Nornickel Gmk · RUS:GMKN
Nornickel Gmk — Norilsk Nickel (Nornickel) — H1 2020 Earnings Presentation
54 slides from Nornickel Gmk's earnings presentation, Aug 11, 2020
Slide 1: 1H 2020 Financial Results Presentation
1H 2020 Financial Results Presentation August 11,2020
Slide 2: Disclaimer
Disclaimer The information contained herein has been prepared using information available to PJSC MMC Norilsk Nickel (“Norilsk Nickel” or “Nornickel” 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
Slide 3: 1H 2020 Financial Performance Highlights
1H 2020 Financial Performance Highlights Consolidated Revenue Free Cash Flow Realized metal prices (Pd, Rh) Change in income tax payable $6.7bn up 7% vs 1H2019 Ramp-up of Bystrinsky Project Sales volume $2.7bn up 21% vs 1H2019 High operating cash flow Higher CAPEX EBITDA CAPEX Realized metal prices
Slide 4: ESG Performance
ESG Performance
Slide 5: Health & Safety: Delivering Steady Improvements Since 2015
Health & Safety: Delivering Steady Improvements Since 2015 LTIFR: Sustained at Industry Leading Level Accident Statistics Materially Improved since 2015 LTIFR (1*10-6) employees -73% Fatal 0.75 Lost time injury -67% 5 0.39 0.36 Industry average (1) 0.27 0.28 6 0.20 43 1 4 23 5 21 15 15 11 1H15 1H16
Slide 6: Selected Environmental Incidents: Delivering Prompt Responses
Selected Environmental Incidents: Delivering Prompt Responses May 29 June 28 July 12 Leakage of 21kt diesel fuel from Pumping out of recycled Leakage of 44.5t of aviation the emergency fuel storage at Heat industrial water from the fuel from the pipeline operated and Power Plant №3 (HPP-3) in the te
Slide 7: Strategy for the Reduction of Industrial Facilities-Related Risks
Strategy for the Reduction of Industrial Facilities-Related Risks Development and implementation of foundations’ monitoring system Upgrade of Diagnostycs Center of Polar Division Launch monitoring of permafrost, foundations of building and facilities jointly with Permafrost laboratory of Norilsk
Slide 8: Maintaining Full Transparency, Utilizing Best Practices
Maintaining Full Transparency, Utilizing Best Practices Full information transparency: Active utilization of best industry • Special lives updates on the company’s practices during clean-up and www site and social media rehabilitation: • An ad hoc investor’s call and • Close engagement with the Russ
Slide 9: Engagement with Stakeholders and Monitoring Wildlife: Selected Initiatives
Engagement with Stakeholders and Monitoring Wildlife: Selected Initiatives Ethnological expert Great Norilsk Engagement with Additional review of the Taimyr Expedition Stakeholders rehabilitation programs Peninsula (2020-2023) • A 5 months expedition • Close engagement • Launched in July to the Taym
Slide 10: Corporate Governance Improvements Targeting ESG Performance and Reduction of Environmental Risks
Corporate Governance Improvements Targeting ESG Performance and Reduction of Environmental Risks Selected ESG-related corporate governance initiatives: New Independent Environmental New Senior Vice President, Task Team of the Board of Directors has Sustainable Development, has been been created, com
Slide 11: Response to Coronavirus: Safeguarding Employees and Supporting Local Communities
Response to Coronavirus: Safeguarding Employees and Supporting Local Communities Supporting Supporting Local Ensuring business Employees Communities continuity • Office employees transitioned to • Purchased medical supplies • An emergency response remote working and equipment team (ERT) has been • 1
Slide 12: Most Recent ESG Rating Agencies’ Actions
Most Recent ESG Rating Agencies’ Actions • «Average Performer» reiterated «B» rating confirmed in July • ESG Score Reduced to 61 from 2020 vs industry average «B» 63 points (out of 100) in June 2020 • ESG Risk Rating “High” Reiterated • Industry Position №27 (out of 57) 69 67 B B B B 58 63 61 46 49
Slide 13: Markets Update
Markets Update
Slide 14: COVID-19: Major Distortion to Commodity Markets in 2020
COVID-19: Major Distortion to Commodity Markets in 2020 Global Supply of PGMs Impacted the Most due to Global Demand for PGMs Down Sharply on a Major Quarantine in SA, Little Impact on Base Metals Contraction of Autos, Base Metals Being Less Affected Supply 2020E vs 2019 Consumption 2020E vs. 2019 0
Slide 15: Challenging Macro Environment: Consensus Forecasts a V-shape Recovery
Challenging Macro Environment: After Unprecedented Contraction in 2Q Consensus Forecasts a “V-shape” Recovery Quarterly GDP Growth: Strong Rebound Expected China is One of the Largest Consumers of Norilsk in 2021 to Above Pre-virus Growth Rates Nickel’s Core Metals GDP growth, % Y-o-Y 20 Consensus f
Slide 16: Weakening US Dollar – Positive Backdrop for Commodities
Weakening US Dollar – Positive Backdrop for Commodities DXY vs. LMEX Commodity Index: Weakening USD Heavy Investment Demand Drives Precious Metals Is Supportive for Commodity Prices Higher as a Flight to Safety Continues $/oz 3,000 115 3,000 2,500 2,750 105 2,000 2,500 95 1,500 1,000 2,250 85 500 2,
Slide 17: Metal Markets Outlook — View on Fundamentals
Metal Markets Outlook — View on Fundamentals Metal Ni Cu Pd Pt 20% 4% Share of Nornickel metal 18% 48% sales 1H 2020 kt +51 kt +120 moz (0.5) moz +1.5 Stocks, Other Non- Non- elastic days of exchange exchange Other Other consumption non-elastic Exchange 35 40 8 28 Exchange 5 6 ETF 162 164 ETF 25 23
Slide 18: Nickel Exchange Stocks Back to Elevated Levels
Nickel Exchange Stocks Back to Elevated Levels Exchange Inventories Restored on Stock Nickel Inventories Declined by Over 50% from Reallocation and Market Surplus Peak Levels of 2015 But Still Above Normal Ni, kt +47 Days of consumption +81kt YTD in 2020 (incl. off-warrant stocks reallocation) 92 26
Slide 19: Nickel in Stainless: Melt Output Recovering
Nickel in Stainless: Melt Output Recovering, but Marginal Impact on Demand Until Backlog in Stocks is Worked Down China: 300 Series Had a Strong Performance in 2Q, Stainless Inventories in China at Historically Production Almost Recovered to 2019 levels (1) Elevated Levels kt Y-o-Y % kt STS 1,400 -2
Slide 20: Nickel Consumption in Batteries: NEV Production in China
Nickel Consumption in Batteries: NEV Production in China Is Far From Full Recovery Soft Global BEV Equivalent Sales (1) Mostly Production of NCM Materials Continue Declining Due to Low Sales in China `000 units Y-o-Y % t 1H 2020 Y-o-Y % Europe BEV sales +40% 250 China BEV sales -42% 200 China Batter
Slide 21: Nickel Supply: Ramp-Up of New NPI Production in Indonesia
Nickel Supply: Ramp-Up of New NPI Production in Indonesia is Well Ahead of Reducing NPI in China Chinese NPI: Lower Ore Availability and Rising Indonesian NPI: Significant Growth Due to the Ore Prices Drive NPI Output Lower Ramp-Up of New Tsingshan and Delong Mills kt Ni Y-o-Y % kt Y-o-Y % 60 60 Jan
Slide 22: Nickel Market Shifts to Surpluses in 2020-2021
Nickel Market Shifts to Surpluses in 2020-2021 Substantial Market Surplus in 2020 Exacerbated by Global Demand: A Recovery in 2021 Will Depend on COVID Impact and Surge of Indonesian NPI the Epidemic Situation kt kt Y-o-Y % -7% +7% 14 148 (84) 42 2,443 24 Surplus (37) (19) 81 100 + (25) 2,439 2,278
Slide 23: Copper: Marginal Impacts of COVID-19 on Demand and Supply
Copper: Marginal Impacts of COVID-19 on Demand and Supply Global Consumption: Reduced Industrial Activity Had Imports of Copper Units to China Were Up Only a Marginal Impact on Cu Consumption in 2020 in 1H 2020 mt Y-o-Y % mt Y-o-Y % +3% 5.8 +7% 6.2 0.4 Scrap -3% 0.7 (0.4) 0.4 2.9 (0.4) 2.8 Concentra
Slide 24: Copper Market Remains in Balance
Copper Market Remains in Balance: Overall Resilience to Coronavirus- Related Turbulence Copper Supply Disruptions: Market Balance: Marginal Surpluses in ‘20-21 with 2020 YTD Below Historical Average the Resilience to Coronavirus to Be Further Tested kt Copper mine disruptions (ex.cost related closur
Slide 25: Global PGM Demand – Sharp Contraction of Auto Sales
Global PGM Demand – Sharp Contraction of Auto Sales on COVID-Related Demand Destruction in 2020 Global Car Sales Down 28% in 1H 2020, Current Global Autos Outlook: Under a Base Case Scenario LV Recovery in China Is Ahead of Other Regions Sales to Rebound Strongly in 2H2020 and 2021 mln units Y-o-Y %
Slide 26: Revision of Global Palladium Demand Drivers
Revision of Global Palladium Demand Drivers: Rising Loadings to Offset Partially Weaker Sales in 2020 2020E Global Light Vehicles Sales Base Case Pd Loadings in Autocatalysts Will Continue to Scenario: 22% Reduction vs Pre-virus Forecast Increase mln units Average PGM loadings per vehicle, change in
Slide 27: PGM Lease Rates Indicate Soft Physical Demand
PGM Lease Rates Indicate Soft Physical Demand Platinum Lease Rates - Marginally Palladium Lease Rates Spiked in Q1 and Eased in Positive after Lockdown in South Africa Eased in Q2 on Soft Physical Demand on the Spot Market July Short-term (3m) lease rates % Short-term (3m) lease rates % 14 35 12 30
Slide 28: Palladium Market to Remain Balanced
Palladium Market to Remain Balanced as Auto Industry is Experiencing the Biggest Contraction in Decades Global Palladium Market: Demand: Palladium Among the Metals Impacted the Structural Deficits Temporarily Gone Heaviest by COVID-related Demand Destruction moz moz Y-o-Y % 0.0 +1% -16% +11% (1.6) (
Slide 29: Platinum Market Remained Oversupplied
Platinum Market Remained Oversupplied Amidst Falling Auto and Jewellery Demand Global Platinum Market Balance: Demand: Sharp Reduction on Weak Global Car Apparent Surpluses Expanding in 2020-2021 Sales and Chinese Jewelry moz moz Y-o-Y % +17% -17% (0.5) (0.4) (0.3) 0.8 0.9 7.6 7.4 0.7 6.3 0.5 0.5 0.
Slide 30: 1H 2020 Financial Results
1H 2020 Financial Results
Slide 31: Metal Sales Volumes and Realized Prices
Metal Sales Volumes and Realized Prices Base Metals Sales: PGM Sales: A Reduction vs Last Year Due to High Impacted by Weak Demand Owing to COVID-19 Base Effect of 1H2019 Nickel [kt] Copper(1) [kt] Palladium(3) [koz] Platinum [koz] -15% -4% -18% -19% 227 219 1,581 121 4 52 18 2 44 1,294 2 8 103 35 4
Slide 32: Increase in Palladium Was Partly Offset by Lower Volumes
Metals Revenue: Lower Revenue from Base Metals and Pt, Increase in Palladium Was Partly Offset by Lower Volumes Nickel Revenue: Down 16% on Lower Prices and Copper Revenue: Down 16% on Lower Prices and Sales Volumes Sales Volumes [USD mln] [USD mln] -16% -16% 128 1,499 1,264 -15 1,385 -220 1,168 -16
Slide 33: Consolidated Metal Revenue
Consolidated Metal Revenue Metal Revenue Up on Stronger Palladium and Geographical Breakdown: Growing Share of Asia and Rhodium Prices Partly Offset by Lower Sales America due to Decline of European Volumes [USD mln] [% of USD sales] 1H’19 1H’20 Company Macro performance factors USD -638 mln 4% 5% 5
Slide 34: EBITDA and EBITDA Margin
EBITDA and EBITDA Margin 1H2020 EBITDA: Down on Environmental Provisions, Partly EBITDA and EBITDA Margin Positively Offset by Stronger Palladium Prices Macro One-off Operating [USD mln] [USD mln] factors factors factors 59% 58% +1,217 -77 -3,021 53% 54% 1,143 98 -32p.p. 4,204 -24 3,719 -77 3,719 3,
Slide 35: Operating Cash Costs: Withstanding Inflation Pressure
Operating Cash Costs: Withstanding Inflation Pressure Operating Cash Costs Increased 7% in 1H2020 1H2020 Cash Costs Breakdown [USD mln] One-off [%] Other Macro factors factors Operating factors -58 +38 16% +147 Labour 1,900 Services 1,773 70 37% 13 38 73 117 6% -71 -113 1,900 Materials 20% and fuel
Slide 36: Net Working Capital Changes in 1H2020
Net Working Capital Changes in 1H2020 [USD mln] Macro factors Operating factors -296 +349 358 1,038 985 -152 867 33 216 -73 -104 -25 -200 31 Dec 31 Dec Forex Commodity Seaso- Income tax Increase Rostec Accounts Other 30 Jun 2018 2019 prices & nality payable in metal conc. receivable/ 2020 inflation
Slide 37: Allocation of Capital Investments
Allocation of Capital Investments CAPEX (1) Allocation: Commercial and Stay- CAPEX (1) Breakdown by Projects in-Business [USD mln] 551 [USD mln] 551 31 500 17 500 Skalisty mine 17 Talnakh enrichment plant 84 33 Environmental program Other mine development 62 68 Commercial 262 14 223 Kola commercial
Slide 38: Financial Results Sensitivity to USD/RUB Exchange Rate
Financial Results Sensitivity to USD/RUB Exchange Rate At USD/RUB rate of 70.0, 1% change in exchange rate translates CAPEX and OPEX Break Up by into EBITDA change of USD79.9 mln, FCF change of USD52.4 mln Currency [USD mln] OPEX(1) 120 111.7 Non- Non- 101.6 RUB RUB 5% 12% 100 93.1 85.9 79.9 1H 2019
Slide 39: Free Cash Flow Increased to USD 2.7bn
Free Cash Flow Increased to USD 2.7bn [USD mln] 326 2,679 278 2,206 -51 -80 1H 2019 CAPEX Other Cash from Income tax 1H 2020 investing activities(1) operations paid (2) Note: 1. Mainly changes in bank deposits 2. Decrease in income tax payments due to lower taxable pretax profit 39
Slide 40: Balance Sheet Management
Balance Sheet Management Historical Leverage: Proactive Debt Management ND/EBITDA at Mid-Cycle Average [USD bn] 2.1x • In February 2020, terms of the December 2017 syndicated loan facility with a group of international banks were amended, increasing the limit from USD 2.5 billion to USD 4.15 billion
Slide 41: Finance Costs Reduced Significantly
Finance Costs Reduced Significantly Gross Debt and Net Debt (1) Average Cost of Debt reduced… average for the period [USD bn] Gross Debt +35.8% … by 1.9% starting from the year-end of 11.0 2016 by the end of the first half of 2020 8.7 9.1 8.1 8.5 … well ahead of 0.6% reduction of base interest r
Slide 42: Operations and Strategy Update
Operations and Strategy Update
Slide 43: Skalisty Mine Development
Skalisty Mine Development Project Description Production capacity: 2.5 Mtpa Project resources (1): 53 Mt of ore @ 3.2% Ni, 3.7% Cu and 10.0 g/t PGMs Capex 2013–2019: US$1.4 bn Capex 2020–2025: ~US$0.8 bn Project Update Mining capacity to be commissioned in 2020 – 0.2mtpa Expected average
Slide 44: South Cluster Project
South Cluster Project Project Description Large-scale, long life (25+ years) brownfield asset at the bottom of the global PGM cost curve Project resources (1): 42 Mt of ore @ 6.0 g/t PGMs, 0.3% Ni, 0.4% Cu Project Update Waste stripping commenced in 2019 and is on schedule with a ramp-up in 20
Slide 45: Bystrinsky Project
Bystrinsky Project Project Description Location: Chita, Zabaikalsky region The largest greenfield project in the Russian mining industry Ore reserves (1): 316 Mt of ore @ ~0.7% Cu, 23% Fe and 0.9 g/t Au Total Capex: US$1.8 bn Concentrator was commissioned in September 2019 Full capacity
Slide 46: Kola Nickel Refinery Upgrade
Kola Nickel Refinery Upgrade Project Description Upgrade of Tankhouse-2 aiming at 20% capacity increase (from 120 ktpa to 145 ktpa) Adoption of new chorine leaching technology Expected benefits: Increase of nickel recovery from high-grade matte by over 1.0% Optimization of work-in-progress
Slide 47: Kola Environmental Projects: Construction of Concentrate Loading Point
Kola Environmental Projects: Construction of Concentrate Loading Point to Facilitate Shut Down of Smelting Shops Project Description Environmental project aiming at complete eradication of SO2 emissions in Nickel town (cross-border zone with Norway), which requires redirection of Kola ore concentr
Slide 48: Energy Infrastructure Modernization
Energy Infrastructure Modernization Project Description Staged upgrade of the energy infrastructure to support long-term production growth scheduled for 2020-2025: Replacement of 2 and installation of 3 new power- Severo- Pelyatkinskoye generating units at the thermal power plants #2 and #3 Sole
Slide 49: Sulphur Programme 2.0: Comprehensive Environmental Solution for Polar Division
Sulphur Programme 2.0: Comprehensive Environmental Solution for Polar Division Nadezhda Smelter: Phase 1: Anchor project to capture Kola Division Talnakh furnace gases at Nadezhda and Polar Division establish acid neutralization facilities and infrastructure (incl. gypsum storage) – to be complete
Slide 50: Sulphur Programme 2.0: Current Progress
Sulphur Programme 2.0: Current Progress Nadezhda Smelter Copper Plant SO2 capturing from flash furnaces, Preparatory works, including the construction of acid neutralization facilities and infrastructure gas cleaning unit and infrastructure Contractor contracts signed in February-June 2020 Contr
Slide 51: 3rd Stage of Talnakh Concentrator Expansion
3rd Stage of Talnakh Concentrator Expansion Project Description 3rd stage expansion of Talnakh concentrator (project TOF- 3) aims at capacity increase to 18 Mtpa (+8 Mtpa) to process growing ore feed Proven technology (TOF-2 project) to facilitate higher recoveries (+4-7% for all key metals) del
Slide 52: CAPEX Guidance Update
CAPEX Guidance Update CapEx, US$ bn 3.5-4.0 3.0-3.4 <2.0 <2.0 1.3 2019 2020E 2021E Average 2022-2025E Average 2026-2030E • RUB depreciation Guidance for early-stage investment projects to be specified in 2020-2021 • Revision of execution based on design documentation, further updates of strategic
Slide 53: Production Guidance for 2020-2022
Production Guidance for 2020-2022 (1) Ni Pt+Pd Cu kt t kt xx Bystrinsky project 225-235 116 105-115 217 225 215-225 105-111 209 105 454 44 55-65 101 Up to 65 365 454 420-440 390-420 2015-2017 2018 2019 2020E 2021- 2015-2017 2018 2019 2020E 2021- 2015-2017 2018 2019 2020E 2021- 2022E 2022E 2022E Pd:
Slide 54: 2H 2020 Outlook
2H 2020 Outlook Metals market outlook Neutral Positive Negative 2020 Metal Production Guidance(1) Market surplus is expected to increase as Ni demand remains depressed due to coronavirus, while the global supply is 55-65 (Chita) growing on the back of rapidly expanding 2,648-2,777 NPI in Indones
Norilsk Nickel (Nornickel) — H1 2020 Earnings Presentation on 6ix