Russian major mining group MMC Norilsk Nickel, the world number one producer of nickel and palladium and a major producer of copper and platinum (with cobalt, gold, iridium, rhodium, ruthenium, selenium, silver, sulphur and tellurium as byproducts), has reported that sales (in terms of physical volumes) by its Botswana operation remained stable last year. Norilsk’s presence in Botswana takes the form of an 85% share in Tati Nicke and 15% held by the Botswana government.

In each of the financial years (FY) 2012 and 2013, Tati’s nickel sales came to 7 000 t and its copper sales were 5 000 t. The group’s total nickel production (including Botswana but excluding South Africa) was 286 000 t in FY 2013 (a decline of 2.4%, compared with FY 2012) while total copper production was 370 000 t (a rise of 3.4% over FY 2012). Total production (again excluding South Africa) for palladium was 2 645 000 oz (a 1.9% decrease year-on-year) and 651 000 oz (a 2.1% fall as against FY 2012) for platinum. Tati produces palladium and platinum as by-products, but Norilsk did not disclose these production figures.

In South Africa, the Russian group holds 50% of Nkomati Nickel, in a joint venture with South Africa’s African Rainbow Minerals. However, in its Full Year Audited Consolidated IFRS Financial Results, Norilsk did not separately list Nkomati’s physical production. The 50% share of the South African operation’s financial results was included in the group’s financial results in the ‘associates’ category. In FY 2013, Norilsk’s associate operations made a profit of $43-million, a turnaround from a loss of $97-million the year before.

Last year, the group announced that it would sell its Southern African and all its other international assets by the end of 2016. This process, which is due to start this year, is part of the group’s new strategy, which will see it focus on ‘Tier 1’ assets. The new strategy will also see a clear focus on nickel and the associated copper and platinum-group metals.

Norilsk expects that the Indonesian decree banning the export of unprocessed ore, signed by the country’s President in January, will result in the current oversupply in the nickel market coming to an end. The group does not believe that alternative sources of supply will make up for the loss in Indonesian exports, both in terms of quantity and quality. It expects Indonesia to maintain its export ban for some time. As a result, the nickel market should move into balance this year and see a “sizeable” deficit next year. This, in turn, will lead to a recovery in nickel prices this year and next. Last year, the price fell to a four-year low of $13 160/t, with the average London Metals Exchange price for 2013 being 14% below that for 2012.

Regarding copper, the group reported that last year saw a small surplus in the production of refined copper. However, the surplus had been higher in 2012. Most of this surplus has been stockpiled by major traders, both within and without China. Expectations of a growing surplus caused copper prices to fall during the first half of 2013, but they stabilised during the second half. The average price for the year was $7 322/t, an 8% decline, compared with 2012.

“Palladium market fundamentals remained favourable throughout the year,” states the company in its financial results report. “Exhausted supply from the Russian government’s (Gokhran) stockpile, persistently low output of primary metal, as well as growing industrial demand, resulted in a 13% increase in average price” from $643/oz in 2012 to $725/oz in 2013. “Given the widening structural deficit in the palladium market, we reiterate our views that the current discount of palladium to platinum is not fundamentally justified and, hence, we expect it to narrow going forward.”

Last year, the production of platinum plus the recycling of the metal meant that supply exceeded industrial demand, but that was far more than compensated by a “dramatic growth in investor demand”. The result was that a market deficit of 220 000 oz in 2012 became a market deficit of 700 000 oz last year. Yet the 2013 average price for the metal was, at $1 487/oz, 4% down on 2012. “Considering the magnitude of operating losses and labour issues facing South African miners – the main producers of platinum – we believe platinum traded below its fundamental value throughout the year.”

Ongoing strikes in South Africa and strong growth in the Chinese motor vehicle market “suggest” that both the palladium and platinum market deficits will further increase this year. In addition, Norilsk expects investment demand to grow this year.

• [Editor:Juan]