NorNickel GMK · RUS:GMKN

NorNickel GMK — Norilsk Nickel — FY2017 Earnings Presentation

49 slides from NorNickel GMK's earnings presentation, Mar 6, 2018

  1. Slide 1: 2017 Financial Results

    2017 FINANCIAL RESULTS March 6, 2018 Moscow 1

  2. Slide 2: Disclaimer

    Disclaimer The information contained herein has been prepared using information available to PJSC 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

  3. Slide 3: 2017 Highlights

    2017 Highlights  Consolidated revenue increased 11% y-o-y to USD9.1 billion on the back of higher realized metal prices (metal basket was up 21% y-o-y)  EBITDA was up 2% y-o-y to a robust USD4 billion, with EBITDA margin maintained at an industry-leading 44%  CAPEX increased 17% y-o-y to USD2 bil

  4. Slide 4: Health & Safety: Improving Safety Records

    Health & Safety: Improving Safety Records LTIFR Remains Below the Global Mining Industry Assessment of Occupational Safety Culture Score Average Significantly Improved Since 2014 XX – total employees ХХ LTIFR (1*10-6) Bradley curve indicator, DuPont Assessment 125 0.48 0.62 0.35 0.43 2.6 2.5 2.3 100

  5. Slide 5: Gradual Improvement of Norilsk Nickel ESG Assessment

    Gradual Improvement of Norilsk Nickel ESG Assessment Sustainalytics ESG score increased from 46 to 58 MSCI ESG rating raised from «CCC» to «B» points (out of 100) ХХ Global ranking #61 #56 #35 Average (1) 58 B CCC CCC 49 46 2015 2016 2017 2016 2017 2018 Assigned Norilsk «С-» rating in December 2017

  6. Slide 6: Markets Update

    Markets Update

  7. Slide 7: Metals Markets Outlook

    Metals Markets Outlook Metal Ni Pd Pt Cu kt moz moz +0.3 kt +170 -110 -2 Non-exchange Other elastic Other Stocks, days of consumption 89 Other 112 124 Non-exchange Exchange 70 non-elastic ETF 124 9 84 112 Exchange 8 ETF 47 Jan-16 Dec-17 Jan-16 Dec-17 Jan-16 Dec-17 Jan-16 Dec-17 Deficit Deficit (1) m

  8. Slide 8: Macro Environment Supportive for Commodities

    Macro Environment Supportive for Commodities Trade-Weighted US Dollar Index vs. Bloomberg Commodities Assets Under Management: Commodity Index: Negative Correlation Strong Inflows Continued in 2017 bp % USD bn 140 3.0 300 130 250 2.0 120 200 110 1.0 150 100 100 90 0.0 80 50 70 -1.0 0 Jan-14 Jan-15 J

  9. Slide 9: Nickel Stocks Are Falling

    Nickel Stocks Are Falling Total Exchange Inventories Continue to Fall Chinese Ni Ore Inventories Drawing Down on Stronger Demand from NPI kt kUSD/t mt 2017: - 55Kt 600 30 20 2018YTD: -21Kt 500 25 16 400 20 12 300 15 8 200 10 4 100 5 0 0 0 Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Jan-16 Jul-16 Jan-17 Jul-1

  10. Slide 10: Nickel Market Short-Term Outlook

    Nickel Market Short-Term Outlook Nickel Market: Deficit Expected to Reduce in 2018 Ni Supply: Increase Driven by NPI Production Due to Production Growth in Indonesia and the Growth in Indonesia and China Philippines kt kt +11% 7 6 2,265 2016 Demand Supply 2017E Demand Supply 2018E 24 +2% 112 2,040 7

  11. Slide 11: Mixed 2017 in China: Stainless Steel Demand Robust, Nickel Imports Reduced

    Mixed 2017 in China: Stainless Steel Demand Was Robust, but Nickel Imports Reduced Nickel Demand in China’s Stainless: Volume Growth Imports of Nickel to China Declined in 2017 due to and Shift to Higher Nickel Grades (300 and 200 series) Destocking mln t kt, Ni units +8% +2% +4% -11% +8% +4% +5% +2

  12. Slide 12: Nickel Supply from the Philippines and Indonesia

    Nickel Supply from the Philippines and Indonesia Nickel Ore Supply to China is Rising on Rising Ore Ni Ore Export from Indonesia Resumed: Exports from Indonesia 2018YTD Quotas for 34 Mln Exports Have Been Granted mt of ore ore, mln (wmt) 71 +10% +34% 34 +10% 30 47 46 34 31 34 36 30 41 34 29 31 4 11

  13. Slide 13: Limited Growth Potential for Nickel Supply from Sulphide Ores

    Limited Growth Potential for Nickel Supply from Sulphide Ores Nickel Production Increase is Driven Mostly by Underinvestments Impacting Ni Production from Low-grade Ni Products from Laterite Ore while Sulphide Ores Production from Sulphide Ore is Down USD bn kt of Ni units kt of Ni 2012-2018E +11% 7

  14. Slide 14: Growing Volumes of Low Grade Ni Feed Unlocks Class 1 Ni

    Growing Volumes of Low Grade Ni Feed Unlocks Class 1 Ni for Other Applications Source of Ore 2018 Production/Consumption Flow = 2.2 Mt Ni units, mt Ni units, mt Exchange stocks (1) 66 268 Ni Consumption Ni Feed Ni Products Other industries Briqc Other forms Batteries 0.1 Cathode/Briqs/ Alloys/ Suphi

  15. Slide 15: PGM Market Balance: Pd in Deficit, Pt in Surplus

    PGM Market Balance: Pd in Deficit, Pt in Surplus Global Palladium Market: Global Platinum Market: Structural Deficit Has Apparent Deficit Expanding in 2018 Evaporated on Rising Supply koz Surplus/(Deficit), koz (1) koz Surplus/(Deficit), koz (1) 0 900 900 (300) (300) 500 500 300 200 (500) (500) 0 0

  16. Slide 16: Key Auto Trends Impacting Metals Demand

    Key Auto Trends Impacting Metals Demand Demand Implications Ni Pd PGM Pt Sustainable global automotive production growth  Diesel substitution by gasoline vehicles   Growth of hybrids market share  Growth of SUVs market share and engine downsizing termination  Strengthening in emissions legislat

  17. Slide 17: Premium of Palladium to Platinum is Sustainable in the Mid-Term

    Premium of Palladium to Platinum is Sustainable in the Mid-Term Palladium Discount to Platinum Has … as Platinum Has Been Loosing its Market Eliminated on Stronger Fundamentals… Share in Autocatalysts to Palladium USD/oz moz 2,500 12 2010-2016 2017-2020E 10 +16% 2,000 +45% 8 1,500 6 1,000 +16% +6% 4

  18. Slide 18: Stricter Emission Regulations Positive for Pd Consumption Globally

    Stricter Emission Regulations Positive for Pd Consumption Globally New Regulations, Especially in China, Push … which Should Boost Pd Consumption in Auto Automakers to Increase PGM Loadings… Industry by More than 2.5 MOz by 2025E moz Comparison of NMOG/NMHC+NOx emission requirements in China, the Eu

  19. Slide 19: Current Changes in Autos' Mix to Continue in Long-term

    Current Changes in Autos’ Mix to Continue in Long-term Electric Vehicles Grow Fast, but Their Market Share Diesel Penetration Ratio: Share of Diesel in New Remains Small Passenger Cars in Europe is Decreasing Sharply mln units share in global LV production % 3% 3% 4% 5% 6 60 52 50 50 48 46 5 44 39 4

  20. Slide 20: Pd ETF Withdrawals Driven by Backwardation

    Pd ETF Withdrawals Was Driven by Backwardation as Investors are Shifting to Other Investment Vehicles Palladium ETFs Holding Change: Pd Market: Consistent Backwardation Since Outflows Continued in 2018 April 2017 koz Pd/USD FX forward swap 2.0 1,100 0.0 900 -2.0 -4.0 400 -6.0 0 -8.0 Jun-16 Oct-16 Fe

  21. Slide 21: Li-ion EV Battery Trends and their Impact on Nickel Demand

    Li-ion EV Battery Trends and their Impact on Nickel Demand Wide Range of Forecasts due to Major Uncertainties Technological Shift to More Ni-intensive NCM Regarding the Evolution of Battery Technologies Driven by Higher Energy Density Requirements and Substitution Away from Cobalt BEV+PHEV Dominatin

  22. Slide 22: Autos Driven Metals Demand Outlook in 2016-2025E

    Autos Driven Metals Demand Outlook in 2016-2025E Metal Pd Ni Cu moz kt kt 13 1,593 2.8 0.4 464 495 75 1.3 100 726 320 1.1 390 ICE only Hybrids PHEV Total BEV PHEV Hybrids Total Charging Hybrids BEV Diesel Total stations inc PHEV Gasoline Ni in batteries Cu in electric engines Consumption and generat

  23. Slide 23: Norilsk Nickel's Metal Basket Content by Light Vehicle Type

    Norilsk Nickel’s Metal Basket Content by Light Vehicle Type Hybrid Gasoline Diesel incl. PHEV BEV FCEV CAGR1 +1% +1% +18% +25% +41% Market 68% 17% 9% 3% 1% Share2 Stainless Steel & Parts +Batteries Ni 2–3 kg 2-4 kg 2-4 kg 5–15 kg 30–110 kg Wires & Parts +Electric Motor, Generator Winding Cu 20-25 kg

  24. Slide 24: Copper Market: Balanced Market, Inventories Run Low

    Copper Market: Balanced Market, Inventories Run Low Copper Price Strong, Exchange Stocks Have Been China Remains the Main Driver of Global Copper Trending Higher Consumption Growth in 2017-2018E mt USD/t mt +2% +2% +2.1 800 8,000 0.2 700 7,000 0.3 0.1 600 6,000 +2.7% 23.5 0.3 23.0 500 5,000 22.5 400

  25. Slide 25: Copper: Balanced Market, Supply Disruptions in Line with Historical Averages

    Copper: Balanced Market, Supply Disruptions in Line with Historical Averages Copper Supply Disruptions: Expected at 5% in …Collective Bargaining Agreements Up for Review 2018E in Line with Historical Average… in 2018: 30% of Global Mined Supply mt 3 9% 8% 8% 2.5 7% 6% 6% 6% 6% 6% Number of Cu 2 6% C

  26. Slide 26: 2017 Financial Results

    2017 Financial Results

  27. Slide 27: Metal Sales Volumes and Realized Prices

    Metal Sales Volumes and Realized Prices Base Metals Sales: Down on Reduction of 3rd Parties PGM Sales: Down on Reduction of 3rd Parties Feed Feed and Sales of Metals from Stock and Sales of Metals from Stock kt Nickel (1) Copper (1) koz Palladium (2) koz Platinum kt -21% -2% -13% 374 368 2,779 -2% 2

  28. Slide 28: Metals Revenue: Driven Up by Strong Commodity Markets

    Metals Revenue: Driven Up by Strong Commodity Markets Nickel Revenue: Down 12% on Lower Sales Copper Revenue: Up 24% on Higher Prices USD mln USD mln -12% +24% 267 (593) 5 483 (41) 2,625 2,281 2,304 1,839 2016 Realized Sales Resale 2017 2016 Realized Sales 2017 price volume price volume Palladium Re

  29. Slide 29: Consolidated Metal Revenue

    Consolidated Metal Revenue Metal Revenue Up on Higher Prices USD mln Macro Company Increase of metal sales 10% y-o-y to Environment performance USD8.4 bn due to: 1,620 (1,092) 241  Increase of realized metal prices (positive impact of USD1.6 bn) 8,415  Reduction of metal sales volume due to 7,646

  30. Slide 30: EBITDA and EBITDA Margin

    EBITDA and EBITDA Margin 2017 EBITDA was up by 2% y-o-y to USD4.0 bn, EBITDA margin down by 3 p.p. to 44%:  Higher realized metal prices had a positive impact on EBITDA of USD1.6 bn  Strengthening of RUB against USD contributed negatively to EBITDA by (USD0.4 bn)  Built up of metal stock in 2017

  31. Slide 31: Operating Cash Costs

    Operating Cash Costs 2017 Cash Costs Breakdown Operating Cash Costs Changes in 2017 USD mln USD mln Macro Factors: 568 Operating Factors: 397 Services 346 140 (50) (39) (228) 115 83 Other 5% 58 3,852 Labour 312 18% 36% 2,887 3,624 Materials 20% and fuel 2016 Forex Market Domestic MET 1 Copper Metal

  32. Slide 32: Net Working Capital

    Net Working Capital Net Working Capital in 2015 - 2017 USD mln Macro factors: Operating factors: 190 1,504 (125) 775 424 2,149 430 75 115 1,030 455 31.12.2015 31.12.2016 FOREX Market prices, Change in metal Purchased Optimisation of Other 31.12.2017 inflation inventory copper capital structure conce

  33. Slide 33: FCF in 2017 Reduced Due to One-off Increase in Working Capital

    FCF in 2017 Reduced Due to One-off Increase in Working Capital USD mln (288) 272 1,591 (1,753) 49 (140) (173) 96 2016 Capex Other Investing WC change Change Other Income 2017 activities in EBITDA non-cash tax paid item 33

  34. Slide 34: Financial Results Sensitivity to USD/RUB Exchange Rate

    Financial Results Sensitivity to USD/RUB Exchange Rate At the USD/RUB rate of 57.6, 1% change in exchange rate translates into: EBITDA change of USD37.4 mln, FCF change of USD66.0 mln. USD mln Exchange rate as at 84.5 31.12.2017 76.1 66.0 58.5 54.3 Free cash 47.9 flow 43.1 37.4 33.2 30.8 EBITDA USD/

  35. Slide 35: Cash CAPEX

    Cash CAPEX CAPEX(1) Breakdown by Projects CAPEX(1): commercial and stay-in-business USD mln USD mln 2,002 2,002 GRK Bystrinskoe (Chita) 1,714 449 1,714 Talnakh 269 Concentrator 89 216 Skalisty mine 1,254 253 11 228 1,131 153 Projects related to Commercial 24 the shutdown of 89 Nickel Plant 437 Kola

  36. Slide 36: Balance Sheet Management

    Balance Sheet Management Historical Leverage Proactive Debt Management USD bn Net Debt  Prepayment of Rouble denominated credit facilities in the amount Net Debt/EBITDA, (x) of RUB 60 bn in order to decrease the Company funding costs 2.05 Adjusted Net Debt/EBITDA (1), (x)  Issuance of two Eurobond

  37. Slide 37: Major Projects Update

    Major Projects Update

  38. Slide 38: Environmental Program Overview: Reduction of SO2 Emissions

    Environmental Program Overview: Reduction of S02 Emissions Kola Division SO2 Emissions, kt Main Environmental -30% Initiatives: 155  May 2016, agglomeration 120 109 plant was shut down at Zapolyarny production site Polar Division SO2 Emissions, kt  In 2016, Copper-nickel conc briquette plant launc

  39. Slide 39: Comprehensive Environmental Program

    Comprehensive Environmental Program Polar Division Kola MMC Total SO2 emissions in the Norilsk Industrial Area Total SO2 emissions in Nickel town -70% Up to -50% 2015 2023 target 2015 2019 target Phase I: 2013–2016 Phase II: 2017–2022 2017–2019 Talnakh Concentrator, Stage 2 Nadezhda Smelter Smelting

  40. Slide 40: Skalisty Mine: Project Development on Track

    Skalisty Mine: Project Development on Track Project overview  Production capacity – 2.4 Mtpa  Ore reserves – 65.9 Mt  Project IRR (as of 01.2013) – 29%  CapEx 2013–2017: USD 1.1 bn Project timeline  Commissioned mining capacity – 300 Ktpa in 2016-2017  Total mining capacity 1.75 Mtpa in 2017 

  41. Slide 41: Downstream Reconfiguration Program

    Downstream Reconfiguration Program Nickel Smelter shutdown Upgrade and expansion of Upgrade and expansion of Nadezhda Smelter Talnakh Concentrator Result: Result: Result: Reduction of SO2 Increase in capacity, Mt Increase in capacity, Mt emissions in the 10.2 7.5 Norilsk residential area +26% Ni-Po

  42. Slide 42: Upgrade of Kola Nickel Refinery

    Upgrade of Kola Nickel Refinery Kola MMC Project status Next steps Pechenganickel  Construction works are underway  Completion of infrastructure at all facilities development  42 cells based on the new chlorine  Phased capacity commissioning leaching technology have been in 2018 installed  Reac

  43. Slide 43: Bystrinsky (Chita Copper) Project

    Bystrinsky (Chita Copper) Project Project overview  Hot commissioning started (completion planned for 1H 2018)  Ore reserves: 341 Mt, grades: Cu – circa 0.7%; Fe – circa 21%; Au – circa 0.9 g/t  Site infrastructure: open pit, concentrator (grinding and flotation), camp, etc.  External infrastruc

  44. Slide 44: Strategic Roadmap of Key Production Assets Development

    Strategic Roadmap of Key Production Assets Development Roadmap to advanced, highly efficient and environmentally friendly production processes By 2022 Kola  Potential expansion of Talnakh Concentrator, Stage 3 (+8 Mtpa) MMC 2018  Feasibility study underway, Smelting Shop to be completed in 1H 2018

  45. Slide 45: Production Guidance for 2018

    Production Guidance for 2018 (1) Ni Pd kt koz 210 210-215 2,728 2,630-2,725 197 2,526 2016 2017 2018E 2016 2017 2018E Cu Pt kt 435-460 koz 398 650 600-650 610 344 35-40 (2) 398 400-420 344 2016 2017 2018E 2016 2017 2018E Russian own feed Chita Note: 1. Metals produced from own feedstock 2. Norilsk N

  46. Slide 46: Upgraded IT Infrastructure Provides Platform for Higher Operating Efficiency

    Upgraded IT Infrastructure Provides a Platform for Higher Operating Efficiency 1 2 3 Underground radio and positioning SAP ERP roll-out New data centre platform system  Pilot project completed  Server infrastructure and data  369km of optical cable  Roll-out for Chita storage facilities fully up

  47. Slide 47: High Speed Fiber-Optic Line - Key Infrastructural Project for Norilsk

    High Speed Fiber-Optic Line - Key Infrastructural Project for Norilsk Region Launched in 2017 956 KM of high speed fiber-optic line р. Енисей оз. Пясино Norilsk city Snezhnogorsk Vankor Sumburgh Igarka New Urengoy Sidorovsk Limbyayu Construction of a new line Construction of underwater lines over Ye

  48. Slide 48: 2018 Outlook

    2018 Outlook  Neutral on nickel: in spite of anticipated solid demand growth rates in 2018, we expect nickel market deficit to reduce owing to ramp-up of NPI production in Indonesia and recovery of ore export volumes from Indonesia and the Philippines  Neutral on copper: market to remain fairly ba

  49. Slide 49: Q&A Session

    Q&A Session

Norilsk Nickel — FY2017 Earnings Presentation on 6ix