Nickel and palladium producer Norilsk Nickel (Nornickel) reported a 77% year-on-year increase to $3.1-billion in earnings before interest, taxes, depreciation and amortisation (Ebitda) in the first half of 2018, driven by higher metal revenue and operational efficiency gains.
The Ebitda margin for the producer increased from 41% to 53%, reaching one of the highest levels in the global metals and mining industry, according to the Russian company, which is listed in London.
The producer’s consolidated revenue increased by 37% year-on-year to $5.8-billion on the back of higher realised metal prices, growth in copper and platinum group metals (PGM) production volumes and sales of palladium from earlier accumulated stocks.
Net profit jumped 81% to $1.65-billion in the six months ended June 30.
Commenting on the results, Nornickel president Vladimir Potanin said that the company “enjoyed favourable global commodity markets environment in the first half of 2018”. As a result, the average realised prices for all of Nornickel’s key metals, excluding platinum, rallied in the range of between 20% and 40%.
“Taking advantage of strong commodity prices, we increased sales volumes of foremost copper and PGMs. In particular, part of the stocks accumulated in the palladium fund was sold, while copper production was intensified. In addition, the operating efficiency programme started to yield fruits having delivered first operating cost savings. [Owing to this], our revenue increased to $5.8-billion and Ebitda grew to almost $3.1-billion,” Potanin said.
The producer’s capital expenditure (capex) decreased by 25% year-on-year to $536-million, reflecting the completion of the active construction phase of the Bystrinsky project, as well as the completion of the modernisation of the Talnak Concentrator and a number of energy infrastructure projects in 2017.
The Bystrinsky project, which was running in a hot commissioning mode in the first half of this year, has delivered its first positive financial results, Potanin added, noting that the project is successfully ramping up and is expected to start commercial operations in the second half of the year.
Further, Nornickel has started optimisation of working capital in the first half of 2018, having reduced it by 20% since the start of the year, thereby releasing over $400-million.
“We reiterate our guidance to bring down net working capital to a medium-term target of $1-billion by this year-end,” he said.
As a result, Nornickel’s free cash flow increased more than five-fold to $2.6-billion.
Active refinancing of the company's credit portfolio carried out last year enabled Nornickel to reduce cash interest expense in the first half of this year despite rising base interest rates, such as the London Inter-bank Offered Rate, known as Libor.
Overall, Nornickel expects that interest cost savings in 2018 will exceed $100-million relative to the prior year.
“The creation of the long-term shareholder value remains our priority. Based on the 2017 financial results, we paid the final dividend for the total amount of $1.5-billion, which confirms our commitment to generate one of the industry-leading cash returns to our shareholders,” Potanin averred.