Russian Platinum LLC will forge ahead with the development of two Arctic platinum group metals deposits without PJSC Norilsk Nickel Co. after the latter's shareholder United Co. Rusal PLC effectively vetoed the proposed joint venture.
Russian Platinum did not respond to requests for comment but Norilsk said March 20 that its erstwhile partner will proceed with the development of the Chernogorskoye and the southern part of the Norilsk-1 deposit on its own.
A Rusal spokesperson told S&P Global Market Intelligence that the company would have been prepared to support the deal had Norilsk's share of the arrangement been reflective of its actual contribution to the project.
"We had asked Norilsk to fulfill certain technical and economic requirements that include above all an increase of its share in the joint venture," Rusal's representative said.
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| The southern part of the Norilsk-1 deposit. |
The Arctic Palladium venture aimed to bring together three licenses south of the city of Norilsk to create the world's largest greenfield PGM cluster, targeting annual output of between 70 and 100 tonnes of PGM.
Norilsk said it is now in talks with Russian Platinum to provide services and resources for the project as well as a future off-take arrangement. Palladium accounted for 39% of Norilsk's metal sales in 2019.
The Arctic mining group revealed ambitious production targets for its key metals — nickel, copper, palladium and platinum — for 2030 onward, which included contributions from the Arctic Palladium project, at its capital markets day in November 2019.
While the termination of the joint venture reduces the risk of Norilsk's capital expenditure ballooning, it could slow down the commissioning of the mines by Russian Platinum on its own, VTB Capital's analysts observed in a same-day note.
A delay could sink the market's long-term balance further back into deficit, removing a potential overhang of some 2.7 million ounces of palladium — equivalent to almost 40% of estimated mine supply in 2020 — the analysts added.
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| The Chernogorskoye deposit. |
Top aluminum producer Rusal's interest in Norilsk currently stands at 27.8%, the latter's investor relations officer, Mikhail Borovikov confirmed to S&P Global Market Intelligence. Rusal relies on Norilsk's dividends to keep up with its debts.
Norilsk recently reduced its forecast for the palladium market imbalance in 2020 to 200,000 ounces from 900,000 ounces in a presentation in March addressing the impact of the coronavirus on commodity markets.
The 700,000-ounce reassessment is based on a 15% decline in global car sales in January to February offset by lower expected supply from Anglo American Platinum Ltd., which was recently forced to close processing facilities at its Waterval smelter complex in South Africa.
The price of palladium has been rocked in recent weeks by falling automotive demand triggered by the spread of the coronavirus. Car-makers account for around 80% of demand for the precious metal. London Bullion Market Association palladium closed March 20 at US$1,635 per ounce, compared to US$2,571/oz two weeks ago.
Norilsk's shares closed up 0.65% at 16,358 rubles apiece on March 20, lagging the Moscow Exchange Russia Index, which finished 2.46% higher.
As of March 19, US$1 was equivalent to 79.97 Russian rubles.