Norilsk Profit Up 154% on Metals, One-Off Sale

Norilsk Nickel, the world's largest nickel and palladium miner, said on Friday 2006 net profit more than doubled on record prices and the sale of a stake in South African miner Gold Fields.

Norilsk, owned by Russian billionaires Vladimir Potanin and Mikhail Prokhorov, said net profit rose 154% last year to $5.965 billion (4.472 billion euros), beating analysts' forecasts.

Analysts said they expected the Russian miner to post strong results in 2007, despite a possible decline in nickel prices, as its newly acquired refinery in Finland will add to production.

"Nickel prices have started declining, which may have a negative effect on the company's results, but 2007 will be a good year for Norilsk after it consolidates its Finnish assets," Metropol Group metals analyst Denis Nushtayev said.

Norilsk earned $993 million (744.5 million euros) from the sale of its stake in Gold Fields, the world's fourth-largest gold miner, last year.

Excluding this gain, net profit was $4.972 billion (3.727 billion euros) -- still more than double the previous year's $2.352 billion.

Eleven analysts polled by Reuters had forecast net profit of $5.118 billion. The three who excluded the Gold Fields sale forecast an average $4.815 billion, still below actual results.

Revenues rose 61% to $11.550 billion (8.66 billion euros) in 2006, above the $11.048 billion forecast in the analyst poll.

Norilsk, which mines a fifth of the world's nickel, said its sales of the metal yielded an average $24,081 per ton in 2006, up 65% from 2005.

Nickel, used to make stainless steel, has been the best performer on the London Metal Exchange this year due to a China-led boom in global demand. It hit a record $51,800 a ton on May 9 but has retreated to close on Thursday at $42,900.

Copper, PGMS

Norilsk, Russia's biggest copper and platinum producer, also profited from an 83% rose in its average copper price to $6,689 per ton. The price of palladium, used in jewelry and car exhausts, rose 57% and platinum 26%.

Norilsk's physical sales of nickel rose 5% last year to 257,000 tons. Palladium sales were practically unchanged at 3.22 million ounces, while sales of copper declined by 6% to 424,000 tons and platinum by 1% to 750,000 ounces.

Norilsk sold slightly more nickel and palladium than it produced last year and all of its copper and platinum.

It also kept operating expenses low compared with those of domestic and international peers. Cash operating costs in 2006 rose 5% to $2.538 billion, production costs 7% to $3.106 billion and sales costs 5% to $3.158 billion.

"The company continues to show convincing control of expenses, which separates it from other producers both in Russia and abroad, where operating expenses are rising substantially," said Sergei Donskoy, metals analyst with Troika Dialog.

Norilsk produced 244,000 tons of nickel in 2006. Its purchase this year of the nickel assets of U.S.-based OM Group , including the Harjavalta refinery in Finland, is expected to boost 2007 output to 270,000-275,000 tons.

Norilsk did not publish its earnings before interest, taxation, depreciation and amortization (EBITDA) but analysts said it slightly exceeded the consensus of $7.499 billion.

EDITDA margin was slightly lower than the 69.2% forecast.

Norilsk is also expected to gain control of LionOre Mining International, the world's 10th-largest nickel producer, after the Canadian miner advised shareholders to accept the Russian firm's $6.4 billion (4.79 billion euro) bid.

Potanin, president of industrial and banking group Interros, and Prokhorov -- the company's chief executive until earlier this year -- together own more than half of Norilsk's stock.

Prokhorov is expected this year to sell his stake to Potanin.