Update on Audit Committee Held on 20th October 2010

On 20^th October 2010 I chaired a meeting of the Audit Committee (the “Committee”) of MMC Norilsk Nickel (“Norilsk Nickel” or the “Company”).  We enjoyed a full quorum, with other members present being Andrei Bougrov, Brad Mills and Max Sokov. 

Key items on the agenda included review of the Company’s auditors’ (KPMG) special report on the concerns previously raised by one of the Company’s largest shareholders and an update from management on the implementation of the Global Business System. 

KPMG’s senior representatives presented a detailed report, which had previously been made available to members of the Committee for review, covering the three areas of marketing, insurance and off-shore contracts.

Key findings are:

Marketing

• The majority of Norilsk Nickel’s products are sold on international markets to recognised metal consumers.
• The main profit accumulation centres are at the production centres based in Russia.  These are therefore the main tax-paying entities.
• Robust credit assessment/control procedures are in place, which minimize the risk of bad debts.
• The detailed monitoring and budgeting processes implemented by the Company allow the achievement of the two key objectives of the Sales department:
• o   realization of all production output through strong and weak markets; and,
• o   maximization of the selling price.
• Based on the selected sample that was subject of the analysis:
• o    on average the actual sales prices for base metals were above the average LME cash settlement price for the period; and,
• o   there are no fixed price or unusual sales agreements identified.
• The Company performs hedging operations with two main purposes:
• o   achieving an actual average sales price close to the average annual cash settlement LME price; and,
• o   maintaining uninterrupted delivery of products to customers.
• The overall financial effect of hedging transactions in H1 2010 was not significant.
• There are no indications of affiliation between the Company’s staff and sales counterparties.
• Insurance
• Given the remoteness of many of the Company’s assets the Company has historically adopted a policy of insuring that all critical risks, for which insurance is available on the market, are 100% insured.
• Analysis of the most material insurance contracts and comparison with the next best offers obtained by the Company during the tender process indicates that it selected the best available offer for the most material contracts.

Offshore Consulting Contracts

• Material consulting contracts (defined as greater than US$500,000 spend per annum) entered into by international subsidiaries of Norilsk Nickel were identified to be focused on an international programme to promote palladium as a metal of choice and to a supplier of investment relations and corporate brokerage services.

KPMG’s overall conclusion was that there is no evidence of wrongdoing or malfeasance in these areas.

The Committee made a number of constructive recommendations to management as a result of receiving KPMG’s report.

The Committee received a detailed presentation from the Head of the Company’s Global Business System Project on the status of implementation of this project.  The Committee congratulated the team on its progress to date and encouraged it to press forward with this multi-year, multi tens of millions of euros project.  This important project has the personal backing of the General Director and the Committee requested quarterly updates form management going forward.