Thursday, October 23, 2008

Is Norilsk Really Selling Its SWC Stake?

My article on Oct. 22, 2008 discussed the breaking news that Norilsk Nickel (NILSY.PK) is open to offers to buy its majority stake in Stillwater Mining (SWC), America's only PGM mine. The share price of SWC plummeted 25% on yesterday while the news spreads, as investors probably fear that Norilsk dumping its shares could depress the share price.

However, upon further research, I am growing more and more suspicious about the credibility of the news story. It could well be a false rumor after all. I still do not have a definite confirmation or denial of the authenticity of the original news story, but I will discuss why I now suspect the story could be a false rumor.

1. SWC is Norilsk Nickel's very important strategic asset. They have not sold a single share. They would never sell, unless Norilsk is extremely desperate for some cash and they can't get a loan from a bank. I believe they still have credit lines to pull. If they need to sell asset, there are plenty of other less important overseas assets to sell, for much more cash, before they would sell SWC for a meager US$230M. Not long ago, Norilsk was still spending billions of dollars in a stock buyback trying to support its share price. It seems unlikely its cash liquidity drained so fast.

2. Source of the news story is suspicious. The news story was first carried by The Moscow Times and immediately mentioned on Yahoo by a misterious cjlu4585, at 21-Oct-08 09:18 pm EDT, which is 04:18am Oct. 22, 08 Moscow Time. The original news story was dated Oct. 22. How would the story be published so early during the day, at 4:18am, and promptly catched?

3. Anonymity of the original citation. CJLU4585 used a curious URL to refer to the original article. When you go there, there is no mention of author near the title of the story:
However, notice the number 600 in the URL link? Replace it with other numbers, like 599 or 601, it still link to the same story, but with the author name shows up. Only when you use 600 does the author name NOT show up. Very strange.

4. No confirmation. The hometown newspaper of SWC also carried the story from Moscow Times but said that SWC was never informed by any one from Norilsk. Every one got this news from the original Moscow Times piece. There is no press release from Norilsk and no direct confirmation from any official in any of the companies involved. No other media confirmed the information independent from Moscow Times.

5. The writting of the original news story was non-professional and contained many obvious errors. It refered to Mr. Oleg Lobanov as Chief Financial Officer (CFO). That's a term commonly used in western corporations, but not in Norilsk. Mr. Lobanov's official title is Deputy General Director for Economy and Finance, very different from a CFO.

The story said Mr. Lobanov made the comment during a conference of finance executives. It did not say what conference it was and where it was held. Why would Moscow Times be the only media invited, as no other media carried the story? Why would Norilsk reveal it through such a casual comment by Mr. Lobanov, instead of in a more formal way? Why no party involved was informed about it?

The cited percentage, 55.4% stake in SWC, was incorrect. It's more like 53.5%. Would Mr. Lobanov get the percentage wrong?

The story twice mentioned the South African company "Empala Palladium". A very strange name. It should be Impala Platinum (IMPUY.PK). Mr. Lobanov, an industrial insider, would never make such a mistake. The rumor maker probably did not get the name right. Since the name was referenced twice, it was not a typo. Further the author said he/she called "Empala Palladium" and left a phone message which was not returned. If he/she called the correct phone number, he/she would not have gotten the company's name so wrong.

In all, until we get further confirmation from Norilsk or Stillwater, I am now highly suspicious of the originality of the original story, and persuade readers to do their due diligence to find out the truth. It can not be ruled out that some one deliberately spread the rumor in a deliberate effort to manipulate SWC share price. If this is confirmed to be a rumor, I shall take actions to report criminal act of involved parties to the SEC and other authorities.

I am a value-based investor and strive to get all my information and facts correct and tell readers what I truely believe is correct information. I am always fully responsible for everything I say. If I inadvertedly helped spread a rumor, my appologize to all who might have been mislead. I still do not know whether the orignal story is true or false and will provide update as soon as I find out from related parties.

P.S. The author is heavily invested in SWC and PAL, the world's only primary palladium producers. The author does not currently own shares in Norilsk Nickel.


Redwood said...

If the story is false, it is a buying opportunity because it would suggest manipulation. In this case, someone would be trying to get a lower price before the stock goes on a bull run. The problem is that you have to take the risk and jump in before the rumor is officially denied, otherwise you'd be trading into a crowd. A suitable strategy might involve an option collar, but option volume is too light in SWC, unless you are trading odd lots. I will say this about the SWC option market: Most of the action is occuring above the 5.00 strike, if that rings any bells.

Redwood said...

I did some due diligence, then went ahead and bought some SWC at the open the day after I read this article. The position is up over 25% already.

Anonymous said...

I need to hear what Suzanne says about this?

-Thank You,