Based on materials from the official web-site of MMC Norilsk Nickel.

The Board of Directors of MMC Norilsk Nickel has approved the main elements of the company’s production strategy. This decision marks an important step in the development of the company's existing mining and metals assets. The Board of Directors also instructed the company’s management to continue work on a number of technical options to upgrade the effectiveness of ore beneficiation and metallurgical production that were presented as part of the company’s further development and present proposals on these options by the end of this year together with the key elements of the overall corporate strategy of the company.

Production Strategy Objectives

MMC Norilsk Nickel’s production strategy is focused on developing the company’s existing production assets on the Taimyr and Kola peninsulas. Implementation will enable the Company to achieve the following objectives:

• Increase effectiveness in ore beneficiation improving concentrate quality in order to reduce smelting costs

• Minimize unit costs in metallurgical production, compensate for the impact of inflation on cost growth, and retain the company’s current cost position among nickel producers

• Ensure stable production volumes of base and precious metals

• Reduce the impact of production on the environment and ensure compliance with environmental regulations on emissions into the atmosphere and water

Key elements of production strategy

The Board of Directors reviewed and approved the company’s production strategy which outlines the parameters and key elements to be undertaken in the coming years in order to accomplish the above objectives and further improve the foundation off of which the two production platforms in Taimyr and Kola will continue to prosper and improve effectiveness.

Increase in ore mining and metals production volumes

MMC Norilsk Nickel plans to gradually increase overall ore mining volumes at the Taimyr and Kola peninsulas from 21.2 mln mt in 2005 to 26 mln mt per annum by 2015.

The volume of mined ore at the Taimyr Peninsula will increase from approximately 14.4 mln mt in 2005 to 18.5 mln mt per annum by 2015. The optimum mine plan is based on mining rich and cuprous ores at the level of approximately 7.5 and 5.5 mln mt per annum respectively and an increase in disseminated ore volumes up to approximately 5.5 mln mt per annum.

The key projects to achieve target volumes of rich ore mining at 7.5 mln mt per annum include:

• Construction of the Skalisty mine with the overall project capacity at 3.0 mln mt p.a. By 2019, when the Skalisty mine reaches full capacity, it will provide up to a third of all mined nickel at the Polar Division.

• Ore body development at lower levels of the Taimyrsky mine. The project is aimed at increasing rich ore mining to 4 mln mt p.a. in 2011. The indicated resources at the Taimyrsky mine are larger than those of other Talnakh mines.

The increase in volumes of cuprous ore mining up to 5.5 mln mt per annum will be achieved by:

• Expanding cuprous ore mining volumes at the Oktyabrsky mine to 3 mln mt of ore per annum. The increase in mined cuprous ore from new parts of this deposit and full utilization of existing hoisting capacity will compensate for the depletion of rich ores at the Oktyabrsky mine.

Increasing cuprous ore mining at the Komsomolsky mine to 2.5 mln mt per annum (overall ore mined to reach 4.3 mln mt per annum), based upon completion of the ongoing modernization of the mine’s hoisting complex.

The optimum mining of 5.5 mln mt of disseminated ores per annum will be achieved by developing new parts of the Komsomolsky, Oktyabrsky and Zapolyarny mines.

Mining in the Kola Peninsula will be sustained at 7.5 mln mt of ore per annum. Construction and ramp-up of the Severny-Gluboky mine to full capacity of 6.0 mln mt of ore per annum by 2010 will replace the volumes currently mined from the Tsentralny open pit mine.

Implementation of the approved mine plan will form the base off which to increase the company’s metal production based on improvements to its ore beneficiation technologies that it is currently pursuing, as well as processing additional stockpiled materials. This base level of production, without account for further expected improvement potential in beneficiation and additional stockpiled materials, is expected as follows:

• Nickel production growth from the existing level of 243 thousand mt per annum to approximately 260 thousand mt per annum by 2011

• Maintenance of copper production at approximately 420 thousand mt per annum

• Maintenance of PGM production at approximately 114 mt per annum

Expected volumes of metals production based on growth from improved ore beneficiation process will be finalized before the end of the year based on the results of ongoing research and test work.

Improvements in ore beneficiation

In order to enable processing of larger volumes of mined ore on the Taimyr peninsula the Talnakh concentrator’s capacity will be expanded from 7 to 10.5 mln mt of ore per annum. At present, test work is underway on an upgraded concentration technology that potentially would increase nickel content in the nickel concentrate from approximately 9% up to 15% while also decreasing the sulphide mass of nickel concentrates by up to 25%.

In addition to the benefit of expected growth in metals production, this reduction of sulphide mass in nickel concentrates, will result in a significant reduction of smelting costs at the Nadezhda metallurgical plant. Smelting costs are also expected to decrease due to the closure of sintering and smelting operations at the Nickel Plant.

Increasing effectiveness in metallurgy

The company has made the decision to close sintering and smelting operations of the Nickel Plant and to increase the capacity of the flash smelting lines at the Nadezhda metallurgical plant to process all nickel containing materials on the Taimyr Peninsula. Implementation of this project will reduce the industrial footprint and complexity of operations by closing one of two nickel smelting plants in Norilsk and lower concentrate smelting costs, as well reduce sulphur dioxide emissions.

Reconstruction options for Kola MMC’s smelting operations at Pechenga on the Kola Peninsula will be determined based on results of the ongoing testing of the two-zone Vanyukov furnace, which is to be finalized in autumn 2006. Kola MMC’s metallurgy modernization project is aimed at streamlining operations and reducing sulfur dioxide emissions on the Kola peninsula.

Estimated capital investments for production development

According to estimates, capital expenditures for the development of core operations in mining, beneficiation and metallurgy in the period of 2007-2010 will amount to approximately US$800-1000 mln per annum, which includes US$450-470 mln per annum for mining development on the Taimyr peninsula, and US$ 50 mln per annum to complete construction of the Severny-Gluboky mine on the Kola peninsula.

This increase in investments during the period from 2007-2010 is focused on intensive development of the mineral reserve base that compensates for the planned depletion of existing sources of ore and creates a solid foundation for long-term production development in Taimyr. In the period after 2010 the volume of investments necessary to sustain production will come back to the level of 450-500 achieved over the last 3 years.

Development of supplementary industrial complexes

One of Norilsk Nickel’s key strategic goals is to strengthen the vertical integration of its assets, aimed at ensuring sustainable production and benefiting from low energy and transportation costs. Investment projects for energy and transportation infrastructure development are highly effective and aimed at decreasing overall company operating costs.

At the request of the Board of Directors, the investment requirements of these industry complexes and infrastructure are currently being reviewed and will be presented together with the corporate strategy of the company and any updates to the production strategy of the company by the end of this year.