(Bloomberg) -- Russia’s MMC Norilsk Nickel PJSC said difficulties with cross-border payments contributed to lower profits, shortly before the US on Friday slapped sanctions on its copper unit and other affiliates that provide services to the miner.
The US restrictions imposed in June to stem support for Moscow’s war in Ukraine have put local banks in countries that trade with Russia at a higher risk of so-called secondary penalties, increasingly delaying or disrupting payments to and from places like China and Turkey. That’s making it difficult — and sometimes impossible — to execute transactions, particularly with China, arguably Russia’s most important economic partner since the war began.
Nornickel, as the world’s largest producer of refined nickel and palladium is known, said that has weighed on earnings — highlighting how the sanctions against the country’s economy are hurting its companies. Then the US Treasury on Friday also announced penalties on some of Nornickel’s servicing units and companies affiliated with the miner. That includes the unit that supplies fuel to the miner on the Taymyr peninsula, an airline, transportation and IT service providers.
Bystrinsky copper mine, which Nornickel started in 2017 with the aim to supply to China, was also sanctioned on Friday. It is expected to produce up to 68,000 tons of copper in concentrate this year. The mining company itself still hasn’t been sanctioned by the US or the European Union. Nornickel declined to comment on new US penalties.
Earnings Decline
Just before the latest US announcement, Nornickel said first-half revenue dropped 22% from a year earlier to $5.6 billion, with lower metals prices and logistical issues also being an issue. Earnings before interest, taxes depreciation and amortization fell 30% to $2.35 billion, while free cash flow slumped more than 60% to $525 million.
“The plunge of nickel and palladium prices, logistic challenges in the Red Sea and increased difficulties with cross-border payments seriously impaired our revenue, profitability and cashflows,” Nornickel President Vladimir Potanin said in a statement.
Nornickel also noted that net working capital jumped 20% year-to-date to $3.7 billion, mostly due to an increase in unsold inventories. The company sells more than half of its output in Asia, mostly to China.
(Adds sanctions against copper unit in the fourth paragraph.)
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