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. Last Updated: 07/27/2016

Layoffs at Norilsk as Profits Take a Tumble

Metals giant Norilsk Nickel published its first full audited IAS financials Thursday, which indicated that 2002 net profits had atrophied 23 percent in the wake of sagging palladium sales.

The world's largest nickel producer reported consolidated net profit of $315 million, down from $411 million in 2001, on sales revenues of $3.1 billion, a fall from $4.4 billion in 2001.

The company said in a statement that weak palladium sales, which dropped 86 percent, were responsible for the decline. But largely due to the steady world nickel market, Norilsk's share price did not suffer on the news and closed up 1 percent Thursday.

Renaissance Capital analyst Rob Edwards said, too, that investors had anticipated such results.

"These are last year's numbers and they weren't unexpected," he said. "People were more interested in costs."

Nickel represents some 54 percent of the company's revenues. In dollar terms last year nickel sales remained constant, increasing only 1 percent from the previous year. Meanwhile, copper sales brought in 14 percent less and platinum revenues dove 29 percent.

This past spring, the threat of labor strikes at Norilsk and the according uncertainty of platinum group metals supply sent palladium prices skyrocketing, said Leonid Rozhetskin, deputy chairman of the company's managing board.

"We've seen palladium group prices at ?1,000 per ounce, we've seen the damage that overheating prices can do to our customers," he said.

Gold sales were up a whopping 319 percent due to the company's acquisition of No. 1 gold producer Polyus last fall. Although they account for only 4 percent of total revenues, Rozhetskin, speaking at a Renaissance Capital conference, said the company was placing increasing emphasis on gold production.

Norilsk expects demand for PGMs -- primarily platinum and palladium -- to gradually subside while demand for base metals like nickel will grow steadily in markets like China.

Yet analysts have pointed to ongoing negotiations to acquire Montana-based palladium producer Stillwater Mining as a sign the company is still interested in PGMs. The deal now awaits the approval of U.S. federal regulators and Rozhetskin said he expected their decision by the end of July.

In line with its cost cutting strategy, Norilsk has also continued unpopular lay-offs at its factories in northwest Siberia. It set a target of 68,000 workers by the end of 2004, down from the 131,000 it had in 1996 and from 88,000 a year ago.

Elsewhere such downsizing in a one-company town could lead to political unrest, yet management has met little resistance because the regional Krasnoyarsk government is headed by a former top manager Alexander Khloponin.

Norilsk said it managed to cut average cost of production of a ton of nickel by 2 percent to $3,621 per metric ton in 2002 from $3,712 in 2001.

Norilsk has launched a $100,000 project to cut sulfur emissions by 90 percent by 2006 at its Kolskaya metallurgy company, with half the cash provided by the Norwegian government --"Because we are so poor," Rozhetskin joked to reporters.

Norilsk Nickel shareholders' meeting Wednesday approved a $0.68 per share dividend, or 25 percent of profits to be paid by the end of August.