Norilsk says its fund to buy several tonnes of palladium in 2016

By Polina Devitt

MOSCOW, May 16 (Reuters) - A palladium fund created by Russia's Norilsk Nickel earlier this year has started operating and plans to buy several tonnes of the metal in 2016, Norilsk Vice-President Sergey Dubovitsky told reporters.

Norilsk, the world's largest palladium producer, created the Global Palladium Fund "to develop relations with holders of existing metal stockpiles", with a commitment for potential transactions of up to $200 million.

Dubovitsky declined to say who would be selling the palladium to the fund. Since 2014, Norilsk has had an open proposal to acquire some of the palladium in the Russian central bank's stock.

The Norilsk fund will sell the palladium to industrial consumers during 2016, Dubovitsky said.

Norilsk, the world's second-largest nickel producer after Brazilian miner Vale SA, also said it had slightly downgraded its forecast for metal production in 2018 at its Russian assets due to updated mine plans.

The forecast for nickel production was lowered to 215,000-220,000 tonnes from 225,000-235,000 tonnes previously, for platinum group metals (PGMs) to 95-100 tonnes from 100-110 and for copper to 420,000-440,000 tonnes from 440,000-450,000.

In 2016, Norilsk plans to produce 206,000-212,000 tonnes of nickel in Russia amid a reconfiguration of production facilities at its Polar assets which involves shutting down its 74-year-old Nickel Plant there and moving the refining operation to its Kola division.

DIFFICULT PERIOD

Dubovitsky told reporters the company was still on track to increase nickel and PGMs production in 2017 compared with 2016 and keep output steady in 2018.

Its copper production will, however, rise in 2018 from a year earlier thanks to higher grades of ore and the launch of its Bystrinsky copper project in Russia's Transbaikal region in the last quarter of 2017.

The shutting down of its Nickel Plant is a part of Norilsk's operational efficiency programme which it has been implementing since 2013.

At current metal prices, the programme will result in an additional $250-300 million of annual earnings before interest, tax, depreciation and amortisation (EBITDA) starting from 2018, Dubovitsky said.

Like many mining firms, Norilsk has been hit by an almost 60 percent decline in nickel prices over the last two years. It (Other OTC: ITGL - news) is, however, supported by relatively low costs at its Polar assets and by the weak rouble, which reduces its costs in dollar terms.

"We are living through one of the most difficult periods for the mining industry," Dubovitsky said. "It is quite difficult to make any long-term decisions in such circumstances."

Norilsk is targeting capital expenditure of $2 billion a year in 2016-2018 and is considering a "copper configuration" project which would involve moving some smelting operations and helping to reduce pollution in the city Norilsk, after which the company is named.

Norilsk also said it was "screening for potential long-term opportunities" by considering copper greenfield projects in Russia's Far East (Kuala Lumpur: 5029.KL - news) and looking for prospects around its Bystrinsky project.

In eastern Siberia, where its key assets are based, Norilsk is considering brownfield and exploration projects and opportunities for its Maslovskoye platinum-copper-nickel deposit, it said. (Editing by Dmitry Solovyov and David Clarke)