Norilsk Nickel CEO Denis Morozov on Sustainable Mining

OJSC MMC Norilsk Nickel General Director, Chairman of the Management Board Denis S. MorozovThe following excerpt by General Director, Chairman of the Management Board Denis S. Morozov is from the OJSC MMC Norilsk Nickel 2007 Social Report which is available at: Norilsk Nickel 2007 Social Report

Dear readers,

OJSC MMC Norilsk Nickel is pleased to present the social report for 2007 which represents another step forward by the company in disclosing information regarding various aspects of its operations and activities concerned with sustainable development. At the core of our development strategy and our everyday business is the belief that consistent observance of social responsibility principles is a prerequisite for sustained and effective development of business.

In 2007, the Company continued the successful implementation of the adopted development strategy, modernised the existing production facilities, provided for further development of the unique resource base and entry to the Russia’s new regions.

In 2007, the Company significantly expanded the geography of its operations. OJSC MMC Norilsk Nickel successfully completed the transaction to acquire nickel business of OM Group Inc. and consolidated 100% shares of LionOre Mining International Ltd.1

The purchase of LionOre is the largest foreign acquisition in the history of Russian business. Today, MMC Norilsk Nickel is a leader of international metal markets with excellent outlook for further development.

New acquisitions contributed significantly to the Company’s operating results and created a base for further business development and growth. They also allowed substantially increasing the Company’s share of the global nickel production and accessing advanced technologies. Upon acquisition of foreign assets on the top of agenda moved the issues of integrating the newly acquired companies into the Group. The Company’s managers and employees gained new opportunities for active sharing of experience and knowledge with their foreign colleagues.

In partnership with two major international mining and metallurgical companies, Rio Tinto and BHP Billiton, the Company continued searching for promising new base metals’ deposits in Russia. This strategy allows further diversifying the portfolio of international mining assets in the regions that are most attractive for business operations and also accessing unique experience and advanced technology.

Today, the Company is among the market leaders in terms of corporate governance efficiency and information transparency which is confirmed by a number of independent market experts and we feel contributes significantly to the sustained growth of the Company’s market value. Within the last three years the Company’s market capitalization increased nearly five-fold to a historic record of USD 63.5 billion in November 2007. The Company’s capitalisation almost doubled during the reporting period.

Developing innovations is one of our priorities. Over the recent years, Russian companies involved in traditional sectors of economy have been paying increased attention to production
modernisation including by way of developing and implementing state-of-the-art technology. The Company increases investment allocated to innovations along several lines. This primarily includes modernising and enhancing the efficiency of production facilities.

In the second place comes the implementation of new projects and the respective search for new technological solutions which are particularly important for the Company in view of the creation of mining and enrichment facilities in the southeast of the Chita Region in the Russian Federation. In the third place, the Company is extending the market for its products by developing certain promising segments, in particular hydrogen energy.

In 2007, the Company pioneered in public-private partnership in Russia through cooperation with the Investment Fund of the Russian Federation, starting realisation of a complex project aimed at construction of transport infrastructure for field development in the South-East of Chita Region.2

Over the recent years Norilsk Nickel has undergone certain qualitative changes: the Company optimised its systems of corporate governance and personnel motivation, set up an efficient sales system, made a considerable progress in ensuring stable and reliable energy supplies and secure transportation links.

Important strategic documents which define the primary directions of the Company’s development in the mid- and long-term perspective have been developed. In 2006, MMC Norilsk Nickel approved its Production Development Strategy through 2020. In 2007, based on this strategy the Company developed and approved its HR-Strategy aimed at achieving the Company’s production development objectives.

In 2007, the Company continued reforming its management system. The Company’s major activities were aimed at amending internal regulations to further streamline the interaction
between various business units. In accordance with the plan for the management system reform the restructuring is to be completed by 2010.

To enhance its competitive advantages with regard to personnel development in accordance with the corporate standards that determine the level of professional training that is necessary to achieve the strategic tasks of the Group, as part of developing and institutionalising the corporate training system, the Company continued developing the Corporate University initiative.

The Company continues to pursue the policy of transparency in environmental areas and is keen on keeping on an open dialogue with the stakeholders on all the issues related to environmental
aspects of production and implementing measures to mitigate the environmental impact of its operations. The efficient measures taken by the Company to reduce air emissions result in yearly improvement of the quality of the atmosphere air. During 2007, we prepared project designs for large-scale activities, the implementation of which will allow for significant reduction of environmental impact in the regions of the Company’s major operations.

In 2007, the Company implemented, certified and accredited its Corporate Integrated Quality and Environmental Management System (CIMS): “Production, project management, sales and product delivery”; the Company also began to implement the practice of corporate audits CIMS.

The Company’s management attaches significant importance to the matters of occupational health and safety (OHS). In particular, measures were taken to enhance the responsibility of managers and specialists for the issues related to compliance with occupational health and safety requirements.

To improve occupational health and safety management systems the Company established a vertical structure of responsibility for development, implementation and control over the compliance with the OHS policy and organisation of operations of the single management system in this area.

In 2007 the personnel motivation system was further developed which is called to improve the Company’s competitive position with respect to attracting and retaining highly qualified personnel and increasing labour efficiency. During the reporting period the following mechanisms of additional monetary incentives were realised: additional industry allowances were increased in a differentiated manner depending on the Industry Business Unit; individual bonuses were established for highly qualified staff; the key principles were determined and a system of additional motivation for the key management personnel was developed based on a system of grades and key performance indicators.

With the aim to develop the system of internal corporate communications between the employers, and employees regional Corporate Forum of the Norilsk Nickel Group of Companies was held in February 2007. In December 2007, the Russian Inter-Industry Association of Employers’ National Alliance of Nickel and Precious Metals Producers was established. Management of the Company is fully aware of their responsibility towards the employees of the principal production units of the Company operating in the regions with inhospitable climatic conditions – in Africa, Australia and in the Far North. The Company implements a wide range of innovative social programs to support the work ability and health of employees and provide an attractive social package.

In 2007, the Company continued its activities to create conditions for active participation of staff in the corporate system of non-government pension insurance. The post-retirement option program was the most popular corporate pension plan embracing more than 60,000 employees. In the summer of 2007 the new “Accrued Equity Pension” program, that is open for participation to any employee in Russia, was launched based on the principles of joint participation of the Company and employees in the pension accruals. More than 5,000 employees became program participants within a short period of time. The program was supported by the employees of the Group’s major entities which demonstrates their confidence in the Company’s long-term intentions to invest into human resources.

The Company also uses long-term approaches to developing its presence territories. The Company’s representatives participated in the development of the strategy of social and economic development of Norilsk Municipality till 2020. To receive feedback and proposals with respect to strategy improvement a forum and round tables were held jointly with the representatives of the city Administration and other stakeholders.

In 2007, the main works to reconstruct the Alykel airport’s passenger terminal in Norilsk were completed. MMC Norilsk Nickel acted as the project initiator and investor allocating about RUR 2.5 billion for these purposes. An important result of the fulfillment of the Agreement between the Company and the Administration of Norilsk on Implementation of the Program for Development of the Material and Technical Base for Athletics and Sports of the City of Norilsk in 2007 was the completion of school gyms modernisation in the city.

The Company pays special attention to improving the level of informational transparency and the quality of disclosures. The Company strives to use all the ways of communication with stakeholders as effectively as possible. We will continue to improve this overtime in line with our stakeholders expectations.

Information on the key events in the Company’s life and its performance is available to all interested persons in the Company’s press-releases posted at the corporate website, in mass media publications on the corporate site, in the annual and social reports, and the“Norilsk Nickel” corporate magazine. Improving the quality of and developing corporate communication channels is among the top priorities of the Company’s activities.

The annual preparation of Social Reports enables us to improve the reporting methodology and to develop a stakeholder engagement system. During the year, further steps were made to develop the Company’s social reporting system, for example, it was commenced systematic works to ensure regular training of staff in corporate social responsibility under the international standards. The Social Report for 2007 presents information about all the companies of the Group, including foreign entities. In more detail compared to the previous Reports, it also covers the Company’s activities in the area of stakeholder engagement and environmental protection.

Both Russian and international expert organisations acknowledge the high quality of the Company’s Social Reports. For two successive years the Company has taken the top position in the Russian version of International Accountability Rating. In 2007 the Company was awarded the highest “A” category by the new national corporate responsibility rating – “Responsible Leadership” sponsored by the Public Chamber and Audit Chamber of the Russian Federation.

Our reputation is based on the confidence of our stakeholders and one of our major tasks is to retain this confidence and live up to their expectations. All the Company’s successes were enabled by the team work of our staff with each person doing his or her part with maximum
commitment. MMC Norilsk Nickel has created all the necessary conditions for personal and professional development of each employee.

We strive to work efficiently and consistently while promoting the development of the regions of presence and contributing to the growth of Russian public wealth, to the global social development and progress.

General Director
Chairman of the Management Board
Denis S. Morozov

1 Norilsk Nickel Harjavalta (Finland) and Norilsk Nickel Cawse (Australia) were
merged into the Company on 1 March 2007 as a result of acquisition of OM
Group’s nickel business. Tati Nickel (Botswana), Nkomati (RSA), Waterloo, Lake
Johnston and Black Swan (Australia) were merged into the Company on 28 June
2007 as a result of acquiring LionOre Mining International Ltd.

2 On March 1, 2008 Chita Region and Aginsk Buryat Autonomous Region were
united into a new subject of the Russian Federation – Transbaikal Territory.