Financial Results for 3Q and 9M 2017

PJSC Polyus

PJSC Polyus (LSE, MOEX — PLZL) (“Polyus”, the “Company” and together with its subsidiaries, the “Group”), the largest gold producer in Russia, has released today its consolidated financial results for 3Q and 9M 2017.

3Q 2017 Financial Highlights

• The Company sold a total of 578 thousand ounces of gold in 3Q 2017, up 10% compared to the prior-year period reflecting higher gold production. Total gold sales include 16 thousand ounces of gold contained in concentrate from Olimpiada.
• Revenue totaled $744 million, compared to $706 million in 3Q 2016, driven by increased sales volumes (including flotation concentrate).
• The Group’s TCC¹ decreased to $380 per ounce in 3Q 2017 from $406 per ounce in the prior-year period, as 9% rouble appreciation was offset by strong operational results and efficiency improvement initiatives. AISC² increased to $599 per ounce, up 7% compared to the prior-year period reflecting mainly higher maintenance and stripping expenses.
• Adjusted EBITDA³ amounted to $475 million, a 7% increase from the prior-year period, driven by higher gold sales volumes.
• Adjusted EBITDA margin stood at 64%, compared to 63% in 3Q 2016.
• Profit for the period decreased to $371 million partially reflecting the impact of a gain on derivatives and investments in the prior period, as well as finance costs.
• Adjusted net profit⁴ amounted to $298 million, a 1% increase from the prior-year period.
• Net cash inflow from operations amounted to $398 million driven by strong EBITDA.
• Capex⁵ was $224 million, primarily due to the further ramp-up of construction activity at Natalka. The hot commissioning of Natalka was officially launched in early September 2017 and the Company anticipates production at the mine to be fully ramped up by the end of 2018.
• Cash and cash equivalents as at the end of 3Q 2017 amounted to $1,121 million, compared to $1,477 million as at the end of 1H 2017, following the repayment of credit facilities and dividend payments for 2H 2016 and 1H 2017. Following the Secondary Public Offering (“SPO”) conducted on the London Stock Exchange and the Moscow Exchange, the Company used most of the primary proceeds (in a total amount of $400 million) to make early prepayments of several bank credit facilities.
• Net debt increased to $3,151 million as at the end of 3Q 2017 compared to $3,084 million at the end of 1H 2017. This primarily reflects the decrease in cash position following 2H 2016 and 1H 2017 dividend distributions made in 3Q 2017 offset by positive free cash flow generation.
• Net debt/adjusted EBITDA ratio remained stable at 1,9x as at the end of 3Q 2017 compared to the end of 1H 2017 as the higher adjusted EBITDA figure balanced off the marginal increase in Net debt.

3Q 2017 Operational Highlights

• Total gold output increased 16% y-o-y to 642 koz driven by higher production volumes at Olimpiada, Verninskoye and Kuranakh.
• Volumes of ore mined rose 45% y-o-y to 9,915 kt as a result of mining volume growth at all of Polyus’ hard rock deposits.
• Volumes of ore processed increased 12% y-o-y to 7,299 kt with throughput capacity expansion projects at Company’s core assets either being completed or entering the final stages of completion.

Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:

“In the third quarter of 2017 the Company demonstrated excellent operational and financial performance. Strength of our core operations and all the efficiency initiatives we continue to implement ensured a reduction of TCC by 6%, to $380 per ounce despite a 9% appreciation of the Russian rouble.

While our existing operations continue to set new operational records supported by ongoing brownfield development projects, we are now gearing up to launch production at Natalka, our main greenfield asset. Whilst currently at the hot commissioning stage, it will soon go into an operational mode and will be ramped up by the end of 2018, reaching full nameplate capacity.”

Comparative financial results for 3Q and 9M ended 30 September 2017 and 2016

Capex

In 3Q 2017, capital expenditures rose to $224 million, from $109 million in 3Q 2016. The increase reflects higher maintenance capital expenditures as well as the ongoing construction works at Natalka and brownfield development projects.

Capital expenditures at Natalka, the Group’s main development project, increased 168% in 3Q 2017, to $126 million. Mining activity at Natalka was relaunched in January 2017 (the deposit was previously mined from 2013 through 2014). Hot commissioning of Natalka officially started in early September 2017 and the Company anticipates that production will be fully ramped up by the end of 2018.

Capital expenditures at Olimpiada increased to $41 million due to preparations to connect the mine to the new Razdolinskaya-Taiga grid, procurement of a mining fleet and the 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. According to the plan, the installation of the first four reactors is set to be in 4Q 2017 and the installation of the remaining four reactors is scheduled for 1H 2018.

At Blagodatnoye, capital expenditures increased to $17 million, primarily due to optimisation works at the Blagodatnoye Mill following the completion of the processing capacity expansion project.

At Verninskoye, capital expenditures increased to $11 million in 3Q 2017 due to the expansion of the Verninskoye Mill.

Capital expenditures at Kuranakh increased to $17 million in 3Q 2017 due to further progress with the heap leach project and the launch of the second stage of the Kuranakh Mill processing capacity expansion to 5,0 mtpa. With the heap-leaching project now being largely completed, the Company started processing low-grade in-situ and stockpiled ore.

At Alluvials, capital expenditures remained flat at $5 million compared to the prior-year period and predominantly consisted of exploration activity as well as the ongoing replacement of worn-out equipment.

Capex by mine¹⁰

Total cash costs

Group TCC decreased 6% to $380 per ounce, despite local currency strengthening by 9% compared to the prior-year period. The currency move was fully offset by strong operational results during the period, with a higher grade in ore processed at Olimpiada and increased hourly throughput at Olimpiada and Kuranakh, as well as other initiatives to improve operational efficiency.

TCC performance by mine, $/oz

In 3Q 2017, TCC at Olimpiada declined to $334 per ounce, a 22% decrease from the prior-year period. This reduction was mainly attributable to higher average grades in ore processed (3,93 grams per tonne in 3Q 2017 compared to 3,43 grams per tonne in 3Q 2016), the cessation of higher cost Veduga ore processing and improved performance of Mill-1 (following its reconfiguration) and Mill-3 (post the feed size reduction). This was partially offset by the increase in labour expenses and local currency appreciation.

At Blagodatnoye, TCC amounted to $333 per ounce, up 11% compared to the prior-year period, primarily due to the local currency strengthening. The increase in labour expenses and lower grades in ore processed (following the intensification of mining activity at lower-grade sites) were partially offset by an increase in mill throughput capacity and processing of lower cost stockpiled ore.

TCC at Verninskoye amounted to $406 per ounce, up 8% in comparison with the prior-year period, also due to the local currency appreciation. The increase in labour costs, and the higher cost of consumables and fuel were offset by operational improvements, including a gradual increase in hourly throughput and recoveries following improvements at the flotation, carbon-in-leach (CIL) and cyanidation circuits.

At Kuranakh, TCC decreased 10% compared to the prior-year period, to $472 per ounce, as a result of initiatives to expand the Mill’s throughput capacity owing to increased productivity of the grinding equipment. Worth mentioning was a sharp decline in power expenses due to enactment of the federal decree on the the power tariff (resulting in a downward adjustment) in the Far Eastern Federal District.

TCC at Alluvials increased to $719 per ounce, compared to $514 per ounce in 3Q 2016, primarily due to a decline in alluvial gold grade (0,55 grams per cubic metre in 3Q 2017 compared to 0,61 grams per tonne in 3Q 2016), local currency appreciation and reduced sand washing volumes.

All-in sustaining costs (AISC)

In 3Q 2017, the Group’s AISC per ounce increased to $599 per ounce, up 7% compared to the prior-year period. This growth was primarily driven by higher maintenance and  stripping expenses.

AISC at Olimpiada trended in line with TCC per ounce declining to $539 per ounce in 3Q 2017. At Blagodatnoye AISC increased to $552 per ounce as a result of a planned increase in stripping activity (rock moved volumes rose 44% during the same period). Verninskoye posted a 26% increase in AISC from the prior-year period due to higher SG&A expenses and sustained capital expenditure. At Kuranakh, AISC decreased to $725 per ounce driven by lower TCC.

All-in sustaining costs by mine, $/oz

Outlook

Based on the performance in 3Q 2017, the Group reiterates its production guidance for 2017 to be in the range of 2,075—2.125 million ounces.

With the majority of brownfield development projects expected to be completed in 2017 and production at Natalka anticipated to be launched by the end of the year and further ramped-up throughout 2018, the Group expects total gold output to increase further to 2,35—2.40 million ounces in 2018 and 2,8 million ounces in 2019.

Conference call information

Polyus will host a conference call for investors and analysts on 9 November 2017 at 14:00 (London) / 17:00 (Moscow) to present and discuss the financial results for the nine months ended 30 September 2017.

To join the conference call, please dial:

UK Number:
+44 (0) 330 336 9105 (Local access)
0800 279 7204 (Toll free)

USA Number:
+1 719-457-1036 (Local access)
800-289-0438 (Toll free)

Russia Number:
+7 495 213 1767 (Local access)
8 800 500 9283 (Toll free)

Conference ID: 1015558

A replay of the conference call will be available for 30 days post the release of this announcement:

UK Number
+44 (0) 207 660 0134 (Local access)
0808 101 1153 (Toll free)

USA Number:
+1 719-457-0820 (Local access)
888-203-1112 (Toll free)

Russia Number:
810 800 2702 1012 (бесплатный вызов)
Passcode: 1015558

Enquiries:

Investor contact
Victor Drozdov, Director Investor Relations
+7 (495) 641 33 77
drozdovvi@polyus.com

Media contact
Victoria Vasilyeva, Director Public Relations
+7 (495) 641 33 77
vasilevavs@polyus.com

Forward looking statements

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.

¹Total cash cost is defined by the Group as cost of gold sold adjusted for property, plant and equipment depreciation, provision for annual vacation payment, employee benefit obligations cost, change in allowance for obsolescence of inventory and non-monetary changes in inventories. The Group calculates TCC per ounce sold as TCC divided by total ounces of gold sold for the period.For additional comments on TCC see the section Total cash costs.

² AISC is defined by the Group as TCC plus selling, general and administrative expenses, stripping activity asset additions, sustaining capital expenditures, unwinding of discounts on decommissioning liabilities, provision for annual vacation payment, employee benefit obligations cost, and change in allowance for obsolescence of inventory less amortisation and depreciation included in selling, general and administrative expenses. The Group calculates AISC per ounce sold as AISC divided by total ounces of gold sold for the period.

³ Adjusted 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, net, equity-settled share-based payment plans (LTIP), foreign exchange gain, interest income, impairment/(reversal of impairment), special charitable contributions and (gain)/loss on disposal of property, plant and equipment. 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 impairment/(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 (here presented net of the Sukhoi Log deposit license acquisition cost).

⁶Gold production is comprised of 561 thousand ounces of refined gold and 81 thousand ounces of gold in flotation concentrate.

⁷ The 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).

⁸ Balance sheet data presented as of 30 September 2017, 30 September 2016.

⁹ Net 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 borrowings, and should not necessarily be construed as a comprehensive indicator of the Group’s overall liquidity.

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.

¹¹ Presented net of the Sukhoi Log deposit license acquisition cost and payments to RT.