Draft Annual Report • 2017 Investing in sustainable development CONTENTS Company mission Through the efficient use of natural 2017 ANNUAL REPORT 1 resources and equity, we supply PJSC “MMC “NORILSK NICKEL” 02 Company overview mankind with non-ferrous metals, which make the world a more reliable Reporting period from 1 January 2017 04 Company profile place to live in and help people realise to 31 December 2017 06 Key highlights their aspirations for development and 08 Business model technological progress. The 2017 annual report of PJSC “MMC “Norilsk 10 Chairman’s letter Nickel” (MMC Norilsk Nickel, Nornickel, 12 President’s letter the Company) incorporates the results of MMC Norilsk Nickel and other operations of the Norilsk Nickel Group (the Group). For the purposes of this annual report, the Values Norilsk Nickel Group shall refer to a group of companies that includes MMC Norilsk Nickel and its subsidiaries. The largest subsidiaries Reliability of the Norilsk Nickel Group and their shares in the capital of MMC Norilsk Nickel are an ability to address any presented in the 2017 consolidated IFRS challenges to ensure success for financial statements. the business. The accuracy of information contained in this report was confirmed by the Audit Commission 2 and approved by the Company’s Board Growth of Directors and Annual General Meeting 16 Strategy overview of Shareholders. effective production ramp- 20 Environmental up and upgrade, leverage of programme groundbreaking technologies and development of our people. • Preliminarily approved by the Board of Directors of MMC Norilsk Nickel (Minutes No. GMK/18-pr-bd of 24 May 2018) Efficiency • Accuracy of information confirmed 22 delivering against our targets in Core by the Audit Commission of MMC Norilsk Nickel investments due time and at minimum costs. (Opinion of 16 May 2018) Responsibility a desire to honour our commitments and take on 26 Shaping responsibility for our decisions. growth areas Vladimir Potanin President, Professionalism Chairman of the Management Board a sustainably strong PJSC “MMC “Norilsk Nickel” performance. 28 Efficiency improvement programme Collaboration Sergey Malyshev Senior Vice President, an ability and desire to achieve Chief Financial Ocer goals through team work. PJSC “MMC “Norilsk Nickel” Online report 3 is avaiballe on website https://ar2017.norniсkel.com/ 30 Market overview 32 Metals in electric car production 34 Nickel 40 Copper 44 Palladium 50 Platinum 6 204 Information for shareholders 206 Authorised capital 4 206 Securities 210 Dividends 56 Business overview 213 Shareholder rights 214 Transparency 58 The Group business 58 ΀ Mineral base 62 ΀ Geological exploration 66 ΀ Production assets and activities 87 ΀ Key investment projects 94 ΀ Gas and energy assets 97 ΀ Transportation assets 100 ΀ Products and sales 103 ΀ Research and development 105 ΀ Supply management 108 Corporate responsibility 7 108 ΀ HR and social policy 128 ΀ Occupational safety 218 Appendixes 132 ΀ Environment 147 Financial overview (MD&A) 220 Consolidated financial statements 267 The Group structure 268 History of production indicators 270 Minerals resources and reserves 272 Report on compliance with principles and recommendations set forth in the Corporate Governance Code 290 Glossary 5 292 Metric conversion table and currency exchange rates 160 Corporate governance 293 Сontacts 162 Deputy Chairman’s letter 165 Corporate governance framework 170 Board of Directors 185 President and Management Board 193 Remuneration 195 Risk management and internal controls 203 Independent audit COMPANY OVERVIEW 04 Company profile 06 Key highlights 08 Business model 10 Chairman’s letter 12 President’s letter Company overview Company profile The Norilsk Nickel Group’s core operations The Norilsk Nickel Group (the Group) includes PJSC MMC Norilsk Nickel (Nornickel, the Company) and its subsidiaries. MMC Norilsk Nickel is the core (parent) company of the Norilsk Nickel Group, having the biggest share in the subsidiaries’ authorised capital. For more details on the Group’s structure p. 267 The Norilsk Nickel Group is Russia’s EXPLORATION leading metals and mining company, the largest palladium and refined nickel producer in the world, and one of the biggest platinum producers. On top of that, the Group produces copper, cobalt, rhodium, silver, gold, iridium, ruthenium, selenium, tellurium, and sulphur. MINING AND PROCESSING OF MINERALS In addition to the production facilities, the Company owns: a global sales network, fuel and energy assets, SALES OF NON- FERROUS The Company AND PRECIOUS supplying its METALS products to a wide range of R&D units, For more details of sales network 34 river transport, port terminals, p. 100 countries a unique Arctic cargo fleet. EBITDA margin in 2017 // % Company No.1 Company Company No.2 No.3 Nornickel EBITDA margin remains strong Company No.4 Company ranking among the highest No.5 in the global metals and mining industry. 52 46 45 44 34 28 4 5 Annual Report 2017 Company overview Mineral resources1 Proven and Measured and probable reserves indicated resources Nornickel operates the unique Talnakhskoye 12.4 mt Copper 23.8 mt Copper Field on the Taimyr Peninsula. Its sheer size and 7.1 mt Nickel 15.5 mt Nickel remarkably high content of metals in the ore make 3.9 kt PGM 8.3 kt PGM the field’s resource base key to the Company’s (125 mln oz) (264.7 mln oz) long-term sustainable growth. For more details on 1 The Company’s reserves and resources as at the Company’s Strategy overview 815 mt Ore reserves and 31 December 2017, including wholly owned overseas resources assets and excluding fields in Zabaykalsky Krai according mt Ore p. 58 to JORC standards. 2,220 The Company’s position in the industry No.1 No.1 No.4 No.5 No.13 Market overview palladium high-grade producer cobalt copper Market producer nickel producer of platinum producer producer share For more 40% 22% 11% 5% 2% details on the Company’s position in the industry p. 30 Business overview The Group’s Russia. Core businesses in Russia have a vertically integrated structure production assets and include Polar Division, Kola MMC and Bystrinsky GOK. Finland. In Finland, Norilsk Nickel operates Norilsk Nickel Harjavalta, a nickel refining facility that became part of the Group after acquisition of a nickel business in 2007. The plant is fully integrated into the Group’s Corporate governance production chain. South Africa. In South Africa, the Company owns 50% of Nkomati, a nickel mine developed jointly with African Rainbow Minerals. Australia. In Australia, The Company holds a licence to develop the Honeymoon Well Project. Information for shareholders Dividend yield in 2017 // % Nornickel Company Company No.1 No.2 The Company offers Company the highest dividend yield No.3 in the industry Company Company No.4 No.5 7.2 6.2 6.0 4.1 3.0 2.9 Appendixes 5 Company overview Key highlights EBITDA margin // % CAPEX // USD bn EBITDA // USD bn Financial 50 2.0 1.7 3.9 4.0 1.7 4.3 stability 47 44 For more details on financial results, please see the Financial Results (MD&A) section and IFRS Financial 2015 2016 2017 2015 2016 2017 Statements p. 147, 220 In 2017, EBITDA increased by 2% The 2017 increase was due to mainly due to higher stock exchange the phase of active construction prices. of Bystrinsky GOK and transition EBITDA margin remains strong ranking to the more active implementation among the highest in the global of refining capacities upgrade projects industry at Kola MMC. Operating PRODUCTION OVERVIEW efficiency Nickel // kt Copper // kt 2017 97% 217 2017 99% 401 2016 83% 236 2016 96% 360 2015 83% 266 2015 96% 369 From the Company's own Russian feedstock From the Company's own Russian feedstock For more details on production For more details outlook, please see the Strategy on historical Day presentation (slide 26) production available on the Company’s – 8 % + 11% website p. 268 2017/2016 2017/2016 Use of renewable energy // % Sulphur dioxide emissions // mt High level 40 36 38 2.01 of social 1.88 1.79 responsibility 2015 2016 2017 2015 2016 2017 Nornickel’s investment programme In 2017, sulphur dioxide emissions for 2018–2020 includes several large- decreased by 11% as compared to 2015. scale projects aimed at modernizing The decline came as a result of the Nickel the Company’s own hydroelectric Plant shutdown, modernizing of Talnakh power plants and enchancing Enrichment Plant and also in connection the use of renewable energy sources with the transition to the technology of hot bracing at Kola MMC’s Division. The emissions within Norilsk city limits have dropped by 30–35%. 6 7 Annual Report 2017 Company overview Net debt / EBITDA Net profit // USD bn Dividend yield1 // % Net debt // USD bn Dividends per share paid during the reporting period // USD 2.5 2.1х 1 Dividend yield 18.1 18.8 2.1 for the periods 8.2 1.7 14.0 calculated based 1.2х 4.2 7.8 on the amount 1.0х 4.5 of dividends 7.3 7.2 recommended Strategy overview by the Board of 2015 2016 2017 2015 2016 2017 2015 2016 2017 Directors and on the average ADR price as per The surge in net debt as at In 2017, Nornickel’s net profit The Company offers the highest Bloomberg for 31 December 2017 was caused by amounted to USD 2.1 bn. dividend yield in the global metals the calendar year. the 2017 dividend payout in the amount and mining industry of USD 3 bn and one-off changes in the net working capital. The net debt to EBITDA ratio used to calculate final dividends for 2017 stood at 1.88х. Market Market overview Copper // kt Palladium // koz Platinum // koz After completion of the main stage of our production capacity reconfiguration programme Talnakh Concentrator reached its design capacity and achieved target recovery 2017 98% 2,780 2017 97% 670 rates.