Getting to the truth of RUSAL, the ISS and the EGM

Dear Shareholders,

I have spent the last week visiting with shareholders from London, Stockholm, Frankfurt, New York and Boston. Obviously we are in a high stakes game for the future of Norilsk and many billions of dollars of shareholder value are in play and at risk. What I have been trying to understand and get across to shareholders is what does RUSAL really want and why does RUSAL want to break the current board and elect a whole new slate of directors at this time?

I have to make a few assumptions and ask you to accept them as well for the moment. The first is that Gerard Holden and I are true, vigorous, independent directors, both with more than thirty of years of experience in the mining industry with lots of big company and large asset operational experience.  We were recruited by outside head hunters to bring these skills to Norilsk and we have been working hard for 18 months to understand Norilsk’s operations and assets, its Board, the shareholders, its strategic options and the government’s interest in the company. The Second is that the primary role of the independent directors over the last 18 months has been to protect minority shareholder interests and insure that all shareholders are treated equally; i.e., to generally look out for the future of Norilsk and all its shareholders.

What has occurred over the last 18 months while I have been on the board is that 1) the company has recovered from the financial crisis in fine form. 2) Net debt is almost all gone. 3) Margins are expanding rapidly and the dividend payouts have been restored 4) We have started to identify the capital requirements for growth and environmental clean that the company needs to spend over the next five years.

What is equally important is what has not happened. There have been no special asset deals for Russian only shareholders. There have been no special share buy backs that work for the special benefit of large Russian shareholders.

This then brings us to the true heart of the matter. RUSAL desperately need cash and are willing to do almost anything to get it. They desperately want me off the board. Enough to lie to shareholders and the ISS about me by saying directly that I have taken payments from Interros or have some financial interest with Interros. If that is not reason enough then they also suggest that I was a poor CEO at Lonmin (I am happy to stake my track record at Lonmin against Mr Deripaska’s performance at RUSAL since it went public at any time).  I know this because the ISS has confirmed in writing that they received this information from RUSAL.  I have now referred the matter to legal counsel, as lying to shareholders to damage the reputation of a director has real consequences. Let me be absolutely clear – I have never had any financial relationship in any form with Interros nor taken any money from Interros. I am prepared to defend this in a court of law with full disclosure. I suspect Interros itself will not be happy about being accused of bribing independent directors.

So, why do they want me off the board? Two reasons, First, I have stopped special dividends in the form of share buy backs. These are unfair to minority shareholders and the quantum suggested was imprudent until the company’s balance sheet is fully restored. Secondly, I am an opponent of merging Norilsk and RUSAL. These are two very different businesses, one is high margin with huge growth potential currently not visible to shareholders (Norilsk) and the other is a highly leveraged energy arbitrage play wholly dependent on Russian government subsidies in the form of low power and freight rates (RUSAL). Gerard Holden has also stood by me in these fights.

This, I believe, is the heart of the argument. RUSAL proposes that western Shareholders vote for more independent directors knowing full well that there are not enough voting GDRs to elect more than two. Voting for three or more independent directors insures a board which is highly likely to have no independent western directors.  This outcome, I believe, would result in a loss of value to western shareholders. If RUSAL can’t get this result, then they want you to elect very inexperienced directors who have no significant knowledge of Russian boards, Russian corporate governance issues and little or no mining experience. It is also highly unlikely that their proposed slate of directors will be able to commit the significant time (more one week a month) required to be an effective independent director of Norilsk. The chances of RUSAL driving through a nil premium merger with RUSAL become much higher. The likelihood of pushing through share buybacks and paying excessive dividends, while not funding growth and environmental cleanup due to lack of understanding of what is required by independent directors is also higher.

Finally, why did the ISS buy the RUSAL position? I think simple disinformation sold to them by RUSAL cloaked in a nice fluffy package of "we are such good guys with a plan to do things better" is the main reason. Anyone who pays for this service and their sadly inexperienced and naive analysts should reconsider the value they are getting for their money as they obviously can’t see through the RUSAL lies to their real agenda.

Vote no on the first Proposition at the EGM. Keep the current board and ask RUSAL to join the rest of us in making Norilsk a better company.

Thanks,

Bradford A. Mills.