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Norilsk’s Owners Free CEO Potanin to Spend $6.5 Billion

OAO GMK Norilsk Nickel Chief Executive Officer Vladimir Potanin
OAO GMK Norilsk Nickel Chief Executive Officer Vladimir Potanin said, “Previously we were estimating annual maintenance capex at about $2 billion, now, due to the work done, we can say that it will be about $1 billion per year.” Photographer: Andrey Rudakov/Bloomberg

OAO GMK Norilsk Nickel’s billionaire owners have allowed management to carry out a $6.5 billion investment plan by 2015 without asking for preliminary approvals, Chief Executive Officer Vladimir Potanin said.

The shareholders lifted a cap on annual spending, giving the nickel producer’s management the right to decide when and how to spend the total amount set aside for 2013 through 2015, billionaire Potanin said in an April 24 interview.

“This opens the way for us to boost the investment element in total capex and carry out new projects,” Potanin said. Norilsk generated $2.4 billion of free cash flow in 2013 as it cut costs and reduced working capital by $1 billion.

Potanin’s Interros Holding Co., the largest single managing partner in Norilsk, signed a shareholder agreement in 2012 with billionaire Oleg Deripaska’s United Co. Rusal and Roman Abramovich’s Millhouse, ending a four-year feud that President Vladimir Putin urged them to resolve.

The agreement set spending limits at Norilsk of no more than $2.5 billion in 2013 and $2 billion in each of the next two years. Norilsk spent less than the allocated amount last year.

The owners, including Rusal which is in talks to refinance a $4.5 billion loan, didn’t seek to use leftover cash from the 2013 program to increase dividends, Potanin said.

Africa, Australia

Last year, Norilsk switched focus to developing assets in Russia, mostly its Arctic projects, while it plans to sell assets in Africa and Australia. “The strategy presented by Norilsk in October has proved to be sustainable in the current market and geopolitical situation,” Potanin said.

Norilsk won’t rush a sale of assets in Africa and Australia, seeking to draw more interest in them after nickel prices rebounded by more than 30 percent this year, he said. Norilsk will keep its plant in Harjavalta, Finland, until at least 2016 as it is “still an important element of our production chain,” he said.

In Russia, the company plans to reconfigure assets to move refining to the Severonickel unit in the Kola division and further processing to the Nadezhda plant in its Polar operations, Potanin said.

To meet this target, the Nadezhda plant will be modernized by 2016, while a metallurgical plant in the city of Norilsk will be closed and capacity at Severonickel’s refinery expanded, Potanin said. Norilsk’s major domestic assets are split between two regions, the Kola peninsula near Norway and the Taymyr peninsula in Siberia.

Management also agreed with the group of owners to proceed with the development of the Bystrinsky copper project in Siberia after it raises project financing, Potanin said. The mine may have capacity to produce 10 million metric tons of ore a year, according to company data.

The company plans to present an update to its strategy at an investor day in London on May 19.

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