(Bloomberg) -- MMC Norilsk Nickel PJSC, the world's biggest producer of palladium and refined nickel, has partially suspended two of its main Arctic mines due to water inflows at one of the interconnected operations.
The Oktyabrsky and Taimyrsky mines account for about half of the ore mined annually by Nornickel. The company's shares dropped as much as 6.5% on the news, while prices for both nickel and palladium rose.
It's not clear how long operations will be affected while Nornickel takes measures to stop the inflow, which was first detected Feb. 12 at Oktyabrsky. Groundwater is a common challenge at deep mines, although it's less usual for producers to report any inflows.
The flooding is the latest in a string of setbacks for Nornickel. The miner must pay about $2 billion in compensation after a massive diesel spill from one of its fuel tanks in the Arctic last year, while three people were killed and three injured after a workshop roof collapsed last week.
It's possible that the company chose to err on the side of caution by taking preventative measures and reporting the inflow, in light of the other incidents that have drawn criticism, said Kirill Chuyko, an analyst at BCS Global Markets.
“Water inflows in metals mines are not that dangerous and they are quite common,” he said.
Bullish Sentiment
Still, the current rally in metal prices means that any supply disruption will add to bullish sentiment, said Wenyu Yao, senior commodities strategist at ING Bank.
Nickel for three-month delivery on the London Metal Exchange gained as much as 2.2% after the announcement, while spot palladium rose as much as 3.3%.
Nornickel is installing equipment to stop further water inflow, after which it will be able to estimate the amount of water in the mine and decide on a way forward, the company said. The partial suspensions were a preventative measure to ensure employees' safety, First Vice President and Chief Operating Officer Sergey Dyachenko said in the statement.
“We are doing our best to eliminate the flood as quickly as possible, to minimize its impact on our production plans,” Dyachenko said.
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