Russian nickel producer Norilsk Nickel's (Nornickel) revenue grew by 15pc year on year to $15.5bn in 2020 despite the disruption caused by Covid-19 and the increased spend on both industrial safety mining capital expenditure (capex) and sustainable environmental, social and governance (ESG) measures.
The increase is at odds with the firm's earnings before interest, tax, depreciation and amortisation, which fell by 3pc on 2019 to $7.7bn and better explains the business performance in what has been a turbulent year for both miners and markets.
Three-month nickel prices on the London Metal Exchange (LME) began 2020 at $14,807/t but fell by 21pc to $11,142/t by 23 March 2020 as the Covid-19 crisis gripped global economies over initial lockdown periods. Investors have since refocused their positions on the medium-to-long term potential of the nickel market, driving a recovery in Nornickel's sales prices. Nickel prices on the LME have since recovered by 26pc to register $18,654/t on 16 February 2021.
Nornickel's consolidated nickel production rose by 3pc on the year to 236,000t in 2020, boosted by increased nickel concentrate production at its Kola MMC operation and higher processing of Russian feed at its Harjavalta plant in Finland.
The group issued production guidance from Russian feedstock of 220,000-230,000t of nickel in 2021, slightly down from 225,000-235,000t in 2020.
Nornickel's consolidated copper production fell by 2pc on the year in 2020 to 487,000t, with production guidance from Russian feedstock for 2021 set at 390,000-410,000t.
Cleaning up its act
The company has encountered many challenges over the past 12 months, weighing on profit margins because of one-off expenditures. Sulphur emissions at its Polar division have been increasing since 2017, although they are broadly flat on 2015 levels. Emissions at the Kola division have more than halved over the same period, accelerated by the closure of the unit's old smelting facility in December 2020. The company pledged at Capital Markets Day 2020 to spend $3.6bn across its Sulphur Programme 2.0 and "other air emissions reduction projects". This represents a significant proportion of the 33pc increase in 2021 capex spend to $1.8bn.
Expenditure on sulphur minimisation and containment is expected to be an ongoing commitment for Nornickel. But the closure of smelting and copper refining at Kola is likely to remove some of the recurring commitments from future financial results. A more abnormal line item for 2020 is expenditure linked to the clean-up following a large fuel spill in the Kayerkan neighbourhood of Norilsk.
The leak occurred when an emergency fuel storage failed as its piling rapidly sank, causing 21,000t of diesel fuel to leak into nearby soil and the Bezymianny stream. The contaminated water polluted the Ambarnya river and the Pyasino lake. Phase 3 of the disaster recovery was completed as of October 2020 — once the residue had been collected and the waterways had been cleared of fuel — but some increased spend during Phase 4 over 2020-23 could yet see extra costs incurred by Nornickel.
The spill has been likened to the Exxon-Valdez oil spill of 1989, or the Deepwater Horizon spill of 2010, both of which permanently changed the oil industry's approach to ESG matters. Norilsk has already had to pay $1.94bn in compensation, which is in line with the valuation made by Russian environmental watchdog Rosprirodnadzor. The changing sentiment of investors in support of like-minded watchdogs is a significant development for the nickel industry and is likely to raise costs — and the risk of stringent penalties — at all significant western sulphide mines.
