MOSCOW – Norilsk Nickel has proposed cutting dividend payments as part of a plan to increase investment in output-boosting projects, vice president Sergey Dubovitsky told a briefing ahead of the Russian company's capital markets day in London on Monday.

Nornickel, a major nickel and palladium producer, is investing heavily in increasing output, with annual capital expenditure expected to peak at $3.5-billion to $4-billion a year between 2022 and 2025, a company presentation showed on Monday.

Nornickel believes dividends should be reduced in 2023-2025 and recover once the new projects enter cash generation phase post 2025, the company said in a statement.

CE Vladimir Potanin, the company's biggest shareholder, told Reuters last year the company is planning to increase output to tap an expected boom in demand from electric vehicle manufacturers, who use nickel in car batteries.

"Diligent execution on our long-term strategy combined with supportive commodity tailwinds helped us to deliver outstanding total shareholder returns in the last six years," Potanin was quoted as saying in the company statement.

"Now it is time to make a next step and advance further with pursuing our long-term growth ambitions, but also take on more ambitious environmental targets," he said.

Aluminium producer Rusal, which also holds a significant stake in Nornickel, declined to comment.

Nornickel plans to increase investments to $2.5-billion to $2.8-billion in 2020 and $3-billion to $3.4-billion in 2021 before they peak in 2022-2025, its presentation showed.

As spending rises, it will need to cut dividend payments, Dubovitsky said. He did not say by how much, but said reductions would be in line with the planned increase in spending.

Dubovitsky said dividends would remain in line with a shareholder agreement until it expires in 2022. "While the shareholder agreement is in place, we will stick strictly to dividend guidelines in line with the agreed formula," Dubovitsky said.

"Then, when capital expenditure increases, we understand that we can't avoid some reduction in dividends, otherwise the debt burden will rise and credit ratings could enter the zone of risk."

Norilsk currently pays out 60% of core earnings known as EBITDA if its net debt to EBITDA ratio is below 1.8. The payout declines on a sliding scale if the ratio is 1.8 or above, falling to 30% of EBITDA if the ratio is above 2.2.

In 2026, capital expenditure will fall back below $2-billion.

The capital expenditure plan and associated figures do not take into account Nornickel's Arctic Palladium project, which is being developed with Russian Platinum, a company backed by Russian businessman Musa Bazhaev.

Investments in Arctic Palladium are seen at $2.8-billion to $3.2-billion between 2019 and 2024, Nornickel's presentation showed.