PJSC Polyus (MOEX — PLZL) (“Polyus”, the “Company, the “Group”), the largest gold producer in Russia, releases today its consolidated financial results for the first half of 2016.
- Gold sales improved 5% y-o-y to 837 koz driven by significant increase in dore gold production at Blagodatnoye, Verninskoye and Kuranakh reflecting steady growth in ore processing volumes and higher recoveries.
- Revenue increased 6% y-o-y to $1,082 million owing to higher sales volumes and the positive effect of the Strategic Price Protection Programme1.
- Sizable cost reduction, with Total cash cost (TCC)2 down 14% y-o-y to $377/oz and All-in sustaining cash cost (AISC)3 down 9% to $555/oz, reflecting operational improvements, rouble devaluation, and the full-scale rollout of the Total Operational Efficiency programme.
- Adjusted EBITDA4 increased 17% y-o-y to $691 million, with adjusted EBITDA margin expanding 6 ppts y-o-y to 64%.
- Profit for the period totalled $499 million (down 16% y-o-y) mostly reflecting an impact of one-off non-cash items as well as higher current income tax expense. Adjusted net profit5 stood at $405 million.
- Net cash inflow from operations6 of $479 million, down 8% y-o-y largely due to an increase in income tax paid.
- Capital expenditure (Capex)7 of $186 million (up 94% y-o-y) as Natalka and brownfield development projects entered an active phase of investment.
- Cash and cash equivalents and bank deposits at the end of 1H 2016 declined 24% as compared to the end of 2015 and totalled $1,382 million, owing to cash outflow for the share buyback.
- Net debt8 increased significantly to $3,469 million as a result of the share buyback in 1H 2016.
- Net debt8/adjusted EBITDA4 (last 12 months) as of the end of 1H 2016 stood at 2.5x.
- Total gold output in 1H 2016 reached 839 koz, up 7% y-o-y.
- On 23 May, a pit wall failure occurred at the Company’s Vostochny mine at Olimpiada, which resulted in a
9-daysuspension of mining works at the pit. No injuries to personnel or damage to mining equipment was reported. The suspension of mining works at Olimpiada enabled its mining fleet to be used at Blagodatnoye to accelerate stripping works. Despite the accident at the mine, treatment volumes at Olimpiada were increased due to the availability of previously stockpiled ore, which resulted in a quarterly increase in gold output in 2Q 2016.
Comparative financial results for the 6 months ended 30 June 2016 and 2015
|$ mln (if not mentioned otherwise)|| 1H
|y-o-y change|| FY
|Gold production (koz)||839||784||7%||1,763|
|Gold sold (koz)||837||799||5%||1,768|
|Average realised gold price (excl. effect of Strategic Price Protection Programme1) ($/oz)||1,223||1,202||2%||1,155|
|Average realised gold price (incl. effect of Strategic Price Protection Programme1) ($/oz)||1,277||1,257||2%||1,221|
|Profit/(loss) for the period||499||594||(16%)||1,021|
|Earnings/(loss) per share — basic and diluted (US Dollar)||3.22||3.10||4%||5.18|
|Adjusted net profit5||405||433||(7%)||937|
|Adjusted net profit5 margin (%)||37||42||(5 ppts)||43|
|Cash and cash equivalents and bank deposits||1,382||1,375||1%||1,825|
|Net cash inflow from operations6||479||518||(8%)||1,103|
|Adjusted EBITDA4 margin (%)||64||58||6 ppts||58|
|Net debt8/adjusted EBITDA4 (last 12 months) (x)||2.52||0.31||N.M.||0.28|
|Total cash cost (TCC) per ounce sold2 ($/oz)||377||436||(14%)||424|
|All-in sustaining cash cost (AISC)3 per ounce sold ($/oz)||555||611||(9%)||596|
The Group’s 1H 2016 capex rose by 94%, to $186 million from $96 million in 1H 2015, reflecting a pick up in maintenance capex as well as the Natalka and brownfield development projects entering an active phase.
The Group’s main development project, Natalka saw a 116% growth in capex in 1H 2016, to $82 million, due to a further ramp up in construction works, including the crushing circuit and tailings thickener as well as the circulating pump and slurry pump stations.
The Group substantially increased capex at Olimpiada to $33 million, as the construction works to reconfigure the Titimukhta Mill were mainly scheduled for the first half of the year. Stage 1 of the Mill-1 upgrade was successfully launched in April, while the rest of the complex will be launched in August.
At Blagodatnoye, capex rose by 125% y-o-y to $9 million, primarily as a result of the implementation of projects to upgrade and expand the Mill to 8.0 mtpa of ore processing volumes, including the launch of an additional crushing circuit at the pre-cyanidation flotation stage as well as the installation of several screening units at the gravitation circuit. Moreover, the Company continued design works related to the heap leach project.
Capex at Kuranakh increased significantly y-o-y, to $12 million, largely due to the launching of projects to increase equipment productivity and preparation works related to heap leach installation. Due to the increased mining activity, the Company initiated a mining fleet renovation.
At Alluvials, capex increased to $11 million on the back of higher exploration activity as well as the ongoing worn-out equipment replacement programme.
Capex by mine
|$ mln||1H 2016||1H 2015|| y-o-y
|Other (incl. power projects)||30||30||-||61|
Total cash costs
The Group’s TCC continued to demonstrate a decent performance in 1H 2016 declining 14% y-o-y to $377/oz. This was underpinned by the strong operational performance, a weaker local currency and efficiency improvement initiatives. Hence, all mines demonstrated y-o-y cost improvements, notwithstanding pressures from inflationary trends.
TCC performance by mine, $/oz
|1H 2016||1H 2015|| y-o-y
The most visible progress was achieved at Kuranakh with TCC declining 24% y-o-y to $487/oz. This result was supported by operational improvements including increased ore processing volumes on the back of higher grinding circuit capacity, driving higher production volumes. Moreover, starting January 2016, Kuranakh entered the electricity wholesale market, which had a significant impact on electricity costs.
At the Group’s largest mine, Olimpiada, TCC fell by 3% y-o-y to $416/oz. Due to processing of the previously stockpiled lower grade material, Olimpiada operations saw a temporary decline in average grade in ore processed. Nevertheless, the latter was largely offset by operational improvements, including elevated ore processing volumes via higher Titimukhta Mill capacity utilisation and increased recoveries.
Blagodatnoye decreased its TCC 21% y-o-y to $279/oz, which was primarily driven by improvements on the production side including higher grades and increases in recoveries. An additional positive impact came on the back of the weaker rouble and higher grinding circuit capacity achieved during the respective period.
At Titimukhta, TCC decreased 21% to $396/oz owing to rouble devaluation and a decline in fixed costs as a result of limited mining activity. Operational improvements in processing activity provided additional support, with higher grades in ore processed due to a selective approach in stockpiled ore treatment.
Verninskoye decreased its TCC 12% y-o-y to $407/oz. The main positive contributing factor on the production side was an increase in recoveries, surpassing the design target parameter of 86%. Moreover, the rouble depreciation helped offset the negative impact of higher costs of reagents, explosives and repairs.
At Alluvials, TCC declined 7% y-o-y, to $550/oz. The rouble depreciation mitigated the negative impact of higher spares expenses and outsourced mining services costs.
All-in sustaining costs
Similarly to the TCC/oz, the Group’s AISC/oz demonstrated a 9% y-o-y decline to $555/oz in 1H 2016. Lower TCC, reduced stripping expenses and SG&A were the key drivers behind the positive performance. At the same time, sustaining capex was up 300% y-o-y mainly due to a sizable replacement of worn-out equipment and a low base effect in 1H15.
All-in sustaining costs by mine, $/oz
|1H 2016||1H 2015|| y-o-y
In terms of individual mine performance, the Group’s lowest cost asset, Blagodatnoye, demonstrated further substantial cost reduction, down 16% y-o-y, to $375/oz. At Alluvials, AISC were up 11% y-o-y, to $1,151/oz partially reflecting 6% y-o-y decline in gold in slime production. It is important to highlight the seasonality of the Alluvials business model, with the washing season starting in 2Q of the year. To recap, AISC for 1H 2015 was $1,037/oz, averaging at $725/oz for 2015. The Group anticipates a similar trend to be observed in 2016.
In 1H 2016, the Group’s gold production was ahead of expectations. We made another solid step towards cementing Polyus’ position as one of the most efficient gold producers globally and expect to continue to benefit from the low-cost position, supported by continuous improvements in operational performance and cost discipline.
Conference call information
Polyus will host an analyst and media conference call on 10 August at 2:00 p.m. London time to present and discuss the financial results for the first half of 2016.
To join the conference call, please dial:
UK Free 0808 237 0030
UK International +44 (0) 20 3139 4830
USA free 1 866 928 7517
Russia free 8 10 800 2136 5011
Participant PIN Code: 96746539#
A replay of the conference call will be available for 30 days post the release of this announcement.
UK Toll Number: +44 (0) 20 3426 2807
UK Toll-Free Number: 0808 237 0026
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US Toll-Free Number: 1 866 535 8030
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Victor Drozdov, Director Investor Relations
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Forward looking statement
This announcement may contain “forward-looking statements” concerning Polyus and/or Polyus group. Generally, the words “will”, “may”, “should”, “could”, “would”, “can”, “continue”, “opportunity”, “believes”, “expects”, “intends”, “anticipates”, “estimates” or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include statements relating to future capital expenditures and business and management strategies and the expansion and growth of Polyus’ and/or Polyus group’s operations. Many of these risks and uncertainties relate to factors that are beyond Polyus’ and/or Polyus group’s ability to control or estimate precisely and therefore undue reliance should not be placed on such statements which speak only as at the date of this announcement. Polyus and/or any Polyus group company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.
1 The Strategic Price Protection Programme comprises a series of zero-cost Asian gold collars (“revenue stabiliser”) and gold forward contracts covering 375 koz in 1H 2016.
2 “Total cash costs per ounce sold” is defined by the Group as total cash costs divided by the ounces of gold sold during the period
3 “All-in-sustaining costs per ounce sold” is defined by the Group as costs related to sustaining production including TCC, SG&A expenses, sustaining CAPEX and other cash costs attributable to current sales divided by the ounces of gold sold during the period.
4 Adjusted EBITDA is defined by the Group as profit before finance costs, income tax, income/(losses) from investments (including derivatives), depreciation, amortisation and interest paid, and adjusted for one-off items. The Group has made these adjustments in calculating Adjusted EBITDA to provide a clearer view of the performance of its underlying business operations and to generate a metric that it believes will give greater comparability over time with peers in its industry. The Group believes that Adjusted EBITDA is a meaningful indicator of its profitability and performance. This measure should not be considered as an alternative to profit for the period and operating cash flows based on IFRS, and should not necessarily be construed as a comprehensive indicator of the Group’s measure of profitability or liquidity.
5 Adjusted Net Profit is defined by the Group as a net profit adjusted for reversal of impairment/impairment losses, impact from derivative financial instruments, foreign exchange gain/loss and associated income tax related to one-off items.
6 Interest paid for the period has been reclassified in the cash flow from operating activities into financing activities. Amounts for the comparative period were also restated.
7 Capital expenditure figures are presented on an accrual basis.
8 Net debt is defined as short- and long-term debt, less cash and cash equivalents and short-term bank deposits. Short-term bank deposits with an original maturity of more than three months can be withdrawn on demand and therefore have the same liquidity as cash and cash equivalents. Net debt excludes derivative financial instrument assets/liabilities, site restoration and environmental obligations, deferred tax and other non-current liabilities. Net debt should not be considered as an alternative to current and non-current loans and borrowings, and should not necessarily be construed as a comprehensive indicator of the Group’s overall of liquidity.