PJSC Polyus (MOEX — PLZL) («Polyus», the "Company«and together with its subsidiaries, the «Group»), the largest gold producer in Russia, has today released its unaudited interimfinancial results for the three months ended 31 March2017.
- Gold sales increased 22% y-o-y to 487 koz driven by healthy operational results on the back of growth projects execution.
- Total gold sales include 30 koz of gold contained in concentrate from Olimpiada. The additional BIO circuit at the Mills-1, 2, 3 complex is expected to be launched by the end of 2017, providing the Company with the capacities to process all flotation concentrate in-house.
- Revenue totaled $609 million, compared to $511 million in 1Q 2016, driven by an increase in sales volumes.
- The Group’s TCC1 and AISC2 increased 6% y-o-y to $380/oz and 8% y-o-y to $586/oz, respectively, despite rouble strengthening by 21% y-o-y, as it was largely offset by strong operational results and efficiency improvement initiaves.
- Adjusted EBITDA3 increased 16% y-o-y to $383 million driven by higher gold sales volumes. Adjusted EBITDA margin declined 2 ppts y-o-y to 63%.
- Profit for the period increased 70% y-o-y to $499 million partially reflecting the impact of one-off non-cash items, including a foreign exchange gain, a gain on the sale of investment and gain on derivatives. Adjusted net profit4 stood largely flat y-o-y at $203 million, which primarily reflects a higher interest expense.
- Net cash inflow from operations was $282 million (down 3% y-o-y).
- Capex5 was $128 million, up 33% y-o-y, primarily due to the further ramp-up of construction activity at Natalka. The Company anticipates commissioning of the Natalka operations by the end of 2017.
- Cash and cash equivalents as of the end of 1Q 2017 amounted to $1,487 million, compared to $1,740 million as of the end of 2016, following the placement of a $800 million Eurobond due 2023 and pre-payment of 50% of the $2.5 billion 2023 Sberbank credit facility.
- Net debt6 declined to $3,128 million as of the end of 1Q 2017 compared to $3,241 million as of the end of 2016. This primarily reflects the sale of the stake in the Nezhdaninskoye gold deposit, with $100 million paid upon the completion of the stake transfer, as well as free cash flow generation during the period.
- Net debt / adjusted EBITDA ratio declined for the third consequitive quarter since the end of 1H 2016 and stood at 2.0x as at the end of 1Q 2017.
- Total gold output increased 17% y-o-y to 450 koz driven by higher production volumes at Olimpiada, Blagodatnoye and Kuranakh.
- In 1Q 2017, volumes of ore processed increased 4% y-o-y to 6.6mt as a result of the through put capacity expansion at Olimpiada, Blagodatnoye and Kuranakh mills following the partial completion of the brownfield development projects.
- Volumes of ore mined increased 26% y-o-y to 8.6 mt on the back of volumes growth at Olimpiada and commencement of the full-scale mining activity at Natalka.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
"I am pleased that in 1Q17 Polyus has continued to demonstrate a robust operational and financial performance.
Our strong operational results and efficiency improvement initiatives restricted the impact of the 21% ruble appreciation y-o-yand our TCC increased only 6% to $380/ozin 1Q17, and we remain one of the lowest-cost gold producers globally.
Additionally, the Company achieved adjusted EBITDA of $383 million representing 16% year-on-year growth. This was supported by our strict focus on cost management and operational improvements.
Polyus is actively moving forward with all of our development projects. We see good progress with the expansion of our mills at Blagodatnoe, Verninskoe and Kuranakh. Polyus also remains on track to complete BIO expansion at our Krasnoyarsk mills and heads towards the finish of the main construction works of Natalka."
Comparative financial results for 1Q ended 31 March 2017
|$ mln (if not mentioned otherwise)||1Q’17||1Q’16||Y-o-Y||2016|
|Gold production (koz)7||450||384||17%||1,968|
|Gold sold (koz)||487||400||22%||1,915|
|Average realised refined gold price (excluding effect of SPPP) ($/oz)8||1,217||1,186||3%||1,250|
|Average realised refined gold price (including effect of SPPP) ($/oz)||1,258||1,260||-||1,287|
|Operating profit margin||54%||58%||(4) ppts||55%|
|Profit for the period||499||294||70%||1,445|
|Earnings per share — basic & diluted(US Dollar)||4.01||1.67||140%||10.09|
|Adjusted net profit||203||201||1%||952|
|Adjusted net profit margin||33%||39%||(6) ppts||39%|
|Adjusted EBITDA margin||63%||65%||(2) ppts||62%|
|Net cash inflow from operations||282||291||(3%)||1,178|
|Total cash cost (TCC) per ounce sold ($/oz)||380||357||6%||389|
|All-in sustaining cash cost (AISC) per ounce sold ($/oz)||586||543||8%||572|
|Financial position9||1Q 2017||1H 2016||Y-o-Y||2016|
|Cash and cash equivalents and bank deposits||1,487||1,382||8%||1,740|
|Net debt/adjusted EBITDA (x)||2.0||2.5||(20%)||2.1|
In 1Q 2017, capex rose 33% y-o-y to $128 million, from $96 million in 1Q 2016 reflecting higher maintenance capex as well as the ongoing construction at Natalka and brownfield development projects.
Natalka, the Group’s main development project, saw a 105% growth in capex in 1Q 2017, to $76 million. The Group finalized delivery of the remaining concentration equipment. The assembling of gravity concentrators and electrowinning cells was completed. The installation of thickeners is progressing well. Regrinding mill has been delivered to the sorption complex. Construction of power facilities and auxiliary infrastructure is ongoing. Construction is expected to accelerate during 2017. The Company anticipates commissioning the Natalka project by the end of 2017, followed by a ramp-up period to achieve the project’sdesign parameters. Separately, mining at Natalka was relaunched in January 2017 (the deposit was previously mined from 2013 through 2014).
Capex at Olimpiada increased to $14 million due to preparations to connect the mine to the new Razdolinskaya-Taiga grid and construction of Bio Oxidation circuit («BIO-4») at the Mills-1, 2, 3 complex. The BIO-4 project is expected to be launched by the end of 2017 and will provide the Company with the capacity to process all flotation concentrate in-house.
At Blagodatnoye, capex declined to $3 million, primarily due to the completion of stage one of the Mill’s processing capacity expansion project to 8 mtpa. In 2017, the Company will oversee technical works designed to ensure the Mill’s stable operation at the achieved through put capacity level and to support an increase in recovery rates.In addition, the Company continues the design works related to the heap leach project.
At Verninskoye, capital expenditures totaled $5 million in 1Q 2017, compared to $2 million in 1Q 2016. In 2016, the Company completed the first stage of the Mill’s capacity expansion project, and during 2017 Polyus will proceed with the second stage. The target designed through put capacity of 3.0 mtpa is expected to be achieved over three stages during 2017-2018.
Capex at Kuranakh declined to $8 million, largely due to the completion of the first-stage of the capacity expansion at Kuranakh Mill to 4.5 mtpa. Completion of the project’s second-stage is expected by the end of 2018 with Mill’s processing capacities reaching 5.0 mtpa. The heap leach project is firmly on track and is expected to be launched by the end of 2017.
At Alluvials, capex increased to $7 million on the back of higher exploration activity as well as the ongoing replacement of worn-out equipment.
Capex by mine10
|Other (including power projects)||14||31||(55%)|
Total cash costs
Group TCC increased only 6% y-o-y to $380/oz primarily as a result of the local currency strengthening 21% y-o-y. This was largely mitigated by strong operational results during the period, with higher grade in ore processed at Olimpiada and increased hourly throughput at Blagodatnoye, Verninskoye and Kuranakh, as well as other operational efficiency initiatives. Lower consumables and spares expenses positively impacted TCC as well.
TCC performance by mine, $/oz
TCC at Olimpiada declined 2% y-o-y to $393/oz in spite of rouble appreciation. This reduction was mainly attributable to higher grades in ore processed (3.45 g/t in 1Q 2017 vs 2.99 g/t in 1Q 2016) and as a result of the Company ceasing higher cost Veduga ore processing.
At Blagodatnoye, TCC increased 14% y-o-y to $306/oz as a result of the local currency appreciation. This was partially offset by operational improvements, including increased hourly through put following the upgrade of the first grinding line, and processing of lower cost stockpiled ore.
Verninskoye reduced TCC by 3% y-o-y to $389/oz. This decline was mainly attributable to the tax concessions (‘MET’) obtained since mid-2016 and operational improvements, including gradual increase in hourly through put and recoveries following improvements at the flotation, sorption and cyanidation circuits.
At Kuranakh TCC increased 22% y-o-y to $585/oz primarily due to rouble strengthening. On a separate note, the negative impact of the annual electricity tariff indexation as well as a decline in average grade in ore processed (4% y-o-y decline on the back of lower grades in ore mined) was fully mitigated by improved hourly throughput level owing to increased productivity of grinding equipment and the physical properties of ore treated.
Due to the seasonality of placer deposits no gold was produced at Alluvials in 1Q 2017. The washing season ended in November 2016, and was resumed in April 2017 as usual.
All-in sustaining costs (AISC)
The Group’s AISC/oz demonstrated a 8% y-o-y increase to $586/oz in 1Q 2017. Higher TCC, SG&A expenses and increased stripping expenses were the key drivers behind this increase.
In terms of individual mine performance, similarly to the TCC/oz performance, at Olimpiada AISC were reduced by 2% y-o-y to $564/oz, while at Blagodatnoye AISC increased 32% y-o-y to $518/oz owing to increased stripping activityin line with the mine plan (rock moved volumes increased 61% y-o-y). Verninskoye posted a 29% y-o-y increase in AISC attributable to higher SG&A expenses and sustaining capital expenditure. In the meantime, at Kuranakh, AISC declined 1% y-o-y to $743/oz as 1Q 2016 costs were negatively impacted by the mining fleet renovation activity.
All-in sustaining costs by mine, $/oz
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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«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.
2«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.
3Adjusted EBITDA is defined by the Group as profit for the period adjusted for income tax expense, depreciation and amortisation, gain/(loss) on derivative financial instruments and investments, finance cost, Long term incentive plan, foreign exchange gain, interest income, reversal of impairment, and special charitable contributions. 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.
4Adjusted Net Profit is defined by the Group as profit for the period adjusted for reversal of impairment, gain/(loss) on derivative financial instruments and investments, foreign exchange gain and deferred income tax related to derivatives.
5Capital expenditure figures are presented on an accrual basis.
6Net debt is defined as short- and long-term debt, less cash and cash equivalents. Net debt excludes derivative financial instrument assets/liabilities, site restoration and environmental obligations, deferred tax, deferred revenue, deferred consideration for the Sukhoi Log licence 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.
7Gold production is comprised of 422 koz of refined gold and 28 koz of gold in flotation concentrate.
8The Strategic Price Protection Programme comprises a series of zero-cost Asian gold collars («revenue stabiliser») and gold forward contracts (expired as of the end of 1H 2016).
9Balance sheet data presented as of 31 March 2017, 30 June 2016 & 31 December 2016, respectively.
10The capex above presents the capital construction-in-progress unit as allocated to other business units, whilst in the condensed consolidated interim financial statements capital construction-in-progress is presented as a separate business unit.