PJSC Mining and Metallurgical Company Norilsk Nickel

Good evening, everyone, and good morning, for those who are calling us from Americas. Let me welcome you at Norilsk Nickel First Half IFRS Financial Results Conference Call.

Let me introduce the speakers, the key speakers today. Sergey Malyshev, Senior Vice President and Chief Financial Officer; Sergey Dyachenko, First Vice President, Chief Operating Officer; Sergey Dyanchenko is us remotely, he's currently listing out operations in Chita region.

So if there will be any issues with the connection please excuse us for that. And also Anton Berlin, Director of marketing department; and myself, Vice President of Investor Relations.

Now it's my pleasure to pass the floor to our Chief Financial Officer, Sergey Malyshev.

Good afternoon, colleagues. Let me start with some key financial highlights for the first half of 2019.

Consolidated revenue increased 8% year-on-year to $6.3 billion on the back of metals production growth and high Palladium price. EBITDA expanded 21% year-on-year to $3.7 billion owing to higher metal revenue ramp up of the Bystrinsky project, and the weakening of our Russian ruble.

EBITDA margin amounted to 59%, the highest level among the global diversified metal and mining majors. Net working capital amounted to $1.3 billion.

CapEx was almost flat year-on-year at $0.5 billion. Free cash flow decreased 15% year-on-year to $2.2 billion, driven by working capital dynamics and high income tax payments due to higher taxable income.

I'd like to know that effective tax rate remains unchanged. Net debt/EBITDA ratio decreased to 0.8x as of June.

In June 2019, the company continues to maintain investment credit rating from all 3 major agencies. In July 2019, we paid final dividend for 2018 -- the total amount of approximately $2 billion.

Today, our Board of Directors recommended for stakeholders the approval interim dividend for the first half of 2019 and the amount of $2.1 billion. And I pass the floor to Mr.

Dyachenko.

Good day to everyone. I'll start with health and safety results.

For the first half of 2019. And we continue to our safety culture and production culture was in the entire organization.

And you can see on the Slide 4, over the last 4 years, we achieved kind of some results 63% in the lost tiem injury frequency rate reduction, and we also managed to reduce our total injuries number by 60%. Yes, regrettably, we tell you that we sustained the whole of injuries in the first half of the year and we recognize that we are still doing not enough, but the entire company is focused on improving these results.

As usually, reaction is being assessed by independent assessment, and this time we used Bain Company and we used to know the fresh view on our safety culture and our production performance and our working places and the trading following please. So in other words all phases of our organizational culture.

And we invited the practitioners for the operations from Rio Tinto and from BHP Billiton, and as a result we've been actually rated on the curve at 2.8, and which is section of the improvement since last year, when we had to know the number 2.6. And if you remember, our first results from in 2014 was 1.4.

And that's actually now shows that you know the company is moving in the right direction and we appreciate that further around this curve, the harder will be actually work for all our organization to portion of the figures that we have quite committed in doing that. The next slide.

Slide 5. A new Slide for us.

And we show you that our commitment towards the principles set out in the UN sustainable development goals. And we actually serving our greenhouse gas emissions at 10 million tonnes, total CO2 emissions, and it's in fact you know the lowest level of emissions among global diversified peers.

We inform you that we used the 44% energy out of renewable sources. And hydro power stations, and we in fact -- we committed more than USD 500 million investments in the next 5 years to improve our performance in the energy division.

With regards to water reuse, reuse 86% of water currently that been used in different processes. And in time, we believe that this figure could be increased up to 90% to 92% and all our products in fact you know the focus towards reaching our goal.

Slide 6. Showing our performance in the view of from different ranking agencies on the ESG performance.

And here as well you can see, the improved position for our company and we have been the rating by Sustainalytics out of 100, we scored 69 points, which shows that we are currently average performance and if you look at the MSCI, ESG score, we have been rated since 2017. And now, I'm passing the floor to Mr.

Berlin who is going to take you through the market updates. Our market section starts on Slide 8.

When we look at the macro environment for the commodities market. It's not as company as it could be.

The dollar is the in relative terms. The trade war sentiment is obviously, a negative for the commodities market and the sentiment is stronger than the actual impact on the physical market.

If we look at what is going to happen to the metals market. Slide 9, we have a flattish outlook in the midterm for the base metals nickel and copper.

We are a bullish platinum and Palladium. In the long run, we are bullish all of our metals basket, except the copper, which has a flattish outlook.

And if we move into the details of the specific matters, Slide 10 gives a chart on the evolution of the nickel exchange stocks. They have reached a 7-year low.

If you look at the peak level, the stocks are down by more than 70%. The historical average of nickel stock with LME was 37 days of global consumption, at peak it was more than 3 months.

The current level is an equivalent of 26 days of consumption, which is just on the border of what will consider a normal levels 15 to 25 days of global consumption of any metal commodity. If we look at what's happening to the supply side in Nickel.

Slide 11. Obviously, NPI is a major change in this market in the 21st century.

It has developed from an experimental high cost technology to a major source of nickel units designated for the stainless steel industry. There are 2 larger countries that supply either were the nickel big iron to the Chinese economy.

It's Indonesia and the Philippines. The changes in regulation, Indonesia have a bit in the supply that was -- to use than the ban was temporarily canceled.

The ban is supposed to be reinstalled by 2022, however, there are rumors that the ban may be reinstalled as early as this year. This does lead a lot of question marks on the future supply in our projections.

We are not looking at the earlier introduction of this ban. So if it does happen, it's a benefit to our market outlook and improvement for the nickel price.

But they said the ban is at risk about 10% of the global supply if you look at the nickel units that 40% of the current Indonesian field. If we look at what would happen to the markets, once the ban is reintroduced, that's Slide 12, there are stocks that Chinese, and there are from the Philippines.

The ore that has been converted into the nickel pig iron, so this industry would not disappear, but it would become less than it is. And there are projects in nickel area that can we turn back to the market providing there is an attractive economic incentive, meaning the nickel price.

We can look at the cost curve, but it's always only a assumption what price levels would stimulate the owners of the assets to put them back online. The Chinese stainless sector remains the biggest consumer of nickel.

Slide 13. The dynamics are rather volatile.

We still see some growth, perhaps it is having its ups and downs, but the aggregated level tends to go up. And the first half of this year, we have seen an impressive 10% pickup in the production of 200 stainless steel, which is a nickel, and certainly, this is a benefit to the nickel market and consumption of nickel metal.

Another big development in this market is the growth of stainless steel production in Indonesia. It has become a meaningful supplier of stainless steel, mostly designated for experts.

The domestic assumption is not huge, but we tend to look at it together with the Chinese production as its run and operated by Chinese company. The great development in nickel markets are the batteries, especially the batteries for electric vehicle.

This has become a major focus for many of the market participants. It's a very promising, huge application, we believe that in the next few years, it will grow to become the second biggest use of nickel.

Next only to stainless. It is rather young and still developing industry.

They have chance that are building up. There is quite a lot of mergers and acquisitions that are going on in this area.

The technology is evolving rather quickly at least it's evolving quicker than anticipated. We are moving to different chemical formulas in the space and the trend is in favor of increasing nickel content, which again is payable for us and for the nickel market.

If we look at the current structure of the batteries. The oil technology was the nickel, cobalt, manganese, that's the relative phase of the metals in the composition and it has gone through a number of stages and the current state of technology would be nickel, cobalt, manganese 8:1:1.

So the relative consent of nickel went up 8x, decreasing the use of other metals. The electric vehicle market is expected to grow to incredible numbers.

There are very different assessments that exists into the market, but in any case looking towards very substantial growth for the next 10 years and beyond. If we look at the market down Slide 15, we are in a deficit market.

We expect this deficit to continue into next year, although the size of deficit would be lower than it is. Again, subject to whether or not Indonesia introduces a ban on experts so far.

We think this is great positive development for the nickel market. The stocks are running low.

So it would be complicated to sustain a substantial deficit in the next few years. There is healthy growth on demand side.

And we think it's very beneficial for the market that is coming to more balanced state, almost perfect match we're seeing in supply and demand. If you look into the copper markets.

Slide 16, the copper market is substantially more mature and developed in comparison to nickel. There are more players.

There are more financial instruments, so it typically has less volatility and a lot more stability. Typically the biggest wildcard any given year is the disruption rate, meaning production lost due to strides, accidents and other reasons in comparison to the initial plans of the mining companies.

And over a long period of time, the average will be 5%. There are only a couple years and the number would be very different from that.

And this year, we have seen so far rather low disruption rate of only 2%. Of course, it's impossible to predict what will happen through the rest of the year.

Copper is a great engineering metal, so it's use is very diverse, and not elastic. And we have seen a last very long term continues growth in copper consumption averaging about 1% per annum, and we expect this to continue to next year.

Copper imports into China decreased, but this is not a reflection of the copper demand as they have brought in more intermediates to produce refine copper domestic way. If you look at the market down from Slide 17, we have a bit of deficit in this market, but given the size of the market, this is not a devastating shortage of the metal.

It's still available and we expect this deficit is soften next year. Moving on to the PGM market.

Slide 18. The Palladium market remains a structural deficit and this has been continuing for quite a while.

We see substantial deficit this year and next year. It's partially covered from metal coming out of the subfiles, but the greatest challenge for this market is that the subfiles are not transparent.

It's very difficult to predict and exact date when they would run out, but we know that they're growing up. If you look at the supply side, there was a bit of a incremental supply, one of full supplies from working progress in it's ways and improving those in it's ways.

On the demand side, we see the number of cars being produced and the initial pushing demand higher. So that's a very long-term systemic driver for high conception of Palladium and press metals in the automotive space.

If we move to platinum market. Slide 19, the platinum market is not doing as great currently.

There is a surplus in the market. Likely it was absorbed by the investment into physical platinum.

The lower share of diesel cars has changed the ratio of consumption in Palladium and platinum in this sector and reverse their price ratio. So Palladium has been above platinum for quite a while now.

This is something that happen only once, but the circumstance is very different now. It's not just a market volatility, it's a price ratio that is actually sustainable and is acceptable to the automotive sector.

If we look at the developments in the spot markets like 20. The outflows from the Palladium ETFs have been very substantial and those ETFs are running at quite a low numbers.

The lease rates for Palladium have been extremely volatile. And at peak they reached almost 30% and that's very good indication of this capacity of physical metal availability in the market, and this is probably the biggest concern for the consumers in the market as they need to secure future supply of the metal and this probably has higher priority for them than the actual spot price of the metal.

If you look at what's happening to the automotive sector, we have seen declines in the automotive sales this year, but because the PGM volumes per vehicles where increasing, that's 521. The overall PGM consumption in the automotive sector has increased despite small car sales.

If we look into the piece of the car market, this is not very typical. Most of the time car sales and car consumptions did go up.

So there only a few years in the past 50 years when the sales would be down. The reason for driving the amount of PGMs per vehicle is environmental sense and regulation and this has been improving and evolving globally, and it's one way to treat those -- always become on they have never softened.

There is always a concern with the electrification of the car fleet and whether or not it has an impact on the PGM markets. Slide 22.

It is important to clarify that people speed about electric vehicles, it includes all kinds of cars equipped with the motor. So it's not necessarily a battery electric vehicle, and most of the times when the car compare themselves speak about EV's, they absolutely, assume hybrid cars, which combine both electric motor and the combustion engine.

On Slide 22, we have a chat, that is based on the actual public statements made by the largest car companies and hybrids would dominate their space of electric vehicles. So from that PGM point of view, this means that consumption of PGMs will continue to exist.

And actually, will continue to grow in the next few years. If we look into the long-term prospects of Palladium demands.

Slide 23, depending on how things will develop and what will the market will take whether the electric vehicles will take a higher rate of growth to a lower rate of growth. In any case, we see growing consumptions for Palladium, which is a benefit for our company and the PGM industry.

If we look at the premium of Palladium to platinum, on Slide 24, many people did look at the history of the market, but it's not really relevant. We have to look at the use and automotive technology.

The biggest difference between today and the events of 20 years ago, is that the technology has changed. The catalyst is working at very high temperatures, very close to the engine, which makes Palladium a very efficient catalyst.

If we would try and substitute Palladium with platinum, this is certainly doable from the chemical point of view, but we need to reengineer the full exhaust system of the catalyst further away from the engine, have it front at lowered temperatures, change the chemical formula for the catalyst and the most likely will need high PGM consent to provide same efficiency at lower temperatures. So it's an exercise that thus take an effort both from the catalyst manufacturer and the card company.

And when we look at the platinum and Palladium, this doesn't provide enough justification to whether it was at this kind of a research and do the substitution. From the market balance point of view, it would make sense if there is substitution, but it will take time as we are certain that the car companies will not do this mid-cycle possibly some reintroduction of platinum would happen once they have and they have to certify this type of catalysts for them.

If you look at Slide 25, this provides the procedure in a very simplified terms. And I think the important point that even if we start today, it still would take 18 to 24 months to do the substitution at best.

The actual process could be even longer than that. If we look at what the automotive market and the electric vehicles mean for our metals basket, Slide 26, we think it's a very positive development and perfect match to the metals we use.

The way the automotive market is developing including the electric vehicles, we are still seeing increase in PGM consumption. And by 2025, that's a impressive number for 1.8 million ounces.

We see substantial growth for nickel an incremental growth of 400,000 tonnes. We see incremental growth for copper more than 1.5 million tonnes.

And the automotive is giving a big push to the full metal basket that we have. To run a comparison.

Slide 27, which lists different technologies used in light vehicles and what is the implication for a specific metals that we produce in [indiscernible] car. May I pass the floor back to Mr.

Sergey Malyshev, our CFO.

Thank you, Anton. I would like to start with our real financial results with analysis of our revenue from metal sales.

In the first half of 2019, sales volume of all our metals increased. Sales volume of nickel and copper increased by 13% and 11%.

Nickel sales growth was driven by the increased production volumes, while copper sales were up owing higher copper grade in process growth. Palladium sales volumes was almost flat year-on-year as higher production volumes were offset by the absence of the refined stock sales.

Platinum revenue increased 12% due to revenues of working progress PGM inventory. In the first half over the year, market conditions were mixed for the company, prices for the free ore to key metals decreased roughly 10 percentage.

Palladium was the only by support as its price increase by more than 30%, owning to the structural deficit on the global market. Deficit price trends changed the structure of our sales basket.

Palladium share increased to 14%. While nickel and copper dropped to 25% and 23%.

Share of palladium remains unchanged that's 6%. Revenue from metal sales.

On Slide 13. Revenue from the sales of nickel, copper and Palladium and platinum was flat year-on-year as lower market prices were fully offset by higher sales volumes.

Palladium had a 22% owing higher of lowest prices. Consolidated metal revenue.

In the first half 2019, consolidated metal revenue increased to 9% to $6 billion owning to higher sales volumes and one-off of PGM inventory. I'd like to note that reduced to sales from our Palladium front and as a result of owing metals production growth.

Price dynamics increased our revenue by almost $200 million. Stronger Palladium prices mitigated the negative effect from oil prices from other key metals.

The geographic breakdown of our sales changed significantly. Europe remained our key market 56% market share.

The share of sales in Asia 25%, share of Americas decreased to 13%, 15% due to higher Palladium sales. Slide 32.

Our EBITDA increased 21% to $3.7 billion, with EBITDA margin of 59%. Macro factors improved this key metric by slightly on the $350 million.

Higher Palladium prices and the weaker ruble were partly offset by the negative impact of inflation. Operating factors also had a positive impact in our EBITDA.

Ramp up of different key projects brought us additional $155 million. Increased production and sales volume of all key metals resulted in EBITDA growth of $173 million.

Additionally, release of working progress at PGM inventory resulted in higher sales and increased our EBITDA by $105 million. Next slide.

Cash operation costs. In the first half of 2019, operating cash costs decreased 5% to $1.8 billion, owing to the weaker ruble and efficiency gains.

Market factors decreased our cash cost by $92 billion. Depreciation of Russian ruble was partly offset by domestic inflation.

Expenses driven by operating factors were almost flat year-on-year. Labor cost contained to be our main cost item totaling 35% of the cash costs.

Cash cost is up for FX impact purchases of refined metal and semi-products increased 4.5%, which is lower than Russia's CPI. Labor cost increased inline with Russia's inflation and the terms of the collective increment.

Services temporarily increased 16%, primarily due to higher refining costs as a result of precious metals production growth. Other costs increase was driven mainly by inflation and higher mineral tax payment due to increased volume of ore mining.

Slide 34. Net working capital.

In the first half of 2019, net working capital amounted to $1.3 billion. Market factors increased our working capital by around $15 million.

Strengthening of Russian ruble and seasonal growth of working capital were partly offset by increased balance of income tax payable. The $366 million of the increase was driven by operating factor such as amortization of advance payments for delivered metals for a total amount of $325 million.

Decrease in metal inventory of $111 million driven by lower cobalt inventory. Accounts receivable growth of $74 million due to higher sales volumes.

By the end of the year, we expect net working capital to return to our of approximately $1 billion. Revenue CapEx.

CapEx for the first half of 2019 amounted to $0.5 million and towards almost that year-on-year. Dynamics was driven primarily by the completion of Bystrinsky Project and number of mining projects as the power division as well as the weakening of Russian ruble.

As a reported payout, we continue to invest in modernization of our energy facilities and upgrade of refining facilities of OMC. As you know, we approved to grow projects, such as [indiscernible] and South Cluster.

We inched this projects in the first half of the year. We also started the active phase of our sulfur project.

As far as the direction of our capital expenditure it's concerned $223 million were allocated to commercial projects and to $273 million to same projects. $4 million was spent to on the TOF-3 project in this year.

Sensitivity. Substantial part of our operation and capital expenses is ruble-denominated.

This explains high sensitivity of our result to the exchange rate of the initial currency. As you can see, from the chart, 1% change of the rate translated into $38 million of EBITDA change and $61 million of free cash flow change.

In the first half of 2019, share [indiscernible] and capital expenses stood at 88% and 86%. Change from previous period is insignificant.

Free cash flow decreased 15% year-over-year to $2.2 billion. Working capital dynamics and high income tax payments due to higher taxable income will partly offset by high EBITDA.

Balance sheet management. Slide 38.

At the end of first half of 2019, the company's net debt amounted to $5.4 billion. Net debt-to-EBITDA ratio decreased to 0.8x, which is below mid cycle level.

The company continues the portfolio optimization terms of alliance totaling more than $6 million, which allow us to extend the duration of the debt portfolio, while keeping average cost of a debt at the same level. The portfolio optimization activities resulted in of reduction cash by [indiscernible] 23% year-on-year.

In addition, the total amount of company's credited lines has reached $4.6 billion, which it will last for the debt repayment over the next 2.5 years. At the same time, maturity of our major part of debt starts in 2020 providing for secured liquidity portion.

The stability of our financial position is controlled by the initial grade rating received from the free leading agencies. In addition, this year, International rating agency increased our operating to Baa2, [indiscernible].

Finance costs reduction, once again, I would like to mention that over the past 12 months, the company's debt portfolio effective rate remained at a stable of 4.6% to 4.7% per annum. Moreover, despite the increase of the company's gross debt over the past two years will help manage to reduce cash interest payment by almost $200 million from $642 million in 2017 to $453 million anticipated by end of this year.

And now, I, again, pass the floor to Mr. Dyachenko for delivering project update.

Thank you. I'll start now the project updates with our Skalisty mine project.

And for those who remember, the objective [indiscernible] autonomous mine at the depth of 2 kilometers below surface. We will see production capacity of 2.4 million tonnes per annum by 2024.

And the mine is going to mine reach or reserve of approximately 66 million tonnes and overall CapEx for that project is approximately USD 2.2 billion. At this point in time, we managed to complete construction of installation 10.

And in the beginning of lateral development, at the depths of 2 kilometers. Our second shaft is on schedule.

We will complete full construction commission of that shaft in 2020, and we will start second gradual development from that shaft as well. The second project from Slide 42 is in line with our production configuration.

We applied new technologies to electrification of nickel in the Kola Peninsula and that will allow us to increase 2 capacity by 20% for 120,000 tonnes per annum to 145,000 tonnes per annum of very high-grade nickel catalyst. And at this stage, the construction is 100% complete and we are in the process of commission [indiscernible] to 228 sales in group reduction and we expect to get the full commission by the end of this year.

The third project on Slide 43 is in line with our environmental obligations at Kola Peninsula. To reduce our sulfur dioxide emissions by more than 50% by 2020.

As compared to 2015. The total CapEx for that project is USD 90 million and in essence is the reconstruction of our concentrator to produce 2 marketable projects.

High-grade nickel concentrate and the low-grade nickel concentrate. And in line with our strategy, lower grade nickel concentrate is going to the market and that will allow us to stop one of the furnaces at nickel smelter in 2020 in fact the end of 2019 and that will bring our emissions as I mentioned by 50%.

Current status of this project is construction is almost complete. The hot commission stage and we expect to get to the know to the first few products, the 2 concentrates produced at the end of September.

On Slide 44, talks about the current progress on our sulfur dioxide capturing projects at Power Division. The overall CapEx requirement for this project is approximately $2.5 billion.

Current status is that both projects are currently undergoing the government approvals and during the site preparations, and in terms of tendering for long-term delivery equipment as well as the construction companies. Going to Slide 45, that's our third stage of Talnakh Concentrator upgrade.

That's going to bring a capacity of our Talnakh Concentrator up to 80 million tonnes per annum. The investment decision was made and is going to cost company approximately USD 600 million.

The timing for construction is from 2019 to 2022. Start of construction to 2019 fourth quarter of 2019 and the full production in 2023.

At this the site preparation and the tendering process for the equipment and the construction company. Slide 46 talks about the South Cluster development.

We are in the process of doing feasibility study for underground mine and the open pit. In fact it's a Second Life to our old asset, and we are going to mine additional or reserve of USD 165 million tonnes of disseminated ore, which contains more than 20 million ounces of PGMs, more than 447,000 tonnes of copper and more than 365,000 tonnes of nickel.

And that's going to give us approximately 20 tonnes of PGM annual additional annual production. It's going to be mine a 9 million tonnes per annum, initially 7 million tonnes from open pit and 2 million tonnes from underground, and going into 2035, to be underground capacity of 4.5 million tonnes per annum.

That's the lowest, lowest operating cost operation on a curve global cost curve. We expect to complete feasibility study in 2020 and get to ground approval and to start ramping up open pit in 2021.

It's in the full production capacity by 2027. At this stage, we are doing the site preparation and initial work.

Slide 47 talks about major infrastructure projects about our power supply. We mentioned that 44% of our power coming from the renewable sources from hydropower, and we are going to maintain this capacity by investing more than USD 800 million in the period of 2018 to 2022 by replacing of turbines and introducing the new dispatch systems at hydropower plant.

At the same time, we also will be replacing the power unit at a thermal plant. Over 2019, we are going to spend approximately USD 200 million and if we talk about the current progress, we are on schedule.

Slide 48 at Bystrinsky Project. The current stage concentrator is fully commissioned.

In the process of commission and getting government approval for the infrastructure units. The project going to mine approximately 341 million tonnes of copper, gold, ore, whereas the copper content of 0.7% and gold approximately 0.9 gram per ton.

We provided jobs for 2,000 people and we started to hot commission in 2017, reaching 4 million tonnes of ore treated to the concentrator in 2018 and going through mine approximately and treat approximately 8 million tonnes in 2019, getting approximately 40,000 to 45,000 tonnes of copper concentrate, and up to 6.5 tonnes of gold. And going to full production, 10 million tonnes of ore mine and process producing up to 60,000 tonnes of copper concentrate and up to 7.5 tonnes of gold and 2.1 million tonnes of iron concentrate, as the iron content is up to 65%.

And when we talk about production guidance, we get into Slide 49, production guidance in line with what we actually cost of the strategy today. In 2019, we indicated up to 225,000 tonnes of nickel, up to 450,000 tonnes of copper, plus up to 46,000 tons coming from the Bystrinsky Project, and we maintain our indications for 2020.

To 20,000 tonnes of nickel and close to 450,000 tonnes of copper. The Bystrinsky Project as I mentioned before going up to 60,000 tonnes of copper.

And we maintain our production of Platinum, Palladium is approximately at the same levels as in 2019. With this remarks, we are depleting our stock of copper concentrate purchased from Rostec and that's going to actually slightly reduce our production in copper in 2020.

And as we can see, on Slide 50, in line with our strategic development, we are going to get back to more than 460,000 tonnes in copper by 2025, 2026. And at that stage, nickel production is going to be close to 240,000 tonnes and you will see as well, close to 25% increase and platinum Palladium production, and that's mostly will come out of going to high-grade ore, it will come out of operation and as well as our South Cluster, which I mentioned before.

And for the final slide, I'll pass to Mr. Malyshev.

Thank you very much. We encourage and now moving to our traditional outlook.

Slide 51. First let me provide you with a brief comments on the metals markets.

We have metal outlook for nickel and copper. A positive outlook for Palladium as initial regulations tightened in all major markets and there is no evidence of platinum substitution due to technical challenges.

Optimistically on platinum due to investment demand acceleration. To confirm our metal production guidance for 2019, that we already mentioned by the end of the year, we are expecting net working capital to return to our forecast level of around $1 billion.

And we are expecting CapEx of up to $2.2 billion in this year. Thanks very much.

Now we are ready to take your questions.

First one, just on CapEx. Your guidance is still full $2.2 billion for this year, clearly, you spend a lot less than that in the first half.

Can you talk a bit about the risks around that number and perhaps, especially a bit more detail on specifically what that money will be spent on in the second half. And then the second question I had was just on Chita in the past has been mentioned possible IPO with some other transaction is that something that's still on the agenda or not for the time being?

With regards to our CapEx, yes, we have a raised our $2.2 billion CapEx guidance, we remind that an approval on the number of major investment projects, such as Southwest development in Talnakh Phase III expansion was just made those investment approvals we received in the first quarter. Therefore in the second half, we expect that the capital spending of this projects will accelerate.

I've also mentioned that the tendering procedures of the contractors selection as well as equipment supplier selection on the environmental projects will anticipate that some of this tender procedures might be completed by year-end, and therefore, we will start making cash advance payments under those contracts. So this really explains why we anticipated will meet our CapEx guidance and why the second half CapEx will accelerate.

And just on Chita.

On Chita, [indiscernible] financial markets. Let me comment on that.

We are indeed considering the possibility of IPO in 2020 also the concrete schedule and timeframe will depend a lot on the pace of ramp-up of the mine. And as you know, we have shareholders in this project other than those private companies cyclically at some of point, but at this stage it's very earlier to tell when IPO will happen and what would be the parameters.

We're still working on that and we may provide further update. We hope to provide further update by the end of this year.

Just going back to the CapEx profile. If you could please update us on the spending for next year?

Beyond this year and if we should expect to similar seasonality between H1 and H2, after you would have completed a number of tenders, the spend would be a bit more balanced between their first and the second half ? And my second question is on rhodium, you talked a little bit extensively about Palladium and platinum, the rhodium price is quite spectacular as well if you could give us a share with us maybe your analysis of the drivers there?

Okay. Sylvain, the 2020 CapEx guidance we will announced at our forth coming strategy, which has been plans for November.

We will announce the exact date as well as specifics in due course. Rhodium shares are very modestly impacted.

We see it as a byproduct, but as its price evolution, the rhodium market is very small, very volatile and typically most of the changes many of the changes market have to do with its yields in the automotive sector or their sort of refusal to use rhodium. So the development that we have seen recently is more rhodium being used in [indiscernible] as China more from China 5 to China 6.

And most other things it implies that you have to have an after benefit for the gasoline engine and this is typically down for a rhodium catalyst. So once they have moved to a new stage of regulation, they have to use more rhodium and this impact the global balance of the market and the price of rhodium.

Okay. Just back on the comments you made on the environmental program.

So if you have to make some cash advance payments, is it fair to assume that the main amount to be spent to complete your upgrade program would be in 2020 or 2021?

Yes, most likely. We will update we will make an update on our midterm CapEx outlook in November, but yes, roughly, we would expect that will have more CapEx on sulfur project to spend in those years 2020, 2021, 2022.

Your cash final scores decreased quite significantly over the past couple of years. Any further room for on the cash finance costs decrease or this is [indiscernible]

We have enough space for specialty sites, and we are going to have the same level in the near future.

One question from our side for Anton Berlin. In the parts were you describe the trends in the nickel market you mentioned that you noticed substitution of Class 1 nickel feed by NPI in stainless steel production.

So the question is how material is this for global nickel market? And why you think it is happening right now?

It is sure, it is not happen right now it has happening for the past 10 years and we believe the trend will continue. If we look at the nickel uses in stainless, the NPI has grown to be a huge market from almost not being some years ago, the current nickel Class 1 nickel usage in stainless is a bit less than 0.5 million, if we go back a decade ago, it was a 700,000 tonnes and also total nickel consumption has gone down.

Technology was if we look at the mass market like 3 or 4, they could even do with a lesser amount of Class 1 nickel technically. So it's kind of a mixed shift between availability of NPI and ferronickel on one side and the use on the other side in geography.

NPI is really a Chinese story. Companies outside China have tried using NPI, but their main challenges, cost of logistics, CO2 emissions, so it doesn't really work well outside the Chinese market.

So we think the trend will continue subject that there is availability of NPI, but it's very slow and gradual and probably taking the same pace as growth of nickel usage in non-stainless applications alloys or batteries are [Technical Difficulty].

Firstly on costs relative to the consensus it's like cost will be better in the first half of the year. Can you give us any indication commentary around the inflation you're facing in your core rational assets that's the first question.

Second one is around dividend. Last year you paid interim dividend in the fourth quarter USD 1.8 billion, would it be fair from our side to assume that same structure of payment in 2019?

Well, with regards to dividend question, the company pays dividends taking into consideration it's current financial situation as well as the outlook, both the external outlook on the macro environment, as well as the capital investment needs, et cetera. As you may know, the decision with regards to the second interim dividend is normally hard decision made by our shareholders.

We feel as the management that having announced the first half interim dividend of the significant size, we have supported well our share price and you may also know this dividend that we announced in the first half is actually an excess of our of minimum sort of commitment to pay 30%. So it basically it's a natural decision upon our shareholders.

We have a couple of questions. First one is on your JV with the Russian Platinum.

Can you please update on the current status and what's expected into the second half of this year and next year what's the time line for this JV?

We are planning to make some decisions with regards to this project as a basically by this year at around and hopefully will be able to give a bit more color in the forthcoming strategy day in November.

And my second question was on the potential M&A and in the sector, we know that because minerals required sometime ago, and they started developing the projects slowly. This by any chance they decide to attract some partner into this project, would be considered this investment opportunity once again?

All we can say, answering a question that as a management, we currently are not holding any negotiations with the minerals with regards to this project.

Yes, you disclosed the $173 million [Technical Difficulty].

Just a question from our side on Chita. First what's your current estimate of EBITDA of Chita at what prices when it ramps up to full capacity?

That's the first question. And the second question is on the potential IPO of Bystrinsky, do you have already commented that the deal terms are yet to be finalized, but overall, do you view the potential as a means to change the ownership of your partners in the project?

Or do you consider the potential IPO as it means to change the real share in the project as well or both?

Let me start with the second part of the question. Currently, we are unable to say anything concrete on the option, because everything is on the table with regard to potential capital structure.

And the else will depend, of course, on what equity story will be able to put forward next year and depending on that will also decide on the mix of the shares being offered to the market. As for the first question, at the full ramp up, we expect Chita to produce depending on the year from $470 million to $520 million of EBITDA based on 10 million tonnes of ore processed.

On Slide 32, you disclosed the $173 million positive impact from productivity gains. What share of this if any is from high recoveries?

And what are the other major components. And can you give us some idea of quantify what further potential you would have in the coming year to on productivity gains?

Let me come in first on the second half of the question. So the targets are still the same that we actually be clarity strategy presentation back in November last year.

So basically, so we aim to keep our cost below inflation, while increasing production by 5% to 8%. As you see from the results, so we close actually to get into this numbers, and so our actually aim is to keep the same results for next year as well.

So let me give you a few comments about the productivity gains. As Sergey Malyshev previously commented, the revenue slides, this was primarily driven by the increased production volume of all our major metals and especially the Palladium.

My question is on the production outlook after 2020. Despite links expansion would be completed before the full ramp up of South Cluster, could you give us any guidance for how that increase in production is going to be faced and how much will be able to come from the South Cluster itself?

And how much will come from improved recoveries, and so forth in the asset base around Talnakh? And secondly, on the outlook for copper, you were talking about still seeing this reduction in output in 2021, when those concentrate is depleted.

How much are you producing from the Rostec concentrate this year and next? And so how much do you expect copper or put it goes around in 2021 when that finishes?

Yes. Coming with the second part of your question, So we normally don't disclose how much we produce out concentrate it's a confidential information.

So obviously we see the reduction or the depletion of that we're going to [indiscernible] increase likely. And when the oil new mining projects come on seen in 2020, 25, 26 are going to get back to the -- as I mentioned more than 460,000 tonnes of copper in the products.

Okay, but could you give us an idea of how that ramp up might be faced given you have a lot of excess concentrate present capacity, but obviously, the ramp-up of South cluster will take more time? Than how could you give us any sort of numbers on how quickly that ramp up will take place.

We'll it be a case of production being the sort of levels until 2023? And then the ramp-up starts and how quick is that could you give us any numbers on the sort of on this?

Look, we actually are in the process of finalizing and feasibility study. And that's going to end the signing of the figures, at this stage, we know exactly that the full production out of South Cluster will be in 2026, 2027, obviously will be actually be looking forward to find it to know the color, but at this stage that's the number.

[indiscernible] now and 2026, we might actually the next year when the feasibility is completed.

I have a question your dividend payments and concentrated mix too. And if we are looking under dividend, distribution of give or take $4 billion, on our estimate it looks like you might need to raise some additional financing to make this payments.

And I guess, I just wanted to get an idea of how you're thinking about approaching that, I we noticed that the year ago, market is looking pretty favorable at the moment. And have you had a look at that?

really any details you can provide, which is much appreciated.

We consider all possibilities and the markets, we can comment currently on the table.

If that was a final question I understand there are no further questions on the line. Let me thank all the participants of this call and looking forward to seeing you most of you at our forthcoming strategy day in November.

We will be updating you guys in due course with exact date and the venue. Thank you very much again for dialing in.