Norilsk Plans $10 Billion Investments by 2018 to Boost Output

OAO GMK Norilsk Nickel, the world’s largest nickel and palladium producer, plans to invest as much as $10 billion in five years to boost output.

The company will focus on developing assets in Russia, mostly its Arctic projects, while it plans to sell assets in Africa and Australia, it said in a presentation on strategy to investors in London today.

Annual capital spending for 2014 through 2016 will be about $2 billion, including as much as $2 billion over the period to develop existing assets and as much as $3.2 billion of “stay-in-business” expenses, it said. It will spend as much as $1.2 billion on new projects in the period.

Norilsk has turned the focus on its operations and improving profitability after resolving a feud between shareholders. Its Arctic mines have relatively low costs of production, enabling them to turn a profit even as rivals including BHP Billiton Ltd., Rio Tinto Group and Glencore Xstrata Plc cut costs and sell assets to counter weaker earnings

“While in the previous years Norilsk used to spend about $3.5 billion to $4 billion a year on its projects, the capex reduction is reasonable and was expected after the main shareholders ended their conflict last year,” Kirill Chuyko, BCS Financial Group’s head of equity research, said by phone. “This way the company will spend its money more effectively.”

Arctic Mines

Among Arctic projects Norilsk is prioritizing is the construction of a mine at the Skalisty deposit on the Taimyr peninsula and the Talnakh concentrator plant. The two projects combined will require as much as $1.2 billion by 2016, according to the presentation.

Total investment in the Skalisty project is forecast at $1.9 billion by 2018 with a capacity of 2.4 million metric tons of ore per year. The concentrator will have capacity to process 10.2 million tons of ore in 2018 after total spending of $800 million.

The company also plans to spend as much as $1.87 billion in 2013 through 2025 to prolong the life of the Oktyabrskiy, Tymyrsky and Komsomolsky mines by four to five years.

Norilsk targets an increase of copper output of as much as 4.7 percent by 2016 to 375,000 tons reaching as much as 445,000 tons in 2018. Platinum and palladium output may climb by about 2 percent each in 2016 and by about 10 percent in 2018 from 2013 levels, according to the presentation. Nickel output is set to rise by 0.4 percent to 4.8 percent in 2016 to 230,000 to 240,000 tons and be at 225,000 to 235,000 tons in 2018.