September 27, 2012 / 8:20 AM / 5 years ago

Russia's Norilsk Nickel sees African opportunity

MOSCOW (Reuters) - Russia’s Norilsk Nickel (GMKN.MM), the world’s largest nickel and palladium miner, is taking its push to boost reserves to Africa, where it is considering deals and the acquisition of copper, nickel and platinum licenses, its CEO said on Wednesday.

Norilsk’s low-cost Arctic operations account for the bulk of its production. Analysts have said it could benefit from troubles battering peers in platinum producing South Africa, hobbled by violent strikes that have lifted the price of the precious metal.

Chief executive Vladimir Strzhalkovsky said it was too soon to detail specific deals, though he said the company had received a “large number of proposals” in Africa. Norilsk already operates in Botswana and South Africa, where it jointly owns the only primary nickel producer.

“Major companies understand that we are serious about this. First and foremost, this is about obtaining licenses for PGM deposits,” Strzhalkovsky told the Reuters Russia Investment Summit, listing South Africa, Botswana, Zimbabwe and Zambia as potential destinations.

“We take into consideration risks in Africa, but, to state facts without bias, Russia is in the same risk group.”

As a group that is already the world’s fourth-largest platinum producer, Norilsk has been named, along with Chinese investors, as a potential buyer for, or strategic shareholder in, some of South Africa’s distressed platinum miners.

Norilsk, which accounts for 3 percent of Russia’s industrial production, said last year that it planned to invest $35 billion through to 2025 to expand its resource base and increase production, part of its efforts to become one of the world’s top five mining companies by market capitalization.

But the miner has not been immune from turbulent markets and falling prices for nickel, used to make stainless steel.

Its first-half profit fell 22 percent to $1.4 billion, while its EBITDA margin fell to 42 percent, the lowest level since the first half of 2009. The squeeze on margins from weak metals prices has also prompted Norilsk to cut its 2012 capital spending by 10 percent, to around $3.07 billion.

The company is reviewing its longer-term plans and could delay some projects, Strzhalkovsky hinted: “A correction may be made to investment volumes, but it is more likely we will change time frames.”

Strzhalkovsky, a mathematician and former state tourism chief, said he expected the company’s performance in the second half to be in line with the first six months of the year.


    Norilsk expects average nickel prices to rise to $18,500 per tonne next year thanks to falling stockpiles and a surplus that should come down from the current 30,000 tonnes.

    Benchmark nickel on the London Metal Exchange (LME) was trading at $18,023 per tonne around 1400 GMT on Wednesday, down 2 percent. Global prices for nickel, which accounts for half of Norilsk’s revenue, have fallen about 3.5 percent so far this year, though for the group that has been partly offset by copper prices, up 7 percent. Palladium prices are down 2.6 percent.

    Strzhalkovsky said he expected platinum prices to rise to $1,700-1,800 per troy ounce in 2013 from current levels around $1,600, partly thanks to rising demand from the automobile industry, a huge consumer of the metal for catalysts, in emerging markets like India, China and Russia that could help compensate for Europeans holding back.

    He said the miner also expected copper prices to rise in 2013, while palladium prices will increase due to declining supplies from Russia’s state precious metals and gems repository, Gokhran.

    Strzhalkovsky did not specify how much palladium Gokhran might still hold. Senior officials at the miner, however, have said government stocks are close to depletion.

    (For other news from Reuters Russia Investment Summit, click here)

    Reporting by Polina Devitt, Clara Ferreira-Marques, Melissa Akin; Editing by Douglas Busvine and William Hardy

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