Russian Miner – Global Player
Tav Morgan
Deputy Chairman of the Management Board
Merrill Lynch
Global Metals, Mining & Steel Conference
May 12, 2005
Disclaimer
The information contained herein has been prepared using information available
to MMC Norilsk Nickel at the time of preparation of the presentation. External or
other factors may have impacted on the business of MMC Norilsk Nickel and the
content of this presentation, since its preparation. In addition all relevant
information about MMC Norilsk Nickel may not be included in this presentation.
No representation or warranty, express or implied, is made as to the accuracy,
completeness or reliability of the information.
Any forward looking information herein has been prepared on the basis of a
number of assumptions which may prove to be incorrect. Forward looking
statements, by the nature, involve risk and uncertainty and MMC Norilsk Nickel
cautions that actual results may differ materially from those expressed or implied
in such statements. Reference should be made to the most recent Annual Report
for a description of the major risk factors.
Nothing herein should be construed as either an offer to sell or a solicitation of
an offer to buy or sell securities in any jurisdiction.
2
Today’s Presentation Topics
• Norilsk Nickel’s standing amongst global miners and
Russian companies
• Norilsk Nickel’s strengths, current initiatives and
corporate developments
3
Playing a key role in Russia and globally
Strong contributor to the Russian economy
• Pillar of economy and leading exporter
– Over half a percent of country’s GDP
– Over 3.2% of exports
• One of Russia’s most attractive blue chips
– Russia’s largest market cap resource
company outside oil & gas sector
– High corporate credit rating according to
S&P and Moody’s
Major player in global mining and metals
• Major vertically integrated metal producer
– Largest producer of mined Ni and Pd
– Top 10 producer of Pt, Cu
– Russia’s largest Au producer
Selected Financials*
2002
2003 1H 2004
Sales
3,094
5,196
3,286
809
26%
1,516
29%
1,193
36%
Headline Earnings
315
Headline Earnings Margin 10%
885
17%
889
27%
Operating Profit
Operating Profit Margin
• Norilsk mines represent one of the world’s
most economically attractive ore resources
• Strong exposure to growth in an emerging
market economy
* Results have been included from the date of acquisition in the cases of CJSC “Polyus” acquired on 1 November 2002,
Stillwater Mining Company on 30 June 2003, OJSC “Lenzoloto” and OJSC “Matrosov Mine” in April 2004
Source: Company financials
4
Leading producer of base and precious metals
Largest Nickel Producers
Largest Palladium Producers*
Largest Platinum Producers*
(% share of 2004 world mined production)
(% share of 2004 world mined production)
(% share of 2004 world mined production)
25
60
40
20
~50
19.2
35
50
30
16.3
40
15
25
30
9.2
10
6.5
6.4
5
18.9
20
Inco
WMC
8.2
~11
10
6.1
5
0
Norilsk Anglo
Nickel* Platinum
BHP
FalconBilliton bridge
14.6
15
0
0
17.7
20
10
Norilsk
Nickel
36.7
Impala
Lonmin
Platinum
Anglo
Impala Lonmin
Platinum Platinum
Largest Copper Producers
Largest Gold Producers
(% share of 2004 world production)
(in millions of ounces)
14
12
10
8
6
4
2
0
13.0
7
6
5
8.7
6.6
4
5.2
4.7
3.6
3.6
6.6
5.9
4.8
4.0
3.5
3.2
3
3.1
Norilsk
Nickel*
2
1
1.8 1.6 1.5 1.5
1.4 1.1
0
Source: Brook Hunt, GFMS, and company data * GFMS estimates for NN, includes Stillwater’s share
5
Increasingly global presence
STILLWATER MINING
COMPANY (55%)
Montana USA
MMC KOLA
Kola Peninsula
GIPRONICKEL
St. Petersburg
POLAR DIVISION
Taimyr Peninsula
MATROSOV MINE
Magadan
NORILSK NICKEL
EUROPE
London, UK
HEADQUARTERS
Moscow
LENZOLOTO
Irkutsk
POLYUS
Krasnoyarsk
NORILSK NICKEL USA
Pittsburgh, USA
NORILSK NICKEL
ASIA
Hong Kong, China
GOLD FIELDS Ltd (20%)
South Africa
Headquarters and R&D Institute
Mines and operations
International Assets
Gold Mining Companies
Global Distribution Network
6
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One of the world’s largest quoted mining companies
Market Capitalisation, May 2, 2005, USD bn
30
75
26.0
73.1
25
70
30
20
15
10
23.0
41.3
21.0
31.4 20.5
30.0
16.7
12.0 11.3
10.7
8.4
8.4
7.3
7.1
6.7
6.2
5.8
5.8
5.5
5.4
5
0
Source: UBS
7
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One of world’s largest mining companies by revenues
2004 Revenues, USD bn
30
25
25.0
15
10
5
22.9
20
11.3
8.0
7.1
7.0
6.9
6.4
4.6
4.3
3.1
3.1
2.7
2.4
2.4
1.9
1.9
1.7
0
Source: UBS
8
Leading profitability in industry
2002
2003
2004
EBITDA Margin
Percent
50
45
45
40
35
37
34
34
30
29
30
40
40
39
28
27
25
22
22
19
20
28
28
25
21
21
20
17
15
10
5
0
Norilsk Nickel*
BHP Billiton
Anglo American
* For MMC Norilsk Nickel 2004 data represents 1H 2004
Source: Company reports
Rio Tinto
WMC
Inco
Falconbridge
9
0
Mikhailovsky
GOK
SUAL
Baltika
Orenburgneft
Mosenergo
Novatek
Slavneft
Mechel
Lebedinsky
GOK
Tatneft
Severstal
Sidanko
AFK Sistema
UES
NLMK
Vimpelcom
Sberbank
MTS
TNK
Norilsk Nickel
Sibneft
Surgutneftegaz
60
LUKoil
Gazprom
Largest mining and metals blue chip in Russia
Market Capitalization of Russian Public Companies (USD bn, April 26, 2005)
55
30
25
20
15
10
5
10
Recognized as one of Russia’s most solid investments
Russian Company Credit Ratings
S&P, Moody’s as of 1 May 2005
Investment grade
Gazprom
Baa3
Ba1
M
O
O
D
Y’
S
Russia Sovereign
Lukoil
Sibneft
Ba2
Norilsk Nickel
TNK
VimpelCom
MMK MTS
Ba3
B1
Alrosa
Severstal
B2
B3
B
B+
BB-
BB
BB+
BBB-
Standard and Poor’s
Source: Moody’s and S&P
11
Today’s Presentation Topics
• Norilsk Nickel’s standing amongst global miners and
Russian companies
• Norilsk Nickel’s strengths, current initiatives and
corporate developments
12
Mineral resource and ore reserve base strength
Ore Reserves of Leading Nickel Producers (as of 1/1/2003, million tonnes)
1,600
1,400
1,420
1,200
995
1,000
800
600
400
395
328
415
293
200
57 43
38 98
11 43
BHP
Billiton
Falconbridge
Anglo
American
0
Norilsk
Nickel*
WMC
Measured and Indicated Mineral Resources
Inco
Proved and Probable Ore Reserves
• Base metals reserve data for 2003 and 2004 will be available with 2004 annual report
• Expecting to publish PGM data later this year once state secrecy on these minerals is lifted
* Does not include nickel resources and reserves in Norilsk-1, Zapolyarnoe, Semiletka and Kotselvaara deposits
Source: Micon International, Company reports
13
World’s lowest cost nickel producer
Global Nickel Cost Curve, 2004
Direct Cash Costs (US$ /ton), Cumulative Production (thousand tons)
10 000
8 000
BHP Billiton
2 000
Inco
WMC
4 000
0
(2 000)
0
Falconbridge
6 000
Norilsk Nickel
150
300
450
600
760
910
1,077
Source: Brook Hunt Nickel Industry Cost Study 2004
14
Integration through the value chain
Exploration
Mining
Concentratin
g
Smelting
Refining
• Polar
Exploration
• Polar:
• Polar:
Norilsk-1,
Talnakh and
Talhakhskoye,
Norilsk
Oktyabroskoye
Concentrators
• Polar:
Nadezhda
Plant, Copper
Plant, Nickel
Plant
• Polar: Nickel
Plant, Copper
Plant
• Kola
Exploration
• Kola:
• Kola:
Zhdanovskoya,
Pechenga
Zapolyarnoye
Concentrator
• Kola:
Pechenga
Smelter
• Kola:
Severonickel
Transportation
Complex
Energy and Power
Infrastructure
Maintenance &
Construction
Marketing &
Distribution
• Global
Distribution
Network
R&D and Project
Design Institute
15
Norilsk’s current priorities
•
Streamlining existing production
operations in Kola and Polar divisions
– Cost and headcount reduction
– Outsourcing non-core functions
– Optimal configuration of operating assets
– Upgrading environmental management
systems
– Evaluating sulfur reduction technologies
– Minimizing dependence of social
infrastructure while continuing to
support community development
•
Corporate development
– Consolidation and further expansion
of gold operations
– Strengthening corporate governance
and further improving reporting and
transparency
– Strengthening control over and
management of infrastructure
support assets
– Identification and evaluation of new
mine prospects
•
Improving reporting and transparency
– Further improving financial and
production reporting
– Ensuring reserve data is reported to
international standards
– Further disclosure of precious metal and
gold reserves
•
Improving organization and processes
– Further development of management
information systems
– Adoption of 3 year financial
planning
– Initiating streamlining of
organizational structure
16
Key production initiatives underway
•
•
Streamlining production
– Increasing equipment
utilization
– Reduce WIPs
– Evaluating asset configuration
– Reducing SO2 emission per
ton of metal
Cost reduction - countering
Russian inflationary trends and
historical cost growth
– Purchasing program
– Equipment maintenance
initiative
– Performance based incentives
focused on cost reduction
•
•
Tactical
replacement/refurbishment of
assets beyond economic life
– Detailed year by year
capex plan
– Standardizing and
streamlining project
evaluation /approval
processes
Refining ore reserve
management and mine
planning systems
17
Stable production volumes
Production volume
(in ‘000 tons or as noted)
2005F
2004
2003
2002
Nickel
240-245
243
239
218
Copper
440-450
447
451
450
Platinum group metals
NA
104% 103% 101%
(compared with previous year, %)*
* PGM produced in Russia
Source: Company data
18
Focus on reducing costs
Evolution of Headcount at Key
Operating Divisions, 2002-05
Cash Production Costs
Breakdown by Sector (%)
Other
Transport
Scrap purchased 4 3
Insurance 5
-15,2%
100%=
12
30
Labour
82,560
76,686
Kola
Division
74,075
70,043
21,5
20,9
20,8
79,3
78,5
79,1
79,2
2002
2003
2004
2005
20,7
Tax on Mining 6
14
Metals
purchased
Polar
Division
26
Consumables
and Spares
Source: Company Financials (1H 2004)
Source: Company data
Notes: Other includes Repairs & Maintenance (3%),
Utilities (3%), Other (6%)
Notes: Data as of January 1st of year indicated
19
Budgeted Capital Expenditures, 2005F
100% = 727 m USD
Budgeted capital expenditures, 2005F
USD M
14%
NN Group, excl. Polyus and Stillwater
494
Polyus
131
Stillwater
102
Total for group, of which
727
Maintenance of property, plant, equipment
361
Expansion of property, plant and equipment
366
Stillwater
Polar and
18%
Polyus
Kola divisions
68%
Source: Company data
20
Budgeted Capital Expenditure 2004E-2005F, Polar Division
2004 Estimated
2005 Forecast
100% = 321 m USD
Equipment
substitution
100% = 379 m USD
Equipment
substitution
22
Reserve base
18
29
35 Reserve base
10
Other 4
Energy 3
Other
6
26
Metallurgy
Energy
10
Concentrating
15
Concentrating
22
Metallurgy
Source: Company data
21
Budgeted Capital Expenditure 2004E-2005F, Kola Division
2004 Estimated
2005 Forecast
100% = 59 m USD
100% = 61 m USD
Equipment
substitution
Equipment
substitution
17
22
Other
3
Energy 3
Metallurgy 7
58 Reserve base
Other 5
Energy 3
12
Concentrating
Metallurgy
52 Reserve base
15
3
Concentrating
Source: Company data
22
Polar Division production flow
MINING
Major Projects completed/underway 2004-05
Norilsk-1 Deposit
Medvezhy
Ruchey
Zapolyarny
Concentration
Disseminated Ore
Komsomolsky
Mayak
Cooper
Nickel
METALLURGY
Smelter
Smelter
Converter Matte
• Cobalt Ingots
Nickel
Cathode
• Development of
tailings pond
Cooper
Cooper Plant
Drying Shop
Autoclave
Leaching
Smelter
Kola
Converter Matte MMC
Anode Copper
Electrolitic
Shop
Chlorine and
Cobalt Shop
Pyrrhotite
Electrolitic
Shop
Copper
Cathode
Metallurgical
Shop
• PGM concentrates
• Finished products
• Replacement of rich ore
mined at Oktyabrsky
• Ramp up to 3.5 Mt/a of
rich ore from Skalisty
by 2018
Rich Ore and
Cuprous Ore
Nadezhda
Metallurgical
Plant
Sinter Plant
• Development of
Skalisty Mine
Taimyrsky
Talnakh Concentrator
Nickel Plant
Roasting Shop
Oktyabrsky
Skalistaya
Rich, Cuprous and Disseminated Ores
Norilsk Concentrator
Nickel
Oktyabrsky
Deposit
Talnakh Deposit
• Expansion of existing
tailings pond to
accommodate growth in
mining and
concentration
• Reconstruction of • Modernization of
existing line and
2nd Flash Smelting
preparation for increase
line
in total flash smelting
capacity to 2.2 Mt/a of
concentrates
• 3 new wells at
Pelyatka gas field
• Expansion of natural gas
production to meet
growing demand from
mine and metallurgical
production
23
Kola MMC production flow
Major Projects completed/underway 2004-2005
Severny
Gluboky
Severny
Semiletka
and
Kotselvaara
Deposits
• Development of new
Severny Gluboky
mine
• Replenishment of mining base to
maintain nickel production from
Kola ore at ~ 40 Kt/a of Ni
• Production of 4 Mt/a of ore in
2010, and up to 6 Mt/a in 2015
• Installation of
briquette line
• Support reduction of SO2
emissions by 135 Kt/a and increase
Ni content of concentrates up to
9%
• Testing of modern concentrate
smelting technology to increase
SO2 processing and improve metal
extraction by eliminating matte
conversion stage
• Further introduction in Pechenga
smelter and Copper plant
(Norilsk) to be reviewed
KaulaKotselvaara
CONCENTRATION
Tsentralny
Zapolyarnoe
Deposit
Pechenganickel Concentration Plant No. 1
METALLURGY
MINING
Zhdanovskoye
Deposit
Pechenganickel Smelter
Briquette Line(s)
Converter matte
From Nadezhda
Severonickel refining
• Intermediate concentrates (PGMs, Cobalt, Copper)
• End products (Nickel Cathode, Carbonyl Nickel,
Cooper Cathode)
• Ongoing testing of
two zone Vanyukov
furnace
24
Recent company developments, 2004- 2005
GOLD
•
•
•
•
•
April 2004 – Acquisition of 20% equity stake in Gold Fields Ltd from Anglo American plc for an aggregate
amount of approximately $1.2 billion
September 2004 – February 2005 – Russian gold assets consolidated under ZAO Polyus. Completed
acquisitions of Panimba (Krasnoyarsk region), Chertovo Korito, Mukodek and Pervenetz (Irkutsk region)
totalling around 1.0 oz reserves and estimated around 5.5 mln oz resources
Company’s 20% interest in Gold Fields Limited to be consolidated under ZAO Polyus
Audit of gold reserves currently being carried out by SRK. Results will be available later this year.
April 2005 – Board of Directors approved general plan for spin off of gold assets. Detailed information
memorandum to be prepared by August 2005
STRENGTHENING CONTROL OVER SUPPORT ASSETS
• August 2004 – Signed a contract with the Finnish shipbuilding company Kvaerner Masa-Yards Inc. for the
construction of an arctic container ship with a capacity of 14,500 tonnes to work the Northern Sea Route
• November 2004 – Completed the reorganization of its Global Distribution Network, which now includes
Nickel Asia Ltd. (Hong Kong) for the Far East and Asian markets, Norilsk Nickel Europe Ltd. (UK) for the
European market, and Norilsk Nickel USA for the American markets
• March 2005 – RAO UES Russia and MMC Norilsk Nickel reached an agreement to establish NorilskTaimyr Energy Company (NTEC), which will bring together the existing energy assets of both companies
in the Norilsk Industrial Region. Subsidiary of RAO UES will lease to new company for ten years two
hydroelectric stations, Ust-Khantai and Kureiskaya, with a combined capacity of 1,041 Megawatts and
MMC Norilsk Nickel - three thermal power plants with a total capacity of 1,205 Megawatts. RAO UES
Russia will hold 49 per cent of shares in the new company, and MMC Norilsk Nickel will get 51 per cent.
25
Recent company developments (continued)
CORPORATE FINANCE
•
September 2004 – Completed a US$500 million Eurobond issue priced at 7.125%. The issue was
more than four times over-subscribed
•
August 2004 – International rating agencies Moody's Investors Service and Standard & Poor’s
Ratings Services assigned credit rating to MMC Norilsk Nickel. Moody's assigned a senior implied
rating of “Ba1” with a stable outlook, Standard & Poor's assigned “BB” long-term corporate credit
rating and “ruAA” Russian national scale rating with a stable outlook
CORPORATE GOVERNANCE
•
Independent reserves audits for base metals (as of 1/1/2004 and 1/1/2005) to be available shortly,
audit of PGMs planned following formal procedures on lifting secrecy on these metals.
•
From 2004 semi-annual disclosure of financial accounts in accordance with IFRS. Full year 2004
IFRS results will be released in the first half of June 2005
•
November 2004 – Extraordinary general shareholder meeting approved the distribution of interim
dividend for 9 months 2004 in the amount of 41.4 RUR per share
ENVIRONMENTAL POLICY
•
•
January 2005 - Management Board has approved the environmental and quality control policies,
which were adopted in accordance with the requirements of international standards ISO 9001:2000
and ISO 14001:2004
Third place in 2005 Russian rating “Environmental responsibility of the largest industrial
companies”
26
Russian Miner – Global Player
Tav Morgan
Deputy Chairman of the Management Board
Merrill Lynch
Global Metals, Mining & Steel Conference
May 12, 2005