Nornickel Gmk · RUS:GMKN
Nornickel Gmk — Norilsk Nickel — Investor Day (May 2016)
97 slides from Nornickel Gmk's investor day presentation, May 2016
Slide 1: 2016 Strategy Update: New Platform to Deliver on Assets Modernization
2016 Strategy Update New Platform to Deliver on Assets Modernization London, May 2016
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
Slide 3: Strategy Update 2016 – Agenda
Strategy Update 2016 – Agenda Strategic vision | Andrey Bugrov Operations Update | Sergey Dyachenko Investment Governance and Portfolio Update | Sergey Dubovitskiy Markets | Anton Berlin Financial Strategy and Results | Sergey Malyshev Corporate Governance | Andrey Bugrov 2
Slide 4: Strategic vision
Strategic vision Andrey BUGROV Deputy Chairman of the Board, Senior Vice-President
Slide 5: Strategic Goals for 2016–2018 – Three Years of Assets Modernization
Strategic Goals for 2016–2018 – “Three Years of Assets Modernization” 2016–2018 “Round 2”: Assets Modernization 2013–2015 Delivering on downstream reconfiguration / Closure of 1942 Nickel Plant “Round 1”: Building Efficiency Platform Advancing on Environmental Protection / ROIC/Tier I/capital
Slide 6: Capital Discipline in Action – Delivery on Strategy Round 1
Capital Discipline in Action – Delivery on Norilsk Strategy “Round 1” Despite Challenging Commodity Market … Norilsk Delivered Industry-leading Financial Environment… Results While Maintaining Conservative Leverage Bloomberg commodity index, bp Net Debt/EBITDA, 2015 EBITDA Margin, 2015 200 High: 174
Slide 7: Capital Discipline in Numbers – Quick Wins of Round 1
Capital Discipline in Numbers – Quick Wins of Norilsk Strategy “Round 1” 3 2 Release of Unproductive Capital 1 Capital Discipline Economic Impact of Initiatives (US$ in bn) Operational Efficiency Capital Expenditures (US$ in bn) 2.0 Nickel Equivalent Unit Cash Cost 2.0 Guidance (2012=100%) 1.7 1,1 1
Slide 8: Industry-Leading Shareholder Returns
Industry-Leading Shareholder Returns While the Global Metals & Mining Industry Lost Norilsk Nickel Delivered Positive and Industry Almost US$1.0 trillion in Shareholder Value… Leading Total Shareholder Return, 2013–2016 YTD1 Market Capitalisation of MSCI World Metals & Mining Index (US$ in trln) Nor
Slide 9: Strategic Focus for 2016–2018 – Round 2
Strategic Focus for 2016–2018 – “Round 2” Balanced, Modern and Environmentally Friendly Assets Implemented (in execution) at the 1st stage of the reconfiguration program Nickel Chain Copper Chain Balanced Ni Comprehensive solution for New «copper configuration»–comprehensive solution smelting capa
Slide 10: Verification of Upstream Business Case and Strategic Options
Strategic Focus for 2016–2018: Verification of Upstream Business Case and Strategic Options Focus on Talnakh development Verified mine plan - to maintain Norilsk Nickel metal production level in the long-term Talnakh ore production, Mt +20–25% 17.5–18.5 Strategic options for future 15.5–16 14.8 part
Slide 11: Responsible Corporate Citizen in Dialogue with Stakeholders
Responsible Corporate Citizen in Dialogue with Stakeholders and Partnership with Government Support of major Sustainable Employees Partnership with the nation-wide sports development of partnership and Government and cultural projects* territories motivation Norilsk Airport Renewed 3-year Stab
Slide 12: Promotions in the Top Management Team
Promotions in the Top Management Team Sergey Dubovitskiy Vladimir Zhukov Vice President Vice President Head of Strategy Head of Investor Relations ▪ Joined Norilsk Nickel in 2013 as Head of Strategic ▪ Joined Norilsk Nickel as IR Director in 2013 Planning Department ▪ 15 years of experience in the m
Slide 13: Operational Priorities
Operational Priorities Next Round of Modernization & Strategic Optionality “On Time/On Budget” 3 Uncompromised Focus Project Delivery on Health, Safety 2 and Environment 1 Second phase of modernization: comprehensive solutions for environmental issues: First phase of modernization is close to co
Slide 14: Operations Update
Operations Update Sergey DYACHENKO First Vice-President Chief Operating Officer
Slide 15: Operations Update
Operations Update Focus on health, safety and environment – world-class standards Downstream reconfiguration is on track – over 50% of projects commissioned Major Upstream projects are on track Potential development projects – value creation options in case of market recovery 14
Slide 16: Adherence to High Health & Safety Standards
Adherence to High Health & Safety Standards – Progress Update LTIFR Dynamics Health and Safety Culture Change 1*10-6 DuPont production safety culture index -24% 0.80 2.30 0.61 2.10 0.46 1.40 2013 2014 2015 Mar 14 Mar 15 Mar 16 Ongoing implementation of Group safety standards in key areas Product
Slide 17: Environmental Roadmap for New Norilsk
Progress in Implementation of “Environmental Roadmap for New Norilsk” Polar Division SO2 Project Impact Emissions Impact (mtpa) Talnakh Increased Sulphur content in concentrator tailings -15% upgrade & Enables moving smelting 1.8 expansion operations from Nickel to Nadezhda plant 1.5-1.6 “Enviro
Slide 18: One Site Solution
“One Site” Solution New solution: Previous solution: Single project with a number of “Two sites – two independent projects” modernization initiatives Nadezhda Copper Nadezhda Copper plant plant plant plant Furnaces Furnaces Upgrade ! Existing ! Existing Upgrade Sulphur shop Sulphur shop SO2 SO2 Conv
Slide 19: Nadezhda Sulphur Dioxide Capturing Project – Progress to Date
Nadezhda Sulphur Dioxide Capturing Project – Progress to Date May 2015 I Tender process Stage 1 was completed with a decision to November’15 separate detailed engineering and construction phases Feasibility study completed and approved by the December’15 government’s technical expertise («Glavgosexp
Slide 20: Production Reconfiguration Program – Overview
Production Reconfiguration Program – Overview Reconfiguration Program Assets Location Mining Concentrating Smelting Refining Cu cathodes Copper Smelter Copper Refinery Polar Division Norilsk Kola Division and Polar Division Concentrator Upgrade NN Harjavalta PGMs in 7 Mines concentrate Upgrade Preci
Slide 21: Reconfiguration Program – On-time Delivery in Progress
Reconfiguration Program – On-time Delivery in Progress Reconfiguration Program 2014 2015 2016 >2017 1 Nickel plant shutdown 75% of smelting capacity is Complete plant Rehabilitation down shutdown 2 Talnakh concentrator Phase 1 upgrade and capacity Phase 2 completed completed expansion 3 Smelter upgr
Slide 22: Nickel Plant Decommissioning
1 Nickel Plant Decommissioning – Two Main Facilities Shut Down in April Reconfiguration Program Current state Next steps To date – 75% of smelting capacity is down All facilities to be shut down by October 2016 Agglomeration Smelting 2016+ – closure and site rehabilitation Agg. facilities Smel
Slide 23: Talnakh Concentrator Upgrade (Phase 2) – Successfully Completed
2 Talnakh Concentrator Upgrade (Phase 2) – Successfully Completed Reconfiguration Program Phase 2 – upgrade & Phase 3 (potential) – Phase 1 capacity expansion to 10.2 mtpa capacity expansion to 16.0 mtpa Optimized utilization Capacity increase up to 10.2 mtpa Next steps: Increased of nickel re
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Slide 25: Single Stream Smelting at Nadezhda Plant
3 “Single Stream” Smelting at Nadezhda Plant – “On Track” Commissioning in March 2016 Reconfiguration Program Smelting capacity, Mmtpa Moving of all Ni smelting operations to Nadezhda plant 2.4 1.9 2014 2016 Norilsk Nickel plant Nickel plant concentrator Ni conc. Upgrade Ni conc. Talnakh Nadezhda pl
Slide 26: Kola Downstream Modernisation
4 Kola Downstream Modernisation: Launch of New Facilities and Added Synergy with Polar Reconfiguration Program Concentrate briquetting facility Launch of cobalt cathodes Re-launch of Ni 1 2 3 commissioned production Tankhouse-1 >30 ktpa +US$25m +45 ktpa reduction EBITDA of nickel production of SO2 e
Slide 27: Chlorine Leaching Technology in Kola Downstream
5 Chlorine Leaching Technology in Kola Downstream – Targeting Further Efficiency Gains in 2018–2019 Reconfiguration Program What has been done? Next steps Expected impact Kola Ni refining capacity, ktpa Tankhouse-1 Tankhouse-2 165 190 45 45 120 145 Before After Project design completed Equipment
Slide 28: Reconfiguration Program Impact
Reconfiguration Program Impact Capital Expenditures Expected Impact (US$ in m) % Complete (May 2016) Government Support through the Cancellation of Ni and Cu 1,010–1,070 Export Duties (Starting from August, 2014) 400–420 Cost Optimization 340–360 Average Yearly EBITDA Impact Starting from 2018 Impro
Slide 29: Priority Upstream Brownfield Projects
Priority Upstream Brownfield Projects Project Highlight Taimyrskiy Mine Oktyabrskiy Mine Komsomolskiy Mine2 Reserves covered by projects 63 mt of ore 59 mt of ore 2.3% 1.0 % 1.5% Ni1 3.5% 3.1% 24 mt of ore 1.8% Total Cu1 7.3 g/t 7.6 g/t 5.3 g/t PGM1 Ore production ramp up to 3.9 mtpa by 2022 Mai
Slide 30: Skalisty Mine: Project Development on Track
Skalisty Mine: Project Development on Track Project Highlight Project overview Ventilation Shaft Main Shaft Auxiliary Shafts Ventilation Shaft Production capacity – 2.4 mtpa Ore reserves – 58 mt Estimated Project IRR > 30% CapEx 2016–2018: ~ US$650m, 2015 CapEx ~ US$256m Project timeline C
Slide 31: Bystrinsky Project – Pit Design Optimization Results
Bystrinsky Project – Pit Design Optimization Results Indicators at 1Q16 Operational profile macro conditions Upstream (US$ in bn) Pit optimization resulted in significant reduction in Reserves & Resources: 336 Mt waste stripping CapEx’16–18 Cu – 0.64% This in turn allowed to convert Fe – 20% add
Slide 32: Bystrinsky Project: 45% Complete
Bystrinsky Project: 45% Complete Project Highlight Railway link to the project site is near completion (227 km, 3.7 mtpa capacity). Project financed in partnership with the Russian Government: Trial operation launched in December 2015, full commissioning in 2016 An agreement reached with «FGC UES»
Slide 33: Bystrinsky Project: 45% Complete
Bystrinsky Project: 45% Complete Project Highlight Primary Crusher Construction Crushed Ore Stockpile Administration Building Mechanical Workshops Source: Company data. 32
Slide 34: Further Conversion of Resource Base into Development Opportunities
Further Conversion of Norilsk Unique Resource Base into Development Opportunities Reserves and Resources – Polar Division (at 01/01/2016), mt Comments 2,103 2,103 In addition to approved projects (15% of 15% 15% reserves) over 50% of reserves and resources were subject to desktop studies during 20
Slide 35: Long-term Mining Outlook for Polar Division
Long-term Mining Outlook for Polar Division Upstream Development Scenarios, mtpa (ore) South Cluster potential development Potential Talnakh concentrator option: marginal returns – “zero”-NPV Expansion of concentrating capacity after Talnakh-3: to upgrade (phase 3): (@20%) at YTD spot 25 Mtpa En
Slide 36: Screening for Potential Long-term Opportunities
Screening for Potential Long-term Opportunities East Siberia – “home” Far East – vast undeveloped Screening approach I region for NN/still II resource potential and links to target underexplored Asian market Strategic criteria: Regions where NN can build Potential on it competitive edge – Copper g
Slide 37: Production Guidance
Production Guidance Production Guidance from Russian Feedstock Ni/Cu – kt, PGM – t (saleable metal) PGM Cu Ni 95–100 The Company will maintain stable 99 95–100 production levels after 2016 88-93 Copper volumes growth due to grade increase (and from 2018 – 420–440 due to launch of Bystrinskiy pro
Slide 38: Investment Governance and Portfolio Update
Investment Governance and Portfolio Update Sergey DUBOVITSKIY Vice-President Head of Strategy
Slide 39: Norilsk's Strategic Principles – Set Out in 2013
Norilsk’s Strategic Principles – Set Out in 2013 Progress Most non-Tier 1 assets successfully Focus on Tier I Assets exited, Stage II Strategic review underway Optimal Value Chain Unprecedented production reconfiguration Footprint program on track Quality of investment governance enhanced Capi
Slide 40: Strategic Context – Rise in Volatility Combined with Weak Prices
Strategic Context – Rise in Volatility Combined with Weak Prices… Lessons Learnt from Previous Downturns: Number of Weeks When Ni Price Was Below Ni Spot Prices -60%, Ni Price Volatility +80% Top Quartile of Cost Curve 100 25 000 35% 90 87 30% 20 000 80 25% 70 15 000 60 20% 50 47 15% 10 000 40 36 30
Slide 41: Driven by Tectonic Shift in Chinese Economic Model
… Driven by Tectonic Shift in Chinese Economic Model GDP and Investments Growth Rate in China is Structural Shift in Chinese Economy: Slowing Down Growth in Services, Reduction in Industry 12% 60% +8% +6% 10% 50% +3% +3% 8% 40% 6% 30% 4% 20% 2% 10% 0% 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E
Slide 42: Impacting Negatively Metal Intensity of the Chinese Growth
… Impacting Negatively Metal Intensity of the Chinese Growth Fixed-Asset Investments Growth The Lowest Level Since 2000 Ni Demand Growth Rate in China to Normalize China Fixed Assets Investments (Exc. Rural Households) 25% Cumulative YoY growth 60 20% +13% +1% 50 15% +2% +2% 40 10% 30 5% 20 10 (5)%
Slide 43: Challenge the Validity of Many Investment Decisions in the Industry
…. Challenge the Validity of Many Investment Decisions in the Industry Global Miners’ CapEx + M&A: Volatile Capital Intensity Tends to Overact in Up and Down Turns (US$ in bn) 3.0x Decline 104 74 71 53 52 54 Overreaction? 40 38 79 71 64 26 52 21 43 20 42 36 37 2008 2009 2010 2011 2012 2013 2014 2015
Slide 44: Norilsk Investment Strategy in the Industry Context
Norilsk Investment Strategy in the Industry Context Global Miners Investments (US$ in bn) 224 158 61 Robust (low-risk/high profitability) projects portfolio Norilsk Nickel CapEx + (US$ in bn) Enhanced focus on investment 6.6 discipline (improved investment governance system 4.9 implemented in 20
Slide 45: Strategic Priorities – Focus on Investment Discipline
Strategic Priorities – Focus on Investment Discipline US$1.0bn of Capital Investment Savings in 2014–2015 Annual CapEx (Norilsk Nickel) (US$ in bn) 2.7 Portfolio of highly profitable commercial 0.7 projects – stress tested under spot 2.0 Guidance / market expectation macro parameters 2,7 0.3 0.7 1
Slide 46: Delivery On Key Investment Projects
Strategic Priorities – Focus on Investment Discipline Delivery On Key Investment Projects Schedule Deviation, % of Investments Budget Deviation, % of Investments 83% of Investments – On Schedule since 2013 >95% of investments – On Budget/with Savings Accelerated 19% 4% 4% 13% 83% 96% On Schedule Ove
Slide 47: Stress-tested Profitability of 2013 Upstream Projects Portfolio
Strategic Priorities – Focus on Investment Discipline Stress-tested Profitability of 2013 Upstream Projects Portfolio Portfolio of Upstream Projects – Approved by the Investment Committee in 2013 IRR as of 01.01.2013 Based on Original Macro IRR as of 01.01.2013 Based on Spot Macro Parameters Paramet
Slide 48: Robust Returns of Current Upstream Projects Portfolio
Strategic Priorities – Focus on Investment Discipline Robust Returns of Current Upstream Projects Portfolio Returns (Point-forward) Sensitivity of Approved Upstream Projects Portfolio1 to Macro Scenarios As of 01.01.2016 Ni price 18 000 IRR 59% At Average 1Q16 Macro Parameters 15 000 Other Actual (S
Slide 49: Stay-in-business CAPEX Optimisation
Strategic Priorities – Focus on Investment Discipline Stay-in-business CAPEX Optimisation Production Assets Maintenance Energy Assets Maintenance Implementation of risk assessment tools and Strategy review for Energy business – revised long-term equipment replacement programs technological solut
Slide 50: Energy Business Strategy Review
Energy Business Strategy Review – Optimization of CAPEX Program for 2016–2018 by 20 % PV CAPEX in Energy Assets in 2016–2018 (US$ in m) -19–20% 890 -220 +170 720 -120 550 Energy Business Revision of The Cost and Payment CapEx Program in Additional Projects “Nov 2015” Strategy Strategy “2012” Project
Slide 51: Base Investment Program
2016 Investment Plan US$0.5bn Optimization Vis-à-Vis the Guidance Potential Tier-1 status confirmed projects Growth Chita 500–550 Copper Project De-risking strategy in implementation – partnership and project financing 2.0 Guidance Saving vis-à-vis the Guidance 1.5 Downstream Nickel Plant shut
Slide 52: 2016–2018 CAPEX Target – US$2bn p.a.
2016–2018 CAPEX Target – US$2bn p.a. Cumulative CAPEX 2016–2018 (US$ in bn) Goals / Context Potential Co-funding Growth Projects ~0.9 Chita Copper Project completion in 4Q2017 Partnership and project financing Project and ramp-up TBD Optional Projects Investment decisions subject to market P
Slide 53: Norilsk Asset Portfolio – Status Update
Norilsk Asset Portfolio – Status Update Norilsk Asset Portfolio Maslovskoe Honeymoon Well Potential/Greenfields Core Assets Strategic Review Cash Proceeds & Foregone Liabilities Non-Core: Exited/In Closing Bystrinsky Polar : South Cluster Nkomati (50%)(1) Closed: (PGM/Tail Co) Kola Arkhangelsk Port
Slide 54: Norilsk's Legacy Assets – Status Update
Norilsk’s Legacy Assets – Status Update Pro-Forma Overview Revenue Core/tier 1? Status (FY’15, US$ in bn) PGM-rich Asset perimeter mines (open pit defined, & underground) business case with own ~0.4 under review concentrating facility located Strategic within Polar options Division considered
Slide 55: Bystrinsky Project De-Risking Plan – Implemented
Bystrinsky Project De-Risking Plan – Implemented Realized De-Risking Initiatives: Leveraging Public-Private Partnerships: Railway link construction on track; to be Project Status Best-in-class mining completed by the end of the year greenfield project Project Launch: Agreement with Federal Gri
Slide 56: Adaptive Dividend Targets Providing Superior Shareholder Returns
Adaptive Dividend Targets Providing Superior Shareholder Returns and Balanced Financial Model Uses Sources New Dividend Targets Dependent on Highest quality Tier I mining assets – strong with Improved Flexibility Net debt/EBITDA margins and cash generation even at cycle lows Dividend Ample liquidity
Slide 57: Superior Shareholder Returns
Superior Shareholder Returns Leading Mining Companies - Projected Dividend Yield for 2016 FY Corresponding to the minimum dividend of $1.3bn* 6.2% 4.1% 1.7% 0.1% 0.0% 0.0% Norilsk Nickel Peer 1 Peer 2 Peer 3 Peer 4 Peer 5 Sources: Bloomberg, Companies data; The peer group includes Rio Tinto, BHP Bil
Slide 58: Key Takeaways
Key Takeaways Norilsk in the industry context – consistent and solid investment program through the cycle 1 “All-in” CAPEX Target for 2016-2018 – US$ 2bn p.a. 2 (incl. “Base Investment Program”, Chita, 1st Phase of Environmental Program and potential options) “Base investment program”: 3 ‒ US$ 4.4bn
Slide 59: Markets
Markets Anton BERLIN Head of Strategic Marketing
Slide 60: Macro-Driven Commodity Prices, Increased Volatility
Macro-Driven Commodity Prices, Increased Volatility Commodity Prices are Inversely Correlated with Trade-Weighted US Dollar Commodity Price Volatility Increased in 2015-2016 180 35 Corr (LTM) = -0.94 Bloomberg Commodity Index 30 150 25 20 120 15 10 90 5 60 0 Apr 2013 Apr 2014 Apr 2015 Apr 2016 янв ф
Slide 61: Lowering of the Cost Curve Driven by Currencies and Oil Price
Lowering of the Cost Curve Driven by Currencies and Oil Price Depreciation C1 Nickel Total Projects Cash Costs (ex. Norilsk) Mining Currencies and Oil Price Decline vs. USD Down 23% Driven Mainly by Currencies & Oil End of March 2016/ End of December 2014, US$/t (23)% (6)% (9)% (11)% (13)% 12,430 (2
Slide 62: Speculative Pressure Running High on Demand Concerns
Speculative Pressure Running High on Demand Concerns Speculative Pressure on Metals Running High: Ni Speculations at Record High Levels: Change in Exchange Trading Positions LME Turnover Over 200x of Physical Market 250 1Q 2016/4Q 2014¹ Mt 178% 245 200 74 150 82% 142 50% 100 101 88 66 116 124 58 64
Slide 63: Sharp Downward Adjustment of Consensus Forecasts
Sharp Downward Adjustment of Consensus Forecasts Analyst Consensus Ni Price Forecast: Sharp Nickel LME Forward Curve: No Sense of Direction Downward Adjustment, Bullish Outlook Retained US$/t US$/t 18 000 25 000 21,200 15 000 20 000 12 000 15 000 US$11,900/t 9 000 12,300 10 000 10,600 6 000 9,300 3
Slide 64: Nickel Market: Little Guidance from Inventory Movements
Nickel Market: Little Guidance from Inventory Movements Total Exchange Inventories Up 19% in 2015, LME Inventories: Relocation Between Asian Relocation from LME to SHFE Warehouses Since 2H 2015 Kt Mt 600 25 000 456 441 431 413 500 20 000 192 166 165 400 177 15 000 1 300 53 2 59 10 000 200 5 000 203
Slide 65: Ni-Intensive Stainless Steel in China – Healthy Demand
Ni-Intensive Stainless Steel in China – Healthy Demand Variety of Chinese Sources: Ni-intensive Stainless … with Modest Growth Rates Continuing into 1Q Steel Production Up 5–11% in 2015 2016 Mt YoY Kt 1 200 +5% +2% 1Q16: +3% +1% 3,4 1 000 4,0 3,6 4,1 3,9 4,0 11% 800 14% 6% 9,8 10,9 9,3 10,6 9,2 9,7
Slide 66: China – Nickel Destocking in 2015 and Surge of Ni Imports
China – Nickel Destocking in 2015 and Surge of Ni Imports Implied Ni Units Destocking in China Excluding Strong Increase of Fe-Ni and Refined Ni Imports to Build Up of SHFE Inventory (48 kt) in 2015 China in 2015 Extended into 1Q 2016 Ni Units, Kt Ni Units, Kt 500 Refined Ni +125% +342% Fe-Ni +90% +
Slide 67: Supply Rigidity – Investment Cycle
Supply Rigidity – Investment Cycle Major Ni Projects Ramp-up When Ni Market is High Reported Ni Stocks: After 3Y of Potential Trending Downward Drawdowns Inventory Would Still Run High US$ in bn Kt Kt 7,0 450 400 83 days 70 6,0 350 70 –100 5,0 300 70 –100 4,0 250 48 days 3,0 200 485 40 days 150 2,0
Slide 68: Slow Response From Supply Side Helped by Lowering Cost Curve
Slow Response From Supply Side Helped by Lowering Cost Curve 1Q 2016 Average Ni Cash Cost (C1) Down 23% vs. 4Q 2014 US$/t 30 000 25 000 20 000 15 000 10 000 5 000 0 (5 000) (10 000) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1Q 2016 4Q 2014 Flattening of the Cost Curve Decreasing marginal cost
Slide 69: Only a Quarter of Loss Making Capacity Runs a Shut-Down Risk
Only a Quarter of Loss Making Capacity Runs a Shut-Down Risk At Spot Price, Over 70% of Global Nickel Production is Making a Cash Loss … … but Only 17% Run a Shut-down Risk US$/t 35 000 30 000 44% 30% 70% 25 000 5% 4% 20 000 17% 15 000 2016 consensus forecast of US$9,889/t Diversified miners Average
Slide 70: Pressure on Loss Making Ni Producers Rising Rapidly
Pressure on Loss Making Ni Producers Rising Rapidly Most of the Ni Industry Became EBITDA Negative Only in 2H 2015 … … Pressure on CFs is Mounting in 1H 2016 EBITDA Ni Segments Ni price, US$/t Re-based to Nickel Price, US$/t Performance H-o-H 800 20 000 18 000 EBITDA Expansion 600 16 000 15 000 EBIT
Slide 71: Nickel Feed for China: Philippines
Nickel Feed for China: Philippines Nickel Ore Imports from Philippines to China Were Mine Life of Nickel Ore Reserves with Ni Grade >1.5% Down 26% in 2015 and Continue to Fall in 2016 in Philippines is Less than 3 Years Mt Ni Units, Kt 10,0 1 400 3,0 2015 YoY: (26)% 2.6 1 200 2,5 8,0 1Q 2016 YoY: (2
Slide 72: Nickel Feed for China: Indonesia
Nickel Feed for China: Indonesia Only 3 Projects in Indonesia Have High Probability of Completion Indonesia NPI Output Forecast for 2015-2017 Ni Units, Kt Capacity, 250 Project Name Process Status Start Year Kt pa Ni Indoferro BF Started 2013 18 200 PT Cahaya BF Started Modern Metal 2014 4 Industry
Slide 73: Nickel Market Moving into Deficit in 2016
Nickel Market Moving into Deficit in 2016 Moderate Supply Cuts Have Been Triggered … … while Global Consumption Holds … Kt Incremental change in global supply Kt Incremental change in global demand 100 150 +2.0% +1.3% +2.1% 100 50 40 50 40 0 20 0 2015 2016E 2017E (50) … and Growth Reliant on China K
Slide 74: Palladium Market in Structural Deficit
Palladium Market in Structural Deficit Palladium ETFs Holdings Change: Driven by the Macro Concerns Global Palladium Market: Structural Deficit Koz YoY Kt Surplus/(Deficit), Koz 1 104 904 507 1 015 381 430 24 (24) (225) ETF (435) (655) outflow (520) (703) (1,622) 2008 2009 2010 2011 2012 2013 2014 2
Slide 75: Platinum Market – Deficit Holds
Platinum Market – Deficit Holds Platinum ETFs Holdings Change: 2015 Outflow Reversed in 2016 Global Platinum Market: Deficit Holds Koz YoY Kt Surplus/(Deficit), Koz 902 583 384 276 228 183 102 247 233 72 (261) (574) ETF outflow (975) (278) 2008 2009 2010 2011 2012 2013 2014 2015 2016YTD 2010 2011 20
Slide 76: PGM Demand Drivers In Automotive Industry – Tightening Regulations
PGM Demand Drivers In Automotive Industry – Tightening Environmental Regulations Increasing Complexity of Emission Systems and Powertrains Requires Higher PGM Loadings Tightening Emission Legislation 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Requires soot (particulate matter) filter G
Slide 77: PGM Demand Drivers In Automotive Industry – Rising Vehicle Production
PGM Demand Drivers In Automotive Industry – Rising Vehicle Production Total Number of Vehicles Forecasted to Increase: Gasoline Remains the Main Driver Global Light Vehicle Sales Expected to Grow in 2016 Mln Units Mln Units 120 +3% 100 80 60 91 40 89 20 0 2015 Japan/Korea / China Europe North Americ
Slide 78: Copper Market: China Driven Demand and Low Global Inventories
Copper Market: China Driven Demand and Low Global Inventories China Remains the Main Driver for LME Copper Price Near Multi Year Lows while Cu Consumption Growth Inventories Run Tight Mt Mt US$/t 1 000 8 000 +4% +3% 900 23,3 7 000 800 22,9 6 000 +2% 700 5 000 600 22,3 +1% 500 4 000 21,8 400 3 000 21
Slide 79: Copper Market Remains Balanced, Supply Disruptions Limited
Copper Market Remains Balanced, Supply Disruptions - Limited Copper Supply Disruptions: Unfold in 2015 at 5% in Line with Historical Average Copper Supply/Demand Balance Kt Kt 1 400 10% 560 1 200 8% 8% 1 000 5% 6% 6% 190 800 170 6% 6% 6% 5% 5% 5% 10 600 4% 400 4% 2% 200 (330) 0 0% 2007 2008 2009 201
Slide 80: Metal Markets Outlook
Metal Markets Outlook Loss making Inventory Forecasted market Medium-term Metal production (days of consumption) balance fundamentals (% of cost curve) Kt Deficit ? 30% Nickel 80 70% (70) (70-100) Exchange Off-exchange 2016E 2017E Profitable Loss-making Koz Deficit Palladium 87 (550) (700) 46% ETF 2
Slide 81: Financial Strategy and Results
Financial Strategy and Results Sergey MALYSHEV Senior Vice-President Chief Financial Officer
Slide 82: Financial Policy Framework
Financial Policy Framework… Financial Policy Goals Recent Achievements 1 ▪ Industry leading US$ unit cost ▪ Maintain industry leading profitability by containing operating improvement in 2012–2015 Profitability costs while benefiting from rouble devaluation ▪ Industry leading EBITDA margin 2 ▪ Debt
Slide 83: Global Leadership on Margins and Balance Sheet Strength
… Resulting in Global Leadership on Margins and Balance Sheet Strength EBITDA margin, 2011–2015 Net debt/EBITDA, 2011–2015 50% Peer group range Norilsk Peer group range 1,0x Norilsk 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Company’s leading cost position and conservative financial policy
Slide 84: Unit Costs Under Control Despite Some Headwinds
Unit Costs Under Control Despite Some Headwinds Profitability Unit costs in US$, 2012 = 100% Norilsk Peer 1 Peer 2 Peer 3 Peer 4 -39% -39% -33% -20% -17% 2012 2013 2014 2015 2012 2013 2014 2015 2012 2013 2014 2015 2012 2013 2014 2015 2012 2013 2014 2015 Despite some of the negative underlying tren
Slide 85: EBITDA and FCF Strongly Supported by FX
EBITDA and FCF Strongly Supported by FX Profitability At the year-end US$/RUB rate of 72.9, 1% change in exchange rate translates into EBITDA change of US$ 22.0m, FCF change of US$ 36.3m US$m 60 exchange rate as at 31.12.15 50 44.1 40.7 40 36.3 33.1 29.4 30 26.7 24.7 Free cash 22.0 20.0 17.8 flow
Slide 86: Labour to Drive Costs Going Forward
Labour to Drive Costs Going Forward Profitability 2015 Cash Cost Structure With third party feedstock gradually phased out in 2016–2017, the cost Other Metals and semi- base will be dominated by RUB- products denominated labour (c.50% of 15% the total) 24% Services With wages linked to Russian C
Slide 87: Balance Sheet Management: Staying Conservative
Balance Sheet Management: Staying Conservative Balance Sheet Strong Net debt/EBITDA of 1.0x as of year-end credit Rating agencies supportive of the balanced dividend policy standing Liquidity levels above industry average Liquidity New committed loan facilities in 2015 and 2016 Debt po
Slide 88: Defensive Liquidity Management
Defensive Liquidity Management Balance Sheet Norilsk’s cash covers three years of debt repayments, with over 90% of cash held in hard currency Above-average levels of liquidity allow for greater flexibility and provide cushion against one-off spikes in volatility Landmark first-in-class RMB5bn
Slide 89: Unfettered Access to a Wide Range of Funding Options
Norilsk Retains Unfettered Access to a Wide Range of Funding Options, Including Capital Markets Balance Sheet Current Portfolio Structure Further Funding Options Available (Illustrative) US$ in bn 2.1 Russian state-owned Eurobond/green bond banks bilateral Unsecured bilateral from 2.7 Russian banks
Slide 90: New Dividend Targets to Keep Leverage in Check
New Dividend Targets to Keep Leverage in Check Balance Sheet Net Debt/EBITDA, Old Dividend Targets Net Debt/EBITDA, Current Dividend Targets 4,0x 4,0x 3,0x 3,0x Lower div payout (30% of EBITDA) 2,0x Projected range 2,0x under various metals price Preferred range = 1.0–2.0x forecasts 1,0x 1,0x Higher
Slide 91: Adherence to Investment Grade Credit Metrics
Adherence to Investment Grade Credit Metrics Ensures Strong Rating Performance Balance Sheet Recognition of Strong Performance Resilience to the Country Risk and Credit Metrics Pre-review Post-review rating rating A1 -2 A3 BBB- Ba1 BBB- A1 -2 A3 A3 -1 Baa1 BBB- Ba1 BBB- Baa2 -1 Baa3 Ba1 Ba1 Baa3 -3
Slide 92: Net Working Capital to Stay Around Current Levels
Net Working Capital to Stay Around Current Levels Working Capital Net Working Capital, US$m Macro and one-off factors: US$ (1,054)m (132) Operating improvement: US$ (1,960)m (1 463) 352 (515) 189 (380) 4 044 (718) The company does not expect significant further release of working capital (347) M
Slide 93: Corporate Governance
Corporate Governance Andrey BUGROV Deputy Chairman of the Board, Senior Vice-President
Slide 94: Shareholder Structure
Shareholder Structure Vladimir Potanin CEO of Norilsk Nickel Founder and President, Interros 64% 30% 36% of the shares are owned by the parties to the Oleg Deripaska Shareholder Agreement since President, Member of the 6% 28% Board of Directors, UC RUSAL December 2012 Interros Crispian Investments L
Slide 95: Balanced Board of Directors
Balanced Board of Directors Board of Directors consists of 13 members (incl. 2 executive) 5 4 4 Independent Directors Directors Directors(1) RUSAL CG, Nomination and Audit Commission Strategy Committee Budget Committee Remuneration chaired by chaired by Rusal chaired by Interros Committee independen
Slide 96: Corporate Governance Initiatives
Corporate Governance Initiatives A benchmarking study on the existing corporate governance practices vs. global best practices was prepared by an independent consultant in 2H13 A number of Corporate Governance initiatives were developed and approved by the Board of Directors in 2014–2015 2014 ac
Slide 97: Board Approach to Corporate Governance Well Established
Board Approach to Corporate Governance Well Established Long-term investments and reinvesting in future growth Priority of sustainable Capital allocation priorities; portfolio of businesses and assets fit value creation Integration of sustainability and ESG matters into strategic and operati