NorNickel GMK · RUS:GMKN
NorNickel GMK — Norilsk Nickel — VTB Capital Investment Forum 2014
69 slides from NorNickel GMK's conference presentation, October 2014
Slide 1: Investor Presentation – VTB Capital Investment Forum
INVESTOR PRESENTATION VTB Capital Investment Forum RUSSIA CALLING October 1-2, 2014 Moscow
Slide 2: Disclaimer
Disclaimer The information contained herein has been prepared using information available to OJSC MMC Norilsk Nickel (“Norilsk Nickel” or “NN”) at the time of preparation of the presentation. External or other factors may have impacted on the business of Norilsk Nickel and the content of this presen
Slide 3: Markets Overview / Company Overview
Markets Overview Company Overview
Slide 4: Leading Nickel and PGM Mining Major
Leading Nickel and PGM Mining Major Key Highlights Strong Through the Cycle … and Conservative Margins… Balance Sheet 56% World’s largest producer of nickel and palladium with strong 49% 51% 1.1x positions in copper, platinum, cobalt and rhodium; 42% 41% 44% 0.8x 0.8x 0.8x 37% 0.5x World’s best
Slide 5: Financial Performance vs. Global Peers
Financial Performance vs. Global Peers Leading Returns: EBITDA margin, 1H 2014 Conservative Leverage: Net Debt/EBITDA(1) 0.0x 0.2x 0.4x 0.6x 0.8x 1.0x 1.2x 1.4x 5 48% NN 0.8х 4 44% Rio 0.8х 3 43% BHP 0.9х 2 41% Vale 1.2х 1 30% Anglo 1.3х Source: Norilsk Nickel, companies’ financial reports for 1H 20
Slide 6: Unique Polymetallic Mineral Resource Base
Unique Polymetallic Mineral Resource Base Nickel (Mt), 2013 Copper (Mt), 2013 Palladium (Moz), 2013 Platinum (Moz), 2013 6.7 12.2 97.0 25.9 Proven and probable Proven and probable Proven and probable Proven and probable 12.1 22.6 193.3 54.0 Measured and indicated Measured and indicated Measured and
Slide 7: World's Largest Producer of Nickel and Palladium
World’s Largest Producer of Nickel and Palladium Norilsk Nickel is the world leader in nickel and palladium production with strong positions in platinum and copper #1 in Nickel: 14% market share…. 100% = 1,976 kt #1 in Palladium: bigger than OPEC in oil 100% = 203 t Norilsk 14% Norilsk 41% Vale 12%
Slide 8: Global Reach: Regions and Clients
Global Reach: Regions and Clients The group benefits from strong in-house distribution platform in 5 international offices and Moscow headquarters covering all major markets (40+ countries) and customers (450+) Sales Structure by Type of Client (2013) Normetimpex NN Europe, UK NN USA Metal Trade NN
Slide 9: Effective Dialogue and Alignment of Interests – Anchor Shareholders
Effective Dialogue and Alignment of Interests – Anchor Shareholders Shareholder Agreement in place, new governance Shareholder Structure system introduced and proved its efficiency: New corporate strategy vetted by all anchor shareholders, approved by the Board of Directors 32.5% 30.0% in September
Slide 10: Target Dividend Payout
Target Dividend Payout Dividend Targets Implementation of Approved Dividend Targets On October 1, 2013, Norilsk Nickel’s Board of Directors 2013 dividends are fully in line with announced approved the Company’s new dividend targets: targets: Dividend Regular Special USD1.1bn (USD6.9 per share(1))
Slide 11: New Management Team
New Management Team Vladimir POTANIN Chief Executive Officer Chairman of the Management Board Strategy and Investor and Sales and Operations Finance Development Government Relations Markets Sergey DYACHENKO Sergey MALYSHEV Pavel FEDOROV Andrei BOUGROV Anton BERLIN COO of Kazakhmys 20 years of ex
Slide 12: Markets Overview
Markets Overview Markets Overview
Slide 13: Preferred Metals Basket
Preferred Metals Basket Best performing metal basket, YTD Preferred metal basket for the medium term Commodity price outlook 35% 60% 50% 77% of NN 23% metal basket 40% 17% 30% 6% 20% 4% -4% -5% 10% Ni Pd Pt Cu Al Gold Crude Oil Iron Ore 0% 2013 2014E 2015Е 2016Е 2017Е -10% -20% -30% -33% -40% Nickel
Slide 14: Nickel Market: Surpluses are Being Removed
Nickel Market: Surpluses are Being Removed Major market trends LME nickel price and stocks weeks of global consumption Price, USD/t Nickel ore ban in Indonesia is having a major impact on the global market. 10 60,000 Nickel oversupply to reduce along with Chinese NPI volumes. 50,000 8 New proj
Slide 15: Growing Nickel Consumption
Growing Nickel Consumptions China stainless steel production up strongly in 1H 2014, kt Other world exc. China stainless steel production recovering, kt +13% +5% 6,000 +8% 6,000 +15% 4,000 4,000 2,000 2,000 0 0 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2
Slide 16: Nickel Ore Stocks in China are Depleting, Price is Increasing
Nickel Ore Stocks in China are Depleting, Price is Increasing China nickel ore import from Indonesia dried out, NPI production costs are expected to increase wet kt 10,000 25,000 +27% +29% +34% 8,000 20,000 Spot Ni price 18,800 USD/t 6,000 15,000 4,000 10,000 2,000 5,000 0 0 Jan-12 Jun-12 Nov-12 Apr
Slide 17: New Projects Unable to Satisfy Demand Growth
New Projects Unable to Satisfy Demand Growth New projects can hardly compensate NPI losses Nickel consumption is growing kt kt 100 250 200 50 2016 150 0 2015 100 -50 50 2014 -100 0 2014 2014 2014 2015 2015 2015 2016 2016 2016 2014 2015 2016 2014 2015 2016 New projects growth Change at existing opera
Slide 18: New Projects vs Production Losses
New Projects vs Production Losses Production growth (y-o-y) Production losses (y-o-y) 2014 2015 2016 400 0 Indonesian NPI Other Producers 100 Other producers Nickel West Eagle 300 -100 Fenix Pamco 140 Koniambo (140) Cerro Matoso Goro 200 -200 Taganito Punta Gorda Ramu Fortaleza Taguang 100 90 -300 (
Slide 19: Palladium Demand Outstrips Supply
Palladium Demand Outstrips Supply Rising usage of palladium in auto catalysts Russian stockpiles have dried out Pd demand in emissions control catalysts, Moz Deliveries from Ministry of Finance stockpiles, koz +3% p.a. 6.1 6.3 6.5 5.2 5.5 0 2010 2011 2012 2013 2014E 2006 2007 2008 2009 2010 2011 201
Slide 20: Supply Side Issues in South Africa
Supply Side Issues in South Africa Africa controls 80%+ of Pt mine supply… …Operating costs in Africa are growing 2014 Pt mine supply Total cash cost (excluding by-product credits), $/oz 4E 1,400 (784 koz) 1,200 15% 1,000 (3,625 koz) 70% 800 (406koz) 600 8% 400 (377 koz) 200 7% 0 2005 2006 2007 2008
Slide 21: PGM Demand On The Rise
PGM Demand On The Rise Increasing demand for PGM: global car production up 5% y-o-y in 1H 2014 Argentina 15% ASEAN Canada Turkey Russia Brazil India Growth in 1H 2014 → 10% 5% Weighted average 0% S. Korea USA EU Mexico Japan China -5% -10% -15% -20% Share in the world automobile production→ -25% 0 0
Slide 22: Global Above-Ground PGM Stocks: Not as Much as it May Seem
Global Above-Ground PGM Stocks: Not as Much as it May Seem Above-ground stocks: only half of Pd and a third of Pt is The market is overestimating the size of available available for immediate consumption – at a right price PGMs stocks Moz Months of consumption 40.0 12.0 10.0 30.0 8.0 not available f
Slide 23: Copper Market Remains Balanced, Inventories low
Copper Market Remains Balanced, Inventories low Major market trends LME copper price and stocks kt Price, USD / t The global market remains fairly balanced - 1,000 12,000 expected surplus in 2014 less than 1% of annual 800 10,000 consumption. 8,000 600 6,000 Lower LME stocks as metal moves to no
Slide 24: New Strategy: Focus on Delivery
New Strategy: Focus on Delivery
Slide 25: Key Strategy Milestones: Entering New Strategy Cycle
Key Strategy Milestones: Entering New Strategy Cycle New CEO (since December 2012) and TOP-Management team 2013 Unveiling New Strategy (October 2013) Focus on Tier-1 Assets Capital and Investment discipline Dividend targets Strategy Update – Focus on Delivery (May 2014) Increase in FCF
Slide 26: New Strategy: Focus on Tier I Assets, Value and Investment Discipline
New Strategy: Focus on Tier I Assets, Value and Investment Discipline New Vision: Approved by the Board of Norilsk Nickel to deliver sustainably high return on capital by owning and Directors of Norilsk Nickel efficiently operating Tier I metals and mining assets located in regions with on September
Slide 27: Refocusing on Tier I Assets: Portfolio Review
1 Refocusing on Tier I Assets: Portfolio Review Tier I Asset Criteria Large Scale High Margins Long Geological Potential (>USD1bn (>40% EBITDA Reserve Life of the Region Revenues) margin) (>20 years) Polar Division (Taymyr peninsula) Kola Division (Kola peninsula) Chita Copper Project International
Slide 28: Refocusing on Tier I Assets: Unlocking Taymir's Potential
1 Refocusing on Tier I Assets: Unlocking Taymir’s Potential Reserves/Production, years Confirmed reserve base Kara Sea Reserves >30 for development Off-shore Reserves & Upside potential on Hydrocarbon Resources resources ~601 the back of existing infrastructure Dikson Unlocking Taymir’s Resource Pot
Slide 29: Release of Non-Productive Capital: Exiting Non-Core Assets
1 Release of Non-Productive Capital: Exiting Non-Core” Assets Focus on Tier I Compliance The list of targets identified and approved by the Board Assets that do not meet “Tier I” assets criteria to be exited by 2016 Disposal processes ongoing, the first round of deals happened signed and closed
Slide 30: 2016 Target Configuration: Optimal Value Chain Footprint
2 2016 Target Configuration: Optimal Value Chain Footprint Assets Location Mining Concentrating Smelting Refining Cu cathodes Polar Division Kola Division and Norilsk Copper Smelter Copper Refinery Polar Division NN Harjavalta Concentrator Upgrade PGMs in Kola Division 7 Mines concentrate Upgrade Na
Slide 31: Consolidation of Smelting and Refining Operations
Consolidation of Smelting and Refining Operations – 2 Economies of Scale and New Technologies North-West Refining Complex Taymir Peninsula – Polar Division Nickel Refining Center Talnakh Concentrator Upgrade: Capacities available for Norilka Ni content in concentrate refining of own matte, kt river
Slide 32: Accelerated Shutdown of Nickel Plant at Polar Division
2 Accelerated Shutdown of Nickel Plant at Polar Division Norilsk Nickel Plant Nickel Plant – the oldest asset in the Company’s portfolio with high level of technological and physical obsolescence Subject to completion of a joint initiative with the Norilsk Government, Nickel Plant will be shut d
Slide 33: Kola Nickel Refinery Upgrade
2 Kola Nickel Refinery Upgrade Mining Concentrating Smelting Refining Polar Division Kola Division Parameters 2013 2017 Nickel cell-house Refining Capacity 125kt per annum 170kt per annum Electrorefining of Base technology Chlorine leaching anodes Cash Costs, (20-25)% USD/t of Nickel Nickel Recovery
Slide 34: Production Targets
2 Production Targets 2014 (plan) 2016 (plan) 2018 (plan) 220–225 Nickel, kt 225–235 225–235 (225–230)1 340–345 Copper, kt 360–375 420–445(2) (345–355)1 595–620 Platinum, koz 615–640 665–690 (635–650)1 2,500–2,580 Palladium, koz 2,530–2,630 2,730–2,840 (2,585–2,665)1 New basis for production guidan
Slide 35: "Margin Improvement" Initiatives – First Results in 2014
2 “Margin Improvement” Initiatives – First Results in 2014 А Continuous improvement program B Impact of new production configuration USD455mn per annum USD180mn After 2017 per annum 1 Cash cost reduction: 2014 Economies of scale: reduction of fix costs resulting 1 from shutdown of Nickel Plant and
Slide 36: Production Reconfiguration – Value Impact of Up to USD2bn
2 Production Reconfiguration – Value Impact of Up to USD2bn NPV of Production Reconfiguration Program (2014-2030) NPV, USDmn (@10% discount rate) 1,770 1,220 (160) 1,380 1,320 370 280 Lost Tolling CapEx in Maintenance Net Working Cash Costs Improved Recovery TOTAL Margins Reconfiguration CapEx Savin
Slide 37: Valuing Corporate Transformation – Norilsk's "Five In Four"
2 Valuing Corporate Transformation – Norilsk’s “Five In Four” Target Cash Flow Effect from Corporate Efficiency Initiatives (2013-2016), USDbn 0.3-0.5 4.0-4.5 4.2 0.7-1.0 1.0 2.0 Reduction in WC Sale of Cumulative Other (Purchasing, Target FCF Effect 2013EBITDA (2013-2016) Non-core Assets SG&A Reduc
Slide 38: Release of Non-Productive Capital: Working Capital Targets
Release of Non-Productive Capital: Working Capital Targets Recorded >USD1.0bn working capital release in 2013 Additional working capital release of almost USD900 mln in 1H 2014 Mid-term goal to sustain net working capital at ~USD2.0bn Net working capital, USDmn Key Levers Goals by YE2014 • Tur
Slide 39: Target Result: ROIC Enhancement
3 Target Result: ROIC Enhancement Invested Capital, USDmn 2014-2016 Strategy 15,351 655 Non-Core Assets(1) Assets that do not meet Tier I assets criteria and do not qualify as core to be exited by 2016 2,990 Net Working Capital Ongoing working capital reduction program Core capital to grow a
Slide 40: Polar Division: Main Environmental Initiatives
4 Polar Division: Main Environmental Initiatives Modernization of the Talnakh 1 2004 – 2011: - 5% Concentrator: an increase in sulphur discharge into tailings Talnakh Concentrator Shutdown of the outdated and 2 inefficient Nickel Plant located right in the city of Norilsk Copper Plant (built Nadezhd
Slide 41: Sulfur Dioxide Emission Reduction Program
4 Sulfur Dioxide Emission Reduction Program 2014 2015 2016 SO2 emission reduction by 15% Reconfiguration resulting from Talnakh Concentrator upgrade and shutdown of Nickel Nickel Accelerated shutdown as a part of production Plant Plant reconfiguration program Improved air quality in the city of
Slide 42: Major Projects Update
y Nw NORILSK NICKEL Major Projects Update
Slide 43: Composition of Capital Investment Program in 2013
Composition of Capital Investment Program in 2013 IRR Skalisty and Mining brownfields ~60% Talnakh Chita Copper 51% USD2.0Bn 49% Concentrator> Project 30% ~30%(1) Other(2) Development CapEx 0 500 1000 Stay-in-Business CapEx Stay-in-business CapEx reduced through new project approval procedures A
Slide 44: Priority Mining Brownfield Projects in the Polar Division
Priority Mining Brownfield Projects in the Polar Division Additional Key Projects employed ore In 2013 2013 On time/ Project Description IRR reserves completed CapEx on budget To maintain throughput 3.9 Mtpa Skip shaft upgrade 71.4 Mt of ore: LOM extension – 20 years Infrastructure objects
Slide 45: Skalisty Mine
Skalisty Mine Project Overview Greenfield project Production capacity – 2.4Mtpa Ore reserves: 58Mt First stage to be launched in 4Q 2014 (+650ktpa) Total CapEx: ~USD1.8bn (2014-2025) Construction stage – completed by 25% Estimated Project IRR exceeds 50% 2013 CapEx – USD335mn Facil
Slide 46: Talnakh Concentrator
Talnakh Concentrator 2013 Project Overview Project execution in 2 stages: Stage 1 Installation new flotation cells Capacity – 7.7 Mtpa Completion – 2014 Stage 2 Technology upgrade and capacity increase by 2.5 Mtpa Completion – 2016 Overall throughput in 2016 – 10.2 Mtpa 2014 Over
Slide 47: Chita Copper Project: Tier I Asset Next to the Largest Market
Chita Copper Project: Tier I Asset Next to the Largest Market Key importers of copper Chita Copper Project Overview Russia Large Scale: Revenue ~ USD0.9-1.2bn Chita Copper Project EBITDA margins ~ 50% High Margins: Asset IRR of c. 30% China South Japan India Korea Taiwan Life of mine: In excess of 3
Slide 48: Chita Copper Project: Attractive Returns Profile
Chita Copper Project: Attractive Returns Profile Mining Mining reserve – 294 Mt of ore Cu – 0,7% Fe – 23% Au – 0.8 g/t Processing 10 Mtpa concentrator capacity Production Cu – 66 ktpa in concentrate Fe – 3.1 Mtpa of magnetite concentrate Au – 219 kozpa in concentrate Infrastructure Constructio
Slide 49: Chita Copper Project Development on Track
Chita Copper Project Development on Track Stripping works at open-pit mine Concrete Mixing Plant Chemical Storage Facility Construction Wastewater Disposal System Construction 48
Slide 50: Chita Copper Project: Sourcing Project Finance
Chita Copper Project: Sourcing Project Finance Norilsk Nickel’s investment capability to be considerably enhanced by using innovative project financing solutions Potential Financing Structure for Chita Copper Project Prospective Financing Timeline, USDmn Total = USD1.5bn Remaining CapEx (>USD1.0bn)
Slide 51: Capital Expenditure Targets
Capital Expenditure Targets In line with earlier CapEx Guidance amended for the new projects and co-investment initiatives CapEx Guidance 2014E-2017E “Bolt-on” investments: Program for accelerated 1.5 modernization of Norilsk Production Complex and Up to 0.5 Nickel Plant Shutdown – subject to conf
Slide 52: 1H 2014 Financial Results
y Nw NORILSK NICKEL 1H 2014 Financial Results
Slide 53: Health and Safety
Health and Safety Lost Time Injury Frequency Rate (LTIFR) Life protection is the critical priority – target zero fatalities. 0.81 0.77 0.76 Zero tolerance to any unsafe acts. lost time injuries per 1,000,000 hours Lost Time Injury Frequency Rate (LTIFR) in 0.47 1H 2014 was down 38.2% y-o-y to
Slide 54: 1H 2014 Highlights: Three-Fold Increase in FCF
1H 2014 Highlights: Three-Fold Increase in FCF Robust performance driven by the new strategy focused on capital discipline, cost control and prudent cash management with ROIC expanding to 20% from 17%. Revenue of USD5.7 billion unchanged y-o-y amidst mixed metal markets with strong palladium pri
Slide 55: 1H2014 Segmental Reporting
1H2014 Segmental Reporting Revenue (before EBITDA (before Change, y-o-y Change, y-o-y EBITDA Margin Change, y-o-y USD mln eliminations) HQ cost) Polar Division (Taymir 4,348 +3.2% 2,602 +8.0% 60% +3 p.p. peninsula) Kola Division +5.8% 171 +81.9% 30% +12 p.p. (Kola peninsula) 566 Other industrial 568
Slide 56: Sales & Distribution Results: Strong Pd Performance
Sales & Distribution Results: Strong Pd Performance Base metals sales volumes: Ni down 4% y-o-y, kt PGM sales volumes: positive dynamics y-o-y, koz 176 165 1,324 1,369 134 128 321 328 Nickel Copper Palladium Platinum 1H 2013 1H 2014 1H 2013 1H 2014 Realized metals prices: Pd price was up strongly Me
Slide 57: Metals Revenue Practically Unchanged
Metals Revenue Practically Unchanged Revenue dynamics, USD mln Revenue unchanged y-o-y at USD5.7 bn in 558 537 545 506 1H 2014 due to a combination of factors: • Recovery on nickel market and strong palladium 5,879 5,149 5,258 5,202 market performance; • Higher sales volumes of copper and PGMs; 2H
Slide 58: Growth in EBITDA and Improved EBITDA Margin
Growth in EBITDA and Improved EBITDA Margin EBITDA increased by 9% y-o-y to USD2.5 bn driven by operating cost savings in Russia and RUB depreciation against USD. Total cash operating costs decreased by 8% y-o-y to USD2.2 bn. SG&A was almost flat y-o-y: 11% decrease in export customs duties an
Slide 59: Improving Management Control of Cash Costs
Improving Management Control of Cash Costs Total cash costs down 8% y-o-y, USD mln Y-o-Y Cash operating costs were down 8% y-o-y: USD mln 1H 2014 1H 2013 Change Cash operating costs • labour costs down 10% y-o-y due to effect of RUB Labour 729 810 (10%) depreciation against USD; Expenses on acquis
Slide 60: Operating Cash Cost Breakdown: Flat Y-o-Y in RUB Terms
Operating Cash Cost Breakdown: Flat Y-o-Y in RUB Terms USD208 mln effect from the depreciation of RUB against USD (effect of translation to presentation currency). USD102 mln cost savings across most cash cost items driven by the cost optimization initiatives. USD102 mln – seasonal increase in
Slide 61: Working Capital Release of USD2 billion in LTM
Working Capital Release of USD2 billion in LTM Working capital reduced by approximately USD0.9 bn since the start of the year and by USD2 bn in the last twelve months: • Increase in trade and other payables by USD505 mln mainly due to increase in advances from customers; • Reduction of tax receiva
Slide 62: Management Focus on FCF Generation
Management Focus on FCF Generation Free Cash Flow (before financing) almost tripled y-o-y to USD2.4 bn owing to: • Reduction of working capital by USD487 mln in 1H 2014 vs. working capital increase of USD189 mln in 1H 2013; • Increase in EBITDA by USD197 mln; • Lower CAPEX on the back of more stri
Slide 63: Capital Expenditures Discipline Driven by New Strategy
Capital Expenditures Discipline Driven by New Strategy USD mln 1,989 163 117 USD300 mln 182 - FX Effect 1,697 211 - Reduced mandatory Capex 156 - Investment discipline 164 335 192 187 147 981 884 851 491 1H 2013 2013 1H 2014 2014E Mandatory CAPEX Skalisty mine Polar mines Talnakh Enrichment Plant Ko
Slide 64: Maintaining Conservative Balance Sheet
Maintaining Conservative Balance Sheet Leverage reduced to 0.8x Net Debt/LTM EBITDA Strong Liquidity Position as of 1H 2014 USD bn USD2.6 bn of cash and cash equivalents. 5 4.5 4.58 1.20 Available credit lines of USD2.3 bn. 3.99 4 1.1 1.00 3.51 3.46 Overall liquidity comfortably covers refinan
Slide 65: 2014 Outlook
2014 Outlook We reiterate our bullish view on nickel market. We expect it to be balanced in 2014 and develop a sizeable deficit in 2015-2016 as the Indonesian export ban remains in place and unaltered. We expect copper market to remain balanced with low level of exchange inventories making the m
Slide 66: Appendix
y Nw NORILSK NICKEL Appendix
Slide 67: Shareholder Agreement Highlights per UC RUSAL Filings
Shareholder Agreement Highlights per UC RUSAL Filings Source: UC RUSAL filing with HKE 66
Slide 68: Shareholder Agreement Highlights (cont'd)
Shareholder Agreement Highlights (cont’d) Source: UC RUSAL filing with HKE 67
Slide 69: IR Contact Details
IR Contact Details Vladimir Zhukov Mikhail Borovikov Investor Relations Investor Relations Director, Head of Investor Relations Department Deputy Head of Investor Relations MMC Norilsk Nickel MMC Norilsk Nickel Tel: +7 495 797 8297 Tel: +7 495 787 7662 E-mail: [email protected] E-mail: BorovikovMA