Nornickel restructures operations as sanctions bite

Russian mining group Norilsk Nickel (Nornickel), the world's largest Class 1 nickel producer and Europe's biggest nickel supplier, is rebuilding its credit lines and supply chains as it looks to withstand the impact of Western sanctions on Russia in the aftermath of the Ukraine conflict, billionaire businessman and Nornickel's largest stakeholder Vladimir Potanin said earlier this week.

While Nornickel itself has not been hit by sanctions since the outbreak of war in Ukraine, wider sanctions imposed on Russia by European governments, together with a trend of self-sanctioning among major European market players on doing business with the country, have punctured Nornickel's traditional supply routes into Europe, while also complicating the group's settlement terms and lending capabilities with banks. And on 29 June, the UK became Europe's first country to sanction Potanin, with the businessman facing an asset freeze and a UK-wide travel ban as a result.

Speaking this week to Russian business TV network RBC about the recent UK sanctions, Potanin confirmed that Nornickel had a "fairly large volume of relationships" with British banks, adding that the group was analysing the impact of UK sanctions on it credit lines.

"It [the sanctions] will force us to get some loans repaid ahead of schedule," Potanin said.

Potanin stated that Nornickel was looking at re-routing non-European shipments to fight the headwind of global sanctions, particularly through north Africa and the UAE, and confirmed that it was building a new supply route through Tangier, Morocco, which would focus on shipping supplies into China and other southeast Asian markets.

But Potanin reiterated Nornickel's commitment towards using European ports such as Rotterdam alone to service its European customers, despite acknowledging the knock-on effects the sanctions have had on its European business, such as a refusal of European ports to accept Russian vessels and a refusal of European banks to issue advances, which "reduce the efficiency of work". Half of Nornickel's revenue comes from sales to Europe, Potanin said, with Nornickel accounting for half of European nickel supply.

"We have re-organised for using vessels under foreign flags," Potanin said. "We understand current difficulties and go for it."

Potanin added that it was in agreement with the Russian Central Bank's decision to artificially regulate the exchange rate of the rouble following the outbreak of the conflict, despite the negative financial impact on Nornickel, adding that a rapid fall in Russian imports and consequent lowered demand for foreign currency warranted the central bank intervention.

Potanin further confirmed that he had agreed to having talks with Russia's major aluminium producer Rusal over a possible merger with Nornickel, after a recent approach by Rusal, adding that a merger would "create a national champion".

By Raghav Jain