russian miner – global player tav morgan deputy chairman of the management board merrill lynch...
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Russian Miner – Global Player
Tav MorganDeputy Chairman of the Management Board
Merrill LynchGlobal Metals, Mining & Steel Conference
May 12, 2005
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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.
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Today’s Presentation Topics
• Norilsk Nickel’s standing amongst global miners and Russian companies
• Norilsk Nickel’s strengths, current initiatives and corporate developments
4
Playing a key role in Russia and globally
• 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
Strong contributor to the Russian 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
Sales
Operating Profit
Headline Earnings
Selected Financials*
Operating Profit Margin
1H 200420032002
3,2865,1963,094
1,1931,516809
36%29%26%
889885315Headline Earnings Margin 27%17%10%
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
• Norilsk mines represent one of the world’s most economically attractive ore resources
• Strong exposure to growth in an emerging market economy
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NorilskNickel*
AngloPlatinum
ImpalaPlatinum
Lonmin
Leading producer of base and precious metals
Largest Nickel Producers (% share of 2004 world mined production)
Largest Palladium Producers* (% share of 2004 world mined production)
Largest Platinum Producers* (% share of 2004 world mined production)
* GFMS estimates for NN, includes Stillwater’s share
Largest Copper Producers (% share of 2004 world production)
Largest Gold Producers (in millions of ounces)
NorilskNickel
Inco Falcon-bridge
BHPBilliton
WMC AngloPlatinum
ImpalaPlatinum
Lonmin NorilskNickel*
Codelc
o
Phelps
Dod
ge
BHP Bill
iton
Rio Tint
o
Grupo
Mex
ico
Nordd
eutsc
he A
ff
KGHM
Norils
k Nick
el
Newm
ont
Anglo
Gold
Kinro
ss
Gold F
ields
Placer
Dom
e
Harm
ony
Rio T
into
Norils
k Nick
el
Source: Brook Hunt, GFMS, and company data
19.2
16.3
9.2
6.5 6.4
0
5
10
15
20
25
18.9
8.2 6.1
~50
0
10
20
30
40
50
60
17.714.6
~11
36.7
0
5
10
15
20
25
30
35
40
13.0
8.7
6.65.2 4.7
3.6 3.6 3.1
0
2
4
6
8
10
12
14 6.65.9
4.84.0
3.53.2
1.8 1.6 1.5 1.5 1.4 1.1
0
1
2
3
4
5
6
7
Barric
k
Navoi
Min
as B
uen.
Freep
ort
6
Increasingly global presence
MMC KOLA Kola Peninsula
MMC KOLA Kola Peninsula
POLAR DIVISION Taimyr Peninsula
POLAR DIVISION Taimyr Peninsula
NORILSK NICKEL EUROPE
London, UK
NORILSK NICKEL EUROPE
London, UK
HEADQUARTERS Moscow
HEADQUARTERS Moscow
GOLD FIELDS Ltd (20%) South Africa
GOLD FIELDS Ltd (20%) South Africa
LENZOLOTO Irkutsk
LENZOLOTO Irkutsk
GIPRONICKEL St. Petersburg
GIPRONICKEL St. Petersburg
NORILSK NICKEL USA Pittsburgh, USA
NORILSK NICKEL USA Pittsburgh, USA
NORILSK NICKEL ASIA
Hong Kong, China
NORILSK NICKEL ASIA
Hong Kong, China
POLYUS KrasnoyarskPOLYUS
Krasnoyarsk
MATROSOV MINE Magadan
MATROSOV MINE Magadan
STILLWATER MINING COMPANY (55%)
Montana USA
STILLWATER MINING COMPANY (55%)
Montana USA
Headquarters and R&D Institute
Mines and operations
Gold Mining Companies
International Assets
Global Distribution Network
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One of the world’s largest quoted mining companies
26.0
23.021.0
16.7
12.0 11.3 10.78.4 8.4
7.3 7.1 6.7 6.2 5.8 5.8 5.5 5.4
20.5
0
5
10
15
20
25
30
Market Capitalisation, May 2, 2005, USD bn
Source: UBS
75
30
7073.1
41.331.4 30.0
8
One of world’s largest mining companies by revenues
25.022.9
11.3
8.0 7.1 7.0 6.9 6.44.6 4.3
3.1 3.1 2.7 2.4 2.4 1.9 1.9 1.7
0
5
10
15
20
25
30
2004 Revenues, USD bn
Source: UBS
9
34
29
22
34
2528
20
37
27
19
28 28
21
17
45
30
2221
39 40 40
0
5
10
15
20
25
30
35
40
45
50
Norilsk Nickel* BHP Billiton Anglo American Rio Tinto WMC Inco Falconbridge
Leading profitability in industry
* For MMC Norilsk Nickel 2004 data represents 1H 2004Source: Company reports
200220032004
EBITDA Margin
Percent
10
Largest mining and metals blue chip in Russia
0
5
10
15
20
25
30
55
60G
azpr
om
LU
Koi
l
Sur
gutn
efte
gaz
Sib
neft
MT
S
Sbe
rban
k
Nor
ilsk
Nic
kel
UE
S
Vim
pelc
omN
LM
K
Sev
erst
al
Leb
edin
sky
GO
K
Mec
hel
Tat
neft
Sla
vnef
t
Nov
atek
Mos
ener
go
Ore
nbur
gnef
t
Bal
tika
SU
AL
Mik
hail
ovsk
y G
OK
Market Capitalization of Russian Public Companies (USD bn, April 26, 2005)
TN
K
Sid
anko
AF
K S
iste
ma
11
Russian Company Credit Ratings
S&P, Moody’s as of 1 May 2005
MMK
Sibneft
Alrosa
TNK
MTS
Lukoil
B3
B1
Ba3
Ba2
Ba1
Baa3
B2
B+ BB- BB BB+ BBB-B
Source: Moody’s and S&P
Recognized as one of Russia’s most solid investments
Standard and Poor’s
MOODY’S
Gazprom Russia Sovereign
Investment grade
Norilsk Nickel
Severstal
VimpelCom
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Today’s Presentation Topics
• Norilsk Nickel’s standing amongst global miners and Russian companies
• Norilsk Nickel’s strengths, current initiatives and corporate developments
13
113857
293
995
1,420
439843
415328
395
0
200
400
600
800
1,000
1,200
1,400
1,600
Norilsk Nickel*
WMC Inco BHP Billiton
Falconbridge AngloAmerican
Measured and Indicated Mineral Resources Proved and Probable Ore Reserves
Ore Reserves of Leading Nickel Producers (as of 1/1/2003, million tonnes)
Mineral resource and ore reserve base strength
• 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
14Source: Brook Hunt Nickel Industry Cost Study 2004
(2 000)
0
2 000
4 000
6 000
8 000
10 000
Global Nickel Cost Curve, 2004Direct Cash Costs (US$ /ton), Cumulative Production (thousand tons)
WM
C
BH
P B
illi
ton
Inco
Fal
con
bri
dge
0 150 300 450 600 760 910 1,077
World’s lowest cost nickel producer
Norilsk Nickel
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Integration through the value chain
Exploration Mining Concentrating Smelting Refining Marketing & Distribution
• Polar Exploration
• Kola Exploration
• Polar: Norilsk-1, Talhakhskoye, Oktyabroskoye
• Kola: Zhdanovskoya, Zapolyarnoye
• Polar: Talnakh and Norilsk Concentrators
• Kola: Pechenga Concentrator
• Polar: Nadezhda Plant, Copper Plant, Nickel Plant
• Kola: Pechenga Smelter
• Polar: Nickel Plant, Copper Plant
• Kola: Severonickel
• Global Distribution Network
Transportation Complex
Energy and Power Infrastructure
Maintenance & Construction
R&D and Project Design Institute
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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
• 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
• 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 organization and processes– Further development of management
information systems– Adoption of 3 year financial
planning– Initiating streamlining of
organizational structure
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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
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Nickel
Copper
Platinum group metals (compared with previous year, %)*
Stable production volumes
* PGM produced in Russia
Source: Company data
Production volume(in ‘000 tons or as noted) 2005F
240-245
440-450
NA
2004
243
447
104%
2002
218
450
101%
2003
239
451
103%
19
30
2614
6
5
312
4
Evolution of Headcount at Key Operating Divisions, 2002-05
Cash Production CostsBreakdown by Sector (%)
Source: Company Financials (1H 2004)
Notes: Other includes Repairs & Maintenance (3%), Utilities (3%), Other (6%)
Source: Company data
Notes: Data as of January 1st of year indicated
Focus on reducing costs
Labour
Consumables and Spares
TransportScrap purchased
Other
Metals purchased
Tax on Mining
Insurance
78,5 79,1 79,2 79,3
20,8 20,9 21,5 20,7
2002 2003 2004 2005
100%= 82,56076,686 74,075 70,043
Polar Division
Kola Division
-15,2%
20
Source: Company data
Budgeted Capital Expenditures, 2005F
68%
14%
18%Polar and
Kola divisionsPolyus
Stillwater
100% = 727 m USD
NN Group, excl. Polyus and Stillwater
Polyus
Stillwater
Total for group, of which
Maintenance of property, plant, equipment
Expansion of property, plant and equipment
494
131
102
727
361
366
Budgeted capital expenditures, 2005F
USD M
21
Budgeted Capital Expenditure 2004E-2005F, Polar Division
Source: Company data
100% = 379 m USD100% = 321 m USD
1026
34
3522
Reserve base
Metallurgy
EnergyOther
Equipment substitution
15
22
6
10
1829
Reserve base
Metallurgy
Energy
Other
Equipment substitution
Concentrating
Concentrating
2004 Estimated 2005 Forecast
22
Budgeted Capital Expenditure 2004E-2005F, Kola Division
100% = 61 m USD100% = 59 m USD
Source: Company data
12
7
33
58
17
Reserve baseMetallurgy
EnergyOther
Equipment substitution
315
35
22
52 Reserve base
Metallurgy
EnergyOther
Equipment substitution
Concentrating
Concentrating
2004 Estimated 2005 Forecast
23
Polar Division production flowM
ININ
GC
on
cen
-tr
atio
nM
ET
AL
LU
RG
Y
Norilsk-1 Deposit
Medvezhy Ruchey Zapo-
lyarny
Talnakh Deposit
Komso-molsky Mayak
Oktyabrsky Deposit
Skalistaya Oktya-brsky Taimyrsky
Norilsk Concentrator Talnakh Concentrator
Nickel Cooper Nickel Pyrrhotite Cooper
Nickel Plant NadezhdaMetallurgical PlantSinter Plant
Autoclave Leaching
Smelter
Roasting Shop
Smelter
Electrolitic Shop
Chlorine and Cobalt Shop
Cooper Plant
Drying Shop
Smelter
Electrolitic Shop
Metallurgical Shop
Anode Copper
Converter Matte Kola MMCConverter Matte
Copper Cathode
Nickel Cathode
• PGM concentrates • Finished products
• Cobalt Ingots
Dissemi-nated Ore Rich, Cuprous and Disseminated Ores Rich Ore and
Cuprous Ore
• Development of Skalisty Mine
• Development of tailings pond
• Reconstruction of 2nd Flash Smelting line
• 3 new wells at Pelyatka gas field
• Replacement of rich ore mined at Oktyabrsky
• Ramp up to 3.5 Mt/a of rich ore from Skalisty by 2018
• Expansion of existing tailings pond to accommodate growth in mining and concentration
• Modernization of existing line and preparation for increase in total flash smelting capacity to 2.2 Mt/a of concentrates
• Expansion of natural gas production to meet growing demand from mine and metallurgical production
Major Projects completed/underway 2004-05
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Kola MMC production flow
Pechenganickel Concentration Plant No. 1
MIN
ING
CO
NC
EN
-T
RA
TIO
NM
ET
AL
LU
RG
Y Pechenganickel Smelter
Converter matte From Nadezhda
Zhdanovskoye Deposit
Tsentralny Severny Gluboky
Zapo-lyarnoe Deposit
Severny Kaula-Kotselvaara
Semiletka and Kotselvaara Deposits
Briquette Line(s)
Severonickel refining
• Intermediate concentrates (PGMs, Cobalt, Copper)• End products (Nickel Cathode, Carbonyl Nickel,
Cooper Cathode)
Major Projects completed/underway 2004-2005
• Development of new Severny Gluboky mine
• Installation of briquette line
• Ongoing testing of two zone Vanyukov furnace
• 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
• 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
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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 Norilsk-Taimyr 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.
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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”
Recent company developments (continued)
Russian Miner – Global Player
Tav MorganDeputy Chairman of the Management Board
Merrill LynchGlobal Metals, Mining & Steel Conference
May 12, 2005