2018 Annual report
ADVANCING
ON SUSTAINABLE
GROWTH
2018 ANNUAL REPORT
MMC NORILSK NICKEL
Reporting period from 1 January 2018 to 31 December 2018
The 2018 annual report of PJSC "MMC "Norilsk Nickel"
(MMC Norilsk Nickel, Nornickel, the Company) incorporates
the results of MMC Norilsk Nickel and other operations
of the Norilsk Nickel Group (the Group). For the purposes of this
annual report, the Norilsk Nickel Group shall refer to a group
of companies that includes MMC Norilsk Nickel and its
subsidiaries. The largest subsidiaries of the Norilsk Nickel
Group and their shares in the capital of MMC Norilsk Nickel
are presented in the 2018 consolidated IFRS financial
statements. The accuracy of information contained in this
report was confirmed by the Audit Commission and approved
by the Company’s Board of Directors and Annual General
Meeting of Shareholders.
PRELIMINARILY APPROVED
by the Board of Directors of MMC Norilsk Nickel
Minutes No. GMK/11-pr-bd of 26 April 2019
ACCURACY OF INFORMATION CONFIRMED
by the Audit Commission of MMC Norilsk Nickel
Opinion of 19 April 2019
APPROVED
by the Annual General Meeting of Shareholders
of MMC Norilsk Nicke
Minutes No. 1 of 10 June 2019
Vladimir POTANIN
President,
Chairman of the Management Board
MMC NORILSK NICKEL
Sergey MALYSHEV
Senior Vice President —
Chief Financial Officer
MMC NORILSK NICKEL
1
2
3
4
5
6
7
8
9
10
COMPANY OVERVIEW
Company profile
Key highlights
2018 milestones
Geography
Business model
4
6
8
10
12
MARKETS
COMMODITY
Nickel
Copper
Palladium
Platinum
40
46
50
56
SUSTAINABLE
DEVELOPMENT
116
Human resources
Occupational
health and safety
Environment and biodiversity
Social and charity initiatives
125
129
141
RISK REPORT
196
Risk management
Key risks
197
CONSOLIDATED
FINANCIAL
STATEMENTS
220
STRATEGY
Chairman’s letter
President’s letter
Strategic priorities
Key investment projects
16
18
20
28
BUSINESS OVERVIEW
64
Mineral base
Operating performance
Products and distribution
Energy assets
Transportation assets
Innovations
Financial performance (MD&A)
72
90
93
96
100
102
CORPORATE
GOVERNANCE
Corporate governance structure
Controls system
Remuneration
156
184
192
C
O
N
T
E
N
T
S
SHAREHOLDER
INFORMATION
Securities
Dividend policy
Shareholder rights
Transparency
208
212
215
216
ADDITIONAL
INFORMATION
270
The interactive version
of the 2018 Annual
report is available at:
https://ar2018.
nornickel.ru
1
Company
overview
>
>
>
>
>
Company profile
Key highlights
2018 milestones
Geography
Business model
4
6
8
10
12
4
Company profile
The Norilsk Nickel Group includes MMC
Norilsk Nickel (Nornickel or the Company)
and its subsidiaries. MMC Norilsk Nickel
is the core (parent) company of the Norilsk
Nickel Group.
> > >
For more details on the asset structure,
please see
p. 272–273
The Norilsk Nickel Group (the Group) is Russia’s
leading metals and mining company, the largest
palladium and refined nickel producer in the world,
and a major producer of platinum, copper and cobalt.
In addition, the Group produces rhodium, silver, gold,
iridium, ruthenium, selenium, tellurium, and sulphur.
34
The Company’s prod-
ucts are distributed to
countries
across the globe
>
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
5
COMPANY'S
MISSION
Through the efficient
use of natural resources
and equity, we supply
mankind with non-ferrous
metals, which make the world
a more reliable place
to live in and help people
realise their aspirations
for development
and technological progress.
EXPLORATION
PROCESSING OF MINERALS
MINING
Mineral resources
The Group's assets
Nornickel exploits a unique mineral resource base of Tier I mining assets representing one
of the world’s richest reserves of metals based on size and relative grades. Moreover this
resource base is virtually unrivalled in terms of the range of metals such as nickel, copper
and a full range of PGMs and other precious metals.
Measured and indicated resources
Proven and probable reserves
> > >
For more details
on the Company's
reserves and
resources, please see
p. 276–277
785 mt
of ore
6.9 mt of nikel
12.1 mt of copper
3.8 kt of PGM
(123 moz)
2,209 mt
of ore
15.3 mt of nikel
23.5 mt of copper
8.2 kt of PGM
(263 moz)
The Company’s reserves and resources as at 31 December 2018 are reported according to the JORC Code,
include wholly owned international assets and exclude mineral deposits in Chita region.
Russia. Polar Division, Medvezhy Ruchey (100%
stake), Kola MMC (100% stake), GRK Bystrinskoe
(Bystrinsky GOK, 50.01% stake).
Finland. Norilsk Nickel operates Norilsk Nickel
Harjavalta (100% stake), a nickel refinery
facility that was acquired by the Group in 2007.
The refinery is fully integrated into the Group’s
production flow, processing the Group’s Russian
feedstock.
South Africa. The Group owns 50% of Nkomati,
which operates a nickel mine of the same name.
The co-shareholder of the company is African
Rainbow Minerals.
Nornickel's ranking in the global metals industry
MARKET SHARE
in palladium
(39%)
in nickel
refined (23%)
No. 1
No. 4
No. 1
No. 8
in rhodium
(8%)
in cobalt
(3%)
No. 4
No. 11
in platinum
(10%)
in copper
(2%)
Market share of palladium, nickel, platinum and rhodium calculated on the basis
of production refined metals and of the copper and cobalt – the basis of metals
contained in ore mined.
In addition to the production facilities, the Group operates:
Сaptive
global sales
network
Fuel
and energy
assets
A wide range
of R&D
facilities
River fleet, river
and sea port terminals,
and a unique Arctic
cargo sea fleet
> > >
For more details
on environmental programm,
please see
p. 129–140
Nornickel implements
an unprecedented
environmental
program
aimed at improving
the environmental situation
in Russia and in the world
Annual Report > 2018Nornickel www.nornickel.com 6
FINANCIAL HIGHLIGHTS
OPERATING HIGHLIGHTS
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
7
KEY
HIGHLIGHTS
The year 2018 was marked by a favourable macro environment
and a strong operating performance. The markets of almost all
our core commodities except for platinum posted strong price
gains, cost inflation was subdued as domestic inflation in Russia
was low. Nornickel increased copper and palladium sales
volumes by approximately 20% as well a realized tangible results
from operating cost savings due to the implementation of a long-
term efficiency program, including digitalization projects. Nornickel
also generated maiden EBITDA of almost USD 100 million from its
newly commissioned Bystrinskoye copper project.
Global industry
leading EBITDA
margin in 2018
Nornickel
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
53%
52%
45%
41%
28%
27%
Global industry
leading dividend
yield in 2018
Nornickel
Peer 2
Peer 3
Peer 4
Peer 5
Peer 6
11.8%
9.6%
5.9%
4.6%
4.4%
4.0%
Revenue (USD bn)
Net profit (USD bn)
11.9
8.5
8.3
9.1
2.0
1.7
2.5
2.1
11.7
+
28%
3.1
+
44%
2014
2015
2016
2017
2018
EBITDA (USD bn)
EBITDA margin (%)
48
5.7
50
4.3
47
3.9
53
+
9 p.p.
44
4.0
6.2
+
56%
2014
2015
2016
2017
2018
Investments (USD bn)
Volumes of core metals from own Russian feed
Nickel
Ni
Copper
Cu
(kt)
Palladium
Pd
(koz)
Platinum
Pt
(koz)
(kt)
197
210
217
344
398
474
2,526
2,728
2,729
610
650
653
> > >
For more details
on the Company's operating
performance, please see
the Historical Operating
performance section
on p. 274
Medium-term production outlook
is available in the 2018 strategy
update presentation (slide 28)
disclosed on Nornickel’s website at
https://www.nornickel.com/
upload/iblock/88f/20181117_
Strategy_Update_2018_FINAL_
ENG.pdf
2016
2017
2018
2016
2017
2018
2016
2017
2018
2016
2017
2018
+3%
+19%
+0.04%
+0.3%
SUSTAINABLE PERFORMANCE HIGHLIGHTS
Выбросы парниковых газов (млн тонн)
Stay-in-Business CAPEX
Commercial CAPEX
Уровень производственного травматизма (%)
Bystrinsky project
Выбросы парниковых газов (млн тонн)
GHG emissions (mt)
1.3
0.1
0.6
0.7
1.7
0.1
0.9
1.7
0.7
2.0
0.3
0.9
0.6
0.4
1.6
0.8
0.2
0.7
0.7
0.7
2014
2015
2016
2017
2018
Dividends paid per share in the reporting period (USD)
Dividend yield
(%)
13.6
14.0
20.7
18.1
7.2
18.8
11.8
21.3
7.3
7.8
2014
2015
2016
2017
2018
Net debt (USD bn)
Net debt / EBITDA (x)
0.6
3.5
1.0
4.2
1.2
4.5
2.1
8.2
1.1
7.1
2014
2015
2016
2017
2018
> > >
For more details on financial results, please see the Financial
Results (MD&A) section and IFRS Financial Statements
on p. 102–113, 222–269
Peer group includes Anglo American, BHP, Glencore, Rio Tinto, Vale.
Dividend yield for each calendar year was calculated using the amount
of dividends recommended by the Board of Directors for this calender year
and the average ADR price for this year according to Bloomberg.
Nornickel has started the second phase of its environmental
programme and launched infrastructure upgrades, digitalisation
of data and other initiatives which comply and support with the long
term national strategic priorities set by the Russian Federal
Government.
Уровень производственного травматизма (%)
Total number of accidents (%)
LTIFR
0.48
0.62
FIFR
0.44
0.35
0.07
0.12
0.11
48%—
0.23
0.07
0.05
—
29%
10
10
10
2016
2017
2018
Доля повторно используемой воды (%)
Water reused (%)
92
93
86
85
86
1%+
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Электроэнергия из возобновляемых источников (%)
Электроэнергия из возобновляемых источников (%)
Electric power generated from renewable sources (%)
Выбросы SO2 (млн тонн)
SO2 emissions (mt)
1.9
2.0
1.9
1.8
1.9
7%-
4%+
40
36
38
44
+
16%
26
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
Доля повторно используемой воды (%)
Global ESG initiatives
> > >
For more details
on the Company’s
sustainability ratings, please
see the Strategic Priorities
section on p. 20–27
Annual Report > 2018Nornickel www.nornickel.com> 8
2018 MILESTONES
CREDIT RATING UPGRADE
Moody’s upgraded Nornickel’s credit rating to Ваа3 (investment
grade) and raised its outlook to positive. The Company's credit
ratings from all the three international rating agencies (Fitch,
Moody’s and S&P Global) currently qualify as investment grade.
> > >
For more details on the initiative, please see
p. 212
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
9
BASF AND NORNICKEL
Nornickel and BASF signed a long-term agreement to supply
nickel and cobalt feedstock from Norilsk Nickel Harjavalta.
The agreement is part of the Company’s ambitious strategy
to step up its exports of battery materials to the global
market.
> > >
For more details on the initiative, please see
p. 10–11, 27, 92
NORNICKEL AND RUSSIAN
PLATINUM
LAUNCH OF THE SULPHUR
PROJECT
Nornickel and Russian Platinum signed a strategic
partnership agreement to set up a 50/50 joint venture (JV)
with a view of developing the Norilsk Industrial District
deposits. The partners’ contributions to the authorised
capital of the JV will come in the form of a licence to develop
the Maslovskoye Deposit held by Nornickel and a licence
to develop the southern part of the Norilsk-1 Deposit
and the Chernogorskoye Deposit held by Russian Platinum.
Copper Plant embarked on the Sulphur Project, Nornickel’s
most ambitious initiative to dramatically improve
environment in the Norilsk Industrial District.
UPGRADE OF AIRPORT RUNWAY
Norilsk Airport completed the runway renovation spanning
three summers (2016–2018) amid the airport’s continued
operation. This was the initiative first of its kind both in Russia
and internationally, with the project delivered on schedule
and to the highest quality requirements. The new 2,821×45 m
runway is fully compliant with all the certification standards.
The project also saw the upgrade of two taxiways and partial
repairs of the concrete pavement in the apron for civil aircraft.
START OF PRE-COMMISSIONING
AT BYSTRINSKY GOK
The Company started phased hot commissioning
at Bystrinsky GOK, with the first batch of copper concentrate
shipped to China as early as in April. As at the year-end,
the facility produced 19.4 kt of copper concentrate.
> > >
For more details on the initiative, please see
p. 20, 23, 37, 130, 134
> > >
For more details on the initiative, please see
p. 97, 146–147
> > >
For more details on Bystrinsky project, please see
p. 32, 84–85
Annual Report > 2018Nornickel www.nornickel.com> 10
We believe in stronger demand for our products going forward and
deem it necessary to put together a portfolio of growth projects.
During the next few years, we will be exploring potential development
of the Southern Cluster, further expansion of Talnakh Concentrator,
and the joint project with Russian Platinum to develop disseminated
ore fields in the southern part of the Norilsk Industrial District.
GEOGRAPHY
Vladimir POTANIN
President of Nornickel
DEVELOPING THE REGIONS OF OPERATION
Development of the ore mining base
Arctic Palladium –
JV with Russian Platinum
As part of the project, Nornickel and Russian Platinum signed
a framework agreement on strategic partnership. The partners’
contributions to the JV's authorised capital comes in the form
of a licence to develop the Maslovskoye Deposit held by Nornickel
and a licence to develop the southern part of the Norilsk-1 Deposit
and the Chernogorskoye Deposit held by Russian Platinum.
The three licence blocks included in the JV perimeter lie in close
proximity and are highly complementary in geology and logistics.
Norilsk
Norilsk-1
Nornickel
Chernogorskoye
(сopper-nickel ores)
Russian
Platinum
Southern part
of Norilsk-1
Russian
Platinum
Maslovskoye
Nornickel
Prospective site – developing disseminated ores
in the northern part of Norilsk-1
The Southern Cluster project is set to give new life to the mature deposit.
The existing infrastructure will enable the Company to start stripping
as early as in 2019, with the first batch of ore to be mined in 2021–2022.
At the first stage, production will be ramped up by expanding the pit
(open-pit operations), and at the second stage – through underground
mining. The Southern Cluster also includes secondary resources
accumulated at tailings pit No. 1 since 1940s.
Specially protected areas
The Company’s Polar Division is located some 80–100 km
away from the buffer zone of the Putoransky Reserve
(Krasnoyarsk Territory), while Kola MMC’s sites are only
10–15 km away from the Pasvik and the Lapland nature
reserves (Murmansk Region). Bystrinsky GOK lies 50 km
away from the Relict Oaks State Reserve (Trans-Baikal
Territory). They are zones untouched by human activities,
with their flora and fauna living in harmony with nature.
Nornickel assists the local communities and government
authorities in effectively protecting and exploring these
ecosystems.
Social initiatives for local
communities
The World of New Opportunities, a charity programme,
seeks to create propitious conditions and opportunities
for sustainable development across the Company's
footprint. The programme covers the Krasnoyarsk Territory
(Norilsk, Taimyrsky Dolgano-Nenetsky Municipal District)
and the Murmansk Region (Monchegorsk and Pechengsky
District). The Company supports public initiatives
and makes sure to impart new skills in social project
management to local communities. The programme
embraces several major initiatives, such as Academy
for Social Partnership and Development, Socially
Responsible Initiatives Competition, We Are the City! social
technologies forum, Social Entrepreneurship training,
FabLab R&D creativity laboratories, and the Arctic Wave
festival of R&D discoveries.
LOGISTICS HUBS
1
2
3
Murmansk
Transport Division
(Murmansk)
Arkhangelsk
Transport Division
(Arkhangelsk)
Polar Transport
Division (Dudinka)
4
5
6
Lesosibirsk Port, Yenisey
River Shipping Company
(Lesosibirsk)
Krasnoyarsk Transport
Division and River Port
Bystrinsky Transport
Division (Chita)
P r o s p e c tive sales markets
CORE OPERATIONS
Polar Division
Kola MMC
Mining
Concentration
Metallurgy
Mining
Concentration
Metallurgy
Medvezhy Ruchey
Bystrinsky GOK
Mining
Concentration
Mining
Concentration
E
E N F I E L D
R O J E C T S
R
RICAL G
JECTS P
Kola
Peninsula
O
T
HIS
O
R
P
PROSPECTIVE
PROJECTS
G
Polar
Division and
Medvezhy
Ruchey
Finland
1
1
2
1
2
3
Norilsk
Talnakh
3
BASF
Norilsk Nickel
Harjavalta
Kola MMC
4
5
JV with
Russian Platinum
Southern
Cluster
Norilsk Nickel Harjavalta
Metallurgy
Nkomati
Mining
Concentration
P
R
R
O
O
J
W
E
T
C
H
T
S
C
h
i
n
a
Bystrinsky
GOK
6
4
Zabaykalsky
Kray
A
sia
CIS
e
p
o
r
u
E
A
S
U
SUPPORT
FOR PROTECTED
AREAS, NATURE
RESERVES
AND PARKS
Pasvik
1
2
Lapland Biosphere
Reserve
3 Putoransky
Reserve
4 Relict Oaks
Reserve
USA
With stricter emission
regulations in place, Pd
autocatalyst loadings
are expected to increase despite
the trend towards smaller engines
Europe
Partnership with BASF to produce battery
materials for the European automotive
market
CIS
The CIS alloy market is expected to grow
in line with the rising global demand
for stainless steel
DEVELOPMENT
OF LOCAL
COMMUNITIES
World of New
Opportunities
charitable
programme
Asia–China
China 6 Standard forces car
manufacturers to boost per
unit PGM loadings
Australia
Nkomati
South Africa
COMPREHENSIVE
DEVELOPMENT ACROSS
ALL GEOGRAPHIES AS THE KEY
FOR ACHIEVING LONG-TERM GOALS
Honeymoon Well
(License)
Annual Report > 2018Nornickel
12
BUSINESS
MODEL
As a public company, Nornickel seeks to incorporate sustainability principles
into its corporate governance framework. This goes beyond the pragmatics
of investor appeal and shareholder confidence. Having ESG factors in mind
at each stage of stakeholder value creation helps us improve efficiency of our
operations and maintain our competitive edge.
Andrey BOUGROV
Senior Vice President
A well-balanced Board
of Directors with
an independent director
as its Chairman
Focus on sustainable
development
ESG-based
remuneration
• ESG factors are part
of the remuneration
criteria for top
managers
• The bonus part
of the executives’
remuneration is also
linked to the LTIF
rate, which accounts
for 10–20%
on their KPI cards
• Gareth Penny –
• The Audit
Independent Director,
Chairman of the Board
of Directors
• Out of 13 members
of the Board, 6
are independent
directors
• Most of the directors
on each Committee
of the Board of Directors
are independent
and Sustainable
Development
Committee is chaired
by Roger Munnings,
Independent Director,
member of the Budget
Committee of MMC
Norilsk Nickel’s
Board of Directors,
Fellow of the Institute
of Chartered
Accountants
in England and Wales,
formerly KPMG
President for Russia
and CIS
• Health
and safety matters,
the Company’s key
environmental projects
and social initiatives
are supervised
at the highest
level of corporate
governance
Improvements
in efficiency
of disclosure
and information
exchange
• A dedicated ESG
Strategy section
at the corporate website,
with an overview
of the Company’s
environmental, social
and governance
practices
• Accelerated IFRS
disclosure
• Publication
of Sustainability
Reports based on GRI
standards
S TA K EHOLDERS
Government
Shareholders
ISS
Rankings
Governance – 4,
Environmental – 4,
Social – 3
(1 – lowest risk,
10 – highest risk)
Reaffirmed
in December 2018
Sustainalytics
Score 69 (out of 100)
Reaffirmed
in December 2018
Environmental
protection facilities
DIVIDEND
YIELD
11.8%
+
4.6 pp
Environmental
Responsibility
Rating
of Russia's Metals
and Mining Companies
4th (out of 33)
National
projects
MSCI ESG
Rating B
Reaffirmed
in December 2018
ISS-Oekom
Rating C- (medium)
Reaffirmed
in December 2017
NET
PROFIT
+
44%
3.1
USD bn
Local
communities
UN Global
Compact
Member since 2016
Other sales
3%
Other metals
44%
+
9% –
0.70
–
0.71
0.59
3.01
EBITDA
6.2
+
USD bn
56%
Personnel
+
25%
FTSE4Good
Emerging Index
Score 3.1 (out of 5)
Reaffirmed
in June 2018
REVENUE
11.7
+
28%
USD bn
3.67
51% +
2.98
+
23%
I
N
T
E
G
R
A
T
E
D
E
N
V
I
R
O
N
653
koz Pt
M
E
NTAL PROGRAMME E F F I C I E N C Y P R
E
M
M
A
R
G
O
Ni
219
kt
2,729
koz
Pd
Cu
474
kt
Gas and energy
assets
Production
assets
MEASURED
AND INDICATED RESOURCES
2,209
mt of ore
PRODUCTION
OUTPUT
25.2
mt of ore
6 sea vessels
555 river vessels
15 aircraft
18 helicopters
Transportation
and logistics
assets
Pd
Ni Pt
PROVEN
AND PROBABLE RESERVES
785
mt of ore
SUSTAINABLE BUSINESS MODEL –
STRONG CORPORATE GOVERNANCE
Annual Report > 2018Nornickel
2
Strategy
>
>
>
>
Chairman’s letter
President’s letter
Strategic priorities
Key investment projects
16
18
20
28
16
CHAIRMAN’S LETTER
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
17
Dear Shareholders,
2018 was a very successful year for the Company.
Positive dynamics of metal prices, together
with robust operating performance, resulted
in exceptionally strong financial results
and shareholder returns.
Our revenue increased 28% to USD 11.7 billion,
while EBITDA was up 56%, reaching USD 6.2 billion,
the highest level achieved in the last seven years.
Importantly, we delivered free cash flow of almost
USD 5 billion, with an extraordinary revenue to free
cash flow conversion ratio of over 40%. We decreased
our working capital by over USD 1 billion and reduced
our net leverage and this has allowed us to continue
paying industry-leading dividends.
Sustainability of our financial performance would be
impossible without our relentless focus on health,
safety and environment. In 2018, we continued
to take a systematic approach to identifying
and eliminating unsafe practices in our workplaces.
Lost-time injury frequency rate has dropped
over 70% during the last five years and is running
well below the industry average at the moment.
We also achieved substantial progress in decreasing
the number of accidents, although we are yet to meet
our absolute target of a zero fatality rate across
all assets.
We reiterate our commitment to radically decreasing
our sulphur dioxide emissions in our smelting
operations by more than four times in the Norilsk
region by 2023, and by half in the northern Kola
Peninsula by 2020. Last year we launched a large
reconstruction project for sulphur capturing at the Copper
and Nadezhda Plants. We believe that our comprehensive
environmental program, costing 2.5 billion dollars over the next
four years, should pay off in the long term, as the majority
of investors are becoming more environmentally conscious
with the increasing use of ESG metrics in their investment
strategies.
It has been almost six years since I became Chairman
of the Board at Nornickel, during which time the company has
transformed in line with new investment and business principles,
and successfully converted these into concrete actions and plans.
Those actions established a solid base able to withstand volatility
and deliver superior returns, even against a negative macro-
economic backdrop.
At the same time, the company has been able to create additional
value for its shareholders outside of the current operating
perimeter and started the transition to a production growth
strategy. We estimate that the commodity markets will need more
of our key metals in the long-term, and our proven operational
model and vast resources in the ground can respond to these
growing demands.
As you may know, we are considering the expansion outside
of our current footprint via new projects such as South Cluster
and Arctic Palladium. The Company is capable of executing large-
scale projects, not only on the back of its existing asset base,
but also “from scratch”, as it demonstrated with the Bystrynsky
copper project. We also see additional opportunities
to create value through extending cooperation downstream
in the value chain, especially within the battery materials sector.
This cooperation should drive further improvements stemming
from expected operational synergies. In addition, it should also
support the strong, long-term balance for Class-1 nickel products
and Nornickel’s leading role in this rapidly growing market.
We are working to raise the bar through our digital transformation.
Using a combination of existing technologies such as autonomous
underground equipment, positioning systems and 3D mine
planning, we are incorporating digital technology across
our assets. Our goal for these digital applications – mine
dispatching, metal accounting, better predictive maintenance
planning, as well as the creation of an advanced data analytics
centre – will enable our people to unlock their full potential through
real-time, data-driven decisions.
The macro-economic situation in the world remains uncertain,
but I believe that global megatrends support the future
of the metals we produce. Our low-cost structure, focused
on sustainable development and a disciplined approach
to capital allocation, makes our Company a genuine forerunner
in our industry and one of the best propositions for investors.
At the same time, our belief in continuous improvement is more
crucial than ever, in operations, of course, but as importantly,
with regard to corporate social responsibility as well.
GARETH PETER PENNY
Chairman of the Board of Directors,
MMC Norilsk Nickel
Annual Report > 2018Nornickel www.nornickel.com> 18
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
19
PRESIDENT’S
LETTER
Dear shareholders,
The Company ended 2018 having proudly achieved
quite a few accomplishments. We successfully
meet our commitments and would like to thank you
for supporting the initiatives that help strengthen
the Company’s investment case and also
promote better lives together with Nornickel.
I would like to speak about our performance
for the year and share our strategic plans, which,
when implemented, will contribute to the Company’s
sustainable development as well as enhance
shareholder value.
FINANCIAL HIGHLIGHTS
The year 2018 was marked by a favourable macro
environment and a strong operating performance.
The markets of almost all our core commodities
except for platinum posted strong price gains,
cost inflation was subdued as domestic inflation
in Russia was low. Nornickel increased copper
and palladium sales volumes by approximately 20%
as well a realized tangible results from operating
cost savings due to the implementation of a long-term efficiency
program, including digitalization projects. Nornickel also
generated maiden EBITDA of almost USD 100 million from its
newly commissioned Bystrinskoye copper project.
As result, in 2018, our top line surged 28% YoY to USD 11.7 bn,
while EBITDA grew 56% to USD 6.2 bn reaching the highest level
since 2011. With an EBITDA margin of 53% Nornickel became
one of the most profitable global diversified mining companies
in the 2018 reporting period.
As promised to our shareholders, we reduced net working capital
by nearly USD 1.3 bn to less than USD 900 mln by the year-end.
We consider this level quite sustainable in the medium-term.
Capital expenditure reduced to USD 1.6 bn as a number of large
capital-intensive projects such as downstream reconfiguration
at the Polar Division and the construction of Bystrinsky GOK were
completed in 2017.
We are pleased to report that 2018 was also a record year for free
cash flow which reached almost USD 5 bn. The Company’s
leverage returned to mid-cycle average, with net debt/EBITDA
ratio falling to 1.1x. Led by Moody’s in January 2018, Nornickel
was assigned “investment grade” by all three major rating
agencies.
OCCUPATIONAL SAFETY AND ENVIRONMENT
STRATEGIC PRIORITIES AND INVESTMENTS
Occupational health and safety as well as risk mitigation
are among the Nornickel’s top priorities. In 2018 we continued
our strident efforts to enhance occupational health and safety
at our facilities. As a result, the number of workplace injuries
reduced from 60 to 32, bringing the lost time injury frequency
rate (LTIFR) down from 0.44 to 0.23 which is significantly
below the global industry average. Unfortunately, we could
not completely avoid fatal injuries, however, their total dropped
from 8 to 6. We will continue to make every effort to achieve a zero
fatality rate.
Nornickel reiterated its commitment to significantly improve
the environmental impact in the regions of operation. Nornickel’s
main focus is to drastically cut sulphur dioxide emissions
at the Russian sites by 2023, by a factor of four at Norilsk
and by half within the city of Nikel on the border with Norway.
The completed first stage of our environmental programme
has already helped reduce sulphur dioxide emissions by 11%
at Polar Division and by approximately 30% on the Kola
Peninsula, while emissions within Norilsk's residential area
shrank by 30–35%. In September 2018, the Company announced
the start of the second stage of the environmental programme
and launched the upgrade of sulphur production at Copper
Plant. The second stage will also centre around the construction
of facilities for capturing sulphur dioxide and neutralising
sulphuric acid at Nadezhda Metallurgical Plant along
with the upgrade of smelting operations at Copper Plant.
SOCIAL RESPONSIBILITY
Constant improvements in the quality of life of the Company's
employees and their family members is another cornerstone
of our corporate strategy. Last year, we continued
our programmes to provide the Nornickel's employees
with housing in Russia’s mild climate regions along
with encouraging the World of New Opportunities public
initiatives.
Our support for sports is becoming more consistent. It is
not limited to the financing of occasional sports events,
as Nornickel strives to develop a more comprehensive approach
by investing in sports facilities, new schools, sports grounds
and mass events promoting sports and healthy lifestyles.
I would also like to highlight our sponsorship of the XXIX Winter
Universiade in Krasnoyarsk.
A strong performance in 2018 and a favourable macroeconomic
backdrop allow us to confidently plan and commit to continued
investments in sustainable development. We have started
on the second stage of our ambitious environmental programme
and have launched projects to upgrade infrastructure.
At the end of last year, we announced our strategic goals
for 2025+ to increase the production of non-ferrous metals
by 15% and platinum group metals by 25%. This will be
driven by greater mining volumes at the existing mines
of the Talnakhskoye Deposit and the development of the Southern
Cluster along with the third stage of Talnakh Concentrator
expansion project. Investment decisions on these projects
are expected to be made in late 2019.
In addition, as the largest global producer of high-grade nickel,
we have every chance to take leadership as a supplier of materials
for the fast-growing electric car battery manufacturing industry.
Our capital investment over the immediate four-year period
from 2019 to 2022 will be USD 10.5–11.5 bn, with USD 1.3–1.5 bn
to be spent on promising growth projects, such as the Southern
Cluster and capacity expansion of the Talnakh Concentrator.
On a separate note, our investment programme is fully
in line with the programme of Russia's strategic development,
and our projects for improving the environment and digitalising
the regions that host our operational footprint have already
become national.
Despite the ambitious capital investment programme, we keep
paying our shareholders dividends on a regular basis. We are
confident that Nornickel will remain the global mining industry’s
leader in terms of total shareholder return and reiterate our focus
on sustainable shareholder value generation by developing
Nornickel’s Tier I assets.
VLADIMIR POTANIN
President,
Chairman of the Management Board
MMC Norilsk Nickel
Annual Report > 2018Nornickel www.nornickel.com> 20
STRATEGIC
PRIORITIES
I believe that we are witnessing the beginning of a new stage in Nornickel’s growth story rather than the end of the Company's
successful value enhancement exercise. I am positive about this as our Company has its feet firmly on the ground thanks to its
robust long-term financial model and strategy focused on value creation fundamentals and underpinned by the sustained
competitiveness of the world’s best Tier I assets.
Vladimir POTANIN
President of Nornickel
Growth
in the market
of hybrid
and electric cars
3–5
times
by 2025 vs 2018
The Company’s strategy is fully compliant with Russia’s national priorities.
Nornickel leads the charge in Russia’s metals and mining sector in terms of its environmental
activity, green investments, social and charitable expenses, and contribution to the domestic
investment growth. In 2019–2022, total investments in Russia will stand at around USD 11.5 bn.
It also stands to note that some of the Company’s initiatives are included in the Russian
Government's list of national projects.
Focus on safety and environment
• Zero tolerance policy towards workplace fatalities
• 15% occupational injuries reduction each year
• Continued implementation of the comprehensive environmental
programme
Focus on operating and financial efficiency
• 5–8% growth in metals output in the short term
• An increase in labour productivity of up to 15% (2020 vs 2017)
• Programme for digitisation and automation of production processes
• Keeping cash costs below the inflation rate
Rollout based on the current assets
• 15–25% growth in metals output in the long term (2025+)
• Production ramp-up at the unique Talnakh ore mining base
• Development of the Southern Cluster and expansion of cutting-edge
concentration capacities at Talnakh Concentrator as promising growth
projects
• Main stage of renewing the infrastructure and key production facilities
Analysis of new growth opportunities
• Assessment of Blue Sky – a unique partnership project wich Russian
Platinum designed to bring on stream Arctic Palladium, potentially
the world’s largest greenfield PGM cluster
• New products
INVESTMENTS
IN 2019–2022
Framework investment
programme
6.5–7.5
USD
bn
Mining projects
Maintenance of infrastructure
assets
23%
18%
Maintenance of fixed assets
16%
Reconfiguration
IT / automation / efficiency
improvement initiatives
6%
3%
Promising growth projects
1.3–1.5
USD
bn
Growth projects
12%
Sulphur Project
2.5
USD
bn
Environmental programme
22%
Urbanisation
Population and
average income
growth
Tighter regulations
on pollutant
emissions
National project
Environment
PGM and nickel
consumption
outpacing
production
growth
Tighter environmental
standards leading to higher
PGM and nickel consumption
National project
Labour productivity
and employment support
Expected demand growth
by 2025 vs 2018
>1
mt of Ni
>2.5
m oz of Pd
National programme
Digital economy
in Russia
National project
International
cooperation
and exports
LONG-TERM TRENDS AS THE DRIVER
BEHIND THE GROWTH
Annual Report > 2018Nornickel
22
FOCUS
ON SAFETY AND
ENVIRONMENT
Strategic
objective: development
of occupational safety culture
and zero tolerance policy
towards workplace fatalities
LTIFR for 2013–2018
to be reduced by
71%
SAFETY
Record low LTIFR (1*10–6)
Reduced number of accidents
(employees)
–
71%
0.8
0.62
0.48
0.44
0.35
0.23
2013 2014
2015
2016 2017 2018
• The Company reiterates its commitment
to developing a strict safety culture in all
its business units
• The management sees occupational
health and safety as a key strategic
priority and remains focused
on achieving a zero workplace
fatality rate
Improvements in this area were driven
by the implementation of risk mitigation
standards, safety communication
for employees and dedicated risk
mitigation programmes
•
6
8
13
26
52
43
74
56
94
2018
2017
2016
2015
2014
2013
14
8
12
Lost-time injuries
Fatal injuries
•
•
In 2018, the number of registered
fatalities and lost-time injuries decreased
by 47% y-o-y
In 2018, saw 45 internal audits
of the Company's occupational health
and safety management system
• 105 employees were fired
for the violation of cardinal safety rules
(vs 149 in 2017)
LTIFR
(per 1 mln hours)
Nornickel 2018
5
4
3
2
1
0.23
1.05
1.35
1.65
2.9
5.9
Industry average
Source: Company data, Renaissance
Capital Research
LTIFR
remains below
for the global
mining industry
average
Company overview
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23
The environmental national project is one
of the focus areas for Nornickel. It is crucial
for the Company to tackle environmental threats
to successfully promote its products, improve
image and encourage corporate responsibility
for the quality of life in the regions of Nornickel's
operations. For me, solving legacy environmental
issues is of great moral and psychological
significance.
Vladimir POTANIN
President of Nornickel
ENVIRONMENT
Primary Targets
Strategic
objective: set-up
of state-of-the-art green
production facilities
Nickel Plant shut down,
with the SO2 emissions
in the Norilsk residential
area cut by 30–35%
1
Implemented
Sulphur
Project
2
In progress
Polar Division (Taimyr Peninsula)
Kola MMC (Kola Peninsula)
GRK Bystrinskoye (Zabaykalsky Kray)
Optimise the smelting capacity utilisation
rates at the Metallurgical Shop (the
settlement of Nickel) by separating
the concentrate produced at Kola MMC
• Rolled out ongoing monitoring
of the environmental and radiation
conditions
• Built a modern industrial waste landfill
completed with seepage water collection
and treatment systems
• Equipped flue gas emission areas
with cutting-edge gas purification
systems
Copper Plant
• Reconstruct copper production chain,
including the shutdown of conversion
operations
• Expand and upgrade the existing sulphur
production shop
Nadezhda Metallurgical Plant
• Launch a new continuous copper matte
•
converting facility
Implement a comprehensive SO2 capture
solution including production of sulphuric
acid and its subsequent neutralisation
with natural limestone
Reduction of SO2 emissions
at Polar Division (%)
Reduction of SO2 emissions
at Kola MMC (%)
– at least 75%
– at least 50%
2015
2018
2023
2015
2018
2020
100%
compliant with
the Rosprirodnadzor
requirements
Annual Report > 2018Nornickel www.nornickel.com> 24
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25
FOCUS
ON OPERATING
AND FINANCIAL
EFFICIENCY
Target outcomes
of the programme in the short term
Strict cost controls
Keeping cash costs below the inflation
rate (cash costs do not include
Bystrinsky GOK and Nkomati)
Increase in labour productivity
(2020 vs 2017)
15%
Growth in metals output
(2020 vs 2017)
5–8%
Transformation
of the corporate
culture
Strategic
objective:
comprehensive efficiency
improvement programme
The programme includes a package
of interrelated initiatives covering the entire
production chain
1
2
3
4
5
Production upgrade, introduction
of new production standards
and processes
Introduction of practices
and tools for continuous
improvement
Digital transformation
of industrial and management
communications
Integration of efficiency
improvement KPIs into
the employee incentive system
Production reconfiguration,
implementation of innovative
management approaches
Implementation of a cutting-edge chlorine leaching
and nickel electrowinning technology with a 20% increase
in the nickel refining capacity at Tank-House 2 and higher
recovery rates
Refining capacity expansion at Tank-House 2 (kt)
+
20%
120
145
before
2019
Production
Mining
Concentration
Metallurgy
• Initiatives to improve labour productivity
• Ensuring cost optimisation and higher
• Debottlenecking across the production
and equipment performance
• Planning of mining operations using
simulation modelling systems
recovery rates by fine-tuning the reagent
mixes and modes of equipment
operation
• Full-scale roll-out of control systems
• Ore conversion ratio improvements
chain
• Accelerated processing of additional
secondary resources at Copper Plant
through enhanced enrichment
of pyrrhotite tailings at Talnakh
Concentrator
Digitisation
• Introduction of artificial intelligence technologies,
robotisation systems, and digital twins of industrial
facilities
• Putting in place a digital storage layer for all
of the Company's data
• Cost optimisation and debottlenecking across
the value chain
New IT platform opens
up opportunities for
digitising core
operations
IT platform
Infrastructure
• 956 km long
fibre optic
communication
line to Norilsk
• New data
Automation
• Production
control
• Metal balance
• Detectors/
sensors
centres and
data transfer
network
Planning and
record keeping
• SAP ERP
available
at all sites
since 1 January
2019
• 3D-modelling
of mines
Data
analysis
• SAP-based
data analysis
to improve
reporting
• Repairs
planning
and control
The Digital Economy national project
is becoming one of Nornickel's priorities.
We already have over one hundred big data
initiatives in place. But we are not going to stop
at that. Our ambition is to create a digital
platform to disrupt the entire industry.
Vladimir POTANIN
President of Nornickel
Annual Report > 2018Nornickel www.nornickel.com> 26
Strategic objective:
increase metals output
of the current assets by 15–25%
over the next seven years.
ROLLOUT BASED
ON THE CURRENT
ASSETS
ANALYSIS
OF NEW GROWTH
OPPORTUNITIES
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27
Strategic
objective: identification
and creation of new growth
areas for expanding the value
creation chain.
The Company plans to unlock its potential through long-
term growth based on the existing assets and underpinned
by the introduction of state-of-the-art technologies, with efforts
and resources invested in developing the ore mining
base of the Talnakh Ore Cluster and the Southern Cluster
and reaching the design capacity at Bystrinsky GOK.
In the long term, the management pins its production
expansion hopes on the existing Tier 1 assets. This vision
is fuelled by expectations of growth in the commodity markets,
with the demand for key metals getting increasingly stronger
in the long run. The Company has a robust operational model
and extensive geological, technological and human resources
that will allow it to successfully meet the growing market
demand.
Mineral
resources
in the Norilsk
Industrial
District
Resources worth
>USD 700 bn
Resources life at current
production rate
>80 years
Expected demand
growth by 2025
vs 2018
Ni
Pd
more than
1mt
over
2.5 m oz
Growth
opportunities
at the existing assets
Ore output (mt)
>19
>6
2025+
2018
15.6
1.7
>25
17.3
+
>45%
Talnakh
Southern Cluster
Growth in metals
output (2025+
vs 2017)
Ni Cu
+15%
Pd Pt
+25%
1
Development of the unique Talnakh ore mining base
A unique polymetallic ore mining base with more than
6000 mt of proven and probable reserves and over 1.5 bt
of ore in resources.
Production at
the Talnakh Cluster (mt)
13.6
12.0
>19
15.6
+
>20%
2007 2012
2018
2025+
In 2018–2022,
investments in Talnakh
mines development
will total
~2.9
USD bn
Upgrade and expansion at Talnakh Concentrator (subject
to the approval of investment decision)
As part of the project, the Company plans to increase
the capacity at Talnakh Concentrator from 10 to 18 mtpa
and introduce a new more efficient concentration technology,
which will help process most of Talnakh ores at Talnakh
Concentrator, benefit from economies of scale and improve
metal recovery rates at the concentration facilities. Total
investments will stand at about RUB 40 bn, with the project
scheduled for completion in 2023.
2
Promising development projects at the Southern Cluster
(subject to the approval of investment decision)
Southern Cluster is Nornickel’s project to develop reserves
in the northern part of the Norilsk-1 Deposit. With the project
completion in 2027, total mining capacities are set to rise up
to 9 mt. According to the preliminary estimates, investments
in the development of the Southern Cluster will exceed
RUB 70 bn in the span of 15 years. After reaching its target
capacity, the project will yield over 20 tpa of additional PGM
supplies, which puts it in the same league as the world's TOP-5
PGM producers.
The Company’s management keeps looking for new growth
opportunities.
Synergies with the Company's core business come
as an important pre-requisite helping to maximize
the competencies acquired during the rollout of large-scale
projects in unique climatic conditions, optimise capacity
utilisation rates at the existing assets and strengthen
the Company’s position in international markets as part
of the approved marketing strategy.
This new agreement with Russian Platinum fully
fits into our strategic vision, which encourages
us to share risks by developing large-scale
projects jointly with partners. In addition,
a joint venture of this scale will give a powerful
impetus to the social and economic development
of the Krasnoyarsk Territory and Russia's mining
industry in general.
Vladimir POTANIN
President of Nornickel
A strong and stable relationship with one
of the largest and most tech-savvy PGM
processors is an absolute priority for Nornickel.
Sergey BATEKHIN
Senior Vice President
Growth opportunities in the traditional
segments
1
Nornickel and Russian Platinum
In 2018, Nornickel and Russian Platinum signed a framework
agreement on strategic partnership to set up a joint venture
for developing one of the world’s largest PGM deposits located
in the Norilsk Industrial District.
2
Partnership opportunities in processing
and sales
Nornickel and BASF
BASF will build Europe's first site to produce battery
components for the European automotive market next
to Norilsk Nickel Harjavalta, Nornickel's nickel and cobalt
plant. The facility is expected to come on stream at the end
of 2020 with the capacity to produce BASF battery components
for some 300,000 electric vehicles per year. As part
of the project, Nornickel will be looking closely at potential
synergies enabling it to improve production efficiency
and maintain the right balance in the high-grade Ni product mix.
Annual Report > 2018Nornickel www.nornickel.com> 28
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29
KEY INVESTMENT PROJECTS
MINING PROJECTS
Skalisty Mine
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Polar Division).
Project overview
Increasing ore production to 2.4 mtpa
by 2023 by stripping rich and сupriferous
ores at the Talnakhskoye and Oktyabrskoye
deposits.
Highlights
Ore reserves:
Average
metal content:
57 mt
Ni — 3.1%
Cu — 3.6%
PGM — 9.7 g/t
Taimyrsky Mine forms part of Nornickel’s
Polar Division and produces ore
from the Oktyabrskoye Deposit. In 2018,
the mine extracted ca. 3.8 mt of rich ore.
Taimyrsky Mine
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Polar Division).
Project overview
Increasing ore production to 4.1 mtpa
by 2021 by stripping rich copper-nickel ores
at the Oktyabrskoye Deposit.
Highlights
Ore reserves:
Average
metal content:
139 mt
Ni — 1.2%
Cu — 1.9%
PGM — 4.5 g/t
Skalisty mine forms part of Nornickel’s Polar
Division and produces ore from the Talnakhskoye
and Oktyabrskoye deposits. In 2018, the mine
extracted 2.0 mt of rich ore.
2018
2019
2023
2018
2019
2020
2021
• CAPEX – RUB 13.9 bn
(USD 218 mln)
• Ore production reached 2 mtpa
• Sinking of ventilation shaft–10
completed (total of 2.1 km)
• 206 m sinking of skip-cage
shaft–1 (total of 1.9 km out
of 2.1 km)
• Completion of ventilation
shaft–10 construction
• Completion of skip-cage shaft–1
sinking
• Reaching design capacity
• CAPEX – RUB 4.6 bn
(USD 71 mln)
• 6.1 km of underground workings
completed and underground
facilities upgraded
• Production capacity
• Production capacity
commissioning: 130 kt of rich ore
commissioning: 720 kt of rich ore
According to JORC standards.
• Reaching design capacity
Annual Report > 2018Nornickel www.nornickel.com>
30
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Oktyabrsky Mine
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Polar Division).
Project overview
Maintaining ore production at 5.2 mtpa
until 2025 by stripping rich, disseminated
and сupriferous ores at the Oktyabrskoye
Deposit.
Highlights
Ore reserves:
Average
metal content:
219 mt
Ni — 0.7%
Cu — 2.1%
PGM — 5.9 g/t
Komsomolsky Mine forms part of Nornickel’s Polar
Division and produces ore from the Talnakhskoye
and Oktyabrskoye deposits. In 2018, the mine
extracted 3.8 mt of cupriferous ore.
Komsomolsky Mine
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Polar Division).
Project overview
Increasing ore production to 4 mtpa
by 2021 by stripping rich, сupriferous
and disseminated ores at the Talnakhskoye
and Oktyabrskoye deposits.
Highlights
Ore reserves:
Average
metal content:
185 mt
Ni — 0.6%
Cu — 2.6%
PGM — 4.8 g/t
Oktyabrsky Mine forms part of Nornickel’s
Polar Division and produces ore
from the Oktyabrskoye Deposit. In 2018,
the mine extracted 5.2 mt of ore.
2018
2019
2020—2025
2018
2019
2020
2021
• CAPEX – RUB 2.6 bn
(USD 40 mln)
• 4 km of underground workings
completed
• Shared drainage of Taimyrsky
and Oktyabrsky mines
commissioned
• Production capacity
commissioning: 150 kt of rich
ore and 700 kt of сupriferous
disseminated ore
• Production capacity
commissioning: 300 kt
of сupriferous ore
• CAPEX – RUB 2.8 bn
(USD 44 mln)
• 4 km of underground workings
completed
• Production capacity
• Production capacity
commissioning: 200 kt
of сupriferous ore and 226 kt
of disseminated ore
commissioning: 175 kt of rich ore
• Production capacity
commissioning: 225 kt of rich ore
and 185 kt of disseminated ore
• Reaching design capacity
According to JORC standards.
Annual Report > 2018Nornickel www.nornickel.com> 32
PROCESSING PROJECTS
Bystrinsky GOK (Chita Project)
Upgrade of Talnakh Concentrator
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GRK Bystrinskoe (Bystrinsky
GOK) is Nornickel’s new project
for producing copper and gold
(as well as iron) concentrates.
This is the largest greenfield
project in the Russian mining
industry, covering ore mining,
concentration and shipment of end
products to customers. Bystrinsky
GOK is the Company’s 50.01%
subsidiary.
Highlights
Ore reserves:
326 mt
Average content:
Cu — 0.7%
Fe3O4 (magnetite) — 23%
Au — 0.9 g/t
New jobs:
~2
thousand
people
According to the Russian classification
(А+В+С1+С2).
Talnakh Concentrator
is part of the Company’s Polar
Division. It processes rich,
cupriferous and disseminated
ores from the Oktyabrskoye
and Talnakhskoye deposits
to produce nickel-pyrrhotite
and copper concentrates.
In 2018, the plant processed
10.4 mt of ore, with nickel recovery
in bulk concentrate reaching 83.2%
(+1.5% y-o-y).
Key Stage 3 parameters
CAPEX:
RUB 40 bn (USD 0.6 bn)
Ramping up capacity:
from 10 mtpa to 18 mtpa
Building the second phase
of the tailings pit
Commissioning planned for
2023
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Polar Division).
Project overview
Ramping up capacity and implementing
a more efficient concentration technology.
The upgrade is rolling out in three stages.
Stage 1 included reconstructing existing
floatation capacities and replacing flotation
cells that were beyond their useful lives
in order to maintain the concentration
capacity at 7.5 mtpa (completed in 2015).
Stage 2 involved the expansion of the main
building, reconstruction of the reagent
preparation building, and construction
of two ball mills 300 cubic metres each
and five vertical mills, all of which helped
to boost capacity to 10.2 mtpa. This stage
also included the building of the first
phase of the tailings pit. The project was
completed in 2018. Plans for Talnakh
Concentrator–3 include capacity ramp-
up and implementation of a more efficient
concentration technology.
Location
Gazimuro-Zavodsky District, Chita Region,
Zabaykalsky Kray.
Project overview
Open-pit mining at the Bystrinskoye Deposit,
building the mining and processing plant
(MPP) along with all of the associated
infrastructure, including a power line, a 227
km Borzya – Gazimursky Zavod rail line,
and a camp.
Construction of the open-pit mine
and the MPP started in 2013. In 2017,
the 220 kV power line were commissioned
and a camp for 1,047 people was built.
Hot commissioning of the MPP started
in October 2017, with the project expected
to reach its design capacity by 2021.
2018
2019
2020
2018
2019
2020—2022
• CAPEX – RUB 10.7 bln
(USD 168 mln)
• 7.9 mt of ore mined, 19.4 kt
of copper concentrate, 3 t
of gold concentrate and 0.4 mt
of magnetite concentrate
produced. EBITDA – USD 96 mln
•
Increasing ore production
to 8.0 mtpa, producing 40–46 kt
of copper concentrate, 6.0–6.5 t
of gold concentrate and 1.3–
1.4 mt of magnetite concentrate.
• The MPP's reaching design
capacity with the following annual
concentrate volumes:
Cu — 65–70 kt;
Au — 8.5–9.0 t;
Fe3О4 (Fe — 66%) — 1.9–2.1 mt
• CAPEX – RUB 0.8 bn
(USD 12 mln)
• Construction site inspection
and preparatory work completed
• Design documentation developed
• Obtain the State Expert Review
Board’s approval
• Construction and installation
works, equipment delivery,
pre-commissioning
Annual Report > 2018Nornickel www.nornickel.com> 34
Development of the South Cluster
Tank-House refurbishment
Company overview
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Additional information
35
Tank-House 2 produces cathode
nickel as part of Kola MMC’s
Severonickel Plant, and together
with Tank-House 1 made 147 kt
of the product in 2018.
The South Cluster is comprised
of the Norilsk Concentrator
(processing capacity of 9.3 mtpa),
the northern part of the Norilsk-1
Deposit that is developed
by Zapolyarny Mine through
open-pit (Zapolyarny open pit)
and underground (Zapolyarnaya
mine) mining, as well as tailings
pit No. 1 and Lebyazhye tailing
pit. Norilsk Concentrator
processes all disseminated
ores from Zapolyarny Mine
and cupriferous and disseminated
ores from the Oktyabrskoye
and Talnakhskoye deposits.
In 2018, the plant processed
6.8 mt of ore, with nickel recovery
in bulk concentrate reaching 71.9%
(+0.2% y-o-y). Zapolyarny Mine
produced 1.7 mt of disseminated
ore. In 2017, Nornickel established
Medvezhy Ruchey, a subsidiary
that operates the assets
of the Sourthern Cluster.
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Medvezhy Ruchey).
Highlights
Project overview
As part of the Sourth Cluster project, ore
production will be ramped up to 9 ktpa.
This will be done in two stages: first,
by expanding the pit (open-pit operations),
and then – through underground mining.
Project CAPEX until 2022
The project is expected
to reach its design
capacity starting
RUB 45 bn
(USD 0.7 bn)
2027
Ore reserves:
Average
content:
165 mt
Ni — 0.2%
Cu — 0.3%
PGM — 3.9 g/t
Location
Severonickel Plant, Monchegorsk,
Murmansk Region (Kola MMC).
Project overview
Tank-House 2 is expected to boost capacity
from 120 mtpa to 145 mtpa thanks
to upgraded technology and higher recovery.
Tank-House 2 is introducing the technology
of nickel electrowinning from chlorine
dissolved tube furnace nickel powder, which
will help achieve the highest purity of metal.
Highlights
Increasing Tank-House 2 capacity
from 120 ktpa
to 145 ktpa of nickel
Increasing nickel recovery
from converter matte
by 1%
2018
2019
2021—2022
2018
2019
• Feasibility study for further
project development completed
• Stripping works
• Completion of design
documentation drafting
• Ore production launch
• CAPEX – RUB 10.8 bn
(USD 169 mln)
• Gradual capacity commissioning
completed, progress – 82%
• Reaching the design capacity
and performance targets
According to the Medvezhy Ruchey Mine development project.
Annual Report > 2018Nornickel www.nornickel.com> 36
ENVIRONMENTAL PROJECT
Company overview
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37
Construction of a concentrate shipment facility and separating section at Kola MMC
Sulphur Project at Polar Division
The project will involve the upgrade
of Kola MMC's Concentrator
and construction of a concentrate
shipment facility. Located
in Zapolyarny, the Concentrator
produces briquetted copper-nickel
concentrate. In 2018, it processed
7.9 mt of ore.
Highlights
Project CAPEX:
RUB 4.9 bn (USD 85 mln)
Project completion and
launch of finished concentrate
production slated
for 2019
Location
Zapolyarny, Murmansk Region (Kola MMC).
Project overview
Construction of an additional floatation
section at the Concentrator for separating
high grade and low grade concentrate,
and a concentrate shipment facility
with the capacity of 200 kt of dry concentrate.
The new arrangement will see low grade
concentrate shipped to third parties, while
high grade concentrate will be sent for further
processing at the Smelting Shop in Nickel.
This is a large-scale environmental
project designed to achieve
a reduction in sulphur dioxide
emissions by Nadezhda
Metallurgical Plant and Copper
Plant (both part of the Company’s
Polar Division) to the maximum
permissible rates.
Highlights
Project
CAPEX:
up to USD 2.5 bn
Project
completion
is scheduled
for 2022
due to their proximity to the residential area.
Concurrently, a number of infrastructure
projects will be implemented to supply
the new facilities with all the necessary
materials and power.
Location
Norilsk Industrial District, Krasnoyarsk
Territory (Polar Division).
Project overview
Achieving a 75% decrease in sulphur dioxide
emissions in the Norilsk Industrial District
by 2023.
Nadezhda Metallurgical Plant will have
new facilities for disposing of sulphur-
rich gases, while Copper Plant will see
an upgrade of its capacities that capture
sulphur dioxide and produce elemental
sulphur. In addition, some of Copper Plant’s
most polluting facilities that emit off-gas
that is hard to capture will be shut down
2018
2019
2018
2019
2020—2022
• CAPEX – RUB 1.1 bn
(USD 17 mln)
• Construction of the concentrate
shipment facility: Outotec has
designed basic engineering
and signed a contract
for equipment supplies
• Thickeners dismantled and utility
systems relocated, construction
and installation works started
on the shipment facility
• Obtain the State Expert Review
Board’s approval
• Completion of all construction
and installation works
• Launch of finished concentrate
production and and plant
pre-commissioning
• CAPEX – RUB 2.3 bn
(USD 36 mln)
• Construction site preparation
at Copper Plant
• Finishing the preparation
of engineering documents,
obtaining regulatory approvals
• Launch of construction
and installation operations
• Main phase: manufacturing
and delivery of equipment,
construction and installation
operations, pre-commissioning
Annual Report > 2018Nornickel www.nornickel.com> 3
Markets
commodity
>
>
>
>
Nickel
Copper
Palladium
Platinum
40
46
50
56
40
NICKEL
No. 1
in high grade nickel
production
Key trends
in the nickel market
Nornickel
Vale
Jinchuan
Glencore
BHP
Sherritt
Sumitomo MM
Other MMC
23%
16%
16%
15%
9%
7%
7%
7%
In 2018, the nickel deficit grew on the back
of higher demand (primarily for stainless
steel production in Indonesia and cathode
materials for lithium-ion batteries)
and slower production growth. Increased
output of NPI, ferronickel, nickel sulphate,
and other salts could not offset the deficit
stemming from the decline in nickel metal
and powder production.
Primary nickel consumption by region (%)
7
17
51
25
No. 3
in primary nickel
production
America
Europe
and Africa
China
Other Asia
2.3 mt
Source: Company data
Outlook: cautiously
optimistic. In 2019,
the market deficit may go
down to 50 kt as a result
of significant increase
in NPI production
in Indonesia and China.
Tsingshan Group
Vale
Nornickel
Glencore
Jinchuan
Shandong Xinhai
Sumitomo MM
BHP
Jiangsu Delong
Anglo American
Other MMC
11%
10%
10%
7%
7%
5%
4%
3%
3%
3%
37%
An expected boom in the electric cars'
sector and major outflows from the London
Metal Exchange (LME)'s stocks triggered
by the increased demand contributed
to higher nickel prices in late 2017 through
June 2018. In the second half of 2018,
the escalating US-China trade war reversed
the trend, and in October 2018, market
concerns over a potential construction
of large-scale lateritic nickel ore leaching
facilities in Indonesia pushed the prices
further down.
Average annual nickel price (USD/t)
16,867
11,807
9,609
10,411
13,122
2014
2015
2016
2017
2018
Source: LME (settlement)
In 2018,
the average nickel
price grew by
26%
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41
Nickel price and keyindustry developments in 2018 (USD/t)
1 2
3
4
5
6
7
8
9
10
16,000
13,000
10,000
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Consistent decline in the LME stocks, higher
stainless steel production and expected
electric car boom
8
9
Rise in the US Federal Reserve interest rate
Announcement of planned construction
of large-scale lateritic nickel ore leaching
Rise in the US Federal Reserve interest rate
facilities in Indonesia for battery
The US announcing import duties
on Chinese goods worth USD 50 bn
The US announcing import duties
on Chinese goods worth USD 200 bn
components
10
Rise in the US Federal Reserve interest rate
1
2
Rise in the US Federal Reserve interest rate
The Company’s announcement of planned
delisting of Polar Division’s cathodes
on LME starting 18 April erroneously
interpreted as new sanctions against
Russian products introduced together
with RUSAL sanctions
3
The US considering import duties
on Chinese imports worth USD 50 bn
4
5
6
7
Source: LME, Company data
Market balance
In 2018, nickel shortage went up to 130 kt
mainly driven by a 7%, or 159 kt y-o-y
increase in metal consumption largely
attributable to the Asian producers
of stainless steel and batteries. At the same
time, primary nickel production grew
by 7%, or 148 kt. Only nickel production
from lateritic ore was on the rise: in 2018,
low grade nickel production increased
by 16%, or around 170 kt y-o-y, mainly
due to the Chinese and Indonesian
NPI output growth. High grade nickel
production decreased by 2%, or 22 kt,
largely on the back of production cutbacks
in Canada.
During the year, total LME and SHFE stocks
decreased by 191 kt (47%) to 219 kt, which
is about 4.5 weeks of global consumption.
Primary nickel production –
consumption balance (kt)
2017
2018
2018 saw
bigger nickel
shortage
–120
–130
Source: Company data
Annual Report > 2018Nornickel www.nornickel.com>
Primary nickel consumption in 2018
by industry (%)
stainless steel output, where it stayed flat
according to our estimates.
42
Consumption
Nickel consumption is predominantly
driven by the stainless steel industry
(over 70% in 2018). Stainless steel
comes to the market in various grades
from all over the world, whereas its
smelting structure ultimately determines
the primary nickel consumption patterns.
Austenitic stainless steel comprising
the 200 series and 300 series steel
is the most widespread type of that
product (over three quarters of the global
production). The 300 series steel has
a higher nickel content (normally 8–12%,
or up to 20% in a number of select
grades). Nickel added in this proportion
improves the steel’s corrosion resistance
and robustness in a wide range
of temperature conditions, boosts its
ductility and durability in aggressive
environments, and enhances its non-
magnetic properties. This series enjoys
the highest demand, as it is applied
in various industries, including construction,
food and chemicals manufacturing,
transportation, energy, etc. The 200 series
steel cannot serve as a full substitute
for the high nickel content grades, as it has
a lower nickel content due to the addition
of manganese. The 200 series steels
are susceptible to surface (pitting)
corrosion and non-resistant
to heat and aggressive environments. Due
to the lower price, this steel grade is often
used in the production of consumer goods,
such as home appliances. China and India
account for over 90% of the total 200 series
steel output.
Primary nickel consumption in 2018 (mt)
2.15
Austenitic-ferritic (duplex) stainless steels
also use nickel and are characterised
by a higher content of chromium (18–25%)
and molybdenum (1–4%), but they account
only for 1–2% of the global smelting output.
Ferritic and martensite stainless steels
(400 series) usually do not contain nickel,
while their properties are similar to those
of low-carbon and highly corrosion-
resistant steels. However, their mechanical
properties are inferior to those of austenitic
stainless steels. These steels are mainly
used to manufacture automotive exhaust
systems, cargo container frames, water
heaters, washing machines, utensils
and cutlery, kitchenware, home decor items
and razor blades.
In 2018, the total stainless steel output
increased by 5% and hit a record high
of 50.3 mt. The growth was driven by a rise
in 300 series steel production to over 2 mt
at the Indonesian facility launched in mid-
2017, one of the largest stainless steel
facilities globally. Indonesia is a new steel
market player with a robust growth outlook.
The country has sufficient reserves of high
grade lateritic ore, growing NPI capacities
and, hence, low cash cost of austenitic
stainless steel.
Over 50% of Indonesian stainless steel
exports from January to October 2018
headed to China, primarily in form of slabs
and hot-rolled steel. Growing imports had
a negative impact on China's 300 series
2.31
7%+
Total
for 2017
Stainless
steel
Batteries
Alloys
Special steels
Total
for 2018
2.3
mt
Stainless steel
Alloys
Special steels
Electroplating
Batteries
Other industries
%
73
8
7
6
5
1
mt
1,681
194
153
147
124
14
Source: Company data
Stainless steel production by grade
series in 2017–2018 (mt)
28.1
26.3
2018
2017
10.9
11.2
10.6
11.1
50.2
48.0
300 series
200 series
400 series
Source: Company data
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43
share has been declining in the structure
of nickel units consumed in stainless steel
production in recent years.
The battery industry uses nickel as a major
component of the active cathodes
for battery cells. The extent of nickel
utilisation depends on the battery type.
In 2014–2018, CAGR of electric cars
(plug-in HEVs and battery electric cars)
has been around 46%. The key factors
driving electrification of the transport
system are incentives offered by the state,
more stringent environmental controls,
and improved technical specifications
of batteries.
Lithium-ion batteries (Li-Ion). Li-Ion
batteries were first commercially
released in 1991 and became fairly
widespread in most areas due to their high
energy capacity retained after multiple
recharge cycles.
Nickel-metal hydride batteries
(Ni-MH). Ni-MH batteries were
developed in 1989 as a substitute for Ni-Cd
batteries to avoid using cadmium. Currently,
though, the nickel-metal hydride battery
market is growing at a slow pace (with
hybrid vehicles being its only growth driver)
and faces considerable competition
from the lithium-ion batteries.
Nickel-cadmium batteries (Ni-Cd).
The first nickel-cadmium batteries
were developed in 1899. Currently, their use
is restricted, since cadmium is prohibited
as a toxic substance under the EU ban.
The key driver behind Li-Ion battery
growth is electric vehicles gaining ground.
The electric car market growth is led
by China. By 2020, it plans to increase
the NEV (electric cars and plug-in HEVs)
sales to 2 mln, and by 2025 – up to 7 mln
vehicles. The Chinese government has
implemented a number of initiatives
to stimulate transport electrification,
including subsidies for buying electric cars
and mandatory requirements for large
automakers regarding the production
of electric cars and plug-in HEVs. In large
cities and regions, the trend is supported
by local initiatives.
Buyers of electric cars in a number
of other countries, including Belgium,
Germany, the UK and France, enjoy
considerable subsidies and fiscal
incentives. For instance, Norway (where
electric cars account for 30% of all
sales) grants tax exemptions (one-off
registration tax and VAT) to buyers. Also,
annual electric car tax is six times lower
than that for a car powered by an internal
combustion engine.
Taiwan, the second largest importer
of Indonesian stainless steel, also reported
a 15% drop in domestic production.
With that, the primary nickel consumption
went down by only 8 kt because
of the historically high use of scrap
in the country. Other regions saw consistent
2–4% growth of austenitic stainless steel
production.
Consumption of primary nickel
by the global stainless steel producers rose
by 7% to 1.68 mt as a result of an increase
in the global 300 series and 200 series
output by 7% and 4%, respectively,
and a slight decrease in the average share
of scrap. However, the use of high grade
nickel in stainless steel smelting went
down by 60 kt mostly due to the growing
availability of low grade nickel.
Nearly all types of nickel feedstock
are used in stainless steel production
(except for a number of specific products,
including nickel powder and compounds).
Since the quality of nickel barely affects
the quality of conventional stainless
steel grades, the manufacturers opt
for the cheapest nickel feedstock, turning
to high grade nickel as their last resort.
This is the reason why high grade nickel
The key driver behind Li-Ion
battery growth is electric
vehicles gaining
ground
~46%
CAGR of electric cars (plug-in HEVs
and battery electric cars) in 2014–2018
Annual Report > 2018Nornickel www.nornickel.com> 44
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45
Production
Primary nickel can be split into two major
groups:
Primary nickel production
in 2017–2018 (mt)
High grade nickel (cathodes, briquettes,
carbonyl nickel and compounds)
is produced from both sulphide and lateritic
nickel ore. In 2018, the major high grade
nickel producers included Nornickel,
Jinchuan, Vale, Glencore, Sumitomo Metal
Mining and BHP Billiton.
Low grade nickel (ferronickel, NPI and nickel
oxide) is only produced from lateritic ore.
In 2018, the major low grade nickel producers
included Chinese and Indonesian NPI
companies and also ferronickel producers:
Eramet, Anglo American, South 32, Pamco
and Posco (SNNC).
In 2018, primary nickel production
grew by 7%, or 148 kt y-o-y, driven only
by an increase in low grade nickel output
(ferronickel and NPI). Compared to 2017,
the low grade nickel production grew
by 16%, or 170 kt.
NPI production in 2015–2018 (kt)
1.0
1.0
2018
2017
1.2
1.1
148 kt
of primary nickel production
growth in 2018
2.2
2.1
Low grade nickel
High grade nickel
Source: Company data
In 2018, high grade nickel output dropped
by 2%, primarily driven by the following
factors:
• discontinued nickel cathode production
•
•
in Canada;
reconfiguration of key players’
production assets, including the upgrade
of the Company’s refining facilities;
lower nickel briquette output
on Madagascar due to hurricanes
and in Canada on the back of shortages
in Cuban feedstock supplies caused
by heavy rains.
This was coupled with greater
output of nickel sulphate that serves
as a key feedstock for the precursors
of the cathode material in Li-Ion batteries.
Apart from the integrated production
of nickel sulphate through matte,
the key sources of feedstock for nickel
sulphate are the hydrometallurgy semi-
products and crude nickel sulphate, a by-
product of copper and PMG production.
The shortage of primary feedstock
for nickel sulphate production entailed
higher demand for nickel briquettes
and powders as well as scrap batteries
in 2018.
470
388
366
386
2018
2017
2016
2015
China
262
174
87
29
Indonesia
Nickel ore and concentrate imports to China in 2016–2018 (mt)
8
6
4
2
0
Jan
2016
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
2017
2018
732
562
453
415
The growth in low grade nickel production
was significantly above the decline in high
grade nickel production. The global
low grade nickel output growth in 2018
amounted to 16% as a result of increased
NPI production in China and Indonesia
and ferronickel production in all key
regions except Europe, where a number
of manufacturers had to cut output.
The key driver behind NPI production
growth was the lifting of the ban
on exports of unprocessed nickel ore
from Indonesia in March 2017 contributing
to the availability of rich nickel ore. China's
total ore imports in 2018 grew by 34%
and amounted to 47 mln wet tonnes,
boosting the national NPI output growth
by 21%, to 470 kt.
USD 100 bn
of investments in electric cars
earmarked by automakers
5%
growth of primary nickel
consumption for alloys
The investments in electric cars earmarked
by automakers already amount up
to USD 100 bn.
There are several types of lithium-ion
batteries depending on the cathode
materials: LCO (lithium, cobalt oxide),
LFP (lithium, iron, phosphate), LMO
(lithium, manganese oxide), NCM (nickel,
cobalt, manganese), NCA (nickel, cobalt,
aluminium).
LCO is primarily used in portable electronic
devices, but given high cobalt price coupled
with unstable chemical compounds
and low energy capacity, LCO is not applied
in electric vehicles. However, other types
of cathodes are widely used in the industry.
LFP and LMO tend to be replaced
with other cathode materials containing
nickel as a result of a higher gravimetric
and volumetric capacity of NCM and NCA,
which helps to increase mileage.
The share of NCM and NCA in the total
cathode material output used in Li-Ion
batteries (excluding LCO) went up from 32%
in 2012 to 78% in 2018.
Growing nickel consumption in Li-Ion
batteries comes not only on the back
of increasing share of nickel-containing
types, but also higher average nickel
content in the cathode material triggered
by the need to substitute expensive cobalt
units. While in 2016 NCM 1:1:1 (with
nickel mass fraction of 20%) accounted
for the lion share of nickel-magnesium
compounds of the cathode material,
in 2018 nickel-intensive compounds –
NCM 6:2:2 (with nickel mass fraction
of 36%) and NCM 5:3:2 (30%) took the lead.
Going forward, batteries are expected
to switch to NCM 8:1:1 (with the nickel
mass fraction of 48%), and some producers
announce plans to launch commercial
production of LNO, a cathode material
with nickel content of over 50%.
Further development of the automotive
industry, the growing popularity of electric
and hybrid cars, along with the evolution
of the cathode technology towards
nickel-intensive types lay the groundwork
for major expansion of primary nickel
consumption in this industry in the long run.
In 2018, the growth of primary
nickel consumption for alloys stood
at 5%, primarily driven by high demand
from the aerospace industry. Heat-
resistant alloys with high nickel content
are among the key materials for aircraft
engines. The order backlog of the major
passenger aircraft producers is estimated
at 7–10 years, and will support the nickel
demand from the industry.
Importantly, the demand for nickel alloys
from the oil and gas industry has recovered
on the back of the oil price growth
in the first half of 2018. Nickel is widely
used in decorative and protective platings
with their thickness ranging from 1 to
100 microns. Nickel electroplating is highly
corrosion-resistant, hard and pleasing
aesthetically. It is used for corrosion
protection, and as an alternative
to chromium plating. In recent years, China
has been the leading manufacturer of nickel
electroplating products. Since 2012,
though, the electroplating industry has
started to develop in other Asian countries,
and the Chinese businesses are now
transferring their production to achieve cost
savings.
Annual Report > 2018Nornickel www.nornickel.com> 46
COPPER
No. 11
by copper mining
in 2018
Key trends
in the copper market
Codelco
BHP Billiton
Freeport
Glencore
Southern Copper
Antofagasta
Anglo American
Rio Tinto
KGHM
First Quantum
Nornickel
MMG
Other MMC
9%
9%
8%
7%
4%
4%
3%
3%
3%
3%
2%
2%
43%
A slight decline in copper prices in the first
quarter of 2018 as a result of lower imports
in China and higher metal exchange
inventories reversed in the second quarter,
peaking at USD 7,300 per tonne, the highest
over the last 4.5 years. The price growth
was triggered by expectations of a deficit
in the copper market in 2018 due to looming
strikes at mines in Chile and Peru due
to negotiations with trade unions on new
labour agreements, amid lower copper
exchange inventories.
In the second half of June, investor
concerns over a possible slowdown
in the global economic growth resulting
from a risk of a trade war between
the USA and the European Union and China
led to a drop in copper prices, sinking
2018
The prices surged in the first half of the year
amid expectations of strikes at copper
mines in Chile and Peru with a strong
copper demand from EV manufacturers
and then plunged in the second half
of the year on the back of failed strikes
and an escalation of the US-China trade
tensions causing concerns over weaker
demand.
Refined copper consumption by region (%)
12
18
49
20
1
America
Europe
China
Other Asia
23.7 mt
Africa and Oceania
Outlook: neutral.
In the mid-term,
the market will remain
balanced; the success
of the US-China trade
talks and continued global
copper demand may
support copper prices.
Source: Company data
to the year's minimum of USD 5,823 per
tonne by early September.
In the fourth quarter of 2018, prices
stabilised in the range of USD 6,070
and USD 6,330 per tonne due to the demand
and supply balance. However, in December,
the pessimism of market players
about the US-China trade tensions surged
again. In addition, Chile and Peru saw
a successful signing of labour agreements.
These were the reasons behind a decline
in copper prices to USD 5,965 per tonne
at the end of the year.
In 2018, the average LME copper price
increased by 6% y-o-y to USD 6,523 per
tonne vs USD 6,166 per tonne in 2017.
Average annual copper prices (USD/t)
6,862
5,494
4,863
6,166
6,523
2014
2015
2016
2017
2018
Source: LME (settlement)
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47
LME copper prices in 2018 (USD/t)
8,000
7,000
6,000
5,000
Jan
1
2
3
5 6
7
8
9
11
12
13
14
15 16
17
18
4
10
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
7
8
9
10
11
12
Report posting production growth in Chile
Increase in Chinese copper concentrate
and cathode imports
Successful signing of labour agreements
at the Escondida mine
Rise in the US Federal Reserve interest rate
Introduction of US import duties on Chinese
imports worth USD 50 bn
Signing of a new permit for the concentrates
export from Indonesia
13
14
15
16
17
18
BHP Billiton and Rio Tinto reports posting
production growth
Short strike at the Chuquicamata mine
Introduction of US import duties on Chinese
imports worth USD 200 bn
Strike at Andina mine (Chile)
Research group reports on tightening
market deficit
Growing concerns about the consequences
of the US-China trade tensions
1
2
3
4
5
6
BHP Billiton report posting production
growth
Copper import growth in China following
scrap import restrictions
Success in negotiations on the Grasberg
mine sale to the government of Indonesia
Signing of labour agreements at several
mines in Chile and Peru
Substantial growth in exchange
inventories
Threat of strikes at the Escondida
and Chuquicamata mines
Sources: LME, Company data
Market balance
In 2018, the refined copper market that
had been balanced by the end of 2017
moved to a slight deficit. It stood
at as little as 0.5% of the total market
volume, or 120 kt. Total exchange
inventories dropped by 35%
to 351 kt (544 kt as at the end of 2017),
or a little more than nine days of global
consumption, with off-exchange
inventories going slightly up.
Refined copper balance (kt)
2017
2018
0
In 2018,
the refined
copper
market moved
to a slight
deficit
–120
Source: Company data
Annual Report > 2018Nornickel www.nornickel.com>
48
Consumption
Given its high electrical and thermal
conductivity, ductility and corrosion
resistance, copper is widely used in various
industries. Up to 75% of refined copper
produced globally is used for manufacturing
electrical conductors, including various types
of cable and wire. Key copper-consuming
industries include construction, electrical
and electronic equipment manufacturing,
power supply, transport, engineering, machine
building and consumer goods production.
In 2018, global consumption of refined
copper totalled 23.7 mt (up 3%, or 0.7 mt
y-o-y), primarily owing to stronger demand
from cable and wire manufacturers.
Consumption in pipe, flat rolled products
and billet production segments saw
moderate growth.
China remains the key copper consumer
globally, with its market share reaching
49% in 2018 due to the demand growth
of 5%. Market concerns about China’s
economic slowdown (also due to the US-
China trade tensions) did not materialise.
The country kept ramping up copper
imports and copper feedstock in particular.
In 2018, Chinese refined copper imports
added 13% to reach 5.3 mt offsetting a one-
third drop in copper scrap imports due
to the environmental constraints imposed
by the state. Copper concentrate imports
The demand
for copper
in developed
economies saw
a moderate
increase
in 2018
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49
went up by 14% to 19.7 mt, which helped
to meet China’s growing consumption
needs through the ramp-up of local
production.
The demand for copper in developed
economies saw only a moderate increase
in 2018, with Europe (the Company’s key
market for copper cathodes) and North
America up by 1.7% and 3.2%, respectively,
and Asia (excluding China) remaining
flat. Russian domestic copper cathode
consumption in 2018 was moderately
down.
Refined copper consumption by industry (%)
First use
product
End
product
74
13
4
9
Construction
Consumer goods and equipment
Power grids
Transport
Heavy engineering
30
25
24
11
10
Wire rod
Flat rolled products
Billets
Pipe
Total 23.7 mt
Sources: Company data, Wood Mackenzie
Production
Refined copper production
in 2017–2018 (mt)
23,0
23,6
+
2,6%
2017
2018
Sources: Company data, Wood Mackenzie
In 2018, global production of refined copper
increased by 2.4%, or 0.56 mt, compared
to 2017, totalling 23.6 mt. China remains
the production leader, firmly committed
to the expansion of domestic smelting
and refining capacities. In 2018, refined
copper production in China grew by 5%
to 8.7 mt, while its share in global output
was 37%. Only 20% of Chinese production
is local extraction, with another 80%
coming from imported copper concentrates
and scrap.
In the rest of Asia (excluding China),
production dropped by 2.7% (going down
in India and Philippines, and up in Japan).
In North America, it grew by 3.5% (up
in the USA and Canada) and in South
America, output remained unchanged.
In Europe, copper production slipped
by 1.4% triggered by Germany and Poland.
According to preliminary estimates,
Russia’s production of refined copper saw
modest growth.
In 2018, global copper production grew
by 2.8% to 20.7 mt. Some 2.9 mt of refined
copper was produced from accumulated
concentrate stockpiles and scrap
on the back of higher scarp collection
in the first half of the year driven by higher
copper prices. The growth in copper
production came mainly on the back
of the recovered production in Chile (facing
a significant drop due to strikes a year
earlier), a significant increase in production
in Africa (Democratic Republic of the Congo
and Zambia), in Indonesia (following
the lifted state ban on concentrate exports)
and the development of Chinese domestic
mining industry.
Chile, the top global supplier of copper,
saw a 5% production increase y-o-y (to
5.8 mt) in 2018 due to a 1.5-month strike
at BHP’s Escondida, the largest copper
mine, where the workers did not agree
with the conditions of their new labour
agreements. The country also kept
facing a lower output by the state-owned
Codelco (1.8 mt, down 2% y-o-y) owing
to a lack of investments in the old fields
with declining copper grade.
Changes in refined copper consumption in 2018 by industry (mt)
Copper production in 2017–2018 (mt)
0.51
0.04
0.10
0.05
23.70
3%+
23.00
0.09
0.07
0.12
–0.07
–0.06
–0.05
20.70
0.20
0.27
20.10
Total
for 2017
Wire rod
Pipe
Flat rolled products
Billets
Total
for 2018
Total
for 2017
Chile
DR Congo
China
Indonesia
Others
Peru
USA
Canada
Total
for 2018
Sources: Company data, Wood Mackenzie
Sources: Company data, Wood Mackenzie
A 12% growth in African production
to USD 2.4 mt was mainly backed by KOV
and Kamoto mines in the Democratic
Republic of the Congo and Sentinel mine
in Zambia.
China, which is currently developing
smaller mines, saw its production grow
by 6% to 1.6 mt. Indonesia saw its copper
output go up by 10% to 0.7 mt after
the government lifted the ban on copper
concentrate exports following the decision
of Freeport-McMoRan and Rio Tinto to sell
a majority stake (51%) in the Grasberg mine
to Indonesia. In Kazakhstan, development
of the new Bozshakol mine by KAZ Minerals
drove the output up by 7%.
In Peru, production was below
the expectations (2.3 mt, down 3%
y-o-y) caused by some technical issues
of lower copper output at the new Las
Bambas mine purchased by China's MMG
from Glencore several years ago. In North
America, production dropped by 4% to 2.6
mt due to declining copper contents along
with technical issues at some small mines
in the USA and Canada.
According to preliminary estimates, Russia
saw its production grow by about 6%.
The actual refined copper production
for 2018 was above the analyst
forecasts issued early in 2018 thanks
to the production surge above expectations.
The actual refined copper consumption
was also above the analyst forecasts
thanks to China maintaining its demand
and the USA even increasing it despite
the ongoing trade tensions between these
two countries. This brought the global
deficit close to the initial estimates.
Annual Report > 2018Nornickel www.nornickel.com> 50
PALLADIUM
No. 1
in palladium
production
Key trends
in the palladium market
Nornickel
Anglo Platinum
Impala Platinum
Sibanye-Stillwater
Lonmin
NAP
Vale
Other MMC
39%
22%
13%
7%
4%
3%
3%
9%
2018
Palladium prices grew for a third consecutive
year on the back of increased consumption
in the car-making industry amid tightened
environmental standards across the world
and limited metal production. The deficit was
offset by supplies of previously accumulated
reserves.
Industrial consumption of palladium by regions (%)
28
22
23
13
14
Europe
North
America
Japan
China
Outlook: positive.
The market deficit
is expected to widen,
as industrial consumption
will grow faster than
production, which is set
to climb at a moderate
pace.
Source: Company data
Refined metal including own feedstock under
tolling agreements at third-party facilities.
332 t
Source: Company data
Other countries
In January–August 2018, palladium
prices experienced a moderate downward
correction following two years of growth.
Profit taking by speculative traders, who
reduced their long speculative positions
in the futures market, put pressure
on prices. In the same period, a deficit
in the spot market was partially offset
by producers selling their reserves
and ETFs scaling down their direct
investments in the physical metal.
Driven by continued quantitative easing
in the EU and Japan and the Federal
Reserve’s efforts to raise interest rates,
a stronger US dollar negatively affected
the price of the entire precious metal basket
in the first half of 2018.
In the middle of the year, concerns
about the effects of the escalating
trade war between the US and China
also put pressure on commodity prices
as this conflict may have a negative impact
on the growth of both industrial production
and global GDP.
In the second half of August, palladium
prices resumed their growth. The pressure
put on prices by speculative investors,
including macro funds and algorithmic
traders, was mitigated by strong support
from the deficit in the spot market.
A stronger backwardation in the forward
Average annual palladium prices (USD/oz)
803
691
613
869
1,029
2014
2015
2016
2017
2018
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51
Together with other PGMs rhodium, iridium
and ruthenium, palladium remained among
the strongest performers in the commodity
markets, with its premium to platinum
reaching 60% by the year-end – the highest
level since 2001.
market and a spike in leasing rates
prompted a shift in investor sentiment
together with an increase in net long
speculative positions in the futures market.
Another driver behind investors’ growing
interest in commodities was an overheated
equity market in the US, which mainly
ensued from industrial stocks and peaked
out in early October.
Throughout the year, prices were supported
by long-term fundamental factors, such
as many years of a sustained market deficit
that saw palladium production lagging behind
consumption; an increasing share of petrol
cars; growing production of cars with hybrid
propulsion systems; and expectations
of a surge in palladium use within catalysts
in automobile exhaust treatment systems –
a trend triggered by tougher environmental
requirements in key markets.
At the same time, PGM prices were
constrained by slowing automobile
production, especially in China, where falling
car output and sales came as a result
of lower consumer spending amid worries
about the trade conflict with the US
causing an economic slowdown. However,
the negative effect from the car production
decrease in absolute terms was fully offset
by larger per unit use of palladium in exhaust
treatment systems, which was facilitated
by new standards for verifying environmental
compliance of cars (WLTP and RDE tests)
and environmental regulations (China 6, Euro
6d, the US’s Tier 3, etc.).
During the year, palladium prices gained
20%, reaching an all-time high of USD 1,273
per oz (AM and PM Fix average, LBMA)
on 20 December and averaging USD 1,029
per oz (up 18% vs the previous all-time high
in 2017).
Key industry developments and palladium price in 2018 (USD/oz)
1,500
1,200
900
600
Jan
1
2
3
4
5
6
7
8
9
11 12
14
15
16
17 18 19
10
13
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1
2
3
4
Massive closing of long speculative
positions
Dow Jones lost 11%
Dow Jones regained 8%
US released weak car sales data
for February
5, 7, 14, 19
US Federal Reserve
raised interest rates
6
Sanctions against RUSAL announced
Sources: LBMA, Company data
8
9
10
11
12
US imposed first round of tariffs on
Chinese goods
Impala Platinum announced
a restructuring plan for the Lease Area
(Rustenburg), providing for production
cuts in the medium term
The US Dollar Index reached local highs
of 97 p.
Spike in leasing rates
EU introduced the new WLTP emissions
test cycle
13
15
16
17
18
US imposed financial sanctions against
Russia
Dow Jones reached all-time high
South Africa’s competition authorities
approved Sibanye-Stillwater’s takeover
of Lonmin
US released strong car sales data
for November
China released weak car sales data
for November
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52
Market balance
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53
Since 2010, there has been a sustained
undersupply in the palladium market covered
by the consumption of accumulated reserves.
In the reporting period, the imbalance
was largely offset by producers’ reserves
(including Nornickel’s Global Palladium Fund)
and the outflow from ETFs.
Palladium market balance (t)
Palladium consumption in 2017–2018 by application area (t)
1
2
14
3
4
1
17
2
5
3
3
4
327.0
5.1
0.1
0.6
332.0
–0.3
–0.4
–0.3
–10
–16
–20
2017
1
2
3
4
Production and consumption balance
Outflow from ETFs and retail investments
Reserve accumulation
Demand and supply balance
–19
2018
1
2
3
4
Production and consumption balance
Outflow from ETFs and retail investments
Destocking
Demand and supply balance
Excluding reallocated other reserves.
Source: Company data
Consumption
In 2018, industrial consumption
of palladium increased by 6 t (up 2%)
compared to the previous year, hitting
a new all-time high of 332 t.
Car-making industry. Exhaust
treatment systems account
for the bulk of total palladium
consumption. In this sector, palladium
is used in catalytic converters to detoxify
exhaust fumes. In most countries, such
converters are legally required to be installed
on all cars.
Due to its unique catalytic properties
ensuring effective chemical reactions
throughout the entire vehicle life cycle,
palladium has almost no alternatives
except for platinum, which is used
mostly in diesel cars, and rhodium. Given
the significant share of already produced
vehicles and small market size (global
production stands at 24 t annually),
rhodium suffers from high price volatility
and the constant risk of physical metal
deficit.
In 2018, palladium consumption
by the car-making industry went up by 5 t
and broke the record of 266 t. This was
mostly driven by tougher regulations
on pollutant emissions, including
the Worldwide Harmonised Light Vehicle
Test Procedure (WLTP) – a new procedure
for establishing the CO2 emissions of new
cars that will come into effect in the EU
and Japan in September and October 2019,
respectively. It is designed to make tests
more rigorous by extending their distance
and duration, increasing the car weight,
requiring faster acceleration, and stipulating
that testing should be performed
at different altitudes and temperatures.
Another upcoming regulation is Real Driving
Emissions (RDE), to be applied starting
September 2019. These developments
forced car makers to implement more
sophisticated exhaust treatment systems
and expand the use of PGMs per catalyst.
The marked increase in palladium
consumption by the car-making industry
in China came on the back of toughened
environmental requirements as part
of the China 6 rollout across the country
starting from 2019 and beyond. China 6
regulations are based on best practices
in emission control as developed in the US
and EU, and in some aspects set out
additional requirements. In the US, 2018
saw the continued rollout of the Tier 3
standards to more than halve the fleet-
average NOx emissions.
Changes in the transport also boosted
palladium consumption among the car
makers as more light diesel vehicles were
replaced with petrol cars and hybrids,
Palladium consumption in 2018
by industry (%)
332
t
Exhaust treatment systems
Chemical catalysts
Dental alloys
Jewellery
Electronics
Other
Source: Company data
%
t
80
267
8
5
4
2
1
26
15
12
7
5
Industrial consumption of palladium (t)
327
332
2%+
2017
2018
Source: Company data
Total
for 2017
Autocatalysts
Jewellery
Electronics
Chemicals
Medicine
Other
Total
for 2018
Source: Company data
which make greater use of palladium-based
catalytic converters for exhaust gases.
The market share of diesel cars in Europe
(27 countries) dropped from 44% to 36%
y-o-y, the lowest since 2001.
Hybridisation is another positive trend
in terms of palladium consumption,
with production of mild, full and plug-in
HEVs up by 22%, 46% and 46%, respectively.
Petrol engine being a component of a hybrid
necessitates wide use of palladium-based
catalysts. Having the same displacement
as the internal combustion engine, the hybrid
uses more of the metal than a traditional
petrol engine due to more frequent cold starts.
The growing use of PGMs in the car-
making industry is also indirectly driven
by consumers migrating from sedans
to crossovers with larger engines.
Despite a significant expansion
of 61% y-o-y, cars using batteries
without PGM-based exhaust catalysts
remained a niche market (2% of global car
production).
Total car production around the world
shrunk by 0.5% y-o-y, causing a drag
on the industry’s palladium consumption.
The worst performer was China, the largest
market globally. Its car makers showed
a 4% decline as household spending
fell amid worries about the trade war
with the US prompting an economic
slowdown. In North America, Europe
and Japan, car production was almost
flat, while automotive markets in Russia,
India and Brazil grew markedly (up 14%, 8%
and 7%, respectively). As mentioned above,
the negative effect from decreasing overall
car production was fully offset by more
extensive use of palladium per vehicle.
By the end of 2018, an upward trend seen
throughout the year pushed its premium vs
platinum close to 60%. Nevertheless, there
have been no signs of platinum replacing
palladium within petrol cars catalysts.
This would require additional research,
reconfigured exhaust systems and changed
engine settings, all of which is unlikely
due to tougher emission requirements.
Any new catalyst must be certified before
production, and car makers would have
to invest heavily in the above-mentioned,
both time- and money-wise. Those costs
would only be recoverable if the metal’s
premium to platinum became long-term.
However, the palladium market has been
experiencing backwardation (forward prices
decrease as maturities extend further),
while platinum has been in contango
(forward prices increase with maturities).
On the typical automotive planning horizon
of two years, this resulted in the two metals
trading around the same level in 2018.
Hybridisation
is a positive trend in terms
of palladium consumption
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55
Electronics. Palladium
consumption in the electronics
industry continued a moderate
Chemical industry. The use
of palladium in chemical
catalysts went up for a second
downward trend in 2018 (down 0.4 t).
In recent years, the use of palladium
in multi-layer ceramic capacitors has been
in decline, reaching a point where
it is limited to the most sophisticated
products with a focus on reliability
and performance under harsh conditions,
such as those in the defence and aerospace
industries. Given the metal price inelasticity
of their demand, consumption in these
sectors is expected to remain unchanged.
However, the use of palladium
as an electroplating material for connectors
and lead frames continued to reduce,
although the decrease in per unit
consumption was partially offset
by an output growth in absolute terms.
The final months of the reporting period
saw it attract a premium to gold, which,
if sustained over a long time, might
encourage manufacturers to favour
the latter. In the long term, consumption
of palladium in the electronics industry may
be boosted by proliferation of the IoT
and sensor-rich autonomous vehicles.
consecutive year to add 1 t in 2018 as a result
of new capacities coming on stream,
particularly under the Chinese programme
to ensure self-sufficiency in basic chemicals.
In the mid-term, growing consumption
of palladium in the chemical industry
will be driven by newly launched terephthalic
acid capacities in China.
Healthcare. In the healthcare
sector, palladium demand
continued declining (down 0.4 t)
due to transition to alternative composites.
Japan, the largest consumer of the metal
in dental prostheses (within the so-called
Kinpala alloys), has been going down
by an average of 8% annually in recent years,
the country's Ministry of Health reports.
Jewellery. In this industry,
palladium is used in white gold
alloys or, in its pure form,
to make wedding rings, as an example
of the latter. Its jewellery-related
consumption decreased by 0.3 t in 2018.
A drop in the Chinese demand for these
products amid a general slowdown
in consumer spending and a shift to other
luxury goods was the primary cause
of this continued downward movement.
Palladium jewellery sales were also
affected by growing prices for the metal.
Due to a lack of marketing support,
it is often regarded as a cheaper alternative
to platinum, especially when it comes
to men’s wedding rings. Its average
premium vs platinum (17% in 2018) put
pressure on the demand for palladium
rings.
According to The Goldsmiths' Company
Assay Office in London, 62,000 palladium
articles (fineness of at least 500 ppt)
were hallmarked in the UK during the year,
which is 26% less than in 2017. However,
buying palladium rings is still economically
efficient as the metal’s lower density allows
producing twice as much jewellery per
ounce compared to platinum.
Investment. Investment
demand for palladium kept
shrinking in 2018. The main
reason was withdrawals from ETFs, which
reduced their reserves by 17 t to 25 t –
the lowest since 2009. The outflow amid
growing palladium prices was driven
by investors reallocating their capital
to futures and other instruments to benefit
from the backwardation. Retail investment
demand grew slightly in the reporting
period (up 0.4 t).
The use of palladium
in chemical catalysts went
up for a second
consecutive year
to add 1 t
Production
In 2018, primary refined palladium
production contracted by 2% to 213 t.
Russia, the metal’s major producer, saw
a minor drop in output (down 2.1 t) due
to MMC Norilsk Nickel terminating the third
party feedstock processing.
South Africa, the world’s No. 2 palladium
producer, demonstrated a 3.7 t reduction
in 2018. The main reason was a decline
in refined palladium output experienced
by Anglo American Platinum as repairs
at two smelters prevented the company
from processing the entire volume of ore
mined. This was despite a considerable
growth in production both by its own
facilities and by joint ventures, as well
as increased feedstock procurement
from third parties. As part of its programme
to restructure and close down unprofitable
mines, Lonmin also slightly reduced output.
At the same time, Impala Platinum, despite
some problems in smelting, boosted refined
metal production in 2018, and Northam
Platinum notably increased output thanks
to processing the previously accumulated
ore and concentrate inventories at the new
smelter launched in the reporting period.
In Zimbabwe, output was close
to the previous year’s levels (down
0.3 t). Zimplats and Mimosa recorded
a slight decline, with production returning
to the 2016 rates. Unki reported a moderate
growth in output.
Primary palladium production in Canada
grew by 1.1 t, with North American
Palladium as the largest contributor.
Thanks to third-party feedstock, Glencore
also posted an increase in production, while
mining at its own projects shrank. Vale’s
output declined owing to the depleted
resource base in Sudbury. The US saw
a rise in production by 0.8 t. Sibanye-
Stillwater, the only palladium producer
in the country, increased output after
launching the Blitz project.
The main sources of recycled palladium
are used automotive exhaust gas catalysts,
as well as jewellery and electronic scrap.
In 2018, recycled output grew by 10 t
to 100 t as collection of autocatalyst scrap
increased on the back of higher prices
for palladium and high prices for steel
scrap. Jewellery and electronic scrap
volumes remained flat.
The sources of previously accumulated
palladium stockpiles include trading
companies, financial institutions,
government reserves, and surplus
inventories of consumers. In 2017–2018,
Nornickel’s Global Palladium Fund (GPF)
supplied the market with more than 1 moz
of palladium on top of its own output –
a reserve created through purchases
from third parties.
Annual primary palladium output in 2017–2018 (t)
217.0
–3.7
–0.3
–2.1
1.1
0.8
0.3
213.0
Total
for 2017
South Africa
Zimbabwe
Russia
Canada
US
Other
Total
for 2018
Source: Company data
Annual Report > 2018Nornickel www.nornickel.com> 56
PLATINUM
Key trends
in the platinum market
2018 The year saw the market gradually
moving into a surplus amid a decline
in consumption in the automotive
and jewellery industries and weakness
in investor demand. Platinum consumption
by other industries also decreased, however
this was largely offset by significant growth
in the chemicals and glass sectors.
Platinum consumption by region (%)
13
26
29
13
19
Europe
North
America
Japan
China
248 t
Other countries
Outlook: оcautiously
positive. In 2019,
demand for platinum
is expected to recover
modestly, supported
by the tighter vehicles
emission regulations,
higher levels
of consumption in other
industries, and revitalised
demand from investors.
Source: Company data
currencies driven by the Fed's hawkish
stance on interest rates. While inflation
expectations were low, investors were in no
rush to move to the safe havens of precious
metals.
Steady growth in the stock market between
February and early October (S&P 500 up
9%) and high bond market yields (the
average yield on 10-year US Treasuries
in the reporting period was 2.9% against
Average annual platinum prices (USD/oz)
1,385
1,053
989
949
880
No. 4
in platinum
production
Anglo Platinum
Impala Platinum
Lonmin
Nornickel
Northam
Other MMC
39%
25%
11%
10%
9%
6%
Source: Company data
Refined metal including from own feedstock
under tolling agreements at third-party
facilities.
In 2018, platinum prices faced downward
pressure with the main decline registered
between January and early September
when the price slid from USD 1,019
per oz. to USD 774 per oz. (the average
of LBMA AM and PM Fix) – the lowest
since 2008. This was followed by a period
of stabilisation, with the price at 794 per oz
by the end of the year.
In the reporting period, platinum and gold
prices moved closely together, indicative
of platinum prices being highly dependent
on the macroeconomic backdrop, which
was largely unfavourable for precious
metals last year. The pressure primarily
came from the USD, which gained
in value against the basket of major
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57
2.3% a year earlier) diverted investor
attention from precious metals.
On top of that, platinum consumption
in the Chinese jewellery industry was hit
by the threat of a trade war and economic
slowdown in China.
Despite the general trend, the period
from March through June and especially
December saw platinum price lagging behind
gold which resulted in a widening gold-
platinum spread. While at the year’s outset
platinum traded 30% lower against gold,
by the end of 2018 the gap reached as much
as 40%, driven by the platinum market
fundamentals and speculative pressure.
The main fundamental drivers included
a drop in platinum consumption
by the automotive industry due to reduced
share of diesel passenger cars in the key
markets (primarily, in Western Europe), no
awaited recovery in demand from Chinese
jewellers, and primary production not being
too receptive to low prices.
Speculation was another big
negative factor, with investors betting
on a downward metal price trend. Between
March and September, short positions
in platinum on NYMEX increased threefold
to 87 tonnes, falling back later to the levels
observed at the beginning of the year.
At the same time, long positions remained
stable during the entire reporting period.
Despite the record-low prices, investor
demand was weak, with the outflow
of investments from ETFs putting
additional pressure on the price.
The prevailing negative sentiment dragged
down the average platinum price in 2018
to 14-year lows (USD 880 per oz), down 7%
from the previous year.
The platinum price stood at
USD 794 per oz.
at the end of 2018
Key industry developments and platinum price in 2018 (USD/oz)
1,200
1,000
800
600
Jan
1
2
3
4
5
6
7
9
11
12
13
14
15
8
10
Au
Pt
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1
2
3
4
Speculative long positions on NYMEX
reached the annual peak
Dow Jones sank 11%
Dow Jones regained 8%
US released weak car sales data
for February
5, 7, 14, 19
interest rate
US Federal Reserve raised
7
8
9
US imposed first round of tariffs on Chinese
goods
Impala Platinum announced a restructuring
plan for the Lease Area (Rustenburg),
providing for production cuts in the medium
term
The US Dollar Index reached local highs
of 97 p.
10
11
13
14
EU introduced the new WLTP emissions test
cycle
Long speculative positions on NYMEX hit
the year's lows
Dow Jones reached all-time high
South Africa’s competition authorities
approved Sibanye-Stillwater’s takeover
of Lonmin
2014
2015
2016
2017
2018
Source: LBMA Platinum price
Source: LBMA, Company data
Annual Report > 2018Nornickel www.nornickel.com>
58
Market balance
The platinum market saw a surplus in 2018
as production of platinum exceeded
consumption, though part of the extra supply
was absorbed by demand from investors.
8 t
of surplus in the platinum market
in 2018
Consumption
Platinum consumption (t)
246
248
1%+
2017
2018
Source: Company data
1%
growth in the industrial
consumption of platinum in 2018
Platinum market balance (t)
14
1
4
3
–9
2
2017
1
2
3
Platinum production and consumption balance
Inflow to ETFs and retail investments
Demand and supply balance
Source: Company data
13
–2
1
2
–3
3
2018
8
4
1
2
3
4
Platinum production and consumption balance
Inflow to ETFs and retail investments
Reserve accumulation
Demand and supply balance
Industrial consumption of platinum in 2018
rose to 248 t, up by 2 t (or 1%) y-o-y.
Platinum consumption in 2018
by industry (%)
248
t
Exhaust treatment systems
41
101.6
%
t
Jewellery
Chemical catalysts
Glass production
Electronics
Other
Source: Company data
30
74.0
11
26.8
6
3
9
14.5
8.5
22.4
The automotive industry
is the main consumer
of platinum. Over 80%
of platinum in this industry is used
to manufacture exhaust gas catalysts
for diesel vehicles.
In 2018, platinum consumption
in the automotive sector decreased
y-o-y by 5.6 t, which mainly had to do
with a decreased share of diesel vehicles
in their key market – Europe. The market
share of diesel cars in Europe (27 countries)
dropped from 44% to 36% y-o-y, the lowest
since 2001.
Diesel engines are giving way to petrol-
based solutions, and more expensive
vehicles utilise hybrids (combining petrol
and electric engines). Lower platinum
consumption by car makers was partially
offset by increased manufacturing
of heavy-duty vehicles (up 2% y-o-y),
catalytic devices of which still rely
on platinum.
Diesel engines, together with hybrids,
are the key and most cost-efficient
solutions to achieve the EU’s
targets for reducing CO2 emissions
to 95 g/km by 2020. New diesel cars
comply with the existing environmental
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Platinum consumption by application area (t)
246
4.3
0.6
248
1.3
1.3
–5.6
–1.6
Total
for 2017
Autocatalysts
Jewellery
Electronics
Glass
production
Chemicals
Others
Total
for 2018
Source: Company data
requirements, and automakers are working
hard to restore confidence towards them,
which may result in increased platinum
consumption in the automotive industry.
The second biggest platinum
consumer is the jewellery
industry, accounting for a third
amid fears about the country's economic
performance. While China is currently facing
growing competition in the platinum
jewellery sector from gold items, other major
markets (India, Japan, USA, and Europe)
are enjoying increased platinum jewellery
sales.
of the demand. The reporting period saw
a sustained declining trend of platinum
consumption in the industry (down 1.6 t)
that set in during the previous years.
The decrease was primarily driven by lower
jewellery demand in China due to consumers
switching to other forms of investing
and the falling demand for luxury goods
Chemicals. In 2018, primary
platinum consumption
in industrial catalyst
manufacturing increased by 4.3 t, following
the ramp-up of oil processing in Japan
and other countries in Asia, growth
of chemicals production in Western Europe
and China, including the launch of new
plants to produce nitric acid, paraxylene,
silicone and other basic chemicals.
Glass. Platinum is needed
to produce glass fibre
and optical glass.
In the reporting period, the industry's
demand for platinum continued to grow (up
3.1 t), in line with the trend observed
over the past five years. In recent years,
glass fibre has been used in construction,
renewable energy (as material for wind
power plants), as well as in the automotive
industry, where some metal parts of the car
body are increasingly replaced by glass fibre
equivalents. This accelerated the pace
The second biggest platinum
consumer is the jewellery
industry, accounting for a third
of the demand
Annual Report > 2018Nornickel www.nornickel.com> 1.5 t
consumption of platinum for fuel
cell production in 2018
Each fuel cell contains
20 g of platinum
60
at which new glass fibre manufacturing
facilities were put into operation – first
and foremost in China. Moreover, platinum
is used along with rhodium in glass melting
machines to produce LCD screens for many
electronic devices. The robust growth
in the consumer electronics sector
over the recent years has led to the opening
of many new LCD production facilities
in Asia. An increase in the rhodium price
premium to platinum is expected
to potentially force glass melting equipment
manufacturers to switch to higher platinum
content alloys.
Electronics. The electronics
industry saw a modest rise
in platinum consumption (up
1.3 t) triggered by an increase
in the platinum-based hard drive production
due to the expansion of remote data storage
capacities. However, in the personal
computer sector hard drives are phased out
for solid-state drives, which ensure better
performance in PCs and mobile devices,
but are too expensive to be used in data
storage and processing centres.
Fuel cell production in recent
years, platinum consumption
in proton-exchange fuel cells,
used in motor vehicles and stationary power
plants, has been on the rise, reaching
about 1.5 t in 2018. Major automakers like
Toyota, Daimler, and Hyundai have launched
sales of fuel cell vehicles (FCV), while China
is actively developing fuel cell-powered buses
manufactured by Yutong and other
companies.
FCVs, just as the fully electric cars powered
by rechargeable batteries, produce zero
emissions, but unlike them have a larger
ranger (500 km and over) and can be
refuelled faster.
The Japanese government has
announced plans to boost FCV production
in the run-up to the Tokyo Olympics in 2020.
Meanwhile, China expects to increase
the number of FCVs to 50,000 by 2025,
bringing it to 1 mln by 2030. With each
fuel cell containing about 20 g of platinum,
the industry is well positioned to become
a major consumer of the metal in the next
5–10 years. On top of that, several cities
in China have declared themselves "hydrogen
cities", with city authorities introducing special
FCV and hydrogen energy support measures.
Investments. Platinum is also
widely used as an investment
instrument. Physical
investments may vary from coins
and smaller bars to investments in ETFs
that accumulate large amounts of platinum
in the form of standard-sized bars. In 2018,
the demand for platinum bars from retail
investors slightly rose (up 6 t) due to low
prices and expectations of their growth.
During the year, the investments in platinum
ETFs fell by 7 t to 76 t.
Production
Global production of primary refined
platinum in 2018 decreased by 3 t (down
2%) y-o-y to 191 t.
In the reporting period, supply from South
Africa, the world's largest platinum
producer, declined slightly (down 0.6 t).
Anglo American Platinum reduced output
of refined metal, despite a significant
growth in production both at own projects
and under joint venture arrangements,
as well as increased feedstock purchases
from third parties. This was due to repairs
at two smelters, which prevented
the company from processing the entire
volume of ore mined. As part of its
programme to restructure and close down
unprofitable mines, Lonmin also slightly
reduced output.
At the same time, Impala Platinum,
despite some technical problems
in smelting, boosted refined metal
production in 2018, and Northam Platinum
significantly increased output thanks
to processing the ore and concentrate
inventories at the new smelter launched
in the reporting period.
Russia recorded lower output (down
1.7 t), with continued production decline
at the alluvial deposits in the Far East driven
by the depletion of the mineral resource
base. The negative trend was exacerbated
by lower output from MMC Norilsk Nickel
due to the termination of the third-party
feedstock processing.
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61
In Zimbabwe, output was close to the levels
of previous years (down 0.2 t). A slight
decline was recorded by Zimplats
and Mimosa, with production returning
to the 2016 rates. On the other hand, Unki
reported a moderate growth in output.
The sources of previously accumulated
platinum stockpiles include trading
companies, financial institutions,
and surplus inventories of consumers,
while the movement of these inventories
is non-transparent.
Primary platinum production in Canada
dropped by 0.7 t mainly due to lower output
by the Vale and Glencore assets, which
was only partially offset by higher output
from North American Palladium. The US
saw a rise in production by 0.2 t. Sibanye-
Stillwater, the only palladium producer
in the country, increased output owing
to the recently launched Blitz project.
The main sources of recycled platinum
include used exhaust gas catalysts
and jewellery scrap. Recycled output
in 2018 grew by 4 t to 69 t, chiefly due
to higher automotive scrap volumes.
Collection of autocatalyst scrap increased
on the back of high prices for steel
and other PGMs and growing recycling
volumes of European diesel cars with a high
platinum content in the catalysts.
The growth of recycling was hampered
by difficulties in using new types of silicon
carbide based diesel catalysts. Being
a refractory material it can damage
furnaces unfit to handle it. This requires
processors to sort through catalysts
and separately process the material
with high silicon content, taking extra time
and resources.
FCVs, just as the fully electric cars powered
by rechargeable batteries, produce
zero emissions
Primary platinum production in 2017-2018 (t)
194.0
–0.6
–0.2
–1.7
—0.7
–0.1
0.2
191.0
Total
for 2017
South Africa
Zimbabwe
Russia
Canada
US
Others
Total
for 2018
Sources: Company data, Wood Mackenzie
Annual Report > 2018Nornickel www.nornickel.com> 4
Business
overview
>
>
>
>
>
>
>
Mineral base
Operating performance
Products and distribution
Energy assets
Transportation assets
Innovations
Financial performance (MD&A)
64
72
90
93
96
100
102
64
MINERAL BASE
RESERVES AND RESOURCES
Measured
and indicated
resources
2,220
2,209
2,170
Ore (mt)
The continued expansion
of the resource base
secures the Company’s
long-term
development
840
Ore (mt)
815
785
Proven
and probable
reserves
2016
2017
2018
> > >
For more details on the reserves and resources, please see
p. 276–277
Nornickel boasts
a unique mineral resource base
of Tier 1 assets on Russia's
Taimyr and Kola Peninsulas,
as well as in the Zabaykalsky Kray.
The continued expansion
of the resource base secures
the Company’s long-term
development.
Ni
15.3 mt
Cu
23.5 mt
PGM
8.2 kt
(263 moz)
Ni
6.9 mt
Cu
12.1 mt
PGM
3.8 kt
(123 moz)
Data regarding the mineral resources and ore reserves
were classified based on the analysis and ongoing
alignment according to the Australasian Code
for Reporting of Mineral Resources and Ore Reserves
(JORC Code) of the Russian divisions’ ore and metal
balance reserves (Russian classification, Form No. 5-
gr). The calculations comply with the JORC Code
and the terminology recommended by the Russian
Code for Public Reporting of Exploration Results,
Mineral Resources and Mineral Reserves (NAEN
Code), based on the rules and regulations developed
by Micon International Co Limited during regular audits
of the Group’s field reserves in Russia.
Reserves and resources shown include wholly owned
overseas assets, net of deposits in the Trans-Baikal
Territory.
The six platinum group metals (PGMs) are platinum,
palladium, rhodium, ruthenium, osmium, and iridium.
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65
Geography of metals mining
by Nornickel
1
2
3
5
4
1
Kola Peninsula
Ni / Cu / Au / Pt / Pd / Rh / Ru / Os / Ur / Co
2
3
4
Taimyr Peninsula
Ni / Cu / Au / Pt / Pd / Rh / Ru / Os / Ur / Co
Zabaykalsky Kray
Cu / Au / Ag / Fe
South Africa
Ni
5
Australia
Ni / Cu / Co / Rh / Ru / Os / Ur / Pt / Pd
EXISTING OPERATIONS
Nornickel has a strong potential to maintain
a high level of ore reserves given
the significant mineral resources available
within the existing mining operations.
The depleted rich and cuprous ore reserves
at the existing mines are mainly replaced
through inferred resources on the flanks
of the deposits in use. The Company plans
to ramp up its mining operations by tapping
into new rich ore deposits and focusing
on the gradual and active development
of disseminated and cupriferous ore horizons.
>80 years
of reserves-to-production ratio
at the current production level
Annual Report > 2018Nornickel www.nornickel.com > 66
Talnakh Ore Cluster
Geography and profile
The Talnakh cluster is located in the Norilsk
Industrial District, on the right bank
of the Norilskaya River. It includes
the Oktyabrskoye and Talnakhskoye
copper-nickel fields, the largest of their kind,
which are located on the north-western
margin of the Siberian Craton. In the early
1960s, multiple ore bodies of copper,
cupriferous and disseminated ores were
discovered in these fields. Nornickel
is still mining non-ferrous and noble metals
from the outstanding amounts of highest-
quality reserves of the Talnakh Ore Cluster.
Geological exploration
The Company undertakes geological
exploration at the Talnakh Ore Cluster fields
in order to increase the reserves of rich
and cupriferous ores through operational
exploration and follow-up exploration
of deep horizons and flanks.
Depletion of balance metal reserves
in 2018
13.2
mt of ore
Ni — 243.1 mt
Cu — 420.0 mt
PGM — 0.1 mt
(3.9 moz)
In 2018, as part of the Follow-Up
Exploration at the Oktyabrskoye Field
project, Nornickel performed geological
exploration from surface, with a number
of wells having opened up rich ores outside
the boundaries of the approved reserves,
which means an increase in the quantity
of reserves of the rich ore deposits
Severnaya 3 lens and Severnaya 4 rich
ore deposits. There was no quantification
of the increase done in 2018, the works
under the project are ongoing.
Additional balance reserves in 2018
3.6
mt of ore
Ni — 51.3 mt
Cu — 67.9 mt
PGM — 0.03 mt
(1.0 moz)
Average metal content:
Ni — 1.4%
Cu — 1.9%
PGM — 8.8 g/t
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67
Norilsk Ore Cluster
Geography and profile
The Norilsk Ore Cluster is located
in the Norilsk Industrial District. In the Norilsk
Ore Cluster, Nornickel has been developing
sulphide disseminated ores in the southern
part of the Norilsk-1 Field since the 1930s.
Nornickel’s geological exploration led
to an increase in the field’s reserves
to 150 mt of ore, which will support open-pit
and underground mining to 2050 year.
In order to finance the South Cluster project
also by attracting investments,
Nornickel established Medvezhy Ruchey,
a wholly-owned subsidiary that holds
the development licence and inherited
part of Polar Division’s assets. Medvezhy
Ruchey LLC includes Medvezhy Ruchey
open pit (open-pit mining), Zapolyarny
mine (underground mining), tailings pit
No. 1, Lebyazhye tailings pit, and Norilsk
Concentrator. No geological exploration was
carried out in 2018.
Depletion of balance metal reserves
in 2018
1.6
mt of ore
Ni — 5.9 kt
Cu — 8.6 kt
PGM — 0.01 kt
(0.4 moz)
Additional balance reserves in 2018
0.7
mt of ore
Ni — 2.6 kt
Cu — 4.6 kt
PGM — 0.004 kt
(0.1 moz)
Average metal content:
Ni — 0.4%
Cu — 0.6%
PGM — 5.5 g/t
Balance reserves
Proven and probable reserves
Measured and indicated resources
Balance reserves
Proven and probable reserves
Measured and indicated resources
2,001.4 mt of ore
640.2 mt of ore
1,561.6 mt of ore
Ni — 15.2 mt
Cu — 29.5 mt
PGM — 9.8 kt
Ni — 6.2 mt
Cu — 11.7 mt
Ni — 11.5 mt
Cu — 21.9 mt
PGM — 3.6 kt (114.5 moz)
PGM — 7.4 kt (236.7 moz)
148.1 mt of ore
Ni — 0.4 mt
Cu — 0.6 mt
PGM — 0.8 kt
43.4 mt of ore
Ni — 0.1 mt
Cu — 0.2 mt
147.0 mt of ore
Ni — 0.4 mt
Cu — 0.6 mt
PGM — 0.3 kt (8.5 moz)
PGM — 0.8 kt (25.6 moz)
Mokulaevskoye
Deposit
Western flank
of the Oktyabrskoye
Deposit
Talnakhskoye
Deposit
Oktyabrskoye
Deposit
Talnakh
Norilsk
Norilsk-1 Deposit
Chernogorskoye
Deposit
(сopper-nickel ores)
Southern part
of Norilsk-1
Deposit
Maslovskoye
Deposit
Annual Report > 2018Nornickel www.nornickel.com > 68
Kola MMC Deposit
Geography and profile
Kola MMC’s fields are located
on a 25-kilometre strip between the towns
of Nickel and Zapolyarny in the western
part of the Murmansk Region, and they
are grouped into two ore clusters: Western
(Kotselvaara-Kammikivi and Semiletka
fields) and Eastern (Zhdanovskoye,
Zapolyarnoye, Bystrinskoye,
Tundrovoye, Sputnik, and Verkhneye
fields). The development of the fields
in the Western and Eastern clusters
has been in progress since the 1930s
and 1960s, respectively.
Depletion of balance metal reserves
in 2018
Additional balance reserves in 2018
7.2
mt of ore
Ni — 46.9 kt
Cu — 20.7 kt
8.3
mt of ore
Ni — 44.6 kt
Cu — 20.1 kt
Average metal content:
Ni — 0.5%
Cu — 0.2%
Increase thanks to moving reserves
from the unallocated reserve fund (correction
of a technical error).
Average metal grade in ore reserves transferred
from the unallocated fund.
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Bystrinskoye Deposit
Geography and profile
The Bystrinskoye Field is located
in the Zabaykalsky Kray, 16 km east
of Gazimursky Zavod. GRK Bystrinskoye
develops deposits of gold-iron-copper ores
at the Bystrinskoye Field.
Geological exploration
No geological exploration to increase
the volume of reserves was carried
out on the field in 2018. As the existing
open in the Bystrinsky GOK area pits
need overburden dump sites, geological
exploration works were carried out to verify
that the prospective locations were barren.
Balance reserves
Proven and probable reserves
Measured and indicated resources
Balance reserves
471.5 mt of ore
Ni — 3.2 mt
Cu — 1.5 mt
100.9 mt of ore
Ni — 0.6 mt
Cu — 0.3 mt
327.3 mt of ore
Ni — 2.3 mt
Cu — 1.1 mt
325.9 mt of ore
Cu — 2.24 mt
Au — 282.0 t (9.0 moz)
Ag — 1,218.0 t (39.1 moz)
Fe — 72 mt
Depletion of balance reserves
in 2018
7.1mt of ore
Cu — 33.7 kt
Au — 8.0 t (258 koz)
Ag — 21.5 t (691 koz)
Fe — 868.4 kt
Kotselvaara Deposit
Sputnik Deposit
Semiletka Deposit
Verkhneye
Deposit
Tundrovoye
Deposit
Zapolyarny
Zhdanovskoye
Deposit
Zapolyarnoye
Deposit
Shelopugino
Shakhtaminskaya
Area
(Cu, Au, Ag, Mo)
Gazimursky Zavod
Bystrinskoye Deposit
(Cu, Au, Fe, Ag)
Bystrinsko-
Shirinskoye
Deposit
(Au)
Bystrinskoye Deposit
Chingitayskaya Area (Fe)
Annual Report > 2018Nornickel www.nornickel.com > 70
Nkomati
Geography and profile
The Nkomati disseminated copper-nickel
sulphide ore deposit is located in South Africa
and constitutes part of the Bushveld Complex.
Nkomati is comprised of several ore bodies,
with the key ones forming a single sulphide
ore body (rich nickel ore), and the Main Mineral
Zone (MMZ). The field also contains a Peridotite
Chromite Mineralisation Zone (PCMZ)
with a lower metal grade vs MMZ.
Proven and probable reserves
Measured and indicated resources
84.45 mt of ore
172.2 mt of ore
Ni — 261.0 kt
Cu — 100.9 kt
Co — 16.8 kt
Ni — 602.7 kt
Cu — 241.1 kt
Co — 34.4 kt
PGM — 75.0 t (2.4 moz)
PGM — 165.3 t (5.3 moz)
Bushveld Complex
Nkomati
Deposit
Republic
of South Africa
Development projects
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71
Norilsk
Maslovskoye Deposit
the southern part of the Norilsk-1 Field
and the Chernogorskoye Field held
by Russian Platinum. The total reserves
of these fields recorded on the government
books break down as follows: 3.7 kt of PGM,
1.9 mt of nickel, and 2.7 mt of copper.
Balance reserves
The feasibility study
of permanent exploratory standards
and the mineral reserves estimation report
for the Maslovskoye Field were approved
by the State Committee on Mineral
Reserves (GKZ). Re-approved reserves
are documented in the protocol No. 5561
dated 12 October 2018.
MASLOVSKOYE FIELD
Geography and profile
Maslovskoye Field is located
in the Norilsk Industrial District, 12 km south
of the Norilsk-1 Field.
The licence to explore and mine
platinum-copper-nickel sulphide ores
at the Maslovskoye Field was obtained
by the Company in 2015. The Field boasts
some of the largest reserves in the world.
In early 2018, Nornickel and Russian Platinum
signed a memorandum of intent to set
up a joint venture for further development
of disseminated ore deposits in the Norilsk
Industrial District. The memorandum
provides for the parity of JV partners,
with Nornickel and Russian Platinum set
to hold a 50% interest each. The partners’
contributions to the authorised capital
of the JV will come in the form of a licence
to develop the Maslovskoye Field held
by Nornickel and a licence to develop
B + С1+ С2 mineral reserves
Item
Ore, total
PGM
Palladium
Platinum
Nickel
Copper
Cobalt
Gold
Ore
206.8 mt
1.5 kt (48.9 moz)
1.0 kt (33.1 moz)
0.4 kt (13.0 moz)
0.7 mt
1.1 mt
26.3 kt
39.4 t (1.3 moz)
Metal content in ore
–
7.4 g/t
5.0 g/t
2.0 g/t
0.3%
0.5%
0.01%
0.2 g/t
Wiluna
Lake way
Honeymoon Well
Deposit
HONEYMOON WELL DEVELOPMENT PROJECT
Honeymoon Well is located in Australia.
The Group holds a development licence
for the Honeymoon Well Project, which
includes fields hosting disseminated nickel
sulphide ores (Hannibals, Harrier, Corella
and Harakka) and deposits of solid and vein
ores (Wedgetail Field).
The total measured and indicated mineral
resources of the Honeymoon Well
Project are estimated at 173 mt of ore
with an average nickel content of 0.68%.
In 2017, the Company suspended its right
to develop the Wedgetail Field for five years,
until 7 October 2021.
Annual Report > 2018Nornickel www.nornickel.com > 72
OPERATING PERFORMANCE
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
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Additional information
73
Production assets overview
MINING
CONCENTRATION
SMELTING
REFINING
PRODUCT OFFERINGS
Cupriferous
and disseminated
ore
Norilsk
Concentrator
High grade
and cupriferous
ore
Talnakh
Concentrator
Low grade ores
Third-party feedstock
Cu concentrate
Ni concentrate
Cu concentrate
Ni-Po concentrate
SPC KUR
Copper smelting
Copper Plant
Nickel smelting
Nadezhda
Metallurgical Plant
Blister copper
Slime
from Copper
Tankhouse
Converter
matte
Copper Plant
• Copper: cathodes
• Sulphur: commercial
• Acid: sulphuric (for Company use)
PGM Concentrator
(part of Copper Plant)
• Precious metal concentrates
• Selenium: technical
Disseminated
ore
Zapolyarny
Concentrator
Briquettes of
Cu-Ni concentrate
Third-party feedstock
Smelting Shop
in Nickel
Converter
matte
PGM Concentrator
Refining Shop
Mines:
• Taimyrsky
• Oktyabrsky
• Komsomolsky
• Skalisty
• Zapolyarny
• Mayak
17.3 mt of ore
Ni ~ 1.3%
Cu ~ 2.2%
PGM ~ 6.7 g/t
Mines:
• Severny
• Kaula-Kotselvaara
7.9 mt of ore
Ni ~ 0.6%
Cu ~ 0.2%
PGM ~ 0.1 g/t
y
e
h
c
u
R
y
h
z
e
v
d
e
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n
a
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o
s
v
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a
o
P
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l
i
C
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M
a
o
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l
e
y
o
k
s
n
i
r
t
s
y
B
K
R
G
i
t
a
m
o
k
N
Open pits:
• Verkhneildikansky (launch in 2018)
• Bystrinsky-2 (launch in 2018)
• Medny Chainik (planned)
• Yuzhno-Rodstvenny (planned)
7.9 mt of ore
Mines
3.1 mt of ore
Ni ~ 0.3%
Cu ~ 0.1%
Gold-copper-
iron ore
Bystrinsky GOK
Disseminated
ore
Concentrator
• Nickel: cathodes, carbonyl,
concentrate for sale
• Copper: cathodes, concentrate for sale
• Cobalt: electrolytic, concentrate for sale
• Precious metal concentrates
• Acid: sulphuric
• Copper, iron: saleable concentrates
• Gold: concentrate to be processed at Polar
Division’s facilities (Copper Plant)
Ni
Co Cu
SPC KUR – stored pyrrhotite concentrate from Kayerkansky Open Pit Coal Mine.
• Saleable concentrate
a
t
l
a
v
a
j
r
a
H
N
N
Ni matte from Kola MMC
Crushed converter matte
from Kola MMC
Third-party feedstock
Nickel refinery in Finland
• Nickel: cathodes, briquettes, salts, powders,
solutions
• Cobalt: sulphates, solutions
• Сopper: saleable cake and cake for Kola MMC
Annual Report > 2018Nornickel www.nornickel.com >
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Company overview
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Consolidated financial statements
Additional information
75
OPERATING PERFORMANCE FOR 2018
With the completion of our capacity reconfiguration, we fully met the production
targets for 2018.
In 2018, the output of our key metals, primarily copper, was above the guidance
thanks to increased processing of copper concentrate purchased from Rostec State
Corporation and improved operating efficiency.
As we successfully reconfigured our production facilities, we were able to almost
completely eliminate low-margin processing of third-party feedstock and increase
output of nickel and copper produced from the Company's own Russian feedstock by
3% and 19%, respectively. Production of PGM from our own feedstock remained flat
y-o-y, but was also above the guidance.
In 2018, Bystrinsky GOK came close to reaching its target parameters and is
expected to yield some 40–46 kt of copper concentrate as early as in 2019.
2019 will see an active phase of the Kola MMC upgrade and higher copper output
once Bystrinsky GOK hits its target capacity.
First Vice President – Chief Operating Officer
SERGEY DYACHENKO
Ore output (mt)
Asset
Russia, including
Polar Division and Medvezhy Ruchey
Kola MMC
Bystrinsky GOK
Nkomati (South Africa)
Average metal content in ore mined
Asset
NICKEL (%)
Polar Division and Medvezhy Ruchey
Kola MMC
Nkomati (South Africa)
COPPER (%)
Polar Division and Medvezhy Ruchey
Kola MMC
Nkomati (South Africa)
PGM (g/t)
Polar Division and Medvezhy Ruchey
Kola MMC
Nkomati (South Africa)
2016
24.8
17.2
7.6
0
2.8
2017
25.0
17.4
7.6
0
3.5
2018
25.2
17.3
7.9
7.9
3.1
2016
2017
2018
1.2
0.5
0.4
2.1
0.2
0.1
6.8
0.1
n/a
1.3
0.5
0.3
2.2
0.2
0.1
6.8
0.1
n/a
1.3
0.6
0.3
2.2
0.2
0.1
6.7
0.1
n/a
Metals recovery in concentration (%)
Asset
NICKEL
Polar Division and Medvezhy Ruchey
Kola MMC
Nkomati (South Africa)
COPPER
Polar Division and Medvezhy Ruchey
Kola MMC
Nkomati (South Africa)
PGM
Polar Division and Medvezhy Ruchey
Metals recovery in downstream (%)
Asset
NICKEL
Polar Division and Medvezhy Ruchey
Kola MMC
Kola MMC
Нarjavalta
COPPER
Polar Division and Medvezhy Ruchey
Kola MMC
Kola MMC
Нarjavalta
PGM
Polar Division and Medvezhy Ruchey
Kola MMC
Нarjavalta
2016
2017
2018
77.1
69.0
70.6
94.2
73.6
89.5
77.7
79.9
69.8
70.7
94.7
75.4
90.9
81.5
81.5
69.5
65.9
94.6
74.1
88.4
82.7
2016
2017
2018
93.4
96.8
98.0
98.3
94.1
96.6
97.1
99.7
95.0
93.4
99.4
93.9
96.5
98.2
98.5
94.0
96.2
97.4
99.7
95.6
96.7
99.3
94.6
96.7
98.0
97.9
94.4
96.1
97.6
99.7
95.9
94.0
99.8
Volumes based on the 50% ownership.
The five following metals are included: palladium, platinum, rhodium, ruthenium and iridium.
Feedstock to end products.
Feedstock to converter matte.
In refining, converter matter to end products.
Annual Report > 2018Nornickel www.nornickel.com > 76
Saleable metals production across the Group
Metal
GROUP TOTAL
Nickel, kt
from own Russian feed
Copper, kt
from own Russian feed
Palladium, koz
from own Russian feed
Platinum, koz
from own Russian feed
RUSSIA
Nickel, kt
Copper, kt
Palladium, koz
Platinum, koz
FINLAND
Nickel, kt
Copper, kt
Palladium, koz
Platinum, koz
SOUTH AFRICA
Nickel, kt
Copper, kt
Palladium, koz
Platinum, koz
2016
235.7
196.8
360.2
344.5
2,618
2,526
644
610
182.1
350.6
2,554
622
53.7
9.6
64
22
8.5
4.1
40
15
2017
217.1
210.1
401.1
397.8
2,780
2,728
670
650
157.4
387.6
2,738
660
59.7
13.4
42
10
8.0
4.5
46
20
2018
218.8
216.9
473.7
473.5
2,729
2,729
653
653
158.0
436.2
2,671
642
60.8
18.0
58
11
6.6
3.1
33
13
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77
TAIMYR PENINSULA
(Polar Division and Medvezhy Ruchey)
Polar Division and Medvezhy Ruchey
are the Group’s flagship subsidiaries
boasting a full metals production cycle
that embraces operations ranging from ore
mining to the shipment of end products
to customers. Operating the Company’s
largest deposits, they mine ca. 17 mtpa
of ore. In 2018, the Company completed
a feasibility study for the project to increase
ore output at Medvezhy Ruchey to 9 mtpa.
Polar Division and Medvezhy Ruchey
are located beyond the Arctic Circle
on the Taimyr Peninsula in the north
of the Krasnoyarsk Territory, Russia.
The sites are linked to other regions
by the Yenisey River, the Northern Sea
Route and by air.
2018 milestone
In 2018, Polar Division
and Medvezhy Ruchey accounted
for 75% and 37% of the Group’s
total copper and PGM end
products, respectively.
Таймырский полуостров
(Заполярный филиал и ООО «Медвежий ручей»)
Alykel Airport
Nadezhda
Metallurgical Plant
Norilsk
Concentrator
Copper Plant
Talnakh
Concentrator
1
2
Н А Д Е Ж Д А
3
4
5
МЕДНЫЙ ЗАВОД
17.3 mln t
Polar Division and Medvezhy
Ruchey’s total ore output in 2018
2
Kayerkan
1
5
Talnakh
Taimyrsky Mine
Oktyabrsky Mine
Komsomolskaya
Mine
Mayak
Mine
Skalistaya Mine
Norilsk
3
4
Medvezhy Ruchey open pit
Zapolyarny Mine
Saleable concentrate production based on the 50% ownership Nkomati's performance is reflected in financial results using proportional consolidation according to our
stake and not reflected in other totals.
Metals production in 2018 – breakdown by asset (% from the overall Group production)
Dudinka
39.8
36.2
74.6
72.2
Platinum
Palladium
Copper
Nickel
58.5
61.7
1.7
2.1
17.5
4.1
3.8
27.8
Polar Division and Medvezhy Ruchey
Kola MMC
Bystrinsky GOK
Нarjavalta
Annual Report > 2018Nornickel www.nornickel.com > 78
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79
MINING (Polar Division and Medvezhy Ruchey)
CONCENTRATION (Polar Division and Medvezhy Ruchey)
Polar Division and Medvezhy Ruchey mine
copper-nickel sulphide ores of three grades.
Rich ores are characterised by a higher
content of non-ferrous and precious
metals; cupriferous ores are characterised
by a higher copper content vs nickel;
disseminated ores are characterised
by a lower metal content.
The Talnakhskoye and Oktyabrskoye
Deposits are developed by Taimyrsky,
Oktyabrsky, Komsomolsky, Skalisty
and Mayak Mines. Ores are extracted
through slicing and chamber mining
with flowable backfilling.
In mid-2018, Skalisty mine was spun off
from Komsomolsky Mine to become
an independent operation as part
of an effort to improve management
efficiency across Polar Division’s upstream
assets.
The Norilsk-1 Deposit is developed by Polar
Division’s Zapolyarny Mine through open-pit
and underground mining. Underground
mining is carried out through sublevel
(level) caving using front ore passes
and self-propelled vehicles.
2018 milestones
Ore output (mt)
In 2018, Polar Division
and Medvezhy Ruchey’s
total ore output decreased
marginally by 0.3% to 17.3 mt.
The production of rich ores
increased by 2.5% y-o-y, while
the production of cupriferous
ores dropped by 5.2% y-o-y.
Increased output of rich ores
was driven by the performance
of Taimyrsky and Skalisty Mines,
demonstrating an aggregate
5.6% production growth y-o-y.
In 2018, disseminated ore
production was up by 4.4%
primarily due to higher output
at Mayak and Zapolyarny Mines.
The change in the volumes of ore
mined was in line with the annual
production plan.
Deposit/Mine, ore type
Total ore
rich
cupriferous
disseminated
POLAR DIVISION
Oktyabrskoye Deposit:
Oktyabrsky Mine
rich
cupriferous
disseminated
Taimyrsky Mine
rich
Talnakhskoye and Oktyabrskoye
Deposits:
Komsomolsky Mine
rich
cupriferous
Skalisty mine
rich
Mayak Mine
rich
disseminated
MEDVEZHY RUCHEY
Norilsk-1 Deposit
(Zapolyarny Mine)
disseminated
2016
17.24
6.19
7.08
3.97
8.86
5.32
1.29
3.04
0.99
3.54
3.54
6.34
5.35
1.31
4.04
0
0
0.99
0.04
0.95
2.04
2.04
2017
17.38
6.59
7.17
3.62
8.82
5.23
1.13
3.15
0.95
3.59
3.59
6.92
5.86
1.85
4.01
0
0
1.06
0.03
1.03
1.64
1.64
2018 Mine type
17.32
6.76
6.79
3.78
8.95
5.17
0.98
2.98
1.21
3.79
3.79
6.70
3.82
0
3.82
1.95
1.95
0.93
0.04
0.89
1.67
1.67
Underground
Underground
Underground
Underground
Underground
Open-pit
Underground
Concentration facilities
• Talnakh Concentrator;
• Norilsk Concentrator (part of Medvezhy
Ruchey).
Talnakh Concentrator processes rich,
cupriferous and disseminated ores
from the Oktyabrskoye and Talnakhskoye
Deposits to produce nickel-pyrrhotite
and copper concentrates and metal
bearing products. The key processing
stages include crushing, milling, flotation
and thickening.
Norilsk Concentrator processes all
disseminated ores from the Norilsk-1
Deposit, cupriferous and disseminated ores
from the Oktyabrskoye and Talnakhskoye
Deposits, and Copper Plant’s low grade ores
to produce nickel and copper concentrates.
The key processing stages include
crushing, milling, gravitation and flotation
enrichment, and thickening. Thickened
concentrates are transported via a pipeline
from Talnakh and Norilsk Concentrators
to the downstream facilities for further
processing.
Sulphide ore processed (mt)
Concentrator
Talnakh Concentrator
Norilsk Concentrator
Nickel recovery (%)
Concentrator
Talnakh Concentrator
Norilsk Concentrator
2016
8.6
8.1
2016
79.5
70.9
2017
10.0
7.5
2017
81.7
71.7
2018
10.4
6.8
2018
83.2
71.9
2018 milestones
In 2018, the Company’s
concentration facilities processed
a total of 17.2 mt of feedstock
(including rich, cupriferous
and disseminated ores).
Over the year, Talnakh Concentrator
processed 10.4 mt of ore, up 0.4 mt
y-o-y. The facility’s nickel recovery
into bulk flotation concentrate
from ore processed, including
output of metal bearing pyrrhotite
product, increased by 1.5% y-o-y
to 83.2%. Higher recovery rates
were driven by scheduled fine-
tuning of the technological process
at Stage 2 of Talnakh Concentrator.
In 2018, volumes of ore processed
at Norilsk Concentrator were
6.8 mt or 0.7 mt lower y-o-y
in line with the mining plan.
The facility’s nickel recovery into
bulk concentrate was 0.2% higher
y-o-y, reaching 71.9%. During
the year, the facility also processed
significant volumes of Copper
Plant’s low grade ores.
Annual Report > 2018Nornickel www.nornickel.com > 80
SMELTING (Polar Division and Medvezhy Ruchey)
2018 milestones
In 2018, copper output was
15% higher than a year ago due
to increased processing of copper
bearing feedstock obtained
from Rostec State Corporation.
Platinum and palladium
output in 2018 beat the targets
and exceeded the 2017 volumes
thanks to using up the work-
in-progress inventory of PGM
Concentrator (part of Copper
Plant).
Product offering:
• copper cathodes;
• nickel converter matte
for Kola MMC;
• precious metal concentrate;
• commercial sulphur;
technical selenium.
•
Smelting facilities
• Nadezhda Metallurgical Plant
• Copper Plant
• PGM Concentrator (part of Copper Plant).
Nadezhda Metallurgical Plant produces
converter matte and elemental sulphur
by processing:
• Talnakh Concentrator’s nickel-pyrrhotite
concentrate and metal bearing products;
• Norilsk Concentrator’s nickel concentrate;
• pyrrhotite concentrate previously stored
at Kayerkansky Open Pit Coal Mine
(KUR-1).
Production chain
Concentrates produced by the Company,
including steam cured sulphide
concentrate, are fed into flash smelting
furnaces of Nadezhda Metallurgical
Plant. Steam cured sulphide concentrate
is leached in Hydrometallurgical Shop
of Nadezhda Metallurgical Plant
from products with low metal content,
such as Talnakh Concentrator’s metal
bearing products, products from Nadezhda
Metallurgical Plant’s storage facility,
and settler concentrates. The matte
produced in flash smelting furnaces is then
blown into high grade converter matte.
Copper Plant processed all of the copper
concentrate from the Company’s
concentrators, as well as third-party
feedstock, to obtain copper cathodes,
elemental sulphur and sulphuric acid
for the production needs of Polar Division.
PGM Concentrator (part of Copper Plant)
recycles slime from the Tankhouse
to produce concentrates of precious metals
and technical selenium.
Precious metals produced by Polar Division
are refined at Krasnoyarsk Precious Metals
Refinery under a tolling agreement.
At Polar Division, metals are produced
from its own feed. Since Q4 2016, all
nickel converter matte from Nadezhda
Metallurgical Plant has been processed
at Kola MMC due to the Nickel Plant
shutdown.
Metals output
Metal
Nickel, kt
Copper, kt
Palladium, koz
Platinum, koz
2016
50.9
280.3
1,703
449
2017
0
306.9
956
259
2018
0
353.1
987
260
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81
KOLA PENINSULA
(Kola MMC)
2018 milestone
In 2018, Kola MMC accounted
for 72%, 18% and 61%
of the Group’s total nickel,
copper and PGM end products,
respectively.
Kola Mining and Metallurgical Company
(Kola MMC) is Norilsk Nickel's 100%
subsidiary and an important production
asset.
Located on the Kola Peninsula in Russia's
Murmansk Region, Kola MMC is fully
integrated into the transport infrastructure
of the Northwestern Federal District.
Concentrator
and Briquetting Shop
Smelting
Shop
Refining
Shop
Tankhouse
Cells
1
2
3
4
Norway
1
The Barents Sea
Severny Mine
2
Nickel
Zapolyarny
Kaula-Kotselvaara Mine
Murmansk
Finland
Monchegorsk
3
4
7.9 mln t
Kola MMC’s total ore output in 2018
Annual Report > 2018Nornickel www.nornickel.com > 82
2018 milestones
In 2018, Kola MMC’s total ore
output amounted to 7.9 mt,
up 3.4% y-o-y, owing to higher
volumes of ore mined to ensure
utilisation of the concentrators’
design capacity. The change
in the volumes of ore mined was
in line with the annual production
plan.
MINING (Kola MMC)
Kola MMC produces disseminated copper-
nickel sulphide ores containing nickel,
copper and other commercial components.
It leverages various ore mining methods:
•
the Zhdanovskoye Deposit uses
sublevel longwall caving with front ore
passes, block caving (limited scope
of application), and open-pit mining (at
Yuzhny open pit);
•
the Kotselvaara and Semiletka Deposits
primarily use stoping from sublevel drifts
and sublevel caving, as well as room-and-
pillar short-hole and long-hole stoping
(limited scope of application).
Ore output (mt)
Mining asset
Total ore mined
Zhdanovskoye Deposit:
Severny Mine
Severny Mine
Zapolyarnoye Deposit:
Severny Mine
Kotselvaara and Semiletka
Deposits:
Kaula-Kotselvaara mine
2016
2017
2018 Mine type
7.62
6.77
6.31
0.46
0.14
0.14
0.71
0.71
7.64
6.81
6.55
0.26
0.14
0.14
0.70
0.70
7.90
7.14
6.56
0.58
0.08
0.08
0.68
0.68
Underground
Open-pit
Underground
Underground
CONCENTRATION (Kola MMC)
Concentration facilities
• Zapolyarny Concentrator.
2018 milestones
The Concentrator produces briquetted
copper-nickel concentrate. Briquettes
are delivered to Smelting Shop to produce
converter matte.
In 2018, Kola MMC's Concentrator
processed 7.9 mt of ore, up
0.3 mt y-o-y. In 2018, the rate
of metals recovery in bulk
concentrate was below the 2017
level due to the higher share
of complex morphology ores
with disseminated sulphide
minerals in the charge.
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83
SMELTING (Kola MMC)
2018 milestones
In 2018, Kola MMC produced
more nickel and copper than
in the previous year thanks
to the extension of its carbonyl
capacities and supply of richer
copper concentrate from Polar
Division. Decreased PGM output
in 2018 was due to eliminated low-
margin processing of third-party
feedstock and accumulated work-
in-progress inventories with a high
degree of readiness at Krasnoyarsk
Precious Metals Refinery engaged
in precious metals refining under
a tolling agreement.
Smelting facilities
• Smelting Shop (Nickel)
• Briquetting section (Zapolyarny)
• Metallurgical Shop (Monchegorsk)
• Refining Shop (Monchegorsk)
• Tankhouses 1 and 2 (Monchegorsk)
The Company is upgrading Tankhouse
2 to create a nickel cathode production
unit harnessing the technology of nickel
electrowinning from chlorine dissolved
tube furnace nickel powder. The project
is set to boost the Company’s production
capacity from 120 ktpa to 145 ktpa
of electrolytic nickel while also improving
the recovery rates by 1%. In late 2018,
Norilsk Nickel commissioned the first
series of electrolysis cells, with the project
expected to reach its design capacity
by the end of 2019.
Metals output
Metal
Nickel, kt
from own Russian feed
Copper, kt
from own Russian feed
Palladium, koz
from own Russian feed
Platinum, koz
from own Russian feed
2016
131,235
126,937
70,272
63,542
851
815
173
159
2017
157,396
155,110
80,781
78,587
1,782
1,737
401
385
2018
158,005
157,519
83,070
82,987
1,684
1,684
382
382
Product offering:
• nickel cathodes;
• nickel carbonyl;
• saleable nickel concentrate;
• copper cathodes;
• electrolytic cobalt;
• cobalt concentrate;
• precious metal concentrates;
• sulphuric acid;
• crushed converter matte
for Harjavalta;
• copper concentrate for sale.
Annual Report > 2018Nornickel www.nornickel.com > 84
ZABAYKALSKY KRAY
(GRK Bystrinskoye)
GRK Bystrinskoye (Bystrinsky GOK)
is the Company’s 50.01% subsidiary.
This new Nornickel asset is the largest
greenfield project in the Russian metals
industry, covering ore mining,
concentration and shipment of end
products to customers. The volume of ore
mined and processed at Bystrinsky GOK
is approximately 10 mtpa.
(350 km from Chita). The closest residential
areas are Novoshirokinsky, 14 km north-
east of the facility, and Gazimursky Zavod,
a district capital 25 km to the north-west.
The Naryn – Gazimursky Zavod rail line was
built to facilitate mining in the south-
east of the Zabaykalsky Kray. In 2012,
the railway became operational, allowing
for traffic to Gazimursky Zavod.
2018 milestone
In 2018, Bystrinsky GOK accounted
for 4% of the Group’s total copper
end products.
Company overview
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85
MINING (GRK Bystrinskoye)
Bystrinsky GOK mines gold-iron-copper
ores.
Ore output (mt)
Mining asset
Total ore mined
Bystrinskoye Deposit
Verkhneildikansky open pit mine
Bystrinsky-2 open pit mine
CONCENTRATION (GRK Bystrinskoye)
2018 Mine type
7.86
7.86
7.43
0.43
Open-pit
Open-pit
Sretensk
1
Gazimursky Zavod
Alexandrovsky Zavod
Borzya
China
Concentration facilities
• Concentrator.
The construction began in 2015,
with the Concentrator intended to process
ores of the Bystrinskoye Deposit to produce
copper, magnetite, and gold concentrates.
The key processing stages include
crushing, milling, flotation, thickening,
filtration and packaging. The Concentrator
is designed to have two separate
processing streams, both of which were
launched in 2018 as part of the pre-
commissioning stage.
Copper and magnetite concentrates
are sold to third parties, while gold
concentrates are further processed at Polar
Division.
Product offering:
• copper concentrate;
• gold concentrate;
• magnetite concentrate.
Concentration
Indicator
Ore processing, mt
Copper concentrate, kt
Cu in concentrate, %
Magnetite concentrate, kt
Fe in concentrate, %
Gold concentrate, t
Au in gold concentrate, g/t
2018
3.8
76.5
25.4
346.2
64.1
92.4
6,218
The construction of Bystrinsky GOK started
in 2013. In October 2017, the Company
embarked on the pre-commissioning
phase, with the project expected to reach
its design capacity after 2020. Bystrinsky
GOK is located in the Gazimuro-Zavodsky
District of the Zabaykalsky Kray, south-east
of Gazimursky Zavod in the Ildikan valley
Bystrinsky
GOK
1
Chita
7.9 mln t
GRK Bystrinskoe’s total ore
output in 2018
Mongolia
Annual Report > 2018Nornickel www.nornickel.com > Company overview
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87
SMELTING (NN Harjavalta)
The facility uses sulphuric acid leaching,
the best-in-industry global solution
with the metal recovery rates of above 98%.
2018 milestone
In 2018, Norilsk Nickel Harjavalta
accounted for 28%, 4% and 2%
of the Group’s total nickel,
copper and PGM end products,
respectively.
Russian nickel-bearing feedstock
from Kola MMC
Nickel-bearing feedstock
from third parties
e
k
a
c
u
C
Matte / converter matte
Norilsk Nickel Harjavalta refinery
Refining capacity utilisation (%)
91
93
83
86
FINLAND
(NN Harjavalta)
Norilsk Nickel Harjavalta became part
of the Group in 2007. The Harjavalta
facility processes the Company's Russian
feedstock and nickel-bearing raw materials
sourced from third-party suppliers.
Founded in 1960, Norilsk Nickel Harjavalta
is the only nickel refinery in Finland and one
of the largest such facilities in Europe. It
has a total capacity to produce 66 ktpa
of nickel products.
Norilsk Nickel Harjavalta
Plant
1
N
i
c
a
t
h
o
d
e
s
N
i
b
r
i
q
u
e
t
t
e
s
N
i
s
a
l
t
s
N
i
p
o
w
d
e
r
s
In 2018, the refining facilities
in Monchegorsk were gradually increasing
their nickel feedstock supplies to Norilsk
Nickel Harjavalta in line with the Group’s
downstream facilities reconfiguration
strategy. One-off and insignificant supplies
of third-party feedstock, namely converter
matte from Boliden Harjavalta (Finland),
were sourced in Q2 and Q3 only, while nickel
salts from other companies were sourced
throughout 2018. Platinum and palladium
recovery rates improved on the back
of a drop in losses with ferrous cakes.
In 2018, Norilsk Nickel Harjavalta produced
60.8 kt of saleable nickel (up 2% y-o-y),
hitting its all-time high. The growth was
driven by the reconfiguration of refining
facilities and increased nickel feedstock
supplies from Kola MMC. The production
Metals output
Metal
Saleable nickel, kt
from own Russian feed
Copper in copper cake, kt
from own Russian feed
Palladium in copper cake, koz
from own Russian feed
Platinum in copper cake, koz
from own Russian feed
N
l
i
s
o
u
t
i
o
n
s
l
C
o
s
u
p
h
a
t
e
s
l
C
o
s
o
u
t
i
o
n
s
C
u
c
a
k
e
2016
2017
2018
of copper in copper cake totalled 18.0 kt,
up 34% y-o-y. This growth was due
to increased processing of Russian
feedstock as part of the production
reconfiguration exercise and using-up
of the work-in-progress inventories.
The production of saleable palladium
and platinum in copper cake increased
by 38% and 10% y-o-y, respectively. This
was due to higher processing volumes
of Russian feedstock and using-up
of the work-in-progress inventories.
Saleable nickel output by product
in 2018 (%)
60.8
kt
Briquettes
Cathodes
Chemicals and solutions
Powders
50
27
17
6
Product offering:
• nickel cathodes and briquettes;
• nickel salts, powdersand
solutions
• cobalt sulphate;
• cobalt solutions;
• PGM-bearing copper cake.
2016
53.65
19.01
9.60
0.59
64
8
22
2
2017
59.72
55.02
13.44
12.33
42
35
10
6
2018
60.77
59.34
18.04
17.98
58
58
11
11
60.8 kt
Harjavalta Plant's total output
of saleable nickel in 2018
1
Sweden
Stockholm
Russia
St Petersburg
Helsinki
Tallin
Estonia
Annual Report > 2018Nornickel www.nornickel.com >
88
SOUTH AFRICA
(Nkomati)
Nkomati is a 50/50 joint venture
of the Norilsk Nickel Group and African
Rainbow Minerals. Nkomati's performance
is reflected in financial results using
proportional consolidation according
to our stake.
Nkomati is located in Mpumalanga Province,
South Africa, 300 km east of Johannesburg.
It is the only South African company
to produce nickel concentrate, which
also contains copper, cobalt, chromium
and PGM.
Mine
Concentrator
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89
MINING (Nkomati)
Nkomati has a substantial resource base
represented by disseminated copper-nickel
sulphide ores. The Main Mineral Zone
(MMZ) is comprised of a solid sulphide ore
body with a relatively high nickel content.
The Nkomati Deposit also contains
a Peridotite Chromite Mineralisation Zone
(PCMZ) with a lower metal content vs MMZ
and a relatively high chromium content.
2018 milestone
In 2018, total ore mined by Nkomati
reached 3.1 mt (attributable
to the Group’s 50% shareholding)
with an average nickel content
of 0.27%.
1
2
Namibia
3.1 mln t
Nkomati's total ore
output in 2018
Capetown
Botswana
Mozambique
CONCENTRATION AND SMELTING (Nkomati)
Johannesburg
1
2
Lesotho
2018 milestones
In 2018, Nkomati produced 7 kt
of nickel (down 18% y-o-y), 3 kt
of copper (down 32% y-o-y), 33 koz
of palladium (down 28% y-o-y),
and 13 koz of platinum (down 35%
y-o-y) (attributable to the Group’s
50% shareholding). The drop was
due to the processing of off-
balance ores with lower metal
content and temporary suspension
of operations due to strikes
by the contractors’ employees.
Concentration facilities
• MMZ Concentrator with installed
capacity of 375 ktpm.
• PCMZ Concentrator with installed
capacity of 250 ktpm.
The feedstock produced by open-pit
and underground mines is processed
at concentrators using the sulphide
floatation technology. The facility's
concentrates are then further sold by third-
party companies.
Metals output
Metal
Nickel, kt
Copper, kt
Palladium, koz
Platinum, koz
Volumes based on the 50% ownership.
2016
2017
2018
8.5
4.0
40
15
8.0
4.5
46
20
6.6
3.1
33
13
Annual Report > 2018Nornickel www.nornickel.com > In response to strong growth of demand
by battery manufacturers, the Company
is upgrading its nickel powder packaging
capacities in order to broaden the range
of packages and create individual solutions
based on consumer preferences.
SALES STRATEGY
Sales by region (%)
90
PRODUCTS AND DISTRIBUTION
PRODUCT RANGE
In 2018, Nornickel maintained its reputation
as a reliable supplier of high quality
products. The integrated index of customer
satisfaction with the Company's products
and services matched the criterion
for positive performance.
One of the Company’s objectives
is to make sure its product range is in line
with the current and prospective global
metals demand.
The Company views value-added
products containing nickel and cobalt
for the battery segment as a promising
focus area for expanding the product range
and ramping up production. Nornickel
End product production
is holding discussions with potential
partners in the battery market to expand its
product offering.
Norilsk Nickel Harjavalta is considered one
of world’s foremost producers of nickel
used to make precursors (semi-products
essential for manufacturing the cathode
material that forms part of batteries).
Norilsk Nickel Harjavalta's nickel and cobalt
sulphates are considered the industry
benchmark and are widely used in battery
manufacturing. Norilsk Nickel Harjavalta
is uniquely flexible when it comes
to manufacturing, which enables it to factor
in consumer preferences in developing its
product portfolio.
Polar Division
Kola MMC
Norilsk Nickel Harjavalta
GRK Bystrinskoye
Krastsvetmet
Te
Se
Cu
Ni
Pt
Ir
S
Co
Cu
Na2SO
4
H2SO4
Ni
Co
CC
IOC
Pd
Rh
Ru
Ag
Au
Product
■ copper ■ tellurium, selenium ■ sulphur ■ nickel, cobalt ■ copper ■ sodium sulphate ■ sulphuric acid ■ nickel ■ cobalt
■ copper concentrate ■ iron ore concentrate ■ platinum, palladium ■ iridium, rhodium ■ ruthenium ■ silver, gold
Sales markets
100% of shares are owned by the government. Precious metals are refined from raw materials produced by Polar Division and Kola MMC under a tolling agreement.
Company overview
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In the electroplating sector, Nornickel
is optimising its product offering to better
meet customer needs and acquire new
clients in China and other markets.
As the world’s largest producer
of palladium, the Company
continues to implement the strategy
of entering into direct long-term contracts
with end consumers to ensure sustainable
and strong demand for platinum group
metals.
One of Nornickel’s priorities is stable
supply amid the growing demand
for PGM. The Company positions itself
as the palladium market leader, focusing
on launching new mining projects to ensure
that the palladium market is balanced
in the long term. In 2016, the Company
established the Global Palladium Fund
(GPF) to guarantee stable supplies
in the medium term. In 2017–2018,
Nornickel’s Global Palladium Fund (GPF)
supplied the market with more than
1 moz of palladium on top of its own
output – to industrial buyers (primarily
from the automotive sector).
The Company supplies its products to 34
countries.
To boost sales premiums and improve
liquidity, Norilsk Nickel registers its
products on the world’s major exchanges,
including the London Metal Exchange
and Shanghai Futures Exchange.
Sales, along with production, have
traditionally been a key value adding line
of Nornickel’s business.
When it comes to nickel products, the sales
strategy focuses on achieving a balance
between supplies to stainless steel
manufacturers and to other industries.
Norilsk Nickel has been committed
to diversifying nickel sales by applications
and continues increasing nickel supplies
to sectors other than stainless steel. Since
2014, we have ramped up sales to non-steel
industries by 50% to 120 ktpa in 2018.
The Company is running a program
to support prospective nickel applications,
primarily in the battery sector. Norilsk
Nickel is uniquely positioned to supply
a wide range of products used in battery
component manufacturing. With its own
global sales network, vast cooperation
experience with car makers and chemical
companies, and active efforts to engage
new major industry players, the Company
has capabilities to become a key member
in the battery components value chain.
In the battery segment, the Company
is set to support the electric vehicles
market and related value chains, build
long-term partnerships with key industry
players, and expand the market and its
accessibility for nickel and cobalt products.
The sales team is closely monitoring
changes in the technical requirements
for nickel and cobalt products in the sector.
The Company is actively engaging major
players in the car battery segment,
as evidenced by the agreement with BASF.
In the sector of alloys and special steels,
we seek to maximise the application
of our products and improve product quality
to boost our share in premium segments.
Europe
Asia
North and South America
Russia and CIS
53
27
15
5
In 2018, nickel sales to segments other
than stainless steel production stood at
120 kt
The Company supplies its products to
34 countries
In 2017–2018, Global Palladium Fund
supplied the market with more than
1 moz of palladium
AsiaAmericaEuropeRussiaAnnual Report > 2018Nornickel www.nornickel.com >
92
Company sales
Kola MMC
Russia
GRK Bystrinskoye
ENERGY ASSETS
Company overview
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Markets commodity
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93
MMC Norilsk Nickel
Russia
NORMETIMPEX
Russia
Medvezhy Ruchey
Russia
Norilsk Nickel Harjavalta
Finland
Metal Trade Overseas AG
Switzerland
Customers
in Russia
and the CIS
Customers
in Europe
Norilsk Nickel Asia
Hong Kong
Customers
in Asia
Norilsk Nickel Metals
Trading Shanghai
China
Customers
in China
Norilsk Nickel USA
USA
Customers
in the US
PARTNERSHIP WITH BASF
In October 2018, BASF and Nornickel
signed an agreement to create the first
integrated platform for manufacturing
battery components in Europe to meet
the growing demand for electric vehicle
(EV) battery components.
Under the agreement, Nornickel’s nickel
refining plant in Harjavalta will supply
nickel and cobalt feedstock to a BASF
cathode materials facility to be built
adjacent to Nornickel’s site. The facility
is expected to come on stream by the end
2020 with the capacity to produce battery
components for some 300,000 EVs
per year. Cathode materials with high
nickel content are the key components
responsible for higher battery energy
capacity and EVs' increased useful life.
The agreement with BASF
is in line with Nornickel’s strategy to boost
the Company’s share in the global battery
component market and set up long-term
partnership arrangements with major
cathode producers. Collaboration
with BASF will help Nornickel to solidify
its global leadership in nickel and cobalt
production and offer customers the best
product in the most convenient form.
Electric vehicles can transform the global
nickel industry. As the world’s leading
supplier of high-grade nickel, Nornickel
is uniquely positioned to contribute
to this change. The project also fits
well in European and worldwide efforts
to support green economy, contributing
to which the Company reaffirms
its commitment to sustainable use
of resources and its status as a responsible
participant in the materials supply chain
globally.
Norilsk Nickel Harjavalta is a unique
production site well-suited for vertically
integrated production of battery precursors
in the European market. Local production
of precursor materials will support
the industry’s development in Europe,
with the growing regional supply chain
helping to mitigate logistical risks
for battery manufacturers and car makers.
Deryabinskoye
Ozernoye
Nenadyanskoye
Pelyatkinskoye
Kazantsevskoye
Ushakovskoye
Dudinka
Severo-
Soleninskoye
Yuzhno-Soleninskoye
Messoyakhskoye
Yamal-Nenets
Autonomous Area
Norilsk
Taimyrgas and Norilskgazprom's deposits
Unallocated fund's deposits
Most of Nornickel’s production sites
are located beyond the Arctic Circle
with sub-zero temperatures during
eight months of the year. It is therefore
critical for the Group to ensure reliable
and high-quality energy supplies to its
production and infrastructure facilities
and communities in the regions where
it operates. The Company owns
an integrated network of fuel and energy
assets.
hydrocarbon
deposits4
43.6%
2,896 mcm
natural gas production
90 kt
gas condensate production
electricity generated from renewable
sources
Taimyrgaz (100% stake)
Norilskgazprom (100% stake)
m
a
e
r
t
s
p
U
Pelyatkinskoye Deposit
• Start of production: 2003
• Gas reserves: 127 bcm
• Gas condensate reserves: 3,608 kt
• Gas output in 2018*: 2 bcm
• Gas condensate output in 2018 — 88 kt
Severo-Soleninskoye, Yuzhno-Soleninskoye
and Messoyakhskoye deposits
m
a
e
r
t
s
p
U
• Start of production: 1969
• Gas reserves: 115 bcm
• Gas condensate reserves: 1,081 kt
• Gas output in 2018*: 869 mcm
• Gas condensate output in 2018 — 2 kt
Production
Asset
Natural gas, mcm
Taimyrgaz
Norilskgazprom
Gas condensate, kt
Taimyrgaz
Norilskgazprom
2016
3,402
2,408
944
115
113
2
2017
3,014
2,086
928
100
98
2
2018
2,896
2,027
869
90
88
2
Data on gas condensate production include production losses (carryover with separation gas).
Annual Report > 2018Nornickel www.nornickel.com > Company overview
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95
94
Norilsktransgaz (100% stake)
transports natural gas and condensate to consumers in the Norilsk Industrial District.
Gas and gas condensate pipelines from Pelyatkinskoye to Severo-
Soleninskoye deposits
• Commissioned: 2003
• Length: 170.7 km
Gas and gas condensate pipelines from Severo-Soleninskoye Deposit
to Norilsk/Dudinka
n
o
i
t
a
t
r
o
p
s
n
a
r
T
• Commissioned in: 1971
• Length: 1,418.1 km
Power generation breakdown
in the Norilsk Industrial District in 2018
(%)
Renewable energy sources (hydropower)
Hydrocarbons (natural gas)
51
49
Arctic-Energo electricity sales
breakdown in 2018 (%)
Norilsk-Taimyr Energy Company
or NTEK (100% stake)
is responsible for power and heat
generation, transmission and sales
harnessing the assets of Norilskenergo
(MMC Norilsk Nickel’s branch)
and Taimyrenergo. The energy sources
include renewables (hydropower)
and gaseous hydrocarbons (natural gas).
NTEK supplies electric power, heat
and water to the city of Norilsk and all
facilities of the Norilsk Industrial District.
In terms of its location and operational
mode, the local power grid is isolated
from the national grid (Unified Energy
System of Russia), which means stricter
reliability requirements. NTEK operates five
generating facilities – three thermal power
plants with installed electricity generation
capacity of 1,081 MW, and two hydropower
plants with total installed capacity of 1,080
MW. Total installed capacity of all the plants
is 2,271 MW.
Ust-Khantayskaya and Kureyskaya HPPs
(481 MW and 600 MW of installed capacity,
respectively) are the Company's two
renewable power generation facilities.
In 2018, renewables accounted for 43.6%
of total power consumed by the Group
and 51.4% of power consumption
in the Norilsk Industrial District.
Kola MMC
Monchegorsk residents
Other
The Group's investment programme
embraces several large-scale priority
projects to fully unlock the potential
of renewable power sources and ensure
energy savings. In 2018, the Company’s
spending under the programme totalled ca.
USD 97 mln (RUB 6.1 bn).
95
2
3
Major projects include:
•
•
replacement of hydroelectric units
and introduction of an automated dispatch
system at Ust-Khantayskaya HPP;
increase of installed generating
and transformer capacities;
• TPP-1 retrofit to enable automated
•
process control;
replacement of wooden supports
at 110 kV lines with steel ones.
Arctic-Energo (100% stake)
is a default provider ensuring
an efficient and uninterrupted
electricity supply at minimum prices
to Kola MMC operations. In 2018, it sold
2,711,767 thousand kWh of energy.
Annual Report > 2018Nornickel www.nornickel.com > 96
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Additional information
97
TRANSPORTATION ASSETS
Murmansk Transport
Division (Murmansk
terminal, 6 heavy-duty
ice-class vessels)
Arkhangelsk
Transport
Division
Norilsk Airport, Norilsk Avia,
NordStar Airlines (100% stake)
Polar Transport Division
(Dudinka Port)
Lesosibirsk Port
(51% stake)
Yenisey River Shipping
Company (82% stake)
Krasnoyarsk Transport Division
and Krasnoyarsk River Port
(89% stake)
2018 milestones
In 2018, 66 voyages were made
from Dudinka (flat y-o-y), including
10 direct voyages to European
ports (vs 12 voyages in 2017).
Dry cargo transportation
by the Company's fleet (mt)
Transportation by Yenisey tanker (kt)
1.2
1.1
1.1
2018
2017
2016
0.2
89
133
1.4
2018
222
0.2
0.1
1.3
1.2
102
115
2017
2016
60
80
162
195
Nornickel
Third-party customers
Nornickel
Third-party customers
Norilsk Nickel’s transportation and logistics assets include:
• sea fleet — 6 heavy-duty ice-class vessels;
• river fleet — 556 vessels, including 161 self-propelled and 395 towed
vessels;
• rail car and locomotive fleet — 118 container flatcars, 1 switch
locomotive, 1 Yermak electric locomotive, and 1 2М62 diesel locomotive;
• aircraft fleet — 16 helicopters operated by Norilsk Avia and 15 planes
operated by NordStar Airlines.
Mongolia
Nornickel owns modern transport infrastructure to successfully
respond to any freight logistics challenges and ensure continuity
and sustainability of operations. The Company's transportation
and logistics assets embrace the full range of transportation
and freight forwarding services.
Freight shipping services
Nornickel has a unique Arctic
fleet comprising five dry cargo
vessels and one Yenisey
heavy-duty ice-class tanker
(ARC 7 under the classification
of the Russian Maritime Register
of Shipping). The vessels are capable
of breaking through Arctic ice up
to 1.5 m thick without icebreaker support.
The Yenisey tanker is used to transport gas
condensate from the Pelyatkinskoye Gas
Condensate Deposit to European ports
and other destinations.
The Company's dry cargo fleet provides
year-round freight shipping services
between Dudinka, Murmansk, Arkhangelsk,
Rotterdam, and Hamburg sea ports while
also covering other destinations.
Bystrinsky
Transport
Division
Air transportation services
Norilsk Avia serves the transportation
needs of local communities in the Norilsk
and Taimyrsky Dolgano-Nenetsky
districts of the Krasnoyarsk Territory.
The company provides air services related
to the operations of the Norilsk Nickel
Group, emergency air medical assistance,
search-and-rescue operations, and local
passenger traffic.
NordStar Airlines is a rapidly developing
aviation project launched in 2008. Its
fleet comprises 15 aircraft. In 2018,
for the second year running, NordStar
Airlines successfully passed the IATA
Operational Safety Audit and was added
to the IOSA Registry.
With passenger traffic in excess of 1 million
people per year, NordStar Airlines
annually reaffirms its status of a major
air carrier in the Siberian Federal District
and nationwide. The air company's current
route network covers over 30 cities
in Russia and the CIS. In the reporting
year, it carried over 110,000 residents
of the Norilsk Industrial District during
the third stage of the Norilsk Airport
reconstruction.
Located 36 km away from Norilsk,
Airport plays an essential role in ensuring
the region's transport accessibility
as it connects the north of the Krasnoyarsk
Territory with other Russian regions.
The airport kept servicing passengers
throughout the entire period of the runway
reconstruction completed in 2018.
The project was implemented as part
of a public-private partnership formalised
by an agreement signed between
the Federal Air Transport Agency
and Nornickel. This was the first of its kind
initiative both in Russia and internationally,
with the project delivered on schedule
and to the highest quality requirements.
The new 2,821 ×45 m runway
is fully compliant with all the certification
standards. The project also saw
the upgrade of two taxiways and partial
repairs of the concrete pavement
in the apron for civil aircraft.
Annual Report > 2018Nornickel www.nornickel.com > 98
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Corporate governance
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Additional information
99
Transport divisions and ports
Waterway cargo traffic at Dudinka port
(mt)
2.2
2.0
2.7
2018
2017
2016
1.3
1.2
3.5
3.2
1.2
3.9
Yenisey River
Northern Sea Route
Waterway cargo traffic at Murmansk
terminal (mt)
1.3
1.1
0.9
2016
2017
2018
Polar Transport Division
and Dudinka Port are the key
industrial facilities of Dudinka. Dudinka
Port is the world’s only port that gets
flooded every year during the spring thaw
and is accessible to sea and river vessels
alike.
Located in the Far North, the port operates
a seasonal service. From November to May
when its water area and the Yenisey basin
freeze over, Dudinka Port handles only
sea vessels using icebreakers to de-ice
the berths and provide support during
manoeuvring and mooring operations.
In May and June, during the flooding,
the service is suspended to be resumed
for river and sea vessels when ice flows
pass and the water level goes down.
Dudinka Port is an essential link
in the Company’s production and supply
chain: it tranships cargoes for the Norilsk
Industrial District and Taimyr Peninsula,
including goods for local residents (except
for perishables and mail). In summer, river
vessels deliver equipment and materials
(sand, round timber, clinker, etc.) for process
needs from Krasnoyarsk and Lesosibirsk,
and sulphur to Krasnoyarsk. Throughout
the year, including in winter months, sea
vessels ship metal products and converter
matte from Dudinka for further processing
at Kola MMC.
Polar Transport Division carries out port
operations using its own fleet of a river-
class icebreaker, towboats, motorboats,
a bunker barge, and a floating crane.
To reduce its environmental footprint,
the division runs programmes to cut
fuel consumption and prevent pollution
of the Dudinka and Yenisey Rivers, while
also investing in bioresource reproduction
(release of fingerlings).
The year-round ice-free sea port
of Murmansk is home to Nornickel's
Murmansk Transport Division.
With berth 2 put into operation in March
2017, the division’s design cargo traffic
capacity increased to 1.5 mtpa.
The terminal reconstruction exercise
included initiatives to repair the damage
caused to aquatic bioresources.
Murmansk Transport Division’s key
functions are shipment of the Company's
finished metal products from Murmansk
to European ports, receipt of converter
matte from Dudinka and its shipment
by rail to Kola MMC, and delivery
of empty containers, equipment
and materials to Dudinka. In addition to sea
transportation, Murmansk Transportation
Division is engaged in freight forwarding,
transhipment and storage of cargoes,
and rail transportation between Murmansk
and Monchegorsk.
The division's shipping department
complies with international maritime
conventions by ensuring environmentally
friendly and safe sea transportation,
with the vessels undergoing regular repairs
and safety inspections.
Arkhangelsk Transport Division
(Arkhangelsk) provides for a year-round
transhipment of Nornickel's cargo via
Arkhangelsk sea port, which is conveniently
linked to other Russian and foreign regions
by road, air and rail.
Krasnoyarsk Transport Division
coordinates operations at Krasnoyarsk
and Lesosibirsk ports and Yenisey
River Shipping Company, which operate
on a seasonal basis due to the Yenisey
River getting frozen in winter. When ice
flows pass, the Group uses the ports
to tranship cargoes to Dudinka, including
crushed granite, clinker, materials,
equipment and socially significant cargoes
(as part of the Northern Supply Haul
programme). Krasnoyarsk Transport
Division engages in initiatives to reduce
fuel consumption and prevent processing
of lump sulphur within Krasnoyarsk.
The bulk of the Group's and third-party
cargo is transported along the Yenisey
by Yenisey River Shipping
Company, which owns a sizeable
fleet of over 500 river vessels, including
self-propelled and towed ones. The fleet
operates in the Yenisey, Angara, Nizhnyaya
and Podkamennaya Tunguska Rivers
and their largest tributaries.
One of the largest Yenisey ports,
Krasnoyarsk River Port tranships
cargo delivered by road, rail and water
transport, provides storage services
and transports cargo using private railway
lines. The port has three operating areas –
Yenisey, Zlobino and Peschanka.
•
Lesosibirsk Port operates in the port
of Lesosibirsk located 40 km down
from the confluence of the Angara
and Yenisey Rivers and below the rapids
that are hard to navigate. This secures
the delivery of the Group's cargo in case
of low water on the Yenisey and high
vessel utilisation rates. The port boasts
the following unique advantages:
it is the only dedicated port
on the Yenisey River that can process
and, if required, store explosives;
it offers year-round service (rail-road
and road-rail transhipment services
in between the navigation periods);
it has access to the Baikal (M53) federal
highway via the Krasnoyarsk-Yeniseysk
Highway;
the railway to Achinsk connects
Lesosibirsk and the Trans-Siberian
Railway.
•
•
•
In late 2017, MMC Norilsk Nickel’s
Board of Directors decided to establish
Bystrinsky Transport Division
to deliver products from, and supplies
to, Bystrinsky GOK. Since 2018, Bystrinsky
Transport Division has been carrying out
maintenance of the 227 km Naryn (Borzya)
– Gazimursky Zavod private railway line
built under a public private partnership.
A decrease in total expenses y-o-y is due
to lower costs of constructing a berth
at Murmansk Transport Division. Most works
were completed in 2016–2017, with the berth
put into operation in March 2017.
A major increase in other expenses
in 2018 is attributable to scheduled repairs
of four Murmansk Transport Division sea
vessels. On top of that, the reporting year
saw the Company complete scheduled
repairs of vessels and overhauls
of several berths, install security systems,
upgrade the communications systems
and introduce fuel consumption controls.
Investments in transportation and logistics assets
Cost item
TOTAL
Capital construction
Purchase of equipment
Other costs
2016
2017
2018
USD mln
RUB bn
USD mln
RUB bn
USD mln
RUB bn
34.3
17.9
10.4
6.0
2.3
1.2
0.7
0.4
46.2
22.2
15.4
8.6
2.7
6.4
0.9
0.5
35.1
7.1
12.8
15.9
2.2
0.4
0.8
1.0
Annual Report > 2018Nornickel www.nornickel.com > 100
INNOVATIONS
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
101
2018 milestones
2018 milestones
Nornickel is the only Russian
company on Forbes’ Top 100 Most
Innovative Companies list.
Nornickel won the 16th
National IT Leader Award 2018
in the Non-Ferrous Metallurgy
category for introducing personnel
and machinery positioning
and radiocommunications systems
at Zapolyarny Mine.
R&D and feasibility studies financing
(USD mln)
4.5
4.7
4.1
2016
2017
2018
Excluding financing of key investing project.
RESEARCH AND DEVELOPMENT
R&D plays a key role in implementing
Nornickel’s strategic priorities such
as reducing the environmental impact,
improving production efficiency and setting
stage for the Company’s sustainable
development in medium and long run.
Nornickel’s main R&D facility is Gipronickel
Institute. Part of the Norilsk Nickel
Group, it is also one of Russia's largest
research and engineering hubs for mining,
concentration, metallurgy and processing
of minerals that provides a wide range
of research and technology services.
In 2018, Nornickel’s R&D activities mainly
focused on research, technological
development, and feasibility studies
under the Company's updated strategic plan.
DIGITALISATION
Nornickel is actively embracing and applying
information and digital technologies
to streamline production processes.
Since 2018, a digital laboratory within
the Company’s IT department is working
on several dozen promising projects.
Technologies introduced in 2018 include
the digital vision to monitor short-circuiting
of the cathode and anode in the tankhouse,
digital twin to optimise the delivery
of copper matte from smelting furnaces
to converters, ore contaminant identifier
to prevent foreign objects from getting
into the concentrators’ crushing machines,
and the automated management system
at Bystrinky GOK to control and collect online
all the information on the underground
mining equipment – from fuel consumption
to cargo carried.
In 2015, the Company launched
the Technology Breakthrough initiative
to automate and digitalise most of key
processes at its mining and processing
facilities by 2020.
In 2018, Nornickel and Skolkovo Foundation
signed a partnership agreement to set up
Nornickel’s digital lab within the Skolkovo
Innovation Centre. The lab will track
In 2018, Nornickel and Skolkovo
Foundation signed a partnership
agreement to set up Nornickel’s
digital lab within the Skolkovo
Innovation Centre. The lab will track
and analyse innovations and digital
initiatives. In 2018–2021, the
Company plans to invest some
USD 80 mln in going digital.
The reporting year saw Kola MMC
deploy advanced technologies –
weak artificial intelligence
and computer vision – for the first
time in its history. For this
purpose, the facility ran a pilot
project to control product quality
at its concentrator's briquetting
section where copper-nickel
ore concentrate is prepared
for smelting.
The exoskeleton can reduce load
and improve safety. To experiment
with the new technology, Polar Division
ran a competition among its employees,
inviting them to think of ways they could
use the industrial exoskeleton at work.
The proposed applications included scrap
metal sorting and removal of cathode
deposit build-up at the third recovery stage.
The winners were the first in the history
of Norilsk to test digital technology and take
part in exoskeleton trials at the South-West
State University in Kursk in March 2019.
Mine automation system
Nornickel installed personnel and machinery
positioning and radiocommunications
systems at Zapolyarny Mine.
The automation system scans individual
tags assigned to the employees
and self-propelled machinery and maintains
wireless connection with each employee
via their personal phones. It also features
an anti-collision technology informing
the driver of getting close to the deployed
staff or equipment. The staff or equipment
location data is continuously transmitted
to the control room ensuring real-time
coordination of actions in case
of emergencies.
and analyse innovations and digital
initiatives. In 2018–2021, the Company
plans to invest some USD 80 mln in going
digital.
Artificial intelligence and computer
vision
The reporting year saw Kola MMC
deploy advanced technologies – weak
artificial intelligence and computer
vision – for the first time in its history.
For this purpose, the facility ran a pilot
project to control product quality at its
concentrator's briquetting section where
copper-nickel ore concentrate is prepared
for smelting. Computer vision is one
of the most rapidly growing and promising
areas of artificial intelligence that allows
computers to acquire, process, analyse
and understand images of real-world
objects to perform appropriate action.
The company’s computer vision system
includes a video camera mounted above
the finished product conveyor and three
neural networks processing the video
stream to analyse the quality of transported
products and sort them accordingly.
The data so collected is fed into a database,
processed and sent to the concentrator’s
management in the form of images,
charts, and tables in near-real time.
It helps to analyse the production process,
effectively control process parameters
and adjust the product quality.
Industrial exoskeleton trials
Despite a high level of automation,
processes at mining and metals
facilities are still very labour-intensive.
Annual Report > 2018Nornickel www.nornickel.com > 102
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
103
FINANCIAL OVERVIEW
(MD&A)
2018 HIGHLIGHTS
2018
Consolidated revenue increased 28% y-o-y to USD 11.7 billion on the back of improved
metal prices, higher copper output and sale of palladium from earlier accumulated stocks.
Key corporate highlights (USD million, unless stated otherwise)
Index
Revenue
EBITDA
EBITDA margin
Net profit
Capital expenditures
Free cash flow
Net working capital
Net debt
Net debt, normalized for the purpose of dividend
Net debt/12M EBITDA
Net debt/12M EBITDA for dividends calculation
Dividends paid per share (USD)
2017
9,146
3,995
44%
2,123
2,002
-173
2,149
8,201
7,495
2.1x
1.9x
18.8
2018
11,670
6,231
53%
3,059
1,553
4,931
867
7,051
5,160
1.1x
0.8x
21.3
Change, %
28
56
9 p.p.
44
-22
n.a.
-60
-14
-31
-1.0x
-1.1x
13
EBITDA expanded 56% y-o-y to USD 6.2 billion owing to higher metal revenue, ramp-up
of the Bystrinsky project and lower operating expenses driven by efficiency gains.
A non-IFRS measure, for the calculation see the notes below.
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
EBITDA margin reached 53%, a leading level among the global diversified metals
and mining majors.
CAPEX decreased 22% y-o-y to USD 1.6 billion driven by completion of Bystrinsky project
and downstream reconfiguration as well as optimization of investment schedules.
Net working capital decreased by almost USD 1.3 billion to USD 0.9 billion as a result
of palladium destocking and optimization of capital structure.
Free cash flow increased to USD 4.9 billion.
Net debt/EBITDA ratio returned to 1.1x as of the end of 2018.
Cash interest paid decreased 14% to USD 551 million owing to optimization of debt
portfolio despite rising market interest rates.
In October 2018, the Company paid interim dividend for 1H2018 in the amount
of RUB 776 (approximately USD 11.65) per ordinary share for the total amount
of approximately USD 1.8 billion.
In January 2018, Moody’s rating agency raised Nornickel credit rating to the investment
grade level, “Baa3”, and changed the outlook from “Stable” to “Positive”. As result,
Nornickel got assigned investment grade credit ratings by all three major international
rating agencies, including Fitch and S&P Global.
Recent
developments
On February 12, 2019, Moody’s upgraded the Company’s credit rating to “Baa2”
with a “Stable” outlook in the wake of raising Russia's sovereign ceiling for foreign
currency debt to “Baa2” and upgrade of Russia’s sovereign rating to investment grade
level of “Baa3” with “Stable” outlook.
web site.
Paid during the current period.
Normalized on interim dividends and deposits with maturity of more than 90 days.
Key segmental highlights (USD million, unless stated otherwise)
Index
Revenue
GMK Group
KGMK Group
NN Harjavalta
GRK Bystrinskoye
Other mining
Other non-metallurgical
Eliminations
EBITDA
GMK Group
KGMK Group
NN Harjavalta
GRK Bystrinskoye
Other mining
Other non-metallurgical
Eliminations
Unallocated
EBITDA margin
GMK Group
KGMK Group
NN Harjavalta
GRK Bystrinskoye
Other mining
Other non-metallurgical
Segments are defined in the consolidated financial statements.
2017
9,146
7,447
897
840
15
128
1,286
-1,467
3,995
4,559
182
61
-65
-3
18
-34
-723
44%
61%
20%
7%
n.a.
-2%
1%
2018
11,670
9,742
911
1,026
8
108
1,514
-1,639
6,231
6,602
190
71
96
-6
50
-13
-759
53%
68%
21%
7%
n.a.
-6%
3%
Change, %
28
31
2
22
-47
-16
18
12
56
45
4
16
n.a.
100
3x
-62
5
9 p.p.
7 p.p.
1 p.p.
0 p.p.
n.a.
-4 p.p.
2 p.p.
Annual Report > 2018Nornickel www.nornickel.com > 104
USD 9,742 mln
revenue of the GMK Group segment
USD 911 mln
revenue of the KGMK Group segment
USD 1,026 mln
revenue of Norilsk Nickel Harjavalta
USD 8 mln
revenue of the GRK Bystrinskoye
segment
In 2018, revenue of Group GMK segment
increased 31% to USD 9,742 million. This
was primarily driven by higher realized
metal prices, sales of palladium stock
accumulated in 2017 and higher copper
production volumes.
The revenue of Group KGMK segment
increased 2% to USD 911 million.
The main growth driver was higher realized
metal prices, which was partly offset
by lower revenue from tolling operations
of Polar Division’s feed due to depreciation
of Russian rouble.
Revenue of NN Harjavalta increased 22%
to USD 1,026 million mainly due to higher
realized metal prices.
Revenue of GRK Bystrinskoye generated
during the hot commissioning phase
is included into other operating income
and expenses.
Revenue of Other mining segment
decreased 16% to USD 108 million mostly
driven by lower Nkomati production volumes
that was partly offset by higher realized
metal prices.
Revenue of Other non-metallurgical segment
increased 18% to USD 1,514 million owing
to higher turnover of Palladium Fund.
In 2018, EBITDA of GMK Group segment
increased 45% to USD 6,602 million owing
primarily to higher revenue and depreciation
of Russian rouble.
EBITDA of Group KGMK segment increased
4% to USD 190 million primarily owing
to the increased revenue and lower cash
costs due to depreciation of Russian rouble.
EBITDA of NN Harjavalta increased by USD
10 million to USD 71 million owing primarily
to increased revenue.
EBITDA of GRK Bystrinskoye segment
amounted to USD 96 million due
to the revenue generated during the hot
commissioning stage. In 2018, EBITDA
of GRK Bystrinskoye segment also includes
financial result from intersegment sales
of concentrates.
EBITDA of Other non-metallurgical segment
increased by USD 32 million to USD 50
million.
EBITDA of Unallocated segment decreased
5% to a negative USD 759 million. Higher
selling, general and administrative expenses
were partly offset by lower one-off social
expenses.
USD 6,602 mln
EBITDA of the GMK Group segment
USD 190 mln
EBITDA of the KGMK Group segment
USD 71 mln
EBITDA of Norilsk Nickel Harjavalta
USD 96 mln
EBITDA of the GRK Bystrinskoye
segment
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Consolidated financial statements
Additional information
105
2017
2018
Change, %
216
206
9
1
386
365
3
18
2,450
2,353
52
45
667
639
18
10
10,704
6,202
858
949
2,416
113
2,422
141
2,434
87
654
31
489
52
8,415
731
9,146
217
208
2
7
455
431
–
24
2,974
2,913
–
61
668
657
–
11
13,531
6,566
1,025
877
3,013
175
2,977
144
3,674
98
596
20
702
55
10,962
708
11,670
0
1
-78
7x
18
18
-100
33
21
24
-100
36
0
3
-100
10
26
6
19
-8
25
55
23
2
51
13
-9
-35
44
6
30
-3
28
Sales volume and revenue
Index
Metal sales
GROUP
Nickel, thousand tons
from own Russian feed
from 3d parties feed
in semi-products
Copper, thousand tons
from own Russian feed
from 3d parties feed
in semi-products
Palladium, koz
from own Russian feed
from 3d parties feed
in semi-products
Platinum, koz
from own Russian feed
from 3d parties feed
in semi-products
Average realized prices of refined metals produced by the Group
Nickel (USD per tonne)
Copper (USD per tonne)
Palladium (USD per oz)
Platinum (USD per oz)
Revenue (USD million)
Nickel
including semi-products
Copper
including semi-products
Palladium
including semi-products
Platinum
including semi-products
Other metals
including semi-products
Revenue from metal sales
Revenue from other sales
TOTAL REVENUE
All information is reported on the 100% basis, excluding sales of metals and semi-products purchased from third parties and Nkomati.
Excludes finish goods, produced by GRK “Bystynskoe”.
Metal volumes represent metals contained in semi-products.
Includes metals and semi-products purchased from third parties and Nkomati.
Annual Report > 2018Nornickel www.nornickel.com > 106
REVENUE
Nickel
Nickel sales contributed
27% to the Group’s total
metal revenue in 2018 (vs 29%
in 2017). The decrease by 2 p.p. was driven
by an increase of copper and palladium sales
volumes, which were partly offset by nickel
price outperforming other metals’ prices.
In 2018, nickel revenue
increased 25% y-o-y (or by +USD
597 million) to USD 3,013 million primarily
due to higher realized metal price.
The average realized price
of refined nickel produced
from own feed increased
26% to USD 13,531 per tonne in 2018
(vs USD 10,704 per tonne in 2017).
Sales volume of refined nickel
produced from own Russian feed,
increased by 1% (or +2 thousand
tonnes) to 208 thousand tons.
Sales volume of nickel produced
from third-party feed decreased 78% y-o-y
to 2 thousand tonnes as Harjavalta reduced
the processing volumes of third-party feed.
In 2018, sales of nickel in semi-
products increased 55% y-o-y
to USD 175 million primarily owing to higher
sales volume of semi-products.
Copper
In 2018, copper sales accounted
for 27% of the Group's total metal sales,
increasing 23% (or +USD 555 million)
y-o-y to USD 2,977 million primarily owing
to higher sales volume (+USD 435 million)
as well as higher realized price
(+USD 120 million).
The average realized price
of refined copper increased 6%
from USD 6,202 per tonne in 2017
to USD 6,566 per tonne in 2018.
Physical volume of refined
copper sales from the Company’s
own Russian feed increased 18%
(or +66 thousand tons) to 431 thousand
tons (excluding copper in concentrates,
produced by GRK “Bystrinskoe”)
owing to higher copper production
from concentrate purchased from Rostec.
Sales of refined copper, produced
from third-party feed were completely
ceased (reduction by 3 thousand tons).
price (-USD 51 million), which was
exacerbated by lower sales volume
(-USD 7 million).
Physical volume of refined
platinum sales from the Company’s
own Russian feed in 2018 increased
by 3% (or +18 thousand troy ounces)
to 657 thousand troy ounces.
Revenue of platinum in semi-
products in 2018 decreased 35%
to USD 20 million primarily due to decrease
of sales volume of platinum in purchased
semi-products.
Other metals
In 2018, revenue
from other metals increased 44%
(+USD 213 million) to USD 702 million,
primarily owing to higher revenue
from cobalt (up 91%), rhodium (up 84%)
and gold (up 11%).
Revenue from copper in semi-
products in 2018 slightly increased
2% to USD 144 million.
Palladium
In 2018, palladium remained
the largest contributor
to the Group’s total revenue,
accounting for 34% (+ 5 p.p. y-o-y).
Palladium revenue increased
51% (or +USD 1,240 million)
to USD 3,674 million. The positive impact
of higher sales volume (+USD 526 million)
was amplified by increased realized price
(+USD 406 million).
The average realized price
of refined palladium produced
from own feed increased 19%
from USD 858 per troy ounce in 2017
to USD 1,025 per troy ounce in 2018.
Physical volume
of refined palladium sales
from the Company’s own Russian
feed in 2018 increased 24%
(or +560 thousand troy ounces)
to 2,913 thousand troy ounces.
The increase in sales volume was driven
by the sale of own metals from stock
accumulated in the Company’s Palladium
Fund in 2017.
Refined palladium sales from third-party
feed were completely ceased as processing
of low-margin third-party feed was
terminated in 2018.
Revenue of palladium in semi-
products in 2018 increased by 13%
to USD 98 million.
Additional USD 593 million to palladium
revenue in 2018 was contributed
by the resale of metal purchased from third
parties (vs USD 285 million in 2017).
Platinum
In 2018, platinum sales
(5% of the Group’s total
metal revenue) decreased 9%
(or -USD 58 million) to USD 596 million
following the decline of realized platinum
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107
OTHER SALES
In 2018, other sales decreased 3% to USD
708 million, primarily owing to Russian
rouble depreciation (-USD 47 million).
Revenue increase in real terms was
primarily driven by increase in fuel and gas
prices and higher revenue from services
provided by transport subsidiaries
of the Group to third parties.
Other sales (USD million)
Index
Air transport
Fuel-power complex
Water transport
Food retail
Zapolyarye Health Resort
Other
TOTAL
COST OF METAL SALES
Cost of metal sales
In 2018, the cost of metal sales
increased 14% (or +USD 568 million)
to USD 4,536 million. Main factors
contributing to it were:
• Decrease in cash operating costs by 2%
•
(or -USD 81 million);
Increase in depreciation charges by 4%
(or +USD 23 million);
• Change in metal inventories y-o-y
Cash operating costs
In 2018, total cash operating costs
decreased by 2% (or -USD 81 million)
to USD 3,774 million.
The positive effect of Russian rouble
depreciation (-USD 200 million) was partly
offset by inflationary growth of cash
operating costs by +USD 104 million.
primarily due to sales of palladium
accumulated in 2017 (cost of metal sales
increase by +USD 626 million).
Cost increase driven by the processing
of Rostec concentrate (+USD 193 million)
was partly offset by lower volumes
Cash operating costs (USD million)
Index
Labour
Materials and supplies
Purchases of raw materials and semi-products
Purchases of refined metals for resale
Mineral extraction tax and other levies
Third-party services
Electricity and heat energy
Fuel
Transportation expenses
Sundry costs
Total cash operating costs
Depreciation and amortisation
Decrease/(increase) in metal inventories
TOTAL COST OF METAL SALES
2017
256
175
65
40
18
177
731
2018
Change, %
257
178
56
38
17
162
708
0
2
-14
-5
-6
-8
-3
of refined metals purchased for resale
(-USD 100 million) and headcount reduction
(-USD 58 million) as part of the 2018-
2020 efficiency and cost optimization
programme.
2017
1,392
732
297
530
221
242
143
81
65
152
3,855
630
-517
3,968
2018
1,311
727
436
430
212
200
143
87
70
158
3,774
653
109
4,536
Change, %
-6
-1
47
-19
-4
-17
0
7
8
4
-2
4
n. a.
14
Annual Report > 2018Nornickel www.nornickel.com > • +USD 14 million – increase
in consumption of process materials
that was partly offset by a reduction
in repairs.
Sundry costs
In 2018, sundry costs increased by 4% (or
+USD 6 million) to USD 158 million.
108
Labour
In 2018, labour costs decreased by 6% (or
-USD 81 million) to USD 1,311 million
amounting to 35% of the Group’s total cash
operating costs driven by the following:
•
•
-USD 89 million – cost decrease owing
to the Russian rouble depreciation
against US Dollar;
-USD 58 million – cost decrease
following the headcount reduction
as part of 2018-2020 efficiency and cost
optimization programme;
• +USD 66 million – increase in real terms
primarily driven by the indexation of RUB-
denominated salaries and wages in line
with collective bargaining agreement.
Purchases of raw materials and semi-
products
In 2018, purchases of raw materials
and semi-products increased 47% (or USD
139 million) to USD 436 million driven
by the following:
• +USD 193 million – cost increase owing
to the processing of copper concentrate
purchased from Rostec;
-USD 24 million – cost decrease owing
to lower volumes of semi-products
purchased from Nkomati;
-USD 23 million – cost reduction
owing to lower volumes of purchased
semi-products from third parties
for processing at NN Harjavalta.
•
•
Third-party services
In 2018, cost of third party services
decreased by 17% (or USD 42 million)
to USD 200 million mainly driven by:
•
-USD 15 million – positive effect
of the Russian rouble depreciation;
-USD 27 million – costs decrease primarily
due to lower repairs and outsourced
concentrates recovery.
•
Mineral extraction tax and other levies
In 2018, mineral extraction tax and other
levies decreased 4% (or by -USD 9 million)
to USD 212 million driven
by the depreciation of Russian rouble.
Electricity and heat energy
In 2018, electricity and heat energy
expenses were flat year on year
and amounted to USD 143 million.
Positive effect of Russian rouble
depreciation was partly offset by energy
price inflation.
Purchases of metals for resale
In 2018, expenses related to purchase
of metals for resale decreased 19% (or
USD 100 million) to USD 430 million
owing to lower metal volumes acquired
by the Company’s Palladium Fund.
Fuel
In 2018, fuel expenses increased by 7%
(or +USD 6 million) to USD 87 million
driven by the following:
•
-USD 5 million – positive effect
of the Russian rouble depreciation;
• +USD 11 million – higher oil prices.
Materials and supplies
In 2018, materials and supplies expenses
decreased by 1% (or USD 5 million)
to USD 727 million driven
by the following factors:
•
-USD 48 million – positive effect
of the Russian rouble depreciation;
• +USD 32 million – inflationary growth
in materials and supplies expenses;
Transportation expenses
In 2018, transportation expenses
increased by 8% (or +USD 5 million)
to USD 70 million driven
by the following:
•
-USD 4 million – positive effect
of the Russian rouble depreciation;
• +USD 7 million – costs increase
driven by outsourcing of Kola MMC
transportation activities and increase
in metal production volumes.
Depreciation and amortisation
In 2018, depreciation
and amortisation expenses
increased by 4% (or +USD 23 million)
to USD 653 million driven
by the following:
• Positive effect of Russian
rouble depreciation amounted
to -USD 37 million.
• Depreciation charges increased
by +USD 60 million mainly due
to transfers from construction
in progress to production assets
at the Company’s operating subsidiaries
in Russia and completion of downstream
reconfiguration in 2H2017.
Decrease/(increase) in metal inventories
In 2018, comparative effect of change
in metal inventory amounted to USD 626
million resulting in an increase of cost
of metal sales, driven by the following:
• +USD 510 million – comparative effect
of change in finished goods inventories
owing primarily to the sale of palladium
stock accumulated in 2017;
• +USD 116 million – comparative effect
of slower growth of work-in-progress
inventory relative to the prior year that
resulted in cost increase.
Cost of other sales
In 2018, cost of other sales decreased
by -USD 10 million to USD 622 million.
Russian rouble depreciation contributed
to the reduction of the cost of other sales
by -USD 41 million.
Cost of other sales increased in real terms
by +USD 31 million primarily due to inflation,
higher volumes of services provided
by the Group’s transportation subsidiaries,
indexation of RUB-denominated salaries
and wages, and growth of other services.
Selling and distribution expenses (USD million)
Expense item
Transportation expenses
Marketing expenses
Staff costs
Other
TOTAL
In 2018, selling and distribution expenses
increased 23% (or +USD 17 million)
to USD 92 million primarily due to increase
of marketing expenses (+USD 17 million),
including sponsorship of various sport
activities.
General and administrative expenses (USD million)
Expense item
Staff costs
Taxes other than mineral extraction tax and income tax
Third party services
Depreciation and amortisation
Rent expenses
Transportation expenses
Other
TOTAL
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
109
2017
2018
Change, %
38
14
13
10
75
39
31
14
8
92
3
2x
8
-20
23
2017
478
79
97
32
25
8
40
2018
541
103
93
38
23
9
52
759
859
Change, %
13
30
-4
19
-8
13
30
13
In 2018, general and administrative
expenses increased 13% (or +USD 100
million) to USD 859 million. Positive
effect of Russian rouble depreciation
amounted to -USD 50 million. General
and administrative expenses increased
in real terms primarily due to the following:
• +USD 95 million – increase in staff costs
mainly due to one-off payments related
to bonuses paid for the completion of key
projects, changes in the Management
Board as well as salary indexation;
• +USD 29 million – higher property tax
owing to changes in tax legislation
in 2018 and additions of property, plant
and equipment on the books of Polar
division and GRK “Bystrinskoye”.
Annual Report > 2018Nornickel www.nornickel.com > 110
Other operating income and expenses (USD million)
Expense/income item
Social expenses
Change in allowance for obsolete and slow-moving inventory
Change in allowance for expected credit losses
Net income earned during the pre-commissioning stage
Other, net
TOTAL
USD 95 mln
other operating expenses in 2018
In 2018, other net operating expenses
decreased -USD 267 million
to USD 95 million driven by the following
factors:
Finance costs (USD million)
Expense item
Interest expense on borrowings net of amounts capitalized
Unwinding of discount on provisions and payables
Changes in fair value of cross-currency interest rate swap
Changes in fair value of non-current liabilities
Other, net
TOTAL
2017
303
11
19
–
29
362
2018
Change, %
207
15
6
-106
-27
95
-32
36
-68
-100
n. a.
-74
• Decrease of social expenses
by -USD 96 million primarily owing
to the completion of large-scale one-off
social projects;
• Net income earned by GRK “Bystrinskoye”
from products sale during the hot
commissioning stage (-USD 106 million).
2017
386
133
–
–
16
535
2018
Change, %
384
100
51
46
-1
580
-1
-25
100
100
n. a.
8
USD 580 mln
finance costs in 2018
Increase in finance costs by 8% y-o-y
to USD 580 million was mainly driven
by changes in fair value of derivative
contracts, namely cross-currency interest
rate swaps, and non-current liabilities.
Interest expense on borrowings (net
of amounts capitalized) marginally
decreased.
The Company managed to maintain
the average cost of debt at the prior-
year level, despite an increase of base
interest rates (LIBOR) in the reporting
period, as the result of a number of debt
optimization initiatives, including:
• Refinancing some relatively expensive
bilateral credit lines with the proceeds
of 5-year USD 2.5 billion syndicated
term loan, secured by the Company
at the end of 2017 at interest rate of Libor
1M+1.50% per annum;
• Decrease in the effective interest rate
on a number of existing credit lines
totaling USD 755 million; and
• Early termination of relatively expensive
GRK “Bystrinskoe” Project Finance Loan
in August 2018.
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
111
The effective income tax rate in 2018
of 21.6% was above the Russian statutory
tax rate of 20%, which was primarily driven
by non-deductible social expenses.
Income tax expense
In 2018, income tax expense increased
by 17% to USD 843 million driven mostly
by the increase of taxable profit, partly
offset by Russian rouble depreciation
against US Dollar in 2018.
Income tax expense (USD million)
Index
Current income tax expense
Deferred tax expense
TOTAL
The breakdown of the current income tax expense by tax jurisdictions (USD million)
Country of presence
Russian Federation
Finland
Other countries
TOTAL
EBITDA (USD million)
Index
Operating profit
Depreciation and amortisation
Impairment of non-financial assets
EBITDA
EBITDA margin
In 2018, EBITDА increased by 56% (or
+USD 2,236 million) to USD 6,231 million
with the EBITDA margin amounting to 53%
(up from 44% in 2017) owing to higher
metal revenue, decrease of one-off social
expenses and Russian rouble depreciation.
2017
686
35
721
2017
672
8
6
686
2017
3,123
645
227
3,995
44%
2018
812
31
843
Change, %
18
-11
17
2018
Change, %
789
11
12
812
2018
5,416
765
50
6,231
53%
17
38
100
18
Change, %
73
19
-78
56
9 p. p.
Net profit before non-cash write-offs and foreign exchange differences (USD million)
Index
Net profit
Impairment of non-financial assets
Foreign exchange loss/(gain), net
Gain from disposal of subsidiaries
Net profit before non-cash write offs and foreign exchange differences
2017
2,123
227
-159
-20
2,171
2018
3,059
50
1,029
–
4,138
Change, %
44
-78
n. a.
100
91
Annual Report > 2018Nornickel www.nornickel.com > 112
Statement of cash flows (USD million)
Index
Cash generated from operations before changes in working capital
and income tax
Movements in working capital
Income tax paid
Net cash generated from operating activities
Capital expenditure
Other investing activities
Net cash used in investing activities
Free cash flow
Interest paid
Other financing activities
Net cash used in financing activities
Effects of foreign exchange differences on balances of cash and cash
equivalents
Net increase/(decrease) in cash and cash equivalents
Reconciliation of the net working capital changes between the balance sheet
and cash flow statement (USD million)
Index
Change of the net working capital in the balance sheet
Foreign exchange differences
Change in income tax payable
Other changes including reserves
Change of working capital per cash flow
2017
-1,694
115
-7
-84
-1,670
2018
1,282
-277
-5
-59
941
Capital investments breakdown by project (USD million)
Project
Polar Division, including:
Skalisty mine
Taymirsky mine
Komsomolsky mine
Oktyabrsky mine
Talnakh Concentrator
Sulphur project
Other Polar Division projects
Kola MMC
Chita (Bystrinsky) project
Other production projects
Other non-production assets
TOTAL
2017
860
216
93
18
69
89
37
338
228
449
453
12
2018
696
218
71
44
40
29
36
258
292
168
386
11
2,002
1,553
Change, %
-19
1
-24
2x
-42
-67
-3
-24
28
-63
-15
-8
-22
2017
4,103
-1,670
-670
1,763
-2,002
66
-1,936
-173
-642
-1,595
-2,237
-63
-2,473
2018
6,339
941
-787
6,493
-1,553
-9
-1,562
4,931
-551
-3,753
-4,304
-91
536
Change, %
54
n. a.
17
4x
-22
n. a.
-19
n. a.
-14
2x
92
44
n. a.
In 2018, free cash flow increased
to USD 4.9 billion primarily due to higher
cash generated from operating activities
and lower CAPEX.
In 2018, net cash generated from operating
activities increased 4-fold to USD 6.5 billion
primarily driven by the increase in EBITDA
and decrease of working capital in 2018
(versus increase in 2017).
Interest paid reduced
by 14% to USD 551 million as a result
of the optimization of debt portfolio.
In 2018, CAPEX decreased
by 22% to USD 1.6 billion primarily due
to the completion of Talnakh Concentrator
modernization and the construction of Chita
project as well as the projects related
to the development of Pelyatkinskoye gas
condensate field.
Company overview
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Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
113
Debt and liquidity management (USD million)
Kind of debt
Long-term
Short-term
Total debt
Cash and cash equivalents
Net debt
Net debt /12M EBITDA
As of 31 December
2017
As of 31
December 2018
8,236
817
9,053
852
8,201
2,1x
8,224
215
8,439
1,388
7,051
1,1x
Change
USD million
-12
-602
-614
536
-1,150
-1,0x
%
0
-74
-7
63
-14
As of December 31, 2018,
the Company’s total debt decreased by 7%
(or –USD 614 million) from December 31,
2017 and amounted to USD 8,439 million.
The Company’s debt portfolio remained
predominantly long-term at the end of 2018
with the share of long-term debt of 97%
(or USD 8,224 million) as compared to 91%
(or USD 8,236 million) as of December 31,
2017.
Net debt/12M EBITDA ratio reduced
to 1.1x as of December 31, 2018 from 2.1x
as of December 31, 2017. The reduction
of leverage resulted both from the decline
of net debt by 14% to USD 7,051 million
through the increase in cash and cash
equivalents by 63% to USD 1,388 million
and decrease in the Company’s total debt
and from increase of EBITDA by 56%
(or +USD 2,236 million). Substantial
growth of cash and cash equivalents
was driven, inter alia, by the increase
in advances received from customers
in the amount of USD 900 million
during 2018 at cost on par or lower
of the cost of bank financing available
for the Company. In 2018, the Company
continued to build up and diversify its
liquidity position, increasing committed
credit lines to USD 4,290 million
by December 31, 2018, and having
registered in Q4 2018 the 30-year
bond programme for a total amount
of RUB 300 billion or the equivalent in other
currencies.
In 2018, Nornickel continued to optimize
its debt portfolio aiming at the extension
of debt maturity and a reduction of foreign
exchange risks of its financial liabilities,
which allowed to maintain short-term
debt refinancing risk as well as the share
of RUB-denominated debt in the debt
portfolio at a low level.
2018 milestones
January 29,
2018
Moody’s upgraded the Company’s
credit rating to investment
grade level of “Baa3” with
“Positive” outlook in the wake
of change of Russia's sovereign
ceiling for foreign currency debt
to “Baa3” from “Ba1” and change
of Russia’s sovereign outlook
to “Positive” from “Stable”. In Q4
2018, S&P Global and Fitch
affirmed the Company’s credit
ratings at investment grade level
of “BBB-“ with “Stable” outlook.
November 30,
2018
Russian rating agency “Expert
RA” assigned Nornickel its
highest Russian credit rating
“ruAAA” with “Stable” outlook.
Therefore, as of December 31,
2018, Nornickel had investment
grade credit ratings assigned
from all three international rating
agencies Fitch, Moody’s and S&P
Global, and Russian credit agency
“Expert RA”.
Annual Report > 2018Nornickel www.nornickel.com > 5
Sustainable
development
>
>
>
>
Human resources
Occupational health and safety
Environment and biodiversity
Social and charity initiatives
116
125
129
141
116
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
117
HUMAN RESOURCES
RECRUITMENT
Headcount breakdown by Russian
operations (%)
75,900
employees
Norilsk Industrial District (NID)
Murmansk Region
Moscow and other Russian regions
Krasnoyarsk Territory (excluding NID)
Trans-Baikal Territory
Foreign operations
67
17
6
5
4
1
HeadHunter ranked Nornickel fourth
among Top 5 Russian employers and first
in the metals and mining sector. HR Brand
is the holding's annual independent award
recognising companies for their strong
reputation as an employer.
Nornickel also received the international
Randstad Award as the best employer
in the metals and mining sector based
on a Russia-wide independent survey
of 9,500 working-age respondents.
The 2018 competition saw over 300
Russian corporates from various economy
sectors.
One of the Company’s focus areas
is to nurture corporate culture aimed
at boosting employee performance
and commitment to delivering
against targets. We view our people
as the Company's key asset and keep
investing in their professional and personal
development, while also creating
an environment that would enhance
STAFF COMPOSITION
The Group’s average headcount (people)
In 2018, the Group's average headcount
totalled 75,900 people.
A decrease in the average headcount in 2018
was caused by our programme to improve
labour productivity and reduce costs.
Nornickel is among the principal employers
in the Norilsk Industrial District and Kola
Peninsula, hiring 67% and 17% employees,
respectively.
Location
Russia
Africa
Europe
Asia
USA
Australia
TOTAL
employee performance and engagement.
Headcount breakdown by gender (%)
Nornickel makes sure that all employees
enjoy equal rights and treatment regardless
of gender, age, race, nationality and origin.
We provide all our talent with the same
opportunities to unlock their potential
and promote them solely on the basis
of professional abilities, knowledge
and skills.
Respect for employees and their rights
lies at the heart of Nornickel's business.
The protection of human rights is reflected
in a number of by-laws, including Business
Ethics Code, Personal Data Policy, Anti-
Embezzlement Regulation and Human
Rights Policy.
Male
Female
71
29
Headcount breakdown by category (%)
2016
81,081
586
311
13
10
5
2017
77,991
605
326
13
10
5
2018
74,926
617
330
13
10
5
Managers
White-collar employees
Blue-collar employees
14
17
69
82,006
78,950
75,901
Russian operations.
Partnerships
with universities
To make jobs in the metals and mining
industry more attractive for young people
and help develop skills in personnel,
Nornickel pays special attention
to collaboration with Russian universities.
In 2018, the Company invited 301 students
from industry-oriented universities to take
part in its Career Start-Up programme.
The students obtained practical
skills as part of their apprenticeship
at the Company's major facilities, while also
gaining unique knowledge by taking part
in the Conquerors of the North business
game. The event was specifically designed
to develop knowledge and competencies
most sought after by Nornickel.
In the span of summer months,
the programme participants took hands-on
training and competed in a multi-stage
business game with a focus on teamwork
to try and tackle some of the Company’s
real tasks. The Company engaged 20
of its top experts to provide mentorship
support to the contestants. Nornickel was
the first company in the Russian mining
industry to engage students and graduates
in solving true business challenges.
In 2018, the project saw the Company sign
employment contracts with 88 participants.
Nornickel places a strong emphasis
on engineering education in Russia
and partakes in the promotion of relevant
professions among school graduates
and university students. In 2018,
we supported Cup MISIS Case and Cup
Technical, case-solving championships
among students of Russian technical
universities. During the contest, students
dealt with cases related to Nornickel’s
operations, gaining insight into
the Company’s business processes.
In 2018, we launched First Arctic, a unique
leadership programme that welcomed
both job seekers from other companies
and Nornickel’s young professionals.
The programme aims to attract high-
potential graduates of industry-oriented
universities, and retain promising young
talent, including best specialists from other
facilities across Russia, to strengthen
the management pool of Polar Division.
First Arctic targets engineers and relies
on a coaching approach to growing future
managers. The participants are supervised
by experienced coaches from among
Polar Division’s top management.
The July and August promo campaign
helped collect more than 1,500 CVs
of job seekers from 18 Russian cities.
53 candidates reached the finals in October,
with as few as eight selected to participate
in the programme.Assistance programme.
Annual Report > 2018Nornickel www.nornickel.com> 118
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
119
Assistance
Programme
Engagement
Comprehensive training
in corporate culture
Promotion and
communication activities
Due to the remote location of its industrial
sites, the Company is actively engaging
employees from other Russian regions.
To help them settle in faster, we launched
a programme called Assistance to New
Employees in Adapting to the New Place
of Residence in Norilsk and the Taimyrsky
Dolgano-Nenetsky Municipal District
(the Assistance programme).
The programme does not only target
highly qualified specialists and managers,
but also focuses on attracting young
talents and skilled workers to fill positions
on the skills shortage list. Today, it covers
1,520 of the Company's employees,
including 379 new participants who
joined in 2018. With this programme
the Company seeks to provide comfortable
living conditions for the invited
employees and reimburse their relocation
and resettlement costs.
As part of its efforts to boost employee
engagement, Nornickel annually runs
a series of activities, which comprises
a survey named “Let Everyone
Be Heard. What Do You Think?", review
of its outcomes, and delivering a set
of improvement initiatives.
The survey includes polling and focus group
research among some 75,000 employees
from 32 Nornickel's facilities. Its results
are subject to review, action planning
and implementation at all governance
levels, from facilities to the Group
as a whole. In 2018, the Company
built a team of engagement experts,
with 120 employees selected and trained
for the purpose.
Eight Nornickel's facilities and units
attended a 125-hour training programme
on workplace culture.
The programme translated into
a much better alignment of employee
behaviour with corporate values
Group-wide, with a 1.5–2 times increase
in average alignment figure revealed
by the management team survey.
Promotion and communication activities
focused on the coverage of engagement
and corporate culture events in corporate
media and on the portal. In 2018,
we prepared 11 articles, carried out six
interviews with vice presidents, created
four information and advertising videos,
produced handouts on the Company’s
programmes (leaflets, flyers), and developed
a website and a brand for Norilsk Live.
The economic effect of 18 business
initiatives amounted to at least
USD 3.2 mln
Some 18 business initiatives were
developed and approved, delivering
an economic effect of at least USD 3.2 mln
(RUB 200 mln), according to participants.
More than 1,800 blue-collar employees
and over 500 line managers took part
in dedicated Our Values and Value-Based
Management training programmes,
respectively.
Personnel
development
Corporate dialogues
and forums
Training of corporate
coaches
Talent pool
In 2018, our work to develop corporate
culture centred around:
• personnel engagement;
• corporate dialogues and forums;
• comprehensive training in corporate
culture;
training of corporate coaches;
•
• promotion and communication.
In 2018, Nornickel ran a Corporate
Dialogues project to raise employee
awareness, help them embrace more fully
corporate goals and values and make
employee-management relationships
more open. The project saw 17 corporate
dialogues and 20 communication
training sessions, which helped
train over 200 managers. A total
of 3,500 Nornickel’s employees participated
in the initiative.
Eight unit conferences as well
as Technological Breakthrough, Leaders
of Nornickel and Talent Pool forums featured
workshops on engagement and corporate
culture, covering over 1,000 people.
In order to build a hub for training
coaches in corporate values and roll out
relevant competencies company-wide,
the Company designed the Our values
module. A competition was organised
to select and instruct 24 corporate coaches,
who later taught in more than 60 module
programmes.
>1,800
employees
>500
line managers
completed Our Values and Value-Based
Management training programmes
In 2018, the Company kept rolling out
the talent pool management system
across its mining facilities to cover
recruiting of lower and middle line
managers. The Company’s talent
pool added 115 members in Polar
Transport Division, Norilsknickelremont,
Norilsk Support Complex and NTEK,
with 70 line managers acting as mentors.
The reporting year saw the start
of a training and development programme
for employees and their mentors, which
offers a combination of classroom
and online sessions.
The Company
is actively
engaging
employees
from other
Russian regions
Financing under the Assistance
programme (USD mln)
5.1
4.3
3.3
2016
2017
2018
379 people
joined the Assistance Programme
in 2018
35,000
employees of Nornickel
participated in the Corporate Dialogues
project
Annual Report > 2018Nornickel www.nornickel.com> 120
2018
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Enhancing professional
excellence
Incentives
and rewards
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
121
The Company completed
the operational efficiency
programme at Moscow’s School
of Management Skolkovo. Its five
modules helped 55 participants
better understand business
and business environment, expand
their planning horizon, enhance
their vision of the Company's
prospects, analyse best practices
in production management, and also
their possible use and roll-out
across the Group. The programme
saw the Company implement eight
projects to improve the operational
efficiency of its assets.
Nornickel kicked off a Leaders
of Nornickel corporate development
programme that welcomed
54 high-potential managers.
The programme focuses on project
work to improve process efficiency
across the Company's business
units based on lean manufacturing.
Nornickel launched
an IamHR corporate programme
for the professional development
of HR employees. It seeks
to improve the human capital
management function, promote
interaction between the business
and HR, and introduce the most
advanced solutions and best
practices in HR management.
The participants will be tasked
with cataloguing HR practices
and management tools.
In 2018, the Company went
on with assessing the capacity, current
performance and growth prospects of its
middle and top managers. The assessment
covered some 1,500 managers from both
production facilities and functional
divisions of Nornickel. Its outcomes
and development options were reviewed
by HR committees. The assessment
identified over 450 managers with a high
career growth potential.
To define priority development areas for its
management, the Company runs an end-of-
year 360-degree competency review using
a corporate competency model built around
values and management competencies.
Based on its results and relevant feedback
from the superior, each participant can
choose the right path for development
and select required tools and methods
using a dedicated roadmap for next year’s
development activities.
In 2018, the Company organised a number
of training courses in managerial
competencies for some 270 high-potential
employees from Monchegorsk and Norilsk.
The training topics were selected
based on the competency assessment
and an individual development plan
for each manager.
In 2018, Nornickel closed the project
to review the professional competencies
of lower and middle line managers
across its mining facilities. The project
yielded a competency model and a series
of relevant tests used to assess 720
line managers and identify their growth
areas. Nornickel will use the review results
to launch specially designed training
programmes for the facilities' lower
and middle line managers in 2019.
720 managers
were assessed under a professional
competency model
The Company pays
close attention
to implementing
cutting-edge
education
technologies
With our reconfigured production cycle,
modernised operations, new technologies
and approaches, and a rapidly changing
operational environment, we need to make sure
our employees meet the new expertise, skill
and competency requirements. The corporate
training framework must provide employees
with a quick and unhindered access
to new knowledge, helping them master
new professional skills and receive training
and development support for horizontal
and vertical job rotation.
In 2019, we will proceed with the diagnostics
and management of professional skill
development across our facilities, building
a professional competency model
for certain functional and production divisions
of the Company, defining knowledge and skills
requirements for each position, and developing
a set of test questions to assess professional
competencies of employees in temporary fill
positions.
In the reporting year, we continued
to educate and develop our employees.
Our training and retraining programmes
covered over 87,500 staff-hours. Around
43,000 employees took courses in corporate
training centres.
An area of special attention is the use
of advanced technologies to assist in training
various personnel categories. In 2018, 6,500
employees attended online HSE training
sessions hinging on our staff expertise. We
leverage internal expertise and today's formats
to come up with new online training courses
that help build up employee competencies
promptly and efficiently.
Remuneration of Nornickel’s employees
depends on the complexity of the functions
performed, as well as individual
experience, expertise and contribution
to the Company’s performance.
Principles of remuneration:
•
Internal equity – remuneration
management is based on the job
description and grading methodology.
The Company has a unified grade system
across all functions.
• External competitiveness – remuneration
is determined based on the labour
market data, with adjustments made
for the company's focus area, business
location and job grades.
• Performance-based incentives – pay
level is reviewed subject to the annual
performance assessment outcome.
Simplicity of the remuneration system –
pay level calculation and review procedures
are transparent, and every employee
knows how to improve their remuneration.
The remuneration package consists
of the fixed and variable components (70%
and 30%, respectively), with the latter linked
to the Company's operating performance
and achievement of relevant KPIs.
Annual Report > 2018Nornickel www.nornickel.com> 122
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123
Remuneration package across the Group's Russian operations (%)
Employee awards (pcs)
• Fair and transparent procedure
• Maximum awareness
UNDERLYING PRINCIPLES OF THE AWARD POLICY
Salary
93
7
Benefits
Fixed part
70
30
Variable (bonus)
part
Regular bonus
11
19
One-off bonus
Voluntary health
insurance (VHI)
Reimbursement
of round trip
travel expenses
Financial aid
Health resort
treatment
In addition to salaries, the Company’s
employees enjoy a variety of benefits
making up 7% of the remuneration
package. The social package includes
the following benefits and compensations:
• voluntary health insurance with major
accident coverage;
• discounted tours for health resort
•
reimbursements of round trip
travel expenses and baggage fees
for employees and their families living
in the Far North and equated territories;
• one-off financial aid in the face of certain
life events, or hardships;
• additional employee pensions;
• other types of social guarantees
treatment and recreation of employees
and their families;
under the existing collective bargaining
agreements and local regulations.
EMPLOYEE AWARDS
In 2018, MMC Norilsk Nickel approved
its Award Policy, which sets out
the goals, principles, rules, requirements
and limitations of the Company's
awarding activities. Aimed at improving
employee performance, the Award
Policy is a fundamental document
for HR decision-making and drafting
the Company’s by-laws.
Average monthly salary across in the Group's Russian operations
Currency
USD
RUB ’000
Based on the average annual RUB/USD exchange rates of 67.03 in 2016, 58.35 in 2017 and 62.71 in 2018.
Expenses on employee benefits across the Group's Russian operations
Item
Total expenses (mln USD)
including per employee (USD)
2016
1,405
94.2
2016
103.0
1,300
2017
1,784
104.1
2017
122.5
1,571
2018
1,780
111.6
2018
127.6
1,703
total
4,304
Internal awards from the Group’s companies
1,996
Awards from regional and municipal
authorities
Awards from ministries and agencies
Corporate awards
Government awards
1,664
286
275
83
for nominating and awarding
employees. The Company uses fair,
relevant and transparent criteria
to ensure that the awarded employees
and their colleagues clearly understand
which achievements are recognised,
and create a perception that the award
is fair and well-deserved.
• Award relevance
and attainability. The Company
maintains a balance between employees’
award aspirations and its attainability
through an objective distribution of award
quotas, transparent and fair procedures,
material financial and non-financial
incentives, and award events.
• Communication
and awareness. The Company
makes available the documents
governing the Award Policy and the list
of award categories and awards while
also providing for visible and clear
nomination and awarding conditions,
criteria and procedures.
of all employees about award winners.
The award process is open and enjoys
various types of information support.
Information on the awarded employees
is communicated to employees via all
internal communications channels.
• Frequency. Award campaigns
and events are evenly distributed
throughout the calendar year.
• Equal opportunities for employees
working at different locations
and positions to be nominated
and awarded. The Company ensures
there is no gender, national, or religious
discrimination in the nomination
and awarding of employees.
• Development of employees
in line with strategic priorities
and corporate values through better
use of their potential and motivation
to improve their professional skills.
The Award Policy is closely linked
to Nornickel’s values and strategic
priorities through corporate incentives.
The Company recognises employees
for their outstanding professional
achievements and contribution, innovations
that drive growth and add value, efforts
going beyond formal agreements
with the Company, and business
improvement initiatives. The Company
praises and distinguishes employees
showing unmatched production,
engineering and managerial competencies
by awarding those who delivered
remarkable operating and management
performance and contributed a lot
to advancing production. There are several
categories of incentives in the Company.
They include corporate incentives or awards
that can be granted to the staff, and internal
incentives with nomination and awarding
criteria set in compliance with the Award
Policy. The best employees may be
nominated for agency and government
awards. The Company welcomes
the recognition of its employees' prodigious
operating and management achievements,
and significant contribution to production
growth by agencies and the government.
Award events are the pinnacle of the award
system. The Company bestows corporate
awards at special ceremonies attended by its
staff and senior management. Information
about the winners is published in corporate
magazines and communicated group-wide.
Annual Report > 2018Nornickel www.nornickel.com> 124
REMUNERATION
KPI
The key performance indicators adopted
by Nornickel serve to build a transparent
incentive and performance assessment
system. Remuneration is linked to KPIs
approved for different types of jobs,
with employees consistently exceeding
the targets.
The Company put in place the performance
management system five years ago,
with assessment reliant on a variety
of key performance indicators (KPIs),
including social responsibility, occupational
safety, operating efficiency and capital
management. In 2018, some 9,800 people
(employees of the Company’s Head Office,
branches and subsidiaries) took part
in the KPI-based assessment.
The system is instrumental in streamlining
evaluation criteria and enabling
the management and employees
to align the current year's priorities
with performance indicators
of the Company/divisions/subsidiaries
and link an employee’s performance
to their pay level.
The reporting year saw the Company kick
off automation of the KPI-based employee
assessment. The new system will help
standardise talent pool management
methods across the board, consolidate
relevant data into a shared database,
and provide access to the process through
personal accounts for each employee.
By the end of 2018, the system ran
at 19 divisions and subsidiaries of the Group.
In 2019, Nornickel will rolled it out across its
energy assets and transport divisions.
To improve the performance
of the Head Office staff, Nornickel approved
the Procedure for Assessing Employee
Performance and the Regulation on Annual
Performance Bonuses. The Procedure
primarily seeks to link the assessment
outcome with remuneration, development
and promotion of employees, whereas
the Regulation on Annual Performance
Bonuses serves to review employee
performance in the reporting period against
team and individual KPIs.
To boost employee performance across its
Russian operations, the Company put in place
the Procedure for Assessing Management
Performance. It calls for setting KPIs to be
used as a basis for evaluating manager
achievements.
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125
OCCUPATIONAL HEALTH
AND SAFETY
OUR APPROACH
Occupational health
and safety and mitigation
of mining and processing
risks are among Nornickel’s
top production priorities.
53%
of the Group companies
are certified for compliance
with HSE standards
HSE standards
Occupational health and safety
expenses (USD mln)
127
149
168
+
13%
As at the end of 2018, 53% of the Group
companies (by the number of employees)
were certified for compliance with Russian
and international HSE standards. In 2019,
the Company plans to start certification
to comply with ISO 45001.
Severe occupational injuries and fatalities
are to be examined on a standalone
basis, with the management reporting
in detail on accident causes, prevention
and disciplinary action taken against
the officers at fault.
2016
2017
2018
Expenses per employee
(USD '000)
2.0
2.2
+
10%
1.6
2016
2017
2018
Nornickel’s health and safety management
system is aligned with the Company’s
Occupational Health and Safety Policy to keep
up to date with best global practices and views
life and health of employees as a fundamental
value that takes priority over operational
performance. In 2013, the Company
embarked on a mission to reduce injury rates
and promote health and safety culture.
Occupational health and safety matters
are reserved to the Audit and Sustainable
Development Committee of Nornickel’s
Board of Directors, which reviews dedicated
management reports every quarter.
Nornickel’s First Vice President – Chief
Operating Officer is directly responsible
for the development of health and safety
initiatives and ensuring compliance
with the relevant requirements.
The remuneration of the COO
and heads of production units depends
on the achievement of occupational
safety targets. The health and safety
component makes up from 12% to 28%
of the KPI sheets, with fatal accidents
serving as the blocking factor that reduces
the occupational safety score to zero
and diminishes the overall remuneration
amount.
Annual Report > 2018Nornickel www.nornickel.com> 126
The Company has a Health, Safety
and Environment Committee chaired
by the First Vice President — Chief
Operating Officer and designed to improve
efficiency and promote responsibility
in the realm of occupational health
and safety. The Committee holds
quarterly meetings at the production
sites of the Group’s divisions and Russian
subsidiaries to review matters related
to the improvement of the Company’s
health and safety management system,
in particular by:
• analysing the causes and details
of severe and fatal workplace injuries;
• checking the status of initiatives
in the pipeline approved to prevent similar
injuries at the Company’s facilities going
forward;
• discussing organisational and technical
action plans to improve occupational
health and safety.
The Company remains
committed to:
•
improving its production
management methods
with a view to enhancing
occupational health and safety;
• supplying its production
sites with new equipment
and introducing cutting-edge
safety systems and control tools;
• upgrading the rock bolting
•
systems in underground mines;
improving employees’ health
and safety skills, providing
training in occupational safety
and enforcing workplace
discipline;
• minimising the negative impact
of adverse workplace factors
on the employees’ health;
• providing employees
with high-quality modern
workwear and personal
protective equipment that
meet the Company’s corporate
standards;
• promoting preventive healthcare.
The production facilities of Nornickel
have process-, job- and operation-specific
regulations and guidelines in place
containing dedicated health and safety
sections. To top it off, the Group’s
collective bargaining agreements also
have occupational health and safety
provisions. At the end of 2018, key players
of the copper and nickel and supporting
industries developed and signed
an interregional cross-industry agreement
setting out the obligations of the parties
in the domain of health and safety.
The Company and most of its subsidiaries
have joint health and safety committees
made up of management, employee
and trade union representatives.
As all maintenance and construction
operations at the existing production
facilities are classified as high-hazard,
the contractors’ workers are required
to attend induction and target briefings
on health and safety prior
to the commencement of works. Work
permits also contain information
on occupational safety requirements to be
observed during the performance of works
or in the immediate run-up to them. In 2018,
Nornickel introduced a new corporate
health and safety standard for contractor
management.
Corporate standards
and prevention
Nornickel has corporate health and safety
standards that apply to both the Group’s
employees and the contractor personnel
deployed at the Group’s production sites.
Nornickel's HSE Department is responsible
for monitoring the implementation
of the corporate standards and ensuring
compliance with occupational health
and safety requirements.
Production units of the Company’s divisions
and the Group’s Russian subsidiaries hold
regular second party audits for compliance
with applicable health and safety
requirements. In 2018, a total of 45 audits
took place in accordance with the approved
schedule.
In order to minimise its production risks,
the Company develops and implements
a comprehensive annual health
and safety action plan. For example, as part
of the Risk Control project (launched
in 2016 to facilitate the introduction
of the STO KISM 121-211-2014
occupational health and safety risk
management standard), 2018 saw further
work to meet the standard requirements,
improve hazard identification procedures,
and assess and manage health and safety
risks. Heads of the production units joined
forces with the OHS team to analyse
changes in the indicators included
in the audit matrix and use this analysis
to assess the quality of safety behaviour
audits and efficiency of remedial
initiatives designed to reduce the number
of hazardous actions and situations
at the workplace.
In 2018, the Company developed a new
health and safety corporate standard
for contractor management, which sets
out a wide range of requirements starting
from the choice of contractors.
In 2018, Nornickel installed automated gas
monitoring and control systems at the self-
propelled mining equipment of Polar
Division and Medvezhy Ruchey to power
the equipment off when the gas mixture
reaches an explosion limit and thereby
eliminate the risk of explosions inside
the mines.
Staff training and
raising awareness about
occupational safety
The Company strives to make sure that
its employees have all the necessary
knowledge and skills to perform their duties
in a safe and responsible manner.
Training for a newly hired employee
starts with an induction briefing on safety
and continues with a series of workplace
briefings. The existing corporate
programmes also require staff briefings
to be held on a regular basis going forward.
There are also interactive training sessions
for employees in key positions.
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If certain hazardous production
factors are identified at the workplace,
the Company supplies employees with free
personal protective equipment (PPE),
including respiratory protection (respirators,
gas masks), hearing protection (earmuffs,
earplugs), eye protection (glasses/goggles
with UV filters, visors), skin protection
(gloves, protective and regenerative creams,
protective outerwear).
To improve health performance indicators
and prevent occupational diseases,
the Company also provides employees
working in harmful and hazardous
conditions with free foods, milk, and other
equivalent food products for therapeutic
purposes.
All these initiatives are not only
designed to raise the living standards
of the workforce, but also to produce
a positive economic effect by reducing
the number of lost time illnesses
and injuries.
Nornickel has put in place an OHS
monitoring system
Safety workwear, footwear
and personal protective
equipment for employees
and higher level stages involve controls
by special OHS commissions including
representatives of the management
and employees.
In addition to the prevention and control
initiatives described above, the Company
regularly conducts safety behaviour audits
in accordance with the approved schedule.
To date, the prevention and control team
has identified some 14,900 violators
of health and safety requirements
and held them to account, including
by partially or completely stripping them
of their bonuses.
Occupational health
To minimise the risk of occupational
diseases, the Company promotes medical
prevention and healthy lifestyles among its
employees, with the management striving
to raise awareness about the importance
of health and safety requirements.
Nornickel also seeks to introduce
meaningful occupational health initiatives
taking into account both workplace
and individual risk factors.
The Company offers its staff regular
disease prevention check-ups in line
with recommendations from the healthcare
authorities. Employees undergo
compulsory pre-employment, regular
and ad hoc medical examinations
organised at the Company's expense.
Those that have contact with hazardous
materials are subject to additional check-
ups at occupational pathology centres
(regularly and upon recommendation
from a medical board).
To minimise the negative impact of adverse
workplace factors on the Company’s
employees, Nornickel has developed
standard requirements to safety workwear,
footwear and personal protective
equipment. Employees use advanced
personal protective equipment, including
safety workwear and footwear, helmets,
respirators and goggles. Workers
with on-site production experience
of up to three years wear special red
helmets with the word “Warning” on them
and protective clothing with “Warning”
badges that make them stand out.
Employees working in contaminated
conditions are provided with free-of-charge
wash-off and decontaminating agents.
In 2018, the Company purchased personal
protective equipment worth approximately
USD 41 mln (RUB 2.6 bn).
Control over compliance
with health and safety
requirements
The Company refuses to compromise
on OHS standards, as prevention of health
and safety violations is key to reducing
injury and accident rates.
Nornickel has put in place an OHS
monitoring system, which harnesses
a multi-stage control architecture
with ad hoc, targeted and comprehensive
inspections. The first stage involves
controls by the line manager
or the supervisor (aided by professionals
from the OHS team) and focuses primarily
on workplace discipline. The second
The Group’s production facilities have
dedicated medical aid posts to perform pre-
shift checks and provide medical assistance
at request during the working hours.
USD 41 mln
spent by the Company to purchase
personal protective equipment in 2018
Annual Report > 2018Nornickel www.nornickel.com> 128
Fatalities went down
Health and safety
performance indicators
In 2018, Nornickel’s occupational health
and safety initiatives helped reduce
the number of workplace injuries
from 60 to 32 and the lost time injury
frequency rate (LTIFR) from 0.44 to 0.23.
The number of fatal injuries and the fatal
injury frequency rate (FIFR) also went
down from 8 to 6 and from 0.07 to 0.05,
respectively.
Investigation of workplace injuries
and occupational diseases is carried
out in accordance with the Labour Code
of the Russian Federation, industry
regulations, and the Accident Investigation
corporate standard. The details of all fatal
injuries were reported on to the Board
of Directors and thoroughly investigated
to avoid similar injuries in the future.
Nornickel's management views occupational
safety and zero workplace fatalities as its
key strategic objectives and keeps running
dedicated programmes to prevent workplace
accidents.
In 2018, Nornickel reduced
the number of accidents
by 47% vs 2017
Workplace injury rates
0.62
0.48
0.44
0.35
LTIFR stands for lost time injury frequency rate
(LTIFR = non-fatal LTIs / total number of hours
worked × 1,000,000).
FIFR stands for fatal injury frequency rate (FIFR =
FIs / total number of hours worked × 1,000,000).
Number of injuries (injured people)
88
64
56
60
0.07
0.12
0.11
0.23
0.07
0.05
-
48%
-
29%
32
-
47%
2014
2015
2016
2017
2018
2014
2015
2016
2017
2018
LTIRF
FIFR
Safety performance indicators
Indicator
FIFR
LTIFR
Workplace injuries (people)
Including: fatal injuries
lost time injuries
Contractors’ workplace injuries (people)
Including: fatal injuries
2016
0.11
0.35
56
13
43
18
8
2017
0.07
0.44
60
8
52
16
1
2018
0.05
0.23
32
6
26
19
2
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129
ENVIRONMENT
AND BIODIVERSITY
Environmental expenses (USD mln)
2018 milestones
306
358
230
2018
2017
2016
201
11
518
86
15
459
143
11
384
Current expenses
Capital expenditures
Charge for negative effect and remedy of damage
ENVIRONMENTAL MANAGEMENT SYSTEM
Throughout 2018, the Company carried
out internal audits and a corporate audit
as part of the CIMS in line with international
standards and Norilsk Nickel’s by-laws.
The internal audits and the corporate
audit were conducted by specially trained
and competent personnel.
In line with ISO 14001
and principles of environmental openness
and transparency, the Company cooperates
with the legislative and executive
authorities, control and supervision
agencies, international and public
organisations, mass media, shareholders,
investors, local communities, and other
stakeholders.
In 2018, the Environmental Management
System (EMS) continued to operate
as part of the Corporate Integrated Quality
and Environmental Management System
(CIMS). This enabled the Company
to harmonise environmental and quality
management initiatives with the operations
of other functions (such as production
management, finance, health and safety)
and enhance its overall performance along
with environmental safety. With the EMS
now in place, the Group’s enterprises
reap multiple benefits, as it demonstrates
their compliance with global environmental
standards.
System audit
To confirm compliance of the EMS
with ISO 14001:2015, the Company
engages Bureau Veritas Certification
(BVC) to conduct surveillance audits once
a year and recertification audits once every
three years. In November 2018, Nornickel
successfully passed a surveillance audit
of its CISM. The auditors of BVC confirmed
CISM compliance with the ISO 14001:2015
and ISO 9001:2015 requirements. Based
on the audit findings, BVC identified
the scope for potential improvements
while also highlighting the overall strengths
of the Company’s EMS.
Bystrinsky GOK passed
state environmental review.
Bystrinsky GOK benefits from
new highly efficient equipment
and technologies that help minimise
its adverse environmental impact.
The Company has a modern
domestic and industrial waste
landfill with seepage water collection
and treatment systems. Flue gas
emission areas are equipped
with cutting-edge gas purification
systems. The Company also
conducts ongoing monitoring
of the environmental and radiation
conditions.
Kola MMC’s Smelting
Shop increased sulphuric
acid output to 58 kt, thus
exceeding the target. By replacing
the obsolete technology
of copper-nickel concentrate
roasting, which previously caused
sulphur dioxide emissions
of 48 ktpa, the Company brought
down these emissions to their
lowest levels. Today, to prepare
copper-nickel concentrate
for smelting, Kola MMC uses
the briquetting technology, where
feedstock is pressed mechanically
and briquettes have a higher
sulphur content than pellets.
When processed in the Smelting
Shop, such feedstock produces
gas that is richer in sulphur
dioxide and is easier to capture
and recycle.
> > >
For more details on the Company’s occupational health and safety initiatives, please see the 2018 Sustainability Report
MMC Norilsk Nickel's Environmental Management System (EMS) has been successfully operating since 2005
in the production, project management, storage, delivery, including delivery by sea, and sales.
Annual Report > 2018Nornickel www.nornickel.com> 130
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131
CLIMATE CHANGE
Climate change is a global problem
of our day capable of having an adverse
impact on the world community,
as it will affect the biodiversity, reduce
water and energy availability, and cause
other environmental risks. GHG emissions
are one of the key drivers of global
warming and approaching climate change.
Nornickel recognises the importance
of fighting against climate change
and supports global initiatives to reduce
GHG emissions. The Company pursues its
long-term development agenda through
process upgrades using the best available
technologies, improving its energy
efficiency, increasing the share of green
energy, and reducing the energy intensity
of commercial production. Moreover,
the Group is committed to the UN Global
Compact Principles.
Nornickel’s Board of Directors
deals with climate change issues
on a regular basis as part of discussions
on the Company’s Environmental
Development Framework and progress
reports on major investment projects,
and treats them as a priority in setting
Nornickel’s targets and the development
strategy. The First Vice President – Chief
Operating Officer oversees climate change
matters.
Climate risks
The Company has always worked in harsh
climatic conditions, including permafrost,
seasonal ice melt, and extremely low
temperatures. Operations in such
environment historically took into account
severe climate changes, which, to crown
it all, have a pronounced seasonal nature.
Therefore, all structures were built on pilings,
while industrial facilities are based on hard
rock to avoid building decay.
Most supplies, including consumer goods,
feedstock and materials for manufacture
and constructions, as well as social
goods arrive at the Dudinka Port located
100 km from Norilsk and accessible to sea
and river vessels alike. The Company
is the Port owner. It is the world’s only
port that gets flooded every year during
the spring thaw. Located in the Far North,
the port operates a seasonal service:
approximately from November to May its
water area and the Yenisey basin freeze.
During this period, Dudinka Port handles
only sea vessels using port icebreakers
to de-ice the berths and provide support
during manoeuvring and mooring
operations. In May and June, during
the flooding, the service is suspended.
When ice drift passes and water level goes
down, the Company promptly restores
the operability of berths using its unique
proprietary technology.
The Company’s power supplies
are also adjusted for climate conditions.
The Company uses neither solar
nor wind power because of violent winds
and long polar nights during the winter
period, but it makes a good use of green
hydropower. Nornickel operates two
hydropower plants covering 44%
of its energy needs. The Company has
established fuel-based backup generating
capacity to be used in the event of drought
or decline in hydropower plant output.
2018 milestones
Sulphur Project kick-off.
In September, Copper Plant
officially kicked off the Sulphur
Project, Nornickel’s most ambitious
initiative to dramatically improve
local environment. The official
ceremony was attended by Vladimir
Potanin, Nornickel's President,
and Sergey Menyaylo, the Russian
President's Plenipotentiary
Representative to the Siberian
Federal District.
Dialogue with stakeholders.
Experts from Russia
and Norway discussed
environmental initiatives.
Nornickel’s representatives
furnished their Norwegian
colleagues with data on reduction
of the Company's environmental
footprint in Norilsk and on the Kola
Peninsula and shared details
of the large-scale Sulphur Project,
which targets a 75% reduction
in sulphur dioxide emissions
in the Norilsk Industrial District
by 2023.
СО2 emissions totalled
Renewable energy sources provide
Share of coal in fuel consumed stands
10 mt
44% of electricity consumed
at 1.1%
Key climate change risks
Risk type
Risk description
Key risk factors
Risk mitigation activities
Climate change
risks
Lack of water resources:
water shortages in storage
reservoirs of the Company’s
hydropower facilities may
result in failure to achieve
necessary water pressure
at HPP turbines leading
to limited power production
and drinking water shortages
in the Norilsk Municipality
territory
Soil thawing: loss of bearing
capacity of pile foundations,
deformation of buildings
and structures leading
to their destruction
Abnormal natural
phenomena
(drought) caused
by climate change
• Establish closed water circuit to reduce water withdrawal.
• Use a hydrological monitoring system on a regular basis
to forecast water level in rivers and water bodies.
• Cooperate with Roshydromet to set up permanent
hydrological and meteorological monitoring stations
and improve the accuracy of water level forecasts in rivers
where the Company operates.
• Dredge the Norilskaya river and reduce energy
consumption at the production facilities, should the risk
materialise.
• Replace equipment at hydropower plants to increase power
output through improving the performance of hydroelectric
units (implemented in 2012–2021)
Climate change,
average annual
temperature
increase
(over the last
15–20 years).
Increased depth
of seasonal
thawing
• Erect buildings and structures on soil or hard rock
• Regularly monitor the condition of foundation beds
for buildings and structures built on permafrost
• Run geodetic control of changes in buildings’ positions
• Monitor soil temperature at buildings’ foundations
• Monitor the facilities’ compliance with operational
requirements for crawlspaces
• Develop recommendations and corrective action
plans to ensure safe operating conditions for buildings
and structures
Annual Report > 2018Nornickel www.nornickel.com> 132
GREENHOUSE EMISSIONS
The Company assessed its GHG emissions
in accordance with the existing national
methodology. The assessment reflected
the climatic conditions of operations,
facilities upgrade and reconfiguration
timelines. Direct GHG emissions total
ca. 10 mtpa, including some 6.40 mtpa
from fuel and energy assets, 3.45 mtpa
from smelting operations, and up
to 0.15 mtpa from transport and logistics.
Next year, Nornickel intends to use
the international methodology of GHG
emission assessment for comparison
purposes.
At the moment, Russian legislators
are working to introduce statutory
requirements for corporate GHG reporting.
The Company is monitoring all legislative
developments on this front to ensure
compliance with the regulations.
GHG emissions broken down by source
(mt)
0.2
2%
Direct GHG emissions (Scope 1, mt)
10
10
10
35%
3.5
6.4
CO2
Power consumption and energy
efficiency improvement
Nornickel is committed to the responsible
use of heat and electricity. 85% of electricity
is generated by the Company’s fuel
and energy companies supplying electric
power to both intragroup facilities and third
parties.
2018 saw the Company continue
implementing initiatives in pursuance
of Presidential Executive Order No 752
On the Reduction of Greenhouse Gas
Emission Volumes of 30 September 2013.
The Group's investment programme
embraces several large-scale priority
projects to fully unlock the potential
of renewable power sources (hydropower)
and ensure energy savings.
2016
2017
2018
According to the GHG Emission Calculation
Guidelines approved by Order No. 300
of the Russian Ministry of Natural Resources dated
30 June 2015.
63%
> > >
For more details on energy assets see
p. 93–95
Fuel and energy
Smelting
Transport
85% of electricity is generated
by the Company’s fuel
and energy companies
RENEWABLE ENERGY SOURCES
The European Union has set a target
for a reduction of 20% in GHG emissions
in the year 2020 compared with 1990 levels
predominantly through shifting from fossil
fuel to renewable energy sources.
The Company seeks to cover its energy
needs primarily from renewable sources.
Nornickel makes continuous efforts
to reduce the consumption of such energy
sources as diesel fuel, coal, and natural
gas as well as to provide its enterprises
with reliable and efficient low-carbon
energy sources in the long term. As a result
of Nickel Plant shutdown, the estimated coal
consumption declined by 40–70 ktpa.
The Company’s priority energy source
is hydropower generated by hydropower
plants: Ust-Khantayskaya and Kureyskaya
HPPs (481 MW and 600 MW of installed
capacity, respectively). In 2018, renewables
accounted for 44% of total electric power
generated by the Norilsk Nickel Group
and 51% of power generated in the Norilsk
Industrial District. The Company rolled
out a project to replace hydropower plant
equipment for rendering it more reliable
and increasing power output through
better performance of hydroelectric units
(implemented in 2012–2021), thus laying
out the groundwork to expand the share
of renewables.
Electric power generated
from renewable sources (%)
36
38
44
Group’s consumption of electricity and heat (TJ)
32,691
20,674
11,856
29,369
30,052
20,180
12,414
18,762
14,877
+
16%
The use of other renewables such as solar,
geothermal, and wind energy is limited,
as Nornickel’s major production assets
are located beyond the Arctic Circle.
There is not enough solar energy in winter
because of polar night lasting approximately
60 days. Wind turbines are also inefficient
due to changes in wind intensity: weather
conditions range from dead calm lasting
for weeks to snowstorms with a wind speed
of up to 50 m/s.
Fuel consumption (TJ)
129,335
2018
134,709
151,081
2017
2016
4,127
13,788
1,659
148,909
5,178
15,221
1,460
156,568
In 2018, the Company’s spending under
the programme totalled ca.
USD 92
mln
(RUB 5.8 bn)
3,789
15,423
2,132
172,425
In 2018, the Group achieved savings of
Natural gas
Diesel fuel and fuel oil
Gasoline and jet fuel
Coal
Group’s electricity and fuel generation and consumption (TJ)
Indicator
Fuel consumption
natural gas
diesel fuel and fuel oil
gasoline and jet fuel
coal
Energy from the Group’s renewable sources (HPPs)
Electricity and heat procurement from third parties
Electricity and heat sales to third parties
2016
2017
2018
2016
2017
2018
TOTAL ENERGY GENERATION AND CONSUMPTION (1 + 2 + 3 – 4)
173,367
159,962
155,792
Consumption of heat
from non-renewable sources
Consumption of electricity
from non-renewable sources
Consumption of electricity and heat
from renewable sources
For a detailed breakdown of the Group's energy consumption by company, please see the 2018 Sustainability Report.
Including the fuel used to generate energy for covering the needs of Norilsk.
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Major projects include:
•
replacement
of hydroelectric units and introduction
of an automated dispatch system
at Ust-Khantayskaya HPP;
• TPP-1 retrofit to enable automated
•
process control;
replacement of wooden supports at 110
kV lines with steel ones;
• construction of steam pipelines
for the centralised heat supply system.
In 2018, significant efforts were
invested in improving energy efficiency.
As a result, the Group achieved savings
of 87,822 tonnes of reference fuel
(units). In the reporting year, per unit fuel
consumption at TPPs stood at 265 g/kWh,
down by 29 g/kWh vs target and by 17
g/kWh y-o-y. During the reporting year,
the Company’s subsidiaries saved 17.3
mcm of natural gas.
87,822
tonnes of reference fuel
2016
172,425
151,081
15,423
3,789
2,132
11,856
8,968
19,882
2017
156,568
134,709
15,221
5,178
1,460
12,414
10,483
19,503
2018
148,909
129,335
13,788
4,127
1,659
14,877
10,931
18,926
Annual Report > 2018Nornickel www.nornickel.com> 134
PROTECTION
OF WATER BODIES
The Company’s major production assets
are located in regions with sufficient water
resources. However, cognisant of the fact
that certain regions of the world suffer
from lack of water resources, the Company
is extremely careful about its use of fresh
water and strictly complies with restrictions
applicable to industrial water withdrawal.
Nornickel’s key facilities have a closed
water circuit in place enabling them
to reduce water withdrawal. Furthermore,
the Company never withdraws water
from protected natural areas. In 2018,
86% of all water used by the Company
was recycled and reused. All sources
of water used by the Company are subject
to government-approved surveillance
programmes for water and water protection
zones.
Wastewater effluents also do not exceed
the approved limits or have any major
impact on biodiversity of water bodies
and related habitats.
Volume of water used
Wastewater discharge (mcm)
92
93
86
85
86
1,418
1,421
1,464
1,342
1,412
2014
2015
2016
2017
2018
Total volume of water
used (mcm)
Percentage of water
reused (%)
EMISSIONS
High sulphur dioxide emissions resulting
from smelting sulphide concentrates
with high sulphur content is one
of the Company’s key environmental
issues. Nornickel’s strategic plan
is to transform the Company into a cleaner
and environmentally safe enterprise
through implementing the Sulphur
Project and environmental initiatives
at Kola MMC. In 2019, the Company plans
to introduce light unmanned aerial vehicles
for monitoring environmental conditions
on the Kola Peninsula and in the Norilsk
Industrial District.
The Sulphur Project is the umbrella
name for the second stage of Nornickel’s
large-scale environmental programme
to achieve a 75% reduction in aggregate
sulphur dioxide emissions across
the Norilsk Industrial District by 2023.
This will guarantee that Norilsk air meets
93
79
82
77
84
2018
2017
2016
2015
2014
31
34
28
34
30
27
7
5
30
28
6
31
26
4
165
7
148
144
140
146
Clean to standard
Insufficiently treated
Contaminated untreated
Treated to standard
the air quality requirements regardless
of wind speed or direction. The total
CAPEX for the Sulphur Project is estimated
in the range of USD 2.5 bn.
As part of the programme, Nadezhda
Metallurgical Plant will receive new
facilities capturing sulphur-rich gases, while
sulphur acid will be neutralised with natural
limestone, with waste gypsum produced
as a result. The gypsum will be stored
in a dedicated structure. Under another
project, a revolutionary continuous
copper matte converting unit will be built
on the Plant’s site. Its emissions will
also be used to produce sulphur acid.
In the reporting year, the design of these
projects was completed and submitted
for state expert review.
Meanwhile, Copper Plant will see its
elemental sulphur production capacities
retrofitted and the entire converter section
shut down, which will eliminate low-height
emissions of low grade converter gases
that have a pronounced effect on ground
level concentrations of sulphur dioxide
during unfavourable weather conditions.
The total capacity for recovering sulphur
from gases at Copper Plant is expected
to reach ca. 280 ktpa of sulphur by 2022.
Nornickel started implementing its Sulphur
Project at Copper Plant in September 2018.
Kola MMC continues implementing
the action plan to reduce sulphur
dioxide emissions from Smelting
Shop at the Nickel site by upgrading
the equipment (reconstruction of feeding
and sealing systems of ore-thermal
furnaces, gas duct replacement,
preparation of furnace charge for smelting,
etc.) and lowering smelting shop
utilisation through the Outotec project
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of concentrate separation and shipment
facility at Zapolyarny while selling part
of Kola MMC’s concentrate to third parties.
This is expected to have an environmental
impact of at least 50% reduction of sulphur
dioxide emissions in Nickel by 2020 vs
2015 and achieving maximum permissible
emission rates.
In 2018, emissions of Norilsk Nickel’s
Russian operations totalled 1,927 kt,
up 4.3% y-o-y. The growth was caused
by a temporary increase in sulphur dioxide
emissions at Polar Division. This increase
resulted from the processing of an extra
amount of sulphur-containing copper
concentrate purchased from Rostec.
Although the emissions became higher,
they were still within the permissible
emission rates applicable to the Company.
Air pollutant emissions at Polar Division
totalled 1,789 kt in 2018, up 84 kt y-o-y
(+4.9%) mainly as a result of higher sulphur
dioxide emissions (+5.3%).
In 2018, the Company made efforts
to control pollutant emissions during
unfavourable weather conditions with 140
instances of suspending operations at its
metallurgical plants. To inform the local
community of the environmental impact
of its metallurgical operations on the quality
of air in Norilsk, the Company maintains
an automatic toll-free enquiry service line
offering environmental forecasts for the city
area to anyone dialling 420 007.
The Company's transport
and logistics subsidiaries and units
have all the necessary environmental
permits and comply with the applicable
environmental regulations, namely:
• air pollutant emissions from mobile
sources do not exceed the maximum
permissible concentrations;
• marine fuels are purchased from vendors
that have all the required documents
confirming fuel quality. The quality of fuel
is verified by a third-party laboratory;
• onboard wastewater treatment plants
are subject to annual certification
for the avoidance of pollution
and contamination of water bodies
and marine environment;
• oil-containing water is transferred
to specialist contractors at sea ports.
Air pollutant emissions across the Group (kt)
Air pollutants
GROUP TOTAL
Including:
sulphur dioxide (SO2)
nitrogen oxide (NОx)
solids
other
Polar Division
TOTAL
Including:
sulphur dioxide (SO2)
nitrogen oxide (NОx)
solids
other
Kola MMC
TOTAL
Including:
2016
2017
2018
Air pollutants
2016
2017
2018
1,936.4
1,845.6
1,926.6
Other branches and subsidiaries
TOTAL
16.0
18.7
20.2
1,878.0
1,785.1
1,869.6
Including:
10.1
14.3
34.1
11.4
13.5
35.6
11.2
14.5
31.3
1,787.6
1,705.0
1,789.0
sulphur dioxide (SO2)
nitrogen oxide (NОx)
solids
other
0.1
7.5
0.7
7.7
0.1
8.6
0.5
9.5
0.2
8.8
1.4
9.8
1,758.2
1,675.9
1,764.7
Sulphur dioxide (SO2) emissions (kt)
1.5
6.2
1.6
6.1
0.6
5.5
21.7
21.5
18.2
1,948
-
6.9%
2,009
+
4.7%
1,878
1,870
1,785
132.9
121.9
117.5
sulphur dioxide (SO2)
119.7
109.1
104.8
nitrogen oxide (NОx)
solids
other
1.1
7.4
4.7
1.2
6.9
4.7
1.8
7.6
3.3
2014
2015
2016
2017
2018
Annual Report > 2018Nornickel www.nornickel.com> 136
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PRODUCTION WASTE
The Company reuses most of its industrial
waste as ca. 96% of the waste are class 5,
i.e. non-hazardous waste. This is mostly
waste from the mining and smelting
operations, including rock and overburden,
tailings, and metallurgical slags. Ca. 70.4%
of all waste generated across the Company’s
operations in 2018 was reused, with the rest
of waste disposed of at special facilities
or transferred to special contractors
for use and treatment. Waste generated
from the extraction of ore mineral resources
is used in backfilling of mined-out areas
and pits, road filling, and strengthening
of tailings pits.
A new tailings pit was commissioned
at Talnakh Concentrator in 2017, allowing
to dispose of 7 mt of tailings. The facility
was built using the most advanced
technologies to reduce environmental
impact of the waste.
In 2018, as part of hot commissioning
testing under the comprehensive
Waste generation by hazard class (kt)
Hazard class
5
4
3
2
1
Total
project to upgrade and retrofit Talnakh
Concentrator (first tailings pit construction
stage) to increase its total ore capacity
to 16 mtpa, the Company prepared
the tailings pit floor for the safe operation
of hydraulic structures, including
the construction of barriers and an initial
slope to ensure the safe operation
of free-flow structures. This helped dispose
of 7,311.532 kt of tailings.
The Company currently operates
four tailings pits: Lebyazhye, tailings
pits of Nadezhda Metallurgical Plant,
Talnakh Concentrator, and Kola MMC.
A tailings pit of Bystrinsky GOK has
also been built and is being currently
commissioned. The Company conducts
regular monitoring of the environmental
conditions at tailings pits and within
the area of their environmental impact
for the purpose of observation, assessment
and forecast of environmental changes
as well as for the prevention and mitigation
of adverse environmental impact.
2016
32,118
1,114
30
5.8
0.1
2017
30,722
1,190
13
2.4
0.1
2018
29,517
1,191
15
1.1
0.1
33,268
31,927
30,724
The Company’s waste
management efforts are focused
on the following:
• development of waste disposal
sites to reduce human impact
on the environment;
• waste reuse maximisation.
ENVIRONMENTAL IMPACT ACROSS NORILSK NICKEL’S FOREIGN OPERATIONS
Norilsk Nickel Harjavalta
The Company has all the necessary
environmental permits and operates
a certified integrated management system
that meets the requirements of ISO 9001,
ISO 14001 and OHSAS 18001.
Norilsk Nickel Harjavalta’s main
environmental impact consists
in the emissions of ammonia (NH3)
and nickel (Ni), and discharges of nickel,
sulphates (SO42) and ammonia ions
(NH4+). In 2018, Norilsk Nickel Harjavalta
met all permit requirements for emissions,
discharges and waste disposal volumes.
Lower waste volumes in 2018 (down
2.7 kt y-o-y) are a result of switching
to the Company’s feedstock that is less
contaminated with impurities as compared
to third party materials.
Environmental impact metrics of Norilsk Nickel Harjavalta
Item
Industrial wastewater, '000 m3
Pollutants in industrial wastewater, t
Ni
SO4
2
NH4 + (rebased to nitrogen)
Total water consumption, mcm
Air pollutant emissions, t
Ni
NH3
Waste generation, kt
Waste disposal, kt
2016
771
2017
899
2018
988
0.4
0.5
0.6
22,457
25,853
30,189
49.5
10
1.6
70
7.0
0.8
60.3
11.1
1.7
69
5.5
0.8
69.6
11.8
1.2
84
2.8
1.1
Nkomati
The company is required to comply
with both national environmental regulations
and Norilsk Nickel Group's corporate
standards. Nkomati pays close attention
to environmental safety, is certified
and regularly audited for compliance
with ISO 14001.
Environmental impact metrics of Nkomati
Item
Total water consumption, mcm
Waste generation, t
Waste disposal, t
Environmental expenditures, USD mln
2016
0.333
921
1,611
0.42
2017
0.064
431
845
0.27
2018
0.429
358
725
0.31
Annual Report > 2018Nornickel www.nornickel.com> 138
BIODIVERSITY CONSERVATION
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Cooperation with nature reserves
Nornickel’s production facilities are adjacent
to nature reserves on the Taimyr
and Kola Peninsulas. Kola MMC’s sites
are only 10–15 km away from the Pasvik
and the Lapland Nature Reserves
(Murmansk Region). The Company’s Polar
Division is located some 80–100 km away
from the buffer zone of the Putoransky
Reserve (Krasnoyarsk Territory).
For over a decade now, Nornickel
has annually provided hundreds
of millions of roubles to nature reserves
for the purpose of preserving the unique
Arctic environment. This is in line
with Nornickel’s strategy set to embrace
green technologies in the next five years
through a new investment cycle to secure
sustainable development.
In the Trans-Baikal Territory,
the Company supports the R&D initiatives
and environmental awareness programmes
of the Relict Oaks State Reserve.
The Pasvik
Nature Reserve
(Kola Peninsula)
The Lapland State Nature
Biosphere Reserve
(Kola Peninsula)
The Lapland State Nature
Biosphere Reserve is one
of the largest protected areas in Europe
covering 278,000 ha. Established
with the aim of saving the wild
reindeer from extinction, it now boasts
over 1,000 reindeer, the largest reindeer
herd in Northern Europe. The European
beaver population has also been
successfully restored.
Since 2002, the Lapland
Biosphere Reserve has
entered into contracts
to reclaim disturbed natural
environment in the areas affected
by multi-year emissions from Severonickel
Plant, and monitor areas adjacent
to Monchegorsk site and the Lapland
Biosphere Reserve. The data
obtained during a scientific research
provided a basis for the subsequent
contractual work to reclaim disturbed
lands, and bring about sanitary and fire
protection improvements in the forest
areas. The Company also provided financial
aid for the Lapland Biosphere Reserve
to make a new nature trail and publish
books about Oleg Semyonov-Tyan-Shansky
and Herman Kreps, the reserve founders.
The Pasvik Nature Reserve
is home to rare animal species listed
on the international and Russia’s Red Data
Books. Since 2006, as part of the contract
signed with Kola MMC, the Pasvik
Nature Reserve has been carrying out
an ecological assessment of the natural
environment in the area of Pechenganickel
Plant (Zapolyarny, Nickel and their suburbs,
including the Pasvik State Nature Reserve),
and developing a long-term environmental
monitoring programme.
Nornickel supports scientific research
carried out by the nature reserve, its efforts
to protect natural and cultural heritage,
promote tourism and environmental
education. The Company helps establish
an international natural historical open-air
museum on the Varlam island. Nornickel
sponsored the book called The Varlam
Island – the Pearl of Pasvik.
In addition, in 2018, the Company provided
financial assistance for purchasing
a mobile environmental monitoring lab.
The Putoransky State
Nature Reserve
(Taimyr Peninsula)
In 2018, the Putoransky State
Nature Reserve kept implementing
projects selected under Nornickel’s World
of New Opportunities charitable programme.
The projects involved annual open air events
in the protected area, reclamation of lands
for commercial reindeer herding and dwelling
of indigenous ethnic minorities, research
and environmental activities.
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Nature conservation programmes
Nornickel is committed to a proactive
approach to environmental protection
and sustainable use of natural resources.
To this end, the Company is deploying
development programme 2016–2023 that
involves major upgrade of its production
capacities and radical environmental safety
improvements.
Environmental education and experience
sharing are another priority area.
The Company organised The Environment
Protection and Sustainable Development
in the North VII environmental forum held
in Murmansk on 15 and 16 November
2018. The forum offered a venue
for discussing Arctic region development
in terms of environment and corporate
social and environmental responsibility,
sharing experience of implementing
environmental protection initiatives
in the Far North and the Environment
national project in northern territories,
and integrating the best available
and cutting edge technologies. More than
200 experts from all over Russia and Arctic
region attended the event.
SOCIAL AND CHARITY
INITIATIVES
Water
Norilsk Nickel’s Polar Division is working
on a project to breed valuable fish species
and release them into natural water
bodies. In 2018, the Company released
475,000 Siberian sturgeon fingerlings
into the Yenisey River for the purpose
of reproduction of aquatic bioresources.
The initiative was supposed to compensate
for the damage done to water bodies
during the construction of the new
tailings pit for Talnakh Concentrator
and sand extraction at the Seredysh Island.
The Company plans to continue valuable
fish breeding and release projects in 2019.
2018 also saw Nornickel continue
landscaping of the Dolgoye Lake area
in Norilsk.
Landscaping and sanitary clean-up
In 2018, Polar Division together
with authorities of cities where the Division
operates contributed to the sanitary
improvement and landscaping of urban
territories. In summer, the Company also
contributed to the roadside clean-up, water
body protection, waterfront landscaping
and facelift of several camping sites.
Furthermore, Polar Division planted trees
at the Zapolyarnik stadium.
Around 190 employees of the Company
joined the annual environmental marathon
held in Norilsk in 2018. Volunteers
organised ca. 100 events involving
2,500 people of Norilsk, held 20 clean-up
days as well as festivals and workshops,
planted 100 trees, collected 25 tonnes
of garbage, and improved several urban
facilities.
The Norilsk Nickel Group is the world's
largest metals and mining company,
playing a significant role in the Russian
economy. Its geography and financial
performance determine the Company's
strong impact on the social and economic
life of the regions where it operates. With its
key facilities located in one-company towns,
Nornickel seeks to maintain favourable
social climate and comfortable urban
environment providing the Company's
employees and their family members
with ample opportunities for their creative
pursuits and self-fulfilment.
The core principle behind this interaction
is the partnership involving all stakeholders
in the development and implementation
of social programmes based on the balance
of interests, cooperation and social consensus.
The harsh climate faced by the Company's
employees in life and at work, remoteness
of the Company's key industrial facilities
and the toughening competition for human
capital across the industry are the factors
for Nornickel to make its social policy highly
effective, human-centred and contributing
to the Company’s excellent reputation
as an employer.
Social expenses (USD mln)
57
60
85
2018
2017
2016
70
115
242
23
115
21
78
198
184
Development of infrastructure and social facilities
Sponsorship (sports projects)
Charity
Exludind expenses of social progremmes for employees.
SOCIAL PARTNERSHIP
Russian operations of the Norilsk
Nickel Group have established a social
partnership framework aimed at reconciling
the interests of employees and employers
on matters pertaining to the regulation
of social and labour relations.
The Company meets all obligations
under the Labour Code of the Russian
Federation, collective bargaining
agreements and joint resolutions.
In regulating labour relations, employee
interests are represented by social
and labour councils and trade union
organisations.
Social partnership framework
Employer
Trade union
organisations
Social partnership
Employees of the Norilsk Nickel
Group’s Russian operations
Social and labour
councils
Annual Report > 2018Nornickel www.nornickel.com> 142
In regulating labour relations, employee
interests are represented by trade
unions and social and labour
councils
Trade union organisations
As at the end of 2018, 10.8% of employees
engaged in the Group’s Russian operations
were members of trade union organisations.
Trade unions of the companies located
in Norilsk and on the Taimyr Peninsula
form a single Trade Union Organisation
of the Company and its subsidiaries.
Trade unions of the companies
operating in the Murmansk Region
are joined under two umbrella trade
union organisations – Regional Trade
Union Organisation of Kola MMC and its
Subsidiaries Employees and Primary Trade
Union Organisation of Kola MMC.
Trade union organisations of the Company
and its subsidiaries, Kola MMC, Bystrinsky
GOK, NordStar Airlines and Zapolyarye
Health Resort are all members of the Trade
Union of MMC Norilsk Nickel Employees,
an interregional trade union organisation.
In the reporting year, the relationship
between the employer and the Trade Union
was governed by the Social Partnership
Agreement signed in 2014 to formalise
implementation procedures for joint
initiatives ensuring sustainable performance,
operating and financial excellence, employee
welfare, health and safety, and enhancement
of social benefits.
The trade unions of transport and logistics
divisions are members of the Yenisey Basin
Trade Union of Russia’s Water Transport
Workers (Krasnoyarsk).
In order to develop interregional social
partnership, Interregional Cross-Industry
Association of Employers “Union of Entities
of the Copper and Nickel and Supporting
Industries” (the Association of Employers)
was founded by the Group’s Russian
companies in the Krasnoyarsk Territory
and the Murmansk Region. In November
2018, the Association of Employers
and the interregional public organisation
initiated collective bargaining to develop
and sign an interregional cross-industry
agreement for the key players of the copper
and nickel and supporting industries
for 2019–2022. Signing the agreement
and increasing the number of organisations
to apply its provisions are slated for 2019.
Social and labour councils
In 2018, the share of employees represented
by social and labour councils across
the Group stood at 78%.
The Group's companies located on the Taimyr
Peninsula and in the Murmansk Region
established social and labour councils
back in 2006 to represent the interests
of employees who are not members of trade
unions. Chairs of the local councils make
up the Social and Labour Council of MMC
Norilsk Nickel and the Social and Labour
Council of Kola MMC.
Offices for operational, social and labour
matters
In addition to the Corporate Trust
Service, the Group launched offices
for operating, social and labour relations
back in 2003. They are primarily tasked
with response to employee queries, control
of their processing, and prompt resolution
of conflicts. On a monthly basis, the offices
monitor the staff’s social status, enabling
us to solve reported issues in a timely
manner. In 2018, the Group's companies
in the Norilsk Industrial District ran 24
offices that received about 52,000 queries
and requests mostly from employees
(78%), former employees (21%) and local
communities (1%). They mainly focused
on social and working matters (72.5%
of queries and requests), legal matters (26%)
and other matters (1.5%).
The Group has also set up collective
bargaining commissions, labour dispute
commissions, social benefits commissions/
committees, social insurance commissions,
health and safety commissions/committees,
social and labour relations committees, etc.
Collective bargaining agreements
In 2018, the share of employees covered
by collective bargaining agreements stood
at 81%.
In 2010, the Group entered into 21 collective
bargaining agreements, including two
entities that signed these agreements
for the first time.
To streamline efforts on the employment-
related social partnership, in 2018,
the Group prepared guidelines for developing
and entering into collective bargaining
agreements. The collective bargaining
agreements of the Group’s Russian companies
comply with the applicable laws and meet
the majority of employee expectations.
There were no social or labour disputes
during the reporting period.
78%
the share of employees represented
by social and labour councils across
the Group in 2018
81%
of employees covered by collective
agreements in 2018
Engaged in Norilsk Nickel’s Russian
operations were members of trade
unions as at the end of 2018
11% of employees
Including entities that have no collective
bargaining agreements in place but have approved
local regulations that make MMC Norilsk Nickel's
Collective Bargaining Agreement effective at these
entities, including foreign assets.
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Social programmes for employees
HEALTH IMPROVEMENT PROGRAMMES
Social programmes for employees (USD mln)
100
94
35
2018
2017
2016
31
15
104
33
17
102
250
247
30
16
88
168
Housing programmes
Health resort treatment
Pension plans
Other social expenses
The harsh climate of the Far North
and the heavy working conditions of the mining
facilities require that the Company make
extra investments in health programmes
for employees and their families. Health resort
treatment programmes are a key priority
in Nornickel’s social policy.
In 2018, about 11,000 employees
and their families had recreation
and treatment in Zapolyarye Health
Resort (Sochi). Some 12,300 people
spent their vacations in other health
resorts, including approximately 4,400
employees who travelled to Bulgarian
resorts and about 1,700 staff members
who went to Hainan (China). The Company
compensates their employees an average
of about 85% of the trip voucher cost.
The health resort treatment programme
is designed to prevent the development
of chronic diseases among the employees'
children and give them an opportunity
to take full advantage of their summer
vacations. As part of this initiative,
about 1,500 children spent their holidays
in Anapa and Golden Sands (Bulgaria).
SPORTS PROGRAMMES
Healthy lifestyle is one of the focus areas
in the personal growth of the Company’s
employees facing the harsh climate
of the Far North. Sports programmes seek
to promote a healthy lifestyle, foster team
spirit, improve interpersonal communication
and develop corporate culture.
The Company pays special attention
to corporate competitions, including
the employees’ popular sports such
as futsal, volleyball, basketball, alpine skiing,
snowboarding and swimming. Family
sports contests are yet another focus area.
One of Nornickel’s social policy highlights
is the support of amateur sports.
To ensure further development of amateur
hockey, in 2018, the region of Norilsk
hosted the Night Hockey League games
as part of Conference North with eleven
teams including the Company’s employees
taking part in the event.
Events for local communities include
annual Spartakiads and various mass
sports events engaging the Company’s
employees, their family members
and the region's community.
In 2018, about 27,000 employees and local
residents took part in the corporate mass
sports events, spartakiads and sports
initiatives held by the Company’s facilities
and Russian entities in the Norilsk Nickel
Group.
Sports expenses (USD mln)
2.8
2.7
1.5
2016
2017
2018
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HOUSING PROGRAMMES
In 2018, the Company continued
implementing the Housing Programme
Policy adopted in 2017. To optimise
the effort, two housing programmes, Our
Home and My Home, were merged into
one, Our Home / My Home, featuring
better terms of participation and a broader
coverage of the Group’s companies.
Since the launch of the programme back
in 2010, the Company has purchased 3,826
apartments.
As part of the Our Home / My Home
programme, Nornickel purchases
ready-for-living apartments in various
Russian regions at its own expense,
and provides them to eligible employees
under co-financing agreements.
Apartments are usually purchased
in the Moscow and Tver Regions,
as well as in the Krasnodar Territory,
with the Company seeking to buy
properties located in close proximity
to enhance the employees' living standards
by developing additional infrastructure
and optimising the scope of maintenance
tasks assigned to the property
management company.
The Company pays up
to half the cost of the apartment
of about USD 47,000 (but in any case
no more than RUB 3 mln), with the rest
paid by the employee within a certain
period of employment with the Norilsk
Nickel Group (from five to ten years).
The cost of housing remains unchanged
for the entire period of the participation.
Title is registered at the end of participation
in the programme, but the employee
may move in immediately after receiving
the apartment.
The Company also runs the Corporate
Social Subsidised Loan Programme
for Employees of Nornickel that was
phased from a pilot to an ongoing
project. This programme was developed
primarily as a tool to retain highly qualified
staff, with employees at Polar Division
and Kola MMC entitled to an interest-
free loan to make a down payment
and to a reimbursement of a certain share
of interest on their mortgage loan. Overall,
more than 200 employees took part
in the programme.
Since 2010, the Company has purchased
3,826 apartments
under My Home / Our Home housing
programme
PENSION PLANS
Nornickel offers its employees non-
governmental pension plans. Under the Co-
Funded Pension Plan, the Company and its
employees make equal contributions
to the plan. The Complementary Corporate
Pension Plan provides incentives for pre-
retirement employees with considerable
job achievements and an extensive
employment record.
Pension plans coverage
Item
Co-Funded Pension Plan
Financing, USD mln
Participants, thousand people
Complementary Corporate Pension Plan
Financing, USD mln
Participants, people
2016
2017
2018
7.8
17.3
6.7
614
8.6
15.7
8.5
718
7.7
13.9
6.7
545
SOCIAL INVESTMENTS
Relocation programme
In 2018, Nornickel and the Government
continued joint implementation of a long-
term target programme to relocate people
from Norilsk and Dudinka (Krasnoyarsk
Territory) to Russian regions with more
favourable climatic conditions. Introduced
in 2011, this ten-year programme provides
Relocation programme results
for 11,265 families (or 1,126 families
per year) residing in Norilsk and Dudinka
to be relocated from these municipalities
as entitled to housing subsidies.
The Company acts as a programme
sponsor. The programme budget totalled
RUB 8.3 bn. Since the programme launch,
the Company has transferred to the local
budget a total of USD 183 mln (RUB 7 bn),
including USD 13,2 mln (RUB 830 mln)
in 2018. In 2011–2018, 7,107 families
purchased new homes on the “mainland”
and moved there, including 5,847 families
from Norilsk and 1,260 families
from Dudinka.
Item
2011
2012
2013
2014
2015
2016
2017
2018
Company contribution, USD mln
39
28
27
26
22
14
14
13
Total
183
Total apartments purchased
as at 31 December
1,137
1,013
1,199
1,038
908
627
652
533
7,107
Support for local communities
The Company makes a significant
contribution to the development of local
communities and runs social programmes
and projects. These initiatives are focused
on securing an accessible and comfortable
living environment, providing environmental
protection and supporting local
communities. The Company rolls out
its programmes and projects both
independently and in partnership with local
authorities, regional and federal government
bodies, non-profit organisations,
public organisations and professional
associations.
In addition, the Company supports
platforms enabling an exchange of views
by representatives of government,
business and society as well as facilitating
a constructive dialogue on matters crucial
for the regional economy, business
activities and social life. The fact that
two regions of the Company’s operations
are located along the nation's borders
(the Murmansk Region and the Zabaykalsky
Kray) and two are included in the Russian
Arctic (the Krasnoyarsk Territory
and the Murmansk Region) makes forums,
conferences and other similar events
a vital driver for developing the regions
both socially and economically, attracting
investments, generating solutions
for matters related to environmental
protection, development of the Arctic fleets,
ports and navigation along the Northern
Sea Route. At the end of the day, these
activities help integrate the regions into
an economic space, both with the Arctic
countries and with the rest of the world.
As part of the Year of Volunteer in Russia
in 2018 under Presidential Executive Order
No. 583 dated 6 December 2017, Nornickel
and the city administrations in Krasnoyarsk,
Norilsk, Chita and Monchegorsk entered
into a number of cooperation agreements
to support the volunteer movement,
implement the state policy related
to the development of free will activity
and volunteering, as well as encourage
participation in charitable and voluntary
activities. The agreements resulted
in agreed and implemented action plans
to promote volunteering in the regions
where the Company operates.
The Company makes a significant
contribution to the development
of local communities
Nornickel and the city administrations
in Krasnoyarsk, Norilsk, Chita
and Monchegorsk entered into
a number of cooperation
agreements
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Support of indigenous peoples
Nornickel recognises the right of indigenous
northern minorities to preserve
their traditional way of life, stick
to the age-old environmental management
practices and have decent living conditions.
The Company adopted the Indigenous
Rights Policy that defines Nornickel’s key
commitments in this aspect. In 2018,
there was no record of the Company
violating the rights of indigenous minorities.
The Company’s representatives are also
members of indigenous northern minority
commissions organised by local authorities.
For several years now, the Company has
been supporting initiatives to improve
living standards of the Taimyr Peninsula's
indigenous people. 2018 saw further
implementation of the Comfortable Taimyr
project, under which the Company will
invest to construct 2,300 sq m of housing
in the Tukhard settlement, where
indigenous people live.
In an attempt to preserve national
traditions and culture of indigenous
Northern minorities, the Company
participates in staging annual authentic
festivals for tundra inhabitants
on the occasion of the Reindeer Herder's
Day and the Fisherman's Day and provides
presents and prizes for the winners
in various competitions. To that end,
the Company purchases items that enjoy
the greatest popularity among locals,
including tents, gasoline power generators,
household equipment, outboard motors,
inflatable boats, GPS navigators, sleeping
bags, binoculars, etc. The Company also
offers regular financial help to public
Taimyr-based organisations.
To ensure the sustainable development
of the Taimyr region, the Company
provides assistance to indigenous
peoples of the North, including by helping
to organise air transportation and supplying
construction materials and diesel fuel.
Children of reindeer herders in the Tukhard
tundra are provided with comprehensive
meals as part of the Food Programme
carried out in association with the Dudinka
Department of Education. In line
with the effective agreements, foods
for the local hospital and primary
school are supplied by Norilskgazprom’s
Procurement Unit at below-market prices.
INFRASTRUCTURE DEVELOPMENT
Given the high importance
of the XXIX International Winter Universiade
to be held in 2019 in Krasnoyarsk, in 2018
the Company focused its key efforts
on performing the cooperation agreement
signed between MMC Norilsk Nickel
and Krasnoyarsk municipal authorities
and intended to improve the city landmarks.
Pursuant to the agreement, Nornickel was
heavily involved in a number of large-scale
projects implemented as part of the public-
private partnership to prepare the city
for hosting athletes and guests.
The Kommunalny Bridge over the Yenisey
River saw the launch of an architectural
lighting. The left embankments
of the Yenisey River and the Kacha River
along with their adjacent territories were
improved.
A park area (the Bobrovy Ostrov)
was created on the adjacent
territory to the Bobrovy Log Fun Park
on the Bazaikha River, the venue
of the XXIX International Winter Universiade
in 2019. The park area boasts sports
and playgrounds, walkways, bike lanes,
recreation areas, and a foot and bike bridge
across the Bazaikha to make the park
accessible for people with limited mobility.
The access roads to the Bobrovy Log Fun
Park are provided with decorative noise
barriers and planted large trees.
In 2018, the Company’s spending
on Krasnoyarsk redevelopment totalled
about USD 5.6 mln (RUB 351 mln).
In 2018, Nornickel continued its
work to upgrade the civil section
of Norilsk Airport in accordance
with the memorandum of intent signed
by MMC Norilsk Nickel and the Federal
Air Transport Agency under the Russian
Transport Development Federal
Programme. In 2018, the third stage
of the airport reconstruction was
Nornickel is actively involved
in the development and renovation
of social infrastructure across
its footprint, looking to create
accessible and comfortable
environments for the work and life
of the Company’s employees.
Financing of development
and innovation of social infrastructure
(USD mln)
85
60
57
2016
2017
2018
Lighting
of the bridge over
the Yenisey River
completed. The construction period saw
the renovation of the 1,081-meter runway,
the upgrade of a taxiway, the partial repairs
of the pavement in the apron for civil
aircraft, installation of a drainage system,
new light signalling and meteorological
equipment, partial reconstruction of power
supply facilities, and installation of flight
radio equipment. Today, the upgraded
runway meets the latest flight safety
requirements. On 21 September
2018, the airport received a certificate
of compliance from the Federal Air
Transport Agency.
Norilsk Airport
reconstruction
In 2018, Nornickel and the Zabaykalsky
Kray Government continued performing
the cooperation agreement, which
serves as the basis for the Company
to provide USD 6.2 mln (RUB 430 mln)
for the following social projects
of the Zabaykalsky Kray Government
and municipalities:
•
launched Quantorium, a science park
in Chita, at the Company’s discretion;
upgraded rooms and premises
of the Junior, children and youth centre
for engineering; provided state-of-the-
art equipment for the science park
to run ship-building, aircraft engineering
and IT projects;
• completed socially important
infrastructure projects
in the territory of 34 municipalities as part
of the Zabaykalsky Kray of the Future
and Successful School projects;
• continued refurbishment
of the Dekabristov Square in Chita,
with the Zabaykalsky Kray Walk
of Fame opened in Bagulovaya Alley
to immortalise the names of the region's
prominent residents;
financed loft platform in the Chita centre
to become a multi-purpose platform
for creativity development;
financed initiatives as part of Creating
a Comfortable Urban Environment, a top
priority project.
•
•
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SUPPORT FOR SPORTS
PROJECTS
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WORLD OF NEW OPPORTUNITIES CHARITABLE PROGRAMME
Our support for sports has
been increasingly broad-based
and comprehensive as we extend
our efforts beyond financing occasional
events to invest in sports facilities, new
schools, sports grounds and mass events
promoting fitness and healthy lifestyles.
The programme has three
focus areas:
Partnership
Innovations
Development
As part of this effort, the Company sponsored
the second Norilsk Nickel Cup – New
Hopes, an inter-regional football tournament
organised by the Football Union of Russia
and MMC Norilsk Nickel. The competition
took place in the Krasnoyarsk
and the Zabaykalsky Kray, the Murmansk
Region and Norilsk, bringing together
96 teams and over 1,100 young players.
Nornickel also supported the Futsal
to Schools programme in the Zabaykalsky
Kray, involving 63 schools in Chita
and the Gazimuro-Zavodsky District.
The schools received gym equipment,
gear, uniforms, and education materials
for sports teachers. One of the project's key
goals is to identify gifted children for further
training.
The Company runs World of New
Opportunities, a charitable programme
to encourage and promote sustainable
development of local communities.
The programme primarily aims to develop
soft skills in local communities, demonstrate
and introduce new social technologies,
support and promote public initiatives,
and encourage cross-sector partnerships.
In 2018, after the commissioning
of Bystrinsky GOK in the Zabaykalsky Kray,
the World of New Opportunities geography
expanded to cover the Gazimuro-Zavodsky
District which now hosts Nornickel's
Socially Responsible Initiatives Competition,
Arctic.PRO R&D marathon and School
of Urban Competencies.
Charity expenses (USD mln)
115
115
78
2016
2017
2018
GOVERNMENT RELATIONS
Partnership
The Company interacts with federal
legislative and executive authorities,
and civil society institutions. The Company
is represented and expresses its
interests in 21 committees, councils,
commissions, expert teams, and working
groups established by government
bodies in association with the business
community, thus supporting socially
important projects. Currently, the Company
mainly cooperates with the working groups
and councils of the State Commission
for Arctic Development and the Government
Commission on the Use of Natural
Resources and Environmental Protection.
The Company also actively participates
in the work of regional authorities’ expert
boards across its geographies including
the Governor’s Council for Strategic
Development and Priority Projects
of the Krasnoyarsk Territory.
Representatives of the Company
take part in parliamentary sessions
and round table discussions organised
by the Federation Council and State Duma
of the Federal Assembly of the Russian
Federation, Government of the Russian
Federation, Russian Union of Industrialists
and Entrepreneurs, Chamber of Commerce
and Industry of the Russian Federation,
Association of Managers (an interregional
public organisation), etc.
The Company's experts engage in draft
regulation discussions held by the Open
Government and by community councils
of the federal executive bodies,
as well as in anti-corruption due diligence
and regulatory impact assessments. All
of that helps maintain a constructive
dialogue with the government, cut red tape
and improve the nation’s business climate.
This area focuses on supporting
volunteer initiatives of local
activists, fostering new skills
and developing local expertise.
In spring 2018, the Company initiated
the We Are the City! social technologies
forum in Norilsk and Monchegorsk to bring
together local communities, inform them
of the new trends and best practices in charity
and volunteering, and share successes
in solving social issues. In the lead-up
to the forum, locals got a chance to meet
a wide range of experts who imparted
their ideas on upbringing children, finding your
own way in life, personal development, etc.
The forum venues were attended by a total
of 1,500 people.
On the Company Day, Nornickel traditionally
stages the We Are the City! PicNick event
in Norilsk, Monchegorsk and Zapolyarny.
PicNick is a festival "for a good cause"
organised by local activists and participants
of the World of New Opportunities
programme (winners of the Socially
Responsible Initiatives Competition
and socially minded entrepreneurs)
and Plant of Goodness corporate volunteer
programme. It ran as a street festival
with a project fair, workshops, training
sessions, etc. For the first time, PicNick
was held in Chita on the Miner's Day.
All events arranged by the Company
served to raise charity awareness in local
communities and encourage public-private
partnerships. In 2018, the Socially
Responsible Initiatives Competition,
which aims to support public initiatives,
received 426 project bids, 116 of which
were approved for funding. The grant fund
totalled USD 2 mln (RUB 125 mln).
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Innovations
This area focuses on facilitating
the introduction of advanced
technologies, fostering R&D
potential and encouraging
innovation in engineering. Its
target audience are schoolchildren,
university students and adult
activists interested in science
and frontier technologies.
Development
This area focuses on engaging
active citizens and SMEs
to address social issues of local
communities using available
business technologies.
For the fifth year in a row, the Company
hosted the Arctic.PRO R&D marathon
aiming to encourage R&D creativity,
innovations in engineering and thirst
for knowledge among children and young
people. 1,600 students aged 12 to 15
took part in the marathon, while 25 more
children attended the Winter R&D School
in Yekaterinburg.
In 2018, we kicked off the I Make competition
for young inventors. Schoolchildren from across
the cities where the Company operates sent
their inventions to take part in the contest.
Of the 103 bids received by the organisers,
eight best projects were selected to compete
at the International Young Inventors Award
in Indonesia, where Nornickel's delegation won
3 gold and 3 silver medals.
For the fourth year running, the Company
was a general partner of the All-Russian
Science Festival held by Moscow State
University. Importantly, Murmansk
was selected for the first time
as the event’s central regional venue.
In two days, the festival was attended
by 3,500 people, with 50 venue organisers
helping to stage it.
One of the Company's initiatives
was to provide training in Social
Entrepreneurship. With assistance
and guidance from experienced coaches
(active businessmen), trainees are expected
to develop business plans and present
them at the Investment Session.
The session saw the graduates submit
some 24 business projects, with four
of them awarded interest-free business
loans from the Company.
In 2018, Nickel hosted the second
Convention of Social Entrepreneurs
from the North attended by 150 active
and would-be social entrepreneurs.
The convention provided a platform
to discuss trends, prospects and measures
to support social entrepreneurship
in the Polar regions and analyse relevant
national and international best practices.
In the run-up to the event, experts
and participants from other regions took
part in a quest to learn more about social
entrepreneurship in the Pechengsky
District.
SPONSORSHIP
Rosa Khutor Ski Resort
Football Union of Russia and Russia's
national football team
In 2016–2019, Nornickel will invest USD 250.5 mln
in the development of the Rosa Khutor ski resort as part
of the programme to support mass sports in Russia. The funds
will be used to develop new ski pistes and lifts and build new
recreational and sports facilities, helping to transform the Olympic
resort into a year-round tourist attraction. By way of consideration,
Nornickel was granted a minority stake in the Rosa Khutor project.
Nornickel remains an official partner of the Football Union of Russia
and Russia's national football team. The Company is the Football
Union’s exclusive partner in the metals sector.
The Football Union of Russia and Nornickel staged the Nornickel
Cup – New Hopes inter-regional tournament that brought together
youth teams from the Krasnoyarsk and the Zabaykalsky Kray
and the Murmansk Region. The winning team was awarded a trip
to the Futsal Academy's training camp.
Russian Olympic Committee
International University Sports Federation
As a partner of the Russian Olympic Committee and the Russian
Olympic team, Nornickel supports youth and high performance
sports, among other things, by facilitating the implementation
of Olympic educational programmes developed by the Russian
International Olympic University.
Another area of cooperation between the Company and the Russian
Olympic Committee is the inclusion of Nornickel’s regions
of operation in the pan-Russian Olympic Patrol project. In 2018,
the Olympic Patrol visited Krasnoyarsk and Chita, giving local children
a chance to meet renowned athletes who shared their personal
Olympic experiences, took part in autograph and photo sessions,
and held workshops and fitness tests.
The Company sponsored the Russian Youth Olympic team, which
delivered a strong performance at the 3rd Summer Youth Olympics
in Buenos Aires.
The Company will remain a partner of the International University
Sports Federation (FISU), an universiade organiser, until May
2019 to support the international university sports movement.
As in the previous year, we backed the FISU Volunteer Leaders
Academy international forum held in June 2018 and attended
by leaders of volunteering associations from over 120 FISU member
states, university sports delegations and officials. The forum took
place in the run-up to the 2019 Winter Universiade helping to facilitate
communication between volunteers and national university sports
federations and to share knowledge and experience in organising
major international sporting events.
CSKA professional basketball club
We also helped organise the 29th National Olympic Day, a sports
festival hosted by 80 cities across Russia to promote healthy lifestyle,
mass fitness and sports.
Nornickel remains the general sponsor of Russia’s most
successful and well-known basketball club. In 2018, CSKA
came out as a winner in the VTB United League and took part
in the EuroLeague's Final Four.
Financing of sports projects
(USD mln)
70
Over the year, workshops led by the club transformed into
a tournament for sports schools. The first CSKA junior
basketball tournaments took place in Norilsk and Krasnoyarsk,
with the winning teams offered tours to the CSKA junior camp
in Moscow and workshops from the club’s players.
21
23
2016
2017
2018
Annual Report > 2018Nornickel www.nornickel.com> 152
29th International Winter
Universiade in Krasnoyarsk
As a general partner of the 2019 International Winter Universiade
in Krasnoyarsk, Nornickel duly and timely fulfilled its obligations
to assist with preparations for the international student games
in accordance with the agreement signed in 2015.
The Company’s support for the universiade helped improve
the local sports infrastructure, boosted the international image
of the Krasnoyarsk Territory and its capital, promoted healthy
lifestyles and mass sports, and enhanced living standards
in the region.
In total, the Company contributed in excess of RUB 2.1 bn
to the 2019 Winter Universiade.
In 2018, the three NordStar Airlines planes bearing
the 2019 Winter Universiade logo continued flying domestic
and international routes. They made nearly 2,927 flights
during the year and carried over 385,000 passengers who
were updated about the upcoming event while on board.
Information about the Universiade was also available
in the NordStar inflight magazine.
Norislk Nickel Futsal Club
In 2016, the team and administrative personnel of Norilsk Nickel
Futsal Club moved to Norilsk. The Company is the team's general
sponsor. The team takes part in the Russian Super League
Championship and Russian Futsal Cup. Relocation of the club
gave a powerful boost to the development of futsal in the local
community. The Russian Futsal Association and MMC Norilsk
Nickel work closely to ensure the success of the Futsal to Polar
Schools project. As part of this nationwide initiative, the Club's
futsal players give master classes for schoolchildren and special
workshops for trainers.
All Russian Federation of Dance
Sport and Acrobatic Rock'n'Roll
In 2018, Nornickel supported the All Russian Federation of Dance
Sport and Acrobatic Rock'n'Roll in developing and promoting
these sports. As part of the partnership, we helped set up
a corporate acrobatic rock’n’roll club in Norilsk that successfully
debuted in the pan-Russian competitions. In recognition
of Nornickel’s contribution to dance sports and acrobatic
rock-and-roll, the Company received the national Exercise Award
2018 as the Patron of the Year. The Company is the partner
of the Federation of Dance Sport and Acrobatic Rock'n'Roll.
One of our major commitments in the run-up
to the universiade was to fully upgrade the Bobrovy
Log Fun Park and prepare it for alpine skiing
events. In 2018, Nornickel successfully completed
the construction of a new athletic training facility
equipped with a broadcasting system, expansion
of the existing ski pistes and creation of an additional
training track, development of an integrated security
system, modernisation of the artificial snow machinery,
and preparation of an ambulance helicopter pad.
As a general partner of the 2019 Winter Universiade,
Nornickel ensured extensive promotion of the Student
Games to inform the public about the event.
Among our initiatives was launching a thematic
metro train in Moscow dedicated
to the Krasnoyarsk Universiade. The train
is designed in the event's signature colours and features
quick facts on the history of the Winter Games, universiade
facilities, and the sports included in the programme. It also
showcases the diversity of Siberia’s culture and nature,
as well as its history and traditions.
Rosgonki and Sochi Autodrom
In 2018, Nornickel was a partner of Rosgonki and Sochi Autodrom
to support and promote motor racing in Russia. The Rosgonki
autonomous non-profit organisation is the official organiser
of the prestigious Formula One circuit race in Russia.
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
153
In 2018,
the Company
partnered
with Rosgonki
and Sochi
Autodrom
The Company spent
over USD 2.1 bn
to organise and hold the 2019
Winter Universiade
Annual Report > 2018Nornickel www.nornickel.com> 6
Corporate
governance
>
>
>
Corporate governance structure
Controls system
Remuneration
156
184
192
156
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
157
CORPORATE GOVERNANCE
STRUCTURE
Nornickel's corporate governance
framework is designed to take
into account and balance
the interests of shareholders,
the Board of Directors, managers
and employees, as well as other
stakeholders.
Nornickel's corporate governance
framework is designed to take into
account and balance the interests
of shareholders, the Board of Directors,
managers and employees, as well as other
stakeholders.
The Company’s approach
to corporate governance, its key principles
and mechanisms draw on the applicable
Russian laws, including the Corporate
Governance Code recommended
by the Bank of Russia.
Nornickel’s governance framework relies
on the following principles:
• equitable and fair treatment of every
shareholder;
•
•
full, transparent, reliable and timely
disclosure;
robust internal controls, internal
and external audits;
• support for the shareholders to let them
exercise their rights and lawful interests
in the most reasonable and convenient
manner;
• active cooperation with investors,
creditors, and other stakeholders
in order to expand Company’s assets
and increase its market capitalisation.
• professionalism
and leadership of the Board of Directors,
and involvement of independent directors
in governance;
• strategic management by the Board
of Directors, its efficient control
over executive bodies, and oversight
of the risk management and internal
control framework;
• sound, bona fide and efficient
management of the Company’s day-
to-day operations by executive bodies
accountable to the Board of Directors
and the General Meeting of Shareholders;
• compliance with the Russian laws
and the national laws of the countries
of operation;
• corporate social responsibility;
• strong business ethics;
• zero tolerance to corruption, and effective
anti-corruption measures;
These principles are reflected in Nornickel’s
official documents, including the Charter,
Regulations on the Board of Directors,
Information Policy Regulations, Anti-
Corruption Policy, and other by-laws.
All these documents are available
on the Company’s website.
All Nornickel's by-laws are available
on the Company’s website at:
https://www.nornickel.com/investors/
disclosure/corporate-documents/
Corporate governance framework
Audit
commission
election
reporting
General meeting
of shareholders
election
reporting
Independent
auditor
Management
Board
election
reporting
n
o
i
t
c
e
e
l
g
n
i
t
r
o
p
e
r
Internal control
and risk management
g
n
i
t
r
o
p
e
r
n
o
i
t
c
e
e
l
election
reporting
reporting
President, Chairman
of the Management
Board
election
reporting
g
n
i
t
r
o
p
e
r
Letter from the Board of Directors
Corporate
Secretary
election
reporting
Aware of its key role in the corporate
governance framework, the Board
of Directors of MMC Norilsk Nickel
highlights the Company’s commitment
to the highest relevant standards and best
practices.
The Board of Directors views compliance
with key principles and recommendations
of the Corporate Governance Code
as an efficient tool to improve corporate
governance and ensure long-term
sustainable growth.
•
•
•
•
Board of Directors:
Corporate governance, nomination
and remuneration Committee
Strategy Committee
Budget Committee
Audit and sustainable development Committee
Internal
audit department
Annual Report > 2018Nornickel www.nornickel.com> 158
Governance structure
General Meeting of Shareholders
This is the supreme corporate body
of the Company.
Competencies:
• amending the Charter;
•
restructuring and liquidating
the Company;
• changing the authorised capital;
• splitting or consolidating the Company's
shares;
• electing the Company's President
and members of the Board of Directors
and Audit Commission and approving
the auditor;
• approving annual reports and by-laws
regulating the Company’s corporate
bodies;
• distributing annual profit;
• paying dividends.
It takes place no sooner than three and no
later than six months following the end
of the preceding financial year.
Extraordinary general meetings
of shareholders may be convened
by the Board of Directors or at the request
of the Audit Commission, the independent
auditor, or shareholders owning at least
10% of the Company’s voting shares.
Except for the cumulative voting to elect
members of the Board of Directors, each
voting share is counted as one vote
at the General Meeting of Shareholders.
Board of Directors
This is a collegial governance body
in charge of strategic management
of the Company and oversight of its
executive bodies' activities.
Pursuant
to the Charter, the Board
consists of 13 directors.
Members of the Board are elected
at the Annual General Meeting of Shareholders
for a period extending until the next Annual
General Meeting of Shareholders.
Hence, independent directors
make up 46.2% of the Company's
Board of Directors.
> > >
For more details on members of the Board
of Directors, please see
p. 166–171
> > >
For more details on independent directors,
please see
p. 166, 168–170, 172
Chairman of the Board of Directors
The Chairman is responsible for day-to-
day operation of the Board of Directors,
convening and chairing its meetings, making
arrangements for minute-taking, and chairing
the General Meetings of Shareholders.
For the last five years, the Board
has been chaired by Gareth
Peter Penny, an independent
director.
> > >
For more details on the Chairman
of the Board of Directors, please see
p. 166
Independent directors
Independent directors are those having
sufficient professional skills, experience
and independence to act on their own
and make impartial and reasonable decisions
that are not influenced by the Company's
executive bodies, particular groups
of shareholders or other stakeholders.
The Company adheres to international
standards and recommendations
set out in the Corporate Governance
Code of the Bank of Russia relating
to the required number of independent
directors. As at 31 December 2018,
five of the Company's Board members
met the director’s independence criteria
as defined by the Moscow Exchange,
and one director was deemed independent
by resolution of the Board of Directors.
Committees of the Board of Directors
Committees are ancillary bodies set up
by the Board of Directors. Their function
is to provide preliminary review of critical
matters and advice to facilitate the Board's
decision-making.
The Board of Directors has set up four
committees:
• Audit and Sustainable Development
Committee;
• Strategy Committee;
• Budget Committee;
• Corporate Governance, Nomination
and Remuneration Committee.
> > >
For more details on the committees’
activities, please see
p. 172–174
President
The President is the sole executive body
in charge of the day-to-day operations
of the Company. The President is elected
at a General Meeting of Shareholders
for an indefinite period and acts
as the Chairman of the Management Board.
The President reports to the Board of Directors
and the General Meeting of Shareholders.
Since 2015, this position has
been held by Vladimir Potanin
(CEO of the Company in 2012–2015).
> > >
For more details on the President, please see
p. 176
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Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
159
any waste, misuse or misappropriation
of funds or assets of the Company
and its subsidiaries, as well as any other
wrongdoings and theft, ensuring accuracy
of metrics and measurement standards
and combating illegal activities, such
as money laundering and terrorism
financing.
> > >
For more details on the Internal Control
and Risk Management Unit, please see
p. 184–191, 196–197
Internal Audit Department
This department
is in charge of independent audits, including
assessment of the risk management
and internal control framework
of the Company and its subsidiaries.
> > >
For more details on the Internal Audit
Department, please see
p. 196–197
Management Board
This is a collegial executive body
in charge of the day-to-day management
of the Company within its scope
of authority as set out in the Charter
and the implementation of resolutions
adopted by the General Meeting
of Shareholders and the Board of Directors.
Members of the Management
Board are elected by the Board
of Directors for an indefinite period.
As at 31 December 2018,
the Management Board
consisted of 13 members.
> > >
For more details on the Management Board,
please see
p. 175, 176–182
Corporate Secretary
This is a corporate officer whose duties
include managing shareholder relations,
making the necessary arrangements
to protect their rights and interests,
and providing efficient operating support
to the Board of Directors. The Corporate
Secretary reports to the Board of Directors.
Pursuant to the Charter, the Corporate
Secretary is appointed by the Board
of Directors for a three-year term.
Since 2011, this position has
been held by Pavel Platov
(Company’s Secretary before 2017).
It performs annual internal audits
of the Company’s financial and business
operations, as well as other internal
audits as it may see fit or as requested
by the General Meeting of Shareholders,
the Board of Directors or any shareholders
owning at least 10% of the Company’s stock.
Members of the Audit Commission
are elected at an Annual General Meeting
of Shareholders for a period extending
until the next Annual General Meeting
of Shareholders. Members of the Audit
Commission shall not simultaneously
serve on the Company’s Board of Directors
or hold other positions in the Company's
corporate bodies.
> > >
For more details on the Audit Commission,
please see
p. 184–185
Independent auditor
This is an audit firm commissioned
to audit accounting/financial
statements of the Company and provide
an independent opinion regarding
their accuracy.
The auditor is approved by the Annual
General Meeting of Shareholders.
In 2018, the Annual General Meeting
of Shareholders approved JSC KPMG
as an independent auditor for both IFRS
and Russian accounting standards.
> > >
For more details on the Corporate Secretary,
please see
p. 183
> > >
For more details on the independent auditor,
please see
p. 191
Audit Commission
The Audit Commission controls
the Company's financial and business
transactions.
Internal Control and Risk Management Unit
This unit is in charge of improving
the risk management and internal control
framework, detecting and preventing
Annual Report > 2018Nornickel www.nornickel.com> 160
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
161
Achieving excellence in corporate governance
Board of Directors
Nornickel continuously improves
its corporate governance
framework and adopts best global
practices, keeping in mind their significant
impact on the Company's sustainable
development and valuation. Strengthening
of corporate governance is seen
as an integral part of the Company’s
effort to achieve operating excellence.
The process is under constant supervision
of the Board of Directors and executive
bodies. The Bank of Russia’s Corporate
Governance Code serves as the main
benchmark for improving the corporate
governance framework. In the reporting
year, the Company sought broader
implementation of the Code’s principles
and recommendations:
•
the Board of Directors assessed
independent directors listed in the annual
report for compliance with independence
criteria;
• measures were taken to enhance risk
management and internal controls;
the Company invited an external
independent consultant to assess
the Board of Directors performance.
•
The following documents saw updates
to reflect changes in the applicable laws
on preventing unauthorised use of insider
information and market manipulation:
• Regulation on the Procedure to Access
Insider Information, Confidentiality Protection,
and Supervision of Compliance with Laws
on Preventing Unauthorised Use of Insider
Information and Market Manipulation;
list of insider information.
•
To streamline and bring internal audits
up to date with international standards
for the practice of internal auditing,
the Board of Directors drafted and approved
following documents:
• Guidelines for Assessing the Corporate
Risk Management Framework;
• Guidelines for Assessing Internal Controls.
Corporate governance improvements had
a positive effect on Nornickel’s ESG scores
assigned by MSCI and Sustainalytics,
and placed the Company among Top 20
in the TopCompetence’s National Corporate
Governance Index 2018 for adherence
to best practices.
In 2018, the Company invited
an independent consultant to evaluate
the performance of its Board of Directors.
> > >
For more details on the Company’s
sustainable development ratings, please see
p. 13, 218
Pursuant to the recommendations set
out in the Bank of Russia’s Corporate
Governance Code, the Company jointly
with the Registrar introduced e-voting
using the Shareholder’s Personal Account
to allow remote participation in the meetings
of shareholders. The service was first
available at the Extraordinary General Meeting
of Shareholders in September 2017. In 2018,
the Company actively promoted e-voting
among its shareholders. At the Extraordinary
General Meeting of Shareholders in September
2018, over 30% of votes were collected
through the service. Nornickel will be further
developing e-voting to engage the shareholders
in corporate activities and help them exercise
their governance rights.
The Company reiterates its
commitment to improving
corporate governance to boost its
efficiency and competitive edge. In doing
so, it will rely primarily on principles
and practices that are valued most
by the investment community and have
proved effective for large companies.
2018 milestones
The Company sought broader
implementation of the Code’s
principles and recommendations.
The Company made it to the Top 20
of the TopCompetence’s National
Corporate Governance Index 2018.
September
2018
Over 30% of shareholders
participated in the Extraordinary
General Meeting of Shareholders
through e-voting.
Key powers of the Board
of Directors include:
•
reviewing matters related
to sustainable development,
environmental and health
and safety strategy, and climate
change;
• approving the dividend
policy and providing
recommendations on dividend
per share;
• approving, electing
and terminating
powers of members
of the Management Board,
setting remuneration payable
to the Company’s President,
members of the Management
Board, Corporate Secretary,
and Head of Internal Audit;
• acting on other matters
as provided for by the Federal
Law No. 208-FZ On Joint Stock
Companies dated 26 December
1995, and the Company’s
Charter.
FUNCTIONS OF THE BOARD OF DIRECTORS
As per the Company’s Charter, meetings
of the Board of Directors (in person
or in absentia) are held as and when required,
but at least once every six weeks. In practice,
the Board of Directors meets at least twice
a month. The procedure for convening
and holding meetings of the Board
of Directors is specified in the Company’s
Regulations on the Board of Directors.
The Board of Directors sets
the fundamental principles of business
conduct and is responsible for nurturing
Nornickel’s business and social culture.
CHAIRMAN OF THE BOARD OF DIRECTORS
The key goal of the Chairman of the Board
of Directors is to ensure high levels of trust
at Board meetings and constructive
cooperation between the Board members
and corporate management.
Since March 2013, the Board of Directors has
been chaired by independent non-executive
director Gareth Peter Penny, which the Company
believes to be fully in line with best global
practices. An independent director appointed
as a Chairman of the Company's Board
of Directors ensures the most efficient
interaction between the Board of Directors,
shareholders and other stakeholders.
During the year the Board,
under his leadership, approved several
crucial resolutions dealing with Nornickel’s
development strategy, long-term production
planning, marketing and sales strategy,
strategic health and safety issues,
environmental projects and human capital
development, and took steps to preserve
the Company's competitive edge. Gareth
Penny’s simultaneous participation in other
companies’ boards of directors helps
improve the efficiency of Norilsk Nickel’s
Board of Directors in implementing global
best practices of corporate governance.
Annual Report > 2018Nornickel www.nornickel.com> 162
INDEPENDENT DIRECTORS
PERFORMANCE ASSESSMENT
Company overview
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Corporate governance
Risk report
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Consolidated financial statements
Additional information
163
The Company sees independent directors
as valuable contributors to the efficiency
of the Board, in particular, in terms
of ensuring that the matters on the Board's
agenda are treated fairly, and reinforcing
shareholders’ and investors’ confidence
in actions taken by the Board of Directors.
In accordance with global corporate
governance practices and recommendations
of the Bank of Russia’s Corporate
Governance Code, the Board of Directors
should have a sufficient number
of independent directors. For the issuer’s
shares to be on the First Level quotation
list of the Moscow Exchange, its Listing
Rules require independent directors to make
up at least one fifth of the issuer’s Board
of Directors, and their number to be no less
than three.
Moreover, the Company believes that
independent directors are key to efficient
operation of the Board of Directors
and thoughtful decision-making. According
to the Company’s Charter, an independent
director is a member of the Board
of Directors compliant with independence
criteria set out by the Moscow Exchange.
In the lead-up to the Annual General
Meeting of Shareholders, the Corporate
Governance, Nomination and Remuneration
Committee of MMC Norilsk Nickel’s Board
of Directors reviewed the compliance
of nominees to the Board of Directors
with relevant criteria in May 2018.
The five independent nominees
to the Board fully met the independence
criteria established by the Listing Rules
of the Moscow Exchange, which state
that an independent director is the one
who is not related to the Company, any
of its substantial shareholders,
competitors or counterparties,
or the government. Andrey Likhachev,
one of the nominees to the Board, was
recognised as independent despite being
related to a substantial counterparty
as the relation does not affect his ability
to make independent, fair and unbiased
judgements.
The current directors on the Board
were elected at the Annual General
Meeting of Shareholders on 28 June
2018. In October 2018, the Company’s
Board of Directors, following
the recommendations of the Corporate
Governance, Nomination and Remuneration
Committee, verified the independent
directors' compliance with relevant
criteria. As at the end of 2018, six
(46.2%) out of 13 directors were
recognised as independent.
Directors’ liability insurance
Since 2003, the Company has had its
directors’ liability insured. The insurance
aims to cover potential damages
arising from unintended erroneous
actions of the Company's directors
in their management activities. The terms
and conditions of the agreement, as well
as the amount of insurance coverage,
are consistent with the world’s best
practices for such risks. The key provisions
of the agreement are subject to approval
by the General Meeting of Shareholders.
Since 2014, Nornickel's Board of Directors
has been conducting annual self-
assessments using the methodology
developed by independent consultants
in line with best global practices.
All directors must fill out an online
questionnaire following a schedule
approved by the Board of Directors.
The questionnaire contains 76 questions,
divided into three parts and 15 sections.
All questions are graded on a scale
from 1 to 10. For each question there
is a text field where directors may enter
additional comments. Answering all
questions is mandatory.
For an independent review of the 2018
performance, the Board of Directors’
meeting on 1 February 2019
resolved to engage an external
consultant – the Independent Directors
Association (IDA), a reputable national body
with an extensive expertise in corporate
governance and directorship, which
represents Russia in the Global Network
of Director Institutes (GNDI).
IDA used polling and interviewing to assess
the Board’s performance. Based on polling
results, the consultant quickly analysed
the Board’s status quo in such key areas
as strategy and business practices,
internal controls and risk management,
the Company’s performance management,
and the Board's and its committees'
operating procedures, and evaluated
the overall efficiency of the Board,
including its Chairman and the Corporate
Secretary. The exercise helped uncover
the Board's strengths, weaknesses
and potential disagreements among
directors. The Board of Directors will rely
on the report with summarised polling
results to further improve its efficiency.
The external review revealed significant
progress in corporate governance
against previous assessments, which
included monitoring of major investment
projects, human capital development
and long-term incentive programmes,
better risk management, budget
planning and discipline. It also identified
areas for improvement, in particular
the need for stronger top management
incentivisation and succession planning,
continued Board’s involvement in reviewing
of strategic projects and major
investments, development of effective ESG
and HSE policies, and enhancing the quality
of interactions between the Board,
management and key stakeholders when
discussing and making strategic decisions.
In line with best corporate governance
practices, the Board of Directors will keep
running self-assessments every year, while
also engaging an independent expert
to evaluate its performance at least once
every three years.
PERFORMANCE OF THE BOARD OF DIRECTORS
Tight cooperation between
the Board of Directors and the Company’s
management enabled the Company
to achieve target KPIs.
To support shareholder value and ensure
comprehensive protection of shareholder
rights and interests in the reporting period,
the Company kept working on the strategy
and priority areas of business, improving
corporate governance and boosting social
responsibility.
In 2018, the Company introduced several
by-laws to align its corporate governance
framework with best global practices
and strengthen shareholders’ and investors’
confidence.
In the reporting period, the Company
also focused on promoting innovations
and the use of new technology as part
of its operating excellence drive. Nornickel's
dedicated programme embraced
initiatives to step up production efficiency,
cut operating costs, and boost health,
safety and security across its footprint.
An effective strategy and an in-depth
market analysis helped the Company
take its business to an entirely new level
and confirm its status as a company
with one of the most compelling investment
cases in Russia.
Annual Report > 2018Nornickel www.nornickel.com> 164
2018 milestone
Number of Board of Directors meetings
The Board of Directors held
45 meetings, including
13 in person, and considered
a total of 175 matters.
Year
2016
2017
2018
Total
In person
In absentia
Number of matters considered
50
42
45
7
7
13
43
35
32
1,024
199
175
Fewer matters considered from 2017 onwards are mainly due to amendments to Federal Law No. 2018-FZ
On Joint Stock Companies dated 26 December 1995, effective from 1 January 2017 and pertaining to the
regulation of related-party transactions.
Directors’ participation in meetings of the Board of Directors and its committees
Company overview
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Corporate governance
Risk report
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Consolidated financial statements
Additional information
165
Composition
of the Board of Directors
As at 31 December 2018, the Board
of Directors was made up of 13 members,
including six independent, four non-
executive and three executive directors.
Following the Annual General Meeting
of Shareholders on 28 June 2018, Roger
Munnings, Andrey Likhachev and Artem
Volynets were elected to the Board
of Directors, replacing Gerhardus Prinsloo,
Rushan Bogaudinov and Sergey Skvortsov.
Breakdown by years served
on the Board of Directors (%)
Breakdown by age (%)
Composition of the Board of Directors (%)
Participation / number of meetings
Board
of Directors
Strategy
Committee
Budget
Committee
Audit
and Sustainable
Development
Committee
Corporate Governance,
Nomination
and Remuneration
Committee
Full name
Title
Gareth Peter Penny
Independent Director /
Chairman of the Board
of Directors
Andrey Bougrov
Executive director
Sergey Barbashev
Alexey Bashkirov
Sergey Bratukhin
Executive director (since
December 2018)
Non-executive Director /
Chairman of the Budget
Committee
Independent Director /
Chairman of the Corporate
Governance, Nomination
and Remuneration
Committee
Marianna Zakharova
Executive director
Stalbek Mishakov
Non-executive director
Maxim Sokov
Non-executive director /
Chairman of the Strategy
Committee
Vladislav Soloviev
Non-executive director
Robert Edwards
Independent director
45/45
45/45
45/45
45/45
45/45
45/45
45/45
45/45
45/45
45/45
MEMBERS OF THE BOARD OF DIRECTORS FROM 28 JUNE 2018
Artem Volynets
Independent director
Andrey Likhachev
Independent director
Roger Munnings
Independent director
22/45
22/45
22/45
MEMBERS OF THE BOARD OF DIRECTORS BEFORE 28 JUNE 2018
Rushan Bogaudinov
Non-executive director
23/45
Independent
director / Chairman
of the Audit and Sustainable
Development Committee
Gerhardus Prinsloo
Sergey Skvortsov
Non-executive director
23/45
23/45
8/8
–
–
8/8
8/8
–
–
8/8
–
–
4/8
–
–
–
4/8
–
–
–
2/4
3/4
4/4
–
2/4
2/4
–
–
2/4
–
2/4
–
2/4
–
–
–
–
16/18
18/18
–
8/18
–
–
18/18
–
–
8/18
10/18
9/18
–
–
–
6/12
6/12
12/12
–
12/12
–
–
12/12
–
6/12
–
–
6/12
–
<3 years
3-5 years
>5 years
23
31
46
Below 40 years old
40–60 years old
Above 60 years old
23
69
8
Independent directors
Non-executive directors
Executive directors
46
31
23
Key competencies of the Board of Directors
Full name
Gareth Peter Penny
Robert Edwards
Sergey Bratukhin
Andrey Bougrov
Marianna Zakharova
Sergey Barbashev
Alexey Bashkirov
Maxim Sokov
Vladislav Soloviev
Stalbek Mishakov
Roger Munnings
Andrey Likhachev
Artem Volynets
Rushan Bogaudinov А.
Gerhardus Prinsloo
Sergey Skvortsov
Total
Years
on the Board
of Directors
5
5
5
Track record
as a member
of the Board
of Directors
Since 2013
Since 2013
Since 2013
16
Since 2002
8
7
5
Since 2010
Since 2011
Since 2013
10
Since 2008
8
6
1
1
1
3
6
3
2008–2011
Since 2012
Since 2018
Since 2018
Since 2018
2015–2018
2012–2018
2014–2015,
2017–2018
Average tenure on the Board
of Directors is 6 years
Сompetencies
Law
and corporate
governance
Strategy
Finance
Mining
and engineering
International
economic
relations
+
+
+
+
+
+
6
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
+
10
10
11
+
+
+
+
+
+
6
Annual Report > 2018Nornickel www.nornickel.com> 166
BIOGRAPHIES
OF MEMBERS
OF THE BOARD
OF DIRECTORS
Gareth Peter
PENNY
Independent director
Chairman of the Board of Directors since 2013
Andrey
BOUGROV
Executive director
Senior Vice President
Member of the Strategy Committee
Deputy Chairman of the Board of Directors since 2013
Member of the Management Board since 2013
Born in: 1962
Nationality: UK
Education:
Bishops Diocesan College, Cape Town
Eton College, UK
Oxford, Rhodes Scholar (UK), Master of Arts in Philosophy, Politics
and Economics (UK)
Track record:
2007–present Non-executive director at Julius Bаеr Group Ltd
2012–2016
Executive Chairman at New World Resources plc, Executive
Director at New World Resources NV
2012–2016
Member of the Board of Directors at OKD
2016–2018
Non-Executive Chairman of the Board of Directors at Pangolin
Diamonds Corp.
2017–present Non-Executive Chairman of the Board of Directors at Edcon
Holdings Limited
2017–present Member of the Board of Directors at Amulet Diamond
Corporation
Born in: 1952
Nationality: Russia
Education:
Moscow State Institute of International Relations (MGIMO University), degree
in International Economic Relations; PhD in Economics
Track record:
2002–present Member of the non-governmental Council on Foreign
and Defence Policy
2006–present Member of the Management Board of the Russian Union
of Industrialists and Entrepreneurs
2013–present Vice President at Interros Holding Company LLC (Interros
Holding Company CJSC until 2015)
2013–2015
Member of the Management Board, Deputy Chairman
of the Board of Directors, Deputy CEO at MMC Norilsk Nickel
2013–present Vice President of the Russian Union of Industrialists
and Entrepreneurs (RUIE)
2014–present Member of the Board of Directors at Inter RAO UES PJSC
(Inter RAO UES OJSC until 2015)
2014–present Member of the Expert Committee of the Russian President’s
Anticorruption Office
2015–present Member of the Management Board and Deputy Chairman
of the Board of Directors at MMC Norilsk Nickel
2015–2016
Member of the Investment Committee at the Federal
Hydro-Generating Company RusHydro
2015–present Senior Vice President at MMC Norilsk Nickel (formerly Vice
President until 2016)
2015–present Member of Non-profit partnership National Council
on Corporate Governance
2016–present Member of the Expert Council on Corporate Governance
at the Bank of Russia
2016–present Chairman of the Issuer Committee at the Moscow Exchange
2018–present Chairman of the Board of non-financial reporting at RUIE
2018–present Member of the Expert Council on Corporate Governance
at the Russian Ministry of Economic Development
2018–present Member of the Advisory Board of the RBTT
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
167
Sergey
BARBASHEV
Alexey
BASHKIROV
Executive director (since June 2018)
Non-executive director
First Vice President
Member of the Board of Directors since 2013
Member of the Board of Directors since 2011
Member of the Management Board since 2018
Chairman of the Budget Committee, member of the Audit
and Sustainable Development Committee, Strategy Committee,
and Corporate Governance, Nomination and Remuneration
Committee
Born in: 1962
Nationality: Russia
Education:
Born in: 1977
Nationality: Russia
Moscow Higher School of Militia of the Ministry of Internal Affairs of the USSR,
degree in Law
Education:
Moscow State Institute of International Relations (MGIMO University), degree
in International Economic Relations
Track record:
2008–2018
CEO and Chairman of the Management Board at Interros
Holding Company LLC (Interros Holding Company CJSC until
2015)
Track record:
2009–2015
Executive Director, Head of the Investment Department,
Deputy CEO for Investments at Interros Holding Company
2008–present Member of the Board at Vladimir Potanin Foundation
(formerly, Vladimir Potanin Foundation, non-profit charitable
organisation)
2009–2013
Member of the Board of Directors at Rosa Khutor Ski Resort
Development Company
2011–present Chairman of the Board of Directors at Rosa Khutor Ski Resort
2009–2014
Member of the Board of Directors at Prof-Media Management
Development Company
2015–2018
Branch Director at Olderfrey Holdings Limited
2011–2015
Member of the Management Board at Interros Holding
Company
2016–present Member of the Board of Endowment for Education, Science
2012–2014
Member of the Board of Directors at SP Holding, Cinema Park
and Culture
2018–present Member of the Management Board, First Vice President
and Head of Corporate Security at MMC Norilsk Nickel
2014–present Member of the Board of Directors at Petrovax Pharm
and Zaodno
2015–2018
Member of the Management Board, Deputy CEO
for Investments at Interros Holding Company
2016–present Trustee of the Night Time Hockey League, a non-profit
amateur hockey foundation
2016–2018
Member of the Board of Directors at iGlass Technology Inc.
2016–present Managing Director at Winter Capital Advisors
2016–present CEO at Translaininvest
2018–present CEO, Chairman of the Management Board at Interros Holding
Company
Annual Report > 2018Nornickel www.nornickel.com> 168
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
169
Sergey
BRATUKHIN
Independent director
Artem
VOLYNETS
Independent director
Member of the Board of Directors since 2013
Member of the Board of Directors since 2018
Marianna
ZAKHAROVA
Executive director
First Vice President
Chairman of the Corporate Governance, Nomination
and Remuneration Committee, member
of the Strategy Committee, the Budget Committee and the Audit
and Sustainable Development Committee
Born in: 1971
Nationality: Russia
Education:
Member of the Strategy Committee and the Budget Committee
Member of the Board of Directors since 2010
Member of the Management Board since 2016
Born in: 1967
Nationality: Russia
Education:
Georgetown University
Born in: 1976
Nationality: Russia
Education:
INSEAD (Institut Europeen d'Administration des Affaires)
Peoples’ Friendship University of Russia (RUDN), Master’s degree in Law
Mendeleev University of Chemical Technology of Russia, degree in Engineering
Finance Academy under the Government of the Russian Federation, degree
in Banking and Insurance
Warwick Business School, degree in Business Management
Track record:
The American University in Washington, DC
Lomonosov Moscow State University
Track record:
2010–2013
CEO at En+ Group
2010–2013
CEO at En+ Management
2007–2017
Member of the Board of Directors at Dallesprom
2013–2013
Advisor to Nafta Moskva investment group
2007–2014
Member of the Board of Directors at Amur Shipping Company
2014–2017
CEO at ACG Eurasia (formely, Sapinda CIS)
2011–present President at Invest AG (CIS Investment Advisers LLC)
2017–present CEO at ACG Amur Capital Group Ltd
2014–2016
Member of the Board of Directors at AKB International
Financial Club
2018–present Member of the Board of Directors and CEO at Chaarat Gold
Holdings Limited
Track record:
2010–2015
Member of the Management Board, Deputy CEO for Legal
Affairs at LLC Interros Holding Company (Interros Holding
Company CJSC until 2015)
2010–2015
Member of the Board of Directors at ProfEstate
2015–present First Vice President for Corporate Governance, Asset
Management and Legal Affairs at MMC Norilsk Nickel
Andrey
LIKHACHEV
Independent director
Member of the Board of Directors since 2018
Member of the Corporate Governance, Nomination
and Remuneration Committee
Born in: 1965
Nationality: Russia
Education:
A.A. Zhdanov Leningrad State University, degree in Applied Mathematics
Track record:
2011–2013
Member of the Board of Directors and CEO at MOEK
2012–2018
Chairman of the Board of Directors at Irkutskenergo
2013–2016
CEO at Planeta ZIL
2017–present CEO at Rublyovo-Arkhangelskoye (Sberbank Group)
Annual Report > 2018Nornickel www.nornickel.com> 170
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
171
Stalbek
MISHAKOV
Non-executive director
Roger Llewelyn
MUNNINGS
Independent director
Maxim
SOKOV
Vladislav
SOLOVIEV
Non-executive director
Non-executive director
Member of the Board of Directors since 2012
Member of the Board of Directors since 2018
Member of the Board of Directors since 2008
Member of the Corporate Governance, Nomination
and Remuneration Committee and the Audit and Sustainable
Development Committee
Chairman of the Audit and Sustainable Development Committee
and member of the Budget Committee
Chairman of the Strategy Committee, member of the Budget
Committee
Born in: 1970
Nationality: Russia
Education:
Moscow State Institute of International Relations (MGIMO University), degree
in International Law
University of Notre Dame (USA), Master's degree
Diplomatic Academy of the Russian Foreign Ministry, PhD in Economics
Track record:
2010–2018
Advisor to CEO at RUSAL Global Management B. V.
2013–2016
Member of the Board of Directors at United Company RUSAL Plc
2013–2018
Deputy CEO at En+ Management
2018–present Sector Lead at RUSAL Global Management B. V.
Born in: 1950
Nationality: UK
Education:
Born in: 1979
Nationality: Russia
Education:
The University of Oxford, Master's degree (Hons) in Politics, Philosophy
and Economics
Russian State Tax Academy under the Russian Ministry of Taxes, degree
in Law
Fellow of the Institute of Chartered Accountants in England and Wales
New York University, Master's degree in Law, lawyer (USA)
Track record:
Track record:
2013–present Member and Chairman of the Board of Directors of Russo-
2008–2013
CEO of OK RUSAL – Investment Management
British Chamber of Commerce
2005–2014
Deputy Chairman of the Board at Association of European
Businesses in Russia
2008–2014
Chairman of Audit Committee Institute in Russia
2009–2016
Trustee at the John Smith Trust
2009–2014
Member of the Board of Directors at the Moscow School
of Political Studies (now Moscow School of Civic Education)
2010–2016
Member of the Board of Directors at Wadswick Energy
Limited
2010–present
Independent director, Chairman of the Board of Directors’
Audit, Finance and Risk Committee at Sistema
2011–2014
Member of the Advisory Board at Oracle Capital Group
2012–2013
Independent director at SUEK
2013–present Member of Non-profit partnership National Council
on Corporate Governance
2013–present Trustee at Kino Klassika Ltd
2013–present Advisory Council Member at International Business Leaders
Forum Autonomous Non-Profit Organization
2015–present
Independent director, Chairman of the Board of Directors’
Human Resources and Compensation Committee at LUKOIL
2017–present Member of Council of National Representatives, Association
of European Businesses in Russia
2012–2018
Member of the Board of Directors at United Company RUSAL Plc
2012–2013
Director of Strategic Investment Management at RUSAL
Global Management B. V.
2013–2014
Advisor on Strategic Investment Management at RUSAL
Global Management B. V. and First Deputy CEO at En+ Group Ltd
2013–2018
CEO at En+ Management
2013–2017
Member of the Board of Directors at Eurosib Energo Plc
2013–2018
Member of the Board of Directors at En+ Group Limited
2014–2018
CEO at En+ Group Limited
2017–2018
Member of the Board of Directors at FESCO
2017–2018
CEO at En+ Group Plc and member of the Board of Directors
at En+ Group Plc
2018
President at En+ Group Plc
Member of the Board of Directors since 2013
(also in 2008–2011)
Born in: 1973
Nationality: Russia
Education:
Graduate School of Management of the State Academy of Management
Moscow State Technological University “Stankin”, MBA
Track record:
2007–2018
Member of the Board of Directors at United Company RUSAL Plc
2008–2015
Member of the Board of Directors at En+ Group Limited
2010–2014
First Deputy Director at RUSAL Global Management B. V.
2014–2018
CEO of CJSC RUSAL Global Management B. V. and United
Company RUSAL Plc
2018
Member of the Board of Directors and CEO at En+ Group Plc
2018–present President at United Company RUSAL Plc and CJSC RUSAL
Global Management B. V.
Annual Report > 2018Nornickel www.nornickel.com> 172
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
173
Board of Directors’ holdings
and transactions in the Company’s shares
In 2018, Maksim Sokov held the Company’s ordinary
shares accounting for 0.0011% of the authorised capital.
Stalbek Mishakov completed the following transactions
in the Company's securities: on 21 March, he acquired
44 thousand ADRs (0.0028% of the authorised
capital), which he sold in two tranches of 22 thousand
ADRs (0.0014% of the authorised capital)
on 6 November and 26 November, respectively.
As at 31 December 2018, Stalbek Mishakov held no
ordinary shares and/or ADRs of the Company.
As at the same date, other directors had no holdings
in the Company’s ordinary shares and/or ADRs and did
not enter into any relevant sale and purchase transactions
in 2018.
Robert
EDWARDS
Independent director
Member of the Board of Directors since 2013
Member of the Corporate Governance, Nomination
and Remuneration Committee and the Audit and Sustainable
Development Committee
Born in: 1966
Nationality: UK
Education:
Camborne School of Mines, degree in Mining Engineering
Track record:
2013–2014
Senior Advisor at Royal Bank of Canada (Europe) Capital
Markets
2013–present CEO at Highcross Resources Ltd
2014–2018
Non-executive director at GB Minerals Ltd
2016–2016
Chairman at Sierra Rutile Limited (SRX)
2018–present Member of the Board of Directors at Chaarat Gold Holdings Ltd
2018–present Member of the Board of Directors at Scriptfert New Zealand Ltd
COMMITTEES OF THE BOARD OF DIRECTORS
Committees established
by the Board of Directors are in charge
of review of the most important matters
and preparation of recommendations
to the Board of Directors.
To ensure efficiency and proper fulfilment
of their functions, the committees may
discuss matters with the Company's
management bodies and seek opinions
of external consultants. The Company
set up four committees of the Board
of Directors, each made up of five persons:
• Audit and Sustainable Development
Committee;
• Strategy Committee;
• Budget Committee;
• Corporate Governance, Nomination
and Remuneration Committee.
Audit and Sustainable Development
Committee
The Audit and Sustainable Development
Committee deals with matters related
to financial statements, risk management
and internal controls, internal and external
audits, prevention of wrongdoings
by employees and third parties, as well
as matters related to the environment
and health and safety.
In the reporting year,
the committee held 18 meetings,
including ten in person, seven in absentia,
and one joint meeting (with the Budget
Committee on 5 March 2018).
The committee is made up of five directors,
three of which are independent, including
its Chairman. On average, members
of the Audit and Sustainable Development
Committee of the Company’s Board
of Directors have more than 10 years
of experience in finance.
The Audit and Sustainable Development
Committee plays an important role when
it comes to controls and accountability
and has become an effective interface
between the Board of Directors,
the Audit Commission, independent
auditor, the Internal Audit Department
and management of the Company.
During the reporting year, the committee
has developed for the Board of Directors
a number of recommendations dealing
with the accuracy, completeness
and validity of the Company's financials,
health, safety and environment,
and approval of the Company’s auditors.
The Audit and Sustainable Development
Committee also considered and took
note of the results achieved in identifying,
assessing and managing technical
and production risks across the Norilsk
Nickel Group, and the results of forensic
audits conducted by the Internal Audit
Department.
Members of the Audit and Sustainable Development Committee in 2018
Roger Munnings (Chairman, independent director)
Alexey Bashkirov
Robert Edwards (independent director)
Stalbek Mishakov
Sergey Bratukhin (independent director)
Composition as of 31 December 2018.
Strategy Committee
The Strategy Committee was established
to support the Board of Directors
by conducting preliminary reviews
of matters pertaining to sustainable
development, investment planning,
restructuring, and interaction with capital
markets and government authorities.
In the reporting year,
the committee held eight
meetings, including seven in person,
and one in absentia.
The Strategy Committee is made up of five
directors, including three independent
and two non-executive directors.
In 2018, the Strategy Committee regularly
considered matters related to environment,
health, safety, and climate change, including
the infrastructure and energy development
strategy, as part of the Company's
Environmental Development Framework.
The Strategy Committee’s focus
is on supporting the Board of Directors
in developing, supervising and revising
the corporate strategy and preparing
recommended updates thereto.
Members of the Strategy Committee in 2018
Maxim Sokov (Chairman)
Artem Volynets (independent director)
Alexey Bashkirov
Gareth Peter Penny (independent director)
Sergey Bratukhin (independent director)
Composition as of 31 December 2018.
During the year, the Strategy Committee
issued recommendations to the Board
of Directors to facilitate decision-making
on updating the Company’s development
strategy and those for a number
of functional areas, including sales.
The committee reviewed the updates
on the progress and status of major
investment projects (e.g. the Bystrinsky
project, Talnakh Concentrator–3
and the Southern Cluster) and prepared
progress reports on production
reconfiguration and the Technology
Breakthrough initiative. Also, the committee
discussed the progress of the shared services
centre's initiatives and the Programme
of IT Initiatives for Business, along
with the deployment and role of SAP
solutions in the Company’s key business
processes. To ensure efficient strategic
planning, the Committee reviewed production
reports and results of the programme
designed to improve production efficiency
and reduce operating costs.
Annual Report > 2018Nornickel www.nornickel.com>
174
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
175
Budget Committee
The Budget Committee
is in charge of preliminary review and issue
of recommendations pertaining to finance,
budgeting, business plans and monitoring
of their implementation.
In the reporting year,
the committee held four
meetings, including two in absentia,
one in person, and one joint meeting (with
the Audit and Sustainable Development
Committee on 5 March 2018).
The Budget Committee is made up of five
directors, including three independent
and two non-executive directors.
Corporate Governance, Nomination
and Remuneration Committee
The Corporate Governance, Nomination
and Remuneration Committee supports
the Board of Directors by way of:
• assessing, controlling and improving
the Company's corporate governance
framework;
• ensuring succession planning
for the Board of Directors
and the Management Board
of the Company;
• providing incentives, assessing
the performance of the Company's
Board of Directors, Management Board,
President and Corporate Secretary,
and setting applicable remuneration
policies;
• supervising the development
and implementation of the Company's
information policy.
In the reporting year,
the committee held twelve
meetings, including ten in absentia,
and two in person.
The key role of the Budget Committee
throughout the year was to issue
recommendations to the Board of Directors
in order to facilitate decision-making
on the amount of dividends and on the record
date to be suggested by the Board
of Directors. The Budget Committee also
approved and recommended that the Board
of Directors approve the Company’s 2019
budget.
Members of the Budget Committee in 2018
Alexey Bashkirov (Chairman)
Artem Volynets (independent director)
Maxim Sokov
Roger Munnings (independent director)
Sergey Bratukhin (independent director)
Composition as of 31 December 2018.
The committee is made up of five directors,
including three independent directors, one
of whom chairs the committee, and two
non-executive directors.
liability insurance and indemnification
of the members of the Board of Directors
and the Management Board).
The committee issued recommendations
to the Board of Directors in order to facilitate
decision-making on the convocation,
preparation and running of annual
and extraordinary general meetings
of shareholders, and on the matters reserved
to the General Meeting of Shareholders
(remuneration and reimbursement
of expenses of the members of the Board
of Directors and the Audit Commission,
Additionally, the Corporate Governance,
Nomination and Remuneration Committee
advised the Board of Directors on approval
of the Company's by-laws, and evaluation
of directors’ performance in 2018.
The committee reviewed the updates
on the Our Home and My Home programmes,
corporate social subsidised loan programme,
and the Company's charitable policy,
and noted the progress of the Human Capital
Development Programme.
Members of the Corporate Governance, Nomination and Remuneration Committee
in 2018
Sergey Bratukhin (Chairman, independent director)
Alexey Bashkirov
Andrey Likhachev (independent director)
Robert Edwards (independent director)
Stalbek Mishakov
Composition as of 31 December 2018.
President and Management Board
The President and the Management Board
are executive bodies in charge of day-
to-day operations. The President serves
as the Chairman of the Management Board.
The executive bodies are a key element
in the Company’s management system
ensuring enactment of resolutions
adopted by the Board of Directors
and the General Meetings of Shareholders
and implementation of Nornickel's
core corporate plans and programmes,
and maintaining the efficiency of risk
management and internal control functions.
as the amount of insurance coverage,
are consistent with the world’s best
practices for such risks.
The Company insures the liability
of the Management Board members.
The insurance aims to cover potential
damages arising from unintended
erroneous actions of the Management
Board in its decision-making. The terms
and conditions of the agreement, as well
The President and members
of the Management Board are elected
for an indefinite period. The Board of Directors
may at any time dismiss any member
of the Management Board. Since 1 July 2016,
the General Meeting of Shareholders has
the authority to elect and dismiss the President.
COMPOSITION OF THE MANAGEMENT BOARD
2018 milestones
Changes in the Management Board composition in 2018
In 2018, the composition
of the Company’s Management
Board remained unchanged.
The last change in the membership
was approved by the Board
of Directors on 27 April 2016.
From 24 December 2018,
the Management Board consisted
of 13 members.
In 2018, the Management Board
held 32 meetings in absentia.
Resolution dated
Action
12 February 2018
8 June 2018
21 September 2018
Left the Management Board due
to termination of employment contract
Left the Management Board due
to termination of employment contract
Left the Management Board due
to termination of employment contract
Full name
Alexander Ryumin
Elena Bezdenezhnykh
Onik Aznauryan
24 December 2018
Joined the Management Board
Sergey Barbashev
24 December 2018
Joined the Management Board
Alexander Grubman
24 December 2018
Joined the Management Board
Sergey Dubovitsky
Name
Vladimir Potanin
Marianna Zakharova
Sergey Batekhin
Larisa Zelkova
Nina Plastinina
Vladislav Gasumyanov
Sergey Malyshev
Elena Kondratova
Andrey Bougrov
Sergey Dyachenko
Sergey Barbashev
Alexander Grubman
Sergey Dubovitsky
Alexander Ryumin
Onik Aznauryan
Elena Bezdenezhnykh
Participation / Number of meetings
32/32
32/32
32/32
32/32
31/32
32/32
31/32
32/32
32/32
32/32
0/32
–0/32
–0/32
3/32
22/32
15/32
Left the Management Board as per the Board of Directors’ resolution.
Elected to the Management Board as per the Board of Directors’ resolution of 24 December 2018. There were no
meetings of the Management Board between the date of election and 31 December 2018.
Annual Report > 2018Nornickel www.nornickel.com> 176
BIOGRAPHIES OF THE MANAGEMENT
BOARD MEMBERS
Vladimir
POTANIN
The Company’s President since 2015 (the Company’s CEO
in 2012– 2015)
Chairman of the Management Board since 2012
Born in: 1961
Nationality: Russia
Education:
Moscow State Institute of International Relations (MGIMO University), degree
in International Economic Relations
Track record:
1995–present Member of the Presidium of the International Foundation
for the Unity of Orthodox Christian Nations
2000–present Member of the Bureau and Management Board
2011–present Member of the Board of Trustees of the State Hermitage
Museum Endowment Fund and the Moscow Church
Construction Foundation
of the Russian Union of Industrialists and Entrepreneurs
2012–2015
2001–present Member of the Board of Trustees of the Solomon
CEO and Chairman of the Management Board
of MMC Norilsk Nickel
R. Guggenheim Foundation (New York)
2013–2014
Member of the Board of Directors of OJSC Inter RAO UES
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
177
Sergey
BARBASHEV
Sergey
DYACHENKO
Member of the Management Board since 2018
Member of the Management Board since 2013
Member of the Board of Directors since 2011
First Vice President
First Vice President
Born in: 1962
Nationality: Russia
Education:
Moscow Higher School of Militia of the Ministry of Internal Affairs of the USSR,
degree in Law
Track record:
2008–2018
Born in: 1962
Nationality: Russia
Education:
Plekhanov Leningrad Mining Institute, degree in Mining Engineering
University of Pretoria (South Africa), master’s degree
Track record:
2010–2013
COO at Kazakhmys Group
CEO and Chairman of the Management Board at Interros
Holding Company LLC (Interros Holding Company CJSC
until 2015)
2013–2014
Deputy CEO and Head of Operations at MMC Norilsk Nickel
2014–2015
First Deputy CEO and COO at MMC Norilsk Nickel
2008–present Member of the Board at Vladimir Potanin Foundation
2015–present First Vice President and COO at MMC Norilsk Nickel
(formerly, Vladimir Potanin Foundation, non-profit charitable
organisation)
2016–present Member of the Board of the Non-Profit Russian Mining
Council Partnership
2017–2018
Member of the Board of Directors at Norilsk Nickel Harjavalta Oy
2017–present Member of the Board of Directors at MPI Nickel Pty Ltd,
Norilsk Nickel Cawse Pty Ltd, Norilsk Nickel Avalon Pty Ltd,
Norilsk Nickel Wildara Pty Ltd, Norilsk Nickel Africa (Pty) Ltd,
Norilsk Nickel Mauritius, and also member of the Executive
Committee at Nkomati
2003–present Chairman of the Board of Trustees of the State Hermitage
2013–2015
President of CJSC Interros Holding Company
2011–present Chairman of the Board of Directors at Rosa Khutor Ski Resort
Museum
2014–present Chairman of the Board of Trustees of the ROZA Club for Sport
2004–present Chairman and member of the Presidium of the National
Development and Support
2015–present President of LLC Interros Holding Company
2016–present Member of the Board of the Endowment Fund for Education,
Science and Culture, and Chairman of the Board of Trustees
of the Night Hockey Foundation for the Development of Amateur
Hockey
2017–present Chairman of the Supervisory Board of the Norilsk
Development Agency
2018–present Member of the Board of Trustees of the Solovki Archipelago
Preservation and Development Foundation
2018–present Member of the Board of Trustees of the Russia-U.S. Council
on Business Cooperation, Trade Association
Council on Corporate Governance
2005–present Member of the Council of Trustees and the Board
of the Russian Olympians Foundation
2006–present Deputy Chairman of the Board of Trustees of the Moscow
State Institute of International Relations (MGIMO University),
member of the Board of Trustees of the Graduate School
of Management (St Petersburg University), and member
of the Bureau and Management Board of the Russian Union
of Industrialists and Entrepreneurs
2007–present Member of the Board of Trustees of St Petersburg State
University and Deputy Chairman of the Board of Trustees
of the MGIMO Endowment Fund
2007–2014
Member of the Supervisory Board of the Sochi 2014 Steering
Committee
2008–present Member of the Board at Vladimir Potanin Foundation
(formerly, Vladimir Potanin Foundation, non-profit charitable
organisation)
2009–2016
Chairman of the Supervisory Board of the Russian
International Olympic University
2009–present Deputy Chairman of the Board of Trustees of the Russian
International Olympic University
2010–present member of the Board of Trustees of the Russian
Geographical Society
Development Company
2015–2018
Branch Director at Olderfrey Holdings Limited (Olderfrey
Holdings Limited LLC until 2016)
2016–present Member of the Board of Endowment for Education, Science
and Culture
2018–present Member of the Management Board, First Vice President
and Head of Corporate Security at MMC Norilsk Nickel
Annual Report > 2018Nornickel www.nornickel.com> 178
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
179
Marianna
ZAKHAROVA
Sergey
BATEKHIN
Andrey
BOUGROV
Larisa
ZELKOVA
Member of the Management Board since 2016
Member of the Management Board since 2013
Member of the Management Board since 2013
Member of the Management Board since 2013
Member of the Board of Directors since 2010
Senior Vice President
Deputy Chairman of the Board of Directors since 2013
Senior Vice President
First Vice President
Born in: 1976
Nationality: Russia
Education:
Peoples’ Friendship University of Russia (RUDN), Master’s degree in Law
Track record:
2010–2015
Member of the Management Board, Deputy CEO for Legal
Affairs at LLC Interros Holding Company (Interros Holding
Company CJSC until 2015)
2010–2015
Member of the Board of Directors at ProfEstate
2015–present First Vice President for Corporate Governance, Asset
Management and Legal Affairs at MMC Norilsk Nickel
Born in: 1965
Nationality: Russia
Education:
Krasnoznamenny Military Institute of the USSR Ministry of Defence, major
in foreign languages (military and political translation)
Plekhanov Russian Academy of Economics, degree in Finance and Credit
Moscow International Higher Business School (MIRBIS), Master of Business
Administration
Track record:
2009–2015
Member of the Board of Directors of the Continental Hockey
League
2010–2013
Vice President of CJSC Interros Holding Company
2012–2015
Chairman of the Board of Directors at Interport Management
Company
2013–2015
2013–2014
2015–2018
Member of the Management Board, Deputy CEO, Head
of Sales, Commerce and Logistics at MMC Norilsk Nickel,
and member of the Board of Directors at Metal Trade
Overseas Sa and Norilsk Nickel Marketing (Shanghai) Co., Ltd
Member of the Board of Directors, Chairman of the Board
of Directors at Yenisey River Shipping Company and member
of the Board of Directors at Norilsk Nickel (Asia) Ltd
Senior Vice President, Head of Sales, Commerce
and Logistics at MMC Norilsk Nickel (Vice President
until 2016)
2018–present Senior Vice President, Head of Sales, Procurement
and Innovation at MMC Norilsk Nickel, member of the Board
of Directors of the Continental Hockey League
Senior Vice President
Born in: 1952
Nationality: Russia
Education:
Born in: 1969
Nationality: Russia
Education:
Lomonosov Moscow State University, degree in Journalism
Moscow State Institute of International Relations (MGIMO University), degree
in International Economic Relations; PhD in Economics
Track record:
1999–2014
Track record:
2002–present Member of the non-governmental Council on Foreign
and Defence Policy
2006–present Member of the Management Board of the Russian Union
of Industrialists and Entrepreneurs (RSPP)
2013–present Vice President at Interros Holding Company LLC (Interros
Holding Company CJSC until 2015)
CEO of Vladimir Potanin Foundation, non-profit charitable
organisation
2007–present Member of the Presidium of the MGIMO Endowment Fund
2009–present Member of the Board of Trustees at Pavlovsk Gymnasium
Private Non-Profit School
2011–present Member of the Board of Directors at LLC Rosa Khutor Ski
Resort Development Company, Chair of the Management
Board at the State Hermitage Museum Endowment Fund
2013–2015
Member of the Management Board, Deputy Chairman
of the Board of Directors, Deputy CEO at MMC Norilsk Nickel
2011–2016
Member of the Supervisory Board at the Russian International
Olympic University
2013–present Vice President of the Russian Union of Industrialists
and Entrepreneurs (RSPP)
2014–present Member of the Board of Directors at Inter RAO UES PJSC
(Inter RAO UES OJSC until 2015)
2014–present Member of the Expert Committee of the Russian President’s
Anticorruption Office
2015–present Member of the Management Board and Deputy Chairman
of the Board of Directors at MMC Norilsk Nickel
2015–2016
Member of the Investment Committee at the Federal
Hydro-Generating Company RusHydro
2015–present Senior Vice President at MMC Norilsk Nickel (Vice President
until 2016)
2015–present Member of Non-Profit Partnership National Council
on Corporate Governance
2012–2018
Member of the Russian Presidential Council for Culture
and Art
2013–2014
Member of the Board of Directors at Prof-Media
Management LLC
2013–2015
Member of the Management Board and Deputy CEO for Social
Policy and Public Relations at MMC Norilsk Nickel
2014–2018
President of Vladimir Potanin Foundation, non-profit
charitable organisation
2014–present Chair of the Board at Vladimir Potanin Foundation
(formerly, Vladimir Potanin Foundation, non-profit charitable
organisation)
2015–present Member of the Board of Trustees at the Hermitage
Foundation UK and member of the Board of Trustees
at the Russian Federal Public Academy of Education
2015–present Senior Vice President for HR, Social Policy and Public
2016–present Member of the Expert Council on Corporate Governance
Relations at MMC Norilsk Nickel (Vice President until 2016)
at the Bank of Russia
2016–present Member of the Board of Trustees at the Endowment Fund
2016–present Chairman of the Issuer Committee at the Moscow Exchange
for Education, Science and Culture
2018–present Chairman of the Council of Non-Financial Reporting at RSPP
2018–present Member of the Expert Council on Corporate Governance
at the Russian Ministry of Economic Development
2018–present Member of the Advisory Board of the RBTT
2017–present Member of the Supervisory and Management Boards
of the Norilsk Development Agency
Annual Report > 2018Nornickel www.nornickel.com> 180
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
181
Sergey
MALYSHEV
Alexander
GRUBMAN
Vladislav
GASUMYANOV
Elena
KONDRATOVA
Member of the Management Board since 2013
Member of the Management Board since 2018
Senior Vice President
Senior Vice President
Member of the Management Board since 2014
State Secretary – Vice President
Born in: 1969
Nationality: Russia
Education:
Born in: 1962
Nationality: Russia
Education:
Finance Academy under the Government of the Russian Federation, degree
in Finance and Credit
Moscow State University of Food Production, degree in Mechanical
Engineering
Institute of Advanced Training at Russian Presidential Academy of National
Economy and Public Administration, degree in Public and Municipal
Administration
Track record:
2010–2014
A.N. Kosygin Russian State University, degree in Mechanical Engineering
CEO of Severstal’s Russian Steel Division, Deputy CEO
of OJSC Severstal
Track record:
2009–2013
Deputy CEO for Economics and Finance, First Deputy CEO
at OJSC Energostroyinvest-Holding
2014
First Deputy CEO of Chelyabinsk Pipe-Rolling Plant
2015–2017
CEO of OJSC Chelyabinsk Pipe-Rolling Plant (PJSC
Chelyabinsk Pipe-Rolling Plant from 8 July 2016) and CEO
of OJSC Pervouralsk New Pipe Plant (on a part-time basis)
2013–2015
Deputy CEO, Head of Economics and Finance at MMC Norilsk
Nickel
2018–present Senior Vice President for Strategy and Business Development
at MMC Norilsk Nickel
2015–2016
Senior Vice President, Head of Economics and Finance
at MMC Norilsk Nickel (Vice President until 2016)
2016–present Senior Vice President and CFO at MMC Norilsk Nickel
Born in: 1959
Nationality: Russia
Education:
Member of the Management Board since 2014
Vice President
Born in: 1972
Nationality: Russia
Education:
Kiev Civil Aviation Engineering Institute
Moscow Pedagogical State University, degree in Psychology
North-West Academy of Public Administration
Track record:
2012–2015
Director of Corporate Security and Head of Security
at MMC Norilsk Nickel
Track record:
2013–2015
Chief of Staff at MMC Norilsk Nickel, Advisor to the President
of Interros Holding Company CJSC (on a part-time basis)
2014–present Member of the Management Board at MMC Norilsk Nickel
2014–2015
Member of the Management Board at MMC Norilsk Nickel
2015
Chief of Staff at MMC Norilsk Nickel
2015–present Vice President and Chief of Staff at MMC Norilsk Nickel,
Advisor to the President of LLC Interros Holding Company
(on a part-time basis)
2014–2016
Member of the Board of Directors at OJSC Yenisey River
Shipping Company
2015
Vice President, Director of Corporate Security and Head
of Security at MMC Norilsk Nickel
2015–2018
Vice President and Head of Corporate Security
at MMC Norilsk Nickel
2017–present Member of the Board of Directors of Dynamo Moscow
Football Club
2017–present Head of the Department of Corporate Security at MGIMO's
International Institute of Energy Policy and Diplomacy
(MIEP MGIMO)
2017–present Member of the Board of Directors at Norilsk Nickel Africa
(Pty) Ltd and Norilsk Nickel Mauritius, and also member
of the Executive Committee at Nkomati
2018–present State Secretary – Vice President of Government Relations
at MMC Norilsk Nickel
Senior Vice President since March 2019.
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Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
183
Nina
PLASTININA
Sergey
DUBOVITSKY
Member of the Management Board since 2013
Member of the Management Board since 2018
Vice President
Born in: 1961
Nationality: Russia
Education:
Vice President
Born in: 1978
Nationality: Russia
Education:
Moscow Chemical Machinery Construction Institute, degree in Mechanical
Engineering
Moscow State Institute of International Relations (MGIMO University), School
of International Information
Bauman Moscow Technical Institute, research degree in Economics
and Production Management
INSEAD Business School, Master of Business Administration
Track record:
2008–2013
Director of Financial Department at CJSC Interros Holding
Company
2013–2015
Director of Internal Control Department at MMC Norilsk Nickel
Track record:
2005–2013
Strategy work within the Oil & Gas Practice, McKinsey & Co
(global consultancy)
2013–2016
Head of Strategic Planning Department at MMC Norilsk
Nickel
2015–2016
Vice President for Internal Audit at MMC Norilsk Nickel
2016–present Vice President for Strategic Planning at MMC Norilsk Nickel
2016–present Vice President for Internal Controls and Risk Management
at MMC Norilsk Nickel
Management Board members’ holdings
and transactions in the Company’s shares
As at 31 December 2018, the members
of the Management Board have no holdings
in the Company’s ordinary shares and/or ADRs
and did not enter into any relevant sale and purchase
transactions in 2018.
CORPORATE
SECRETARY
The mission of the Corporate Secretary is to ensure compliance
with the procedures for the protection of shareholders’ rights
and legitimate interests, as prescribed by the applicable laws
and the Company’s by-laws, and to monitor such compliance.
Pursuant to the Charter, the Corporate Secretary is appointed
by the Board of Directors for a three-year term. The Board
of Directors may terminate the powers of the Corporate Secretary
prior to their expiration.
In accordance with the Regulation on the Corporate Secretary
of PJSC MMC Norilsk Nickel approved by the Board of Directors
on 20 April 2015, the Company’s Corporate Secretary has
an administrative reporting line to the President and is accountable
to the Board of Directors.
At this time, the Corporate Secretary is Mr. Pavel
Platov. In the reporting year, Pavel Platov's appointment was
extended by resolution of the Board of Directors.
As at 31 December 2018, the Corporate Secretary has no holdings
in the Company’s ordinary shares and did not enter into any relevant
sale and purchase transactions in 2018.
The Corporate Secretary is responsible for:
• preparation and running of the General Meeting
of Shareholders;
• making arrangements for and running meetings
of the Board of Directors and its committees;
• contributing to the improvement of the Company's
corporate governance framework and practices;
• managing the operations of the Secretariat;
• other functions as per the Company's by-laws.
Pavel
PLATOV
2017–present: Corporate Secretary
(2011–2017: Company Secretary)
Born in: 1975
Nationality: Russia
Education:
Dobrolyubov Linguistics University of Nizhny Novgorod
Russian Presidential Academy of National Economy and Public Administration
Track record:
2017–present Corporate Secretary at PJSC MMC Norilsk Nickel
(2011–2017: Company Secretary)
Annual Report > 2018Nornickel www.nornickel.com>
184
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
185
CONTROLS SYSTEM
INTERNAL CONTROL FRAMEWORK
The Company has
an internal control
system in place intended
to promote the achievement
of the Company's goals
and enhance investor
confidence in its business
and corporate bodies. The internal
control system is aimed
at improving the effectiveness
and efficiency of activities,
keeping reliable and accurate
financial and management
accounts, ensuring compliance
with the requirements
of applicable Russian laws
and the Company's by-laws.
The Company has
the Internal Control
Policy adopted by resolution
of the Board of Directors
in October 2018. In addition,
internal control requirements,
procedures, and processes
are covered by the procedure
for “Internal Control Processes
at MMC Norilsk Nickel”, as well
as by business unit regulations
and other internal guidelines.
ICS components
are also assessed annually
as part of the audit of the financial
statements.
The ICS effectiveness report
is reviewed by the Board
of Directors’ Audit Committee.
All internal control processes, principles,
mechanisms, means, and procedures make
up a system of elements:
• control environment;
• assessment of risks to business
processes;
• control procedures;
information and communications;
•
• monitoring of the internal control system.
Entities that form the internal control
system are structured on a number
of levels, which comprise the Company’s
and subsidiaries’ corporate bodies,
business units and employees as well
as dedicated control bodies:
• Audit and Sustainable Development
Committee,
Internal Audit Department,
•
• Audit Commission,
•
Internal Control and Risk Management
Unit, including the Internal Control
Department, Risk Management Service,
and Financial Control Service.
Depending on the risk level, the Company
monitors the effectiveness of the internal
control system through:
•
routine monitoring of the business
processes as part of the day-to-day
operations;
• annual self-assessment of internal
controls;
internal audit.
•
The Financial Control Service audits
the financial and business operations
of the Company and its subsidiaries to report
and issue recommendations to the President
and directors of the Company. The head
of the Financial Control Service is appointed
by a resolution adopted by the Company’s
Board of Directors.
Internal Control Department
The Internal Control Department aims
to create an efficient internal control
framework that represents a combination
of organisational processes, policies
and guidelines, control procedures,
corporate culture principles and actions
that the internal control entities perform
to provide reasonable assurance that
the Company will achieve its targets.
The Department's functions include:
• developing and boosting efficiency
of the internal control framework;
• ensuring a consistent approach
to the design, operation and development
of the internal control framework;
• detecting and preventing any waste,
misuse or misappropriation of funds
or assets of the Company and its
subsidiaries, wrongdoings and theft;
• ensuring accuracy
of metrics and measurement standards
for the control and accounting of metal
bearing products;
• arranging and implementing internal
controls so as to combat illegal activities,
such as money laundering and terrorism
financing;
• managing the Corporate Trust Service
operations.
Internal Audit Department
The Internal Audit Department was
established to assist the Board of Directors
and executive bodies in enhancing
the Company’s management efficiency
and improving its financial and economic
operations through a systematic
and consistent approach to the analysis
and evaluation of risk management
and internal controls as tools to provide
reasonable assurance that the Company will
achieve its goals.
The Internal Audit Department conducts
unbiased and independent audits,
assessing how effective the internal
controls and the risk management
system are. Based on the audits,
the department prepares reports
and proposals for the management on how
to improve internal controls, and monitors
the development of action plans
to eliminate violations.
In order to ensure independence
and objectivity, the Internal Audit
Department functionally reports
to the Board of Directors through the Audit
and Sustainable Development Committee
and has an administrative reporting line
to the Company's President. The Board
of Directors’ Audit and Sustainable
Development Committee regularly reviews
the department's work plan and audit
reports.
In 2018, the Department conducted
the following audits:
• occupational health and safety risk
It continuously monitors the implementation
of activities developed by the management.
The monitoring analytics is regularly reviewed
by the Audit and Sustainable Development
Committee.
Audit Commission
The Audit Commission monitors the financial
and business operations of the Company.
The commission audits the Company’s
financial and business operations
on an annual basis and at any time
as decided by the commission, resolutions
of the General Meeting of Shareholders
and the Board of Directors or as requested
by shareholders who hold collectively
at least 10% of the Company's voting shares.
Following the review of financial and business
results, the Audit Commission issues
an opinion. Business operations were last
audited in April–May 2018.
The Audit Commission works
in the shareholders’ interests
and reports to the General Meeting
of Shareholders, which elects members
of the Audit Commission until the next
Annual General Meeting of Shareholders.
The Audit Commission is independent
from the officers of the Company’s
governance bodies, and its members
do not hold positions in the Company's
governance bodies.
In the reporting year, the Audit Commission
consisted of five people as prescribed
by the resolution of the Annual General
Meeting of Shareholders dated 28 June
2018.
Remuneration payable to the members
of the Audit Commission was approved
by the Annual General Meeting
of Shareholders. Members of the Audit
Commission employed by the Company
are remunerated throughout the year as per
their job description and employment
terms.
management;
Remuneration of the Audit Commission members in 2018
• management of rarely used and non-
liquid inventory;
• energy assets;
IT;
•
• effectiveness of control procedures
in preparation of the financial statements;
• non-industrial assets.
Based on these audits, the management
developed action plans which provide
for a range of activities aimed at improving
internal control procedures and mitigating
risks.
Remuneration type
thousand RUB
thousand USD
Remuneration amount
Remuneration for the membership in a control body
Salary
Bonus
Commissions
Benefits
Compensation
Other types of remuneration
Total
7,200
5,087
0
0
0
0
0
115
81
0
0
0
0
0
12,287
196
Members of the Audit Commission
Name
Primary employment and position
Vladimir Shilkov
Chief Investment Officer at CIS Investment Advisers, Deputy Project Manager of the Financial Control Service
at MMC Norilsk Nickel
Anna Masalova
Chief Financial Officer, Moscow–McDonalds CJSC
Artur Arustamov
Director of Price Control and Commercial Operations Department, En+ Management
Georgy Svanidze
Head of Financial Department, member of the Management Board at Interros Holding Company
Elena Yanevitch
Chief Executive Officer, Interpromleasing
Annual Report > 2018Nornickel www.nornickel.com> 186
ANTI-CORRUPTION AND INTEGRITY
Starting in 2015, all of the Company
employees sign an agreement
setting out their obligations
in the anti-corruption area.
All of the Company's employees
are familiarised with the corporate
Anti-Corruption Policy and related
regulations.
2016 milestone
November
2016
the Company joined the United
Nations Global Compact, which
aims to promote recognition
and practical application of ten
basic principles of human
rights, labour, environment
and anti-corruption by businesses
worldwide.
The Company complies with anti-corruption
laws of the Russian Federation and other
countries where it operates, as well
as with applicable international laws
and internal regulations. This promotes
the Company's reputation and strengthens
trust and confidence of shareholders,
investors, business partners and other
stakeholders. As part of its effective
anti-corruption combat, the Company has
developed and approved the following
anti-corruption regulations:
• Business Ethics Code;
• Code of Conduct and Ethics for Members
of the Board of Directors;
• Anti-Corruption Policy;
• Regulation on the Product Procurement
Procedure for MMC Norilsk Nickel's
Enterprises;
• standard anti-corruption agreement –
appendix to the employment contract;
• Regulation on Information Security;
• Regulation on the Prevention
and Management of Conflicts of Interest;
• Regulation on Business Gifts;
• Procedure for Anti-Corruption Due
Diligence on Internal Documents
at the Head Office of MMC Norilsk Nickel;
• Regulation on the Conflict of Interest
Commission;
Information Policy.
•
Having joined the Anti-Corruption Charter
of the Russian Business, the Company
implements dedicated
anti-corruption measures
based on the Charter and set
forth in the Company's Anti-
Corruption Policy. In November 2016,
the Company joined the United Nations
Global Compact, which aims to promote
recognition and practical application
of ten basic principles of human rights,
labour, environment and anti-corruption
by businesses worldwide.
Starting in 2015, all of the Company
employees sign an agreement setting
out their obligations in the anti-corruption
area. All of the Company's employees
are familiarised with the corporate Anti-
Corruption Policy and related regulations.
The Company ensures
functioning of the Preventing
and Fighting Corruption page
on the corporate intranet containing
information on anti-corruption regulations
adopted, measures taken, preventive
procedures introduced, legal training
sessions organised and law-abidance
promotion efforts taken.
Nornickel’s Corporate Security Unit
continuously identifies, analyses
and assesses the financial, corruption,
reputational and other risks entailed
by large-scale operations, with close
attention paid to business reputation,
reliability and solvency of potential partners
and counterparties.
Regulating the conflict of interest
One of the key anti-corruption measures
is timely prevention and management
of conflicts of interest. Procedures
for assessing and settling conflicts of interest
are set forth in the Regulation on the Prevention
and Management of Conflicts of Interest
at MMC Norilsk Nickel. As part of the regulation,
the Company has approved the standard
declaration form for reporting conflicts
of interest, to be filled in by candidates applying
for vacant positions or by the Company's
employees whenever required.
The regulation extends to all employees
of the Company and sets forth key
principles that include obligation of each
employee to disclose a conflict of interest,
as well as non-retaliation for reporting
the conflict of interest.
On top of that, the Company has
undertaken measures aimed at preventing
potential conflict of interest involving
the directors and senior managers.
From December 2016, members
of the Board of Directors are required
to annually submit information on relatives
and family as per the approved form.
The Company takes measures aimed
at identifying related-party transactions.
All measures combined, undertaken
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
187
To make a report, anyone
is invited to call a toll-free 24/7
hotline:
+7 800 700-19-41,
+7 800 700-19-45,
or e-mail to
skd@nornik.ru.
From December 2016, members
of the Board of Directors are required
to annually submit information
on relatives and family as per
the approved form.
In 2018, the corporate security
was ensured through continuous
review of corporate risks
and threats.
in order to identify and prevent conflicts
of interest, minimise the probability
of negative consequences for the Company.
Information on received and processed
reports is disclosed annually
by the Company as part of its CSR report.
Insider information
The Company implements
initiatives to prevent
unauthorised use of insider
information. In accordance
with Federal Law No. 224-FZ
of 27 July 2010 On Prevention of Unlawful
Use of Inside Information and Market
Manipulation and on Amendments
to Certain Legislative Acts of the Russian
Federation, as well as the Market Abuse
Regulation of the European Parliament
and of the Council No. 596/2014
of 16 April 2014, the Company keeps a list
of insiders, reviews by-laws and corporate
events, to control implementation
of measures as provided for in the Russian
and international legislation, which
includes disclosure of insider information.
The Company also undertakes other
measures aimed at preventing unlawful use
of insider information.
Corporate Trust Service
The Corporate Trust Service
is part of the Internal Control Department
and helps the Company’s management
to promptly respond to reports of abuses,
embezzlement and other violations.
Employees, shareholders and other
stakeholders have an opportunity to report
any actions that will or might result
in financial damages or be detrimental
to the business reputation of the Company.
The key principles underlying the Corporate
Trust Service include guaranteed
confidentiality for whistleblowers, timely
and unbiased consideration of all reports.
In no circumstances does the Company
impose sanctions (dismissal, demotion,
deprivation of a bonus) against
the employee who submitted a report
to the Corporate Trust Service.
To make a report, anyone
is invited to call a toll-free 24/7 hotline:
+7 800 700-1941, +7 800 700-1945,
or e-mail to skd@nornik.ru.
Comprehensive security framework
In 2018, the corporate security was
ensured through continuous review
of corporate risks and threats.
The comprehensive corporate security
system underpinned by the MBO
(Management by Objectives) principles
enabled the Company to promptly respond
to key risks in economic, corporate,
information and physical security, counter
embezzlement and illicit trafficking
of precious and non-ferrous metals,
and efficiently prevent in-house corruption.
As the Company is engaged
in manufacturing and selling products
containing precious metals, Nornickel’s
Corporate Security Unit developed
a comprehensive identification
methodology for products containing
precious metals which have been stolen
or illicitly traded. The methodology have
gained recognition internationally and was
further developed into an automated
information retrieval wizard powered
by a unique databank of strategically
important raw materials.
As part of its efforts to improve
the effectiveness of the measures against
cross-border illicit trading and smuggling
of precious metals, the Company
participates in developing a unified
databank of products of Russian and South
African MMCs.
Nornickel complies with anti-terrorism
requirements and enhances security
of the Company's strategic power
and transportation facilities. In 2018,
Nornickel conducted 126 routine training
sessions and organised four tactic drills
together with the Federal Security Service,
Ministry of Internal Affairs, EMERCOM
and National Guard of the Russian
Federation. The main objective of these
activities was to enhance anti-terrorist
security at industrial and social sites.
Annual Report > 2018Nornickel www.nornickel.com> 188
As part of its efforts to improve
the effectiveness of the measures
against cross-border illicit trading
and smuggling of precious
metals, the Company participates
in developing a unified databank
of products of Russian
and South African MMCs.
In 2018, Nornickel conducte
126
routine training sessions
and organised four tactic
drills together with the Federal
Security Service, Ministry of Internal
Affairs, EMERCOM and National Guard
of the Russian Federation
Monitoring of cyber security performance
is part of the Company's information
security management system
and information security assessment
and reporting. The results of performance
assessment of cyber security systems
are reviewed at a corporate level
and are circulated to the governance
bodies and employees through corporate
procedures and initiatives.
On top of that, Nornickel’s Information
Security Charter for Critical Industrial
Facilities, an initiative proposed
at a meeting of the Club of Information
Security in Industry, stood the test
of Russian companies and was welcomed
at the Partnership of State Authorities,
Civil Society and the Business Community
science forum (tech version of Davos)
held in Germany. The Charter was praised
at the OSCE’s cyber security conference
in Rome and was handed over to the OSCE
Secretariat for review as part of proposals
for combating cyber threats and attacks
on information infrastructure.
The Company has
an Information Security Policy
in place that defines relevant business
processes and areas including governance
processes at strategic and tactical levels,
operational processes, and corporate
governance responsibility for information
security.
As part of its information security
framework, Nornickel:
• categorises information assets
and assesses information security risks;
• manages information security
requirements at different stages
of the information system life cycle;
• ensures compliance with the legal
and regulatory information security
requirements;
• manages its information security
architecture;
• uses technical means to ensure
information security of assets;
raises awareness in information security;
•
• manages information security incidents;
• ensures information security
of the process control system;
• conducts information security
assessment and reporting.
The Company pays
close attention
to safety and confidentiality
of the employee
and counterparty personal data.
The implemented solutions allow to identify
and properly respond to new threats
and risks.
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
189
SUPPLY CHAIN AND PROCUREMENT CONTROL
The Company aims to work
with partners that are committed
to environmental protection
and work safety.
Nornickel pays close attention
to fostering ties with reliable
domestic suppliers and contractors.
The Company's suppliers
and contractors, items
457
513
540
2018
2017
2016
35
37
38
Domestic
Foreign
>1,400
potential suppliers
registered in SAP SRM, an automated
solution for supplier relationship
management
Supply chain management at Nornickel
seeks to ensure continuous operation
of the Group's companies, and reliability
of shipments to customers. The Company
aims to work with partners that
are committed to environmental protection
and work safety. The Company expects
its suppliers to follow the global best
practices in sustainable use of resources
and materials, and to have the relevant
certificates.
Nornickel pays close attention to fostering
ties with reliable domestic suppliers
and contractors. In 2018, the Company
continued to apply a life cycle costing
approach to selecting suppliers (based
on the costs of ownership, operation
and utilisation). The selected suppliers
are required to sign a set of agreements
obliging them not only to make
a delivery, but also to ensure compliance
of the supplied equipment with the relevant
technical operability coefficients as well
as its uninterrupted operation.
Nornickel is committed
to working with more local
suppliers. To this end, it developed
a centralised pilot testing procedure
enabling it to phase out imported
equipment with that manufactured locally.
Foreign suppliers are mainly engaged
for delivering unique equipment or systems
that do not have Russian alternatives.
Nornickel strives to create an environment
of shared culture, visions and values
in its relationships with suppliers. An ESG
clause is incorporated into the standard
agreement with suppliers and contractors.
The Company adheres to the codes
of conduct applied by its business partners
and devised by foreign manufacturers.
There is also ongoing work to develop
Nornickel's Charter for Suppliers that
is expected to be signed by the Company's
suppliers and contractors. The Charter
reflects the values that underpin
the Company's business (reliability,
development, efficiency,
responsibility, professionalism,
and cooperation) and is aligned
to the principles on human rights, anti-
corruption, legal, safety, environmental
and energy efficiency.
Our procurement team together
with experts from other departments
are looking into alternative technologies
(alternative fuel and energy sources) that
can reduce the Company's environmental
footprint and cut costs. The current
tender procedure includes a criterion
of the supplier’s readiness to participate
in the Company’s alternative energy
initiatives.
Creating effective feedback mechanisms
is one of the Company's priorities
for supplier relationship development.
Nornickel has put in place SAP SRM,
an automated solution for supplier
relationship management. This gives
the suppliers continuous access
to information relating to the Company’s
procurement procedures. Over 1,400
potential suppliers are currently registered
and licensed to work in the system.
Procurement
The Company’s procurement activities
are aimed at catering to its needs
with regard to required products
and their quality, reliability, and price in a full
and timely manner, as well as at using
relevant funds efficiently.
At Nornickel,
the procurement process
is certified for compliance
with ISO 9001 and ISO 14001.
In 2018, Nornickel’s divisions amended
their procurement procedures to reflect
the changes in the Federal Law No.
223-FZ On Procurement of Goods,
Work and Services By Certain Types
of Legal Entities. The documents
Annual Report > 2018Nornickel www.nornickel.com> 190
Procurement activities can be
either centralised or organised
independently by the Head Office,
branches or Group enterprises
In 2018, the tender committee and
tender commissions of the Head
Office carried out procurement for
over USD 330 mln
(RUB 20.9 bn)
Preventing corruption and other
misconduct
Nornickel evaluates the business
reputation, reliability
and solvency of potential
counterparties to mitigate risks.
To prevent procurement misconduct
and secure maximum benefit through
unbiased selection of the best proposal,
Nornickel adheres to the following rules:
• procurement relies on the role allocation
principle (procurement owner, customer
and secretary of a collective procurement
body);
• business or technical and business
proposals of qualified suppliers
are compared based on objective
and measurable criteria approved prior
to the request of proposals stage;
the results of the qualification-based
selection and the winner are approved
by the collective procurement body
comprising representatives from various
functional units of the Company.
•
provide a framework for small
and medium-sized businesses (SMEs)
to compete for procurement contracts
and set the minimum threshold of annual
procurement contracts that can be
awarded to SMEs.
Procurement activities can be either
centralised or organised independently
by the Head Office, branches or Group
enterprises. Depending on the expected
purchase price, procurement can be
organised either as a bidding procedure
(tender), simple procurement, or simplified
procurement. Procurement procedures
may involve collective procurement
bodies, such as the tender committee,
tender commissions of the Head Office,
procurement and tender commissions
of the branches and Group companies.
In 2018, the tender committee and tender
commissions of the Head Office that
are in charge of the most expensive
procurement items, full-cycle projects
and IT products, carried out procurement
for over USD 330 mln (RUB 20.9 bn).
The Company’s tender committee focuses
on improving procedures for identifying
reliable suppliers of quality products
at a fair market price.
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
191
INDEPENDENT AUDIT
The Company has approved the Procedure
to Select an Auditor for MMC Norilk Nickel's
RAS and IFRS Financial Statements,
which requires first to establish a tender
commission to produce a list of auditors
who perform best in the Russian market
of audit services. The auditor whose
conditions are recognised to be the best
following the procedure, is recommended
to the Audit and Sustainable Development
Committee which, in its turn, assesses
the candidate for an independent
auditor and provides recommendations
to the Board of Directors. Under applicable
laws and Clause 7.1.9 of the Company's
Charter, the auditor shall be approved
by an Annual General Meeting
of Shareholders.
In June 2018, the General Meeting
of Shareholders, following
the recommendation of the Board
of Directors, approved JSC KPMG
as the Company’s auditor for RAS and IFRS
2018 accounts.
The auditor receives a fixed fee
as determined in the technical and business
proposal that sets out the audit procedure
for all material audited facilities
and calculates the labour input and travel
expenses required to conduct the audit,
based on the qualifications and hourly rates
of experts engaged. In 2018, the auditor’s
fee of MMC Norilsk Nickel amounted
to USD 3.5 mln, including overhead charges.
The auditor’s fee includes VAT (18%).
2018 milestone
June
2018
The General Meeting
of Shareholders, following
the recommendation of the Board
of Directors, approved JSC KPMG
as the Company’s auditor for RAS
and IFRS 2018 accounts.
In 2018:
The auditor’s fee of MMC Norilsk Nickel
amounted to
USD 3.5 mln
The share of non-audit services
rendered to the Company accounted for
55%
of the total fee
Auditor's fee for 2018
Service type
Audit of consolidated IFRS financial statements for 2018
Audit of RAS financial statements for 2018
Review of interim IFRS financial statements for 6M 2018
Non-audit services
Total
KPMG also provides non-audit tax
and advisory services to Nornickel. To avoid
a conflict of interest, KPMG has a policy
regulating the services that can be provided
to its clients. The policy ensures compliance
with IESBA requirements, the Russian Rules
for the Independence of Auditors and Audit
Organisations, and other applicable
requirements. In 2018, the share of non-audit
services rendered to the Company stood
at 55% of the total fee.
Fee
RUB mln
USD mln
67.7
10.7
17.3
117.8
213.5
1.1
0.2
0.3
1.9
3.5
Annual Report > 2018Nornickel www.nornickel.com> 192
REMUNERATION
The Company’s remuneration
framework is continuously and directly
supervised by the Board of Directors,
with the Corporate Governance, Nomination
and Remuneration Committee responsible
for the development, oversight, and regular
revisions of the Remuneration Policy
for the Company's Board of Directors,
Management Board and the President.
Remuneration paid to the members
of governance bodies in 2018 including
salaries, bonuses, commissions, benefits
and reimbursement of expenses totalled
RUB 5.7 bn (USD 91.0 mln).
The amount of remuneration is different from that specified in the 2018 consolidated IFRS financial statements as it excludes non-cash remuneration (insurance and VHI
payments, and annual remuneration liabilities as at 31 December 2018). The remuneration accrued to the members of governance bodies in 2018 under IFRS totalled
USD 109 mln (RUB 6.8 bn).
Board of Directors Remuneration
The Board of Directors’ annual
remuneration is set out
in the Remuneration Policy
for Members of the Board of Directors
approved by the General Meeting
of Shareholders in June 2014
The Policy is available on the Company's website at:
https://www.nornickel.com/files/en/corporate_
documents/constituent_documents/
REMUNERATION-POLICY-for-MEMBERS-OF-
BOARD-OF-DIRECTORS-.pdf
On top of that, non-executive directors
are entitled to reimbursement of expenses
incurred while discharging their duties.
Remuneration payable to executive
directors features the following unique
components:
•
remuneration linked to the Company’s
operating results;
• stock options;
• additional benefits, including all forms
of insurance other than directors' liability
insurance;
• severance pay and any payments related
to the change of ownership;
• pension plans and schemes.
The Policy is guided by the rule of equal
remuneration for non-executive directors.
To avoid any potential conflict
of interest, executive directors do
not receive any additional remuneration
for their membership in the Board
of Directors.
The Remuneration Policy for Members
of the Board of Directors sets forth
the following annual remuneration for non-
executive directors:
• base remuneration
of USD 120,000 for the Board
membership;
• additional remuneration
of USD 50,000 for membership in a Board
committee;
• additional remuneration
of USD 150,000 for chairing a Board
committee;
Company overview
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Business overview
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Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
193
The annual base remuneration
for the Chairman of the Board
of Directors is USD 1 mln, payable
every quarter in equal instalments (in
roubles at the Bank of Russia’s exchange
rate). Subject to a special resolution
of the General Meeting of Shareholders,
the Chairman of the Board of Directors
may be entitled to additional remuneration
and benefits.
The Company’s remuneration framework
clearly differentiates between non-executive
and executive directors.
Additional benefits for directors include
liability insurance and reimbursement
of losses incurred in connection
with their membership in the Board
of Directors.
Key performance indicators
and management remuneration
KPIs used to assess the senior executives’
performance reflect the achievement
of Nornickel’s strategic objectives. As per
the Company's Charter, the remuneration
and reimbursement payable
to the Company’s President and members
of the Management Board are determined
by the Board of Directors.
Total remuneration payable to senior
executives comprises the base salary
and bonuses. Bonuses are linked
to the Company’s performance, including
both financial metrics (EBITDA,
per unit costs) and non-financial
indicators (lower workplace injury rates
and labour productivity). The variable
part of the remuneration payable
to the Management Board takes into
account key performance indicators
updated and approved annually
by the Corporate Governance, Nomination
and Remuneration Committee of the Board
of Directors.
Senior executives’
remuneration
Fixed part
Financial
metrics
Bonus
Non-financial
indicators
• EBITDA (40%)
• Per unit costs (10%)
• Workplace injury rates (10–20%)
• Labour productivity (5–10%)
Board of Directors remuneration in 2018
Remuneration types
Remuneration for membership in a governance body
Salary
Bonus
Commissions
Benefits
Reimbursement
Other
Total
RUB mln
248.4
0
0
0
0
0.7
0
249.2
USD mln
4.0
0
0
0
0
0.01
0
4.0
Management Board remuneration in 2018
Remuneration types
Remuneration for membership in a governance body
Salary
Bonus
Commissions
Benefits
Reimbursement
Other
Total
RUB mln
2.3
3,117.5
2,338.3
0
0
0
0
5,458.1
USD mln
0.04
49.7
37.3
0
0
0
0
87.0
Annual Report > 2018Nornickel www.nornickel.com> 7
Risk
report
>
>
Risk management
Key risks
196
197
196
RISK MANAGEMENT
Board of Directors
Managing and monitoring strategic and key operational risks, approving the risk map and by-laws on risk
management, reviewing the risk report
Senior management
Managing and monitoring strategic and key operational risks, improving the risk management system,
producing recommendations to the Board of Directors on the performance of the risk management system
Vice President for internal controls and risk management
Implementation and improvement
of the corporate risk management framework
Heads of business units and subunits
Material operational risk management
The Company continuously
manages risks that affect its strategic
and operational goals. These efforts include
identification and assessment of external
and internal risks in terms of their impact
on key financial and non-financial metrics along
with the development and implementation
of response and minimisation measures.
The corporate policy sets out the following
key risk management objectives:
•
•
increase the likelihood of achieving
the Company's goals;
improve the resource allocation
efficiency; and
• boost the Company's investment case
and shareholder value.
In 2019, key initiatives aimed
at improving the CRMF will
include:
• continued improvement of risk
management practices in strategic
and operational planning;
• use of simulation modelling
for investment risk assessment;
The Company has developed and adopted
all relevant risk management documents,
including:
• Corporate Risk Management Policy;
• Corporate Risk Management Framework
Regulations;
• Risk Management Regulations;
•
•
Investment Project Risk Management
Regulations;
risk management regulations for specific
processes (management of tax, health
and safety and market risks;
• Guidelines for development of business
continuity plans.
Risk management embraces all business
areas and governance levels:
• strategic risks are managed by the Board
of Directors and the Company's senior
management;
• key operational risks are managed
by the Company's senior management;
• other material operational risks
are managed by heads of business units
and subunits.
• methodology enhancement to analyse
and manage various categories/types
of technical and production risks;
• development of online learning
programmes on risks for the Company's
employees;
• broadening of the business continuity
management perimeter to non-
production risks: information technology,
security, staffing, etc.
The risk management framework relies
on the principles and requirements
of Russian and international laws,
and professional standards, including
the Corporate Governance Code
recommended by the Bank of Russia, ISO
31000 (Risk Management) and COSO ERM
(Enterprise Risk Management – Integrated
Framework).
To manage catastrophic production risks,
the Company develops and approves
business continuity plans that in case
of emergency set out:
interaction procedure for business units;
•
• operations support or resumption plan;
rehabilitation or reconstruction plan
for affected assets.
•
The corporate risk management framework
(CRMF) implementation and improvement
initiatives are spearheaded
by the Company’s Vice President and Head
of Internal Controls and Risk Management
and its Risk Management Service.
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
197
Insurance
Insurance is one of the most important
tools for managing risks and finances
and protecting the assets of the Company
and its shareholders against any
unforeseen losses related to our operations,
including due to external hazards.
Nornickel has centralised its insurance
function to consistently implement
uniform policies and standards supporting
a comprehensive approach to managing
insurance policies and fully covering every
risk at all times. The Company annually
approves a comprehensive insurance
programme that defines key parameters
by insurance type and key project.
We have implemented a corporate insurance
programme that covers assets, equipment
failures and business interruptions across
the Group. Our corporate insurance policies
are issued by major Russian insurers
in cooperation with an international broker.
This helps the Company make sure that its
risks are underwritten by highly reputable
international re-insurers.
The same principles of centralisation apply
to our freight, construction and installation,
aircraft and ship insurance arrangements.
The Group, as well as its directors
and officers, carry business and third-party
liability insurance.
To optimise terms of coverage and better
manage covered risks, we follow the best
mining industry practices.
KEY RISKS
Strategic risks
Price risk (decrease in market prices for Nornickel metals)
Potential decrease in revenues due to lower prices for metals (nickel, copper, platinum, palladium, etc.) subject to the actual or potential
changes in demand and supply on certain metal markets, global macroeconomic trends, and the financial community's interest
in speculative/investment transactions in the commodity markets.
Key risk factors
Mitigants
• Lower demand for metals produced
To manage this risk, the Company:
by the Company;
• inventory liquidation by market
participants;
• continuously monitors and forecasts changes in key metals supply and demand;
safeguards feedstock supplies for key customers through long-term contracts
to supply metals in fixed volumes;
• speculative price decrease;
• as a member of the global Nickel Institute and the International Platinum Group Metals
• supply and demand imbalance
in metal markets
Association, works with other nickel and PGM producers to maintain and increase
the demand for these metals.
Should the price risk materialise, the Company will consider cutting capital expenditures
(revising the investment programme for projects that do not have a material impact
on the Company’s development strategy)
Annual Report > 2018Nornickel www.nornickel.com> 198
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
199
Market risk (the appeal of the Company’s products going down)
Inability of the Company’s products to successfully compete in the market may result in discounts to the market price and a decrease
in the Company’s income.
FX risk
USD depreciation against RUB, including due to changes in the Russian economy and the policy of the Bank of Russia, may adversely affect
the Company's financial performance, as most of its revenues are denominated in USD, while most of its expenses are denominated in RUB.
Key risk factors
Mitigants
Key risk factors
Mitigants
• Higher market standards for product
To manage this risk, the Company:
• Increase in Russia’s balance
To manage this risk, the Company:
quality;
• cooperates with other market players to monitor changes in the market's requirements
• competition from producers
to product quality;
of cheaper nickel;
of payments, higher oil exchange
prices and lower imports;
• different country macroeconomics;
• maintains a balanced debt portfolio where USD-denominated borrowings prevail
to ensure a natural hedge;
• makes sure its metal product sales are diversified across industries and geographies;
• implements regulations that limit fixing of prices in foreign currencies in expenditure
• car manufacturers switching out
the main type of catalyst (palladium
getting substituted with platinum
in petrol car catalysts)
• improves and diversifies the product range;
• considers partnerships with key producers of batteries for electric cars;
• enters into strategic partnerships with car makers built on guarantees of long-term
palladium supplies
• change in ratings;
contracts;
• lower volatility in financial markets
of Russia and other developing
countries
• uses derivatives to mitigate the exposure by balancing cash flows between revenues
(denominated in USD) and liabilities (denominated in other currencies)
Tighter environmental requirements
Tightening environmental legislation may have a number of consequences for the Company:
• need to reissue environmental permits;
• need to upgrade and install additional waste treatment equipment;
•
restrictions on the operations for up to 90 days.
Key risk factors
Mitigants
• Emphasis placed by domestic
and international communities
on environmental protection
and sustainable development;
• changes in environmental laws
and regulations. For example,
on 1 January 2019 the environmental
permits framework was amended
with requirements on an integrated
environmental permit and a new
system of standards that sets out
technological limits
To manage this risk, the Company:
• carries out an environmental action plan to reduce emissions and discharges, as well
as to ensure timely waste management;
• involves its employees in working groups of dedicated committees, regional ministries
and government agencies;
• takes part in joint projects with nature reserves located in the Company’s regions
of operation
Investment risk
Failure to meet timeline and technological indicator targets for the Company’s major investment projects.
Key risk factors
Mitigants
• Uncertainty associated
To manage this risk, the Company:
with the occurrence of ore bodies;
• changing forecasts
of its major investment projects developing the mineral resource base;
• updates the mining plan (a long-term production plan) based on the current status
of ore composition and properties
in the course of follow-up exploration;
• obsolescence of technologies
and equipment included in the design
documents
• holds external audits of geological data;
• improves the risk management process for investment projects;
• develops mining and geological information systems;
• as part of the project assurance process, conducts internal audits of large investment
projects at each stage in their life cycle;
• provides better incentives when it comes to the project work;
• ensures that short-term, mid-term and long-term planning processes are in synch;
• implements an integrated system for managing mining operations
Annual Report > 2018Nornickel www.nornickel.com> 200
Operational risks
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
201
Workplace injury risk
Failure to comply with the Company’s health and safety rules may result in threats to employee health and life, temporary suspension
of operations, and property damage.
Information security risks
Potential cyber crimes may result in an unauthorised transfer, modification or destruction of information assets, disruption or lower efficiency
of IT services, business, technological and production processes of the Company.
Key risk factors
Mitigants
Key risk factors
Mitigants
• Unsatisfactory organisation of work
execution;
Pursuant to the Occupational Health and Safety Policy approved by the Company's
Board of Directors, the Company:
• disruptions in technological
• continuously monitors compliance with the health and safety requirements;
processes;
• exposure to hazardous factors
• improves the working conditions for employees of the Company and its contractors
deployed at the Company's production facilities, including by implementing new
technologies and labour saving solutions, and enhancing industrial safety at production
facilities;
• provides staff with certified state-of-the-art personal protective equipment;
• carries out preventive and therapeutic interventions to reduce the potential impact
of hazardous and dangerous production factors;
• regularly trains and instructs employees and assesses their health and safety
performance, and conducts corporate workshops, including by deploying special
simulator units;
• enhances methodological support for health and safety functions, including through
the development and implementation of corporate health and safety standards;
• improves the risk assessment and management framework at the Group’s companies
and production facilities as part of the Risk Control project;
• analyses the competencies of line managers at the Company’s production facilities,
develops health and safety training programmes and arranges relevant training
sessions;
• provides training for managers under the programme to determine root causes
of accidents using best international practices (“Tree of Causes and Hazards”, 5-why, etc.);
• provides information about the circumstances and causes of an accident to all
employees of the Company, conducts ad hoc instruction sessions;
• introduces frameworks to manage technical, technological, organisational
and HR changes
• Growing external threats;
To manage this risk, the Company undertakes to:
• unfair competition;
• comply with Russian laws and regulations with respect to personal data and trade
secret protection, insider information, and critical information infrastructure;
• rapid development and automation
of IT infrastructure, technological
and business processes;
• employee and third party wrongdoing
• implement MMC Norilsk Nickel's Information Security Policy;
• categorise information assets and assess information security risks;
• raise awareness in information security;
• use technical means to ensure information security of assets and manage access
to information assets;
• ensure information security of the process control system;
• monitor threats to information security and use technical protection means, including
vulnerability
• analysis, penetration testing, cryptographic protection of communication channels,
controlled access to removable media, protection from confidential data leakages,
mobile device management;
• draft information security rules and regulations;
• set up and certify the Information Security Management System
Annual Report > 2018Nornickel www.nornickel.com> 202
Technical and production risk
Technical, production, or natural phenomena, which, once materialised, could have a negative impact on the implementation
of the production programme and cause equipment breakdown or reimbursable damage to third parties and the environment.
Company overview
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Risk report
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Consolidated financial statements
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203
Key risk factors
Mitigants
Key risk factors
Mitigants
• Harsh weather
To manage this risk, the Company undertakes to:
• discrepancies in rules and regulations;
• uses pre-trial and trial remedies to defend the Company's interests;
and climatic conditions, including low
temperatures, storm winds, snow
load;
• unscheduled stoppages of key
equipment;
• release of explosive gases
and flooding of mines;
• properly and safely operate its assets in line with the requirements of the technical
documentation, technical rules and regulations as prescribed by the local laws across
the Company's footprint;
• develop ranking criteria and criticality assessment for key industrial assets;
• timely replace its fixed assets to achieve production safety targets;
• implement automated systems to control equipment's process flows, use state-of-the-
• collapse of buildings and structures;
art engineering controls;
• infrastructure breakdowns
• improve the maintenance and repair system;
• considerable powers and a high
degree of discretion exercised
by regulatory authorities;
• potential violation of legal
requirements by the Company’s
business units
• train and educate its employees both locally, on site, and centrally, through its
corporate training centres;
• systematically identify and assess technical and production risks, implement
a programme of organisational and technical actions to mitigate such risks;
• develop the technical and production risk management system, including by engaging
independent experts to assess the system efficiency and completeness of data;
• develop and test business continuity plans which set out a sequence of actions
to be taken by the Company's personnel and internal contractors in case of technical
and production risks causing maximum damage and aimed at the earliest resumption
of the Company's production operations;
• engage, on an annual basis, independent surveyors to analyse the Company's exposure
to disruptions in the production and logistics chain and assess related risks. In 2018,
key technical and production risks were insured as part of the property and business
interruption (downtime) insurance programme, with emphasis placed on best risk
management practices in the mining and metals industry
• includes conditions defending the Company's interests in the contracts signed
by the Company;
• implements anti-corruption, anti-money laundering and counter-terrorist financing
initiatives;
• takes actions to prevent unauthorised use of insider information and market
manipulation;
• ensures timely and reliable information disclosures as required by the applicable
Russian and international laws;
• has the Company’s employees attend a course on dealing with insider information.
In 2018, the Company developed and approved the following documents:
• Regulation on the Antitrust Compliance System of MMC Norilsk Nickel and similar
documents;
• Procedure for Interaction of the Legal Teams of MMC Norilsk Nickel and Russian
Entities Comprising the Norilsk Nickel Group (for better identification and assessment
of legal risks);
• Procedure for Notifying Persons Discharging Managerial Responsibilities
at MMC Norilsk Nickel, and for Disclosing Information on Transactions by Such
Persons and Their Closely Associated Persons;
• updated version of the Company's List of Insider Information based on the changed
requirements of the Russian law
Compliance risk
The risk of legal liability and/or legal sanctions, significant financial losses, suspension of production, revocation or suspension of a licence, loss
of reputation, or other adverse effects arising from the Company’s non-compliance with the applicable regulations, instructions, rules, standards
or codes of conduct.
Power blackouts at production and social facilities in the Norilsk Industrial District (NID)
The failure of key equipment at the generating facilities and transmission networks may result in power, heat and water shortage at key
production facilities of the Company's Polar Division and social facilities in the NID.
Key risk factors
Mitigants
Key risk factors
Mitigants
• Changes in legislation and law
To manage this risk, the Company:
enforcement practices;
• makes sure the Company complies with the applicable laws;
• defends the Company's interests during surveillance inspections or in administrative
offence cases;
• The isolation of the NID's power
To manage this risk, the Company:
system from the national grid (Unified
Energy System of Russia);
• harsh weather and climatic conditions,
including low temperatures, storm
winds, snow load;
• length of power, heat and gas
transmission lines;
• wear and tear of key production
equipment and infrastructure
• operates and maintains generating and mining assets as required by the technical
documentation, industry rules, regulations, and laws;
• timely constructs and launches transformer facilities, timely replaces transmission
towers;
• timely upgrades (replaces) TPP and HPP power units' equipment;
• timely upgrades and renovates trunk gas and condensate pipelines and gas
distribution networks
Annual Report > 2018Nornickel www.nornickel.com> 204
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
205
Climate change risks
Social risk
Escalating tensions among the workforce due to the deterioration of social and economic conditions in the Company's regions of operation.
Lack of water resources
Water shortages in storage reservoirs of the Company’s hydropower facilities may result in failure to achieve necessary water pressure
at HPP turbines leading to limited power production and drinking water shortages in the Norilsk Municipality territory.
Key risk factors
Mitigants
Key risk factors
Mitigants
• Headcount / staff composition
To manage this risk, the Company:
optimisation projects;
• rejection of the Company’s values
by some employees and third parties;
• strictly abides by the collective bargaining agreements made between the Group's
companies and employees. In 2018, MMC Norilsk Nickel signed a new collective
bargaining agreement for 2018–2021;
• limited ability to perform annual wage
• actively interacts with regional and local authorities, and civil society institutions;
indexation;
• dissemination of false and inaccurate
information about the Company’s
plans and operations among
the Group’s employees;
• reallocation in spending on social
programmes and charity
• fulfils its social obligations under public-private partnership agreements;
• implements the World of New Opportunities charity programme aimed at supporting
and promoting regional public initiatives;
• implements the Norilsk Upgrade project to introduce innovative solutions
for sustainable social and economic development of the region;
• implements monitoring across the Group's operations;
• conducts opinion polls among Norilsk's communities to learn more about their living
standards, employment, migration trends and general social sentiment, and identify
major challenges;
• implements social projects and programmes aimed at supporting employees
and their families, as well as the Company’s former employees.
• engages in dialogues with stakeholders and conduct opinion polls while preparing
public sustainability reports of the Group
Changes in legislation and law enforcement practices
Adverse consequences arising from the Company’s non-compliance with the applicable regulations, instructions, rules, standards or codes
of conduct.
Key risk factors
Mitigants
• Unstable legal environment (including
lack of codified/uniform regulations
in various areas);
• frequent changes to legislative acts;
• complicated geopolitical situation;
To manage this risk, the Company:
• continuously monitors changes in legislation and law enforcement practices in all its
business areas;
• performs legal due diligence of draft regulations and amendments;
• participates in discussions of draft regulations, both publicly and as part of the expert
• budget deficit (need to boost tax
groups;
and other proceeds)
• engages its employees in relevant professional and specialist training programmes,
corporate workshops, and conferences;
• cooperates with government agencies to ensure that new laws and regulations take
into account the Company’s interests.
• Abnormal natural phenomena
To manage this risk, the Company:
(drought) caused by climate change
• implements a closed water circuit to reduce water withdrawal;
• carries out regular hydrological examinations to forecast water levels in rivers
and water bodies.
• cooperates with the Federal Service for Hydrometeorology and Environmental
Monitoring (Rosgidromet) on setting up permanent hydrological and meteorological
monitoring stations in order to improve the accuracy of water level forecasts
in the Norilsk Municipality territory;
• dredges the Norilskaya River and reduces energy consumption at the production
facilities, should the risk materialise;
• replaces equipment at hydropower plants to increase power output through improving
the performance of hydroelectric units (implementation in 2012–2021)
Soil thawing
Loss of bearing capacity of pile foundations, deformation of buildings and structures leading to their destruction.
Key risk factors
Mitigants
• Climate change, average annual
To manage this risk, the Company:
temperature increase (over the last
15–20 years);
• increased depth of seasonal thawing
• regularly monitors the condition of foundation beds for buildings and structures built
on permafrost;
• runs geodetic control of changes in buildings’ positions;
• monitors soil temperature at buildings' foundations;
• monitors the facilities’ compliance with operational requirements for crawlspaces;
• develops recommendations and corrective action plans to ensure safe operating
conditions for buildings and structures
Annual Report > 2018Nornickel www.nornickel.com> 8
Shareholder
information
>
>
>
>
Securities
Dividend policy
Shareholder rights
Transparency
208
212
215
216
208
SECURITIES
Share capital structure, calendar year-end (%)
34.6
30.4
30.4
2018
2017
2016
27.8
4.2
33.4
27.8
27.8
4.2
37.6
4.2
37.6
Olderfrey Holdings Ltd
UC Rusal Plс
Crispian Investments Ltd
Other
Indirect owership via controlled entities.
As at 31 December 2018, there were
38,834 persons
registered in the shareholder register
38,806 individuals
28 legal entities,
including 3 nominal holders
As at 31 December 2018, the authorised
capital of MMC Norilsk Nickel comprised
158,245,476 ordinary shares with a par value
of RUB 1 each. The Company placed no
preferred shares.
and 4.2%, respectively. Shares and American
depositary receipts (ADRs) in free float
owned by institutional and private investors
from Europe, USA, Russia, Asia and elsewhere
accounted for 33.4% of the issued capital.
The Company's ordinary shares are traded
mostly on the Moscow Exchange, while
ADRs are traded in the electronic trading
system of OTC markets of the London
Stock Exchange. As at 31 December 2018,
the Company's capitalisation remained flat
y-o-y at USD 29.7 bn.
As at 31 December 2018, there were 38,834
persons registered in the shareholder register
– 38,806 individuals and 28 legal entities,
including 3 nominal holders.
The reporting year saw minor changes
in the shareholding structure. Olderfrey
Holdings Ltd, the Company's major
shareholder, built up its holding from 30.4%
to 34.6% as at the year-end. The shares
of UC Rusal Plс and Crispian Investments
Ltd remained unchanged at 27.8%
Average monthly capitalisation in 2018 (USD bn)
32.1
31.7
30.3
27.1
27.6
28.5
27.7
26.1
26.9
26.8
30.2
28.2
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
As at 31 December 2018,
the Company's capitalisation
amounted to
USD 29.7bn
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
209
Shares
The Company's ordinary shares have been
trading on the Russian market since 2001.
They are included in the Moscow Exchange’s
Blue Chip Index (ticker symbol: GMKN)
and rank among the most liquid instruments
in the Russian securities market.
As at 31 December 2018, the Company’s
registrar was Independent Registrar
Company. Following the reorganisation
completed on 4 February 2019,
Independent Registrar Company became
part of the IRC – R.O.S.T. Group. As a legal
successor of Independent Registrar
Company, IRC – R.O.S.T. has been
keeping Nornickel’s shareholder register
and providing a full scope of registrar
services from 5 February 2019.
Holders of the Company’s shares can
participate in the General Meeting
of Shareholders through e-voting using
the Shareholder’s Personal Account set
up by the registrar. Besides, shareholders
registered in the shareholder register can:
• view the number and price
of their shares;
• check dividends accrued and paid;
• see the date of the upcoming General
Meeting of Shareholders.
Access to the personal account can be
obtained at a branch of Independent
Registrar Company. Individual shareholders
with a verified Public Services Portal
account can connect to their personal
account remotely. The procedure to connect
to the Shareholder’s Personal Account
is available at the registrar's website.
> > >
For more details on the registrar, please see
the Contacts section on
p. 281
Average share price and trading volume on the Moscow Exchange in 2018
Disclosure
of FY 2017
financial
results
Recommendation
on dividend
payment for FY
2017
• Disclosure of 1H 2018
financial results
• Recommendation on dividend
payment for 1H 2018
11.5
11.4
11.0
70.1
10.5
67.0
10.9
11.3
11.1
11.0
11.6
11.2
11.9
12.9
46.2
Jan
36.6
35.9
31.2
44.3
43.0
37.7
35.5
39.5
33.6
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Trading volume (RUB bn)
Average share price (RUB ’000), indicative scale
Share and ADR split,
31 December 2018 (%)
Shares
74.9
ADR
25.1
The procedure
to connect
to the Shareholder’s
Personal Account
is available
at the registrar's
website.
Share price and MOEX Russia Index in 2018 (%)
140
100
60
+
15
+
10
Access to the personal account can be
obtained at a branch of IRC – R.O.S.T. Individual
shareholders with a verified Public Services Portal
account can connect to their personal account
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
remotely.
Nornickel shares
MOEX index
Share price and trading volume on the Moscow Exchange
Date
2014
2015
2016
2017
2018
Q1
Q2
Q3
Q4
Share price, RUB
Max
10,805
12,106
11,070
11,610
13,349
11,874
11,644
12,073
13,349
Min
5,150
8,590
8,050
7,791
9,170
10,695
9,170
10,255
10,650
End of period
Volume, mln
shares
Market cap at end
of period, RUB bn
8,080
9,150
10,122
10,850
13,039
10,760
11,039
11,388
13,039
75
58
48
49
46
13
13
11
9
1,279
1,448
1,602
1,717
2,063
1,703
1,804
1,802
2,063
Source: Bloomberg
Source: Company calculations based on the Moscow Exchange price
Annual Report > 2018Nornickel www.nornickel.com > 210
ADRs
In 2001, MMC Norilsk Nickel issued ADRs
for its shares. Currently, shares are convertible
into ADRs at a ratio of 1:10. Depositary
services for ADR transactions and custody
services are provided by the Bank of New
York Mellon and VTB Bank, respectively.
ADRs are traded in the electronic trading
system of OTC markets of the London
Stock Exchange (ticker symbol: MNOD),
on the US OTC market (ticker symbol: NILSY),
and on other exchanges.
As at 31 December 2018, the total number
of ADRs issued against MMC Norilsk
Nickel’s shares was 396,925,820, or 25.1%
of the authorised capital. The number
of ADRs traded on stock exchanges
is not constant, as depositary receipt
holders may convert their securities into
shares and vice versa.
Average ADR price and trading volume on the London Stock Exchange in 2018
Share and ADR trading volume
by exchange (%)
48
35
41
44
39
2018
2017
2016
2015
2014
51
64
58
55
60
1
1
1
1
1
Disclosure
of FY 2017
financial
results
Recommendation
on dividend
payment for FY
2017
• Disclosure of 1H 2018
financial results
• Recommendation on dividend
payment for 1H 2018
Moscow
Exchange
(shares)
London Stock
Exchange
(ADRs)
New York Stock
Exchange
(ADRs)
20.3
20.1
19.2
1.3
1.0
17.4
18.0
17.5
16.5
17.0
17.0
17.8
19.1
Source: Bloomberg
17.1
1.4
0.7
0.6
0.5
0.7
0.6
0.5
0.5
0.6
0.4
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
211
Bonds
As at the end of 2018, the Company
had four Eurobond issues outstanding
for a total amount of USD 3.5 bn
with maturities in 2020, 2022 and 2023,
and one issue of rouble exchange-traded
bonds for RUB 15 bn due in 2026. In April
2018, Nornickel redeemed the Eurobond
issue for USD 750 mln.
In late November 2018, the Company
registered its 30-year exchange-traded
bond issuing programme on the Moscow
Exchange. The programme provides
for exchange-traded bond issues for up
to RUB 300 bn or its equivalent in a foreign
currency.
Eurobonds
Instrument
Issuer
Eurobonds
2018 (LPN)
(redeemed)
MMC Finance
D.A.C.
2020 (LPN)
2022 (LPN)
2022 (LPN)
2023 (LPN)
MMC Finance
D.A.C.
MMC Finance
D.A.C.
MMC Finance
D.A.C.
MMC Finance
D.A.C.
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Issue size, USD mln
750
Coupon rate, %
4.375
1,000
5.550
500
3.849
1,000
6.625
1,000
4.100
Trading volume (RUB bn)
Average share price (RUB ’000), indicative scale
Offering date
30 April 2013
28 October 2013
08 June 2017
14 October 2015
11 April 2017
ADR price and global indices (%)
140
100
60
2—
9—
10—
For more details on trading in the Company's
share and ADRs, please see our website at
https://www.nornickel.com/investors/tools/
stockchart/
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Nornickel's ADR
RTS Index
Euromoney global diversified index
Source: Bloomberg
ADR price and trading volume on the OTC market of the London Stock Exchange
Date
2014
2015
2016
2017
2018
Q1
Q2
Q3
Q4
ADR price, USD
Max
21.5
21.6
18.2
20.2
21.2
21.2
18.8
18.7
19.9
Min
14.2
12.4
10.4
13.0
14.9
18.5
14.9
15.9
16.1
End of period
Volume, mln ADRs
Market cap at end
of period, USD mln
14.2
12.7
16.8
18.7
18.8
18.5
18.0
17.3
18.8
1,163
722
647
738
491
153
150
102
86
22,503
20,042
26,569
29,655
29,687
29,339
28,405
27,376
29,687
Maturity date
30 April 2018
28 October 2020
08 April 2022
14 October 2022
11 April 2023
Coupon dates
30 October /
30 April
28 October /
28 April
08 October /
08 April
14 October /
14 April
11 October /
11 April
Issue rating
BBB− /
Bаa3 /
BBB−
BBB− /
Bаa3/
BBB−
ВВВ− /
– /
ВВВ−
BBB− /
Bаa3/
BBB−
ВВВ− /
– /
ВВВ−
Rating revised upwards to Baa2 from 12 February 2019.
Rouble bonds
Instrument
Issuer
ISIN
Offering date
Maturity date
Issue size
Coupon rate
Coupon dates
Exchange-traded bonds, BO-05
MMC Norilsk Nickel
RU000A0JW5C7
19 February 2016
06 February 2026
RUB 15 bn
11.60%
Each 182 days starting from the offering date
Annual Report > 2018Nornickel www.nornickel.com >
212
Credit ratings
On 29 January 2018, Moody's upgraded
Nornickel's credit rating to Ваа3
(investment grade) and raised its outlook
from stable to positive following
an increase in Russia's country ceilings
for foreign currency debt to the same
Baa3 level and a change in the outlook
on Russia’s rating from stable to positive.
On 30 November 2018, Nornickel received
the highest creditworthiness rating
according to the Russian national scale
(ruAAA, outlook stable) from the RAEX
(Expert RA) rating agency.
On 12 February 2019, Moody's upgraded
Nornickel's credit rating to Ваа2, outlook
stable, following an increase in Russia's
country ceilings for foreign currency debt
to the same Baa2 level and an upgrade
in Russia’s sovereign credit rating to Baa3
(investment grade), outlook stable.
As at the year-end, the Company
boasted investment grade credit
ratings from the three leading
international rating agencies
and the Russian RAEX:
Fitch
Standard & Poor’s
Moody’s
Expert RA
BBB−
Stable
BBB−
Stable
Baa3
Positive
ruААА
Stable
DIVIDEND POLICY
MMC Norilsk Nickel’s Dividend Policy aims
to balance the interests of the Company
and its shareholders, enhance
the Company's investment case and market
capitalisation, and ensure respect
of shareholder rights.
The Company has put in place
the Regulations on the Dividend Policy
to ensure transparency on how dividends
are calculated and paid out.
When calculating dividends, MMC Norilsk
Nickel factors in the cyclical nature
of the metals market and the need
to maintain a high level of creditworthiness.
As a result, the amount of dividends may
change depending on the Company’s
operating profit and leverage.
The decision to pay dividends is made
by the General Meeting of Shareholders
based on recommendations of the Board
of Directors. The General Meeting
of Shareholders determines the dividend
amount and record date, which, as per
the Russian law, shall be set not earlier than
10 days before and not later than 20 days
after the General Meeting of Shareholders.
Dividends to a nominee shareholder listed
on the shareholder register shall be paid
within 10 business days, while dividends
to other persons listed on the shareholder
register shall be paid within 25 business
days after the record date.
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
213
Dividend report
Individuals/entities whose rights to shares
are recorded in the shareholder register
are paid dividends by Independent Registrar
Company upon Nornickel’s instruction.
other delays on the part of the creditor, may
request payment of such dividends (unpaid
dividends) during the period of three years
from the date of the resolution to pay
the same.
Individuals/entities whose rights to shares
are recorded by a nominee shareholder
are paid dividends via their nominee
shareholder.
In accordance with Clause 9 of Article
42 of Federal Law No. 208-FZ On Joint-
Stock Companies dated 26 December
1995, any person who has not received
the declared dividends due to the fact
that their accurate address or banking
details were not available to the company
or the registrar as required, or due to any
Dividend history
On 26 April 2019, the Company's
Board of Directors recommended
that the General Meeting of Share-
holders approve dividends for FY
2018 in the amount of
USD 792.52
(USD 12.25)
Declared dividends per share (USD)
2018
2017
2016
2015
2014
23.63
13.66
14.78
13.57
30.32
Based on the total amount of dividends
for 2018 recommended by the Board
of Directors for approval by the General
Meeting of hareholders. Declared dividends
based on the Bank of Russia's exchange rate
as at the date of the Board of Directors’ meeting.
Period
Total for 2018
FY2018
6M 2018
Total for 2017
FY2017
6M 2017
Total for 2016
FY2016
9M 2016
Total for 2015
FY2015
9M 2015
6M 2015
Total for 2014
FY2014
9M 2014
Declared dividends
Dividend per share/ADR
RUB mln
248,214
125,413
122,802
131,689
96,210
35,479
140,894
70,593
70,301
135,642
36,419
50,947
48,276
226,668
106,031
120,637
USD mln
3,739
1,939
1,800
2,162
1,562
600
2,339
1,239
1,100
2,148
548
800
800
4,798
2,018
2,780
RUB
1,569
793
776
832
608
224
890
446
444
857
230
322
305
1,432
670
762
USD
23.63
12.25
11.37
13.66
9.87
3.79
14.78
7.83
6.95
13.57
3.46
5.06
5.06
30.32
12.75
17.57
For dividend history covering earlier periods, please see our website.
Calculated at the Bank of Russia's exchange rate as at the date of the Board of Directors’ meeting.
On 26 April 2019, the Company's Board of Directors recommended that the General Meeting of Shareholders
approve dividends for 2018.
Annual Report > 2018Nornickel www.nornickel.com > 214
Over the last five years, Nornickel has been developing its Tier
1 assets and providing a consistently high dividend yield to its
shareholders. We expect the trend to continue.
Dividends paid
Year
2018
2017
2016
2015
2014
Dividend amount
RUB mln
218,873
176,246
86,712
154,227
159,914
3,369
2,971
1,232
2,859
3,281
Dividend yield
13.6
14.0
20.7
18.1
11.8
21.3
7.2
18.8
+
4,6 p.p.
+
13.3%
7.3
7.8
USD mln
2014
2015
2016
2017
2018
Dividends paid per share in the reporting period (USD)
Dividend yield
(%)
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
215
Dividend tax formula
AT = P × TR × (D1 – D2)
where:
AT — amount of tax to be
withheld from the income
of the recipient of dividends;
P — proportion of the dividend
amount payable to one
recipient to the total dividend
amount to be distributed;
SHAREHOLDER
RIGHTS
All shareholders, including minority and institutional shareholders, enjoy equal rights
and treatment in their relations with the Company, in particular the rights to:
• participate in General Meetings of Shareholders and vote on all items within its
Dividends paid during the periods, excluding payouts on treasury stock.
Dividend yield for the periods calculated based on the amount of dividends
for the calendar year recommended by the Board of Directors and on the average
ADR price according to Bloomberg.
TR — tax rate for Russian entities
(0% or 13%);
•
competence, unless otherwise provided for by Federal Law No. 208-FZ On Joint Stock
Companies dated 26 December 1995;
receive dividends should the General Meeting of Shareholders pass the relevant
resolution;
receive part of the Company's property in case of its liquidation;
•
• have access to information about the Company's operations.
Taxation
Income from securities is taxable pursuant
to the applicable tax laws of the Russian
Federation.
Chapter 23 (Personal
Income Tax) and Chapter 25
(Corporate Income Tax)
of the Russian Tax Code.
Reduced tax rates or exemptions may
apply to individuals and foreign entities
who are not tax residents of Russia
pursuant to international double tax
treaties.
Starting from 1 January 2017, in order
to apply for tax benefits under international
double tax treaties, foreign organisations
must confirm their permanent residence
in a state which has a double tax
treaty signed with Russia, and also
provide the income paying tax agent
with a document confirming the right
of the organisation to receive such income
(Clause 1, Article 312 of the Russian Tax
Code).
Should the organisation fail
to provide such confirmation by the date
of the payout, the Russian tax agent shall
withhold the tax at the standard rates
stipulated by Clauses 2 and 3, Article 284
of the Russian Tax Code.
Tax treatment of income from securities (%)
Item
Individuals
Residents
Non-residents
Legal entities
Russian companies
Non-resident companies
Income
from securities
transactions
Interest income
on securities
Dividend
income
on securities
13
30
20
20
13
30
20
20
13
15
13
15
Chapter 23 (Personal Income Tax) and Chapter 25 (Corporate Income Tax) of the Russian Tax Code.
Or 0%, if shares (interests) of Russian entities acquired on or after 1 January 2011 are sold, provided that as at
the date of their sale the shares (interests) have been owned for over five years and subject to (in respect of shares)
one of the conditions stipulated by Clause 2, Article 284.2 of the Russian Tax Code. The condition of being acquired
on or after 1 January 2011 does not apply to shares (interests) sold on or after 27 November 2018.
If shares or other securities are sold in Russia.
Or 0%, if as at the date of the dividend payout resolution a Russian entity has been owning an interest of 50%
(and more) in the authorised capital of the entity paying dividends, for 365 days (and more).
Provided the income is classified as income of a foreign entity from sources in the Russian Federation
in accordance with Clause 1, Article 309 of the Russian Tax Code.
D1 — dividend amount
to be distributed among all
recipients;
D2 — dividend amount received
by the entity paying
dividends, provided that
previously these amounts
were not included
in the taxable income.
The formula is not applicable to dividends paid
to foreign entities and/or individuals who are not
tax residents of Russia.
Excluding the dividend amount eligible for a zero
tax rate pursuant to Subclause 1, Clause 3,
Article 284 of the Russian Tax Code.
The Company has the Regulations
on the General Meeting of Shareholders
in place that set forth procedures
to convene, prepare and conduct its
general meetings.
The Annual General Meeting
of Shareholders is held on an annual
basis not earlier than three months
before and not later than six months
after the end of the financial year. General
meetings other than Annual General
Meetings of Shareholders are defined
as Extraordinary General Meetings
of Shareholders and are convened
as per resolution of the Board of Directors
at their discretion or at the request
of the Audit Commission, the Company’s
auditor, or shareholders who own at least
10% of the Company’s voting shares
as at the date of the request.
The notice of a General Meeting
of Shareholders is published
in the Rossiyskaya Gazeta and Taimyr
newspapers and posted on the Company's
website not later than 30 days prior
to the date of the general meeting.
If a general meeting is conducted
in the form of absentee voting (by
ballot), the notice is given in the above
mentioned newspapers at least 30 days
prior to the deadline set for the collection
of ballot sheets.
For more details on the Regulations
on the General Meeting of Shareholders,
please see the Investor Relations section
on the Company’s corporate website at
https://www.nornickel.com/files/en/corporate_
documents/constituent_documents/
Regulations-AGM-2014(1).pdf
Holders of MMC Norilsk Nickel's shares
who are registered in the shareholder
register receive a ballot from the Company
and are entitled to exercise their voting right
by sending the ballot sheet to the Company
or by attending the General Meeting
of Shareholders (in person or by proxy).
Shareholders of MMC Norilsk Nickel
who own the Company’s shares via
nominal holders receive the voting ballot
from the nominal holder. They are entitled
to vote at the meeting in the same way
as the holders registered in the shareholder
register (see the paragraph above)
or instruct the nominal holder to do
the same as prescribed by the Russian
Annual Report > 2018Nornickel www.nornickel.com > 216
securities law. The nominal holders duly
instructed by their clients communicate
the voting instructions to the registrar.
The receipt of instructions by the registrar
shall be equivalent to ballot voting.
Should the Board of Directors make
arrangements for e-voting at the general
meeting, the shareholders (individuals
and legal entities registered in the shareholder
register and clients of nominal holders)
can participate in the process using
the Shareholder’s Personal Account. Access
to the personal account can be obtained
at a registrar’s branch. Individual shareholders
with a verified Public Services Portal account
can connect to their personal account
remotely.
ADR holders do not receive ballot sheets
directly from the Company. According
to the depository agreement, the Company
notifies the depository, which as soon
as possible, and provided it is not prohibited
by the Russian law, notifies ADR holders
about the general meeting and encloses
voting materials and a document describing
> > >
For more details on the registrar, please
see the Contacts section on
p. 281
the voting procedure for ADR holders.
To exercise their voting rights, ADR holders
instruct the depository accordingly.
A General Meeting of Shareholders
shall be considered properly convened
(having a quorum) if the shareholders
who own in aggregate more than 50%
of the votes granted by the voting shares
of the Company are present at the meeting.
Voting at the General Meeting
of Shareholders takes place in accordance
with the "one share, one vote" rule, unless
otherwise provided for in the Federal
Law. Members of the Company’s Board
of Directors are elected through cumulative
voting, i.e. the number of votes held by each
shareholder is multiplied by the number
of persons to be elected to the Board
of Directors.
Shareholders can exercise other rights
as prescribed by the federal laws On Joint-
Stock Companies and On the Securities
Market, and other regulations
of the Russian Federation.
Company overview
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Consolidated financial statements
Additional information
217
The procedure to connect to the Shareholder’s
Personal Account is available at the registrar's
website at http://rrost.ru/ru/shareholder/
online-services/new_lka/
For details on the events, please see
the IR Calendar on the Company’s website at
https://www.nornickel.com/investors/events/
Information on ESG is available on the Company's
website in the ESG Strategy section:
https://www.nornickel.com/investors/esg/
The Company engages
in an ongoing
dialogue with both
existing shareholders
and potential investors
TRANSPARENCY
MMC Norilsk Nickel has in place
Information Policy Regulations approved
by the Company’s Board of Directors.
The regulations primarily seek to provide
stakeholders with full and reliable
information on the Company's operations,
and collect feedback.
In line with its key disclosure principles,
the Company strives to make information
equally available to all stakeholders
on a regular and timely basis. We also
work to ensure that the information
is reliable and complete while maintaining
a reasonable balance between transparent
operations and business considerations.
The Company publishes updates
in the media and on its corporate website
at https://www.nornickel.com/.
The Company’s disclosure procedures
comply with the Russian law, rules
of the Moscow Exchange, and applicable
foreign/international legislation.
MMC Norilsk Nickel also seeks to improve
transparency by releasing additional
information in excess of statutory
>350 meetings
with institutional investors held
in 2018
20 meetings
with investors centred around
environmental protection, social
responsibility and corporate
governance
To improve interaction with investors
and ESG rating agencies, Nornickel set
up a dedicated section on its website that
features all the required information.
Also, it developed an ESG databook
disclosing sustainability indicators starting
from 2010.
requirements. The Company uses
the following channels to disclose
information to shareholders and investors:
press releases, presentations, annual
and sustainability reports, corporate
action notices, news feeds, and RNS.
The Company makes a point of parallel
disclosure in domestic and foreign markets.
Nornickel's quarterly disclosures include
operating indicators, the issuer’s quarterly
reports, RAS financial (accounting)
statements, and affiliate lists. IFRS
statements are released on a semi-annual
basis. IFRS disclosures are followed
by conference calls and webcasts
of the Company’s senior management
with analysts and investors to provide
the market with the required information
and comments. In addition, to enhance
transparency, the Company makes
an extensive use of all communication
tools available, including participation
of senior managers in conferences,
speeches, presentations, investor days,
and production site visits for investors.
The Company engages in an ongoing
dialogue with both existing shareholders
and potential investors. During the past
year, the Company maintained close
interaction with the investor community
and shareholders, organising over 350
meetings with institutional investors
and an Investor Day in London followed
by a road show in Europe and the US.
In recent years, the sustainable development
agenda has been gaining ground,
with an increasing number of investors
and asset managers opting for responsible
investment. In 2018, the Company held
around 20 target meetings with investors
centred around environmental protection,
social responsibility and corporate
governance (ESG).
Annual Report > 2018Nornickel www.nornickel.com > 218
Our key sustainability
achievements
2016
Company overview
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Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
219
AWARDS FOR PUBLIC DISCLOSURE
NOVEMBER
DECEMBER
The Company
joined the United
Nations Global
Compact
Nornickel was included in the FTSE4Good
Emerging Index, a leading CSR index
2017 Annual Report
Interactive version of the 2017 Annual Report
Moscow Exchange
competition
Expert RA
competition
LACP Vision
Awards
ARC
Awards
ReportWatch
2017
Norilsk Nickel Group's 2017 Sustainability Report
DECEMBER
NOVEMBER
JUNE
ISS-oekom awarded
the Company the C rating
(medium)
MSCI ESG Research
upgraded Nornickel's rating
to a B level
The Company becoming member
of the Association “National Global
Compact Network”
2018
JUNE
DECEMBER
The FTSE4 Good Emerging
Index score was upgrade
at 3.1 out of 5
ISS affirmed Nornickel's environmental and corporate
governance ratings at 4, and social – at 3, with 1 and 10
standing for low and high risk, respectively
The Company’s score
in Sustainalytics's ESG rating went
up to 69 against 58 in 2017
Moscow Exchange
competition
MarCom
Awards
Deloitte — Green
Frog Award
Expert RA
competition
LACP Vision
Awards
Corporate website of Nornickel
Corporate & Financial
Awards 2018
IR Society
(shortlist)
Stakeholder engagement
Stakeholders
Key interests of stakeholders
Interaction channels
Key interaction events in 2018
Shareholders
and investors
• Capitalisation growth
• Dividend payments
• Transparency
of information
Investment banks
(brokers)
• Transparency
of information
• Stability
• One-on-one meetings
• Conference calls
• Phone calls
• Emails
• Site visits
• Meetings
• Conference calls
• Phone calls
• Emails
Investor Day in London
•
• Conference calls and a road show
following the IFRS disclosure
Investor Day in London
•
• Conference calls and a road show
following the IFRS disclosure
The Company’s Annual report
is a regular winner of prestigious domestic
and international awards and accolades.
For example, Nornickel’s 2017 report
received the highest recognition
from the Moscow Exchange for the best
strategy presentation and investment
case. The interactive Annual report's
design was named best at the Expert RA
competition, won three LACP and two
ARC awards, and ranked among the Top
15 global reports in ReportWatch's Best
Practice Report category, while also scoring
first in the Business Model – Value –
Strategy and Infographics – Data – Ratios
categories.
Norilsk Nickel Group’s 2017 Sustainability
Report also reaped a number of awards.
At the XXI Annual Report Competition
held by the Moscow Exchange and RCB
Group in early December 2018, Nornickel
received the Best CSR and Sustainability
Report award. With over 130 companies
participating, the contest is one of Russia's
topmost events in the fields of corporate
governance and investor relations.
The MarCom Awards recognises
outstanding achievements in marketing
and communications. On top of that,
the Report received Deloitte's Green Frog
Award in November 2018. RAEX (Expert
RA), a reputable rating agency, granted
Nornickel a diploma for the best design
of the Sustainability Report. The Company
also took home platinum in the LACP Vision
Awards competition.
In October 2018, the prestigious
MarCom Awards competition honoured
the Company's Sustainability Report
with platinum statuettes in two categories
– Best Report and Best Design.
Nornickel won the Best Corporate Website
award as part of the 2018 Corporate &
Financial Awards and got short-listed
for effective ESG integration and use of digital
communications in the IR Society awards.
Annual Report > 2018Nornickel www.nornickel.com > 9
Consolidated
financial statements
222
CONSOLIDATED
FINANCIAL STATEMENTS
for the year ended 31 December 2018
Content
223
224
228
Statement of management’s responsibilities
for the preparation and approval of the consolidated financial
statements for the year ended 31 December 2018
Independent auditors’ report
Consolidated financial statements for the year ended
31 December 2018:
Consolidated income statement ............................................................................ 228
Consolidated statement of comprehensive income .......................................... 229
Consolidated statement of financial position ...................................................... 230
Consolidated statement of cash flows ................................................................. 232
Consolidated statement of changes in equity ..................................................... 234
Notes to the consolidated financial statements ................................................. 235
Company overview
Strategy
Markets commodity
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Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
223
Statement of management’s responsibilities
for the preparation and approval
of the consolidated financial statements
for the year ended 31 december 2018
The following statement, which should be read in conjunction with the auditors’ responsibility stated in the auditors’ report set out
on pages 224–227, is made with a view to distinguishing the respective responsibilities of management and those of the auditors in
relation to the consolidated financial statements of Public Joint Stock Company “Mining and Metallurgical Company Norilsk Nickel” and its
subsidiaries (the “Group”).
Management of the Group is responsible for the preparation of the consolidated financial statements that present fairly in all material
aspects the consolidated financial position of the Group as at 31 December 2018 and consolidated statements of income, comprehensive
income, cash flows and changes in equity for the year then ended, in accordance with International Financial Reporting Standards (“IFRS”).
In preparing the consolidated financial statements, management is responsible for:
• selecting suitable accounting principles and applying them consistently;
• making judgements and estimates that are reasonable and prudent;
• stating whether IFRS have been followed, subject to any material departures disclosed and explained in the consolidated financial
statements; and
• preparing the consolidated financial statements on a going concern basis, unless it is inappropriate to presume that the Group will
continue in business for the foreseeable future.
Management, within its competencies, is also responsible for:
• designing, implementing and maintaining an effective system of internal controls throughout the Group;
• maintaining statutory accounting records in compliance with local legislation and accounting standards in the respective jurisdictions
in which the Group operates;
taking steps to safeguard the assets of the Group; and
•
• detecting and preventing fraud and other irregularities.
The consolidated financial statements for the year ended 31 December 2018 were approved by:
Senior Vice President –
Chief Financial Officer
S.G. Malyshev
President
V.O. Potanin
Moscow, Russia
26 February 2019
Annual Report > 2018Nornickel www.nornickel.com > 224
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
225
Independent Auditors’ Report
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF PJSC “MINING AND METALLURGICAL COMPANY NORILSK NICKEL”
Impairment of property, plant and equipment of Nkomati Nickel Mine
Please refer to the Note 14 in the consolidated financial statements.
The key audit matter
How the matter was addressed in our audit
Opinion
We have audited the consolidated financial statements of PJSC “Mining and Metallurgical Company Norilsk Nickel” (the “Company”) and its
subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 31 December 2018, the consolidated
income statement, the consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended,
and notes, comprising significant accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position
of the Group as at 31 December 2018, and its consolidated financial performance and its consolidated cash flows for the year then ended
in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
As at 31 December 2018 the Group
identified impairment indicators
for property, plant and equipment of its
joint operation Nkomati Nickel Mine
(hereinafter “Nkomati”) and performed
an impairment test.
As a result the Group recognized
an impairment loss for the excess
of the carrying value over value in use.
Given significant judgement involved
in preparation of discounted cash
flow model of Nkomati, we consider
the determination of recoverable amount
to be a key audit matter.
Other Information
Our audit procedures included testing significant assumptions (metal prices and forecasts of exchange
rate of South African rand to US dollar, as well as discount rate) and evaluating methodology used
by the Group. We involved KPMG valuation specialists to assist us in evaluating the methodology used
by the Group and analysis of key assumptions in terms of their reasonableness and relevance, taking
into consideration current macroeconomic conditions, historic performance results and future plans.
We compared:
•
forecast metal prices, inflation rates in South Africa and the USA with publicly available market
information;
• discount rate calculation to our own assessment of key components of discount rate calculation.
In addition, we analyzed forecast cash flows, by comparing production volumes to reserves estimates
and historical operating performance of Nkomati.
We also assessed appropriateness and completeness of the disclosures in the financial statements
in relation to significant assumptions used in determination of recoverable amount.
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further
described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent
of the Group in accordance with the independence requirements that are relevant to our audit of the consolidated financial statements
in the Russian Federation and with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants
(IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the requirements in the Russian Federation
and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Management is responsible for the other information. The other information comprises the Financial Overview (MD&A) (but does not
include the consolidated financial statements and our auditors’ report thereon), which we obtained prior to the date of this auditors’ report,
and the information included in other sections of Annual Report for 2018, which is expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do not and will not express any form
of assurance conclusion thereon.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial
statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and,
in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we have obtained prior to the date of this auditors’ report, we conclude
that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Audited entity: PJSC “Mining and
Independent auditor: JSC “KPMG”, a company incorporated under the Laws of the Russian
Metallurgical Company Norilsk Nickel”
Federation, a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity
Registration No. in the Unified State
Register of Legal Entities
1028400000298
Registration No. in the Unified State Register of Legal Entities 1027700125628
Dudinka, Krasnoyarsk region,
The Principal Registration Number of the Entry in the Register of Auditors and Audit
Russian Federation
Organisations: No. 1603053203.
Member of the Self-regulated organization of auditors “Russian Union of auditors” (Association).
Annual Report > 2018Nornickel www.nornickel.com > 226
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
227
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS,
and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit.
We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design
and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made
by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’
report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may
cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether
the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group
to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters
in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditors’ report is:
Natalia Velichko
JSC “KPMG”
Moscow, Russia
26 February 2019
Annual Report > 2018Nornickel www.nornickel.com > 228
Consolidated financial statements
for the year ended 31 December 2018
CONSOLIDATED INCOME STATEMENT
for the year ended 31 december 2018
US Dollars million
REVENUE
Metal sales
Other sales
Total revenue
Cost of metal sales
Cost of other sales
Gross profit
General and administrative expenses
Selling and distribution expenses
Impairment of non-financial assets
Other operating income and expenses
Operating profit
Foreign exchange (loss)/gain, net
Finance costs
Gain from disposal of subsidiaries
Income from investments
Profit before tax
Income tax expense
Profit for the year
Attributable to:
Shareholders of the parent company
Non-controlling interests
EARNINGS PER SHARE
Basic and diluted earnings per share attributable to shareholders
of the parent company (US Dollars per share)
Notes
For the year ended 31
December 2018
For the year ended 31
December 2017
6
7
8
9
14
10
11
20
12
13
21
10,962
708
11,670
(4,536)
(622)
6,512
(859)
(92)
(50)
(95)
5,416
(1,029)
(580)
–
95
3,902
(843)
3,059
3,085
(26)
3,059
19.5
8,415
731
9,146
(3,968)
(632)
4,546
(759)
(75)
(227)
(362)
3,123
159
(535)
20
77
2,844
(721)
2,123
2,129
(6)
2,123
13.5
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
229
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 december 2018
US Dollars million
Profit for the year
Other comprehensive (loss)/income
Items to be reclassified to profit or loss in subsequent periods:
Effect of translation of foreign operations
Other comprehensive (loss)/income to be reclassified to profit or loss
in subsequent periods, net
Items not to be reclassified to profit or loss in subsequent periods:
Effect of translation to presentation currency
Other comprehensive (loss)/income not to be reclassified to profit or loss
in subsequent periods, net
Other comprehensive (loss)/income for the year, net of tax
Total comprehensive income for the year, net of tax
Attributable to:
Shareholders of the parent company
Non-controlling interests
For the year ended 31
December 2018
For the year ended 31
December 2017
3,059
2,123
(2)
(2)
(905)
(905)
(907)
2,152
2,232
(80)
2,152
15
15
277
277
292
2,415
2,417
(2)
2,415
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
Annual Report > 2018Nornickel www.nornickel.com > 230
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 december 2018
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
231
US Dollars million
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets
Other financial assets
Deferred tax assets
Other non-current assets
Current assets
Inventories
Trade and other receivables
Advances paid and prepaid expenses
Other financial assets
Income tax receivable
Other taxes receivable
Cash and cash equivalents
Other current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Capital and reserves
Share capital
Share premium
Translation reserve
Retained earnings
Notes
At 31 December 2018
At 31 December 2017
Notes
At 31 December 2018
At 31 December 2017
14
15
13
17
17
18
15
16
19
21
27
9,934
163
141
73
386
10,697
2,280
204
75
147
92
271
1,388
97
4,554
15,251
6
1,254
(5,343)
7,306
10,960
148
192
77
732
12,109
2,689
327
71
99
82
296
852
110
4,526
16,635
6
1,254
(4,490)
7,557
Equity attributable to shareholders of the parent company
Non-controlling interests
Non-current liabilities
Loans and borrowings
Provisions
Trade and other long-term payables
Derivative financial instruments
Deferred tax liabilities
Other long-term liabilities
Current liabilities
Loans and borrowings
Trade and other payables
Dividends payable
Employee benefit obligations
Provisions
Derivative financial instruments
Income tax payable
Other taxes payable
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
22
23
25
13
23
26
27
24
25
16
3,223
250
3,473
8,224
365
200
61
385
185
9,420
215
1,551
6
307
77
5
35
162
2,358
11,778
15,251
4,327
331
4,658
8,236
464
402
–
407
116
9,625
817
783
6
377
189
24
9
147
2,352
11,977
16,635
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
Annual Report > 2018Nornickel www.nornickel.com > 232
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 december 2018
US Dollars million
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OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and amortisation
Impairment of non-financial assets
Loss on disposal of property, plant and equipment
Gain from disposal of subsidiaries
Change in provisions and allowances
Finance costs and income from investments, net
Foreign exchange loss/(gain), net
Other
Movements in working capital:
Inventories
Trade and other receivables
Advances paid and prepaid expenses
Other taxes receivable
Employee benefit obligations
Trade and other payables
Provisions
Other taxes payable
Cash generated from operations
Income tax paid
Net cash generated from operating activities
For the year ended
31 December 2018
For the year ended
31 December 2017
For the year ended
31 December 2018
For the year ended
31 December 2017
3,902
765
50
1
–
61
485
1,029
46
6,339
297
102
(5)
(15)
11
676
(28)
(97)
7,280
(787)
6,493
2,844
645
227
9
(20)
41
458
(159)
58
4,103
(346)
(174)
10
(5)
9
(1,118)
(48)
2
2,433
(670)
1,763
INVESTING ACTIVITIES
Purchase of property, plant and equipment
Purchase of intangible assets
Purchase of other non-current assets
Loans issued
Proceeds from repayment of loans issued
Net change in deposits placed
Proceeds from sale of other financial assets
Proceeds from disposal of property, plant and equipment
Proceeds from disposal of subsidiaries
Interest and other investment income received
Net cash used in investing activities
FINANCING ACTIVITIES
Proceeds from loans and borrowings
Repayments of loans and borrowings
Financial lease payments
Dividends paid (note 27)
Dividends paid to non-controlling interest
Interest paid
Proceeds from sale of a non-controlling interest in a
subsidiary (note 22)
Net cash used in financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effects of foreign exchange differences on balances of cash
and cash equivalents
Cash and cash equivalents at the end of the year
(1,480)
(73)
(104)
(7)
13
5
–
3
–
81
(1,562)
2,173
(2,547)
(9)
(3,369)
(1)
(551)
–
(4,304)
627
852
(91)
1,388
(1,940)
(62)
(88)
(18)
48
(80)
9
29
99
67
(1,936)
4,233
(3,140)
(10)
(2,971)
(1)
(642)
294
(2,237)
(2,410)
3,325
(63)
852
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
Annual Report > 2018Nornickel www.nornickel.com > 234
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235
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 december 2018
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
for the year ended 31 december 2018
US Dollars million
Balance at 1 January 2017
Profit/(loss) for the year
Other comprehensive income
Total comprehensive income/
(loss) for the year
Dividends
Increase in non-controlling
interest due to decrease
in ownership of a subsidiary
Other effects related
to transactions with non-
controlling interest owners
Decrease in non-controlling
interest due to increase
in ownership of a subsidiary
Balance at 31 December 2017
Profit/(loss) for the year
Other comprehensive loss
Total comprehensive income/
(loss) for the year
Dividends
27
Balance at 31 December 2018
Equity attributable to shareholders of the parent company
Notes
Share
capital
Share
premium
Treasury
shares
Translation
reserve
Retained
earnings
Total
Non-
controlling
interests
27
22
6
–
–
–
–
–
–
–
6
–
–
–
–
6
1,254
–
–
–
–
–
–
–
1,254
–
–
–
–
1,254
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(4,778)
7,340
3,822
–
288
2,129
2,129
–
288
288
2,129
2,417
(1,846)
(1,846)
Total
3,896
2,123
292
2,415
(1,847)
74
(6)
4
(2)
(1)
35
35
259
294
(100)
(100)
(1)
(1)
(4,490)
7,557
4,327
–
3,085
(853)
–
3,085
(853)
–
1
331
(26)
(54)
(100)
–
4,658
3,059
(907)
(853)
3,085
2,232
(80)
2,152
–
(3,336)
(3,336)
(1)
(3,337)
(5,343)
7,306
3,223
250
3,473
The accompanying notes on pages 235–269 form an integral part of the consolidated financial statements
US Dollars million
1. GENERAL INFORMATION
Organisation and principal business activities
Public Joint-Stock Company “Mining and Metallurgical Company Norilsk Nickel” (the “Company” or “MMC Norilsk Nickel”) was incorporated
in the Russian Federation on 4 July 1997. The principal activities of the Company and its subsidiaries (the “Group”) are exploration, extraction,
refining of ore and nonmetallic minerals and sale of base and precious metals produced from ore. Further details regarding the nature
of the business and structure of the Group are presented in note 33.
Major production facilities of the Group are located in Taimyr and Kola Peninsulas and the Zabaikalsky region of the Russian Federation,
and in Finland.
BASIS OF PREPARATION
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards
(“IFRS”).
The entities of the Group maintain their accounting records in accordance with the laws, accounting and reporting regulations
of the jurisdictions in which they are incorporated and registered. Accounting principles in certain jurisdictions may differ from those
generally accepted under IFRS. Financial statements of such entities have been adjusted to ensure that the consolidated financial
statements are presented in accordance with IFRS.
The Group issues a separate set of IFRS consolidated financial statements to comply with the requirements of Russian Federal Law No. 208-FZ
On consolidated financial statements (“Law 208-FZ”) dated 27 July 2010.
Basis of measurement
The consolidated financial statements of the Group are prepared on the historical cost basis, except for:
• mark-to-market valuation of by-products upon initial recognition, in accordance with IAS 2 Inventories;
• mark-to-market valuation of certain classes of financial instruments, in accordance with IFRS 9 Financial Instruments (IAS 39 Financial
Instruments: Recognition and Measurement for comparative information).
2. CHANGES IN ACCOUNTING POLICIES
The accounting policies applied in the preparation of these consolidated financial statements are generally consistent with those applied
in the preparation of the Group’s consolidated financial statements as at and for the year ended 31 December 2017 except for the changes
related to the adoption of IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers.
Adoption of new and revised standards and interpretations
The Group has initially adopted IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments from 1 January 2018.
The Group has adopted IFRS 15 Revenue from Contracts with Customers at the date of initial application using the cumulative effect method
with no material effect on the Group’s consolidated financial statements as at 31 December 2018 and for the year then ended. Comparative
information for the year 31 December 2017 has not been restated.
The Group has taken an exemption not to restate comparative information for prior periods with respect to classification requirements
of IFRS 9 Financial Instruments. Therefore, the information presented as at 31 December 2017 does not generally reflect the requirements
of classification of IFRS 9 Financial Instruments but rather those of IAS 39 Financial Instruments: Recognition and Measurement.
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Trade receivables on provisionally priced contracts where price is not settled until a predetermined future date that were classified as loans
and receivables under IAS 39 Financial Instruments: Recognition and Measurement are classified as at 31 December 2018 at fair value
through profit or loss and remeasured at each reporting date using the forward price for the period equivalent to that outlined in the contract
(mark-to-market adjustment).
There were no material differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9
Financial Instruments as at 31 December 2018.
The significant accounting policies in respect of revenue from contracts with customers and financial instruments in effect from 1 January 2018
are set out in note 3.
Adoption of other new and revised standards and interpretations
Adoption of amendments to the following Standards for annual periods from 1 January 2018 did not have material impact on the accounting
policies, financial position or results of the Group:
•
•
•
•
•
•
IFRS 1 First-time Adoption of International Financial Reporting Standards (amended);
IFRS 2 Share-based Payment (amended);
IFRS 4 Insurance Contracts (amended);
IAS 28 Investments in Associates and Joint Ventures (amended);
IAS 40 Investment Property (amended);
IFRIC 22 Foreign Currency Transactions and Advance Consideration.
Standards and interpretations in issue but not yet effective
The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Standards and Interpretations
IFRS 16 Leases
IFRIC 23 Uncertainty over Income Tax Treatments
IFRS 17 Insurance Contracts
Effective for annual periods beginning on or after
1 January 2019
1 January 2019
1 January 2021
Management of the Group plans to adopt all of the above standards and interpretations in the Group’s consolidated financial statements
for the respective periods.
IFRS 16 Leases replaces existing leases guidance, including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease,
SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 Leases
will be adopted by the Group starting 1 January 2019.
IFRS 16 Leases requires the lessee to adopt a unified approach to the presentation of lease agreements. Under the new standard, an asset
(the right to use the leased item) and a financial liability of the lessee to pay rentals are recognised for most lease agreements. The Group
plans to use the exemption on lease contracts for which the lease term is less than 12 months. The Group plans to adopt IFRS 16 Leases
in accordance with the modified retrospective approach as follows:
• at the date of initial application in respect of leases previously classified as operating leases under IAS 17 Leases, lease liabilities will be
measured at the present value of the remaining future lease payments discounted at the incremental borrowing rate;
• a right-of-use asset is generally recognised in the amount equal to the corresponding lease liability;
• comparative information for the year ended 31 December 2018 will not be restated.
The Group preliminarily estimated impact of the initial application of IFRS 16 Leases on its consolidated financial position: recognition
of approximately USD 200 million of lease liabilities and respective right-of-use assets with no effect on retained earnings as at 1 January 2019.
With respect to the subsequent impact on the consolidated income statement (as opposed to the current presentation of operating lease
expenses), the Group will present depreciation charges for right-of-use assets, as well as interest expense on lease liabilities (unwinding
of discount).
Reclassification
For the year ended 31 December 2018, revenue from sales of semi-products is allocated to revenue from each metal sales as per respective
metal content in a semi-product rather than being presented under a separate “semi-products” caption (refer to note 6). Information
for the year ended 31 December 2017 has been reclassified to conform with the current period presentation.
3. SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
Subsidiaries
The consolidated financial statements incorporate financial statements of the Company and its subsidiaries, from the date that control
effectively commenced until the date that control effectively ceased. Control is achieved where the Company is exposed to, or has rights to,
variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.
Non-controlling interests in the net assets (excluding goodwill) of consolidated subsidiaries are identified separately from the Group’s equity
therein. Non-controlling interests include interests at the date of the original business combination and non-controlling share of changes
in net assets since the date of the combination. Total comprehensive income must be attributed to the interest of the Group and to the non-
controlling interests even if this results in the non-controlling interests having a deficit balance.
Non-controlling interests may be initially measured either at fair value or at the non-controlling interests’ proportionate share
of the recognised amounts of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-
transaction basis.
All intra-group balances, transactions and any unrealised profits or losses arising from intra-group transactions are eliminated in full
on consolidation.
Changes in the Group’s ownership interest in a subsidiary that do not result in the Group losing control are accounted for within the equity.
When the Group loses control of a subsidiary it derecognises the assets and liabilities and related equity components of the former
subsidiary. Any gain or loss is recognised in the consolidated income statement. Any investment retained in the former subsidiary
is measured at its fair value at the date when control is lost.
Joint arrangements
Investments in joint arrangements are classified as either joint operations or joint ventures, depending on the contractual rights and
obligations of each investor. The Group recognises in relation to its interest in a joint operation: its assets, including its share of any assets
held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output arising from
the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any
expenses incurred jointly. The Group accounts for its investments in joint ventures using the equity method.
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination
is measured at fair value, which is calculated as the sum of fair values of the assets transferred by the Group, liabilities incurred by the Group
to the former owners of the acquiree and the equity interests issued by the Group at the date of acquisition in exchange for control
of the acquiree.
Where an investment in a subsidiary or an associate is made, any excess of the sum of the consideration transferred, the amount of any
non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the fair
value of the identifiable assets acquired and the liabilities assumed at the acquisition date is recognised as goodwill. Goodwill in respect
of subsidiaries is disclosed separately and goodwill relating to associates is included in the carrying value of the investment in associates.
Goodwill is reviewed for impairment at least annually. If impairment has occurred, it is recognised in the consolidated income statement
during the period in which the circumstances are identified and is not subsequently reversed.
If, after reassessment, the net amounts of the identifiable assets acquired and liabilities assumed at the acquisition date exceeds the sum
of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held
interest in the acquiree (if any), the excess is recognised in the consolidated income statement immediately as a bargain purchase gain.
Acquisition-related costs are recognised in the consolidated income statement as incurred.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs,
the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are retrospectively
adjusted during the measurement period (a maximum of twelve months from the date of acquisition), or additional assets or liabilities
are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would
have affected the amounts recognised at that date.
Annual Report > 2018Nornickel www.nornickel.com > 238
Functional and presentation currency
The individual financial statements of each Group entity are presented in its functional currency.
The Russian Rouble (“RUB”) is the functional currency of the Company, all of its subsidiaries located in the Russian Federation and all foreign
subsidiaries of the Group, except for the following subsidiaries operating with a significant degree of autonomy. The functional currency
of Norilsk Nickel Harjavalta Oy is US Dollar, and the functional currency of Norilsk Nickel Africa Proprietary Limited is South African Rand.
The presentation currency of the consolidated financial statements of the Group is US Dollar (“USD”). Using USD as a presentation
currency is common practice for global mining companies. In addition, USD is a more relevant presentation currency for international users
of the consolidated financial statements of the Group. The Group also issues consolidated financial statements to comply with Law 208-FZ,
which use the Russian Rouble as the presentation currency (refer to note 1).
The translation of components of the consolidated statement of financial position, consolidated income statement, consolidated statement
of cash flows into presentation currency is made as follows:
• all assets and liabilities, both monetary and non-monetary, in the consolidated statement of financial position are translated at the closing
•
exchange rates at the end of the respective reporting period;
income and expense are translated at the average exchange rates for each quarter (unless this average rate is not a reasonable
approximation of the cumulative effect of the rates prevailing on the transaction dates, in these cases income and expenses are translated
at the dates of the transaction);
• all equity items are translated at the historical exchange rates;
• all resulting exchange differences are recognised as a separate component in other comprehensive income; and
•
in the consolidated statement of cash flows, cash balances at beginning and end of each period presented are translated at exchange
rates at the respective dates;
• all cash flows are translated at the average exchange rates for each quarter with the exception of proceeds from and repayments of loans
and borrowings, dividends paid and advances received, proceeds from disposal of subsidiaries, which are translated using the prevailing
exchange rates at the dates of the transactions;
resulting exchange differences are presented in the consolidated statement of cash flows as effects of foreign exchange differences
on balances of cash and cash equivalents.
•
Foreign currency transactions
Transactions in currencies other than the entity’s functional currency (foreign currencies) are recorded at the exchange rates prevailing
at the date of transactions. All monetary assets and liabilities denominated in foreign currencies are translated at the exchange rates
prevailing at each reporting date. Non-monetary items carried at historical cost are translated at the exchange rates prevailing at the date
of transactions. Exchange differences arising from changes in exchange rates are recognised in the consolidated income statement.
Exchange rates used in the preparation of the consolidated financial statements were as follows:
At 31 December 2018
At 31 December 2017
Russian Rouble/US Dollar
31 December
Average for the year ended 31 December
South African Rand/US Dollar
31 December
Average for the year ended 31 December
Euro/US Dollar
31 December
Average for the year ended 31 December
Chinese Yuan/US Dollar
31 December
Average for the year ended 31 December
69.47
62.71
14.35
13.18
0.87
0.85
6.88
6.62
57.60
58.35
12.36
13.30
0.84
0.89
6.51
6.70
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Revenue recognition
Metal sales revenue
Revenue from metal sales is recognised at a point of time when control over the asset is transferred to a customer and represents
the invoiced value of all metal products shipped to customers, net of value added tax.
Revenue from contracts that are entered into and continue to meet the Group’s expected sale requirements designated for that purpose
at their inception and are expected to be settled by physical delivery, is recognised in the consolidated financial statements as and when they
are delivered. A gain or loss on forward contracts that are expected to be settled by physical delivery or on net basis is measured at fair value
recognised in revenue and disclosed separately from revenue from contracts with customers.
As a practical expedient, the Group does not adjust the promised amount of consideration for the effects of a significant financing
component of the contracts where the period between when the Group transfers a promised good or service to a customer and the customer
pays for that good or service will be one year or less.
Certain contracts are provisionally priced so that price is not settled until a predetermined future date based on the market price at that
time. Revenue from these transactions is initially recognised at the current market price. Mark-to-market adjustment on provisionally priced
contracts is recorded in revenue.
Other revenue
Revenue from contracts with customers on sale of goods, other than metals, is recognised at a point of time when control over the asset
is transferred to the customer in accordance with the shipping terms specified in the sales agreements.
Revenue from service contracts is recognised over-time when the services are rendered.
Dividends and interest income
Dividend income from investments is recognised when the Group’s right to receive payment has been established. Interest income is accrued
based on effective interest method.
Leases
Leases under which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets subject
to finance leases are capitalised as property, plant and equipment at the lower of fair value or present value of future minimum lease
payments at the date of acquisition. Simultaneously, related lease obligation is recognised at the same value. Assets held under finance
leases are depreciated over their estimated economic useful lives or over the term of the lease, if shorter. If there is reasonable certainty that
the lessee will obtain ownership at the end of the lease term, the period of expected use is the useful life of the asset.
Finance lease payments are allocated using the effective interest rate method, between the lease finance cost, which is included in finance
costs, and the capital repayment, which reduces the related lease obligation to the lessor.
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating
lease payments are recognised as an expense in the consolidated income statement on a straight-line basis over the lease term, except
where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
Contingent rentals arising under operating and finance leases are expensed in the period in which they are incurred.
Finance costs
Finance costs mostly comprise interest expense on borrowings and unwinding of discount on decommissioning obligations.
Finance costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time when the assets
are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted
from the borrowing costs eligible for capitalisation.
Government grants
Government grants are recognised when there is reasonable assurance that the grant will be received and all conditions and requirements
attaching to the grant will be met. Government grants related to assets are deducted from the cost of these assets in arriving at their
carrying value.
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Employee benefits
Remuneration to employees in respect of services rendered during a reporting period is recognised as an expense in that period. Long-term
employee benefits obligations are discounted to present value.
Mining assets are recorded at cost less accumulated depreciation and impairment losses. Mining assets include cost of acquiring and
developing mining properties, pre-production expenditure, mine infrastructure, plant and equipment that process extracted ore, mining
and exploration licenses and present value of future decommissioning costs and interest capitalised.
Defined contribution plans
The Group contributes to the following major defined contribution plans:
• Pension Fund of the Russian Federation;
• Mutual accumulated pension plan.
The only obligation of the Group with respect to these and other defined contribution plans is to make specified contributions in the period
in which they arise. These contributions are recognised in the consolidated income statement when employees have rendered respective services.
Income tax expense
Income tax expense represents the sum of the tax currently payable and deferred tax.
Income tax is recognised as an expense or income in the consolidated income statement, except when it relates to other items recognised
directly in other comprehensive income, in which case the tax is also recognised directly in other comprehensive income. Where current
or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business
combination.
Current tax
Current tax is based on taxable profit for the year. Taxable profit differs from profit for the year as reported in the consolidated income
statement because it excludes items of income or expense that are taxable or deductible in other years and it also excludes items that are
never taxable or deductible.
Deferred tax
Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements
and the corresponding tax bases used in computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary
differences, and deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable
profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised
if a temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither taxable profit nor accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, joint ventures
and associates, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with
such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which
to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each statement of financial position date and adjusted to the extent that
it is probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
The measurement of deferred tax liabilities and assets reflects the tax consequences of the manner in which the Group expects
at the reporting date to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when
there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied
by the same taxation authority.
Property, plant and equipment and mine development costs
Mining assets
Mine development costs are capitalised and comprise expenditures directly related to:
• acquiring mining and exploration licences;
• developing new mining operations;
• estimating revised content of minerals in the existing ore bodies; and
• expanding capacity of a mine.
Mine development costs include directly attributable borrowings costs.
Mine development costs are transferred to mining assets and start to be depreciated when a new mine reaches commercial production quantities.
Depreciation of mining assets is charged from the date on which a new mine reaches commercial production quantities and is included
in the cost of production. Carrying value of mining assets is depreciated on a straight-line basis over the lesser of their remaining economic
useful lives or remaining life of mine that they relate to, calculated on the basis of the amount of commercial ore reserves. When determining
the life of mine, assumptions valid at the time of estimation may change in case new information becomes available. Useful lives are
in average varying from 1 to 50 years.
Non-mining assets
Non-mining assets include metallurgical processing plants, buildings, infrastructure, machinery and equipment and other non-mining assets.
Non-mining assets are stated at cost less accumulated depreciation and impairment losses.
Non-mining assets are depreciated on a straight-line basis over their economic useful lives.
Depreciation is calculated over the following economic useful lives:
• buildings, structures and utilities
• machinery, equipment and transport
• other non-mining assets
2 – 50 years
1 – 25 years
1 – 20 years
Capital construction-in-progress
Capital construction-in-progress comprises costs directly related to construction of buildings, processing plant, infrastructure, machinery
and equipment, including:
• advances given for purchases of property, plant and equipment and materials acquired for construction of buildings, processing plant,
infrastructure, machinery and equipment;
irrevocable letters of credit opened for future fixed assets deliveries and secured with deposits placed in banks;
•
• finance charges capitalised during construction period where such costs are financed by borrowings.
Depreciation of these assets commences when the assets are put into operation.
Research and exploration expenditure
Research and exploration expenditure, including geophysical, topographical, geological and similar types of expenditure, is capitalised,
if it is deemed that such expenditure will lead to an economically viable capital project, and begins to be amortised over the life of mine, when
commercial viability of the project is proved. Otherwise it is expensed in the period in which it is incurred.
Research and exploration expenditure written-off before development and construction starts is not subsequently capitalised, even
if a commercial discovery subsequently occurs.
Intangible assets, excluding goodwill
Intangible assets are recorded at cost less accumulated amortisation and impairment losses. Intangible assets mainly include patents,
licences, software and rights to use software and other intangible assets.
Amortisation of patents, licenses and software is charged on a straight-line basis over 1 – 10 years.
Impairment of tangible and intangible assets, excluding goodwill
At each reporting date, the Group analyses the triggers of impairment of its tangible and intangible assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any). Where it is not practical to estimate the recoverable amount of an individual
asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less cost to sell and value-in-use. In assessing value-in-use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and
the risks specific to the asset or cash-generating unit. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less
than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised in the consolidated income statement immediately.
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242
Where an impairment loss subsequently reversed, the carrying amount of the asset (or cash-generating unit) is increased to the revised
estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the original carrying amount
that would have been determined had no impairment loss been recognised in prior periods. A reversal of an impairment loss is recognised
in the consolidated income statement.
Inventories
Refined metals
Main produced metals include nickel, copper, palladium, platinum; by-products include cobalt, gold, rhodium, silver and other minor metals.
Main products are measured at the lower of net cost of production or net realisable value. The net cost of production of main products
is determined as total production cost, allocated to each joint product by reference to their relative sales value. By-products are initially
measured at net realisable value.
Work-in-process
Work-in-process includes all costs incurred in the normal course of business including direct material and direct labour costs and allocation
of production overheads, depreciation and amortisation and other costs, incurred for producing each product, given its stage of completion.
Materials and supplies
Materials and supplies are valued at the weighted average cost less allowance for obsolete and slow-moving items.
Financial assets
Financial assets are recognised when the Group has become a party to the contractual arrangement of the instrument and are initially
measured at fair value, plus transaction costs, except for those financial assets classified at fair value through profit or loss, which are initially
measured at fair value.
Financial assets are classified into the following specified categories:
• financial assets at amortised cost;
• financial assets at fair value through other comprehensive income; and
• financial assets at fair value through profit or loss.
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Financial assets at fair value through profit or loss
All financial assets not classified as measured at amorised cost or fair value through other comprehensive income are classified as financial
assets at fair value through profit or loss.
Trade receivables on provisionally priced contracts and derivative financial assets are measured at fair value through profit or loss. Trade
receivables on provisionally priced contracts are remeasured at each reporting date using the forward price for the period equivalent to that
outlined in the contract.
Impairment of financial assets
The Group recognises a loss allowance for expected credit losses on a financial asset measured at amortised cost using one of the two methods:
Lifetime expected credit losses
Trade and other receivables
Financial assets other than trade and other receivables if the credit risk on that financial asset has increased
significantly since initial recognition
12-month expected credit losses
since the reporting date
Financial assets other than trade and other receivables at initial recognition
Financial assets other than trade and other receivables for which credit risk has not increased significantly
since initial recognition
When determining whether the credit risk of the financial asset has increased significantly since initial recognition and when estimating
expected credit losses, the Group considers reasonable and supportable information that is relevant and available, including both quantitative
and qualitative information and analysis based on Group’s historical experience and forward-looking information.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses which uses a lifetime expected loss allowance for all trade
receivables. The Group assumes that expected credit loss for all trade and other receivables, which are overdue in excess of 365 days is equal
to their carrying amount. To measure the expected credit losses, trade and other receivables that are past due for less than 365 days are grouped
based on the length of the overdue period to which respective expected loss rates are applied. The expected loss rates are based on the historical
credit loss experience, adjusted to reflect current and forward-looking information on the ability of the customers to settle the receivables.
The classification of financial assets depends on the Group’s business model for managing the financial assets and the contractual terms
of the cash flows and is determined at the time of initial recognition.
When trade and other receivables are considered uncollectible, they are written off against the loss allowance. Changes in the loss allowance
are recognised in the consolidated income statement.
Effective interest method
The effective interest method is used for calculating the amortised cost of a financial asset and for allocating interest income over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including transaction costs
and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.
Income is recognised on an effective interest basis for debt securities other than those financial assets designated at fair value through profit
or loss or other comprehensive income.
Financial assets at amortised cost
A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated at fair value though profit or loss:
•
•
it is held within a business model whose objective is to hold assets to collect contractual cash flows; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
The Group generally classifies cash and cash equivalents, trade and other receivables (excluding trade receivables on provisionally priced
contracts), loans issued and bank deposits as financial assets at amortised cost.
Financial assets at fair value through other comprehensive income
A debt instrument is measured at fair value through other comprehensive income if it meets both of the following conditions and is not
designated at fair value though profit or loss:
•
•
it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and
its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount
outstanding.
At initial recognition the Group may make an irrevocable election to present in other comprehensive income subsequent changes in the fair
value of an investment in an equity instrument that is not held for trading. This election is made on an instrument-by-instrument basis.
Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially
all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset
and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred
financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
Financial liabilities
The Group classifies financial liabilities into loans and borrowings, trade and other payables. Such financial liabilities are recognised
initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured
at amortised cost using the effective interest method. Derivative financial liabilities are measured at fair value through profit or loss.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life
of the financial liability, or where appropriate, a shorter period.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, cash deposits in banks, brokers and other financial institutions and highly liquid
investments with original maturities of three months or less and on demand deposits, which are readily convertible to known amounts
of cash and are subject to an insignificant risk of changes in value.
Annual Report > 2018Nornickel www.nornickel.com > 244
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Provisions
Provisions are recognised when the Group has a legal or constructive obligation as a result of past events for which it is probable that
an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be reliably estimated.
The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date,
taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated
to settle the present obligation, its carrying amount is the present value of those cash flows.
Decommissioning obligations
Decommissioning obligations include direct asset decommissioning costs as well as related land restoration costs.
Future decommissioning and other related obligations, discounted to present value, are recognised at the moment when the legal
or constructive obligation in relation to such costs arises and the future costs can be reliably estimated. These costs are capitalised
as part of the initial cost of the related asset (i.e. a mine) and is depreciated over the useful life of the asset. The unwinding of the discount
on decommissioning obligations is included in the consolidated income statement as finance costs. Decommissioning obligations are
periodically reviewed in light of current laws and regulations, and adjustments are made as necessary.
4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
Preparation of the consolidated financial statements in accordance with IFRS requires the Group’s management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. The determination
of estimates requires judgements which are based on historical experience, current and expected economic conditions, and all other
available information. Actual results could differ from these estimates.
The most significant areas requiring the use of management estimates and assumptions relate to:
• useful economic lives of property, plant and equipment;
impairment of non-financial assets;
•
• provisions and allowances;
• decommissioning obligations;
income taxes and
•
• contingencies.
Useful economic lives of property, plant and equipment
Carrying value of the Group’s mining assets, classified within property, plant and equipment, is depreciated on a straight-line basis over
the lesser of their remaining economic useful lives or remaining life of mine. When determining the life of a mine, valid assumptions
at the time of estimation may change in case of new information becomes available.
The factors that could affect the estimation of the life of mine include the following:
• changes in proved and probable ore reserves;
the grade of mineral reserves varying significantly from time to time;
•
• differences between actual commodity prices and commodity price assumptions used in the estimation and classification of ore reserves;
• unforeseen operational issues at mine sites; and
• changes in capital, operating, mining, processing and decommissioning costs, discount rates and foreign exchange rates could possibly
adversely affect the economic viability of ore reserves.
Any of these changes could affect prospective depreciation of mining assets. Useful economic lives of non-mining property, plant
and equipment are reviewed by management periodically. The review is based on the current condition of the assets and the estimated
period during which they will continue to bring economic benefit to the Group.
Impairment of non-financial assets
The Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets
are impaired or indication of reversal of impairment. In making the assessment for impairment, assets that do not generate independent
cash flows are allocated to an appropriate cash-generating unit. Management necessarily applies its judgement in allocating assets that do
not generate independent cash flows to appropriate cash-generating units, and also in estimating the timing and value of the underlying cash
flows within the value-in-use calculation. Subsequent changes to the cash-generating unit allocation or to the timing of cash flows could
impact the carrying value of the respective assets.
Provisions and allowances
The Group creates an allowance for obsolete and slow-moving inventories. In addition, certain finished goods of the Group are carried
at net realisable value. Estimates of net realisable value of inventories are based on the most reliable evidence available at the time
the estimates are made. These estimates take into consideration fluctuations of price or cost directly relating to events occurring subsequent
to the statement of financial position date to the extent that such events confirm conditions existing at the end of the period.
The Group creates provisions for social commitments, tax and other provisions. Provisions represent present value of the best estimate
of the future outflow of economic benefits to settle these obligations.
Decommissioning obligations
The Group’s mining and exploration activities are subject to various environmental laws and regulations. The Group estimates
decommissioning obligations based on management’s understanding of the current legal requirements in the various jurisdictions in which
it operates, terms of the license agreements and internally generated engineering estimates. Provisions are recognised, based on present
values, for decommissioning and land restoration costs as soon as the obligations arise. Actual costs incurred in future periods could
differ materially from the amounts provided. Additionally, future changes to environmental laws and regulations, life of mine estimates
and discount rates could affect the carrying amount of this provision.
Income taxes
The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining provision for income
taxes due to the complexity of legislation in some jurisdictions. There are many transactions and calculations for which the ultimate tax
determination is uncertain. The Group recognises provisions for anticipated tax audit issues based on estimates of whether additional taxes
will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact
the income tax and deferred tax provisions in the period in which such determination is made.
Deferred tax assets are reviewed at each statement of financial position date and adjusted to the extent that it is probable that sufficient
taxable income will be available to allow all or part of the deferred tax asset to be utilised. The estimation of that probability includes
judgements based on the expected performance.
Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past operating results,
operational plans, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these estimates or if these
estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be affected.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such
contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.
5. SEGMENT INFORMATION
Operating segments are identified on the basis of internal reports on components of the Group that are regularly reviewed
by the Management Board.
The Group has updated its management accounting system to account for business changes. As a result, GRK Bystrinskoye segment is now
presented separately from Other mining segment, trading operations presentation was amended as set out below.
Management has determined the following operating segments:
• GMK Group segment includes mining and metallurgy operations, transport services, energy, repair and maintenance services located
in Taimyr Peninsula. GMK Group metal sales to external customers include metal volumes processed at KGMK Group metallurgy facilities.
GMK Group other sales to external customers primarily include revenue for energy and utilities services provided in Taimyr Peninsula;
intersegment revenue from metal sales includes sale of semi-products to NN Harjavalta segment for further processing.
• KGMK Group segment includes mining and metallurgy operations, energy, exploration activities located in Kola Peninsula. KGMK Group
revenue from other sales includes intersegment metal processing services under tolling arrangements provided to other segments
and energy and utilities services provided to external customers in Kola Peninsula. Intersegment revenue from metal sales include sale
of semi-products to NN Harjavalta for further processing.
• NN Harjavalta segment includes refinery operations located in Finland. NN Harjavalta sales primarily include metal produced from semi-
products purchased from GMK Group and KGMK Group segments.
• GRK Bystrinskoye segment includes ore mining and processing operations located in the Zabaikalsky region of the Russian Federation.
Annual Report > 2018Nornickel www.nornickel.com > 246
• Other mining segment primarily includes 50% Group interest in metal mining and processing joint operations of Nkomati Nickel Mine
(“Nkomati”), as well as certain other mining and exploration activities located in Russia and abroad. Other mining segment sales primarily
include Group share at sales of metal semi-products produced by Nkomati.
• Other non-metallurgical segment includes resale of third party metal products, other trading operations, supply chain management,
transport services, energy and utility, research and other activities located in Russia and abroad. Other non-metallurgical segment also
includes resale of 50% metal semi-products produced by Nkomati. Other sales of Other non-metallurgical segment primarily include
revenue from passenger air transportation, freight transportation services and fuel sales.
Corporate activities of the Group do not represent an operating segment, include primarily headquarters’ general and administrative expenses
and treasury operations of the Group and are presented as Unallocated.
The amounts in respect of reportable segments in the disclosure below are stated before intersegment eliminations, excluding:
• balances of intercompany loans and borrowings and interest accruals;
intercompany investments;
•
• accrual of intercompany dividends.
Amounts are measured on the same basis as those in the consolidated financial statements. Information for the year ended 31 December 2017
and as at 31 December 2017 has been presented to conform with the current period presentation. Previously, all the Group’s metal trading
operations (including own metal) were included in Other non-metallurgical.
The following tables present revenue, measure of segment profit or loss (EBITDA) and other segment information from continuing operations
regarding the Group’s reportable segments for the year ended 31 December 2018 and 31 December 2017, respectively.
For the year ended
31 December 2018
Metal sales to external
customers
Other sales to external
customers
Inter-segment metal sales
Inter-segment other sales
Total revenue
Segment EBITDA
Unallocated
Consolidated EBITDA
Depreciation and amortisation
Impairment of non-financial
assets
Finance costs
Foreign exchange loss, net
Other income and expenses, net
Profit before tax
Other segment information
Purchase of property, plant and
equipment and intangible assets
Depreciation and amortisation
Impairment of non-financial
assets
GMK
Group
KGMK
Group
NN
Harjavalta
GRK
Bystrinskoye
Other
mining
Other non-
metallurgical
Eliminations
Total
8,787
160
720
75
9,742
6,602
361
33
154
363
911
190
1,020
6
–
–
1,026
71
–
6
–
2
8
96
107
1
–
–
108
(6)
687
502
–
325
–
–
(874)
(765)
10,962
708
–
–
1,514
(1,639)
11,670
50
(13)
6,990
(759)
6,231
(765)
(50)
(580)
(1,029)
95
3,902
1,553
765
50
1,016
612
8
292
82
3
18
24
–
168
13
–
21
6
39
38
28
–
–
–
–
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GMK
Group
KGMK
Group
NN
Harjavalta
GRK
Bystrinskoye
Other
mining
Other non-
metallurgical
Eliminations
Total
6,712
176
500
59
7,447
4,559
347
34
122
394
897
182
835
5
–
–
840
61
–
14
–
1
15
(65)
128
–
–
–
128
(3)
393
502
–
391
–
–
(622)
(845)
8,415
731
–
–
1,286
(1,467)
9,146
18
(34)
4,718
(723)
3,995
(645)
(227)
(535)
159
97
2,844
2,002
645
227
1,225
463
101
228
61
3
16
25
–
449
–
–
20
72
122
64
24
1
–
–
–
For the year ended
31 December 2017
Metal sales to external
customers
Other sales to external customers
Inter-segment metal sales
Inter-segment other sales
Total revenue
Segment EBITDA
Unallocated
Consolidated EBITDA
Depreciation and amortisation
Impairment of non-financial assets
Finance costs
Foreign exchange gain, net
Other income and expenses, net
Profit before tax
Other segment information
Purchase of property, plant
and equipment and intangible
assets
Depreciation and amortisation
Impairment of non-financial
assets
The following table presents segment metal sales to external customers breakdown by metal for the year ended 31 December 2018 and 31
December 2017, respectively.
For the year ended
31 December 2018
Nickel
Copper
Palladium
Platinum
Other metals
For the year ended
31 December 2017
Nickel
Copper
Palladium
Platinum
Other metals
GMK Group
KGMK Group
NN Harjavalta
Other mining
Other
non-metallurgical
1,827
2,824
2,990
574
572
8,787
275
51
1
3
31
361
805
86
55
7
67
53
8
18
6
22
1,020
107
53
8
610
6
10
687
Other
GMK Group
KGMK Group
NN Harjavalta
Other mining
non-metallurgical
1,409
2,268
2,056
618
361
6,712
254
49
11
6
27
347
647
79
36
10
63
835
53
13
23
10
29
128
53
13
308
10
9
393
Total
3,013
2,977
3,674
596
702
10,962
Total
2,416
2,422
2,434
654
489
8,415
Annual Report > 2018Nornickel www.nornickel.com > 248
The following tables present assets and liabilities of the Group’s reportable segments at 31 December 2018 and 31 December 2017, respectively.
GMK
Group
KGMK
Group
NN
Harjavalta
GRK
Bystrinskoye
Other mining
Other non-
metallurgical
Eliminations
Total
292
9,903
114
996
139
1,756
1,895
63
134
197
140
451
591
122
100
222
24
1,492
1,516
39
68
107
–
88
88
5
26
31
57
792
849
259
1,028
1,287
(627)
–
(56)
13,666
(683)
13,666
1,585
15,251
(627)
–
–
3,112
(627)
3,112
8,666
11,778
GMK
Group
KGMK
Group
NN
Harjavalta
GRK
Bystrinskoye
Other mining
Other non-
metallurgical
Eliminations
Total
172
390
562
124
73
197
2
1,518
1,520
43
89
132
9
118
127
1
32
33
54
935
989
398
171
569
(790)
–
(42)
15,430
(832)
15,430
1,205
16,635
(790)
–
–
2,650
(790)
2,650
9,327
11,977
Total segment assets
10,195
1,110
At 31 December 2018
Inter-segment assets
Segment assets
Unallocated
Total assets
Inter-segment liabilities
Segment liabilities
Total segment liabilities
Unallocated
Total liabilities
At 31 December 2017
Inter-segment assets
Segment assets
346
11,536
207
975
Total segment assets
11,882
1,182
Unallocated
Total assets
Inter-segment liabilities
Segment liabilities
Total segment liabilities
Unallocated
Total liabilities
6. METAL SALES
89
2,128
2,217
135
157
292
For the year ended
31 December 2018
Europe
Asia
North and South America
Russian Federation and CIS
For the year ended
31 December 2017
Europe
Asia
North and South America
Russian Federation and CIS
Total
5,868
2,929
1,619
546
10,962
4,753
1,939
1,166
557
8,415
The Group’s metal sales to external customers are detailed below (based on external customers’ locations):
Copper
Palladium
Platinum
Other metals
Nickel
1,323
1,090
348
252
3,013
2,356
386
26
209
2,977
1,084
2,130
804
313
215
115
–
177
1,216
1,313
1,111
34
3,674
756
825
807
46
2,416
2,422
2,434
514
41
34
7
596
449
119
–
86
654
459
99
100
44
702
334
76
46
33
489
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Metal revenue for the year ended 31 December 2018 included net gain of USD 12 million in respect of forward contracts measured
at fair value that are expected to be settled by metal physical delivery or on a net basis (for the year ended 31 December 2017: net loss
in the amount of USD (26) million).
7. COST OF METAL SALES
Cash operating costs
Labour
Materials and supplies
Purchases of raw materials and semi-products
Purchases of refined metals for resale
Mineral extraction tax and other levies
Third party services
Electricity and heat energy
Fuel
Transportation expenses
Sundry costs
Total cash operating costs
Depreciation and amortisation
Decrease/(increase) in metal inventories
Total
8. GENERAL AND ADMINISTRATIVE EXPENSES
Staff costs
Taxes other than mineral extraction tax and income tax
Third party services
Depreciation and amortisation
Rent expenses
Transportation expenses
Other
Total
9. SELLING AND DISTRIBUTION EXPENSES
Transportation expenses
Marketing expenses
Staff costs
Other
Total
For the year ended
31 December 2018
For the year ended
31 December 2017
1,311
1,392
727
436
430
212
200
143
87
70
158
3,774
653
109
4,536
732
297
530
221
242
143
81
65
152
3,855
630
(517)
3,968
For the year ended
31 December 2018
For the year ended
31 December 2017
541
103
93
38
23
9
52
859
478
79
97
32
25
8
40
759
For the year ended
31 December 2018
For the year ended
31 December 2017
39
31
14
8
92
38
14
13
10
75
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10. OTHER OPERATING INCOME AND EXPENSES
The corporate income tax rates in other countries where the Group has a taxable presence vary from 0% to 30%.
For the year ended
31 December 2018
For the year ended
31 December 2017
Deferred tax balances
Social expenses
Change in allowance for obsolete and slow-moving inventory
Change in allowance for expected credit losses
Net income earned during the pre-commissioning stage
Other, net
Total
11. FINANCE COSTS
Interest expense on borrowings net of amounts capitalised
Unwinding of discount on provisions and payables
Changes in fair value of cross-currency interest rate swap
Changes in fair value of non-current liabilities
Other, net
Total
12. INCOME FROM INVESTMENTS
Interest income on bank deposits
Other, net
Total
13. INCOME TAX EXPENSE
Current income tax expense
Deferred tax expense
Total
207
15
6
(106)
(27)
95
303
11
19
–
29
362
For the year ended
31 December 2018
For the year ended
31 December 2017
384
100
51
46
(1)
580
386
133
–
–
16
535
For the year ended
31 December 2018
For the year ended
31 December 2017
59
36
95
39
38
77
For the year ended
31 December 2018
For the year ended 31
December 2017
812
31
843
686
35
721
A reconciliation of theoretic income tax, calculated at the statutory rate in the Russian Federation, the location of major production assets
of the Group, to the amount of actual income tax expense recorded in the consolidated income statement is as follows:
Profit before tax
Income tax at statutory rate of 20%
Allowance for deferred tax assets
Non-deductible impairment of non-financial assets
Non-deductible social expenses
Effect of different tax rates of subsidiaries operating in other jurisdictions
Tax effect of other permanent differences
Total
3,902
780
29
4
54
(39)
15
843
2,844
569
38
7
73
8
26
721
Property, plant and equipment
Inventories
Trade and other receivables
Decommissioning obligations
Loans and borrowings,
trade and other payables
Other assets
Other liabilities
Tax loss carried forward
Net deferred tax liabilities
Property, plant and equipment
Inventories
Trade and other receivables
Decommissioning obligations
Loans and borrowings,
trade and other payables
Other assets
Other liabilities
Tax loss carried forward
Net deferred tax liabilities
At 31 December
2017
Recognised in
income statement
Disposed on disposal
of subsidiaries
Effect of translation to
presentation currency
At 31 December
2018
368
124
(3)
(69)
(69)
46
8
(75)
330
86
–
(5)
5
(28)
(18)
(10)
1
31
–
–
–
–
–
–
–
–
–
(68)
(17)
1
11
15
(4)
–
13
(49)
386
107
(7)
(53)
(82)
24
(2)
(61)
312
At 31 December
2016
Recognised in
income statement
Disposed on disposal
of subsidiaries
Effect of translation to
presentation currency
At 31 December
2017
350
102
(12)
(79)
(33)
(10)
6
(41)
283
2
16
9
16
(35)
57
2
(32)
35
(4)
–
–
–
–
–
–
–
(4)
20
6
–
(6)
(1)
(1)
–
(2)
16
368
124
(3)
(69)
(69)
46
8
(75)
330
Certain deferred tax assets and liabilities have been offset to the extent they relate to taxes levied on the Group’s entities which entered into the tax
consolidation group. Deferred tax balances (after offset) presented in the consolidated statement of financial position were as follows:
Deferred tax liability
Deferred tax asset
Net deferred tax liabilities
Deductible temporary differences
Tax loss carry-forwards
Total
At 31 December 2018
At 31 December 2017
385
(73)
312
407
(77)
330
At 31 December 2018
At 31 December 2017
100
191
291
104
219
323
Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available
against which the Group can utilise the benefits therefrom.
For the year ended
31 December 2018
For the year ended
31 December 2017
Unrecognised deferred tax assets
Deferred tax assets have not been recognised as follows:
Annual Report > 2018Nornickel www.nornickel.com >
252
At 31 December 2018 deferred tax asset in the amount of USD 145 million related to tax loss arising on disposal of OJSC “Third Generation
Company of the Wholesale Electricity Market” (“OGK-3”) (at 31 December 2017: USD 175 million) was not recognised as it was incurred
by the Company prior to setting up of the tax consolidation group. This deferred tax asset can be utilised without expiry only if the Company
exits the tax consolidation group.
Deferred tax assets in the amount of USD 46 million related to other non-expiring tax losses were not recognised due to specific rules stated
by art. 283 of the Tax code of the Russian Federation (31 December 2017: USD 44 million).
At 31 December 2018, the Group did not recognise a deferred tax liability in respect of taxable temporary differences of USD 1,558 million
(31 December 2017: USD 1,459 million) associated with investments in subsidiaries, because management believes that it is in a position
to control the timing of reversal of such differences and does not expect its reversal in foreseeable future.
14. PROPERTY, PLANT AND EQUIPMENT
Non-mining assets
Mining assets
and mine
development cost
Buildings,
structures and
utilities
Machinery,
equipment and
transport
Capital
construction-in-
progress
Other
Total
Cost
Balance at 1 January 2017
Additions
Transfers
Change in decommissioning provision
Disposals
Other
Effect of translation to presentation
currency
Balance at 31 December 2017
Additions
Transfers
Change in decommissioning
provision
Disposals
Other
Effect of translation to presentation
currency
Balance at 31 December 2018
Accumulated depreciation and impairment
7,314
1,429
–
(7)
(124)
(40)
422
8,994
925
–
(6)
(67)
(12)
(1,589)
8,245
2,855
–
247
(13)
(150)
42
153
3,134
–
304
(1)
(4)
(13)
(542)
2,878
Balance at 1 January 2017
(2,090)
(1,413)
Charge for the year
Disposals
Impairment loss
Other
Effect of translation to presentation
currency
Balance at 31 December 2017
(347)
107
(154)
4
(120)
(2,600)
(97)
56
(87)
(18)
(78)
(1,637)
2,976
–
477
–
(90)
(6)
150
3,507
–
348
–
(43)
20
(586)
3,246
(1,618)
(264)
79
(7)
16
(82)
(1,876)
215
–
84
–
(23)
2
11
289
–
9
–
(4)
5
(50)
249
(72)
(24)
5
–
(1)
(4)
1,387
14,747
840
(808)
–
(12)
2
75
2,269
–
(20)
(399)
–
811
1,484
17,408
798
(661)
–
(12)
–
(251)
1,358
1,723
–
(7)
(130)
–
(3,018)
15,976
(248)
(5,441)
–
4
21
(1)
(732)
251
(227)
–
(15)
(299)
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Non-mining assets
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
253
Mining assets
and mine
development cost
Buildings,
structures and
utilities
Machinery,
equipment and
transport
Charge for the year
(350)
(108)
(291)
Disposals
Impairment loss
Other
Effect of translation to presentation
currency
62
(33)
9
460
3
(31)
6
274
38
(19)
(12)
329
Capital
construction-in-
progress
–
2
35
–
39
Other
(24)
3
(2)
(3)
19
Total
(773)
108
(50)
–
1,121
Balance at 31 December 2018
(2,452)
(1,493)
(1,831)
(103)
(163)
(6,042)
Carrying value
At 31 December 2017
At 31 December 2018
6,394
5,793
1,497
1,385
1,631
1,415
193
146
1,245
1,195
10,960
9,934
At 31 December 2018 capital construction-in-progress included USD 197 million of irrevocable letters of credit opened for fixed assets
purchases (31 December 2017: USD 225 million), representing security deposits placed in banks. For the year ended 31 December 2018
purchases of property, plant and equipment in the consolidated statement of cash flows include USD 192 million related to these irrevocable
letters of credit (for the year ended 31 December 2017: USD 210 million).
Capitalised borrowing costs for the year ended 31 December 2018 amounted to USD 172 million (for the year ended 31 December 2017:
USD 263 million). Capitalisation rate used to determine the amount of borrowing costs equals to 5.15% per annum (31 December 2017:
6.28%). At 31 December 2018 mining assets and mine development cost included USD 2,868 million of mining assets under development
(31 December 2017: USD 3,728 million).
At 31 December 2018 non-mining assets included USD 44 million of investment property (31 December 2017: USD 55 million).
Impairment
At 31 December 2017 the Group reclassified Nkomati Nickel Mine (Nkomati) from assets classified as held for sale and tested the assets
for impairment. As a result, impairment loss in the amount of USD 129 million was recognised in impairment of non-financial assets
in the consolidated income statement for the year ended 31 December 2017.
At 31 December 2018 the Group assessed indicators of further impairment based on Nkomati performance results against budget
and management expectations as well as exchange rate and price forecasts.
As a result, the Group performed the impairment test and determined the value-in-use of the Group’s share in Nkomati property, plant
and equipment in the amount of USD 12 million using a discounted cash flow model approach. Impairment loss in the amount of USD 39 million
was recognised in impairment of non-financial assets in the consolidated income statement for the year ended 31 December 2018.
The most significant assumptions on the basis of which the value-in-use was determined are as follows:
• Future cash flows were projected based on budgeted amounts, taking into account actual results for the previous years. Forecasts were
assessed up to 2028. Measurements were performed based on discounted cash flows expected to be generated by production assets.
• Management estimates market prices for metal concentrates based on adjusted commodity price forecast for metals. Commodities price
forecast was based on consensus forecast.
• Production forecasts were primarily based on internal production reports available at the date of impairment test and management’s
•
assumptions regarding future production levels.
Inflation forecasts were sourced from Economist Intelligence Unit report. Forecast for exchange rates was made based on expected ZAR
and USD inflation indices, 5.6% and 2.5% respectively.
• A pre-tax nominal ZAR discount rate of 21.3% (31 December 2017: 21.6%) was estimated by reference to the weighted average cost
of capital for the Group and reflects management’s estimates of the risks specific to the production unit.
(96)
(239)
(6,448)
During the year ended 31 December 2015, the Group revised its intention on the further use of the gas extraction assets. As a result, these
assets are assessed as a separate cash-generating unit with its value-in-use being determined using a discounted cash flow model approach
at each subsequent reporting date.
Annual Report > 2018Nornickel www.nornickel.com > 254
The most significant assumptions used in the discounted cash flow model at 31 December 2018 are as follows:
• Future cash flows were projected based on budgeted amounts, taking into account actual results for the previous years. Forecasts were
assessed up to 2030. Measurements were performed based on discounted cash flows expected to be generated by gas upstream assets.
• Management estimates prices for natural gas and gas condensate based on commodities price forecasts and government set prices.
Commodities price forecast was based on consensus forecast.
• Production forecasts were primarily based on internal production reports available at the date of impairment test and management’s
assumptions regarding future production levels.
• The amounts and timing of capital investments were based on management’s forecast.
• nflation used was projected within 2-5%. Forecast for exchange rates was based on Oxford Economics forecast.
• A pre-tax nominal RUB discount rate of 15.8% (31 December 2017: 15.8%) was estimated by reference to the weighted average cost
of capital and reflects management’s estimates of the risks specific to the production units.
As a result, impairment loss in the amount of USD 8 million was recognised in impairment of non-financial assets in the consolidated income
statement for the year ended 31 December 2018 (for the year ended 31 December 2017: USD 48 million). Accumulated impairment loss, net
of respective accumulated depreciation had no impairment been recognised, amounted to USD 243 million at 31 December 2018.
17. INVENTORIES
Refined metals and other metal products
Work-in-process and semi-products
Less: Allowance for work-in-process
Total metal inventories
Materials and supplies
Less: Allowance for obsolete and slow-moving items
Materials and supplies, net
Inventories
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
255
At 31 December 2018
At 31 December 2017
526
1,138
(4)
1,660
662
(42)
620
2,280
655
1,333
(4)
1,984
739
(34)
705
2,689
During the year ended 31 December 2018 the Group recognised additional impairment losses in the amount of USD 3 million in respect
of specific individual assets (for the year ended 31 December 2017: USD 50 million).
At 31 December 2018 part of metal semi-products stock in the amount of USD 88 million (31 December 2017: USD 453 million)
was presented in other non-current assets according to Group’s production plans.
15. OTHER FINANCIAL ASSETS
18. TRADE AND OTHER RECEIVABLES
Non-current
Loans issued and other receivables
Bank deposits
Total non-current
Current
Loans issued and other receivables
Bank deposits
Derivative financial instruments
Total current
16. OTHER TAXES
Taxes receivable
Value added tax recoverable
Other taxes
Less: Allowance for value added tax recoverable
Other taxes receivable
Taxes payable
Value added tax
Social security contributions
Property tax
Other
Other taxes payable
At 31 December 2018
At 31 December 2017
At 31 December 2018
At 31 December 2017
133
8
141
57
83
7
147
190
2
192
1
94
4
99
Trade receivables from metal sales
Other receivables
Less: Allowance for expected credit losses
Trade and other receivables, net
143
131
274
(70)
204
251
168
419
(92)
327
In 2018 and 2017, the average credit period on metal sales varied from 0 to 30 days. Trade receivables are generally non-interest bearing.
At 31 December 2018 trade and other short-term accounts receivable include USD 120 million of short-term trade accounts receivable
measured at fair value through profit or loss upon recognition, Level 2 of fair value hierarchy (31 December 2017: USD 214 million).
At 31 December 2018 and 2017, there were no material trade accounts receivable which were overdue or individually determined
to be impaired.
At 31 December 2018
At 31 December 2017
The average credit period on sales of other products and services for the year ended 31 December 2018 was 23 days (2017: 23 days).
No interest was charged on these receivables.
244
28
272
(1)
271
74
37
23
28
162
257
40
297
(1)
296
66
26
22
33
147
Included in the Group’s other receivables as at 31 December 2018 were debtors with a carrying value of USD 29 million (31 December 2017:
USD 34 million) that were past due but not impaired. Management of the Group believes that these amounts are recoverable in full.
The Group did not hold any collateral for accounts receivable balances.
Ageing of other receivables past due but not impaired was as follows:
Less than 180 days
180-365 days
At 31 December 2018
At 31 December 2017
24
5
29
25
9
34
Annual Report > 2018Nornickel www.nornickel.com > 256
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
257
Movement in the allowance for expected credit losses was as follows:
The earnings and weighted average number of shares used in the calculation of earnings per share are as follows:
Balance at beginning of the year
Change in allowance
Accounts receivable written-off
Effect of translation to presentation currency
Balance at end of the year
19. CASH AND CASH EQUIVALENTS
Current accounts
- USD
- RUB
- EUR
- other
Bank deposits
- USD
- EUR
- other
Restricted cash and cash equivalents
Other cash and cash equivalents
Total
At 31 December 2018
At 31 December 2017
92
5
(12)
(15)
70
81
16
(9)
4
92
At 31 December 2018
At 31 December 2017
398
49
13
64
850
–
10
–
4
1,388
334
76
10
14
290
17
105
2
4
852
Bank deposits
Interest rate on USD-denominated deposits held in banks was in the range from 1.70% to 3.95% (31 December 2017: from 1.07% to 2.29%)
per annum. Interest rate on EUR-denominated deposits held in banks at 31 December 2017 was 0.30% per annum. Interest rate on deposits
held in banks denominated in other currencies was in the range from 0.75% to 2.29% (31 December 2017: from 0.97% to 1.10%) per annum.
Profit for the year attributable to shareholders of the parent company
3,085
2,129
For the year ended 31
December 2018
For the year ended 31
December 2017
Weighted average number of shares used in the calculation of basic and diluted earnings per share for the year ended 31 December 2018
and for the year ended 31 December 2017 was 158,245,476 shares.
As at 31 December 2018 and 31 December 2017, the Group had no securities, which would have a dilutive effect on earnings per share
of ordinary stock.
22. NON-CONTROLLING INTEREST
In May 2017 the Group sold a 2.66% share in Bystrinskoye project for USD 21 million to Highland Fund. In October 2017 the Group sold
a 36.66% share in Bystrinskoye project for USD 275 million to a related party.
At 31 December 2018 and 31 December 2017 aggregate financial information relating to the subsidiary, LLC “GRK “Bystrinskoye”, that has
material non-controlling interest, before any intra-group eliminations, is presented below:
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Net assets
Net assets attributable to non-controlling interest
Net loss for the year
Other comprehensive (loss)/income for the year
Total comprehensive loss for the year
Loss attributable to non-controlling interest
At 31 December 2018
At 31 December 2017
1,258
195
(790)
(139)
524
262
1,281
117
(593)
(156)
649
325
For the year ended
31 December 2018
For the year ended 31
December 2017
(61)
(104)
(165)
(31)
(52)
(32)
31
(1)
(6)
5
For the year ended
31 December 2018
For the year ended 31
December 2017
72
(190)
142
24
(42)
(423)
458
(7)
20. DISPOSAL OF SUBSIDIARIES
Other comprehensive (loss)/income attributable to non-controlling interest
On 6 April 2017, the Group sold its interest in a subsidiary which owns real estate for a consideration of USD 113 million. Proceeds from
disposal of the subsidiary in the amount of USD 95 million were recognised in the consolidated statement of cash flows, net of disposed
cash and cash equivalents of USD 16 million and transaction costs of USD 2 million. Gain on disposal in the amount of USD 16 million was
recognised in the consolidated income statement.
21. SHARE CAPITAL
Authorised and issued ordinary shares
As at 31 December 2018 and 31 December 2017 the Group’s number of authorised and issued ordinary shares was 158,245,476.
Earnings per share
Basic earnings per share (US Dollars per share):
19.5
13.5
For the year ended
31 December 2018
For the year ended
31 December 2017
Cash flows from/(used in) operating activities
Cash flows used in investing activities
Cash flows from financing activities
Net increase/(decrease) in cash and cash equivalents
Annual Report > 2018Nornickel www.nornickel.com > 258
23. LOANS AND BORROWINGS
Fixed or
floating
interest rate
Average nominal rate
during the yearended
31 December 2018, %
Currency
Maturity
At 31 December 2018
At 31 December 2017
USD
RUB
EUR
USD
RUB
USD
RUB
EUR
USD
ZAR
floating
fixed
floating
floating
fixed
fixed
fixed
fixed
fixed
floating
3.45%
8.30%
0.85%
5.75%
9.75%
2019-2023
2021
2019-2028
2018
2021-2022
5.24%
2020-2023
11.60%
2026
7.47%
5.35%
12.08%
2025-2026
2019
2020
Unsecured loans
Secured loans
Total loans
Corporate bonds
Finance leasing
Total
Less: current portion due
within twelve months and
presented as short-term
loans and borrowings
Long-term loans and
borrowings
3,837
864
19
–
9
4,729
3,472
216
3,688
19
2
1
22
2,898
1,042
4
582
34
4,560
4,206
259
4,465
23
4
1
28
8,439
9,053
(215)
8,224
(817)
8,236
The Group is obliged to comply with a number of restrictive financial and other covenants, including maintaining certain financial ratios
and restrictions on pledging and disposal of certain assets.
Changes in loans and borrowings, including interest, for the year ended 31 December 2018 consist of changes from financing cash
flows in the amount of USD (934) million, effect of changes in foreign exchange rates of USD (230) million and other non-cash changes
of USD 542 million (for the year ended 31 December 2017: changes from financing cash flows in the amount of USD 441 million, effect
of changes in foreign exchange rates of USD 103 million and other non-cash changes of USD 667 million).
At 31 December 2018 loans were secured by property, plant and equipment with a carrying amount of USD 8 million (31 December 2017:
USD 15 million). At 31 December 2017 100% shares of the Group’s subsidiary LLC “GRK “Bystrinskoye” were under pledge.
24. EMPLOYEE BENEFIT OBLIGATIONS
Accrual for annual leave
Wages and salaries
Other
Total obligations
Less: non-current obligations
Current obligations
At 31 December 2018
At 31 December 2017
177
147
22
346
(39)
307
203
168
22
393
(16)
377
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
259
Defined contribution plans
Amounts recognised within continuing operations in the consolidated income statement in respect of defined contribution plans were as follows:
Pension Fund of the Russian Federation
Mutual accumulated pension plan
Other
Total
25. PROVISIONS
Current provisions
Decommissioning obligations
Provision for social commitments
Tax provision
Other provisions
Total current provisions
Non-current provisions
Decommissioning obligations
Provision for social commitments
Total non-current provisions
Total
Balance at 1 January 2017
Provision accrued
Settlements during the year
Change in estimates
Unwinding of discount
Effect of translation to presentation currency
Balance at 31 December 2017
Provision accrued
Settlements during the year
Change in estimate
Unwinding of discount
Effect of translation to presentation currency
Balance at 31 December 2018
For the year ended
31 December 2018
For the year ended
31 December 2017
278
7
7
292
311
8
5
324
At 31 December 2018
At 31 December 2017
21
53
2
1
77
316
49
365
442
Tax
124
2
(2)
–
–
10
134
21
(144)
–
–
(9)
2
26
28
134
1
189
396
68
464
653
Other
Total
41
2
(41)
–
–
(1)
1
2
(3)
–
–
1
1
624
52
(64)
(34)
41
34
653
70
(198)
(23)
34
(94)
442
Decommissioning
Social commitments
397
6
–
(38)
35
22
422
–
(22)
(21)
29
(71)
337
62
42
(21)
4
6
3
96
47
(29)
(2)
5
(15)
102
Annual Report > 2018Nornickel www.nornickel.com > 260
Decommissioning obligations
Key assumptions used in estimation of decommissioning obligations were as follows:
The maturity profile of the Group’s financial liabilities was as follows:
Discount rates Russian entities
Discount rates non-Russian entities
Expected closure date of mines
Expected inflation over the period from 2019 to 2038
Expected inflation over the period from 2039 onwards
At 31 December 2018
At 31 December 2017
7.7% - 8.9%
3% - 9%
up to 2068
3.0% - 4.5%
2.9% - 3.0%
6.9% - 9,1%
3% - 8%
up to 2071
2.9% - 4.9%
2.9%
Due within one month
Due from one to three months
Due from three to twelve months
Total
27. DIVIDENDS
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
261
At 31 December 2018
At 31 December 2017
183
192
284
659
194
244
314
752
Present value of expected cost to be incurred for settlement of decommissioning obligations was as follows:
Due from second to fifth year
Due from sixth to tenth year
Due from eleventh to fifteenth year
Due from sixteenth to twentieth year
Due thereafter
Total
At 31 December 2018
At 31 December 2017
149
24
27
86
30
316
202
23
39
77
55
396
Social commitments
In 2010 the Group entered into multilateral agreements with the Government of the Russian Federation and the Krasnoyarsk Regional
Government for construction of pre-schools and other items of social infrastructure in Norilsk and Dudinka till 2020, and for resettlement
of families currently residing in Norilsk and Dudinka to other Russian regions with more favorable living conditions till 2020. In 2017
the Group entered into agreements with the Zabaikalsky Regional Government for construction and development of industrial, social
and other infrastructure till 2026. The provisions represent present value of the best estimate of the future outflow of economic benefits
to settle these obligations.
On 19 September 2018, the Extraordinary General shareholders’ meeting declared interim dividends in respect of the 6 months ended
30 June 2018 in the amount of RUB 776.02 (USD 11.45) per share with the total amount of USD 1,813 million. The dividends were paid
to the shareholders in October 2018 in the amount of USD 1,841 million recognised in the consolidated cash flow statement, using prevailing
RUB/USD rates on the payment dates.
On 28 June 2018, the Annual General shareholders’ meeting declared dividends for the year ended 31 December 2017 in the amount
of RUB 607.98 (USD 9.63) per share with the total amount of USD 1,524 million. The dividends were paid to the shareholders in July 2018
in the amount of USD 1,527 million recognised in the consolidated cash flow statement, using prevailing RUB/USD rates on the payment dates.
On 29 September 2017, the Extraordinary General shareholders’ meeting declared interim dividends in respect of the 6 months ended
30 June 2017 in the amount of RUB 224.20 (USD 3.84) per share with the total amount of USD 607 million. The dividends were paid
to the shareholders in October 2017 in the amount of USD 610 million recognised in the consolidated cash flow statement, using prevailing
RUB/USD rates on the payment dates.
On 9 June 2017, the Annual General shareholders’ meeting declared dividends for the year ended 31 December 2016 in the amount
of RUB 446.10 (USD 7.83) per share with the total amount of USD 1,239 million. The dividends were paid to the shareholders in July 2017
in the amount of USD 1,188 million recognised in the consolidated cash flow statement, using prevailing RUB/USD rates on the payment dates.
On 16 December 2016, the Extraordinary General shareholders’ meeting declared interim dividends in respect of the 9 months ended
30 September 2016 in the amount of RUB 444.25 (USD 7.21) per share with the total amount of USD 1,141 million. The dividends were paid
to the shareholders in January 2017 in the amount of USD 1,172 million recognised in the consolidated cash flow statement, using prevailing
RUB/USD rates on the payment dates.
26. TRADE AND OTHER PAYABLES
Financial liabilities
Trade payables
Payables for acquisition of property, plant and equipment
Other creditors
Total financial liabilities
Non-financial liabilities
Advances received on contracts with customers
Total non-financial liabilities
Total
At 31 December 2018
At 31 December 2017
28. RELATED PARTIES TRANSACTIONS AND OUTSTANDING BALANCES
357
192
110
659
892
892
1,551
426
186
140
752
31
31
783
Related parties include major shareholders and entities under their ownership and control, Nkomati joint operation and key management
personnel. The Group defines major shareholders as shareholders, which have significant influence over the Group activities. The Company
and its subsidiaries, in the ordinary course of their business, enter into various sale, purchase and service transactions with related parties.
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation
and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.
Transactions with related parties
Entities under ownership and control
of the Group’s major shareholders
Joint operation of the Group
Total
Sale of goods and services
and participating shares
Purchase of assets and services
and other operating expenses
For the year ended
31 December 2018
For the year ended 31
December 2017
For the year ended
31 December 2018
For the year ended 31
December 2017
7
–
7
279
1
280
64
86
150
115
107
222
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Consolidated financial statements
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263
Outstanding balances with related parties
Entities under ownership and control
of the Group’s major shareholders
Joint operation of the Group
Total
Accounts receivable
Accounts payable
At 31 December
2018
At 31 December
At 31 December
At 31 December
2017
2018
2017
1
8
9
–
–
–
1
3
4
2
9
11
Terms and conditions of transactions with related parties
Sales to and purchases from related parties of electricity, heat energy and natural gas supply were made at prices established by the Federal
Tariff Service, government regulator responsible for establishing and monitoring prices on the utility and telecommunication markets
in the Russian Federation.
Compensation of key management personnel
Key management personnel of the Group consists of members of the Management Board and the Board of Directors. For the year ended
31 December 2018 remuneration of key management personnel of the Group included salary and performance bonuses amounted
to USD 109 million (for the year ended 31 December 2017: USD 103 million).
29. COMMITMENTS
Capital commitments
At 31 December 2018, contractual capital commitments amounted to USD 544 million (31 December 2017: USD 801 million).
Operating leases
The land plots in the Russian Federation where the Group’s production facilities are located are owned by the state. The Group leases land
through operating lease agreements, which expire in various years through 2099. According to the terms of lease agreements the rent rate
is revised periodically subject to the decision of the relevant local authorities.
At 31 December 2018, thirteen aircraft lease agreements (31 December 2017: ten) were in effect. The lease agreements have an average life
of twelve (31 December 2017: seven) years with a renewal option at the end of the term and place no restrictions upon lessees by entering
into these agreements.
Future minimum lease payments due under non-cancellable operating lease agreements for aircrafts were as follows:
Due within one year
From one to five years
Thereafter
Total
At 31 December 2018
At 31 December 2017
32
95
95
222
38
97
18
153
Future minimum lease payments due under non-cancellable operating lease agreements for land, buildings and other assets were as follows:
Due within one year
From one to five years
Thereafter
Total
At 31 December 2018
At 31 December 2017
44
128
217
389
36
103
138
277
Social commitments
The Group contributes to mandatory and voluntary social programs and maintains social assets in the locations where it has its main
operating facilities. The Group’s social assets as well as local social programs benefit the community at large and are not normally restricted
to the Group’s employees.
The Group’s commitments are funded from its own cash resources.
30. CONTINGENCIES
Litigation
At 31 December 2018 the Group is involved in other legal disputes in the ordinary course of its operations, with the probability
of their unfavorable resolution being assessed as possible. At 31 December 2018, total claims under unresolved litigation amounted
to approximately USD 13 million (31 December 2017: USD 25 million).
Taxation contingencies in the Russian Federation
The Russian Federation currently has a number of laws related to various taxes imposed by both federal and regional governmental
authorities. Applicable taxes include value-added (VAT), corporate income tax, mandatory social security contributions, together with
others. Tax returns, together with other legal compliance areas (for example, customs and currency control matters), are subject to review
and investigation by government authorities, which are authorised by law to impose severe fines, penalties and interest charges. Generally,
tax returns remain open and subject to inspection for a period of three years following the fiscal year.
While management of the Group believes that in the financial statements of the Group it has provided adequate reserves for tax liabilities
based on its interpretation of current and previous legislation, the risk remains that tax authorities in the Russian Federation could take
differing positions with regard to interpretive issues. This uncertainty may expose the Group to additional taxation, fines and penalties.
Transfer pricing legislation enacted in the Russian Federation starting from 1 January 2012 provides for major modifications making local
transfer pricing rules closer to OECD guidelines, but creating additional uncertainty in practical application of tax legislation in certain
circumstances.
These transfer pricing rules provide for an obligation for the taxpayers to prepare transfer pricing documentation with respect to controlled
transactions and prescribe the basis and mechanisms for accruing additional taxes and interest in case prices in the controlled transactions
differ from the market level.
Currently there is lack of practice of applying the transfer pricing rules by the tax authorities and courts, however, it is anticipated that
transfer pricing arrangements will be subject to very close scrutiny potentially having effect on the financial results and the financial position
of the Group.
In 2017 the Russian tax authorities completed a transfer pricing audit of the Group’s metal export sales for the year ended 31 December 2013,
which did not result in significant additional tax charges.
Environmental matters
The Group is subject to extensive federal, state and local environmental controls and regulations in the countries in which it operates.
The Group’s operations involve pollutant emissions to air and water objects as well as formation and disposal of production wastes.
Management of the Group believes that the Group is in compliance with all current existing environmental legislation in the countries
in which it operates. However, environmental laws and regulations continue to evolve. The Group is unable to predict the timing or extent
to which those laws and regulations may change. Such change, if it occurs, may require that the Group modernise technology to meet more
stringent standards.
Russian Federation risk
As an emerging market, the Russian Federation does not possess a fully developed business and regulatory infrastructure including stable
banking and judicial systems which would generally exist in a more mature market economy. The economy of the Russian Federation
is characterised by a currency that is not freely convertible outside the country, currency controls, low liquidity levels for debt and equity
markets, and continuing inflation. As a result, operations in the Russian Federation involve risks that are not typically associated with those
in more developed markets. Stability and success of Russian economy and the Group’s business mainly depend on the effectiveness
of economic measures undertaken by the government as well as the development of legal system.
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264
Starting 2014, the United States of America, the European Union and some other countries have imposed and expanded economic sanctions
against a number of Russian individuals and legal entities. The imposition of the sanctions has led to increased economic uncertainty,
including more volatile equity markets, a depreciation of the Russian rouble, a reduction in both local and foreign direct investment
inflows and certain restrictions for operations with individuals and legal entities under sanctions, including financing and investment
activities. Management assesses the changes in the Russian business environment did not significantly affect the operations, financial
results and the financial position of the Group as of the date of issue of these consolidated financial statements. The longer-term effects
of the imposed and possible additional sanctions are difficult to determine.
31. FINANCIAL RISK MANAGEMENT
Capital risk management
The Group manages its capital structure in order to safeguard the Group’s ability to continue as a going concern and to maximise the return
to shareholders through the optimisation of debt and equity balance.
The capital structure of the Group consists of debt, which includes long and short-term borrowings, equity attributable to shareholders
of the parent company, comprising share capital, other reserves and retained earnings.
Management of the Group regularly reviews its level of leverage, calculated as the ratio of Net Debt to EBITDA, to ensure that it is in line with
the Group’s financial policy aimed at preserving investment grade credit ratings.
The Сompany maintains BBB- investment grade ratings, assigned by rating agencies Fitch and S&P’s. On 29 January 2018 Moody’s rating
agency upgraded the Company’s rating from Ba1 to the investment grade level Baa3 and changed the outlook from stable to positive.
Financial risk factors and risk management structure
In the normal course of its operations, the Group is exposed to a variety of financial risks: market risk (including interest rate and currency
risk), credit risk and liquidity risk. The Group has an explicit risk management structure aligned with internal control procedures that enable
it to assess, evaluate and monitor the Group’s exposure to such risks. The Group has adopted and documented policies covering specific
areas, such as market risk management system, credit risk management system, liquidity risk management system and use of derivative
financial instruments.
Interest rate risk
Interest rate risk is the risk that changes in interest rates will adversely impact the financial results of the Group. The Group’s interest rate risk
arises from long- and short-term borrowings at floating rates.
The Group performs thorough analysis of its interest rate risk exposure regularly. Various scenarios are simulated. The table below details
the financial results sensitivity to a 2 percentage points increase in floating interest rate. The sensitivity analysis is prepared assuming that
the amount of loans and borrowings at floating rates outstanding at the reporting date was outstanding for the whole year.
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265
The carrying amounts of monetary assets and liabilities denominated in foreign currencies other than functional currencies of the individual
Group entities at 31 December 2018 and 31 December 2017 were as follows:
Cash and cash equivalents
Trade and other receivables
Other assets
Total assets
Trade and other payables
Loans and borrowings
Other liabilities
Total liabilities
At 31 December 2018
At 31 December 2017
USD
1,234
265
380
1,879
249
7,308
160
7,717
EUR
Other currencies
13
3
73
89
114
19
19
152
74
4
8
86
10
3
–
13
USD
609
384
141
1,134
290
7,684
136
8,110
EUR
Other currencies
28
4
297
329
80
5
23
108
121
4
15
140
14
–
–
14
Currency risk is monitored on a monthly basis utilising sensitivity analysis to assess if the risk of a potential loss is at an acceptable level.
The Group estimates the financial impact of exchange rate fluctuations on USD-denominated monetary assets and liabilities in respect
of the Group entities where functional currency is the Russian Rouble, as follows:
US Dollar 20% strengthening against Russian Rouble
For the year ended 31
December 2018
For the year ended 31
December 2017
Loss before tax
1,344
1,395
Given that the Group’s exposure to currency risk for the monetary assets and liabilities is offset by the revenue denominated in USD,
management believes that the Group’s exposure to currency risk is acceptable. The Group does not apply hedge instruments. The Group
applies derivative financial instruments including cross-currency interest swaps in order to manage currency risk by matching cash flows
from revenue denominated in USD and financial liabilities denominated in RUB.
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. Credit risk
arises from cash and cash equivalents, bank deposits as well as credit exposures to customers, including outstanding uncollateralised trade
and other receivables. The Group’s exposure to credit risk is continuously monitored and controlled.
Loss before tax
2% floating rate increase impact
For the year ended
31 December 2018
For the year ended
31 December 2017
77
70
Before dealing with a new counterparty, management assesses the creditworthiness of a potential customer or a financial institution.
If the counterparty is rated by major independent credit-rating agencies, this rating is used to evaluate creditworthiness; otherwise
it is evaluated using an analysis of the latest available financial statements of the counterparty and other publically available information.
The outstanding balances with ten major counterparties are presented below. The banks have a minimum of ВВ+ credit rating.
Changes in interest rates impact the value of cross-currency interest swap as follows: 1% increase in RUB interest rate results in a loss
of USD 20 million, 1% decrease in USD interest rate results in a loss of USD 23 million. Management believes that the Group’s exposure
to interest rate risk fluctuations does not require additional hedging activities.
Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument denominated in foreign currency will fluctuate
because of changes in exchange rates.
The major part of the Group’s revenue and related trade accounts receivable are denominated in US dollars and therefore the Group
is exposed primarily to USD currency risk. Foreign exchange risk arising from other currencies is assessed by management of the Group
as immaterial.
Cash and cash equivalents
Bank A
Bank B
Bank C
Bank D
Bank E
Total
Outstanding balance
At 31 December 2018
At 31 December 2017
417
402
214
75
64
1,172
224
143
125
102
80
674
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266
Trade and other receivables
Company A
Company B
Company C
Company D
Company E
Total
Outstanding balance
At 31 December 2018
At 31 December 2017
50
38
34
20
15
157
66
41
23
18
16
164
The Group is not economically dependent on a limited number of customers because the majority of its products are highly liquid and traded
on the world commodity markets. Metal and other sales to the Group’s customers are presented below:
Largest customer
Next 9 largest customers
Total
Next 10 largest customers
Total
Remaining customers
Total
For the year ended 31 December 2018
For the year ended 31 December 2017
Number of customers
Turnover USD million
%
Number of customers
Turnover USD million
1
9
10
10
20
1,564
3,461
5,025
1,965
6,990
4,680
13
30
43
17
60
40
1
9
10
10
20
1,319
2,936
4,255
1,494
5,749
3,397
%
14
32
46
16
62
38
11,670
100
9,146
100
Management of the Group believes that with the exception of the bank balances indicated above there is no significant concentration
of credit risk.
The following table provides information about the exposure to credit risk for cash and cash equivalents, loans, irrevocable letters of credit,
bank deposits and trade and other receivables:
Cash and cash equivalents
Loans, trade and other receivables
Irrevocable letters of credit
Bank deposits
At 31 December 2018
At 31 December 2017
1,388
394
203
91
852
518
248
96
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267
The following table contains the maturity profile of the Group’s borrowings and derivatives (maturity profiles for trade and other payables are
presented in note 26) based on contractual undiscounted payments, including interest:
At 31 December
2018
Total
Due within
one month
Due from
one to three
months
Due from
three to twelve
months
Due in the
second
year
Due in the
third year
Due in
the fourth
year
Due in the
fifth year
Due
thereafter
Fixed rate bank loans and borrowings
Principal
Interest
4,595
1,022
5,617
Floating rate bank loans and borrowings
Principal
Interest
Total
3,883
363
4,246
9,863
Cross-currency interest rate swap
Payable
1,008
Receivable
(1,067)
(59)
1
–
1
5
4
9
10
–
–
–
–
30
30
–
21
21
51
10
(18)
(8)
4
249
253
205
102
307
560
31
(54)
(23)
987
280
871
213
1,507
142
1,003
46
1,267
1,084
1,649
1,049
957
123
1,080
2,347
41
(72)
(31)
1,202
1,302
77
1,279
2,363
926
(923)
3
33
1,335
2,984
–
–
222
62
284
10
–
10
202
3
205
1,254
294
–
–
–
–
At 31 December
2017
Total
Due within
one month
Due from
one to three
months
Due from
three to twelve
months
Due in the
second
year
Due in the
third year
Due in
the fourth
year
Due in the
fifth year
Due
thereafter
Fixed rate bank loans and borrowings
Principal
Interest
5,586
1,189
6,775
Floating rate bank loans and borrowings
Principal
Interest
3,510
246
3,756
Total
10,531
1
–
1
9
5
14
15
1
36
37
–
8
8
45
766
239
1,005
29
51
80
1,085
6
258
264
236
65
301
565
988
257
1,049
188
1,245
1,237
996
52
1,048
2,293
1,028
33
1,061
2,298
1,506
106
1,612
808
20
828
1,269
105
1,374
404
12
416
2,440
1,790
At 31 December 2018 the Group had available committed financing facilities for the management of its day to day liquidity requirements
of USD 4,290 million (31 December 2017: USD 3,554 million).
Liquidity risk
Liquidity risk is the risk that the Group will not be able to settle all liabilities as they fall due.
32. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Group has a well-developed liquidity risk management system to exercise control over its short-, medium- and long-term funding.
The Group manages liquidity risk by maintaining adequate reserves, committed and uncommitted banking facilities and reserve borrowing
facilities. Management continuously monitors rolling cash flow forecasts and performs analysis of maturity profiles of financial assets
and liabilities, and undertakes detailed annual budgeting procedures.
Management believes that the carrying value of financial instruments such as cash and cash equivalents (refer to note 19), other financial
assets (refer to note 15), trade and other short-term accounts receivable (refer to note 18) and current accounts payable (refer to note 26)
approximates to their fair value or may not significantly differ from it. Derivative financial instruments measured at fair value through profit
or loss include cross-currency interest rate swap, Level 2 of fair value hierarchy. Other long-term liabilities classified as measured at fair value
through profit or loss include a liability on the execution of a put option related to transactions with non-controlling interest owners, Level 3
of fair value hierarchy.
Certain financial instruments, such as finance leases obligations, were excluded from fair value analysis due to their insignificance
and management believes that their carrying value either approximates or is not significantly different from their fair value.
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268
Financial instruments that are measured at fair value subsequent to initial recognition, are grouped into Levels 1 to 3 of fair value hierarchy
based on the degree to which their fair value is observable as follows:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the assets or liability, either directly or indirectly; and
• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data.
The information below presents financial instruments not measured at fair value, including loans and borrowings, trade and other long-term payables.
At 31 December 2018
At 31 December 2017
Fixed rate corporate bonds
Total
Carrying value
3,688
3,688
Loans and borrowings, including:
Carrying value
Floating rate loans and borrowings
Fixed rate loans and borrowings
Total
Trade and other long-term payables
Total
3,856
873
4,729
Carrying value
200
200
Fair value
Level 1
3,705
3,705
Fair value
Level 2
3,654
861
4,515
Fair value
Level 2
210
210
Carrying value
4,465
4,465
Carrying value
3,484
1,076
4,560
Carrying value
402
402
Fair value
Level 1
4,685
4,685
Fair value
Level 2
3,439
1,055
4,494
Fair value
Level 2
440
440
The fair value of financial liabilities presented in table above is determined as follows:
•
•
•
the fair value of corporate bonds was determined based on market quotations existing at the reporting dates;
the fair value of floating rate and fixed rate loans and borrowings at 31 December 2018 was calculated based on the present value of future
cash flows (principal and interest), discounted at the best management estimation of market rates, taking into consideration currency
of the loan, expected maturity and risks attributable to the Group existing at the reporting date;
the fair value of trade and other long-term payables at 31 December 2018 was calculated based on the present value of future cash flows,
discounted at the best management estimation of market rates.
The fair value of cross-currency interest rate swap is calculated as the present value of future cash flows discounted at the interest rates
applicable to the currencies of the corresponding cash flows and available at the reporting date. The fair value is subject to a credit risk
adjustment that reflects the credit risk of the Group and of the counterparty, which is calculated based on credit spreads derived from current
tradeable financial instruments.
33. INVESTMENTS IN SIGNIFICANT SUBSIDIARIES
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269
Effective % held
Subsidiaries by operating segments
Country
Nature of business
At 31 December 2018
At 31 December 2017
JSC “NTEK”
LLC “ZSC”
Russian Federation
Electricity production
and distribution
Russian Federation
Construction
LLC “Norilsknickelremont”
Russian Federation
Repairs
LLC “Norilskyi obespechivaushyi
complex”
Russian Federation
Production of spare parts
LLC “Medvezhyi ruchey”
Russian Federation
Mining
KGMK GROUP
JSC “Kolskaya GMK”
Russian Federation
Mining and metallurgy
LLC “Pechengastroy”
Russian Federation
Repairs
Norilsk Nickel Harjavalta
Norilsk Nickel Harjavalta OY
Finland
Metallurgy
GRK Bystrinskoye
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
LLC “GRK “Bystrinskoye”
Russian Federation
Mining
50.01
50.01
LLC “Vostokgeologiya”
Russian Federation
Geological works and
construction
Other non-metallurgical
Metal Trade Overseas A.G.
Norilsk Nickel (Asia) Limited
Norilsk Nickel USA, Inc.
Switzerland
Hong Kong
USA
LLC “Institut Gypronickel”
Russian Federation
Distribution
Distribution
Distribution
Research
JSC “TTK”
JSC “ERP”
Russian Federation
Supplier of fuel
Russian Federation
River shipping operations
LLC “Aeroport Norilsk”
Russian Federation
Airport
JSC “AK “NordStar”
Russian Federation
Aircompany
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Joint operations by operating
segments
Other mining
Country
Nature of business
At 31 December 2018
At 31 December 2017
Effective % held
Nkomati Nickel Mine
Republic of South Africa
Mining
50
50
Effective % held
34. EVENTS SUBSEQUENT TO THE REPORTING DATE
Subsidiaries by operating segments
Country
Nature of business
At 31 December 2018
At 31 December 2017
GMK Group
JSC “Norilsky Kombinat”
Russian Federation
Rental of property
JSC “Taimyrgaz”
Russian Federation
Gas extraction
JSC “Norilskgazprom”
Russian Federation
Gas extraction
JSC “Norilsktransgaz”
Russian Federation
Gas transportation
JSC “Taimyrenergo”
Russian Federation
Rental of equipment
100
100
100
100
100
100
100
100
100
100
On 12 February 2019 Moody’s rating agency upgraded the Company’s credit rating to the Baa2 level with stable outlook.
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Additional
information
>
>
>
>
>
>
>
The Group structure: main assets
Performance indicators for 10 years
Resources and reserves
Energy consumption by MMC Norilsk Nicel
272
274
276
278
Metric conversion table and currency exchange rates
278
Glossary
Contacts
279
281
272
The Group structure: main assets
MINING AND METALLURGICAL
• Polar Division
• Medvezhy Ruchey (100% stake)
• Kola MMC (100% stake)
• GRK Bystrinskoe (50,01% stake)
• Norilsk Nickel Harjavalta Oy (Finland, 100%)
• Nkomati Nickel Mine (South Africa, 50% stake)
GEOLOGICAL EXPLORATION
• Norilskgeologiya (100% stake)
• Vostokgeologiya (100% stake)
• Intergeoproekt (100% stake)
ENERGY
• Norilskenergo Division
• Taimyrenergo (100% stake)
• NTEK (100% stake)
• Norilskgazprom (100% stake)
• Taimyrgaz (100% stake)
• TTK (100% stake)
• Norilsktransgaz (100% stake)
• Arctic-Energo (100% stake)
SALES AND DISTRIBUTION
• NORMETIMPEX (100% stake)
• Metal Trade Overseas SA (Switzerland, 100% stake)
• Norilsk Nickel Asia Limited (Hong Kong, 100% stake)
• Norilsk Nickel USA Inc. (USA, 100% stake)
• Norilsk Nickel Metal Trading Co., Ltd. (China, 100% stake)
Ownership in subsidiaries (direct and indirect) is indicated from the authorised capital.
Company overview
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273
SUPPORTING BUSINESS
• Norilsk Support Complex (100% stake)
• Polar Construction Company (100% stake)
• Norilsknickelremont (100% stake)
• Pechengastroy (100% stake)
• Nornickel – Shared Services Centre (100% stake)
RESEARCH
• Gipronickel Institute (100% stake)
TRANSPORT
• Polar Transport Division
• Murmansk Transport Division
• Arkhangelsk Transport Division
• Arkhangelsk Transport Division
• Bystrinsky Transport Division
• Yenisey River Shipping Company (81,99% stake)
• Krasnoyarsk River Port (89,3% stake)
• Lesosibirsk Port (51% stake)
• Norilsk Airport (100% stake)
• NordStar Airlines (100% stake)
• Norilsk Avia (100% stake)
Annual Report > 2018Nornickel www.nornickel.com > 274
Performance indicators
for 10 years
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Strategy
Markets commodity
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Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
275
Norilsk Nickel Group
saleable metals production
NORILSK NICKEL GROUP
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Norilsk Nickel Group
saleable metals production
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
GRK BYSTRINSKOE (RUSSIA, ZABAYKALSKY KRAI)
Nickel, t, thereof
279,889
295,840
295,098
300,340
285,292
274,248
266,406
235,749
217,112
218,770
from own Russian feed
232,813
235,518
234,906
223,153
219,273
223,224
220,675
196,809
210,131
216,856
Copper, t
Gold, koz
from 3d parties feed
47,076
60,322
60,192
77,187
66,019
51,024
45,731
38,940
6,981
1,914
Iron ore concentrate (66%), t
Copper, t, thereof
400,778
388,027
377,944
363,764
371,063
368,008
369,426
360,217
401,081
473,654
NORILSK NICKEL HARJAVALTA (FINLAND)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
19,417
90
346
from own Russian feed
382,443
365,698
362,854
344,226
345,737
345,897
352,766
344,482
397,774
473,515
Nickel, t, thereof
28,452
49,159
48,525
45,518
44,252
42,603
43,479
53,654
59,716
60,765
from 3d parties feed
18,335
22,329
15,090
19,538
25,326
22,111
16,660
15,735
3,307
139
from own Russian feed
0
0
0
0
0
0
424
19,012
55,021
59,337
Palladium, koz, thereof
2,794
2,855
2,806
2,732
2,662
2,752
2,689
2,618
2,780
2,729
Copper, t, thereof
4,983
11,279
5,681
1,006
6,549
10,629
13,048
9,598
13,441
18,036
from own Russian feed
2,676
2,723
2,704
2,624
2,529
2,582
2,575
2,526
2,728
2,729
from 3d parties feed
Platinum, koz, thereof
from own Russian feed
from 3d parties feed
118
658
636
22
132
692
663
29
102
696
672
24
108
683
658
25
133
650
604
46
170
662
595
67
114
656
610
46
92
644
610
34
52
670
650
20
0
653
653
0
POLAR DIVISION AND KOLA MMC (RUSSIA)
Nickel, t
Polar division
232,813
235,518
237,227
233,632
231,798
228,438
222,016
182,095
157,396
158,005
124,250
124,200
124,000
124,000
122,700
122,390
96,916
50,860
0
0
from own Russian feed
Palladium, koz, thereof
from own Russian feed
Platinum, koz, thereof
from own Russian feed
0
18
0
5
0
NORILSK NICKEL AUSTRALIA (AUSTRALIA)
Nickel, t
NORILSK NICKEL TATI (BOTSWANA)
1,223
0
48
0
15
0
0
0
34
0
12
0
0
0
21
0
9
0
0
39
0
16
0
8,975
2,826
0
74
0
31
0
0
Kola MMC, thereof
108,563
111,318
113,227
109,632
109,098
106,048
125,100
131,235
157,396
158,005
from own Russian feed
108,563
111,318
110,906
99,153
96,573
100,834
123,335
126,937
155,110
157,519
Nickel, t
Copper, t
17,401
11,163
9,346
12,215
6,416
3,207
13,352
11,050
8,803
10,292
5,412
2,436
from 3d parties feed
0
0
2,321
10,479
12,525
5,214
1,765
4,298
2,286
486
Palladium, koz
100
Copper, t
Polar division
382,443
365,698
363,460
352,466
359,102
354,943
355,707
350,619
387,640
436,201
323,705
309,320
303,940
295,610
296,760
297,552
292,632
280,347
306,859
353,131
Platinum, koz
NORILSK NICKEL NKOMATI (SOUTH AFRICA)
17
83
14
43
7
18
4
0
78
0
33
0
0
911
671
5
1
593
12,328
17,980
64
8
22
2
0
0
0
0
0
42
35
10
6
0
0
0
0
0
58
58
11
11
0
0
0
0
0
Nickel, t
Copper, t
Palladium, koz
Platinum, koz
3,005
1,436
11
3
9,624
11,920
11,359
11,350
4,594
5,034
4,938
5,301
32
12
46
20
48
19
53
20
8,486
4,007
40
15
8,006
4,504
46
20
6,597
3,055
33
13
84
14
5,525
3,082
23
7
68
12
5,815
2,927
24
9
Kola MMC, thereof
58,738
56,378
59,520
56,856
62,342
57,391
63,075
70,272
80,781
83,070
from own Russian feed
58,738
56,378
58,914
48,616
48,977
48,345
60,134
63,542
78,587
82,987
from 3d parties feed
0
0
606
8,240
13,365
9,046
2,941
6,730
2,194
83
Palladium, koz
Polar division
Kola MMC, thereof
from own Russian feed
from 3d parties feed
Platinum, koz
Polar division
Kola MMC, thereof
from own Russian feed
from 3d parties feed
2,676
2,723
2,704
2,628
2,580
2,660
2,606
2,554
2,738
2,671
2,010
2,053
2,038
1,989
2,006
2,065
1,935
1,703
666
666
0
636
505
131
131
0
670
670
0
663
529
134
134
0
666
666
0
672
536
136
136
0
639
635
4
660
529
131
129
2
574
523
51
627
504
123
100
23
595
517
78
627
500
127
95
32
671
640
31
622
488
134
122
12
851
815
36
622
449
173
159
14
956
1,782
1,737
45
660
259
401
385
16
987
1,684
1,684
0
642
260
382
382
0
Total amounts may vary from the sum of numbers due to arithmetical rounding. The production results of Nkomati are not included in the total amounts of the Group.
Norilsk Nickel Group owns 50.01% of Bystrinsky GOK (Chita Copper Project). Production results are reported as metal contained in saleable concentrate on a 100% basis and are fully
consolidated in the Group's total operating results. The hot commissioning of the project started on October 31, 2017.
The sale of the asset was closed on April 2, 2015.
Norilsk Nickel Group owns 50% of Nkomati. Production results are reported as metal contained in saleable concentrate on a 50% basis and are not consolidated in the Group’s total
operating results.
Annual Report > 2018Nornickel www.nornickel.com > 276
Resources and reserves
Minerals reserves
and resourses
as at December 31, 2018
TAIMYR PENINSULA
Proven and probable
reserves
Proven reserves
Metal grade
Contained metal
Ore
kt
Ni
%
Cu
%
Pd
g/t
Pt
g/t
Au
g/t
6 PGM
g/t
Ni
kt
Cu
kt
Pd
koz
Pt
koz
Au
koz
6 PGM
koz
683,625
0.92
1.73
4.23
1.12
0.24
5.60
6,286
11,858
92,864
24,600
5,331
122,982
Talnakh ore field, including
328,571
0.79
1.55
3.84
1.04
0.23
2,600
5,080
40,582
10,938
2,398
53,664
rich
cuprous
51,627
2.52
3.10
6.25
1.30
0.23
1,299
1,603
10,380
2,156
19,770
0.97
3.93
9.56
2.32
0.64
12.01
192
776
6,073
1,472
385
405
13,100
7,633
5.08
7.89
disseminated
257,174
0.43
1.05
2.92
0.88
0.19
3.98
1,109
2,701
24,129
7,310
1,608
32,931
Norilsk-1 deposit
(disseminated ore)
Probable reserves
21,628
0.35
0.51
3,95
1.58
0.18
5.82
76
110
2,744
1,101
122
4,045
Talnakh ore field, including
311,622
1.14
2.11
4.64
1.13
0.27
rich
cuprous
79,629
2.90
3.95
7.11
1.40
0.26
61,380
0.75
3.17
7.12
1.86
0.52
disseminated
170,613
0.46
0.88
2.60
0.75
0.18
6.07
9.05
9.20
3.56
3,549
6,588
46,529
11,347
2,676
60,828
2,308
3,145
18,199
3,581
664
23,160
461
780
1,944
14,057
3,666
1,017
18,153
1,499
14,273
4,100
995
19,515
Norilsk-1 deposit
(disseminated ore)
Measured and indicated
resources
21,804
0.28
0.37
4.29
1.73
0.19
6.34
61
80
3,009
1,214
135
4,445
1,708,565
0.70
1.31
3.56
1.00
0.21
4.78
11,892
22,437
195,441
55,122
11,565
262,296
Talnakh ore field, including
1,561,555
0.73
1.40
3.55
0.96
0.22
4.71
11,456
21,877
178,029
48,335
10,840
236,698
rich
cuprous
113,786
3.23
4.25
7.96
1.60
0.29
10.10
3,675
4,840
29,123
5,845
1,069
36,950
68,710
0.98
4.08
9.40
2.40
0.66
12.04
674
2,806
20,755
5,297
1,467
26,588
disseminated
1,379,059
0.52
1.03
2.89
0.84
0.19
3.91
7,107
14,231
128,151
37,193
8,304
173,160
Norilsk-1 deposit
(disseminated ore)
147,010
0.30
0.38
3.68
1.44
0.15
5.42
436
560
17,412
6,787
725
25,598
Inferred resources
440,898
0.85
1.74
4.22
1.09
0.25
5.54
3,750
7,653
59,754
15,435
3,545
78,321
Talnakh ore field
439,830
0.85
1.74
4.22
1.09
0.25
5.54
3,747
7,650
59,627
15,385
3,541
78,054
Norilsk-1 deposit
(disseminated ore)
1,068
0.28
0.28
3.69
1.46
0.13
7.78
3
3
127
50
4
267
KOLA PENINSULA (disseminated ore)
Proven and probable
reserves
100,918
0.58
0.27
0.03
0.02
0.01
Proven ore reserves
45,074
0.58
0.25
0.03
0.02
0.01
Probable reserves
55,844
0.57
0.28
0.03
0.02
0.01
0.05
0.05
0.05
581
261
320
271
112
159
Measured and indicated
resources
327,277
0.69
0.33
0.05
0.03
0.02
0.08
2,247
1,089
Inferred resources
144,211
0.63
0.31
0.04
0.03
0.01
0.07
909
448
93
42
51
488
184
60
30
30
314
121
29
13
16
177
60
155
73
82
862
320
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
277
Minerals reserves
and resourses
as at December 31, 2018
AUSTRALIA (Honeymoon Well)
Measured and indicated
resources (nickel sulfide
ores)
Inferred resources
(nickel sulfide ores)
Inferred resources
(nickel laterite ores)
TOTAL RUSSIAN ASSETS
Total proven and probable
reserves
Total measured and
indicated resources
Metal grade
Contained metal
Ore
kt
Ni
%
Cu
%
Pd
g/t
Pt
g/t
Au
g/t
6 PGM
g/t
Ni
kt
Cu
kt
Pd
koz
Pt
koz
Au
koz
6 PGM
koz
173,300
0.68
11,900
0.68
339,000
0.81
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1,180
81
2,746
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
784,543
0.88
1.55
0.12
0.03
0.01
0.16
6,867
12,129
92,957
24,660
5,360
123,137
2,035,842
0.69
1.16
0.10
0.03
0.01
0.13
14,139
23,526
195,929
55,436
11,742
263,158
Total inferred resources
585,109
0.80
1.38
0.10
0.03
0.01
0.13
4,659
8,101
59,938
15,556
3,605
78,641
TOTAL RUSSIAN AND INTERNATIONAL ASSETS
Total proven and probable
reserves
Total measured and
indicated resources
784,543
2,209,142
Total inferred resources
936,009
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,867
12,129
92,957
24,660
5,360
123,137
15,319
23,526
195,929
55,436
11,742
263,158
7,486
8,101
59,938
15,556
3,605
78,641
Reserves and resourses
in South Africa (Nikomati)
as at June 30, 2018
Proven and probable reserves
Measured and indicated resources
Inferred resources
Metal grade
Contained metal
Ore
kt
84,450
172,200
46,350
Ni
%
0.31
0.35
0.40
Cu
%
0.12
0.14
0.13
Co
%
4 PGM
g/t
0.02
0.02
0.02
0.89
0.96
0.97
Ni
kt
261
603
185
Cu
kt
101
241
60
Co
kt
4 PGM
koz
17
34
9
2,412
5,315
1,445
Data regarding the mineral resources and ore reserves of the deposits of the Taimyr and Kola peninsulas were classified according to the Australasian Code for Reporting of Mineral
Resources and Ore Reserves (JORC code), created by the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists, and the Minerals Council
of Australia, subject to the terminology recommended by the Russian Code for Public Reporting of Exploration Results, Mineral Resources, Mineral Reserves (NAEN Code).
Data regarding the reserves and resources is based on the balance-sheet reserves of A, B, С1 and С2, categories (according to the terminology of the State Committee for Mineral
Reserves) as of the end of the given calendar year.
Figures given as "Total" may differ from the sum of individual numbers due to rounding. Certain values may in some instances vary slightly from previously published values.
The six platinum group metals (PGMs) are platinum, palladium, rhodium, ruthenium, osmium, and iridium. Hereafter in the annual report, troy ounces are used as a weight measure
for PGMS and gold.
Proven and probable ore reserves are included in mineral resources.
Ore losses applied ranged from 1.6 % to 26% and dilution from 6% to 31.9%.
Excluding deposits in Zabaykalsky Krai.
The Group owns 50% of Nkomati, which operates a nickel mine of the same name. The co-shareholder of the company is African Rainbow Minerals. Nkomati's performance is
reflected in financial results using proportional consolidation according to our stake and not reflected in other totals.
Annual Report > 2018Nornickel www.nornickel.com >
278
Energy consumption
by MMC Norilsk Nickel
2016
2017
2018
Type of energy
Consumption
in volume terms
RUB ’000
Consumption
in volume terms
RUB ’000
Consumption
in volume terms
RUB ’000
Heat power
5,587,849 Gcal
4,702,584
4,737,249 Gcal
4,393,019
4,295,081 Gcal
4,606,657
Electric power
5,158,974 thousand kWh
5,272,779
4,489,188 thousand kWh
4,854,566
4,174,431 thousand kWh
4,668,543
Motor fuel
Diesel fuel
Heating oil
Natural gas
Coal
Kerosene
and aviation fuel
344 t
17,797
268 t
15,348
273 t
14,612
58,671 t
2,657,599
52,684 t
2,431,146
52,859 t
2,598,687
40,479 t
582,489
40,360 t
566,985
44,233 t
840,447
545,712,000 m3
1,363,718
497,141,000 m3
1,458,756
493,279,000 m3
1,482,681
49,760 t
20,612
17,359 t
4,204
16,473 t
7,545
115 t
5,008
124 t
6,122
127 t
6,083
Data on energy consumption is presented only by MMC Norilsk Nickel (exluding Kola MMC, Norilsk Nickel Harjavalta, GRK Bystrinskoye).
No other types of energy were used besides those specified in the table.
Metric conversion table
and currency exchange rates
METRIC CONVERSION TABLE
1 km
1 m
1 cm
1 mi
1 foot
1 in
Length
0.6214 mi
3.2808 ft
0.3937 in
Area
1 sq m
1 sq km
10.7639 sq ft
1 kg
0.3861 sq mi
1 metric tonne
1 ha
2.4710 acres
1 short tonne
1.609344 km
1 sq ft
0.09290304 sq m
1 troy ounce
Weigth
2.2046 lb
1,000 kg
907.18 kg
31.1035 g
0.3048 m
2.54 cm
1 sq m
2.589988 sq km
1 acre
0.4046873 ha
1 lb
1 g
0.4535924 kg
0.03215075 oz t
CURRENCY EXCHANGE IN 2014–2018
Index
2014
2015
2016
2017
2018
Average rate Russian Rouble / US Dollar
for the year ended 31 December
38.42
60.96
67.03
58.35
62.71
Company overview
Strategy
Markets commodity
Business overview
Sustainable development
Corporate governance
Risk report
Shareholder information
Consolidated financial statements
Additional information
279
Glossary
Agglomeration. The process
of compacting and forming a solid mass
from ore fines (dust), concentrates
or metal-bearing waste by heat to obtain
agglomerate.
Disseminated ores. Ores containing
5% to 30% sulphides, with the following
metal grades: 0.2–1.5% for nickel, 0.3–2%
for copper, and 2–10 g/t for platinum group
metals.
Anode. Crude metal (nickel
or copper) obtained from anode smelting
and fed for electrolytic refining (electrolysis)
whereby it is dissolved.
Drying. Removal of moisture
from concentrates performed in designated
drying furnaces (to a moisture level
below 9%).
Cake. Solid residue from filtering pulp
during leaching of ores, concentrates
or metallurgical intermediates,
and purification of processing solutions.
Cathode. Pure metal (nickel or copper)
obtained as a result of electrolytic refining
of anodes.
Concentrate. A product
of ore concentration with a high grade
of the extracted mineral, which gives its name
to the concentrate (copper, nickel, etc.).
Concentration. Artificial improvement
of metallurgical feedstock mineral grades
by removal of a major portion of waste rock
not containing any valuable minerals.
Conversion. Oxidation process to turn
matte into converter matte (in smelting
copper-nickel concentrates) or blister
copper (in smelting copper concentrates)
and remove slag (carbon, sulphur, iron
and other impurities).
Converter matte. A metallurgical
intermediate produced as a result of matte
conversion. Depending on the chemical
composition, the following types
of converter matte are distinguished:
copper, nickel and copper-nickel.
Cuprous ores. Ores containing 20% to 70%
sulphides, with the following metal grades:
0.2–2.5% for nickel, 1.0–15.0% for copper,
5–50 g/t for platinum group metals.
Electrolysis. A series of electrochemical
reduction-oxidation reactions
at electrodes immersed in an electrolyte
as a result of passing of an electric current
from an external source.
Electrowinning. Electrodeposition
of metal from ores that have been put
in solution. Ore or concentrate is leached
with agents that dissolve metal-containing
minerals or the entire material, so that
the metal is deposited on the cathode.
The electrolyte is typically reused
in the process. The end product is high-
purity metal cathode.
Filtration. The process of reducing
the moisture level of the pulp by forcing
it through a porous medium.
Flash smelter. An autogenous
smelter for processing dry concentrates,
where the smelted substance is finely
ground feedstock mixed with a gaseous
oxidiser (air, oxygen), which holds melted
metal particles suspended. The heat
from oxidation reactions is actively used
in the process.
Flotation. A concentration process
where specific mineral particles suspended
within the pulp attach to air bubbles. Poorly
wettable mineral particles attach to the air
bubbles and rise through the suspension
to the top of the pulp, producing foam,
while well wettable mineral particles do
not attach to the bubbles and remain
in the pulp. This is how the minerals
are separated.
Fluidised bed furnace. A furnace
where solid particles are intensively mixed
under a fluidising impact of heated gas
(air, oxygen or flue gases) flowing through
the bed of grainy material (powder,
granules).
Intrusion. Intrusive rock forms within
Earth's crust from the crystallisation
of magma. Intrusions may be layered,
with a regular stratigraphic sequence of rock.
Leaching. Selective dissolution of one
or several components of the processed
solid material in organic solvents or water
solutions of inorganic substances. Kinds
of leaching: acid leaching (leaching
with acids as reagents), chlorine leaching.
Matte. Intermediate product in the form
of an alloy of sulphides of iron and non-
ferrous metals with a varying chemical
composition. Matte is the main product
accumulating precious metals and metal
impurities the feedstock contains.
Metal extraction. The ratio between
the quantity of a component extracted
from the source material and its quantity
in the source material (as a percentage
or a fraction).
Metal grade. The ratio between
the weight of metal in the dry material
and the total dry weight of the material
expressed as a percentage or grammes per
tonne (g/t).
Mine. A mining location for extraction
of ores.
Ore mixture. A mixture of materials
in certain proportions needed to achieve
the required chemical composition
of the end product.
Annual Report > 2018Nornickel www.nornickel.com > 280
Ore. Natural minerals containing metals
or their compounds in economically
valuable amounts and forms.
Oxide. A compound of a chemical
element with oxygen.
Probable ore reserves. Estimated
based on the economically mineable part
of indicated and, in some circumstances,
measured mineral resources, including
possible dilution and losses during mining
operations.
Proven ore reserves. Estimated
based on the economically mineable part
of measured mineral resources, including
possible dilution and losses during mining
operations.
Pulp. A mixture of finely ground rock
with water or a water solution.
Pyrrhotite concentrate. By-product
of copper-nickel ore concentration.
Refinement. The process of extracting
high purity precious metals through
their separation and removal of impurities.
Reverberatory furnace. A smelting
furnace in which heat passes to material
being processed from contact with gaseous
fuel combustion products and the hot inner
surface of refractory lining (for example,
in producing matte from copper ores
or concentrates).
metallurgical processes (resulting from ore
mixture melting, melted intermediate
processing and metal refining) and includes
waste rock, fluxes, fuel ash, metal sulphides
and oxides, and products of interaction
between the processed materials and lining
of melting units.
Sludge. Powder product containing
precious metals settling during electrolysis
of copper and other metals.
Sublevel caving. An underground mining
method in which ore blocks are developed
from top to bottom via sublevels, and ore
is extracted by blasting or causing sublevels
to cave in. The voids formed after extraction
get filled with fractured rock.
Sulphides. Compounds of metals
and sulphur.
Tailings pit. A complex of hydraulic
structures used to receive and store mineral
waste / tailings.
Tailings. Waste materials left over after
concentration processes and containing
mostly waste rock with a minor amount
of valuable minerals.
Thickening. Separation of liquid (water)
and solid particles in dispersion systems
(pulp, suspension, colloid) based on natural
gravity settling of solid particles in settlers
and thickeners, or centrifugal settling
of solid particles in hydrocyclones.
Rich ores. Ores with high sulphide
content (over 70%) and the following metal
grades: 2–5% for nickel, 2–25% for copper,
and 5–100 g/t for platinum group metals.
Roasting. Heating ore to high
temperatures to trigger chemical changes
that enable subsequent metal recovery
processes.
Tolling agreement. An agreement
to process foreign feedstock
with subsequent shipping of finished
product. The feedstock and end product
are exempt from customs duties.
Underground (subsurface)
mining. A set of stripping, preparatory
and stoping operations.
Shop area. A part of a (metallurgical)
shop.
Slag. Melted or solid substance
with a varying composition that covers
the surface of a liquid product during
Vanyukov furnace. An autogenous
smelter for processing concentrates, where
smelting is performed in a bath of slag
and matte, with intensive injection of air-
oxygen mixture. The heat from oxidation
reactions is actively used in the process.
Contacts
Investor relations
Head office
Address: 18 bldg. 13, Stromynka Street,
107996 Moscow, Russian Federation
Vladimir ZHUKOV
Vice President for Investor Relations
Email: ir@nornik.ru
Phone: +7 (495) 989-76-50
Fax: +7 (495) 780-73-67
Email: info@rrost.ru
Mikhail BOROVIKOV
Deputy Head of Investor Relations
Norilsk Branch
Address: 8 Bogdan Khmelnytskiy,
Email: borovikovMA@nornik.ru
Norilsk, Krasnoyarsky Krai, 663305,
Phone: +7 (495) 786-83-20
Fax: +7 (495) 797-86-13
For shareholders
Marina RAYCHENKO
Head of the Share Capital Division
Phone: +7 (495) 797-82-44
Email: raychenkoma@nornik.ru
Media relations
Andrey KIRPICHNIKOV
Head of Public Relations
Email: pr@nornik.ru
Tatiana SMIRNOVA
Deputy Head of Public Relations
Email: smirnovaTB@nornik.ru
Phone: +7 (495) 785-58-00
Fax: +7 (495) 785-58-08
Address: Russian Federation, 123100
Moscow, 1-iy Krasnogvardeyskiy proezd, 15
Russian Federation
Phone: +7 (3919) 46-28-17
Helpdesk operating hours:
Monday - Friday from 10:00 to 14:00
Krasnoyarsk branch
Address: office center "Voskresensky”,
office 314, 94 Prospekt Mira, Krasnoyarsk,
660017, Russian Federation
Phone: +7 (391) 216-51-01, 223-20-30
Fax: +7 (391) 216-57-27
Helpdesk operating hours:
Monday - Friday from 9:00 to 13:00
ADR Depositary
Bank of New York Mellon
Depositary Receipts Division
Address: 240 Greenwich Street, 22nd Floor
West, New York, NY 10286
Phone: +1 (212) 815-41-58
Fax: +1 (212) 571-30-50
Web-site: www.bnymellon.com
Registrar
Auditor
JSC R.O.S.T. Registrar
(before 04.02.2019 JSC Independent
Registrar Company)
JSC "KPMG"
Address: 3035, 18/1 Olympiysky prospekt,
Moscow, 129110 Russian Federation
Russian Federal Securities Commission
Postal address:
license number 045-13976-000001, dated
Naberezhnaya Tower Complex, Block C,
December 6, 2002, valid indefinitely
31st Floor, Presnenskaya Naberezhnaya,
Web-site: www.rrost.ru
Moscow, 123112 Russian Federation
Phone: +7 (495) 937-44-77
Fax: +7 (495) 937-44-99
Email: moscow@kpmg.ru
Web-site: www.kpmg.com/ru
DISCLAIMER
This annual report (Annual Report) has
been prepared based on the information
available to MMC Norilsk Nickel
and its subsidiaries as at the issue date.
The Company believes that the information
provided in this Annual Report is complete
and accurate as at the Annual Report
publication date. However, the Company
does not assert that this information will
not be updated or corrected in the future.
This Annual Report may include certain
forward-looking statements with respect
to the Group’s operations, economic
indicators, financial position, results
of operating and production activities,
its plans, projects and expected results,
as well as trends related to commodity
prices, production and consumption
volumes, costs, estimated expenses,
development prospects, useful lives
of assets, reserve estimates and other
similar factors and economic projections
with respect to the industry and markets,
start and completion dates of certain
geological exploration and production
projects, and liquidation or disposal
of certain entities.
The Company neither confirms
nor guarantees that the results indicated
in the forward-looking statements
will be achieved.
The Company accepts no responsibility
for any losses that may be incurred
by any individual or legal entity acting
in reliance on the forward-looking
statements.
Annual Report > 2018Nornickel