Norilsk’s Capital Spending Targets Russian Assets

Russia’s Norilsk Nickel, the world’s largest producer of nickel and palladium, held an Unveiling New Strategyevent for investors in London on October 4. The new corporate strategy especially targets realization of the full potential of Norilsk’s Russian asset base at its Polar Division on the Taimyr peninsula and its Kola Division on the Kola peninsula in Arctic Russia.

Norilsk expects it capital expenditures to average $2 billion/year from 2014 to 2018. The new capital spending plan prioritizes operating improvements at the Polar Division by maximizing high-margin production utilizing existing infrastructure; developing the greenfield Skalisty mine, with a potential ore capacity of 2.4 million metric tons (mt) per year; and expanding and upgrading the Talnakh concentrator into a “world-class” operation.

Capital spending to develop the Skalisty mine is budgeted at $1.9 billion between 2014 and 2022. Construction is 28% complete. Ore reserves total 58 million mt at average metal grades of 2.8% nickel, 3.3% copper, 7.8 g/mt palladium, and 1.7 g/mt platinum. First run-of-mine ore from the underground mine is scheduled for 2014.

The Talnakh concentrator currently has throughput capacity of about 7.7 million mt/y. The planned expansion is targeting 10.2 million mt/y. Engineering design and procurement of long-lead equipment are in progress. Construction will begin in 2014, and commissioning is planned for 2017. Capital spending for the project is estimated at $800 million.

Norilsk will also undertake a turnaround at its Kola Division to bring it to a level of sustainable profitability by year-end 2014.

Norilsk is placing increased focus on the copper and platinum-group-metal resources in its existing portfolio. Over the five years from 2013 to 2018, copper production is scheduled to increase from 358,000 mt/y to a range of 420,000 to 445,000 mt/y, palladium from 2.58 million oz/y to a range of 2.73 million to 2.84 million oz/y, and platinum from 626,000 oz/y to a range of 665,000 to 690,000 oz/y. Nickel production is expected to remain stable at about 230,000 mt/y.

Norilsk’s new corporate strategy contemplates that all production assets in its portfolio will meet its “Tier I” asset criteria by 2015. The company defines projects as “Tier I” if they are large-scale, deliver greater than $1 billion in revenue, have an EBITDA margin more than 40%, and have a reserve life of greater than 20 years.

Non-core and international assets in Norilsk’s portfolio are planned for divestment between 2014 and 2016. Norilsk currently has nickel mining operations in Australia and Botswana and a nickel refinery in Finland.

As featured in Womp 2013 Vol 11 -