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Norilsk Nickel buys nickel Klondike

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MOSCOW. (RIA Novosti economic commentator Oleg Mityayev) - The world's largest nickel producer Norilsk Nickel (or NorNickel) won the auction for a giant nickel deposit in the Irkutsk Region on March 13.

Despite serious competition, it was considered one of the most likely winners. The company could not lose an opportunity to get a deposit that would allow it to increase its production by 50%, but the price of victory was high.

NorNickel initiated the idea of the auction for the sale of the Iysko-Tagulsk nickel, copper, and platinum site. This Russian nickel monopoly (96% of production; 295,000 tons in 2007) is already involved in geological prospecting at two neighboring sites - the Kingash and Verkhnekingash deposits (estimated to have two million tons of nickel).

The new site (its area is about 16,000 square km) located on the border of the Krasnoyarsk Territory to the west and Buryatia to the east is estimated to have 7.5 million tons of nickel, 3.5 million tons of copper, and 750 tons of platinum. The auction was announced on December 5, and the last applications were accepted on December 23.

Owing to steadily high prices for nickel (last year the average price of a ton of nickel was $37,000 - 54% more than in 2006), its production is increasingly attracting major players in mining and metallurgy, who would like to diversify their business. Initially, 11 Russian industrial companies announced their intention to take part in the auction on a par with Norilsk Nickel.

Five of them eventually took part in the auction on March 13, including NorNickel, Oleg Deripaska's BasEl, and the Russian state-run diamond monopoly Alrosa.

The battle for the site was very serious. The starting price of 110 million rubles ($4.6 million) for the license to develop the site went up by 6.6 times to reach 726 million rubles ($30.4 million). As expected, NorNickel won the license for the site, and now has the right to use it for geological prospecting and producing mineral wealth for the next 25 years.

The nickel monopoly simply could not let such an attractive asset go. The majority of experts believe that if the site's estimated resources are confirmed, it will become a real nickel Klondike.

Today, NorNickel has six million tons of proven and 10.6 million tons of unproven nickel resources. Its managers believe that when the new site's resources are explored, and the two neighboring deposits developed, the company will be able to increase its production by 50% in 2015-2016.

But this is so far a preliminary forecast. Only additional prospecting will make it possible to precisely estimate the site's resources and ease of extraction. NorNickel will have to invest 2.5 billion rubles ($105 million) to prepare the site for commercial use.

If the estimates are confirmed, NorNickel will have to build a mining-and-processing plant and a railroad, and install high transmission lines. The whole project may cost several billion dollars.

This is a very promising site, but it requires a lot of investment. It is hard to say when the project will pay off. So, this nickel Klondike will make the company more attractive for investors not today but in a more distant future.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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