Nornickel warns of coronavirus risks, reports leap in profit

Image courtesy of Nornickel

Norilsk Nickel (Nornickel) said on Wednesday it expected uncertain times ahead in two of its key markets — nickel and copper — as the coronavirus outbreak continues to disrupt both demand and supply.

Russian mining giant, which reported 2019 net profit up 95% compared to the previous year, said the outbreak, which originated in China, made the future health of these markets hard to predict.

“The Chinese government restrictions on mobility, extended work holidays and mandatory closures have imposed a significant disruption to the supply chain and already had a significant impact on end consumption,” Nornickel said, referring to nickel markets.

“The extent of demand disruption makes it unlikely that the first-quarter losses can be fully recouped in the second and third quarters of 2020, as the supply is also yet to recover.”

In terms of copper, Nornickel said it had expected to see a recovery in demand due to an increase in infrastructure investment in China and the rollout of next-generation 5G telecom networks.

However the outbreak of the virus, which has infected tens of thousands of people in China and beyond and triggered alarm around the world, could undermine the company’s copper demand assumptions, it said.

Looking ahead, Nornickel said it expects to see a deficit in the global palladium market of 0.9 million ounces in 2020.

Strong 2019

Nornickel, also the world’s largest palladium producer, said its net profit rose to $5.97 billion in 2019, up from $3.06 billion the previous year, due to increased mining volumes and strong nickel and palladium prices.

“2019 became one of the most successful years for our company in the last decade owing to a combination of strong operating performance and favourable macro tailwinds,” Nornickel President Vladimir Potanin said in a statement.

Nornickel is part owned by Potanin and aluminium producer Rusal.

The company’s earnings before interest, tax, depreciation and amortisation (EBITDA) totalled $7.9 billion in 2019, a year-on-year rise of 27%.

This result beat analysts’ forecasts, both VTB Capital Research and BCS Global Markets said.

“Going forward lowering capital expenditure guidance for 2020 by $300 million (11%) should improve the company’s cash generating ability and further lowers the probability of the company decreasing dividend payout ratio in the current year,” BCS analysts said.

Shares in Nornickel rose by 1.7% in Moscow on the results.

The company said it expects its capital expenditure level to be at $2.2-$2.5 billion in 2020, as it continues its focus on raising output.

(By Polina Ivanova; Editing by Kirsten Donovan and David Evans)

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