Norilsk Nickel Delivers Annual Strategic Update

LONDON, May 18, 2015 /PRNewswire/ --

MMC Norilsk Nickel (hereinafter, Norilsk Nickel or the Company), the world's largest nickel and palladium producer, hosted today its annual strategy meeting.  The Company provided the investor community with an update on the execution of its corporate strategy and new initiatives aimed at unlocking shareholder value and ensuring continued delivery of superior return on capital for Norilsk's shareholders.  

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The Company's management has delivered an update on:

• Steady ("on track/on budget") progress in downstream reconfiguration and modernization of production facilities;
• Successfully completed review of its upstream portfolio and confirmation of medium-term metals production guidance with added ROIC-enhancing initiatives;
• Confirmation of its medium-term average $2.0bn p.a. capital expenditures guidance;
• Disposal of non-core assets with a total $1.0bn economic impact for Norilsk's shareholders expected to be achieved by the year-end 2015;
• Initiation of Stage II strategic review for Norilsk's "legacy" assets, including tail assets of the Polar division, gas upstream assets and selected logistics businesses;
• Initiatives taken towards de-risking of its greenfield Bystrinsky project;
• Confirmation of Norilsk's industry-leading 50% EBITDA dividend pay-out targets.

Corporate strategy focusing on Tier I assets and investment governance discipline adopted in 2013 proved its viability in delivering industry-leading shareholder returns to Norilsk's shareholders with circa 40% total shareholder return since the beginning of 2014.

Despite challenging commodities markets Norilsk Nickel managed to deliver strong operational results as well as more immediate corporate efficiency gains ( "Five in Four" cash flow efficiency targets) ahead of the schedule generating USD 3.2 billion of incremental cash from the sale of non-core and international assets, release of working capital and reduction of SG&A.

In the strategy update the Company stated that its strategic aspiration for the next decade will be unlocking the full potential of the world's best polymetallic resource base of the Talnakh mining of the Polar division, containing c. $0.9 trillion of metal value.

To achieve this goal Norilsk has set the following priorities:

Environment, health and safety as the "first order" strategic priority 

Being a responsible corporate citizen the Company seeks to transform the city of Norilsk into a better city to live and work. Strong improvements in health & safety metrics and environmental footprint remain the Company's priority. Long-term target to decrease sulfur dioxide emissions more than four-fold has been confirmed, with the construction of sulfur capture facilities at Nadezhda Plant announced to launch in 2016 and aimed for commissioning in 2019. Together with local and federal authorities Norilsk Nickel is and will be closely engaged in ensuring the continued transformation of the city of Norilsk.

Sharpening the focus on Tier 1 assets 

Tier I assets to take the central stage in ensuring the continued turnaround and growth of the Company. The medium-term management priority will be on the completion of downstream re-configuration, extensive development of greenfield and brownfield mining projects in Taimyr and Chita region as well as on the increase in the operational efficiency of the Polar division upstream assets. In the long-term, the significant untapped resource potential of the Company's existing deposits offers a major value creation and growth opportunity. Additional long-term growth opportunities have emerged following the introduction of strategic mine planning at Talnakh mining center, the receipt of the license for Maslovskoye deposit, one of the world's largest undeveloped PGM projects, and a cluster of 6 new exploration licenses in the new resource province in the Norilsk region with estimated resource potential of over 500 million tonnes of ore.

Optimization of asset portfolio: strategic review of non-core, international and "legacy" assets 

Strategic review of Company's businesses conducted in 2014 included an in-depth analysis of Norilsk's asset portfolio and allowed to identify a number of undercapitalized "legacy assets", that were not consistent with Tier-1 definition, but have been historically owned and operated by the Company. These include Southern Cluster "tail assets" in the Polar division (outdated Norilsk Concentrator, declining production Zapolyarny mine and Medvezhy Ruchey open pit), upstream gas assets as well as certain non-core transportation assets. Management is to provide recommendation to the Board for enhancing capitalization of legacy assets, recommending from the list of options, which could include an internal restructuring, a demerger and a full/partial sale by year-end 2015.

Preliminary agreement in place to de-risk Bystrinsky project 

Another corporate priority is launching "on time/on budget" the key new greenfield Bystinsky project, which will become a Tier I asset upon launch. The Company plans to raise interim project financing from VTB that will allow to fully fund the project from third-party sources, is in continued negotiations with VEB on long-term project financing and in talks with VTB/ equity investors on the potential minority equity investment.

Sustaining industry-leading shareholder returns 

The Company remains committed to maintaining industry-leading dividend yield to its shareholders. Norilsk Nickel has already delivered on its targets having paid over $7bn of dividends for the period of the 2013-14, delivering the superior return to its shareholders. The Company reiterates its target to pay at least 50% of annual EBITDA as dividends.

Commenting on the strategic update the CEO Vladimir Potanin noted, "I am proud to have the privilege of being the CEO of Norilsk Nickel. It's been difficult two years for the industry and I am glad to see that the Company is continuing to deliver well in what are rather challenging market conditions."

The central focus of everything that we do at Norilsk is about improving our environmental footprint, health and safety metrics. With planned closure of the outdated nickel plant in the city of Norilsk and a number of other initiatives, I think we are firmly on the path of building a sustainable future for our core area of presence, New Norilsk.

In the past two years, the management focus on capital allocation discipline and improvements in investment governance have allowed us to unlock material value to our shareholders. Our financial performance is self-evident and despite challenging commodity market conditions the Company's ROIC over 2013-14 expanded by a third to the industry-leading level of 29%.

We are entering now a new chapter in our transformation story. Alongside with industry-leading capital efficiency, we shall be pursuing some of the most exciting value opportunities in today's mining industry centered around our Talnakh polymetallic mining hub that contains some $0.9 trillion of metals in the ground. Unlocking the full value of this unique upstream asset will be our main strategic aspiration for the coming decade.

I also want to emphasize that these results have been supported by what is a high quality shareholder dialogue and a joint vision for the business. I believe that our continued work towards execution of our strategy will be propelling Norilsk further to new levels financial and operational efficiency and sustainable shareholder value creation".

Please find the Annual Strategy presentation here:

http://www.nornik.ru/en/investor-relations/presentations

SOURCE Norilsk Nickel