Are British sanctions against Vladimir Potanin dangerous for Norilsk Nickel?

On June 29, the British government included Vladimir Potanin, the largest shareholder of Norilsk Nickel, in the sanctions list, the press service of the British Parliament reported.

The sanctions were imposed due to Russia’s special military operation (SVO) in Ukraine. The new British sanctions list includes a group of individuals, including the chairman of the board of directors of the Colmar coal company Anna Tsivileva, her husband, the governor of the Kemerovo region Sergei Tsivilev, as well as Said and Sait-Salam Gutseriev – son and brother of businessman Mikhail Gutseriev. In addition, sanctions have been imposed on Colmar itself.

A parliamentary press release states that Potanin is “Russia’s second richest man and a key supporter of the Kremlin.” “Potanin continues to accumulate wealth, supporting the Putin regime, acquiring Rosbank and shares in Tinkoff Bank after Russia’s invasion of Ukraine,” the statement said. The sanctions documentation explains that Rosbank is of strategic importance to the Russian government.

Tsivileva is listed as Putin’s (cousin) cousin and president of the well-known Russian coal mining company Colmar Group. “Sergei Tsivilev is the governor of the coal-rich Kemerovo region, and the couple has benefited greatly from their relationship with Putin. “The Colmar Group of Companies operates in sectors of strategic importance to the Russian government,” the British government said.

Until the last moment, Potanin remained one of the few major Russian businessmen against whom sanctions were not imposed by the United States, the European Union, Great Britain and other Western countries. Norilsk Nickel, whose main beneficiary is Potanin, is not yet affected by the sanctions.

Norilsk Nickel is the world’s largest producer and supplier of palladium (38%) and nickel (17%), accounting for 10% of global platinum production. In 2021, Norilsk Nickel produced 193,000 tons of nickel, 2.6 million ounces of palladium and 634,000 ounces of platinum. The company’s revenue under IFRS last year grew by 15% to $ 17.9 billion, EBITDA – by 37% to $ 10.5 billion, net profit – almost doubled to $ 7 billion.

The largest shareholders of Norilsk Nickel are Interros Potanin (35.95%) and Oleg Deripaska’s UC Rusal (26.25%). Shares of Norilsk Nickel on the Moscow Stock Exchange during trading on June 29 reacted weakly to the news of sanctions, falling by 3% to 17,720 rubles. for paper.

Vedomosti sent inquiries to Norilsk Nickel and UC Rusal.

In March, the United Kingdom excluded Russia from the most-favored-nation treatment and imposed 35% tariffs on imports from Russia of steel, iron ore, copper, aluminum, silver, lead and a number of other goods. As a result, the London Metal Exchange (LME) on April 1 banned the supply of Russian non-ferrous metals (copper, lead, aluminum and aluminum alloys) to its warehouses in the British territory. And in early May, the UK imposed a duty of 35% on imports from Russia of platinum and palladium (“Vedomosti” wrote about it on May 10).

Prices for nickel, palladium and platinum accelerated growth with the beginning of SVO, the peak of growth came in early March. Palladium on Comex on March 8 cost $ 3289 per ounce (+ 32% to the level of February 23, the historical maximum), platinum – $ 1175 per ounce (+ 7%, the maximum since June 2021). The price of nickel in March also updated the historical maximum – $ 42,990 per 1 ton (+ 72% to the beginning of the SVO), according to LME data. But in mid-March, prices began to fall, caused, in particular, by an outbreak of coronavirus in China (“Vedomosti” wrote about it on April 5).

On June 29, the price of platinum futures on the Comex commodity exchange (USA) at 18.00 Moscow time was $ 912 per ounce (+ 0.8% to the previous close). Palladium futures were worth $ 1927 per ounce (+ 4% to the previous close), during trading the price of the metal rose by almost 8% and reached $ 2010 per ounce. Nickel on the LME cost $ 23,395 per 1 ton (+ 1% to the previous close).

Yuri Fedyukin, managing partner of Enterprise Legal Solutions, notes that Norilsk Nickel will not be subject to British sanctions because of Potanin’s participation in the company’s capital. “These are personal and the most lenient sanctions, which are limited to blocking assets, including accounts, real estate and other property in British jurisdiction, as well as a ban on visiting the kingdom,” he explains. These are not extraterritorial sanctions, as, for example, American ones, the lawyer adds.

Anton Imennov, a senior partner at Pen & Paper, said that if Potanin owned more than 50% of Norilsk Nickel, the company would also be subject to sanctions, but the businessman’s share is lower. “But now the practice can be very discreet, so I would not rule out this sanction risk,” the lawyer added.

Fedyukin does not rule out “certain nervousness” on foreign trading platforms on the part of counterparties and investors in connection with the imposition of sanctions against Potanin, although de facto there are no grounds for this now. According to Boris Krasnozhenov, head of Alfa Bank’s securities market analyst, the news of the sanctions is negative for Norilsk Nickel in terms of investor sentiment, as they may suggest an increased risk of further sanctions in other jurisdictions and directly against the company itself.

But for Norilsk Nickel’s operations, according to the analyst, nothing is changing. “The company has no significant supplies to the UK and no significant assets in its territory,” said Krasnozhenov. He also recalls that the company had previously announced a “Plan B”, which provides for the reorientation of supplies from European and US markets to Asian markets in the event of restrictions on the supply of nickel and other metals from Russia.

Finam analyst Alexei Kalachev clarifies that Norilsk Nickel does not need to sell metals in London. “The company supplies nickel and copper under long-term contracts at prices that are only tied to stock quotes in London, and not through stock exchange transactions,” he explains. The expert does not rule out that Potanin will have to resign as president and chairman of Norilsk Nickel to secure the company, as transactions with his signature may be subject to sanctions.

Sanctions against Colmar, Imennov said, will remain in place as long as the company is under the control of current beneficiaries. A change in the ownership structure may remove the company from sanctions, but the changes must be real, not nominal. Experts do not see any significant risks of sanctions for Colmar’s business. The company’s production assets are located in Yakutia and are geographically oriented to Asian markets, where there is a significant shortage of hard coking coal, says Krasnozhenov. The company was unlikely to deliver to the UK, Kalachev added.

Sanctions do not affect metal prices yet, as large funds are leaving the market, and this puts pressure on quotations, says Oksana Lukicheva, an analyst for commodity markets “Opening Investments”. According to Kalachev, if Norilsk Nickel reduces exports, it could lead to a new rise in metal prices. If there is a shortage of metals on the market due to the lack of Russian supplies, prices will rise, Lukicheva agrees. But current personal sanctions, she said, cannot affect supplies.

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