Research Notes

Investors looking to buy into Norilsk Nickel (GMKN) stocks and who will be shareholders of the metal maker as of January 1, 2006 will receive equity in Polyus Gold, a potentially new blue chip on the domestic stock market. We see good development prospects and strong upside potential for both companies (Norilsk Nickel and Polyus Gold) after gold assets are spun off. According to our estimates, the undivided company's shares are currently undervalued by 17%.

• Norilsk Nickel's gold assets are slated for spin-off into a standalone business, Polyus Gold during the first months of 2006.

• We believe that the companies will have greater value as standalone entities than together.

• It should be noted that roughly 20% of Russia's gold output falls to Polyus, its resource base equals 64.4 mln oz and its current gold production totals 1.1 mln oz per year, and the company plans to ramp up output dramatically.

• A potentially high free float creates the prerequisites for Polyus Gold to turn into a new blue chip.

• According to our valuation, the new gold mining concern will be worth $4.4 bln or $20.40 per share. We estimate the target price of GMKN (excluding Polyus) at $85.30 per share.

Nataly Kocheshkova

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