Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Russian miner Nornickel said on Wednesday that Asia had become the company’s largest market in terms of revenue for the first time, as it posted a 79% year-on-year drop in first-half net profit after key metals prices declined.
Nornickel is the world’s largest producer of palladium and refined nickel. While it has not been directly targeted by Western sanctions over the conflict in Ukraine, it has been pivoting to new markets as it faces problems importing equipment and transporting goods abroad.
“Successful diversification of metal sales resulted in Asia becoming the largest market with a revenue share of almost 50% for the first time in the company’s history,” Nornickel said.
Europe, formerly Nornickel’s dominant market, accounted for just a quarter of sales in H1.
Net profit dropped from $5.1 billion to $1.1 billion year-on-year in the first half, while revenue fell 20% to $7.2 billion. Nickel prices fell about 28% so far this year due to rising production in Indonesia.
“The unfavourable geopolitical background has created new risks for Nornickel’s operations,” chief financial officer and senior vice-president Sergey Malyshev said.
The weakening rouble and revised schedules for a number of projects led the company to lower its investment forecast for 2023 to $3.5-3.8 billion from $4.7 billion, he said.
In 2022, investment was $4.3 billion and Nornickel had planned for a similar capex level through to 2025. Nornickel is reviewing its strategy and investment.
Earnings before interest, tax, depreciation and amortization (EBITDA) fell 30% year-on-year to $3.4 billion on lower revenue.
Free cash flow rose to $1.35 billion in H1. Malyshev said Nornickel has been optimising its debt portfolio.
But cash outflows will be “significantly affected” by the expected fourth-quarter payment of a one-off windfall tax the Russian government is levying on big business
Despite Nornickel avoiding sanctions, many partners voluntarily cut ties, he said, affecting sales, logistics, financing and creating huge uncertainty.
“Management is conducting systematic work to mitigate risks, build new supply chains, find new clients and markets, redraft projects and change equipment suppliers,” Malyshev said.
Nornickel said it was actively searching for suppliers to fulfil its production program for this year and next.
Pivoting to new markets and developing new supply chains significantly increased finished goods stockpiles, which will be substantially reduced by end-2023, Nornickel said.
Nornickel expects a global nickel market surplus of 200,000 tonnes this year and 180,000 tonnes in 2024. The global palladium deficit is seen at 0.2 million ounces in 2023, and a 0.3-million-ounce surplus expected in 2024.
(By Anastasia Lyrchikova, Polina Devitt and Alexander Marrow; Editing by Jason Neely and Sharon Singleton)
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