalytic converters, which help reduce fuel emissions. Instead Norilsk gave the FTC its production figures based on HSBC estimates.

However, Norilsk has been lobbying Moscow to overturn its long held policy of not disclosing the amount of Russia's platinum and palladium production and reserves.

In the absence of regulatory approval, Stillwater Mining shareholders will vote today on whether they approve the Norilsk transaction, which is the only one after almost two years of looking by the debt-laden Stillwater, when they meet at the Hyatt hotel in Denver.

Although Stillwater directors approve the Norilsk deal, not all shareholders share the board's enthusiasm.

"We are not sure this is such as great deal for shareholders," said one Stillwater institutional shareholder.

Norilsk plans to pay $100m cash and 877,000 ounces of palladium for the 51 per cent Stillwater stake, valuing the transaction at a little more than $260m or almost $100 less than when the deal was first announced in mid November due to the 35 per cent slide in the palladium price. Palladium prices hit six-year lows earlier this year.

"We are selling control at the low point in the price cycle. The company would be better served with a change of management that would lower costs, and improve production," the shareholder said.

Frank McAlister, Stillwater chief executive, said: "I'm only interested in what is best for our shareholders...if they want to change management then so be it."

Former Stillwater chief operating officer, John Andrews, propsed to remove the incumbent management in a $100m cash injection into the miner that was backed by private equity interests. But his proposal was withdrawn late last month after the board rejected his offer. If shareholders vote in favour of the Norilsk deal it will bring to an end two years of searching for a sugar daddy by Stillwater, which started operating in 1986 and founded by Chevron, now TexacoChevron, and Manville Corp, which collapsed under the weight of asbestos litigation.

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