MOSCOW (Mineweb.com) – Last Friday, some days ahead of deadline, Norilsk Nickel issued a terse announcement. “MMC Norilsk Nickel,” it read, “a 20% owner of Gold Fields, announced today that, in accordance with previously stated intentions, it voted against the proposed transaction with IAM-Gold.”
On the surface, this appeared to be nothing more than the public reiteration of the company’s well-known, published agreement with Harmony Gold in mid-October, supporting its bid to take over Gold Fields, blocking its lAMGold merger, and opposing any offer Gold Fields, or its allies, might have made to outbid the Harmony offer.
However, by referring to “previously stated intentions,” Norilsk Nickel raises far more questions than those responsible for the statement itself, or the Company’s senior executives, are willing to answer indeed, if the intentions of Norilsk Nickel are carefully scrutinized since March 29, when it first bought the Gold Fields stake from Anglo American, paying $1.16 billion, the trail of evidence shows one dissimulation after another, false undertaking piled on false undertaking, and intent to mislead from beginning to end.
So consistent is this record, that when all the evidence is gathered up, the intention of the company appears to be nothing less than a massive attempt to expatriate Russian assets in violation of Russian law; and when called to account for this, to deceive the shareholders of Harmony and Gold Fields, as well as the regulatory authorities of South Africa and the United States, who also have the obligation to assess the process, according to their legal codes.
This evidence is so compelling, it should have triggered by now that hoary Anglo-American legal doctrine known as “clean hands”. That states that if a party to a contract makes an undertaking or commitment that is unlawful, knowing that he is breaking the law, and attempting to conceal this, he lacks the clean hands required to make the contract lawfully binding. In short, the evidence that has accumulated for over seven months is that Norilsk Nickel’s purchase of the Gold Fields stake was unlawful, arid everything Norilsk Nickel has done since then, including the attempt to push Gold Fields out of South Africa, the “Project Golf plan drawn up with HSBC Bank, and the so-called “irrevocable undertaking” with Harmony, are unlawful, too.
The trail begins, not with Norilsk Nickel, but with Leonid Rozhetskin. Just how different these two, the company and the man, are is the key to unravelling much of the disinformation the company has been issuing. Rozhetskin is officially titled Advisor to the CEO and vice-president of the management board of Norilsk Nickel; his function is to direct the company’s financial strategy, including mergers and acquisitions, asset disposals, and borrowings. Rozhetskin was the initiator of the Russian dealings with Anglo American; he was behind the Gold Fields purchase, and everything that has happened since.
However, he is not a salaried employee, and in a pinch, the company can act or speak as if Rozhetskin represents himself, not the company. This is a loophole which Harmony executives have exploited when telling SA and US regulatory panels and courts that it has not acted on its takeover bid for Gold Fields in concert with Norilsk Nickel. The unstated premise of that claim is that Norilsk Nickel and Rozhetskin are quite different.
In fact, Rozhetskin acts for the controlling shareholders of Norilsk Nickel, Vladimir Potanin, who directs a Moscow holding called Interros, and Mikhail Prokhorov, Norilsk Nickel’s CEO. Between the two of them, they control more than 70% of the company’s shares. At present, through a company offer, they are buying out the independently owned minorities. Rozhetskin is a contractor to them, or to companies they control in registrations outside Russia; he is not their employee. A US passport holder, Rozhetskin is legally obliged to pay US taxes on his worldwide income. He is also subject to US laws governing the way the rewards of dealmaking may be sought, received, and distributed, such as the Foreign Corrupt Practices Act. Officially, Norilsk Nickel will not answer questions about Rozhetskin beyond giving his title. Rozhetskin refuses to answer questions directly.
Officially, Rozhetskin has a deputy, Dmitri Razumov, whose signature appears on legal documents Rozhetskin has negotiated. The reason for this may be that Razumov is legally an employee of Norilsk Nickel, rather than a contractor like Rozhetskin, or Rozhetskin’s employee. Razumov’s official title is Deputy to the CEO of Norilsk Nickel. It is his signature that appears on the October 16 agreement with Harmony to oppose Gold Fields’s lAMGold proposal. Razumov avoids all contact with the press.
Potanin employs several spokesmen at Interros. But they have refused to respond to questions regarding the Gold Fields deal pn the ground that the transaction was done by Norilsk Nickel. This is despite subsequent evidence from Gold Fields CEO Ian Cockerill that, on his first trip to Moscow after the March 29 transaction, he met with Potanin, and understood clearly that Potanin was as much in charge of the deal as Prokhorov. On this point, Kremlin officials have not been misdirected, or misled. When they wanted to discuss the deal, they went to Potanin.
The company’s spokesman for investment relations, Dmitri Usanov, has spent only a few weeks in the job, replacing Sergei Polikarpov. Both of them take their orders from Rozhetskin, but answer no questions about him. Usanov is so reluctant to answer questions, he has even refused to answer placebos, such as confirming the exact stake Norilsk Nickel claims to hold in Gold Fields.
Immediately after the announcement of the Gold Fields purchase, it was Polikarpov who declared that “the deal does not require Central Bank approval.” Rozhetskin had already made that claim in his negotiations with Anglo American, and with Citibank, which provided an $800 million loan to enable Norilsk Nickel to make the purchase. Polikarpov also claimed: “this deal does not require any approval from the Russian government and the Kremlin. Therefore, we have not applied and obtained such approval.”
A few days after he said this, the text of the purchase agreement and the Citibank loan agreement were released. According to the first, Norilsk Nickel declared that “all consents, concessions, approvals, filings, registrations, authorisations and orders, governmental, regulatory, corporate or other, necessary for the execution, delivery and performance by the Purchaser of this Agreement and the consummation of the transactions herein contemplated and for the purchase from the Selling Shareholder of the Sale Shares in the manner set out herein, have been obtained and are in full force and effect.”
In the loan agreement, Norilsk Nickel claimed that “All Authorisations required: (a) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents; and (b) to make the Finance Documents admissible in evidence in its jurisdiction of incorporation have been obtained or effected and are in full force and effect.” It also averred that “any factual information provided by or on behalf of any member of the Borrower Group was true, complete and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.” According to the borrowing agreement, Norilsk Nickel claimed that there 51 were “no administrative proceedings of or before any court, arbitral body or agency which is reasonably likely to be adversely determined and, if so adversely determined, would reasonably be expected to have a Material Adverse Effect” on the Citibank loan or the Gold Fields transaction.
These claims were false. By August, Rozhetskin admitted as much in secret, e-mailing Cockerill at Gold Fields. The text of that message surfaced during document discovery by lawyers for Gold Fields and Harmony, ahead of their federal court hearing in New York last month. Cockerill has said publicly: “About two weeks prior to the [September 2] email, Norilsk had requested that Gold Fields downplay any public discourse on Norilsk’s views on the [lAMGold] transaction or possible future intentions, as Norilsk was, at the time, under scrutiny from the Russian authorities.”
In short, Rozhetskin was secretly admitting what he and his spokesman had earlier denied. But he was not admitting to Cockerill the extent of the Russian government “scrutiny”. That did not become clear for several more weeks, until Russian sources, including the Central Bank, acknowledged that the Gold Fields transaction in March had been unlawful, and that Potanin and Prokhorov had agreed to reverse it.
For weeks before then, however, as testimony in the litigation between Gold Fields and Harmony now reveals, Rozhetskin had tried to pressure Gold Fields into redomiciling at least some, if not all of its gold assets outside South Africa, as part of his plan to increase Norilsk Nickel’s stake in the new offshore company, and vesting ownership of its Russian goldmines in that entity. Rozhetskin was not shy in revealing this scheme to investment bankers, inviting them to propose their deals to him. In April, according to RIA-Novosti, the Russian state news agency, Rozhetskin told a session of the Russian Economic Forum in London that Norilsk Nickel intended to increase its shareholding of Gold Fields. Asked to clarify that, the company spokesmen refused, referring instead to Rozhetskin’s office. Rozhetskin’s secretary said he was unavailable to answer questions. “If he will find it reasonable to respond, he will do so,” she added.
By some time in July, Rozhetskin understood that he could not make his second-stage deal with Gold Fields, that is, his takeover. But it is unclear whether Potanin and Prokhorov, who knew what direction the Kremlin wanted, realized what Rozhetskin was doing. In Moscow he may have said he was fashioning a highly lucrative exit from the 20% stake he had bought, adding two to three hundred million dollars in profit on the $1.16 billion purchase price. But offshore, Rozhetskin was telling Damien Coates, an HSBC banker, and others that he wanted to expand Norilsk Nickel’s offshore stake, not liquidate it.
Disclosure of the secret HSBC plan, code-named Project Golf, reveals what Rozhetskin had been saying outside Russia. He had been discussing “reversal candidates” – foreign-listed companies into which Potanin and Prokhorov could vest some or all of their Norilsk Nickel assets – and these included Canadian goldminers, Kinross and lAMGold. He was unhappy with Gold Fields, he told HSBC, because “G[oldfields]’s shareholders will oppose all schemes, including vesting of Norilsk’s] assets, that result in N[orilsk] gaining ‘creeping control’ without paying full control premium.”
At the same time that Rozhetskin was admitting to Gold Fields that he was worried about Russian government “scrutiny”, he was telling HSBC that “a follow-up deal is highly desirable to demonstrate that the original stake purchase had real commercial synergy.” At least, that is what HSBC thought it could divulge to Harmony, once Rozhetskin and Coates had agreed that Cockerill would insist on dealings “at arms length without favour.” Exactly what “favour” the secret HSBC plan was hinting at, and for whom, remains to be uncovered. But the HSBC document leaves little doubt that Bernard Swanepoel, Harmony’s CEO, appeared to Rozhetskin and to HSBC as indicating “much more flexibility.”
Swanepoel has testified that the HSBC document was nothing more than a proposal, initiated by HSBC, which Harmony decided not to accept. What is not in doubt is that Rozhetskin was prompting HSBC at a time when he knew that both Gold Fields and the Kremlin were opposed to his scheming. Evidence about what Swanepoel knew, or should have known, about the Rozhetskin schemes, and the legality of the Norilsk Nickel transaction, has yet to be examined.
When HSBC took the Project Golf scheme to Swanepoel, indicating that Rozhetskin would back Harmony in a hostile takeover of Gold Fields, it is possible that Rozhetskin withheld the crucial information from Moscow that Norilsk Nickel was obliged to liquidate the unlawful March 29 deal. So long as the Central Bank and the Kremlin covered their investigation with secrecy, Rozhetskin could have been bluffing Swanepoel. About eight weeks elapsed between HSBC’s submission to Swanepoel and the latter’s signing of the “irrevocable undertaking” with Rozhetskin’s man, Razumov. So far, the regulatory panels and court judges who have reviewed this record have ruled only on a portion of the evidence, without determining whether the initial Norilsk Nickel transaction was a lawful one, and whether Swanepoel knew that Rozhetskin was under orders from his superiors to find a way to liquidate it.
Just how uncomfortable Rozhetskin was beginning to feel in Moscow appeared on August 3, two weeks after he warned Cockerill about the government pressure, but days after a Gold Fields executive had openly acknowledged that Norilsk Nickel might try to take over Gold Fields.
According to a company release, “MMC Norilsk Nickel would like to officially state that recent references made in the Russian and foreign press to an announcement made by a leading figure in Gold Fields Ltd concerning MMC Norilsk Nickel’s alleged offer to transfer to that company its gold mining assets in return for an increased shareholding have no basis in fact. MMC Norilsk Nickel is not planning to transfer any shares in its Russian gold mining operations nor any rights to existing or future plant or deposits on the territory of the Russian Federation to the aforementioned South African Company, and accordingly, has made no such offer to Gold Fields Limited.”
That was a lie. The truth was that Rozhetskin had demanded, and Gold Fields had refused. In its place, Rozhetskin then got HSBC to make the very same proposal to Swanepoel. Thus, Norilsk Nickel’s public statement is directly contradicted by the activities of its principal shareholders and their contractor Rozhetskin. Theirs has been a shell-game in which the truth cannot be found.
A similar shell-game is being played by Potanin and Prokhorov’s representatives in South Africa. According to South African corporate executives, Andrei Dubina introduces himself as the Norilsk Nickel representative in SA. He has also referred to himself as a former ambassador to Iraq, according to one SA source. The Russian Foreign Ministry responds that there has never been a Soviet or Russian ambassador of this name, neither to Iraq, nor to any country. At Potanin’s Interros office, the spokesman claims: “we have never heard of Andrei Dubina.” At Norilsk Nickel headquarters, the spokesman says of Dubina and an Armenian associate, also in SA: “nobody knows them. We have no information about these people.”
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