1h 2017 financial results - nornickel...health & safety: focus on critical controls ltifr...
TRANSCRIPT
August 15, 2017Moscow
1H 2017 FINANCIAL RESULTS
Disclaimer
The information contained herein has been prepared using information available to PJSC MMC NorilskNickel (“Norilsk Nickel” or “NN”) at the time of preparation of the presentation. External or other factorsmay have impacted on the business of Norilsk Nickel and the content of this presentation, since itspreparation. In addition all relevant information about Norilsk Nickel may not be included in thispresentation. No representation or warranty, expressed or implied, is made as to the accuracy,completeness or reliability of the information.
Any forward looking information herein has been prepared on the basis of a number of assumptions whichmay prove to be incorrect. Forward looking statements, by the nature, involve risk and uncertainty andNorilsk Nickel cautions that actual results may differ materially from those expressed or implied in suchstatements. Reference should be made to the most recent Annual Report for a description of major riskfactors. There may be other factors, both known and unknown to Norilsk Nickel, which may have animpact on its performance. This presentation should not be relied upon as a recommendation or forecastby Norilsk Nickel, which does not undertake an obligation to release any revision to these statements.
Certain market share information and other statements in this presentation regarding the industry in whichNorilsk Nickel operates and the position of Norilsk Nickel relative to its competitors are based uponinformation made publicly available by other metals and mining companies or obtained from trade andbusiness organizations and associations. Such information and statements have not been verified by anyindependent sources, and measures of the financial or operating performance of Norilsk Nickel’scompetitors used in evaluating comparative positions may have been calculated in a different manner tothe corresponding measures employed by Norilsk Nickel.
This presentation does not constitute or form part of any advertisement of securities, any offer or invitationto sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in Norilsk Nickel, norshall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on inconnection with, any contract or investment decision.
2
Health & Safety: Focus on Critical Controls
LTIFR reduced by 13% y-o-y
1*10-6
Accident Statistics Improved in 1H 2017
LTIFR remains below the global mining industryaverage, down 13% y-o-y;
Total recordable fatal accidents and lost time injuresrates decreased 28%, respectively;
49 refusals to perform work were registered due toconcerns about safety, 44 employees were fired forviolation of safety regulations and rules;
18 internal audits of Occupational Safety and Healthmanagement system were conducted
120 internal audits with participation of managementwere scheduled for 2H 2017;
Life protection is a top management priority – target zero fatalities
0.76
0.47
0.75
0.390.34
1H 2013 1H2014 1H2015 1H2016 1H 2017
4431
46
23 20
6
5
4
61
1H2013 1H2014 1H2015 1H2016 1H2017
Lost Time Injury Fatal
-28%
employees Regretfully, the lifes of 4 miners were lost due to an
explosion related accident;
Full support and assistance have been provided to thefamilies of the employees;
The Company has launched a thorough internalinvestigation of the accident and is working closely withthe authorities on their formal investigation;
The Company reiterates its key objective to eliminateall fatalities and ensure that such tragedies will notrepeat in the future. Life protection remains our keypriority.
-55%
-13%
3
1H 2017 Highlights:
Tragic accident at Zapolyarny mine in July:
1H2017 Highlights
Consolidated revenue increased 11% y-o-y to USD4.2 billion owing to the increase in metalprices;
EBITDA was down 3% y-o-y to USD1.7 billion primarily owing to RUB appreciation against USDand one-off increase in social-related expenses. EBITDA margin maintained at an industry-leadinglevel of 41%;
CAPEX was almost flat y-o-y at USD0.7 billion;
Net working capital increased to USD0.8 billion driven mostly by the payment to Rostec for thecopper concentrate;
Free cash flow decreased by 17% y-o-y to USD0.5 billion primarily due to the increase ofworking capital resulting in FCF/revenue ratio of 12%;
Net debt/EBITDA ratio reached 1.5x as of June 30, 2017. Taking advantage of favourablemarket conditions two Eurobonds were issued: USD 1 billion with an annual coupon rate of 4.1% andUSD 0.5 billion with an annual coupon rate of 3.85% yielding the record low interest rates for theCompany’s issuances on international debt capital markets;
Annual 2016 dividends in the amount of USD1.2 billion (or USD 7.5 per share) were paid in July2017;
On 24 January 2017, the Company’s Board of Directors approved the sale of up to 39.32%stake in the Bystrinskiy (Chita) Project to CIS Natural Resources Fund. The closing of thetransaction is expected by the year-end 2017;
4
Markets Update
Metal Stocks, days of consumption Market Balance ForecastMedium-termFundamentals
Nickel
Palladium
Platinum
Copper
(2)
(45)(75)
2016 2017E 2018E
(0.3)
(1.0)
(1.8)
2016 2017E 2018E
Metals Markets Outlook
290
20 70
2016 2017E 2018E
moz
kt
kt
Deficit
Balanced
Source: Company data
Balanced
Deficit
81 51
Jan 2016 Aug 2017
ETF stocks Other non-elastic stocks Other elastic
-2.7moz
122 128
Jan 2016 Aug 2017
ETF stocks Other stocks
+260koz
8 10
Jan 2016 Aug 2017
Exchange stocks Non-exchange stocks
+300kt
93 78
Jan 2016 Aug 2017Exchange stocks Non-exchange stocks
-58kt
moz
(0.5)
(0.1)0
2016 2017E 2018E
6
Source: Company data
Nickel Market: Deficit ExpandingNi Supply: Increase Driven by Re-start of Indonesia Ore Exports and Philippines Recovery
Strong Growth of Ni Demand in Stainless Steel Expected in 2017E Across All Key Regions
Nickel Market: Deficit Expanding
kt
(2)
(75)
(97)
(53)
(45)
(166)
(137)
2016 Demand Supply 2017E Demand Supply 2018E
Deficit
Deficit
2,0022,055
2,20086
2029 51
31
2016
Indonesi
a N
PI
Chin
a N
PI
Fe-N
i
Refined N
i(R
uss
ia&
Chin
a)
Oth
er
2017E
2018E
+3% +7%
kt
2,0042,095 2,100
2,27528
22 17 17 7 5
2016
Indonesi
aSTS
Chin
a S
TS
Oth
er
Asi
aSTS
Batt
eries
Asi
a
Am
erica
STS&
Allo
ys
Oth
er
2017E
2018E
+5%
kt+8%
7 7
Source: Company data, BGRIMM
Mixed 1H17 Data in China: Strong Growth of 200 Series, Fall in 300 Series and Reduction of Ni Imports
mln t Y-o-Y
+10%
8.0 7.2 7.6 7.6
3.4 3.9
10.010.9 11.8
12.2
5.8 5.7
4.1 4.04.5 4.5
2.2 2.1
0
5
10
15
20
25
2014 2015 2016 2017E 1H 16 1H 17
200S 300S 400S
+13%
+0%
-5%
Increased STS Output in 2H 2017 as Market Strengthens and Delong Ramps Up Balances Out Supply Cuts of 300s in 1H 2017
138
298370
192102
69
145
154
72
112
2014 2015 2016 1H 16 1H 17
Refined Ni Fe-NI/NPI
+21%
>2x
-31%
Imports of Nickel to China Declined in 1H17 due to High Base in 1H16& Stock Reallocation, Fe-Ni/NPI Became the Main Source
Y-o-Y
+8%
+6%
+3%
+0%
+2%
+3%
+15%
-2%
kt, Ni units
8 8
Source: Wood Mackenzie; Companies official reports; Note: 1. Based of Wood Mackenzie sample of sulphide mines; 2. Including production of BHP Billiton, Vale, Jinchuan, Glencore, Anglo American, Sheritt, First Quantum; 3. Assuming adjustments in 2017E production guidance of all major high grade nickel producers;
Global Nickel Supply from Sulphide Ore is not Sustainable in Medium Term: Impact from Underinvestment
Underinvestments Impacting Ni Production from Sulphide Ores (1)
Production Cuts by All Major Ni Producers in 1H2017: Remove Over 50kt from Supply
600
650
700
750
800
850
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014 2015 2016 2017
Sulphides Capex Sulphide Production
kt Y-o-Y
-15%-16%
-13%
-10% -10%
-5% -5%
Norils
k N
ickel
Peer
1
Peer
2
Peer
3
Peer
4
Peer
5
Peer
6
1H 2017/1H 2016 (2)
Total production cuts (3) and shut-downs expected in the amount of circa 60kt in 2017E
9
<2
>2
-10%
Source: Company data, Chinese customs trade statistics
Diminished Uncertainty in the Philippines and Indonesia
mt of ore
Higher Nickel Ore Supply to China in 1H 2017
Y-o-Y
Ni Ore Export from Indonesia Has Resumed, +85kt Ni Units to the Market
42%
76%
100% 100%
86%0
20
40
60
80
2013 2014 2015 2016 1H2017
Indonesia Philippines Other
86%
71
48
3532
12
Company Ore export volumes (mt) Permit applied for Permit granted Ni units (kt)
PT Antam2.7 28
3.7 39
Zhenshi Group 1.0 11
PT Harita Group 2.1 22
PT Macrolink 2.5 26
Ifishdeco 0.5 5
Pt Ceria Nugraha Indotama 2.3 24
Total 14.8 8.1 85
508 489386 366 390 390
29 87
170270
2013 2014 2015 2016 2017E 2018E
China Indonesia
NPI Supply from China & Indonesia Expected to Grow
-32% -27% -9% +7%
kt, Ni Units
10 10
PGM Supply and Demand Balances: Diversing Fundamentals of Pt and Pd
Source: Company data
Palladium Market Balance: Higher Demand and Lower ETF & Stocks Sales to Spur Multiyear Structural Deficit
Palladium Mine Output in 2017: Expected Small Increase Y-o-Y
(310)
(1,020)
+70+190
(360)
(360)
(250)
2016 Minesupply
Recycling Demand Change inETF
Change instocks
movements
2017E
koz koz
Platinum Market Balance: Lower Demand is Moving the Market to The Balance
(480)
(150)
(60) +80
+230
+110(30)
2016 Mine supply Recycling Demand Change inETF
Change instocks
movements
2017E
Platinum Mine Output in 2017:Expected Small Decrease Y-o-Y
koz koz
37% 37%
38% 39%
10% 9%
0
2,000
4,000
6,000
8,000
2016 2017
South Africa Russia Canada Zimbabwe USA Other
+1%
72% 73%
11% 11%8% 7%
0
2,000
4,000
6,000
8,000
2016 2017
South Africa Russia Zimbabwe Canada USA Other
-1%
11
Key Auto Trends Impacting Metals Demand
Sustainable global automotive production growth;
Diesel substitution by gasoline vehicles;
Growth of hybrids market share;
Growth of SUVs market share and increase in
engine size;
Strengthening in emissions legislation;
Electric vehicles/batteries
1
2
3
4
5
6
Demand Implications
PGM
Pd Pt
Pd
PGM
PGM
Ni
12
Growing Autos Production in 2017 and in Long Term
Source: Company data, automakers associations, LMC Automotive
Strong Growth of Automotive Market in 1H 2017 (+4% Y-o-Y)
Y-o-Y growthTotal light vehicles production (up to 6 tons)
Global market share
+5%
+14%
+3%+2%
+9%
+4%+5% +5%
-1%
+10%
World China WesternEurope
NorthAmerica
India
2016/2015 1H 2017/1H 2016
28% 5%23% 19%
71 72 76
18 19 19 2 7
10
2016 2020E 2025E
Gasoline Diesel Hybrids BEV+PHEV Other
92101
111
77%
20%
68%
17%
71%
19%
Global auto production by type
Automotive Markets Expected to Grow by +20% by 2025
mln units
ХХ% ХХ% % of total production
13
Stricter Emission Regulations Positive for Pd Consumption
Source: Company data, ICCT, LMC Automotive, Thomson Reuters, ACEA, Wards-Auto, CAAM
New Regulations, Especially in China, Push Automakers to Increase PGM Loadings…
… which Should Boost Pd Consumption in Auto Industry by More than 30% by 2025
0.0
0.2
0.4
0.6
0.8
1.0
1990 1997 2004 2011 2018 2025
US EU-gasoline
EU-diesel China-gasoline
China-diesel
PGM consumption in automotive industry
NM
HC/N
MO
G+
Nox
Lim
its
(g/k
m)
Comparison of NMOG/NMHC+NOx emission requirements in China, the European Union and the USA during 1990-2025E
8.2
11.0
3.6 3.6
2016 2025
Pd Pt
0%
+34%
14
-
3
6
9
12
15
18
2016 2025E
Hybrids BEV PHEV
Hybrids contain more Pd per vehicle vs conventional gasoline engines with the same engine size
+14%
+3%
Changing Auto Industry Favors More Palladium Demand
Source: Company data, automakers associations, LMC Automotive
Rising Transport Hybridization Positive for Pd Demand
mln units
Falling EU Diesel Market Share Partially Offset by Increase in Heavy-Duty Vehicles: Still Negative for Pt Demand
Diesel share in Germany Global Heavy Commercial Vehicles Production
3
4
2016 2020E
+33%
48%
46%
41%
2015 2016 1H2017
mln units
15
Copper Market: Global Inventories Remain at Low Levels
LME Copper Price Stabilized While Inventories Are Up, But Still Running Tight
China Remains the Main Driver of Global Copper Consumption Growth in 2016-2017E
mt USD/t
Source: Company data, Bloomberg, as of August 7, 2017
Y-o-Y
21.9
22.5
22.90.5
0.3
2015 China Other 2016 China Other 2017E
+1.8%
mt
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
0
100
200
300
400
500
600
700
800
900
Aug-15 Feb-16 Aug-16 Feb-17 Aug-17
LME Copper Inventory
COMEX
SHFE
LME Copper Cash
+2.7%
16 16
Copper: Balanced Market, Supply Disruptions in Line with Historical Averages
Copper Supply Disruptions: Expected at 5% in 2017E in Line with Historical Average
Copper Supply / Demand Balance: Marginal Surpluses in 2017-2018E
kt
Source: Company data, Wood Mackenzie
mt
590
150120
30
290
2012 2013 2014 2015 2016 2017E 2018E
1.4
1.00.8
1.0 1.0
0.7
1.11.2
0.8
1.0
8%
6%
5%
6% 6%
5%
6% 6%
5% 5%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
Copper mine disruptions (ex.cost related closures)
% of original production target
17 17
Gasoline Diesel Hybrid BEV+PHEV FCEV
Market Share (2) 68% 17% 9% 5% 1%
Nickel 3-4 kg 3-4 kg 10-15 kg 20-80 kg 2-3 kg
Copper 20-25 kg 20-25 kg 45-50 kg 75-80 kg(3) 70-75 kg
Platinum
Group
Metals2-5 g 3-6 g 2-6 g - 25-35 g
Norilsk Nickel’s Metal Basket Content by Light Vehicle Type
+ batteries
+ electric motor, generator winding
Fuel cellCatalysts
Pt:Pd ratio 1:4 8:1 1:4
Source: Company estimates, LMC AutomotiveNote: 1. CAGR for 2015-2025E, 2. Expected market share in 2025 based on sales; 3. Without additional infrastructure demand 1-8 kg per charger; 4. Metal values calculated at average metal prices in 1H2017
Stainless steel & parts
Wires & parts
Metal value per vehicle, USD (4)
$200-330
$230-360
Up to$620
Up to $1,240
Up to $1,550
Hybridization is a major trend in powertrain development in the medium-term
Growth (1)
18 18
+1% +1% +18% +26% +41%
1H2017 Financial Results
Sales Breakdown by Metals: Palladium is the Largest Contributor to the Revenue
98 99
22
25
7
1H2016 1H2017
145
106
Nickel
-27%
kt
Russian feedMetal stock (Russian feed)
PGM Sales: Down on Reduction of 3d Parties Feed and Metal Stock Sales in 1H2016
36% 27%
24%26%
23% 30%
10% 8%2% 4%5% 5%
1H2016 1H2017
Other
Semi-product
Platinum
Palladium
Copper
Nickel
3,565 3,896+9%
Realized Metals Prices: Up on Strong Commodity Markets
Base Metals Sales: Down on Reduction of 3d Parties Feed and Metal Stock Sales in 1H2016
172 173
8 2
3
1H2016 1H2017
182 176
Copper
International 3rd party feed
kt
-3%
1,300 1,264
123 11
41
1H2016 1H2017
1,4341,305
Palladium (1)koz
Russian feedMetal stock (Russian feed)
-9%
333 299
32 5
12
1H2016 1H2017
370
311
Platinum
International 3rd party feed International 3rd party feed
koz
-16%
Nickel Copper
1H2016 1H2017
8,83710,067
4,7425,789
+22%
+14%
545
938
792
962
Palladium Platinum
1H2016 1H2017
+45%
+3%
Metal Sales Volumes and Realized Prices
Note 1. Excluding metals purchased from 3rd parties
USD mlnUSD/t USD/oz
2020
Platinum Revenue: Down 14% on Lower Sales
179
1,2781,063
(394)
1H2016 Realizedprice
Salesvolume
1H2017
USD mln
-17%
Copper Revenue: Up 18% on Higher Prices
190
8621,020
(32)
1H2016 Realizedprice
Salesvolume
1H2017
USD mln
+18%
354105
810
1,167
(102)
1H2016 Realizedprice
Salesvolume
Resale 1H2017
USD mln
+44%
8
347 299
(56)
1H2016 Realizedprice
Salesvolume
1H2017
USD mln
-14%
Palladium Revenue: Up 44% on Higher Prices
Nickel Revenue: Down 17% on Lower Sales
Metals Revenue: Driven Up by Strong Commodity Markets
2121
Metal Revenue Up on Higher Prices
Increase of metal sales 9% y-o-yto USD3.9 bn due to:
Increase of realized metal prices (positiveimpact of USD0.8 bn);
Lower metal sales volume due to thehigher base effect in 1H2016 owing to thesale of metal stocks (negative impact ofUSD0.6 bn);
Re-sale of metals (positive impact ofUSD149 mln);
791 (609) 149
3,565 3,896
1H2016 Realizedprice
Salesvolume
Re-salesof metals
1H2017
Macro
Environment
Company
performanceUSD mln
Metal Revenue Up on Higher Prices
57% 55%
22% 23%
7% 15%14% 7%
1H2016 1H2017
Russian Federationand CIS
North and SouthAmerica
Asia
Europe
3,8963,565USD mln
Consolidated Metal Revenue
Geographical breakdown of metal sales:
Europe remains the single largest marketaccounting for 55% of metal sales;
Reduction of Russia and CIS sales from14% to 7% of total, due to the relocation ofsales to international markets;
Increase of sales to North and SouthAmerica to 15%, mainly due to theincreased physical demand for palladium;
2222
EBITDA and EBITDA Margin
Higher realized metal prices had a positive impact on EBITDA of USD743 mln;
Appreciation of RUB against USD and domestic inflation contributed negatively to EBITDA by USD357 mln;
One-off factors: higher base effect in 1H2016 due to metal stock release of USD212 mln and increased social expenses in 1H2017 had a combined negative impact on EBITDA of USD352 mln;
Decrease in metal sales volume of USD106 mln was primarily driven by accumulation of metal stock (mainly copper) in 1H2017 owing to an extension of navigation break at the port of Dudinka;
2,708
1,5881,795
2,104
1,744
55%
44%47% 48%
41%
1H2015 2H2015 1H2016 2H2016 1H2017
1H2017 EBITDA Bridge vs. 1H2016
(277) (80)
(352) (106)
1,795 1,744
743 13 8
1H2016 Realizedprice
FOREX Domesticinflation
One-offfactors
Salesvolume
Disposalof non-
coreassets
Other 1H2017
Macrofactors:
386
Operating factors:
(85)
USD mln One-offfactors:
(352)
1H2017 EBITDA was down by 3% y-o-y to USD1.7 bn, EBITDA margin down by 6 p.p. to 41%:
EBITDA and EBITDA Margin
USD mln
2323
Operating Cash Costs Adjusted by FX & Refined Metal Purchase: Up +6%, in Line with Domestic Inflation
5%
19%
19%41%
16%
USD mln
Other
Services
Materials
Labour
Metals and semi-products
Operating Cash Changes in 1H2017
539 687
294
325 228
329 72
84 209
272
1H2016 1H2017
Other
3rd party services
Materials andsuppliesSemi-products andmetalsLabour
1,342
1,697+26%
651 687
219 192
273 329 83
84 247
272
1H2016 - adjusted byFX & metal purchases
1H2017 - adjusted bymetal purchases
Other
3rd party services
Materials andsupplies
Semi-products
Labour
1,4731,564
10%
1%
21%
(12%)
6%
+6%
Reported Operating Cash Costs: up by 26%
1H2017 Cash Costs Breakdown
Operating Cash Costs
USD mln
1,342
1,697
(76)(26) (6)
206
35 84
34 5648
1H2016 Forex Marketprice
Domesticinflation
Taxationchange
3rd partyfeed
Cost ofRostecfeed
Materials Headcount
reduction
Other 1H2017
USD mln Macro Factors Operating Factors
24
Working Capital in 2015-1H2017
Net Working Capital
24 23 11 57
144
170 (66) (1)
1,030
443
805
31 Dec 2015 31 Dec 2016 FOREX Marketprices
Seasonality Change inincome taxbalances
Changein metalinventory
Paymentfor copper
concentrateto Rostec
Accountspayablefor PP&E
Other 30 Jun 2017
Macro and markets factors:115
Operating factors:247
USD mln
25
FCF Reduction: Increase of Working Capital Was Partly Offset by Proceeds From Sale of Non-Core Assets
Free Cash Flow in 1H2017
(325)
(51)23
7 1
238
619 512
1H2016 Change inworking capital
Change inEBITDA
Non-cash itemsin EBITDA
CAPEX Income tax paid Other investingactivities
1H2017
USD mln
26
At the USD/RUB rate of 59.1, 1% change in exchange rate translates into:
EBITDA change of USD36.1 mln, FCF change of USD56.0 mln.
Currency Break Up of OPEX (1) Currency Break Up of CAPEX
Financial Results Sensitivity to USD/RUB Exchange Rate
Note: 1. Cash costs (change in stock excluded), Cost of non-metal sales, SG&A
75%
25%
RUB
Non-RUB
1H2016
85%
15%
RUB
Non-RUB
1H2017
72%
28%
RUB
Non-RUB
1H2016
78%
22%
RUB
Non-RUB
1H2017
42.638.8
36.132.8
30.5
66.2
60.256.0
50.947.3
USD mln exchange rate as at30.06.2017
65.0
Free cash flow
EBITDA
55.050.0 59.1 70.0
60.0
50.0
40.0
10.0
20.0
30.0
USD/RUB
27
CAPEX Breakdown by Projects CAPEX Forecast for 2017
Cash CAPEX(1)
Note: 1. CAPEX in Cash flow statement, net of VAT
296 321
44
6979
681163036
114 53
132 146
1H2016 1H2017
GRK Bystrinskoe (Chita)
Talnakh Concentrator
Skalisty mine
Projects related to the shutdown of Nickel Plant
Other mine development
Kola
Other stay-in-business and commercial
706 699
USD mln
0.8
0.6
0.6
2017
GRK Bystrinskoe (Chita)
Commercial
Stay-in-business
USD bn
2.0
28
Change in Debt Structure
4.63.5 4.2 4.6
5.6
1.1
0.6
1.01.2
1.5
2013 2014 2015 2016 1H2017
-0.40
0.10
0.60
1.10
1.60
2.10
-
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
2013 2014 2015 2016 1H2017
Net Debt Net Debt/EBITDA, (x)USD bn
Proactive Debt Management
0.31.2
0.61.2
5.0
2.6
2.2
Liquidityposition
2017 2018 2019 2020 2021+
Debt repayments
Cash
Available Credit Lines
USD bn
ST
7%
ST
16%
LT
93%
LT
84%
2016 1H2017
Debt Maturity
Liquidity and Debt Repayment Schedule
Leverage Reached 1.5 Net Debt/EBITDA
Long-term undrawn committed credit lines of USD2.2 bn availableas at June 30, 2017;
In order to decrease its funding costs the Company paid in advanceRuble denominated credit facilities in the amount of RUB60 bn;
In 2Q2017 two Eurobonds were issued: USD1 bn issue with anannual coupon rate of 4.1% and USD0.5 bn issue with an annualcoupon rate of 3.85%, yielding the record low interest rates for theCompany’s issuances on international debt capital markets;
Change of the terms on the project finance loan from Sberbankyielding reduction of interest cost by issuing guarantee on behalf ofPJSC MMC Norilsk Nickel;
Total savings on interest expenses expected at more than USD100mln on annualized basis;
RUB
29%RUB
15%
Non-
RUB
71%
Non-
RUB
85%
2016 1H2017
Debt Currency
Fix
63%Fix
67%
Float
37%
Float
33%
2016 1H2017
Debt type
Balance Sheet Management
29
Major Projects Update
Skalisty Mine Development Update
• Greenfield project
• Production capacity – 2.4Mtpa
• Ore reserves: 58Mt
• Estimated Project IRR > 30%
• Total Capex (up to 2025): ~ USD2.2 bn
• Increase in the annual ore output to 1.75 mt pa by 2017, 1.95 mt pa by 2018
and 2.4 mt pa by 2024
• Completion of ventilation shaft №10 in 2018
• Completion of skip-cage shaft (main shaft) in 2019
• 1H 2017 Capex: USD36 mln
• Capex 2017-2018: ~ USD470 mln
• Progress by June 30, 2017:
Shaft sinking:
1,785 m
1,484 m
Shaft №10 (90% complete)
Skip-cage shaft (main shaft)(72% complete)
Drifting:
2 085m
Source: Company dataNote: At the exchange rate of USD/RUB 60.06 as of August 9, 2017
Project overview
Project timeline
Project update
31
Talnakh Concentrator Upgrade – Successfully Completed
Phase 2 – Technology upgrade and capacity increase
Total Capex of USD780 mln(1)
Phase 3 (under review) –Сapacity expansion to 18.0 mtpa
Phase 1: Flotation upgrade
Overview
Replacement of flotation cells
Capacity of 7.7 Mtpa maintained
Status: Completed
Launched in January, 2015
Ramped-up by 1Q 2016
Impact:
Increased nickel recovery rate by 1 p.p.
Overview
Upgrade of technology
Capacity increased to 10.2 Mtpa
Status: Completed
Launched in May, 2016
Ramped-up by 2Q 2017
Impact:
Sulfur rejection to the tailings reached design parameters
The content of Ni in nickel-pyrrotiteconcentrate increased from 8,4% to 9,9% (implied increase of Ni in nickel concentrate from 8,6% to 13,5%)
Overview
Capacity increase to 18.0 Mtpa
Status
Project design, budget and construction schedule currently being updated
Feasibility and investment decision by the 1H 2018
Dependent project:
Development of South Cluster (Zapolyarny mine)
Source: Company dataNote: 1. At the exchange rate of USD/RUB 60.06 as of August 9, 2017, including tailing dam investments; 32
Re-launch of NiTankhouse-1
Kola Ni refining capacity, ktpa
Kola Nickel Refining Operations: Upgrade and Expansion of Capacity
Reconstruction of Ni Tankhouse-2: Technology upgrade and capacity expansion
Expected impactOverview:
Additional refining nickel capacity (+45ktpa) launched to offset idled Nickel Plant in Polar Division;
Total Capex USD15 mln;
Status: Completed
Construction completed in 2015;
Ramped-up to full capacity by 3Q 2016;
Overview: Addition of nickel refining
capacity (+25 ktpa) Upgrade to drum roaster
chloride leaching; Construction will be completed
in 2018; full capacity to be reached by 2019;
Total Capex of ~ USD300 mln
Status: Construction is in progress
Completion - 40%;
Construction with staged commissioning of new chloride leaching technology;
42 cells have been commissioned;
120145
4545
2016 2019
Tankhouse-1 Tankhouse-2
Increase of extraction rate;
Improvement of work-in progress turnover;
Decrease in unit cost at refining stage;
33
Current Status of Sulfur Project
Nadezhda smelter
Option №1:Elementary
Sulphur
Option №2: Sulfuric Acid
SO2
Technology Capital
Expenditures CompletionMain Risks
New SO2 capturing facilities
Final Product: elementary sulpfur in blocks or pellets• To be stored on
site or sold to third parties
New technology, high operational risk
Status/Timeline
New SO2 capturing facilities
Final Product: sulfuric acid
• To be further neutralized with limestone
• In part could be utilized to process tailings
Established technology, used
elsewhere (in Russia),
low operational risk
SNC Lavalin commissioned
Phase 1: preparation of engineering project documentation
Management investment decision expected in 4Q 2017
Phase 2: construction of SO2 facilities at Nadezhda Plant
2023
Low High
Low High
$
2023
USD1.7 billion for Nadezhda smelter(exc.VAT)
Circa USD2 billionfor Nadezhda and Copper smelterscombined
A Russian engineering firm has been commissioned
Pre-feasibility study is being prepared
Management investment decision expected in 4Q 2017
Status – update expected by year-end 2017
34
Chita (Bystrinsky) Project: 77% Complete
De-risking strategy
Transport and energy facilities
• Construction of 220kV (234 km) power line and substation grid is complete. Commissioning is scheduled in 2H 2017; Total investments of ~USD 130 mln; The energy facilities will be bought out by the Federal Grid Company;
• The railway link is being used in the commissioning mode. State-owned stake in the railroad will be transferred to the Company for further management and operation in 2018;
Current status
Source: Company data, as of August 2017
• Construction of main facilities is on schedule (enrichment plant, tailing facilities, auxiliary workshop site, water reservoir, water intake and etc.);
• Equipment delivery and installation. Completion - 77%;
• Launch: Scheduled by year-end 2017;
Resource Base Extension
• Geological exploration: The Bystrinskoye Field balance ore reserves have been increased by 17% up to 343 mln t of ore;
• Partnerships:
Consortium of Chinese investors (Highland Fund) acquired additional 2,66% stake in the project in 1H2017, thus raising their total interest to 13,3%;
The BoD approved the sale of 36,66% stake in the project to CIS Natural Resources Fund. The Transaction is expected to close by the end of 2017;
35
Chita (Bystrinsky) Project Construction Update
Floatation Section Grinding Mills
Source: Company data
ThickenerProject Site Overview
36
Production Guidance from Russian Feedstock
2017 Production Guidance Reiterated
Ni/Cu – kt, PGM – t (saleable metal)
Metal production growth(1) vs. 2015 by2% due to increased copper and PGMvolumes: Higher metals grade in ore; Processing of copper concentrate
purchased from Rostec, starting from2017;
2016: one-off decline due to build-up of work-in-progress inventory resulting from downstream reconfiguration and commissioning of upgraded Talnakh Concentrator;
221 197 206-211
353344
377-387
9997
100-105
2015 2016 2017E
Ni Cu PGM
42
Note: 1. In nickel equivalent calculated on the basis of average 2016 prices;
37
2H2017 Outlook
Neutral on nickel: the market to run small deficit on strong stainless steel demand absorbing increased supply of mined feed, with trending down exchange stocks still running well above historical averages;
Neutral on copper: market to remain fairly balanced, spot price persists above cost curve, upside risks dependant on further supply disruptions and stronger-than-expected Chinese consumption;
Positive on palladium: a major deficit persists on the back of continuing industrial demand growth;
Neutral on platinum: market has entered a moderate surplus owing to a weaker industrial demand as the European car industry is gradually shifting away from diesel engines;
2017 Metal production guidance(1) :
• Ni 206-211 kt
• Cu 377-387 kt
• Pd 2,636-2,732 koz
• Pt 581-645 koz
2017 Capex: USD2 billion (including approximately USD0.6 billion for Bystrinsky Project);
Working capital: USD1.3-1.5bn by 2017YE as capital structure is optimized towards lower-interest cost instruments and advances from customers being renegotiated;
Net debt/EBITDA: >1.8x by 2017YE(2);
Interim dividend: to be announced in August and payable by the year end 2017;
Note 1. Metal production guidance from Russian feed;2. Assuming spot commodity prices and FX rates as of the 1ST week of August;
38
Q&A Session