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. Last Updated: 07/27/2016

Norilsk Set to Focus on Precious Metals

Metals giant Norilsk Nickel will put a cap on nickel and copper exports this year and try to sell more precious metals as prices for the latter climb, company officials said Friday.

That adjustment in strategy follows on from last years results, which saw precious metals' share in the company's output rise sharply to account for 37 percent of 1998 revenues, up from 15 percent in 1997, the officials said.

Norilsk Nickel's share in gross national industrial output increased last year to 1.53 percent from 1.19 percent in 1997, and the company's annual report predicts a rise to 2.95 percent in 1999.

Meanwhile, proceeds from nickel and copper exports dropped to 55 percent of revenues from 75 percent the previous year.

Norilsk Nickel did well in 1998, chiefly thanks to the weak ruble, but also owing to the company's efforts to cut costs by laying off some workers and reducing social spending, officials said.

Released at Friday's annual general meeting, the annual report's figures would yield an operating margin of over 40 percent, compared to 12 percent for 1997, according to brokerage Troika Dialog's estimates. That is "an impressive result," said Kakha Kiknavelidze, an analyst with Troika Dialog.

Having raked in $2.5 billion in revenues, down from $3 billion in 1997, Norilsk Nickel made pre-tax profits of just under $400 million, according to the report. The report also said that nickel exports may continue to decline in 1999, presuming that the current depressed world price levels continue, a forecast endorsed by many analysts.

However, more optimistic scenarios exist, involving a significant rise in world prices, Norilsk Nickel director general Alexander Khloponin told reporters.

Norilsk Nickel's plans for the future also include a significant investment program, for which management asked shareholders to forgo dividends on 1998 profits. The shareholders' meeting did indeed vote not to pay 1998 dividends, despite angry protests from several minority shareholders. Those investors failed to prevail against management's argument that the company needs to invest to upgrade plant and equipment.

Norilsk Nickel plans to invest up to $3 billion in its facilities by 2010 to stay competitive.

It is being spurred on by Australian company Anaconda, which is poised to open a strip mine in its home country by 2002 that will produce nickel at significantly lower cost than Norilsk. The Anaconda facility plans to sell 300 tons of nickel annually once it is up and running.

Asked whether Russia intended to sell more precious metals internationally, Norilsk Nickel deputy director general Yury Kotlyar told reporters, "the trend is always an upward one."

However, the company's export plans are hampered by red tape, Kotlyar said.

Norilsk Nickel secured a 10-year quota for palladium exports granted by presidential decree this year, but the State Duma later passed a bill restricting precious metals exports to state bodies.

The fact that Almazyuvelirexport, which exports Norilsk Nickel's products, is not a state body means that sales of platinum are blocked, and the Russian company's competitors have filled the niche, Kotlyar said.

Palladium exports were not affected by the law on export restrictions, but they are also on hold after the government slapped a 5 percent tariff on them in April that made them unattractive.