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42005NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •20055OVERVIEW OF OJSC MMC NORILSK NICKELINCLUDING ITS GOLD MINING ASSETSCORPORATE MISSION ANDSTRATEGIC OBJECTIVES21Open Joint Stock Company Mining and Metallurgical CompanyNorilsk Nickel ("MMC Norilsk Nickel" or the "Company") andits subsidiaries (the "Norilsk Nickel Group" or the "Group")is the leading producer of nickel and palladium, one of thelargest producers of platinum and one of the top ten producersof copper in the world. In addition to this, the Groupproduces a variety of by-products, such as cobalt, rhodium,silver, gold, tellurium, selenium, iridium and ruthenium.The Norilsk Nickel Group is involved in prospecting, exploration,extraction, refining and metallurgical processing ofminerals and production, marketing and sale of base and preciousmetals.The main structural units of the Group are:• the Polar Branch ("Taimyr Peninsula"), which is locatedabove the Polar Circle, on the 69th parallel, its entities areconnected with the other regions of the Russian Federationvia the Yenisei river and the Northern Sea Route, as well asby air;• OJSC Kola Mining and Metallurgical Company ("KolaPeninsula"), which is located in the Kola Peninsula and isthe largest industrial producer in the Murmansk region;and• Stillwater Mining Company ("Stillwater"), which is locatedin Montana, in the United States of America, and is the onlyproducer of platinum group metals ("PGM") in the US.The Group acquired a 55.4% interest in 2003.Starting in 2003, the Group has actively acquired gold miningassets, which resulted in the creation of the largest Russiangold mining company, being one of the top 15 gold producersglobally. To maximize shareholder value, the Group decidedto spin off the gold mining assets in 2005. As part of theNorilsk Nickel reorganization, through the spin-off of the goldmining assets, a new company Open Joint Stock CompanyPolyus Gold, was incorporated on 17 March 2006, with itsshares being distributed between the existing shareholders ofMMC Norilsk Nickel in a ratio pro rata to their interests inthe MMC Norilsk Nickel as at 1 January 2006. During thespin-off, Polyus Gold received 100% of the shares in Close JointStock Company Polus ("Polus"), which consolidates all thegold mining assets of the Group, and a cash consideration ofUSD 360 million (RUR 10 billion).Polyus Gold is the leading Russian gold producer rankingamong the largest global gold mining companies in the world,by its mineral resource base and production volumes. Themining asset portfolio of Polyus Gold includes hard rock andalluvial gold deposits in the Krasnoyarsk, Irkutsk, Magadanand Amur regions and the Republic of Sakha (Yakutia) wherethe company prospects and mines gold.Due to the fact that the spin-off of the gold mining assets ofthe Group actually took place in 2006, this Annual Reportpresents separately the performance for:• MMC Norilsk Nickel not including the gold mining assets(Polus); and• the gold mining assets of MMC Norilsk Nickel (Polus).••• MissionMMC Norilsk Nickel aims to strengthen its leadershipin the global mining and metals industry andthe role of a responsible producer and supplier ofbase and precious metals through:• effective use of unique mineral resources andmanagement of operating costs;• growth in exploration and development of worldclassmineral deposits;• support of sustainable development in the regionsin which the Group operates.••• Strategic objectivesEffective use of unique mineral resources and managementof operating costs:• effective use of the mineral resources and optimized capacityutilization of the Group's mining and processing entities;• modernization of production facilities in ore beneficiationand metallurgy in order to ensure the most effective processingof mined ore and better metals recovery;• sustaining the stable level of costs, based on strong skillsof continuous improvement in operations, developmentand implementation of effective technical solutions;• strengthening independence in terms of secure supply oflow-cost services and resources, including energy supply,transportation and logistics services;• further improvements in corporate governance throughrestructuring of assets and optimization of managementprocesses.Growth in exploration and development of worldclassmineral deposits:• active participation in prospecting, geological investigationand exploration of new promising world-class mineraldeposits both in Russia and abroad;• creation of strategic alliances, leveraging best practices inexploration, mining and production of base and preciousmetals;• search for growth opportunities for the existing businessthrough strategic acquisitions and establishing partnershipsin prospective sectors of the mining industry.Support of stable development in the regions inwhich the Group operates:• personnel development, creating a proper environment forgrowth of highly skilled professionals, ensuring safe laborenvironment, competitive staff remuneration and socialbenefits in accordance with the scope and quality of theirwork;• compliance with both Russian and international environmentalstandards, implementation of new technologiesallowing to comply with the limitations imposed on pollutantemissions, implementation of socially advantageousenvironmental protection projects on a regional, national andinternational level;• implementation of projects in social and economic developmentof communities in cooperation with the regionaland municipal authorities.MISSION AND STRATEGY2
6 2005 NORILSK NICKEL • ANNUAL REPORT •NORILSK NICKEL • ANNUAL REPORT •20057OPERATING AND IFRS FINANCIAL HIGHLIGHTSOF THE GROUP3The Group's operating highlights as of 31 December('000 tonnes or as noted)2005 2004 2003Group Group Gold Group Group Gold Group Group Goldwithout mining without mining without mininggold assets (1) gold assets (1) gold assets (1)mining mining miningassets assets assetsConsolidated IFRS financial highlights of the Group as at 31 December (1)(US dollars million or as noted)2005 2004 2003Group Gold Group Gold Group Goldwithout mining without mining without mininggold assets (2) gold assets (2) gold assets (2)mining mining miningassets assets assetsProduction volumeNorilsk NickelNickel (2) 243 243 – 243 243 – 239 239 –Copper (2) 452 452 – 447 447 – 451 451 –Palladium ('000 ounces) (3, 4) 3,133 3,133 – – – – – – –Platinum ('000 ounces) (3, 4) 751 751 – – – – – – –Gold ('000 ounces) (3) 1,189 151 1,038 1,220 135 1,085 968 136 832StillwaterPalladium ('000 ounces) (5) 428 428 – 439 439 – 226 226 –Platinum ('000 ounces) (5) 126 126 – 130 130 – 67 67 –Sales volumeNorilsk NickelNickel (6) 244 244 – 250 250 – 308 (7) 308 (7) –Copper 450 450 – 451 451 – 467 467 –Palladium ('000 ounces) (4) 3,231 3,231 – – – – – – –Platinum ('000 ounces) (4) 758 758 – – – – – – –Gold ('000 ounces) 1,200 162 1,049 1,221 135 1,086 941 147 794StillwaterPalladium ('000 ounces) (5) 933 (8) 933 (8) – 850 (8) 850 (8) – 223 223 –Platinum ('000 ounces) (5) 216 216 – 202 202 – 64 64 –Notes:(1) More detailed information on production and sales volumes of gold is available in Section 9 of the Annual Report.(2) Includes production by the entities of Norilsk Nickel Group from purchased materials, particularly of nickel: in 2005 –0 tonnes, in 2004 – 2,000 tonnes, and in 2003 – 1,000 tonnes; of copper: in 2005 – 26,000 tonnes, in 2004 – 35,000 tonnes,and in 2003 – 49,000 tonnes.(3) Hereinafter in the Annual Report the unit of measurement for precious metals, including platinum, palladium and goldis a troy ounce.(4) Production or, as noted, sales of platinum group metals produced by Norilsk Nickel Group within the Russian Federation.Until 2005 the information on the sales of PGM produced by Norilsk Nickel Group in Russia was subject to state secrecylegislation. As a result of changes to the legislation and other regulatory acts on state secrecy made in 2005, the NorilskNickel Group is now allowed to disclose both current information on PGM and information on past periods beginning from18 February 2004. Information on the periods before that date remains secret.(5) These figures represent the production or sales volumes, as indicated, of Stillwater Mining Company from the date ofacquisition by MMC Norilsk Nickel of 50.5% of ownership in Stillwater Mining Company on 23 June 2003 until 31 December2003. After the additional acquisition of 4.9% of ownership in the third quarter of 2003 the share of MMC Norilsk Nickelincreased to 55.4% of the company's share capital. The production volumes of Stillwater for the year ended 31 December2003 were 450,000 ounces of palladium and 134,000 ounces of platinum, the sales volumes were 464,000 ounces of palladiumand 149,000 ounces of platinum.(6) The indicated sales volumes omit the sales of metals purchased from third parties.(7) This includes 60,000 tonnes of nickel sold from inventories pledged as security for a syndicated loan from banks.(8) Including sale of palladium transferred by MMC Norilsk Nickel to Stillwater Mining Company as consideration for sharespurchased in 2003 (total 877,000 ounces of palladium were transferred): in 2005 – 439,000 ounces, in 2004 – 375,000ounces.Metal sales revenue 7,169 473 6,591 442 4,897 299Gross profit on metal sales 4,175 207 3,653 207 2,136 192Net profit attributable to ordinary shareholders 2,352 115 1,857 10 741 120Cash and cash equivalents 922 28 1,346 13 950 4Investments in securities and other financial assets 690 4 1,407 3 162 –Capital construction-in-progress 1,184 107 1,208 62 1,119 31Buildings, structures and utilities 5,961 965 6,644 516 5,801 216Total assets 14,730 3,573 13,632 1,138 10,793 409Short-term borrowings 357 26 552 36 438 –Long-term borrowings 635 5 657 9 169 –Share capital and reserves 11,397 3,106 10,643 943 8,172 339Total liabilities 3,333 467 2,989 195 2,621 69Notes:(1) The consolidated annual financial statements of the Group have been prepared in accordance with International Financial ReportingStandards ("IFRS"). IFRS include standards and interpretations approved by the International Accounting Standards Board ("IASB"),including International Accounting Standards ("IAS") and interpretations issued by the International Financial Reporting InterpretationsCommittee ("IFRIC").Financial statements of the Group without the gold mining assets (CJSC Polus) and gold mining assets (CJSC Polus) are to provide tothe shareholders of the Norilsk Nickel Group illustrative financial highlights for the spin-off of the gold mining assets (CJSC Polus)from the Norilsk Nickel Group. Loans and promissory notes issued by the entities in the Group and intra-group transactions affectingthe income statement were excluded when preparing these consolidated financial statements of the Group. However, these balancesand transactions will be recognized in the preparation of the stand-alone financial statements of the specific companies.(2) More detailed information on the financial results of gold mining assets is available in Section 9 of the Annual Report.OPERATING AND IFRS FINANCIALHIGHLIGHTS OF THE GROUP3
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