Norilsk to Keep Dividend Even as Mining Rivals Scrap Payout

  • CEO Potanin says company may shelve some later investments
  • If prices stay low, management may offer to review plan

GMK Norilsk Nickel PJSC, Russia’s largest mining company, will maintain its dividend policy and may shelve some longer-term investments to support the payments, an option favored by its main shareholders, billionaire Chief Executive Officer Vladimir Potanin said.

One of management’s choices for shareholders was delaying some dividend payments, Potanin said in an interview near Moscow late on Wednesday. “We will have to downgrade the priority of some projects aimed at creating value for the company after 2019” to keep dividends at the current level, he said.

Vladimir Potanin
Vladimir Potanin
Photographer: Jason Alden/Bloomberg

Anglo American Plc, Glencore Plc and Vedanta Plc have scrapped payouts in recent months as they battle a slump in industrial-metals prices, which are trading close to six-year lows. Vale SA, one of the world’s biggest iron-ore and nickel producers, also said in October it will skip payments this year as the rout deepened.

Norilsk has agreed to pay out half its earnings before interest, taxes, depreciation and amortization, or no less than $2 billion, in annual dividends. This is as part of an agreement between its main investors including United Co. Rusal and Potanin’s Interros Holding Co., which ended a feud between shareholders in 2012. Norilsk approved 227 billion rubles ($3.2 billion) of dividend payments for 2014 and 48.3 billion rubles for the first half of 2015.

Investment Plans

The scenario that the owners scrapped suggested delaying some payments but maintaining a plan to pay out a total of $8 billion by 2019, Potanin said.

Norilsk’s investment plans include building the Skalisty mine in the Taymyr region, expanding its Talnakh concentrator plant and some modernization projects, which will help generate extra cash starting from 2018. Longer-term plans that may start adding value to the company after 2019 will be chosen carefully now and some may be postponed to keep dividends, Potanin said.

"The first quarter will reveal everything,” Potanin said. “If our expectations of a stable improvement in market conditions comes true, we will keep the current dividend policy next year.” If the markets worsens, management may suggest the owners consider delaying some of the payments, he said, adding that agreement by all major holders will be needed.

If market weakness persists until 2017, management will also need to raise the question of reviewing dividends in 2017 to keep the net debt to Ebitda ratio below the target of 2, Potanin said. The ratio is expected not to be higher than 1.8 in 2016.

Rusal, which owns about 28 percent in Norilsk, depends on Norilsk dividends for servicing its debt. The aluminum company’s CEO, Vladislav Soloviev, said last month Rusal sees no grounds for Norilsk to review its dividend policy.

Norilsk plans to speed up the sale of non-core assets and to clean up some of its aging mines at home. The so-called southern cluster assets of Norilsk’s operation at Tymyr, including the Medvezhy Ruchey open-pit mine, may be sold or the company will find a partner for them, Potanin said. Spinning them off wouldn’t be beneficial for some investors because they are smaller and their trading liquidity would be low, Potanin said. The miner may also find a partner for the Bystrinsky copper project in Siberia.

The producer also won’t prolong a share-repurchase program that it undertook this year until commodities markets stabilize, he said.

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