November 18, 2019 / 11:39 AM / 20 days ago

UPDATE 2-Nornickel plans to cut dividends to boost investment

* Nornickel says capex to peak in 2022-2025

* Proposes to cut dividends in 2023-2025

* Expects costs of sulphur project to increase to $3.5 bln (Adds details about Nornickel’s environmental project, the Arctic Palladium JV)

By Anastasia Lyrchikova and Pratima Desai

MOSCOW/LONDON, Nov 18 (Reuters) - Norilsk Nickel has proposed cutting dividends as part of a plan to increase investment in projects that will boost output and cut noxious emissions, Vice President Sergey Dubovitsky said at an investor briefing in London on Monday.

Russia’s Nornickel, a major nickel and palladium producer, expects annual capital expenditure to peak at $3.5-4.0 billion a year between 2022 and 2025, a company presentation showed on Monday.

The company plans to cut dividends in 2023-2025 and expects to resume payouts once it starts to generate more cash after 2025.

“Diligent execution on our long-term strategy combined with supportive commodity tailwinds helped us to deliver outstanding total shareholder returns in the last six years,” Chief Executive Vladimir Potanin said in a statement.

“Now it is time ... to advance our long-term growth ambitions, but also take on more ambitious environmental targets.”

Potanin, Nornickel’s largest shareholder, told Reuters last year the company is planning to increase output to tap an expected boom in nickel demand for batteries that power electric vehicle.

Aluminium producer Rusal, which also holds a significant stake in Nornickel, declined to comment.

Nornickel plans to invest $2.5-2.8 billion in 2020 and $3.0-3.4 billion in 2021 before peaking in 2022-2025.

As spending rises, dividends will need to be cut, said Dubovitsky, without giving specific details.

“Otherwise the debt burden will rise and credit ratings could enter the zone of risk,” Dubovitsky added.

He said dividends would remain in line with a shareholder agreement until 2022.

“While the shareholder agreement is in place, we will stick strictly to dividend guidelines in line with the agreed formula.”

Capital expenditure will drop below $2 billion in 2026.

SO2 PROJECT

Speaking about its major environmental project in the Arctic city of Norilsk, which has the world’s highest sulphur dioxide (SO2) emissions, Nornickel said it had revised its plans to cut SO2 emissions.

It expects the costs of the sulphur project to rise to $3.5 billion from $2.5 billion previously.

“When our operations were built in Soviet times, there was no place for environmental considerations,” Dubovitsky told Reuters, adding that standard technology to capture sulphur dioxide and transport the sulphuric acid elsewhere cannot be used in the remote region where the project is located.

“There is no off-the-shelf solution for us, this is why it took us a bit of time to come up with a solution.”

Nornickel plans to cut sulphur dioxide emissions in the region by 45% by 2023 from 2015 levels instead of a previous 75% target, but said by 2025 emissions will fall by 90%.

Most Nornickel shareholders are supporting the project to cut emissions and “it is also becoming more important for the Russian government”, Dubovitsky said.

The Russian government supports the project, Potanin said. (Reporting by Anastasia Lyrchikova and Pratima Desai; writing by Polina Ivanova and Polina Devitt; Editing by Jan Harvey, Jane Merriman and Saumyadeb Chakrabarty)

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