Norilsk Nickel Set to Double Investment in 2010

MOSCOW — Norilsk Nickel will double its investment program next year as it considers buying a pricey oil and gas tanker, company CEO Vladimir Strzhalkovsky said Wednesday. The metals giant will boost nickel production by at least 15,000 tons to 300,000 tons worldwide in 2010, while extraction at its Russian units will remain at the same level as this year, Strzhalkovsky said at a news briefing. “However, there will be a 5 percent decrease in copper production next year, following a 5 percent decrease this year,” he said. He linked the decrease in copper production to the low quality of copper ore, saying it was not rich enough to justify costs. Norilsk extracted 285,000 tons of nickel in 2009, including 232,300 tons in Russia, while copper production amounted to 406,500 tons including 382,200 tons in Russia, Strzhalkovsky said. He would not comment on the company’s second half results, but hinted that revenues were expected to grow quarter on quarter because nickel prices are on the rise. Norilsk reported $4 billion in first-half revenues, down 51 percent from $8.3 billion during the same period in 2008. Net profits were down 84 percent year on year, from $2.6 billion to $439 million. Nickel prices have almost doubled to $20,533 a ton in August after dropping in March to $9,374 a ton. Nickel was trading at $16,067.00 a ton on the London Metal Exchange on Wednesday afternoon. Strzhalkovsky said Norilsk has not decided whether it will pay dividends this year. “Our shareholders meeting will decide on this issue on the recommendation of the board of directors, but it has not been discussed so far,” he said. “In my opinion, such decisions should be weighed,” he added. “The desire of any shareholder to get a return on an investment is understandable, but I think they should also realize that they can earn from the growth of a company’s stocks.” Norilsk Nickel is owned by Vladimir Potanin’s Interros and Oleg Deripaska’s RusAl (25 percent each), the owners of Metalloinvest (4 percent) and state-owned VEB (3.7 percent). Norilsk Nickel shares quadrupled to a year high of 4,308 rubles a share on the ruble-denominated MICEX on Oct. 22, up from 1,228 rubles on Jan. 21, and they closed at 4,120.92 rubles ($135.2) Wednesday. The company is in relatively good shape amid the recession and did not need to seek additional cash to cover debt in 2009, Strzhalkovsky said. “We did not borrow money throughout 2009 and are unlikely to borrow in the three weeks left until year-end. We even repaid $1 billion in 2010 debt in advance,” he said. He said an additional $3 billion in debt would come due next year, including $1.8 billion by the end of June, “so we may have to attract additional money.” Strzhalkovsky named Norilsk’s foreign acquisitions, particularly Canada’s LionOre, as the reason for its debt problems. Norilsk Nickel acquired 100 percent of the Canadian gold producer in 2007 for $5.2 billion. Strzhalkovsky said the company had a number of options for cash but did not see any urgency in borrowing. “We will choose and borrow when we think it is necessary,” he said. “We don’t want a situation where we borrow money and then realize we don’t know how to invest it.” Norilsk will invest 71 billion rubles into its operations in 2010, including 46 billion rubles into Norilsk Nickel enterprises and 25 billion rubles into OGK-3, a utility that it owns, Strzhalkovsky said. “Among our investment projects is the construction of a gas pipeline to supply gas for our needs,” he said. “We will also invest in the modernization of a port in Murmansk and invest in the development of the Gluboky and Skalisty mines.” Norilsk Nickel is also in talks with a shipbuilder to acquire a tanker capable of carrying oil and natural gas simultaneously, he said. He would not disclose the price of the ship or identify the builder, saying only that “such a vessel may cost more than any other project.” The company invested 28 billion rubles into Norilsk Nickel enterprises and 10 billion rubles into OGK-3 in 2009, he said. Strzhalkovsky said investment might increase even more next year if attractive opportunities arise. “We’re looking at various projects, but I will not disclose any details,” he said. “It’s not like spending 45 to 46 billion rubles in 2010 is all that we can afford and after that a Stalingrad starts for us,” he said, referring to a World War II battle for survival. “The company can find additional cash if needed.”