Russian Billionaire Potanin’s Metallurgical Empire Balances On Brink Of Financial Abyss

Norilsk Nickel is faced with the impossibility of selling metal abroad.

The Russian mining and metallurgical holding Norilsk Nickel, the largest producer of platinum, palladium and nickel in the Russian Federation, is faced with the impossibility of selling metal abroad and receiving money for it from clients. This was reported by Interfax, citing sources familiar with the content of the conference call that the company held for investors.

In its first-half-year report, Norilsk Nickel, owned by billionaire Vladimir Potanin, reported a sharp increase in working capital — by 20%, to $3.7 billion. This growth — by $600 million over 6 months — reflects the accumulation of unsold products and unpaid payments by the company, Interfax sources reported.

According to one of them, Norilsk Nickel management described the situation as a “perfect storm” during the call: problems with making payments were compounded by rising interest rates on loans and falling metal prices. For example, nickel has fallen in price by 18% over the past year, and palladium by 23%.

According to the results of the first half of the year, Norilsk Nickel's net profit fell by 22%, to $829 million; EBITDA by 30% to $2.35 billion, and in terms of cash flows, the company became unprofitable: inflows into accounts were less than outflows by $159 million. To cover this cash gap, Norilsk Nickel was forced to sharply increase its debt (by $1.4 billion over six months) and also start spending its cash reserves in accounts, according to its financial statements. Thus, the company's cash and cash equivalents decreased from $2.139 billion to $1.903 billion in the first half of the year.

According to Interfax sources, Norilsk Nickel's top managers assured investors that in the second half of the year, unsold stocks from warehouses will be sold, and the cash flow will become positive. At the same time, they acknowledged that the development of the situation largely depends on China: Asia has become Norilsk Nickel's largest sales market, and its share in sales has reached 52%.

Whether Norilsk Nickel will be able to solve its problems remains unclear: last week, the United States imposed new sanctions against its key subsidiaries, which means that the situation with logistics and cash transactions may worsen, warns Veles Capital analyst Vasily Danilov.

The US Treasury Department's “black lists” with a ban on any operations and a blocking of all assets included Norilsk Nickel's main Polar Division, as well as Bystrinsky Mining and Processing Plant, whose products were planned to be shipped to China. In April, the US and Britain imposed sanctions against nickel of Russian origin.

Norilsk Nickel faced “unfavorable external conditions” that put “pressure on business”, Potanin said on Friday, commenting on the report.

“The fall in prices for nickel and palladium, difficulties with logistics in the Red Sea, as well as increased difficulties with cross-border payments, had an extremely negative impact on our revenue, profitability and free cash flow,” the businessman complained.

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