| 05.11.2009 - Fitch Ratings
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Fitch Changes Norilsk Nickel Outlook to Stable; Affirms ‘BBB-’
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Fitch Ratings-London- 5 November 2009: Fitch Ratings has today revised Russia-based OJSC MMC Norilsk Nickel’s (NN) Outlook to Stable from Negative. The company’s ratings are affirmed at Long-term Issuer Default (IDR) and senior unsecured ‘BBB-’ and Short-term IDR ‘F3’.
The Outlook change reflects the stronger-than-anticipated base metals pricing environment so far in 2009 which has allowed NN to materially improve its liquidity profile and maintain credit metrics commensurate with the ‘BBB-’ rating level. Over the next two to three years the company is now expected to maintain a comfortable level of rating headroom, including under downside scenarios involving a material retracement of metals prices from current levels. Fitch’s core rating case reflects its macroeconomic view of an anaemic recovery in global growth over the course of 2010-2011 with only limited increases in nickel, copper and platinum group metals (PGM’s) prices over this period.
The Outlook change also reflects the agency’s confidence that NN would be able to refinance a significant portion of its debt maturities due in 2010 (in aggregate approximately USD3bn), if required. Plausible options in this regard would include a rouble bond or eurobond issue, or a combination of the two. Also incorporated in the Stable Outlook is the expectation that NN will maintain a conservative stance in respect of cash outgoings (dividends, capex) over at least 2010 and remain cash flow-positive, allowing for further reductions in absolute debt levels.
Fitch’s current base case for FY09 is for an approximate 35% reduction in revenues to around USD8.8bn-9bn with EBITDAR of USD3bn-3.5bn. This compares to the agency’s March 2009 forecast of an approximate 50% reduction in revenues and EBITDAR of around USD1.7bn. For FY10 Fitch expects revenues of around USD11bn-11.5bn and EBITDAR of USD4.3bn-4.5bn. NN has been able to achieve significant year-on-year reductions in operating costs (H109 total operating costs were USD1.4bn lower than in 2008), although this also reflects the benefit of the depreciation of the Russian rouble (average RUB/USD rate in H109 of 33 versus 24 in 2008). Over the next three years ongoing higher inflation in Russia is likely to see costs trend upwards, limiting the company’s ability to return to historical profitability margins.
Fitch views NN’s liquidity profile as sound. FYE09 unrestricted cash is estimated at approximately USD2.1bn-2.3bn (excluding cash held at NN’s electricity generation subsidiary OGK-3), which together with expected FY2010 free cash flow of around USD1bn compares to an aggregate of USD3bn of debt due in FY2010. For FY09, Fitch estimates gross leverage (gross debt/EBITDAR) of around 1.5x-1.7x before falling to 0.7x-0.9x in 2010.
The ratings continue to reflect NN’s core strengths, including its position as the world’s leading producer of nickel and palladium, as well as being a significant producer of copper/platinum, and the strong operational profile of its core Russian assets on the Taimyr Peninsula which benefit from low operating costs, a uniquely rich ore body and long-life reserves.
However, NN’s predominantly Russian asset base exposes the company to higher-than-average political, business and regulatory risks. Also, NN’s status as a strategically important Russian asset exposes it to potential actions involving key shareholders and/or the Russian state. These factors remain key constraints on NN’s ratings although Fitch believes that the potential for adverse action in this regard has lessened over the past year.
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Issuer profile:
Norilsk Nickel is the world’s largest producer of nickel and palladium and one of the leading producers of platinum and copper. It also produces various by-products, such as cobalt, chromium, rhodium, silver, gold, iridium, ruthenium, selenium, tellurium and sulfur.
The Group is involved in prospecting, exploration, extraction, refining and metallurgical processing of minerals, as well as in production, marketing and sale of base and precious metals.
Norilsk Nickel’s production facilities are located on three continents and in five countries: Russia, Australia, Botswana, Finland, and South Africa.
The main Russian production units are vertically integrated and include:
• the Polar Division (“the Taimyr Peninsula”);
• the Kola Mining and Metallurgical Company (“Kola MMC” or “the Kola Peninsula”).
The Polar Division is located above the Polar Circle on the Taimyr Peninsula in the Krasnoyarsky Region. Its entities are connected to other regions of the country, via the Yenisei river and the Northern Sea Route, as well as by air. Kola MMC is located on the Kola Peninsula, which is the largest industrial producer in the Murmansk region, and is fully integrated into the transport infrastructure of the Northwest Federal District of the Russian Federation.
In Australia, Norilsk Nickel owns:
• Norilsk Nickel Cawse, a laterite nickel ore production and leaching facility;
• Black Swan, Lake Johnston and Waterloo, all sulfide nickel producers;
• Honeymoon Well, a major sulfide nickel ore exploration project.
In Botswana, Norilsk Nickel holds an 85% interest in Tati Nickel Mining Company, a sulfide nickel producer.
The Group owns Norilsk Nickel Harjavalta, the only nickel refining plant in Finland.
In South Africa, the Group holds a 50% interest in the Nkomati nickel mine, a joint venture with African Rainbow Minerals (ARM).
The Group also includes:
• the Gipronickel Institute, a research and development facility located in Saint Petersburg, with branches in the cities of Norilsk and Monchegorsk;
• Norilsk Process Technology, a research and development facility in Australia.
Norilsk Nickel has its own global network of representative and sales offices in Russia, the UK, China, USA and Switzerland.
In Russia, the Company’s shares are traded on the Moscow Interbank Currency Exchange (MICEX) and the Russian Trading System (RTS). The ADRs of the Company’s shares are traded over-the-counter (OTC) in the United States, on the electronic International Order Book Unlisted section of the London Stock Exchange and on the Freiverkehr (OTC-section) of the Berlin-Bremen Stock Exchange. As a result of the share split, the Company’s shares convert into ADRs at a ration 1:10 effective since February 19, 2008.
When determining the strategy for its global operations and future development, Norilsk Nickel is focused on compliance with all social and environmental responsibility principles in the various countries in which it operates, which is essential for ensuring sustainable and efficient business development./04,2011
MMC Norilsk Nickel Group produces nickel, copper, cobalt, palladium, platinum and other precious metals (gold, silver), selenium, tellurium, technical sulfur, hard coal and other materials for industrial needs.MMC Norilsk Nickel’s is the world’s largest producer of nickel and palladium and one of the largest producers of platinum. Its market share exceeds 10% of cobalt and 3% of copper production worldwide. Domestically, MMC Norilsk Nickel holds close to a 96% market share of nickel, 55% of copper and 95% of cobalt production.
Outstanding issues:
1 issue(s) outstanding worth RUR 15 000 000 000
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