April 30, 2020 / 10:27 AM / in a month

Russia's Nornickel draws on credit lines to build cash buffer

MOSCOW (Reuters) - Russian mining giant Norilsk Nickel (GMKN.MM) has drawn on some of its credit lines to build a cash position of $5 billion to protect it against market volatility caused by the coronavirus outbreak and ahead of a $1.2 billion dividend payment.

FILE PHOTO: An aerial view shows the Rusal Achinsk Alumina Refinery's Mazulsky limestone mine, near the Siberian town of Achinsk, Krasnoyarsk region, Russia April 29, 2018. REUTERS/Ilya Naymushin

As lockdowns to slow the spread of the new coronavirus have had a drastic impact on demand for natural resources, some oil companies and miners, including in Russia, have delayed dividends.

Nornickel is a special case. Its major shareholders, which include businessman Vladimir Potanin, who owns 34.6%, and aluminium producer Rusal (0486.HK), with 27.8%, have an agreement that sets a minimum dividend the company must pay.

In April, Nornickel’s board recommended a final 2019 dividend of 88.2 billion roubles ($1.2 billion).

Potanin has said he proposed postponing the payment in favour of building reserves, but he did not win the support of Rusal, which posted an adjusted net loss for 2019 and relies on Nornickel’s dividend payments in tough years.

Nornickel, the world’s top palladium producer, has so far left its 2020 investment programme intact, although it continues to see a downside risk.

Earlier on Thursday, it reported a fall in first-quarter output, saying it was unrelated to the pandemic and that Russia’s main smelting and mining regions have had few confirmed cases.

Nornickel, which is also one of the world’s largest nickel producers, attributed the weakness to a build up in inventory linked to maintenance and an unfavourable comparison with the same quarter last year.

“We expect saleable metal production volumes to recover during the rest of this year,” operations chief Sergey Dyachenko said in a statement, adding the 2020 production forecast was unchanged.

Nornickel said that so far there had been only a few requests from its clients to postpone or cancel the delivery of a small amount of metal, which has been redirected to other buyers.

Because of the novel coronavirus, Nornickel expects to book a number of one-off operating expenses, including hardship payments, social and charities expenses, and a negative carry because of interest related to the credit line drawdowns.

It will also book losses following the currency revaluation of its dollar-nominated debt as the rouble has weakened.

Together with untapped credit facilities, Nornickel’s total liquidity position exceeds $7 billion, which is enough to cover its debt maturity for 3 years without refinancing, the company said.

The company reports its financial results on a half-yearly basis. Its first-half financial results are due in August.

Reporting by Polina Devitt; editing by David Goodman and Barbara Lewis

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