The ongoing battle between two oligarchs for control of one of the country's largest mining companies took a fresh twist when the world's largest aluminium company, Rusal, said it had bought a 25 per cent stake plus one share in the world's leading producer of nickel and palladium Norilsk Nickel, paving the way for the creation of a Russian mining giant headed by the country's richest man, Oleg Deripaska.

After the collapse of Communism and the breakup of the erstwhile USSR, many of the state's more expensive assets were sold at throwaway prices to a select few, who quickly  became billionaires. These oligarchs are  among the richest in the world, and wield enormous influence within the  Russian state.

United Company (UC) Rusal is the world's largest aluminium company, accounting for almost 12.5 per cent of the entire global output of primary aluminium and 16 per cent of the world's alumina production. The company operates in 17 countries on 5 continents and employs 100,000 people across its international operations and offices.

The company is not traded publicly but analysts estimate its value, post the latest acquisition, at $45 billion. Rusal is controlled by Russian billionaire Oleg Vladimirovich Deripaska, the richest man in Russia today with an estimated fortune of $28.6 billion.

MMC Norilsk Nickel is the world's leading producer of nickel and palladium and is Russia's leading gold producer. It also ranks among the first four platinum producers and top ten copper producers in the world. Its operations account for as much as 1.5 per cent of Russia's gross domestic product (GDP). 

Production assets of the company are located in Russia, Australia, Botswana, Finland, South Africa and the United States. The shares of MMC Norilsk Nickel are traded on MICEX and RTS in Russia, and the company's ADRs are traded in London, New York and Berlin. The current market capitalization of Norilsk is around $55.7 billion.

Billionaire oligarchs Mikhail Prokhorov and Vladimir Potanin, the fifth and sixth richest men in Russia with individual fortunes of $19.5 billion and $13.5 billion, controlled Norilsk jointly prior to this sale. However, they had a fall-out and Prokhorov wanted to sell off his stake in the company. But Potanin refused to buy, citing the $15.7 billion price excessive. He currently owns about a third of Norilsk.

It was Prokhorov's stake (in possession of his private investment fund Onexim Group) that Rusal bought, for which the former was given a 14 per cent stake in the latter and an unspecified amount of cash.

In monetary terms, a 25 per cent stake in theory would cost $13.9 billion, but in Russia "blocking stakes" of 25 percent plus a share are usually valued at a premium. Such a blocking stake enables the owner to block any major board decisions. However, the cash component is reduced because of the quid-pro-quo stake agreement.

Representatives from Potanin's investment vehicle, Interros Holding, declined comment on the deal Thursday. Potanin was said to be considering a separate proposal to merge with Uzbek billionaire Alisher Usmanov's Metalloinvest, the country's largest iron ore producer. "Talks between Metalloinvest and Norilsk Nickel continue. The possibility of a merger will depend on the decision of the majority of shareholders in both companies and on the market estimate of their value," Metalloinvest said in a statement.

However, analysts opine that Deripaska would try his utmost to convince Potanin to sell out in Norilsk.

UC Rusal and Onexim said the cash component of the deal was supported by a syndicated loan provided by ABN AMRO, Barclays Capital, BNP Paribas, Calyon, Credit Suisse, Goldman Sachs, ING, Merrill Lynch, Morgan Stanley, Natixis and UniCredit Group. Although undefined, it is estimated in the region of $9 billion.

As a result of the deal, Rusal will now have the right to nominate four candidates to the Norilsk Nickel board, with Victor Vekselberg and Oleg Deripaska among them. The two others are Rusal CEO Alexander Bulygin and independent director Tye Burt. Their candidacies will be voted on at Norilsk's annual shareholders' meeting in June.

Bulygin said the deal "laid a solid foundation for the development of UC RUSAL as a diversified metals and mining corporation with huge growth potential".

In a separate statement, Norilsk CEO Denis Morozov welcomed the arrival of UC Rusal, the world's largest aluminium producer, as a large shareholder. "The acquisition of such a significant stake demonstrates once again the investment appeal and strong prospects for the further growth of Norilsk Nickel," he said.

The 14 per cent stake that Prokhorov via Onexim gets in Rusal by this deal is higher than the 11 per cent agreed when the companies first struck the pact. This was because of changed market conditions and the cancellation of a clause stating Rusal would have to pay compensation to Onexim should it pay a higher price for any shares it might subsequently acquire in Norilsk.

After this deal, there has been a lot of speculation that it is only the first step towards creating a giant metals conglomerate, consolidating the assets of Rusal, Norilsk and Metalloinvest. Such a behemoth, if it came into being, would have a total worth of more than $150 billion at today's prices.

Sources inside Onexim Group were not ruling out such a tie-up. Rusal began openly discussing such an option as early as last December when it had contemplated a full takeover of Norilsk. However, Potanin, with his 33 per cent stake in Norilsk, could throw a spanner in the works.

Norilsk's Moscow-traded stock closed down 3.5 per cent at 6,555.1 rubles, a steeper fall than the 1.1 percent drop in the MICEX bourse's metals and mining index MCXMM. Analysts say this fall is due to the uncertainty of the metals giant's future under Rusal's influence.