Untitled - PRIME Gold

222005NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •200523••• Health and safetyOperations of MMC Norilsk Nickel, as well as other mining companies,are subject to hazards and risks inherent in the exploration,development and extraction of mineral resources, whichmay inflict damage to individuals, property and the environment.The risk factors connected with open pit mining conductedby the Group include:• inundation;• quarry bank and wall sloughing;• accidents connected with the operation of mining and transportationequipment in the quarry;• accidents connected with the preparation and conductingof large-scale blasting work in the quarry;• suspension of production due to natural conditions; and• risks related to the reclamation of mineralized waste watersuch as the pollution of subterranean waters and waterflows.Underground mining work is usually more expensive thanopen pit mining, more dangerous and requires the use ofventilation systems. Other hazardous factors in undergroundmining include:• underground fires and explosions (including those causedby inflammable gas);• releases of gas and toxic agents;• geothermal events;• sinkholes and ground depression;• other accidents resulting from drilling and blasting work, andfrom transportation and removal of mined rock from themine.MMC Norilsk Nickel may face any of the above risks. An accidentresulting from any of these hazardous factors may leadto the suspension of production, increased cost of production,injuries to people and damage to property, and lead to liabilitiesfor the Group.New laws and regulations, the imposition of more stringentrequirements in licenses, increasingly strict enforcement ornew interpretations of existing environmental laws, regulationsor licenses, or the discovery of previously unknown contamination,may require further expenditures to modify operations,install pollution control equipment, perform siteclean-ups, curtail or cease operations, or pay fees, fines, ormake other payments for discharges or other breaches ofenvironmental standards. All this may have a material negativeeffect on the Group's financial position.••• National currency exchange rateand currency controlA large portion of the Group's sales is in US dollars. At thesame time, a large portion of its expenses is in Russian rubles.Therefore, the changes in the national currency (Russian ruble)exchange rate against the US dollar have an effect on theGroup's financial results.Despite considerable liberalization of the Russian legislation onforeign currency regulation and foreign currency control, effectiveRussian legislation authorizes the Russian Governmentand the Central Bank of Russia ("CBR") to regulate and introducelimitations in the area of foreign currency control, includingforeign securities transactions and borrowings of Russiancompanies in foreign currency.Foreign currency regulations of the Government and the CBRalso impose certain limitations on investments by Russian companiesoutside Russia. Currently, the ruble is not convertibleoutside the Russian Federation and the CIS, and the ability ofcompanies operating in Russia to convert rubles into othercurrencies may be contingent on the existence of a specialaccount and/or subject to the requirement of obligatory reservation,although such limitations may be lifted as early as2007. Due to the limited development of the foreign currencymarket in Russia, the Group may face difficulties in convertingrubles into other currencies.••• Mergers and acquisitionsThe Group develops through, among other methods, theacquisition of companies in Russia and abroad. These activitiescarry significant risks that relate to the ability of theGroup's management to efficiently integrate the acquiredcompany, as well as the expected economy of costs and thesynergies of the acquisition.••• Russian country risksLately, positive trends have been observed in the Russian economy,such as:• growth of the gross domestic product;• relatively stable currency;• high demand in the domestic market;• growth of real wages; and• slowed inflation.However, these trends may reverse. The economic and politicalinstability in Russia may have a negative effect on theoperations of MMC Norilsk Nickel.RISK FACTORS7••• EnvironmentMMC Norilsk Nickel is subject to comprehensive environmentalcontrol and regulation in Russia. The Group's operations areconnected with the:• use of agents harmful for the environment;• emission of waste and pollutants into the environment;• disturbance of lands;• potential damage to flora and fauna; and• other factors hazardous for the environment.Currently, environmental legislation in Russia and other countriesare changing and MMC Norilsk Nickel regularly reviewsits obligations to reduce pollutant emissions into the environment.The limited ability of MMC Norilsk Nickel to convert currenciesor transfer funds may lead to the inability to conclude necessarycommercial transactions (or lead to the increased costof such transactions), which may have a material negativeeffect on the Group's operations.••• Labor regulationsThe Group's operations are regulated by a number of legislativeacts on labor and social issues. Changes in legislationin these areas, specifically impacting tax and insurance paymentsrelated to social insurance and pensions, may haveadverse effects on production costs and, consequently, theGroup's financial results.