“The decline in nickel and palladium prices, logistical difficulties in the Red Sea and increasing challenges in cross-border payments have had a very negative impact on our revenue, profitability and free cash flow,” said Vladimir Potanin, CEO of Nornickel.
The company said restrictions on shipping in the Red Sea due to missile and drone attacks by Yemen’s Houthi militias had led to a buildup of nickel and copper inventories and a decline in Nornickel’s sales in the first half of the year.
Nornickel uses the Red Sea route to transport metals, including to Asian markets.
Nornickel said the average nickel price on the London Metal Exchange fell 28% in the first half of 2024 and the mining group forecast a surplus of 100,000 tonnes of nickel on world markets in 2024/25.
“Unfortunately, the adverse external conditions that Norilsk Nickel faced last year continued to put pressure on our business in the first half of 2024,” Potanin added.
Nornickel’s sales fell 22% to $5.6 billion in the first half, while core earnings fell 30% to $2.35 billion.
The company also lowered its capital expenditure forecast for 2024 to $3 billion from $3 billion to $3.20 billion.
Nornickel said Asian markets accounted for 52 percent of its exports in the six-month period.
“Given the ‘perfect storm’ caused by high interest rates on debt securities and limited access to capital markets, maintaining Norilsk Nickel’s financial stability is our absolute priority,” Potanin said.
The company’s free cash flow fell 61% to $525 million in the first half.
Last month, Nornickel, the world’s largest palladium producer and a major producer of refined nickel, reported a 1% decline in nickel production in the first half of the year, but maintained its production forecast for both metals in 2024.
Potanin said the company was ahead of its production schedule after the repaired blast furnace at Nornickel’s flagship Nadezhda plant was restarted this month.
Nornickel is not subject to direct Western sanctions, but some Western companies avoid dealing with the company, thus hindering its business activities.
On Friday, the United States imposed sanctions on several Nornickel subsidiaries that are not involved in production, as well as on the Bystrinsky copper and gold plant, which is controlled by Nornickel. Nornickel declined to comment on the new sanctions.
(By Anastasia Lyrchikova and Gleb Bryanski; editing by Shounak Dasgupta and Jonathan Oatis)
