Russian Miner: Global Player · Codelco BHP Billiton Phelps Dodge Rio Tinto Xstrata Anglo American...
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Russian Miner: Global Player
MoscowSeptember 18th 2007
Morgan Stanley Institutional Equity –Russian Metals and Mining
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DisclaimerThe information contained herein has been prepared using information available to MMC Norilsk Nickel at the time of preparation of the presentation. External or other factors may have impacted on the business of MMC Norilsk Nickel and the content of this presentation, since its preparation. In addition all relevant information about MMC Norilsk Nickel may not be included in this presentation. No representation or warranty, expressed or implied, is made as to the accuracy, completeness or reliability of the information.
Any forward looking information herein has been prepared on the basis of a number of assumptions which may prove to be incorrect. Forward looking statements, by the nature, involve risk and uncertainty and MMC Norilsk Nickel cautions that actual results may differ materially from those expressed or implied in such statements. Reference should be made to the most recent Annual Report for a description of the major risk factors.
This presentation does not constitute or form part of any advertisement of securities, any offer or invitation to sell or issue or any solicitation of any offer to purchase or subscribe for, any shares in MMC Norilsk Nickel, nor shall it or any part of it nor the fact of its presentation or distribution form the basis of, or be relied on in connection with, any contract or investment decision.
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MMC Norilsk Nickel Today
• Leading Russian mining and metals company with a growing
international business
• Lowest cost producer of refined nickel with largest amount of
nickel in attributable reserves and resources
• Proven history of value creation and returns to shareholders
• Highest combined credit rating amongst Russian private
companies
• Recognized leader in corporate governance and transparency
amongst Russian companies
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Norilsk Nickel’s Global Presence
KOLA MMCKola Peninsula
KOLA MMCKola Peninsula
POLAR DIVISION Taimyr PeninsulaPOLAR DIVISION Taimyr Peninsula
CORPORATE CENTER Moscow
CORPORATE CENTER Moscow
GIPRONICKEL INSTITUTE
St. Petersburg
GIPRONICKEL INSTITUTE
St. Petersburg
STILLWATER MINING COMPANY (55%)
Montana, USA
STILLWATER MINING COMPANY (55%)
Montana, USA
TALVIVAARA Project(~7.5%) Finland
TALVIVAARA Project(~7.5%) Finland
NORILSK NICKEL HARJAVALTA OY
Finland
NORILSK NICKEL HARJAVALTA OY
Finland
NORILSK NICKEL CAWSE PTY LTD
NORILSK NICKEL CAWSE PTY LTD
MPI NICKEL PTY LTD (BLACK/SILVER SWAN
and HONEYMOON WELL project)
MPI NICKEL PTY LTD (BLACK/SILVER SWAN
and HONEYMOON WELL project)
WATERLOOWATERLOO
AVALONAVALON
LAKE JOHNSTONLAKE JOHNSTON
TATI NICKEL (85%)Botswana
TATI NICKEL (85%)Botswana
NKOMATI (50%)South Africa
NKOMATI (50%)South Africa
NORILSK PROCESS TECHNOLOGY
NORILSK PROCESS TECHNOLOGY
NORILSK NICKEL EUROPE
London, UK
NORILSK NICKEL EUROPE
London, UKNORILSK NICKEL
USA Pittsburgh, USA
NORILSK NICKEL USA
Pittsburgh, USA NORILSK NICKEL ASIA
Hong Kong, China
NORILSK NICKEL ASIA
Hong Kong, China
METAL TRADE OVERSEAS
Zug, Switzerland
METAL TRADE OVERSEAS
Zug, Switzerland
NORILSK NICKEL ASIA
Beijing, China
NORILSK NICKEL ASIA
Beijing, China
International PGM asset
Norilsk Nickel operations in Russia
Norilsk Nickel international nickel assets Research centers
Global distribution network
Norilsk Nickel Corporate Center
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Largest Nickel Producers (% share of 2006 world refined production)
Largest Palladium Producers (% share of 2006 world mined production)
Largest Copper Producers (% share of 2006 world mined production)
Largest Platinum Producers (% share of 2006 world mined production)
Leading Producer of Base & Precious Metals
40.0
15.3 13.5 12.6
05
1015202530354045
Angloplat Impala Lonmin NorilskNickel*
8.0
6.15.6 5.2
4.43.4 3.4 3.0 2.9
0
2
4
6
8
10
11.8
Codelco BHPBilliton
PhelpsDodge
RioTinto
Xstrata AngloAmerican
KGHM Freeport GrupoMexico
NorilskNickel
18.016.0
10.08.1 7.2
02468
101214161820
Norilsk Nickel
CVRDInco
BHPBilliton
XstrataNickel
Jinchuan
49.6
21.1
6.4 6.0
0
10
20
30
40
50
60
NorilskNickel*
Angloplat Impala Lonmin
Source: Company data, Brook Hunt, CRU; Norilsk Palladium and Platinum share include Stillwater Mining Company (SWC)
6
164.
299
.886
.774
.355
.139
.432
.732
.130
.530
.127
.818
.318
.316
.516
.214
.113
.911
.711
.110
.5
(76%
)(1
73%
)(1
61%
)(2
3%)
(35%
)
(175
%)
(164
%)
(4%
)(1
41%
)(1
00%
)(1
95%
)(3
18%
)(3
4%)
(354
%)
(175
%)
(215
%)
(111
%)
(84%
)(1
63%
)(8
7%)
0
20
40
60
80
100
120
140
160
180
200
BHP Biliton
CVRD³Rio Tinto
Anglo America
nXstr
ata³
Norilsk N
ickel
Freeport³Alco
a
Southern Copper
Angloplats
Barrick
Teck C
omincoNew
montIm
palaGoldco
rp³
Camec
o
Antofagas
ta
Kazak
hmysPea
bodyAnglogold
(US$
bn)
A Growing Mining & Metals Company
Market capitalisation1
2005 Current2
Source: DatastreamNotes:1 Market capitalisation 2005 as of 27 August 2005, and current as of 27 August 20072 Percentage increase since 2005 in brackets3 Company has completed major acquisition during the observation period
87.8
47.2
37.9
35.2
23.9
17.5
14.5
14.3
13.9
12.4
10.2
10.2
9.0
8.0
7.8
7.8
7.6
7.3
7.2
6.8
0
10
20
30
40
50
60
70
80
90
100
BHP Biliton
Rio TintoCVRD
Anglo America
nAlco
aNew
montXstr
ata
Norilsk N
ickel
Barrick
Alcan
Phelps D
odge
Angloplats
Peabody
Camec
oInco
AngloGold
Teck C
ominco
Southern C
opperFree
port
Falconbrid
ge
(US$
bn)
7
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07
Reb
ased
at 1
00
Norilsk Nickel Diversifieds Index¹
1,032%
378%
0
100
200
300
400
500
600
700
800
900
1,000
1,100
1,200
Aug-02 Aug-03 Aug-04 Aug-05 Aug-06 Aug-07
Reb
ased
at 1
00
Norilsk Nickel RTS Index
1,032%
437%
Norilsk’s Share Price Over Past 5 Years
Source: DatastreamNote:1 Index: BHP Billiton, CVRD, Rio Tinto, Anglo American and Xstrata
Share price performancevs. Diversified vs. Russian peers
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Leading EBITDA Margin
19
373946474749
5753565859
7681
17
3027
4144
51
36
50
585150
7368
54
20062005
Norilsk Nickel
Antofagasta Xstrata/ Falconbridge
TeckCominco
CrupoMexico
Rio Tinto
Anglo Platinum
Freeport-McMoRan
CVRD/ Inco
BHP Billiton
Kazakhmys Phelps Dodge
Anglo American
Southern Copper
EBITDA MarginPercent
Source: Company reports
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Strong Financial Performance
Note: MMC Norilsk Nickel without Polus Group
Metal sales revenues*USD million
Net profit and net profit margin*USD million, percent (line)
+75%+75%
6,5917,169
11,550
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2004 2005 2006
1,8572,352
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2004 2005 20060%
10%
20%
30%
40%
50%
60%
1,8652,278
4,972
32%
43%
28%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2004 2005 20060%
10%
20%
30%
40%
50%
60%+168%+168%
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Revenue Breakdown
By metal
2006total USD million 11,550
2005total USD million 7,169
Europe
RussiaAsiaAmerica
NickelCopperPalladiumPlatinumGold
By destination
23%
13%
12% 1%
51%
15%
13%
9%
63% 16%
16%
8%
60%
11%
24%
10%
54%
1%
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Leading Credit Rating of Russian Blue Chips
B+ BB- BB BB+ BBB- BBB BBB+
Alrosa SUAL MTS Sistema Severstal
MMK Megafon
Novolipetsk TNK-BP Vimpelcom
Lukoil
B2 B1 Ba3 Ba2 Ba1 Baa3 Baa2
Severstal Sistema Evraz MMK SUAL MTS
Alrosa Vimpelcom
Lukoil TNK-BP
B+ BB- BB BB+ BBB- BBB BBB+
Sistema
Severstal Evraz MMK
Megafon
Lukoil TNK-BP
S&P
Moody’s
Fitch
Upgraded to BBB-from BB+ in Aug 2006
Rating confirmed in September 2007
Upgraded to Baa2 from Ba2 in Oct 2006
Maintained BBB-rating since Dec 2005
Rating confirmed in August 2007
Source: S&P, Moody’s, Fitch ratings
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80
90
100
110
120
130
140
150
160
170
Aug-06 Oct-06 Dec-06 Mar-07 May-07 Aug-07
Reb
ased
at 1
00
Norilsk Nickel Diversifieds index¹
61%
43%
Norilsk Performance in Last 12 Months
Source: DatastreamNotes:1 Index: BHP Billiton, CVRD, Rio Tinto, Anglo American and Xstrata2 Replicating the MICEX Metals & Mining Index excluding Norilsk Nickel
Share price performancevs. Diversified vs. Russian peersvs. Russian peers
80
90
100
110
120
130
140
150
160
170
Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07R
ebas
edat
100
Norilsk Nickel Russian M&M index² RTS Index
49%
31%
16%
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Norilsk Resilience in Turbulent Markets
Source: DatastreamNotes:1 Index: BHP Billiton, CVRD, Rio Tinto, Anglo American and Xstrata2 Replicating the MICEX Metals & Mining Index excluding Norilsk Nickel
What is interesting, however, is that Norilsk Nickel has managed to withstand the storm of collapsing nickel prices and its share price has actually gained 10% since 15 May. Despite the drastic decline in nickel prices, the YTD average of $42,040/tonne is still higher than DB's FY07 forecast of $40,798/tonne.
Deutsche UFG, 15 August 2007
40
60
80
100
120
140
16-May 2-Jun 19-Jun 6-Jul 23-Jul 9-Aug 26-Aug
Reb
ased
at10
0
Norilsk Nickel LME Nickel spot Diversifieds Index¹Russian M&M Index² RTS Index
16-May-07Nickel price reaches highof US$54,150/t
25-Jun-07Increasing concerns overUS sub-prime mortgage market
29-Jun-07Norilsk acquirescontrol of LionOre
25-Jul-07Fears of "global creditcrunch" affect equity markets
16-Aug-07FTSE suffersworst one-day lossin 4 years06-Jun-07
LME modifies nickel inventoryregulations
7%10%
3%2%
(51%)
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Leadership in the Global Nickel Industry
Refined nickel production1
… in a changing industry landscapeSource: Brook Hunt, AME, Company informationNote:1 Includes refined production from Norilsk Nickel Harjavalta Oy
2002 2007E
218
183
136
6956 50
0
50
100
150
200
250
Norilsk N
ickel
IncoBHP B
illiton
Falconbrid
ge
WMCJin
chuan
(kt)
267248
139116 110
63
0
50
100
150
200
250
300
350
Norilsk N
ickel
CVRDBHP B
illiton
Xstrata
Jinch
uan
Eramet
(kt)
1
15
-8-6-4-202468
10
0 20 40 60 80 100Production percentile
2002 2006 (E)C1 cash costs, 2007c/lb
Norilsk Nickel
Lowest Cash Cost Nickel Producer
Source: Brook Hunt and Norilsk Nickel
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The Newly Created Norilsk Nickel International Nickel Business
• Acquisition of LionOre and OMG’s Nickel Business combine to create a significant International Nickel Business
– Added benefit of proprietary Activox® hydrometallurgical processing technology• International Nickel Business represents the world’s 6th largest nickel producer—and largest pure-play producer
– Vertical integration through Harjavalta refinery and Activox® refineries– Geographic diversity with operations in Europe, Africa and Australia
• Strong growth profile of brownfield and greenfield development projects– Some of the world’s largest undeveloped nickel deposits in Honeymoon Well
and Talvivaara– Early-stage exploration assets in Western Australia and Africa
• Combination unlocks operational synergies– Secured long-term concentrate feed sources for Harjavalta refinery– Consolidation of MPI Nickel ownership and increased presence in Western
Australia
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Specialties segment (Cobalt)
Nickel
Lubumbashi KokkolaRefinery
Cawse Pty Ltd
HarjavaltaNickel Oy
MPI NickelPty Ltd (80%
LionOre)
TalvivaaraKaivososa-
keyhtiő(public
shareholders)
55%
Cobalt refining
100%100% 20%
Silver/Black Swan
Honeymoon Well Project
Refinery 60,000 mtpa nickel
capacity
Nickel bioleaching
project
Nickel mine Nickel project
Nickel mine and laterite leaching
operation
Cobalt slag project + smelter
100% ~7.5%
Finland Finland Australia Australia
Australia Australia
100% 100%
Research
USA,Malaysia
KuchingBellevilleFranklin
Sales offices
USA, Malaysia,
Japan,Taiwan,
Singapore
FinlandDRC
100% 100% 100%
100% 100%
MalaysiaCanadaUSA
Organic chemicals
Organic chemicals
Nickel chemicals
OM Group Nickel Business AcquisitionAssets purchased by Norilsk Nickel:
• 100% Norilsk Nickel Harjavalta Oy (Harjavalta nickel refinery in Finland)
• 100% Norilsk Nickel Cawse Pty Ltd (Cawse nickel mine and leaching facility in Western Australia)
• 20% of MPI Nickel Pty Ltd (ownerof Silver/Black Swan nickel mine, Honeymoon Well nickel project)
• ~7.5% of TalvivaaranKaivososakeyhtiő Bio-Heap Leach Nickel Project (post-IPO) in Finland
Purchase price: US$ 493 mln cash, cash free/debt free
Acquisition timeline:• Sale and Purchase Agreement
signed on 17 November 2006• All necessary regulatory
approvals received on time• Transaction closed on March 1,
2007• Major elements of integration
completed as of today
Assets purchased by Norilsk Nickel
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Creation of International Nickel Business
• Acquisition of OM Group’s nickel business completed in March 2007– Norilsk Nickel Harjavalta Oy (nickel refinery)– Norilsk Nickel Cawse Pty Ltd (Cawse nickel mine & leaching facility) – 20% of MPI Nickel Pty Ltd, which owns:
• Black/Silver Swan nickel mine• Honeymoon Well nickel project
– ~ 7.5% of Talvivaara nickel heap leach project• Major elements of integration completed• Increased nickel production with platform for growth
– Immediate ~35,000 mt/year increase attributable nickel production– Current capacity of 60,000 mt/year, ready to expand– Best in class operations efficiency and skills
• Diversification of geography and product mix– Operations in Europe and Australia– More diverse product offering
• Nickel briquettes for stainless industry• Entry into nickel salt products• Expansion in attractive nickel plating and electro-forming
segments• Strategic opportunities
– Nickel sales & marketing synergies– Streamline Norilsk cobalt sales operations– Build knowledge of laterite leaching & heap leaching technologies– Transfer of best practices between group production sites
Norilsk Nickel Harjavalta (Finland)
Norilsk Nickel Cawse (Australia)
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Transportation and Logistics Integration
Nikel Smelter
Monchegorsk(KMMC)
Arkhangelsk Port (53%)
DudinkaPort (100%)
Norilsk
Enisey River Shipping (52%)
Norilsk Nickel Harjavalta
FINLAND RUSSIA
Norilsk Railroad (100%)
Asset (Norilsk ownership in %)
NorilskAirport (100%)
TaimyrEnergo(100%)
Murmansk Pelyatka Gas Deposit (100%)
Pechenga mines(Zapolyarny)
Talvivaara
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LionOre Transaction Overview
• Largest ever international acquisition by a Russian company
• First contested bid by a Russian company offshore
• Largest Russian metals & mining acquisition financing
– US$6.0 billion of acquisition debt
– Syndicate of more than 25 international banks
– Investment grade credit rating maintained
• Transaction completed within just three months of initial bid
• Successful effort to again promptly receive all required regulatory approval
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Logical Business Combination
• Strengthens internationally diversified portfolio of metal production assets in
attractive mining regions
− Complementary technology for a “reserve rich” sulphide based
nickel producer
− Complementary asset base of mining and processing operations that fit with
Norilsk Nickel’s refining capabilities
• Strong management team experienced in mining and processing operations in the
southern hemisphere, and with strong capabilities in building new operations in
remote areas
• Further enhancement of an already strong commodity mix
• Builds portfolio of shorter term growth projects combined with long life reserves
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Norilsk Nickel Assets in Australia, South Africa and Botswana
Australia
• LionOre is a major nickel producer in Western Australia
• LionOre intends to develop largest sulphidenickel project in Western Australia -Honeymoon Well
• LionOre cooperates with a global mining major BHP Billiton in processing Waterloo ore and in JV on Jericho/ Albidon Downs project. Moreover, an exploration alliance with BHP Billiton in Russia, created in 2006, opens new prospects for cooperation in Australia
• Growing presence in Australia helps Norilsk Nickel to optimize its current domestic cooperation with Australian companies Mincom (enterprise resource planning) and ALS (analytical laboratory services)
• Nkomati is the only focused nickel miner in South Africa
• Nkomati deposit also contains major chrome resources thus expanding Norilsk Nickel commodity portfolio
• Nkomati operates in 50/50 partnership with a major South Africa “Black Economic Empowerment” company African Rainbow Minerals, controlled by a well-known businessman Patrice Motsepe
• In LionOre’s 10 year history inBotswana, over $1 billion ofrevenue generated with majorcapital invested over thisperiod
• LionOre successfully collaborates with Botswana Government – 15% owner of Tati Nickel, majority owner of BCL Smelter and 15% owner of the Activox Plant being constructed
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International Nickel Assets in AustraliaNorilsk Nickel International Nickel Business includes the following
assets in Western Australia:
• Norilsk Nickel Cawse – an open pit mine for laterite ore mining, a concentrator and a high pressure laterite leaching operation. Cawse was commissioned in 1998 and one of the three “first generation” nickel laterite operations
• Black/ Silver Swan – underground and open pit sulphide ore mining and a concentrator. Concentrator capacity was expanded in 2006
• Lake Johnston – underground sulphide ore mining and a concentrator. Concentrator capacity allows for toll processing of third-party ore. Fly-in, fly-out operations
• Waterloo/ Thunderbox – an underground nickel mine Waterloo and an open pit gold mine Thunderbox (currently being closed), sharing operational infrastructure
• Honeymoon Well project – a major sulphide nickel project also containing laterite resources. Sample ore is currently tested by LionOre Technology (after acquisition – Norilsk Process Technology)
• Jericho/ Albion Downs project – joint venture with BHP Billiton
• Avalon laterite project
Cawse
LionOre assets in Australia
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International Nickel Operations in Botswana –Tati Nickel (85%)
Mining and concentration• Phoenix open pit mine and Selkirk underground mine• Commissioned in 1988• Major expansion projects in 2002 and 2006• In 1989-2002 rich ore mining was in progress at Selkirk, after that the mine
was put on care and maintenance. Open pit mining options are being investigated
• Dense media separation plant - Stage 1 complete in 2006-2007- Stage 2 and full-scale operations expected in 2008
Hydrometallurgy• Activox Stage 1
- Demo Plant commissioned in 2004- Technology contractors - Hatch and EPCM- Full-scare commercial operations expected in 2009/10- Potential expansion of annual nickel production by over 90%- Opportunity to create a vertically integrated refined nickel producer in
Botswana (the only hydrometallurgical nickel producer in Africa)
Activox trial operations
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800
900
1,000
1,100
1,200
1,300
1,400
Aug
-05
Dec
-05
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
(US$
/oz)
050100150200250300350400450
(US$/oz)
Platinum Palladium
3,000
4,0005,000
6,000
7,0008,000
9,000
Aug
-05
Dec
-05
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
(US$
/t)
10,000
20,000
30,000
40,000
50,000
60,000
Aug
-05
Dec
-05
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
(US$
/t)
Highly Attractive Commodity Portfolio with Strong Financial Returns
Combined Group1 2007E LionOre1 2007ENorilsk Nickel1 2007E
Source: Datastream, company informationNote: 1 Norilsk Nickel estimates. Estimates are based on full-year revenues
Nickel64%
Copper16%
Others5%Palladium
7%
Platinum8%
Copper Platinum/PalladiumNickel
Nickel66%
Others6%
Copper14%
Palladium6%
Platinum8%
Nickel87%
Others4%
Gold5%
Copper4%
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Further Geographic Diversification
Pro forma 2007E revenue1
Norilsk Nickel 2007E revenue1
LionOre 2007E revenue1
LionOre Operation LionOre ProjectNorilsk Nickel
Stillwater Mining (55%) NN Harjavalta
Talvivaara (~11%)
Kola MMC
GipronickelResearch Institute
NN Corporate Headquarters
Polar Division
NN CawseTati Nickel
Nkomati Nickel Lake Johnston
Waterloo Thunderbox
Black/SilverSwan
Avalon
Honeymoon Well
Russia87%
Finland9%
Australia1%
USA3%
Finland8%
Botswana3%
Australia7%
Russia79%
S.Africa1%
USA2%
Australia62%
S.Africa6%
Botswana32%
Note: Norilsk Nickel estimates. Estimates are based on full-year revenues
27
Norilsk Nickel International Nickel Business —Asset Overview
International Nickel Operations
Norilsk Nickel Finland Oy
Norilsk Nickel Africa TechnologyNorilsk Nickel
Australia
MPI Nickel Pty
Nkomati(ARM 50%)
Nickel mine 5,000 mtpa
Expansion (Phase 2) 16,000 mtpa
Expansion (Activox) 22,000 mtpa
Tati Nickel
Nickel mine 14,000 mtpaBFS¹:22,500 mtpa
BCL smelter
Smelter60,000 mtpa
Lake Johnston
Nickel mine 15,000 mtpa
Cawse Pty
Nickel mine 6,500 mtpa
Jericho Albion
Downs JV (50% BHP)
Nickel exploration
project
Waterloo
Nickel mine 3,000 mtpa
Silver/Black Swan
Honeymoon Well
Nickel mine
12,000 mtpa
Nickel project under
development
100%
Activox® processing technology
85% 50% 28.75%
100%100%
100%100% 100% 50%
Nickel project 35,000 mtpa
7.4%
Talvivaara Project
Norilsk Nickel
Harjavalta Oy
Nickel refinery 60,000 mtpa
Source: Company informationNote:1 Bankable feasibility study