Transcript Slide 1

Leading Producer of Base and Precious Metals
Russian Economic Forum
London
April 2004
Norilsk Nickel Overview
HEADQUARTERS
MATROSOV MINE
KOLA DIVISION
GIPRONIKEL
ZAO POLYUS
LENZOLOTO
POLAR DIVISION
STILLWATER
MINING
COMPANY
13%
20%
3%
~40%
Montana USA
12%
1.3%
Metal
Market Share
London
Murmansk
Magadan
Saint Petersburg
Norilsk
Distribution Network
• London, UK
Moscow
Krasnoyarsk
Irkutsk
• Zug, Switzerland
• Hong Kong, China
• Pittsburgh, USA
2
Leading Market Positions in 2003
Largest Nickel Producers
(% share of world production)
Largest Palladium Producers*
(% share of world production)
Largest Platinum Producers*
(% share of world production)
25
50
40
20.0
20
40
35.9
~ 40
30
15.5
30
15
8.4
10
6.7
5
18.2
20
5.0
0
12.6
9.1
10
Inco
0
Norilsk
Nickel
Falcon- BHP WMC
bridge Billiton
Anglo
Platinum
Impala
Platinum
6
4
2
0
10
10
8
6.5
5.2
5.1
Lonmin
Anglo
Platinum
Impala
Platinum
Lonmin
Norilsk
Nickel
Largest Gold Producers
(% share of world production, proforma for NN)
Largest Copper Producers
(% share of world production)
12
10
8
~ 12
10
5.6
0
Norilsk
Nickel
18.8
20
6
4.7
3.2
3
4
2.9
2
8.9
7
6.7
6.4
4.6
3.6
3.5
1.3
0
Note: (*) Analysts’ estimate
for Norilsk Nickel
Source: Company reports
3
Industry Leading Profitability
Key Financials*
EBITDA Margin
(USD in millions)
(%)
5 000
40
4 382
3 000
30
3 094
20
2 000
1 000
1 023
411
28
38
34
32
29
25
20
18
2001
2002
28
22 22 24
11
809
315
10
0
2001
N
Revenues
Operating Profit
Adjusted Net Profit
2002
or
ils
k
Ni
ck
BH
el
P
B
Fa illit
on
lc
on
br
id
ge
W
M
C
Ri
o
A
Ti
ng
nt
lo
o
A
m
er
ic
an
0
In
co
4 000
35
Source: Company reports
Note: (*) The previously reported figures for 2001 have been restated to account for changes in the purchasing power of the Rouble (the measurement
currency) and are stated in terms of the measurement unit current at the date of the balance sheet. For comparison purposes 2001 financial statements
were restated to reflect asset revaluation, new accounting policies, and the introduction of some best practices in financial disclosure. Net profit was
adjusted to exclude the non-cash-flow changes in fair value of an embedded derivative of USD 269 million (2001 - USD 824 millions)
4
Breakdown of Revenues
(2002 - 100% = USD 3 094 million; 2003 - management estimates)
2003E
2002
By metal
6%4%
7%
13%
54%
23%
Nickel
Copper
Platinum
Palladium
Gold
11%
9%
57%
16%
By geography
10%
13%
8%
9%
73%
Europe
America
Asia
Russia
18%
59%
10%
5
Average Metal Prices in 2003
Nickel (USD per ton)
Palladium (USD per ounce)
18 000
300
Note: (*) Realized price of 60 tons pledged against the
loan has been excluded from calculations
14 000
250
10 000
200
ARP (2003E) = 9 619*
150
6 000
Platinum (USD per ounce)
Copper (USD per ton)
2 600
900
2 200
800
ARP (2003E) = 1 791
700
1 400
Source: Bloomberg
27
.1
2.
03
01
.0
1.
03
03
2.
.1
27
30
.0
6.
03
600
03
1.
.0
ARP (2003E) = 693
30
.0
6.
03
1 800
01
ARP (2003E) = 197
6
PGM Markets
•
Palladium
Platinum
•
•
•
Auto manufacturers started switching back from platinum to
palladium in autocatalyst production boosting demand
Automakers continue to destock palladium
The palladium market is currently in a material surplus
The platinum market is in deficit for the fourth consecutive year, and
is expected to move into balance in 2005 as South Africa increases
production
Platinum & Palladium Price (LPPM)
Platinum/Palladium Price Ratio
(in USD per ounce)
4
Source: Bloomberg
03
17
.1
2.
03
20
.0
6.
01
.0
1.
02
0
22
.1
2.
100
02
1
25
.0
6.
300
3-year average
01
2
01
500
27
.1
2.
01
25
.0
6.
02
22
.1
2.
02
20
.0
6.
03
17
.1
2.
03
3
01
.0
1.
01
30
.0
6.
01
700
27
.1
2.
900
5
01
Platinum
Palladium
30
.0
6.
1 100
7
Stillwater Acquisition
Stillwater Mining Company
• In 2002 Stillwater produced 476,000 ounces of palladium and 141,000 ounces of platinum
Transaction
• Norilsk Nickel acquired 55.5% of Stillwater’s common stock
• Consideration consisted of two parts:
– USD 132 MM in cash
– approximately 877,000 ounces of palladium
Creating Value
• Provides a solid distribution platform for PGMs in the US, improving access to the key end-users
• Increased reliability and supply in the palladium market preempting the substitution effect and promoting the
use of palladium
• Geographical diversification of the mineral resource base/reduction of country risk
Stillwater Adjusted Share Performance
Exchange Ratio (Ounces per share)
300
0.06
250
Stillwater
Palladium
S&P 500
0.04
200
3-year average
150
0.02
100
01
.0
4
01
.
07
.0
3
01
.
01
.0
3
01
.
07
.0
2
01
.
01
.
12
.0
3
23
.
09
.0
3
23
.
06
.0
3
23
.
Source: Bloomberg
01
.0
2
0.00
50
8
Palladium Sales in 2003
• Contracts signed for 100% of annual production plan
– 95% of the sales contracts are for 1-year or longer
– 75% of the contracts are with end-users
– Signed up many consumers from the dentistry industry in Europe
Sales
• Plan active promotion campaign to increase palladium usage
• Sales of PGMs in the US increased in the 2nd half of 2003 after
closing of Stillwater transaction
Palladium Sales in North America
(USD in millions)
2H
1H
250
(USD in millions)
75
2H
1H
60
200
8.5x
150
113
100
7.5x
45
45
30
50
0
Platinum Sales in North America
90
24
2002
0
2003E
31
15
10
2002
2003E
9
Nickel Market Overview - 2003
•
Record year for nickel producers
– Stainless steel demand growth of 6% in 2003
– Growing nickel consumption in China
– Stainless steel production reached approximately 1 million tons
•
– Reduction in production (-25 thousand tons) as a result of Inco strike
– Market price reached 14-year high
Tight nickel market in the next 2-3 years
– No major expansion projects until 2006 (Voisey’s Bay)
– Low volumes of available scrap
Nickel Price ( LME, in USD per ton)
16 000
12 000
8 000
03
17
.1
2.
03
20
.0
6.
02
22
.1
2.
02
25
.0
6.
01
27
.1
2.
01
6.
.0
30
.0
01
Source: Bloomberg
1.
01
4 000
10
Nickel Sales
•
•
•
•
Production rose to 238,800 tons in 2003, up 19,000 from 2002 level
70,000* tons delivered to the market from inventory
Sales to Asia rose to 25% of overall export sales volume from 12% in 2002
May release additional 15,000 tons out of inventory**
Norimet and Exports
Sales in Russia
2004 Sales/Production
Forecast
Nickel Sales
(In thousand tons)
350
280
15**
210
297*
140
231
230
9
11
12
2001
2002
2003E
245
70
0
Note: (*) Including 60 tons pledged against the loan; (**) forecast .
2004F
11
The Leading Gold Producer
2003E Production
•
100% stake acquired in Russia’s largest gold producer
in October 2002 for USD 226 million
•
One of the largest gold deposits in Russia Olimpiadinskoye
•
A controlling stake of 50.7% acquired in August 2003
for RUR 1,033 million (~USD 34 million)
Natalkinskoye deposit with proven reserves of 250
tons
Feasibility Study underway
ZAO Polyus
OAO
Matrosov Mine
•
•
OAO
Lenzoloto
Norilsk
•
•
•
•
44.9% (58.6% voting) acquired in September 2003
for RUR 4,665 million (~USD 153 million)
Reserves of 200 tons and resources of 100 tons
“Key” to Sukhoi Log deposit
Gold production as a by-product in the process of
Nickel production in Taimyr Peninsula
830 000
32 000
320 000
130 000
With current annual production of 1.3 MM ounces,
Norilsk Nickel is one the world’s 10 largest gold producers
12
Acquisition of 20% stake in Gold Fields Ltd
Gold Fields
• The 4-th largest gold producer
• Over 4.3 million ounces of attributable annual gold production
• 84 million ounces of mineral reserves
• Primarily operations in South Africa, Ghana and Australia
Transaction
• Norilsk Nickel acquired approximately 98.5 million ordinary shares (20% stake) of Gold
Fields from Anglo American Plc
• Total consideration USD 1,160 MM in cash
– USD 400 MM – own cash
– USD 800 MM – 6 months unsecured financing provided by Citigroup Global Markets
at Libor plus 1.5%
Creating Value
• Consistent with the strategy to increase Norilsk Nickel position in the gold mining industry
• Exploratory discussions on a broader alliance between Norilsk Nickel and Gold Fields
• Geographical diversification
• Attractive valuation – acquired at 7% discount to market price
13
Gold Market
•
Gold has rallied steadily since the beginning of 2001, settling at the current level of above
$400/tr.oz.
•
Dollar weakening and risk aversion among investors and speculators are the key drivers
•
Mine gold supply is likely to fall in the near term due to declining grades
•
Liberalization of the Chinese gold sector is likely to result in long-term demand growth from this
potentially important consuming nation
Gold Price & NN Group Production
(USD per ounce(lhs); in millions of ounces(rhs))
450
1 600
2001
2002
2003*
400
1 200
350
800
830
300
400
130
03
17
.1
2.
03
20
.0
6.
02
22
.1
2.
02
25
.0
6.
01
27
.1
2.
01
0
30
.0
6.
01
01
.0
1.
Source: Bloomberg
134
129
128
250
Note: (*) Excluding Lenzoloto
and Matrosov Mine
Polyus
Polar Division
14
Further Development of Gold Business
•
•
Acquisition of the mining rights for the
Sukhoy Log deposit (reserves of 33MM
ounces) would increase annual production by
a further 0.9MM
In December 2003 Polyus won the rights for
geological survey and development of the
Titimukhta gold field (reserves of 0.6MM
ounces)
•
Continuing geological exploration in existing
mining areas
•
Exploratory discussions with Gold Fields on
a broader alliance
Largest Gold Producers
(in millions of ounces, proforma for NN)
10
8
8.9
7
6
4
2
6.7
6.4
4.6
3.6
3.5
1.3
0
Source: Company reports
15
Corporate Governance Achievements
• Payout of interim dividends
• Russian Parliament and President signed amendments to the law lifting the secrecy regime
from PGM production and reserves data
• Election of further independent directors to the Board
• Awards and Recognitions
• Standard & Poor’s: improvement to 5th position in 2003 from 13th in 2002 in the Russian
transparency and disclosure survey of Russia’s 45 largest companies
– Survey based on three blocks of criteria:
– Ownership structure and investor relations
– Financial and operational information
– Board and management structure and processes
• RTS and “Securities Market” magazine: Winner of the nomination for best annual report and #1 in
“best information disclosure” in the sixth annual reports and websites contest featuring 85 Russian
leading companies (December 2003)
• Investors Protection Association of Russia: most significant improvement in corporate governance
(2002)
• Euromoney: Norilsk Nickel named “a leading company in Russia for corporate governance” in
2002
16
2004 Objectives
•
Transparency
–
–
•
Distribution
–
–
•
Publish base metal reserves audit in accordance with international standards
(Q1, 2004)
Publish PGMs production and complete PGMs reserves audit (Q4, 2004)
Further increase long-term contracts and share of direct sales to end-users
Enter into long-term agreements with major car producers
Improve financial management
–
–
Continue reducing labor costs by reducing number of employees
Cut social costs
17
2004 Objectives (continued)
• Optimize production
– Implement development strategy released in 1Q 2003
– Finalize renovation of flash smelters at Nadezhda to increase efficiency and
capacity (to increase recovery rate and cut costs of production)
– Research collective flotation and high-grade matte leach refining technologies
– Put Pelyatka natural gas field into operation as a major step towards implementing
the long-term energy strategy
• Corporate Development
– Evaluate domestic opportunities in gold and titanium
– Consolidate gold assets into one company
– Exploit opportunities in the restructuring of Russia’s power sector
– Evaluate further opportunities
18
The Leading Mining Company
Norilsk Nickel shares are traded on:


RTS (GMKN$ RU) and MICEX (GMKN4(5) RM) in Moscow
ADRs in New York (NILSY US), London (MNOD LI) and Berlin (NNIA GR)
Norilsk Nickel Share Price Performance vs. Mining Indexes
(in US dollars for NN; indexes adjusted to NN share price)
Norilsk Nickel in RTS
MSCI - World Met & Min
HSBC Global Mining 100
HSBC Global Nickel
HSBC Global Platinum
70.00
55.00
40.00
25.00
Source: Bloomberg
04
.2
00
4
01
.
01
.2
00
4
01
.
10
.2
00
3
01
.
07
.2
00
3
01
.
04
.2
00
3
01
.
01
.2
00
3
01
.
10
.2
00
2
01
.
07
.2
00
2
01
.
04
.2
00
2
01
.
01
.2
00
2
10.00
01
.

19