PJSC Polyus (LSE, MOEX — PLZL) (Polyus, the Company, and together with the Company subsidiaries, the Group) has today released its consolidated financial results for the first quarter of 2019.
- Total gold sales volumes amounted to 570 thousand ounces, down 11% compared to the fourth quarter of 2018. This decrease was primarily due to lower flotation concentrate sales, which amounted to 22 thousand ounces of gold contained in concentrate from Olimpiada.
- Revenue for the first quarter was $751 million, down 3% compared to $774 million in the previous quarter, driven by a decline in flotation concentrate sales to 22 thousand ounces, compared to 75 thousand ounces in the fourth quarter of 2018.
- The group’s TCC for the first quarter amounted to $358 per ounce, up 8% compared to $331 per ounce in the fourth quarter, mainly due to lower antimony-rich flotation concentrate sales in the period, which resulted in a lower by-product credit ($7 per ounce in the first quarter compared to $31 per ounce in the previous quarter) for the reporting period.
- Adjusted EBITDA for the first quarter was $488 million, up from $484 million in the previous quarter, as lower gold sales volumes and higher TCC per ounce were fully offset by higher gold prices and lower selling, general, and administrative (SG&A) expenses during the period.
- Adjusted net profit amounted to $243 million, a 16% decrease from the fourth quarter.
- Net cash generated from operations was $438 million, up 8% compared to $404 million in the previous quarter.
- Capital expenditures (capex) for the period amounted to $99 million, a 48% decrease on the previous quarter, reflecting lower capex across all of the group’s business units.
- Net debt decreased to $3,011 million, compared to $3,086 million as at the end of the fourth quarter.
- The net debt/adjusted EBITDA ratio decreased to 1.5x, compared to 1.7x as at the end of 2018, reflecting a decrease in the net debt position and growth in adjusted EBITDA for the last twelve months.
- Polyus announced the results of its Annual General Meeting held on 6 May 2019, including the approval of dividends for the second half of 2018 in the amount of 143.62 Russian roubles per ordinary share. The dividend amount is equivalent to $2.22 per ordinary share or $1.11 per depositary share. The total recommended dividend payout for the second half of 2018 corresponded to $296 million. The total dividend payout for the full year of 2018 corresponded to $560 million. This amount includes $264 million paid out in form of dividend for the first half of 2018.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
In the first quarter of 2019, Polyus continued to demonstrate solid operational and financial performance. The Company’s TCC amounted to $358 per ounce, which addresses well our guidance for this year, with TCC expected to stay below $425 per ounce. This reflects both strong cost performance at Natalka and our ongoing focus on implementation of cost-containment initiatives.
It has also supported free cash flow generation over the period, with levered free cash flow amounting to $221 million.
We remain safely on track to meet our production guidance. Polyus anticipates its full year production to be approximately 2.8 million ounces of gold in 2019.
Comparative financial results
(if not mentioned otherwise)
|Gold production (koz) 1||601||640||(6%)||601||507||19%|
|Gold sold (koz)||570||644||(11%)||570||459||24%|
|Realised prices||Average realised refined gold price (excluding effect of SPPP) ($/oz) 2||1, 308||1, 229||6%||1, 308||1, 336||(2%)|
|Average realised refined gold price (including effect of SPPP) ($/oz)||1, 308||1, 232||6%||1, 308||1, 336||(2%)|
|Operating profit margin||53%||47%||6 ppts||53%||54%||(1) ppts|
|Profit / (loss) for the period||528||(28)||N.A.||528||244||N.A.|
Earnings per share — basic
|Earnings / (loss) per share – diluted (US Dollar)||4.00||(0.26)||N.A.||4.00||1.80||N.A.|
|Adjusted net profit3||243||291||(16%)||243||223||9%|
|Adjusted net profit margin||32%||38%||(6) ppts.||32%||36%.||4 ppts|
|Adjusted EBITDA margin||65%||63%||2 ppts||65%||63%||2 ppts|
|Net cash flow from operations||438||404||8%||438||261||68%|
|Total cash cost (TCC) per ounce sold ($/oz) 6||358||331||8%||358||383||(7%)|
|All-in sustaining cash cost (AISC) per ounce sold ($/oz) 7||589||634||(7%)||589||664||(11%)|
|Cash and cash equivalents||1, 561||896||74%||1, 561||1, 095||43%|
|Net debt 8||3, 011||3, 086||(2%)||3, 011||3, 079||(2%)|
|Net debt/adjusted EBITDA (x) 9||1.5||1.7||(12%)||1.5||1.8||(17%)|
Total Cash Costs
In the first quarter, the group’s TCC increased 8% to $358 per ounce compared to the previous quarter mainly due to lower sales of antimony-rich flotation concentrate during the period, which resulted in lower by-product credit ($7 per ounce in the first quarter compared to $31 per ounce in the fourth quarter) for the reporting period. In addition, a decline in the share of lower cost flotation concentrate in total gold sales also negatively impacted the cost performance. These factors were partially offset by a seasonal stoppage of the structurally higher cost alluvial operations and lower repair expenses at Natalka compared to the previous quarter.
TCC performance by mine, $/oz
In the first quarter, TCC at Olimpiada amounted to $304 per ounce, up 38% compared to the fourth quarter of 2018. This was driven by lower sales of antimony-rich flotation concentrate, which resulted in a decline in by-product credit ($15 per ounce in the first quarter compared to $56 per ounce in the fourth quarter). Lower average grade in ore processed (3.76 grams per tonne in the first quarter compared to 4.01 grams per tonne in the fourth quarter) due to the sequence of mining works and a decreased share of lower cost flotation concentrate in total gold sold during the quarter also negatively contributed to the cost performance. These factors were partially offset by an increased recovery rate of 80.8% compared to 78.8% in the previous quarter.
At Blagodatnoye, TCC amounted to $393 per ounce, up 6% compared to the fourth quarter, mainly due to lower average grade in ore processed (1.57 grams per tonne in the first quarter compared to 1.76 grams per tonne in the fourth quarter), reflecting a decline in grades of ore mined due to the sequence of mining works.
TCC at Verninskoye amounted to $343 per ounce, down 3% compared to the fourth quarter mainly due to the higher average grade in ore processed (2.90 grams per tonne in the first quarter compared to 2.63 grams per tonne in the fourth quarter) in the reporting period.
At Kuranakh, TCC increased to $533 per ounce, a 9% increase compared to the fourth quarter, primarily due to a seasonal downscaling of the relatively low cost heap leaching operations. This factor was partially offset by lower maintenance expenses and decrease in power tariff in the reporting period.
At Natalka, TCC amounted to $422 per ounce, down 48% compared to the fourth quarter, primarily due to the higher average grade in ore processed (1.78 grams per tonne in the first quarter compared to 0.90 grams per tonne in the fourth quarter) and higher recovery rate (71.7% in the first quarter compared to 55.1% in the fourth quarter). In addition, lower repair and maintenance expenses also contributed to the improved cost performance.
Due to the seasonality of activity at placer deposits, no gold was produced at Alluvals in the first quarter 2019. The washing season ended in November 2018, and was resumed in April 2019 as usual.
All-in sustaining costs (AISC)
In the first quarter, AISC at Olimpiada increased to $521 per ounce, while AISC at Blagodatnoye increased to $599 per ounce, both driven by higher TCC for the period. AISC at Verninskoye decreased to $597 per ounce, driven by lower sustaining capital expenditures during the period. AISC at Kuranakh decreased to $722 per ounce, primarily due to the decrease in sustaining capital expenditures and lower stripping activity in the reporting period. AISC at Natalka decreased to $566 per ounce, driven by lower TCC for the period, while lower stripping activity also contributed to the improved performance in the first quarter.
All-in sustaining costs by mine, $/oz
In the first quarter of 2019, capital expenditures decreased to $99 million, from $189 million in the fourth quarter of 2018. This reflects lower capital expenditures across all business units.
Capital expenditures at Natalka decreased 45% to $23 million in the first quarter compared to $42 million in the previous period. Construction works at the Natalka Mill’s auxiliary and infrastructure facilities are in progress. This includes ground works at tailings facility and tanks installation at the fuel storage facility. The Company also commissioned the assay laboratory during the reporting period.
Polyus targets further gradual recovery improvement at Natalka via an identified list of operational measures, including introduction of the fourth stage of gravity concentration, transition to new 63 mm milling balls, installation of a belt magnet to remove recirculating scrap metal at the ball mill and reduction of recirculation load by maximizing cyclones efficiency.
In addition, Polyus’ technical team, together with Outotec, a Finnish technology company, is currently evaluating the option of flash flotation introduction at the Natalka Mill, allowing to reduce gold content in recirculating flows increasing direct gold recovery.
At Olimpiada, capital expenditures decreased to $25 million in the first quarter compared to $36 million in the fourth quarter. Polyus continued upgrading its mining fleet at Olimpiada in the reporting period, delivering two large Epiroc PV-351 drilling rigs to the site. In the course of 2019, Polyus expects to commission three additional excavators, two bulldozers, two wheel loaders and 12 trucks, including seven САТ 793D with payload capacity of 220 tonnes, two Komatsu HD-1500-8 with capacity of 136 tonnes and three 90 tonnes CAT 777E.
Over the course of the first quarter, Polyus continued the roll out of the flash flotation project at Olimpiada. Currently, the Company is conducting ramp up of two flash flotation units at Mill № 3 and proceeding with construction and installation works at Mills № 1, 2.
At Blagodatnoye, capital expenditures decreased to $6 million in the first quarter compared to $14 million in the previous quarter as the Company put into operation the second stage of flash flotation in November 2018. The Company proceeds with the mill expansion project to reach throughput capacity of 9.0 million tonnes per annum. This includes pumps replacement at cyclones, upgrade of concentrate milling circuit as well as the engineering and design of tailings storage facility.
At Verninskoye, capital expenditures amounted to $11 million in the first quarter. This included equipment replacement and maintenance capital expenditures.
At Kuranakh, capital expenditures decreased to $4 million in the first quarter as accelerated procurement of equipment and fixed asset components required for the completion of the capacity expansion program in 2019 had already taken place during the fourth quarter of 2018. A new adsorption line was commissioned reaching design parameters under Stage 3 of the capacity expansion project to reach 5.8 million tonnes per annum, which is expected to be completed in 2019.
At Alluvials, capital expenditures amounted to $5 million in the first quarter and consisted of ongoing replacement of worn-out equipment as well as the exploration activity.
IT-related capital expenditures amounted to $9 million. The Company continues to implement the ERP programme and other IT related projects.
Capital expenditures at Sukhoi Log totaled $6 million. Polyus has drilled approximately 160,000 meters since October 2017 and completed the first stages of hydrogeology and geotechnical drilling. In order to further update and upgrade the estimation of Indicated Mineral Resources at Sukhoi Log, the Company decided to expand the drilling campaign. Polyus now expects to drill approximately 223,000 meters by the end of the year, compared to 197,000 meters, as initially planned.
|Purchase of equipment||23||42||(45)%||23||45||(49%)|
|Capitalisation of borrowing costs||-||-||N.A.||-||23||(100%)|
Net proceeds from selling gold produced
during the ramp-up period
|Items capitalised12, net||40||52||(23%)||40||5||N.A.|
|Change in working capital for purchase property, plant and equipment||7||(13)||N.A.||7||4||75%|
|Purchase of PP&E13||153||237||(35%)||153||200||(24%)|
In the first quarter, the total cash amount spent on the purchase of PP&E decreased to $153 million, compared to $237 million in the previous quarter. This mainly reflects the respective decrease in total capital expenditures outlined above.
A conference call for investors and analysts hosted by Pavel Grachev (Chief Executive Officer) and Mikhail Stiskin (Senior Vice President, Finance and Strategy) will be held on 14 May 2019 at 14.00 (London) / 16.00 (Moscow).
To join the conference call, please dial:
+44 20 7194 37 59 (Local access)
0800 376 61 83 (Toll free)
+1 646 722 49 16 (Local access)
844 286 06 43 (Toll free)
+7 495 646 93 15 (Local access)
8 800 500 98 63 (Toll free)
To access the replay, please dial:
+44 20 3364 51 47 (Local access)
+1 646 722 49 69 (Local access)
+7 495 249 16 71 (Local access)
Polyus is the largest gold producer in Russia and one of the top ten gold miners globally with the lowest cost position. Based on its 2018 Ore Reserves and Mineral Resources, Polyus group ranks the third by attributable gold reserves among the world’s largest gold mining companies.
The Polyus group’s principal operations are located in Krasnoyarsk, Irkutsk and Magadan regions and the Republic of Sakha (Yakutia).
Victor Drozdov, Director Investor Relations
+7 (495) 641 33 77
Victoria Vasilyeva, Director Public Relations
+7 (495) 641 33 77
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.
1 Gold production is comprised of 538 thousand ounces of refined gold and 63 thousand ounces of gold in flotation concentrate in the first quarter of 2019 and 589 thousand ounces of refined gold and 51 thousand ounces of gold in flotation concentrate in the fourth quarter of 2018 respectively.
2 The Strategic Price Protection Programme (SPPP) comprises a series of zero-cost Asian gold collars (revenue stabiliser).
3 Adjusted net profit is defined by the Group as net profit / (loss) for the period adjusted for impairment loss / (reversal of impairment), unrealised (gain) / loss on derivative financial instruments and investments, net, foreign exchange (gain) / loss, net, and associated deferred income tax related to such items.
4 Adjusted EBITDA is defined by the Group as profit for the period before income tax, depreciation and amortisation, (gain) / loss on derivative financial instruments and investments (including the effect of the disposal of a subsidiary and subsequent accounting at equity method), finance costs, net, interest income, foreign exchange gain, net, impairment loss / (reversal of impairment), (gain) / loss on property, plant and equipment disposal, expenses associated with an equity-settled share-based payment plan and special charitable contributions as required to ensure calculation of the Adjusted EBITDA is comparable with the prior period. 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.The Group calculates Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue.
5 Capital expenditure figures are presented on an accrual basis (here presented net of the Sukhoi Log deposit license acquisition cost and net of Omchak power grid construction cost).
6 TCC is defined by the Group as the cost of gold sales, less property, plant and equipment depreciation and amortisation, provision for annual vacation payment, employee benefits obligation cost and change in allowance for obsolescence of inventory and adjusted by inventories. TCC per ounce sold is the cost of producing an ounce of gold, which includes mining, processing and refining costs. The Group calculates TCC per ounce sold as TCC divided by total ounces of gold sold for the period. The Group calculates TCC and TCC per ounce sold for certain mines on the same basis, using corresponding mine-level financial information.
7 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. AISC is an extension of TCC and incorporates costs related to sustaining production and additional costs which reflect the varying costs of producing gold over the life-cycle of a mine. The Group believes AISC is helpful in understanding the economics of gold mining. AISC per ounce sold is the cost of producing and selling an ounce of gold, including mining, processing, transportation and refining costs, general costs from both mine and alluvial operations, and the additional expenditures noted in the definition of AISC. The Group calculates AISC per ounce sold as AISC divided by total ounces of gold sold for the period.
8 Net debt is defined as non-current borrowings plus current borrowings less cash and cash equivalents and bank deposits.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.
9 The Group calculates net debt to Adjusted EBITDA as net debt divided by Adjusted EBITDA.
10 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.
11 Reflects expenses related to exploration business unit and construction of Razdolinskaya-Taiga, Peleduy-Mamakan grid lines.
12 Including capitalised stripping costs net of capitalised interest on loans and capitalised within capital construction-in-progress. For more details see Note 10 of the condensed consolidated interim financial statements.
13 Presented net of the Sukhoi Log deposit license acquisition cost and payments to Rostec.