PJSC Polyus (MOEX — PLZL) (“Polyus”, the “Company, the “Group”), the largest gold producer in Russia, has released today its consolidated financial results for 3Q and 9M 2016.
3Q 2016 Financial Highlights
- Gold sales remained largely flat y-o-y at 527 koz.
- Revenue amounted to $706 million, as compared to $634 million in 3Q 2015, mainly due to a higher realised gold price.
- The Group’s TCC1 and AISC2 increased 1% y-o-y to $406/oz and 4% y-o-y to $560/oz, respectively. Strong operational performance and efficiency improvement initiatives continued to support the Company’s cost profile.
- Adjusted EBITDA3 increased 13% y-o-y to $444 million as modest growth in SG&A and cash operating costs was fully offset by the higher realised gold price. Adjusted EBITDA margin expanded 1 ppts y-o-y to 63%.
- Profit for the period totalled $390 million (up 80% y-o-y) partially reflecting the impact of non-cash items, including a Foreign Exchange gain and gain on derivatives. Adjusted net profit4 increased 4% y-o-y to $295 million.
- Net cash inflow from operations of $393 million was broadly in line with 3Q 2015.
- Capital expenditure (Capex)5 was $109 million, up 43% 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 3Q 2016 amounted to $1,710 million.
- Net debt6 declined to $3,240 million as of the end of 3Q 2016, as compared to $3,469 million as of the end of 1H 2016 due to a robust free cash flow generation during 3Q 2016.
- Net debt6/adjusted EBITDA3 (last 12 months) as of the end of 3Q 2016 stood at 2.27x, down from 2.5x as of the end of 1H 2016.
3Q 2016 Operational Highlights
- Total gold production in 3Q 2016 amounted to 555 koz, up 8% y-o-y and 22% q-o-q, supported by seasonally higher output at Alluvials and strong performance at Olimpiada, including higher production volumes of gold in flotation concentrate (up 73% q-o-q and up 282 % y-o-y).
- Total gold output in 9M 2016 increased 7% y-o-y, to 1,395 koz.
- Reconfiguration of the Titimukhta Mill completed in September 2016.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
“We are pleased to now add quarterly IFRS reporting to our financial disclosure policy starting 3Q 2016. This move reflects the Company’s stated strategy to ensure it offers higher transparency for all stakeholders and adheres to high standards of corporate governance practices.
In the nine month-period ended 30 September 2016, we have increased our production by 7% as compared to the same period in 2015 and the Company’s robust financial indicators for the period is a result of our continuous efforts to improve operational performance and implement cost efficiency initiatives, supported by strong gold market.
In September 2016, we completed the reconfiguration of the Titimukhta Mill at our core Krasnoyarsk assets — the first fully implemented project from the Company’s portfolio of development projects. We have also revised upwards our 2016 production guidance from
Comparative financial results for 3Q and 9M ended 30 September 2016 and 2015
|$ mln (if not mentioned otherwise)|| 3Q
|y-o-y chng|| 9M
|y-o-y chng||FY 2015|
|Gold production (koz)||555||514||8%||1,395||1,298||7%||1,763|
|Gold sold (koz)||527||522||1%||1,365||1,321||3%||1,768|
|Average realised refined gold price (excl. effect of Strategic Price Protection Programme7) ($/oz)||1,335||1,138||17%||1,265||1,177||7%||1,155|
|Average realised refined gold price (incl. effect of Strategic Price Protection Programme7) ($/oz)||1,344||1,203||12%||1,302||1,237||5%||1,221|
|Operating profit margin (%)||57%||55%||2 ppts||57%||59%||(2) ppts||53%|
|Profit for the period||390||217||80%||889||811||10%||1,021|
|Earnings per share — basic and diluted ($)||2.82||1.02||177%||5.92||4.12||44%||5.18|
|Adjusted net profit4||295||285||4%||700||728||(4%)||937|
|Adjusted net profit4 margin (%)||42%||45%||(3) ppts||39%||44%||(5) ppts||43%|
|Cash and cash equivalents and bank deposits||1,710||1,954||(12%)||1,710||1,954||(12%)||1,825|
|Net cash inflow from operations||393||391||1%||872||909||(4%)||1,103|
|Adjusted EBITDA3 margin (%)||63%||62%||1 ppts||63%||60%||3 ppts||58|
|Net debt7/adjusted EBITDA3 (last 12 months)(x)||2.27||0.15||n.m||2.27||0.15||n.m||0.28|
|Total cash cost (TCC) per ounce sold1 ($/oz)||406||401||1%||387||422||(8%)||424|
|All-in sustaining cash cost (AISC) per ounce sold2 ($/oz)||560||538||4%||557||582||(4%)||596|
The Group’s 3Q 2016 capex rose by 43%, to $109 million, from $76 million in 3Q 2015 reflecting higher maintenance capex as well as the Natalka and brownfield development projects entering an active phase during the last twelve months.
The Group’s main development project, Natalka, saw a 27% growth in capex in 3Q 2016, to $47 million, due to a further ramp up in construction works. The construction of the primary crushing and main conveyor complex was completed, and equipment for the grinding circuit was installed. In the meantime, construction of the crushed ore storage and reclaim facility is progressing well. The construction works are expected to peak in 1H 2017.
The Group substantially increased capex at Olimpiada to $17 million, as the construction works to reconfigure the Titimukhta Mill entered the final stage in 3Q 2016. The reconfiguration project was completed in September.
At Blagodatnoye, capex rose to $5 million, primarily as a result of projects to upgrade and expand the Mill’s processing capacity to 8.0 mtpa. These included 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. In addition, the Company continued design works related to the heap leach project.
Capex at Kuranakh increased 50% y-o-y, to $6 million, largely due to the preparation works related to heap leach installation. Meanwhile, the projects to improve equipment productivity have been largely completed, which already resulted in a substantial improvement in Kuranakh’s cost profile. Mining fleet renovation due to the increased mining activity was completed in 1H 2016.
At Alluvials, capex increased to $5 million on the back of higher exploration activity as well as the ongoing worn-out equipment replacement programme.
Capex by mine8
|$ mln||3Q||3Q||y-o-y chng||9M||9M||y-o-y chng|
|Other (incl. power projects)||17||19||11%||47||49||(4%)|
Total cash costs
The Group’s TCC remained largely flat y-o-y (up 1%) at $406/oz. This was underpinned by strong operational performance of the Group’s assets and efficiency improvement initiatives. All the hard rock operations demonstrated y-o-y cost improvements, except for the Group’s largest mine, Olimpiada, which posted a temporary TCC/oz increase.
TCC performance by mine, $/oz
|3Q 2016||3Q 2015|| y-o-y
|9M 2016||9M 2015|| y-o-y
Olimpiada increased its TCC for the quarter 15% y-o-y, to $429/oz, which is partially attributable to the processing of higher-cost 3rd party Veduga ore in order to sustain higher grades in ore processed during the period. The Company expects normalization of TCC per ounce at Olimpiada, as mining activity at the previously mothballed Zapadny pit has been re-commissioned and mined grades at Vostochny are expected to pick up. Additional negative impact came on the back of greater repair expenses and higher consumption norms.
The most visible cost progress was achieved at Blagodatnoye where TCC for the quarter declined 9% y-o-y to $300/oz, primarily driven by improvements on the production side including higher grades and higher grinding circuit capacity. The use of the mining fleet temporarily reallocated from the Olimpiada mine’s Vostochny pit resulted in elevated stripping activity and higher volumes of ore mined, leading to a lower cost per tonne of ore mined.
Kuranakh reduced its TCC for the quarter 8% y-o-y to $526/oz. This was driven by operational improvements, including increased ore processing volumes due to less-refractory quartz-pyrite ore in the Mill’s feed and enhanced performance of the grinding circuits. In January 2016, Kuranakh entered the electricity wholesale market, which also had a significant impact on electricity costs.
Verninskoye reduced its TCC 6% y-o-y to $375/oz. This was mainly attributable to the progress on the production side, including an increase in recoveries, as improvements at the sorption and cyanidation circuits enabled the mill to surpass its 86% recovery design target.
In the meantime, at Alluvials, TCC for the quarter increased 3% y-o-y, to $514/oz. Local currency devaluation partially offset a modest growth in spares expenses and outsourced mining services costs.
All-in sustaining costs
The Group’s AISC/oz recorded a 4% y-o-y increase to $560/oz in 3Q 2016, primarily due to an increase in capex, reflecting a considerable investment in replaced equipment. This was partially mitigated by lower stripping expenses during the period.
All-in sustaining costs by mine, $/oz
|3Q 2016||3Q 2015|| y-o-y
|9M 2016||9M 2015|| y-o-y
Based on the strong operational performance of the Company’s key mines to date, Polyus revisited its production guidance for 2016, upgrading it from
Conference call information
Polyus will host an analyst conference call on 8 November at 1:00 p.m. London time to present and discuss the financial results for 3Q and 9M 2016.
To join the conference call, please dial:
UK Free 0800 358 6377
UK International +44 (0)203 043 2002
Russia free 8 800 500 9283
Conference ID: 4096396
A replay of the conference call will be available for 30 days post the release of this announcement.
UK International +44 (0) 207 984 7568
UK Free 0 808 101 1153
Russia Free 800 2702 1012
Victor Drozdov, Director Investor Relations
+7 (495) 641 33 77 firstname.lastname@example.org
Artem Gorbachev, Press Secretary
+7 (495) 641 33 77 email@example.com
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.
 “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
 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
 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.
 Adjusted Net Profit is defined by the Group as a net profit adjusted for reversal of impairment/ losses, impact from derivative financial instruments, effect from disposal of subsidiary and foreign exchange gain/loss and associated income tax related to one-off items.
 Capital expenditure figures are presented on an accrual basis.
 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.
 The Strategic Price Protection Programme comprises a series of zero-cost Asian gold collars (“revenue stabiliser”) covering 200 koz in 3Q 2016.
 The 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.