PJSC Mining and Metallurgical Company Norilsk Nickel

Alexey Ivanov - Director, Investor Relations Evgeny Yakovlev - First Deputy CEO Sergey Malyshev - Chief Financial Officer

Sergey Donskoy - Societe Generale Nikolay Sosnovskiy - VTB Capital Andrey Lobazov - Alfa Bank James Richards - GIC Mikhail Stiskin - Sberbank Vasiliy Kuligin - Renaissance Capital Vladimir Zhukov - HSBC Semyon Mironov - Credit Suisse Andrew Jones - Otkritie

Good afternoon, ladies and gentlemen. And welcome to Norilsk Nickel conference call to discuss the Group’s full year 2012 audited financial results.

After a long break we decided to return to the practice of holding conference call with the management. And I’m very glad to announce that today call is hosted by the First Deputy CEO, Evgeny Yakovlev; and the Chief Financial Officer, Sergey Malyshev.

Before getting started, I would like to remind everyone to look through the disclaimer on the page one. At that -- at this time, I’d like to turn the call over to Evgeny Yakovlev.

Please go ahead.

Good afternoon, everyone, and thank you for your continued interest in Norilsk Nickel. As you know, we released full year 2012 results last Friday and today we are here to look through them.

Here are the key highlights of the Group last year performance. The year was not an easy one for the company, as the slowdown of global demand led to a significant decline in metal prices and affected our performance.

Despite such difficult conditions the company fully achieved production and sales targets demonstrating stable operating results as compared to 2011. Revenue decreased 15% to $12 billion reflecting the drop in prices for nickel, copper and PGMs.

EBITDA amounted to $4.9 billion with a strong margin of 41%. Profitability was supported by marginal cash costs inflation.

We delivered a strong operation cash flow of around $4.5 billion, confirming our performance -- our repeated performance of cash rich company. In 2012, the company was focused on investments and total capital expenditure increased to $2.7 billion with emphasis on main production and infrastructure facilities in Russia.

That are the key highlights. Now let’s go to the next slide please.

Here you can see that Norilsk Nickel continues to keep leadership position in nickel and palladium production with market share of 17% and 41%, respectively. Been a vertically integrated company with best-in-class resource base, in-house power infrastructure, transport and worldwide distribution network, Norilsk Nickel benefit from economies of scale and has a solid downside protection.

Our long-term reputation of responsible supply makes us a top choice for many customers across the globe. Now, I would like to pass the floor to Sergey Malyshev, our Chief Financial Officer.

Hello, everyone. As you can see on the slide our sales volumes were almost unchanged year-on-year.

Nickel sales increased 1% supported by full year of operation at Lake Johnston, while Lake Johnston -- while copper and PGM sales volumes decreased slightly in line with production. Nickel sales continued to dominate the revenue structure with the share of 47%, copper was responsible for 26% of the revenue, PGMs for 25% and we had a small amount of gold which increased its share from 1% to 2% due to (inaudible) price environment.

Robust diversified customer base in our sales are smoothly distributed across the globe which give us a lot of flexibility in terms of distribution of our product. Let’s go to next slide.

As I already mentioned the main reason for the negative top and bottom line trend, was decrease in prices for base and precious metal produced by the company. Revenue from metal sales was down 70% year-on-year to $11 billion.

As you may know Nickel was one of the worst performer in terms of price in 2012 so the revenue from nickel sales decreased the most 22% year-on-year to $5.2 billion. At the same time, we manage to keep our selling price at a premium of almost $200 per ton as compared to average LME price.

Copper sales revenues decreased 12% year-on-year in line with the price dynamics. PGM pricing suffered almost in line with copper, so revenue from the sales of the palladium and platinum decreased 13% and 10% year-on-year, respectively.

Other sales increased 22% driven by higher volumes of services provided by Taimyr airlines and the expansion of social-oriented retail business in Norilsk. EBITDA amounted $4.9 billion just a margin above 13% [confirmed underline investments] [ph] of our business.

On the next slide I will speak a bit more about it. On the chart you can see that the drop in EBITDA was mostly driven by decrease in metal sales, (inaudible) some pressure on the cost side, our operation expenditure increase below Russian [FDA] [ph].

Our cash costs increased just 2% year-on-year being impacted by higher expenses on consumables and sales, and service provided by third parties, as well as lower sales on by-product metals. Reduction of nickel export duties had a positive effect on our [SG&A] [ph] expenses which increased by [$434] [ph] million.

Higher non-cash charges in 2012 had reversal effect on EBITDA in the amount of $123 million. On the next slide let us have a closer look at our cash costs.

Cash costs before by-product credits remained flat at the level of $5 billion as a result of lower cost of purchases of semi products and rouble depreciation. Labor costs increased only 2% year-on-year as the growth of salaries and wage was offset by rouble devaluation against U.S.

dollar. Expenses on consumables and spares were the main driver of course due to despite repairs and maintenance works, and inflationary growth of prices.

Cost related to acquisition of raw materials declined due to both low volumes and the prices of the purchased semi-products. You’ll see that our costs are under control and we will do our best to manage our cost slowly going forward.

The next slide is very important. We would like to explain to our -- to you that the measure of our significant non-cash write-off in the amount of almost $1 billion has certainly affected our net profit.

The bulk of losses came from our investment in Inter RAO UES. A significant and prolonged decline in share prices of its shares is about a significant reclassification of losses previously accumulated within a separate reserve in equity, into the income statement based on IFRS requirements.

Another loss came from impairment of property, plant and equipment and intangible assets amounted $278 million. The main source of the loss was impairment of Norilsk Nickel International assets in Botswana and Australia.

Additionally, an impairment loss related to the company’s investment in its 50% joint venture, Nkomati, has been recognized in the amount of $97 million. Let us go to next slide.

We have provided some information in our debt and liquidity position. Our financial position remains solid with the net debt of around $5 billion.

Our real balance sheet, both in terms of currency and maturity and we would like to diversify our debt portfolio products. Our net debt to EBITDA rate is below 1 and we continued with optimization of capital structure dividend at current attractive interest rate on the capital market.

That was all I wanted to say about financial. And I’ll turn the floor to Mr.

Yakovlev, who will inform you on our capital expenditures.

Well, dear friends, for sometime we’ve been requesting for the breakdown of our CapEx and we are happy to respond by disclosing it today. The total CapEx in 2012 amounted to $2.7 billion, increasing by 20%.

The increase was driven by the necessity to compensate for the lack of investment in previous years. The lion share of CapEx was invested in the developments of mineral resource base enrichment and smelting facilities at our Polar and Kola divisions.

As grades in ore are declining, we had to put more emphasis on our extraction and concentration processes. As you can see, we also invested over $800 million in replacement of equipment across all our businesses in Russia, in order to increase productivity and improve labor conditions.

Now, the important part of CapEx related to gas and power generation facilities in risk areas. In-house energy infrastructure has definite competitive advantage of our company and one of our top priorities in the security of energy supplies.

On the next slide, I will give you a brief description of our major projects. We invested around $0.5 billion in the developments of our key mines such as Taimyrsky and Oktyabrsky to increase the ore extraction volumes.

The key enrichment projects was an expansion of capacity of our Talnakh enrichment plants that received our $36 million of investments. In metallurgy sector, we invested almost $120 million in upgrading production lines of Nadezhda plant and some $24 million on measures to improve environmental pattern of development facilities.

$217 million were invested in the development of Semiletka deposit. Infrastructure for the Chita projects required $156 million which were main channels to the railroad construction.

Next slide please. Return to shareholders have always been the most important issue for Norilsk Nickel.

For the last five years, the company was a leader in terms of total shareholder return in the metals and mining industry. 2012 was not an exception overall and fee distributed to shareholders was almost $1 million of dividends.

I would also like to say a few words about the most important issues of the management of the company, their focus in the future. Securing stable metal output remains our priority and our projected CapEx of $2.5 billion for 2013 confirms our intentions in this area.

However, we will try and make sure that only the most efficient investment projects will go ahead, producing the highest returns to the company and to investors. In this regard, we are working now on the strategy update, which needs to be adjusted to the changing landscape of the both, metals and mining industry.

On the operation side, we are going to focus on the cost controls in order to improve overall operating efficiency of the company and keep the profitability at the high level. We did not forget about the environmental issues as well, and our plans to invest substantial amount of money to reduce the sulfur dioxide emissions.

Now, we would like -- sorry, a little bit hard to speak in English because it’s not our -- my native language. Now, we would be happy to answer your questions.

Hello, yeah. This is Sergey Donskoy.

Thank you very much for the presentation. I have four questions at this time.

Would you like me to ask them all at once or proceed one-by-one?

Sergey, actually we got a lot of people who would like to ask questions, so please ask only one question in order your colleagues will be able to ask their questions as well. Okay?

Okay. Could you please provide an update on the progress with Chita Projects, the amount you plan to spend on CapEx this year, next following years and what is the -- what are the main milestones that you have planned to accomplish in this year and the coming years?

Thank you.

Sergey, this is Alexey Ivanov. Last year, we have finished the feasibility study for the Chita Project and we are going to -- and we have spent $40 million on Chita Project last year.

We are going to further spend money on the Chita Project this year as well and the commencement of the project and the start of the operations is planned for 2016, as it was initially announced. Sergey?

Yeah. Thank you.

Yeah. Hello, thanks a lot for the presentation.

Actually, I’ve got one question but I think it consists of several parts if I may. So with the -- obviously the company is now choosing between long-term growth balance sheet, I mean debt leverage and dividend payments.

So what is the priority and what should we expect in terms of total capital commitments going forward and how the potential increasing dividend payout might affect your growth profile and on top of this, what is the normal, adequate or maximum debt leverage you can take going forward? Thank you.

Norilsk Nickel has planned to consider to keep very stable position. And we actually concentrated to keep comfort level of the debt.

As we show you on the slide, the current debt is -- the current debt is $5 billion. So we’re going to borrow more if we will need some money but still we actual have a very stable position now.

And what level of CapEx should we expect going forward if it was 2.5, 2.7 next year, we should expect always the same level or it will increase even further?

It’s Evgeny Yakovlev. As I mentioned, we are currently reviewing the investment projects in order to secure the highest efficiency of each of them.

But in general terms, you should expect levels [of metals in the region off] [ph] up to $2 billion plus. Our preliminary calculation show that amount of money we will make sure we will maintain the current level of production.

Okay. Thank you.

And then just to clarify on this net debt-to-EBITDA leverage now extends at 1, do you see for example two times still affordable level?

Not [more two] [ph].

Okay. Thank you.

Yeah. Gentlemen, it’s Andrey Lobazov from Alfa Bank.

Thanks a lot for this opportunity. First of all, my question is about your inventory balance.

We can notice that it continues to increase by approximately $400 million in 2011 and by another $600 million in 2012. So can you please explain the reasons why it’s happening and also if you’ve finish products profiling can you please indicate whether it’s mostly nickel, copper or maybe other metals?

Thank you.

This is (inaudible) Popov, the Chief of the Economic Department. Actually, there are three reasons for increase in our inventory.

The first reason is that we actually are going to have a big maintenance at the end of 2013 for Nadezhda and Nickel plant, so we maintain our inventory, just provide this maintenance at the end of the year. The second reason for increasing in inventory in terms of the semi products is that we actually keep some concentrate in Botswana in order to improve the efficiency of smelting.

And now and the third reason is actually the small increase in cash costs, so we can see a similar increase in -- similar increase in inventory. As consequence in -- at the end of 2013, we expect actually a decrease in inventory, about $150 million in terms of maintenance and also we expect decrease in raw materials because we actually already, we already smelt our concentrate and got some -- got a finished product.

In terms of finished goods, we keep the same level as before just to keep our transportation -- transportation requirements and so we sell all our nickel and copper which we produced. Thank you.

Thank you.

Hi. And obviously and there seen a lot of talk in the press since you guys last did a call about your distribution policy.

Can you talk, to the extent you can about that and when we can expect to see 2012 dividend been out?

Could you repeat your question once again please?

Okay. I hear lot of talk about a changed cash distribution policy from Norilsk going forward in the press since you last had a call.

Can you talk a little bit, to the extend you can talk about that, can you talk about that including when you will announce what the 2012 dividend will be?

It depends on decision of Board.

So when are they going to make that decision?

In two, four weeks.

Okay. Thank you.

Hi. It’s Mikhail Stiskin from the Sberbank.

I have question as well, they are having some talk of they asked disposals by Norilsk including the sale of Interros. Can you pass the comment on that specifically sort of identify the assets you may potentially divest and the timelines to develop?

Thank you.

We will divest assets that are not required to maintain the efficient production and also that, I mean, we -- when we find a right time for selling them. You know that the Russian Stock Market are not in very bad position to do and selling Interros right now would not be the most right decision that will be.

Concerning other assets we might consider selling some of them. We do, I mean, you saw in the press some release about selling assets or assets, we have not made any specific decision as to the other this type of assets.

We do considered stability of, I mean, get a rid of some that that does not produce to our shareholders and basically cash in some that do produce returns to shareholders, but business account their process, current decision making process. Thank you.

Good evening, gentlemen. Thank you for your presentation, one question from me.

Can we expect any further one-off negative write-downs, negative guidance in first quarter of ’13 effecting -- negatively effecting bottom line, maybe related to some other non-core assets write-downs? Thank you.

We will not expect some retention in near future because the way we written against, we can see in our last annual report and that’s all that we can say, can tell you now.

Thank you.

Good evening, everyone. Can you please elaborate, if possible, what is the purpose of the current strategy review that you are combating i.e.

for instance, are you trying to see the ways how you can cut CapEx to free cash flow to pay dividends or you are trying to see the ways how you can sort of optimize or bring forward the production growth? Thank you.

All right. The strategy -- it's Evgeny Yakovlev.

The strategy influenced by the company about one year ago was closed production strategy. It did consider certain investment options in order to increase production levels of nickel, copper and other metals but at that time, the prices for the base metals were different and some investment options was not necessarily driven by the financial efficiency of a company.

We, as responsible managers, we are supposed to reconsider the strategy if something important, some thing -- some thing happens. And if you look at the prices, you can see that the prices have dropped quite significantly.

But when we hear that we are cutting investments, production investments, this is not true. Our objective is to optimize the investment program.

And as I said as in my former performance, we want to make sure that only highest return the most efficient projects go ahead. Thank you.

Yeah. Good evening.

I would like to clarify two questions, which have been already asked by other analysts. So first of all, I understand that the target for next year productivity is roughly $2.5 billion.

This year in 2012, the non-industrial, construction CapEx was as high as $400 million, which is a very hefty number. Is it a sustainable level?

Should we be expecting these in 2013 and roughly ‘14 as well or it was a sum of large one-off? So this is first clarification and the second clarification is regarding working capital question.

Let -- if you mean flat commodity prices year-on-year, if you mean flat exchange rates, should we be expecting roughly $500 million growth in working capital again or not anymore? Thank you.

It’s Evgeny Yakovlev again. Regarding the non-industrial construction projects that mainly consists of investments in new office building in Moscow, the question received which is for employees and relocation program that is the housing facilities for people who exit the Norilsk area.

And in terms of working capital [as I will talk of], as I said before, we are good. We are waiting for decrease in working capital because of the maintenance and because of the tax which we will receive from government.

Definitely it will decrease.

Instead of $500 million growth, there will be roughly $150 million decline?

No, $150 million decline is in terms of any entry, $277 million as you can see, we increase our taxes, which we are expected to return because it’s like -- it's almost technical issue. And there is another $200 million -- $277 million.

And in terms of raw materials, I mentioned that we actually treat concentrate for more than $100 million. So this is just qualifying some figures.

Thank you.

Okay. Thank you.

Hi, guys. Thanks for the call.

Just regarding the -- I guess just another clarification question. The previous 20, 25 deduction plan, seem to imply, when we spoke to direct relations, recently implying $3 billion to $4 billion a year in CapEx over next few years as part of that plan.

I mean, clearly there have been cuts of about $2.5 billion in years, something in that ballpark. So aside from some optimization, I’m assuming that some projects are being shelved.

I was wondering if you could give some clarification on which projects are likely to be cutback, which ones do you not consider to be a wise investment capital given the lower metals prices, where do you stand on projects such as Maslovskoye, such as -- I mean, could you also give a breakdown of the total CapEx that you still need to spend on individual items such as plant upgrades, sulfur capture programs, the expansions of plants, the modernization of some of these plants? Could you just give us a more granular breakdown of the total CapEx plan out next year as far as you see things now?

Thank you.

This is Evgeny Yakovlev. Basically, we maintain the necessary investment to make sure the production levels do not drop.

There is a number of specific measures, investment projects such as that you mentioned, the sulfur, the sulfur projects. The sulfur project is a good example of how we can rationalize and optimize our investment programs.

At the beginning and actually there is a signed contract for almost $1.7 million of investment in the sulfur project. We are talking to the supplier of technology and equipment, the Italian company, Techint and they agree that this project can be breakdown growth in balance in two phases.

One will be implemented in the copper plant, the other one later on, after the first phase has been completed or finished the plant. It means that the rest of the total investment will be spread over to almost nine years, so that the impact of this project on each year will be much lower than initially envisioned.

And that approach, we will try and implement, while considering every major investment projects. Then, you can achieve same results in terms of efficiency but still reduce the investment impact on your cash flow, but that approach will be implemented by other team.

Thank you.

Okay. Just clarify that, I believe you were saying a couple of years ago that the impact of -- if not reducing sulfur emissions by 2015, would incur some penalties from the state for pollution or --?

No. No.

I mean, the penalties from the state have not been decided yet definitely. There is a plan of Russian government conducting new registration concerning the environmental penalties, but it’s not been adopted yet.

And also our main reason, if there is no technology to capture sulfur, then there is, how can we be liable to pay increased penalties? When we have implemented the first investment projects in copper plant and according to the current schedule, it will be by the end of 2017.

We will return to the Nadezhda plant and so the extension of the government to look our projects, that couldn’t have done better. Thank you.

Thank you.

Okay. Gentlemen and ladies, thank you very much for participation in our conference call.

We appreciate your interest in Norilsk Nickel and if you got any additional questions, just do not hesitate to contact our IR team and we will be glad to answer everything. Thank you very much one again and bye-bye.