DJ NORNICKEL REPORTS 1H2021 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS
MMC Norilsk Nickel (MNOD) NORNICKEL REPORTS 1H2021 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS 05-Aug-2021 / 14:30 MSK Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement. -----------------------------------------------------------------------------------------------------------------------
PRESS RELEASE
Public Joint Stock Company «Mining and Metallurgical Company «NORILSK NICKEL» (PJSC «MMC «NORILSK NICKEL», « Nornickel», the «Company», the «Group»)
NORNICKEL REPORTS 1H2021 INTERIM CONSOLIDATED IFRS FINANCIAL RESULTS
Moscow, August 5, 2021 - PJSC MMC Norilsk Nickel the world's largest palladium and high-grade nickel and a major producer of platinum and copper, reports interim consolidated IFRS financial results for six months ended June 30, 2021.
1H2021 HIGHLIGHTS -- Consolidated revenue increased 33% y-o-y to USD 8.9 billion owing to higher metal prices and increase of palladium
sales volumes, which have more than offset production losses caused by the temporary suspension of Oktyabrsky and
Taimyrsky mines due to their flooding and Norilsk concentrator, following an incident in February this year; -- After the water inflow to the underground mines was effectively stopped in late March, the Oktyabrsky mine resumed
full production by the middle of May, while the Taimyrsky mine has been restored to 80% capacity and is expected to
return to full capacity by the end of this November. Norilsk concentrator has reached 85% of its design capacity
and is expected to return to full operations in early October this year; -- EBITDA increased three-fold y-o-y to USD 5.7 billion due to higher revenue and lower base effect of 1H2020, when
USD 2.1 billion environmental provision related to the diesel fuel spill in Norilsk industrial area in May 2020 was
recognized; -- CAPEX increased 80% y-o-y to almost USD 1 billion driven by stepped up investments in Sulfur project, South Cluster
development as well as increased capital repairs and equipment upgrades investments aiming at the improvement of
industrial safety and modernization of core assets; -- Net working capital increased more than two-fold to USD 1.8 billion mostly driven by one-off and seasonal factors
such as changes in income tax payable and amortization of advance payments by customers. The Company confirms its
working capital target of approximately USD 1 billion by the end of 2021; -- Free cash flow decreased 48% y-o-y to USD 1.4 billion driven by the reimbursement for the environmental damages in
the amount of USD 2.0 billion and increased capital expenditures; -- Net debt increased 64% y-o-y to USD 7.7 billion owing to lower free cash flow, payment of final dividend for 2020
and the share buyback, with net debt/EBITDA ratio increased marginally to 0.7x as of June 30, 2021; -- On June 1, 2021, the Company's Board of Directors approved holistic environmental strategy covering six major areas
(air, water, soil, tailings and waste management, biodiversity and climate change) and setting 21 concrete targets
for 2030; -- In June 2021, the Company paid final dividend for 2020 in the amount of RUR 1,021.22 (approximately USD 13.89) per
ordinary share; -- In June 2021, the Company completed share buyback, having repurchased from 5,382,079 ordinary shares at RUB 27,780
(around USD 384) per share for a total amount of approximately USD 2.1 billion.
RECENT DEVELOPMENTS -- In July 2021, Nornickel got a lawsuit from the Federal Agency for Fishery for 58.7 billion rubles. Based on the
preliminary analysis the Group believes that the amount of damages in monetary terms to aquatic bioresources
resulting from the 2020 diesel fuel spill as stated in the lawsuit by Rosrybolovstvo is overstated. It exceeds by
many times the results of investigations carried out by specialized scientific institutions and experts, which have
assessed the impact of this incident on aquatic bioresources. After completion of the analysis of the lawsuit,
management plans to defend position of the Company in court and provide it's calculation of damages.
KEY CORPORATE HIGHLIGHTS
USD million (unless stated otherwise) 1H2021 1H2020 Change,%
Revenue 8,943 6,711 33%
EBITDA¹ 5,700 1,838 3x
EBITDA margin 64% 27% 37 p.p.
Profit for the period 4,304 45 96x
Capital expenditures 990 551 80%
Free cash flow² 1,397 2,679 (48%)
Net working capital2,4 1,758 7125 2x
Net debt² 7,734 4,7055 64%
Net debt/12M EBITDA 0.7x 0.6x5 0.1x
Dividends paid per share (USD)³ 13.9 17.9 (22%)
1) A non-IFRS measure, for the calculation see the notes below.
2) A non-IFRS measure, for the calculation see an analytical review document ("Data book") available in conjunction with Consolidated IFRS Financial Results on the Company's web site.
3) Paid during the current period
4) Normalized on receivables from the registrar on transfer of dividends
5) Reported as of December 31, 2020
MANAGEMENT DISCUSSION AND ANALYSIS
The President of Nornickel, Vladimir Potanin, commented on the results,
"First half of 2021 was full of events, which had quite an opposite impact on our financial performance. On one hand, the suspension of two mines in Norilsk division and an accident at Norilsk concentrator resulted in a loss of production and thereof lower revenue and profits. Currently, Oktyabrsky mine is operating at full nameplate capacity, Taimyrsky mine has recovered to 80% capacity, while Norilsk concentrator has gone through a number of repairs and is running at 85% of capacity. Full recovery of both mines and the concentrator is expected in the fourth quarter 2021. On the other hand, our metal basket enjoyed strong support from the positive trends in the global commodity markets. However, the sustainability of such a benign price environment will depend on how quickly the short-term recovery of the global economy after an unprecedented recession of last year will fade away, how much longer the world's largest central banks could continue their extremely soft monetary and fiscal policies and how much further investors' optimism regarding the pace of decarbonization of the global economy can grow.
At the same time, we are experiencing a material increase in tax burden following the recent changes in tax regime in Russia. On top of the three and a half times increase in mineral extraction tax that has already affected our 1H2021 financial results, the Russian government has just announced a temporary re-introduction of export duties on nickel and copper in 2H2021 and according to public comments by government officials, it appears that adjustment of taxation system might not be done yet.
The execution of our sustainability agenda has step changed. We have developed and approved new holistic environmental and climate change strategy, focusing on the mitigation of adverse impact on air, water, soil, biodiversity as well as on waste and tailings management. The strategy includes specific targets for each of these areas, which have already been incorporated into short- and long-term management KPIs. As part of the 'clean air' programme we continued the execution of the Sulfur project at Nadezhda metallurgical plant in Norilsk. Our capital expenditures in the reported period almost doubled to USD 1 billion including investment in environmental programmes and modernization of fixed assets. At the same time, our broad-scale modernization of energy infrastructure aimed at improvement of industrial safety and energy efficiency resulted in lower carbon emissions in 2019-2020 allowing us to produce the first batch of certified carbon-neutral nickel.
Our financial performance in 1H2021 was quite strong. Revenue increased 33% year-on-year to USD 8.9 billion on the back of higher metal prices and sales of palladium and rhodium driven by the ramp up of a new line for production of precious metals from chlorine leaching residues at Kola MMC. EBITDA grew three-fold to USD 5.7 billion owing mostly to a low base effect of 1H2020, when expenses of around USD 2 billion related to the reimbursement of environmental damages caused by the diesel spill were recognized. Working capital increased to USD 1.8 billion driven by a number of seasonal and one-off factors that we expect to be reversed in the second half of the year. In spite of higher EBITDA, free cash flow decreased almost 50% to USD 1 billion mainly due to the payment of environmental damages to Russian Federal Service for Supervision of Natural Resource following an arbitration court ruling.
Net debt increased to USD 7.7 billion, while net debt/EBITDA ratio was almost flat at 0.7x staying at a conservative level, well below our average leverage through the cycle. Financial stability of the Company is confirmed by investment grade credit ratings assigned by all three major international agencies".
HEALTH AND SAFETY
(MORE TO FOLLOW) Dow Jones Newswires
August 05, 2021 07:30 ET (11:30 GMT)
DJ NORNICKEL REPORTS 1H2021 INTERIM CONSOLIDATED -2-
In 1H2021, despite ongoing improvement in our management of health and safety of employees, the lost time injury frequency rate (LTIFR) increased 60% y-o-y in 1H2021 from 0.2 to 0.32, but remaining remained below the global mining industry average. The increase in LTIFR rate was mainly driven by a stricter methodology applied to reporting injuries. We have increased improved the transparency in reporting and quality of injuries data collection. The improvement in transparency aims at not only fatalities and serious injuries, but also injuries of medium and light severity as well as micro ones. In addition to providing incentives for a better reporting, the disciplinary measures have been also tightened for concealing injuries of all categories to encourage management to disclose full information about incidents. Regretfully, we tragically suffered five fatal accidents during the reported period (same as in 1H2020), partly due to the group accident at Norilsk Concentrator, where we suffered 3 casualties lives were lost in February 2021. Each accident has been duly reported and thoroughly investigated to by the Board of Directors, while management and has designed pre-emptive initiatives been thoroughly investigated in order to address causes leading to such prevent fatalities in the future. The management reiterates its major strategic focus of transforming Norilsk Nickel into a zero-fatality mining company adhering to the world's best safety standards. A wide range of programmes and various initiatives to prevent occupational injuries and fatalities are being rolled out and implemented.
A comprehensive review of industrial safety requirements and standards is scheduled for 2022, in order to identify priority areas, where for reducing those safety violations that potentially leading to fatal and serious injuries occur.
METAL MARKETS
Nickel in 1H2021: owing to overly optimistic market sentiment the price rallied 40% y-o-y to USD 17,466 per tonne; global demand increased by 25% y-o-y driven by post-COVID recovery across all nickel-consuming industries with the battery sector being especially strong (+81%) driven by the surge in BEV sales in China and Europe; global supply increased 7% as result of ongoing ramp-up of Indonesian NPI capacity (+65%) while Class-1 nickel ouput was down 10%; combined exchange stocks of LME and SHFE were down 10% YTD to 238 kt as a reflection of the market running a temporary deficit.
Optimism toward the global economic recovery, rising forecasts of electric vehicles production and US dollar weakness boosted by massive stimulus packages across major economies propelled the nickel price to almost USD 20,000 per tonne in the end of February, the highest level since 2014 . However, the Tsingshan's announced intention to convert its Indonesia-produced nickel matte into nickel sulphate brought an end to the 11 months-long bull run sending the price down to USD 16,000 per tonne. After a short consolidation phase in April, nickel resumed its upward trend along other base metals on higher inflation expectations getting above USD 18,500 per tonne by the end of June.
In 1H2021, average LME nickel price increased 40% y-o-y to USD 17,466 per tonne.
The post-COVID rebound in global nickel demand, having started already in 4Q2020, accelerated in 1H2021 to a 25% y-o-y increase. The recovery in stainless industry has been led by China and Indonesia, which increased their 300-series output by 25% and 114% y-o-y, respectively. This was fueled not only by the recovery of Chinese domestic consumption, but also by support measures for consumer spending rolled out in US and EU resulting in growing Chinese export of stainless-contained finished goods. In other major stainless-producing regions the output has also returned to pre-pandemic level: EMEA and Americas were up 15% y-o-y, India and Japan +11% y-o-y, and South Korea +6% y-o-y.
Battery sector demand was exceptionally strong driven by a dramatic 177% surge in BEV sales in January-May on the back of government incentives and overall strengthening of consumer sentiment. China was the epicenter of growth with sales surging +283% y-o-y followed by the USA (+150% y-o-y) and Europe (+123% y-o-y).
Nickel demand in other non-stainless applications (including specialty steels, standard alloys, superalloys and plating) increased by 7% y-o-y alongside the recovery of end-use demand in aerospace, automotive and oil and gas industries.
In 1H2021, global nickel production increased by 7% y-o-y to 1.3 mln tonnes. The Indonesian NPI capacities albeit were ramping-up somewhat slower than expected, still added over 160 kt of new supply (Indonesian capacity increased 65%), which more than offset the decline in Chinese NPI output (down 17% or 45 kt) and lower nickel metal production caused by the suspensions of Nornickel's two underground mines and a concentrator in Norilsk, a strike at Vale Sudbury and reduced operating rate at Glencore's Murrin Murrin.
We estimate that the nickel market flipped to a temporary deficit of 87 kt in 1H2021, with the deficit being registered mainly in Class 1 nickel products, as exemplified by drawdown of nickel exchange inventories, increasing market premiums and geographic arbitrage. In 1H2021, Combined nickel inventories at LME and SHFE decreased by 10% to 238 kt from 265 kt as of year-end as a reflection of the market running a deficit.
Nickel outlook: neutral in the short-term, but more positive longer-term; we expect the market deficit to sustain in 2021, but turn into a surplus in 2022 on the back of further ramp-up of Indonesian NPI and HPAL capacities; the battery sector, currently growing at a double-digit rate driven by government incentives, legislative support and production cost optimisation, will remain the major consumption driver in the next 5-10 years as the world is steadily moving towards the carbon-neutral economy.
We expect the primary nickel demand to increase 15% y-o-y in 2021 and 11% y-o-y in 2022 primarily driven by stainless steel production in China and Indonesia, continuing demand growth in the battery sector and a moderate recovery of other non-stainless industries.
Primary nickel supply is anticipated to increase 11% y-o-y in 2021 and accelerate to 16% y-o-y growth in 2022. The ongoing ramp-up of NPI and HPAL projects in Indonesia and recovery of Class 1 nickel production are going to offset positively the reduction of NPI output in China, which we expect to be driven by the shortage of ore supplies and depletion of domestic ore stocks.
In the longer term, the global EV market is expected to maintain double-digit growth rates driven by government incentives, rolled out almost everywhere. The global capacity of battery manufacturing is estimated to increase to more than 3 TWh by 2030 (from 750 GWh in 2020), which should be a very strong driver of nickel demand. Even though the competition from LFP (iron-phosphate, no nickel contained) battery cathodes may pose a potential threat to nickel demand in the battery sector short-term, in the longer run (2025-26) we expect its market share to reduce to approximately 10% (from 20% currently) as nickel-intensive 8:1:1 NCM technology will be widely adopted. In our base case scenario, the nickel consumption in batteries is forecasted to grow above 1 mln tonnes by 2030, driven by tightening environmental standards, subsidies-driven autos' electrification and cost optimization of battery cell production. In addition, according to the Nickel Institute estimates, the annual demand for nickel in low carbon power generation is expected to increase to almost 1 mln tonnes by 2050 (from 35 kt currently) , mostly driven by the expansion of wind power and concentrated solar power and, to a lesser extent, by marine and geothermal energy.
Copper in 1H2021: moderate deficit emerged as supply was unable to catch up with the post-pandemic economic recovery; recently announced multi-billion infrastructure projects focused on carbon neutrality instigated additional investment demand taking the copper price to a record high of USD 10,725 per tonne in May.
Having started the year at USD 7,900 per tonne, copper price steadily increased during 1H2021 on the back of global economic recovery, supported by improving sentiment on a successful global rollout of vaccination, new governments' stimulus packages and higher speculative interest. Weak US dollar, lower than expected copper production, the decline in LME stocks, higher speculative interest and the announcement of Biden's administration infrastructure plan drove the copper price to an all-time record high of USD 10,725 per tonne at the beginning of May. However, prices retreated below USD 10,000 per tonne over the second half of May owing to a recommendation issued by China's Banking and Insurance Regulatory Commission to stop selling investment products linked to commodities futures. The temporary strengthening of US dollar and confirmation that China's State Reserves Bureau would start selling metals (including copper) in the coming months dragged copper price down to USD 9,000 per tonne, but at the end of June it somewhat recovered to USD 9,385 per tonne.
The average LME copper price in 1H2021 increased 65% y-o-y to USD 9,092 per tonne.
After a sharp COVID-related decrease in 2020, copper demand recovered moderately (3% y-o-y) in 1H2021growth. Europe was 6% y-o-y, leading the global recovery of copper consumption.
Global mine production increased 1% y-o-y as lockdowns eased and the industry adapted to stricter sanitary protocols. Most notable growth was seen in Indonesia, Peru, Congo and Panama due to the additional output from new and expanding operations.
Exchange stocks in 1H2021 increased to 411 kt (+55% YTD) from a multi-year low level at the beginning of January.
Copper outlook: neutral as the price is already well above the cash-cost curve; the market to experience a moderate deficit of 282 kt; global consumption to increase 3% in 2021 in line with the improvement of broader economic conditions with supply staying roughly flat year-on-year.
(MORE TO FOLLOW) Dow Jones Newswires
August 05, 2021 07:30 ET (11:30 GMT)