Norilsk is in the Diversified Mining and Metals sub-industry of the Basic Materials sector 15 (sub-industry id= 15104020). Click on this table, and the sub-industry id=15104020 to get a list of the stocks. Each has links to Yahoo Finance data. At some point I'll install links to charts with technical indicators. Later this year, readers will be able to click on the stock's ticker symbol to go to a premium website I am developing that will give my buy-hold-sell recommendations on demand, as calculated by my real-time dynamically updated all capital markets algorithmic trading model. The one now in development, in case you are wondering.

Before I get into this report, I want to say that I have personal files on a great many Russian gold properties, and have some friends who moved there to Russia Far East, and married and stayed. I know a little about the place.

Something I read recently was an interview of Bob Buchan, founder and CEO of Kinross Gold, whom I've met and respect. When asked about his take on the most difficult overseas venture, meaning Russia, he said: "The old line about Russia is, 'they pretend to pay us, and we pretend to work'. But once we (Kinross management) explained to them that if they produce more, they get paid more, they just blew right through all our targets on productivity. The quality of Russia's workforce is outstanding. The country has such a cultural commitment to education that you end up with a highly skilled, highly motivated workforce -- once they understand the concept of productivity."

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NILSY MMC NORILSK NICKEL: Russia's powerful mining and metals company as well as one with historical issues

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On the tundra, 200 miles north of the Arctic circle, in the Taymyr region (Norilsk and Talnakh area), situated in the northern part of the Krasnoyarsk territory, there is a world-class company involved in the extraction and metallurgy processing and global marketing of ferrous, nonferrous and precious metals.

This is Siberia.

"Yakutsk in central Siberia says it is the coldest place in the world, but Norilsk is colder," says the cab driver: "The temperature here only gets down to 40 degrees below zero, but we also have very strong winds blowing every day from the Arctic;People get rather sleepy and disoriented during (the perpetual darkness of December to February)."

Why I am writing about it today is because Norilsk (NILSY) is a Russian company with global ambitions. It trades at a 50 percent discount to comparable mining companies in Western Europe and North America, and, because of bullish demand from China (and elsewhere) for Russia's metals, is going to trade higher.

Norilsk is reaching out across the world from its domain in northern Siberia. Its acquisition of a 20% ownership in Gold Fields Limited, a world leading South African gold producer with gold deposits in South Africa, Australia, Ghana and Peru, in April 2004, shows that.

There are many environmentalists who wish that Norilsk would clean up its own backyard first, but neither the management nor the government seems to care much about careful use of natural resources, reported Paul Klebnikov for Forbes magazine. The tundra around Norilsk is a sprawling industrial wasteland, with piles of scrap metal. The trees have been killed by some of the worst sulphur pollution in the world, if not the worst.

"This is our famous metals combine. They say the smoke drifts all the way to Canada," says the cab driver, pointing to the smokestacks.

But if Norilsk was only known for its pollution, it would be an easier story to tell, for this is the home of the worst of the Soviet gulags, or concentration camps, under Stalin, and the great Mining and Metallurgical Company was built on slave labor and managed by generals of Stalin's infamous secret police, the NKVD.

The city of Norilsk is widely known to be built on the bones of dead prisoners -- hundreds of thousands of dead who were forced to endure unspeakable atrocities, starvation and exposure. The prison population was then in excess of 100,000, and as many died, trainloads of replacements were shipped in to keep the mines working.

The former soviet system had its history of enforced socialism, central planning and state control, but it's bloodiest acts took place here at Norilsk.

Even in the mid-90's when an electrical transformer blew up, shutting down the mine for a while, which caused a spike in nickel prices in London, the 300,000 residents of the city went without power, but the mines were quickly re-started.

So why do investors have any interest in the place? Because "it's about the money." Just this small part of the Arctic tundra contains 35% of the world's known nickel reserves, 10% of the copper, 14% of the cobalt, 55% of the palladium and 20% of the platinum, according to estimates.

Yes, its a strange twist on the old expression, but money talks, and history walks.

People say the place has changed. In 1955 the gulag was disbanded and the town was turned into a communist showpiece. Ambitious engineers and ordinary workers desired to work there to earn the relatively high wages offered by the mines. By Soviet standards, Norilsk turned into a pleasant place, attractively laid out, they say, by architects from Leningrad who had been imprisoned there.

Most of the buildings are reportedly well maintained, the stores well stocked, and the young people fashionably dressed. There are excellent schools and a modern 1,000-bed hospital, plus good theater. In fact, the company is now trying to persuade some to leave the place as it cuts its labor costs and social programs.

So now the company is now thriving. The nickel and copper concentrates are shipped out via the north coast of Siberia with the help in the winter of a fleet of nuclear-powered icebreakers. Precious metal concentrate (a fine gray powder containing platinum, silver and other valuable metals) is airlifted to a Krasnoyarsk refinery and then sold to the Russian central bank.

As an aside, in 1997, over a period of three days in Toronto, I personally met the man who was overseer of all Russia gold buying, the general manager for gold operations and foreign currency of the Central Bank of Russia.

He was with a group of some 30 Russian provincial governors and leading dignitaries brought by my associate Boris Aryev to the Prospector & Developers Association Conference. We took the group to a luncheon with the partners of a leading Canadian broker-dealer, as well as to a three-hour session with the head of Canada's gold trading for the Bank of Canada.

In addition, with no more than five-minutes notice, I trundled the group into the offices of the HSBC trading floor in Toronto, to the amazement of staff.

My faux-pas though was to personally introduce the top three or four of the group to the CEO David Walsh and geologist de Guzman of Bre-X, the day before their world-famous fraud was discovered and a week before de Guzman apparently jumped (pushed?) to his death from a helicopter over the jungles of Indonesia.

Back to the matter at hand, MMC Norilsk; why would anybody be interested in the stock?

At a price of $62.25, NILSY has a market cap of $2.27 billion. The yield of 2.7 percent is ahead of the mining industry average of 2.4 pct.

The key is that the PE (ttm) is 15.7 versus 30.7 for the industry, and just 6.5 vs 14.9 for the industry. The PEG ratio is just 0.3 vs 3.0 for the industry. That gives you a glimpse of the attraction.

Not all the metrics are favorable though. Return On Equity is just 12.0 (vs 28.5 for the industry), and Return On Assets is 9.2 (13.7). Gross margin at 46.5 is much higher than the mining industry's average of 25.6.

But Norilsk is a cash cow for the central government, which taxes the company heavily. The net margin is just 16.6 (25.2).

Ten years ago, Forbes published a review, saying that: "Norilsk paid 36% of its revenues in taxes, regional taxes and local social payments, the latter taking the form of subsidized consumer goods, housing and medical care. The company continues to be a typical Soviet-era operation. Norilsk Nickel is responsible for the welfare of all its 155,000 employees and their families. Besides its metal and mining operations, the company owns and manages housing estates, supermarkets, hospitals, sports complexes, retirement homes, even a local dairy farm and a pig farm. "

You get the point; this is a one-company city. A city built on bones.

But just like MSO is not Martha Stewart, MMC Norilsk is not the gulag Norilsk of Russian lore. It is a globally powerful mining and metals conglomerate with a huge upside potential, and that's the very reason NILSY makes my Global 100 Best Companies list.

BCara@BillCara.com

Files used:

http://finance.yahoo.com/q?s=NILSY.PK&d=thttp://www.adr.com/adr?page=comphome&formtype=2&site=ADR&ticker=NILSY

http://www.adr.com/adr?page=search§ion=financial&ticker=NILSY

http://www.hoovers.com/norilsk-nickel/--ID__89452--/free-co-factsheet.xhtml

http://minerals.usgs.gov/minerals/pubs/commodity/nickel/nimis0404.pdf

If readers want to see the best version of these slides from a 2004 company presentation to mining analysts, go to the MMC Norilsk website and click on Shareholders / Presentations. It's the first one listed.