Norilsk to Cut Spending as No Price Pickup Seen Anytime Soon

Updated on
  • Company to postpone new projects to save $500 million
  • Up to board to decide whether dividend policy should change

GMK Norilsk Nickel PJSC, Russia’s largest mining company, plans to cut investment and freeze some projects because it sees the risk of the metals prices remaining low.

"The sentiment in the commodities market is indeed negative” and among the worst in almost two decades, First Deputy Chief Executive Officer Pavel Fedorov told reporters in Moscow on Wednesday. The company plans to save $500 million in the next three to four years by cutting capital expenditure and putting projects on hold, he said.

The Bloomberg World Mining Index of 81 producers has tumbled 70 percent from a 2011 peak as prices of raw materials from iron ore to industrial metals collapsed amid weaker demand in China, the largest consumer. Nickel’s price fell almost 40 percent in the past year and is near the lowest since 2008. Vale SA, the world’s biggest iron-ore and nickel producer, this week lowered its 2015 dividend as the metals price rout deepened.

“We cannot entirely discount the probability that the current $10,000-a-ton nickel price will be the grim reality for the medium term,” Fedorov said. The company would face more pressure should the government decide to increase a mineral extraction tax, he said.

Dividend Policy

The metal producer has agreed to pay out half of its earnings before interest, taxes, depreciation and amortization, but no less than $2 billion in annual dividends as part of a shareholder agreement between its main investors, including United Co. Rusal. and Norilsk’s billionaire CEO Vladimir Potanin.

Fedorov said it’s up to the board to decide whether the company should review the policy. "If the market situation becomes unsustainably difficult, they will certainly consider options to ensure the viability of the business,” he said.

The press services of Rusal and Potanin’s Interros Holding Co. declined to comment.

While the ruble has declined about 40 percent against the dollar this year, helping Russian companies that sell commodities denominated in the U.S. currency, nickel priced in rubles is little changed over the period.

"The ruble depreciation is clearly helpful, but it is not sufficient to offset the headwinds in the commodity markets," Fedorov said.

New and untapped projects, including the Maslovskoye deposit on the Taymyr peninsula or Severniy Glubokiy upstream project on the Kola peninsula, will be put on hold, Fedorov said. It will proceed with investing in the Bystrinsky copper mine that’s near the border with Mongolia and China because it’s already received financing for it and it’s a lesser risk. Norilsk will proceed with the most profitable expansion projects, including its Talnakh concentrator plant, he said.

(Updates with ruble effect in eighth paragraph.)
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