Norilsk Nickel plays safe with new CEO appointment

Norilsk Nickel has appointed Denis Morozov, a deputy to the current chief executive Mikhail Prokhorov, to succeed him in the command spot at Noriilsk Nickel.

The selection of a new chief executive at Russia's leading mining company was released to the Moscow market this afternoon, following by 48 hours a published announcement from the company denying that a significant change was imminent! On March 13, according to the company website, "in response to numerous mass media inquiries, MMC Norilsk Nickel (the Company) informs that in late April - early May General Director of the Company Mikhail Prokhorov will work in Russia as previously scheduled. Any media reports stating otherwise (including those on his alleged marriage) are not true."

The promotion of Morozov, a 33-year old lawyer, and the continuation of Prokhorov, 41, are not contradictory, because Morozov has been the safe pair of hands on which Prokhorov, and co-owner Vladimir Potanin, have relied for several years. His time in the senior management started in 1999, when he was 26; from 2001 to 2003, he headed the company's legal department.

In 2003-2004, when Prokhorov was under the influence of financial strategist and freelance opportunist, Leonid Rozhetskin, Morozov may have been warning Prokhorov and Potanin to move more prudently. But if, after Kremlin objections materialized to the $1.16 billion Gold Fields purchase, Morozov told the two shareholders "I told you so", the warning sound wasn't audible.

The upshot, however, was that Rozhetskin was fired in January 2005, along with Dmitri Razumov, and Morozov replaced the two of them as a deputy CEO on the board with his responsibilities enlarged from legal counsel to corporate strategy and investor relations.

Three months later, in April 2005, Morozov took the unusual step of publicly announcing that a statement by Prokhorov the day before -- that the parent company intended to spin off its gold assets into a separate gold unit, and then take it public -- wasn't quite accurate, at least not at the time. Morozov's statement was the first ever by a non-shareholding executive of Norilsk Nickel to cross, or correct, a shareholder in public. In retrospect, Prokhorov did exactly what he said he was going to do; at the time, Morozov was covering his boss for the inadvisability of his timing.

As Morozov knew, on Kremlin orders the Central Bank was investigating the legality of the Gold Fields acquisition; the unwinding of the deal, to which Potanin had agreed with the Kremlin, had yet to happen. Morozov (whose name in Russian means "Mr Frost") had been chief of legal compliance for the transaction the year before. He had also assured the transaction banker, Citibank, that his management had secured all the required governmental and regulatory approvals for the deal. To put the position politely, that was an exaggeration.

Like Prokhorov, Morozov is allergic to answering unrehearsed questions. He has favoured the occasional sponsored leak to wire services willing to oblige him. He was one of the few senior executives in the company to admit in 2005, albeit by a telephone leak to a wire service, that Norilsk Nickel had joined Harmony Gold in its move to take over Gold Fields entirely.

Last month, in his most recent public presentation, Morozov claimed that his company's annual report had been a big winner in a Russian contest for corporate reports issued by companies listed on the domestic RTS exchange. Among other things, according to Morozov, his 2005 report was "the best in the category [for] Information Disclosure and Transparency".

For Morozov to replace Prokhorov at this stage is interpreted by Alfa Bank metals analyst, Vladimir Zhukov, as "a sign of the company's intention to maintain its present course and implement its previously approved development strategy...We currently view this news as POSITIVE and reiterate our BUY recommendation on Norilsk Nickel with a 12-month target price of $223 (30% upside)."

Since neither management nor shareholders of the company know whether the Kremlin has decided to acquire shareholding control of Norilsk Nickel, buying out Potanin and Prokhorov, Morozov's appointment can also be interpreted as a conservative move to mitigate whatever friction currently exists between Prokhorov and the authorities. He can be counted also to preserve maximum bargaining power over stake valuation and pricing for the two shareholders in the months ahead.

A board of directors decision confirming Morozov is expected before the end of the week.

source news : mineweb.net