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 2020.
- Total gold sales volumes amounted to 544 thousand ounces, down 39% compared to the fourth quarter of 2019. This includes 11 thousand ounces of gold contained in concentrate from Olimpiada.
- Revenue for the first quarter of 2020 totalled $872 million, down 32% compared to the previous quarter, driven by lower volumes of refined gold output from Olimpiada, Blagodatnoye, Natalka and Kuranakh as well as a seasonal slowdown in production at Alluvials. At Olimpiada, Blagodatnoye and Natalka, a decrease in refined gold volumes mainly reflects changes in gold in inventory at the refinery. In addition, a decline in flotation concentrate sales to 11 thousand ounces, compared to 172 thousand ounces in the fourth quarter of 2019, also resulted in lower gold sales volumes during the period. At the same time, the average realised refined gold price was 7% higher compared to the fourth quarter, at $1,592 per ounce.
- The group’s TCC for the first quarter increased to $394 per ounce compared to $341 per ounce in the previous quarter. In 2019, the group’s TCC increased 5% to $365 per ounce compared to 2018. This reflects the lower average grade in the ore processed at Olimpiada (3.20 grams per tonne in the first quarter compared to 3.88 grams per tonne in the fourth quarter, following a temporary decline in average grades in ore mined) and a decline in the share of lower cost flotation concentrate in total gold sold during the quarter. The absence of sales of antimony-rich flotation concentrate, which resulted in a zero by-product credit in the first quarter compared to $15 per ounce in the fourth quarter of 2019 also negatively impacted the cost performance. These factors were partially offset by the local currency depreciation during the reporting period and a seasonal downscale of the alluvial operations.
- Adjusted EBITDA for the first quarter of 2020 amounted to $589 million, a 33% decrease compared to $883 million in the previous quarter, driven by lower gold sales volumes over the period.
- Adjusted net profit amounted to $486 million in the first quarter of 2020, down 7% compared to the fourth quarter of 2019.
- Net cash generated from operations was $544 million in the first quarter, compared to $682 million in the previous quarter.
- Capital expenditures (capex) for the period decreased to $124 million, from $220 million in the previous quarter.
- The net debt (incl. derivatives)/adjusted EBITDA ratio decreased to 1.1x compared to 1.2x as at the end of 2019, reflecting a lower net debt position and adjusted EBITDA growth over the last twelve months.
The current situation at the Krasnoyarsk business unit bears risks to the Company’s operational targets in 2020. Polyus applies significant effort to ensure continuity of operations and on-schedule project execution, while assessing potential risks on a daily basis. The Company is seeing modest downside risk to production guidance for 2020 and expects to provide the market with an update at the time of the Trading Update for 2Q 2020.
In the first quarter of 2020, Polyus’ operations were uninterrupted by the COVID-19 pandemic, with all production assets operating as normal throughout the period.
At an early stage of the COVID-19 spread in Russia, Polyus introduced strict protocols across its operations to minimise the risk of contamination and possible spreading of the virus among its employees. This included special access control arrangements requiring all rotational employees to be tested for COVID-19 prior to their transfer to Polyus’ sites. In addition, the Company is carrying out daily temperature checks for all Polyus and contractor employees. All communal areas are disinfected on a daily basis and coronavirus response drills have been carried out across all mining assets.
As of the moment, the Company has completed the broad-based testing programme. Throughout the duration of the testing programme, which began in mid-April, there was a substantial growth of Polyus employees with COVID-positive test results at the Olimpiada mine. The vast majority of those who tested positive showed no symptoms and have been placed in isolation at the mine site. All Polyus employees who have tested positive for COVID-19 are receiving the necessary medical attention.
Polyus is working closely with the authorities at both federal and regional levels in order to minimise the spread of the virus at the production site. To ensure the necessary quarantine conditions, temporary isolation centres organised by the Company and the Ministry of Emergency Situations of the Krasnoyarsk Territory have been set up at the sites. In addition, the Russian Ministry of Defence has completed the installation of a mobile hospital on-site.
All of those employees who have received positive test results, and any categorised as being higher-risk, are receiving repeat testing. A substantial number of Polyus employees, who had previously tested positive for COVID-19, have fully recovered from the virus and have been discharged from the quarantine and medical facilities.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
In the first quarter of 2020, the Company demonstrated a solid operational and financial performance. Polyus generated $589 million of EBITDA and $260 million of levered free cash flow.
In response to the spread of COVID-19, Polyus continues to take every precaution to ensure the health and safety of its employees, their families and local communities. The Company has implemented a broad-based COVID-19 testing programme across all of its business units, which covers all its employees as well as the Company’s contractors.
The health and safety of employees remains our number one priority. We are working closely with state authorities to respond quickly and responsibly to new developments related to the coronavirus.
Comparative financial results
(if not mentioned otherwise)
|1Q 2020||4Q 2019||Q-o-Q||1Q 2020||1Q 2019||Y-o-Y|
|Gold production (koz)1||595||804||(26%)||595||601||(1%)|
|Gold sold (koz)||544||894||(39%)||544||570||(5%)|
Average realised refined gold price
(excluding effect of SPPP) ($/oz)2
Average realised refined gold price
(including effect of SPPP) ($/oz)
|Operating profit margin||55%||56%||(1) ppts||55%||53%||2 ppts|
|(Loss) / profit for the period||(389)||697||N.A.||(389)||528||N.A.|
|(Loss) / earnings per share — basic (US Dollar)||(3.06)||5.25||N.A.||(3.06)||4.02||N.A.|
|(Loss) / earnings per share — diluted (US Dollar)||(3.06)||5.22||N.A.||(3.06)||4.00||N.A.|
|Adjusted net profit3||486||520||(7%)||486||243||100%|
|Adjusted net profit margin||56%||40%||16 ppts||56%||32%||24 ppts|
|Adjusted EBITDA margin||68%||69%||(1) ppts||68%||65%||3 ppts|
|Net cash flow from operations||544||682||(20%)||544||438||24%|
|Total cash cost (TCC) per ounce sold ($/oz)6||394||341||16%||394||358||10%|
|All-in sustaining cash cost (AISC) per ounce sold ($/oz)7||684||576||19%||684||589||16%|
|Cash and cash equivalents||1,878||1,801||4%||1,878||1,561||20%|
|Net debt (incl. derivatives)8||3,056||3,253||(6%)||3,056||3,555||(14%)|
|Net debt (incl. derivatives)/adjusted EBITDA (x)9||1.1||1.2||(8%)||1.1||1.8||(39%)|
Total Cash Costs
In the first quarter, the group’s TCC increased to $394 per ounce compared to $341 per ounce in the previous quarter. This reflects the lower average grade in the ore processed at Olimpiada (3.20 grams per tonne in the first quarter compared to 3.88 grams per tonne in the fourth quarter, following a temporary decline in average grades in ore mined) and a decline in the share of lower cost flotation concentrate in total gold sold during the quarter. The absence of sales of antimony-rich flotation concentrate in the first quarter, resulting in a zero by-product credit compared to $15 per ounce in the fourth quarter of 2019 also negatively impacted the group’s TCC. These factors were partially offset by the local currency depreciation during the reporting period and a seasonal downscale of the alluvial operations.
TCC performance by mine, $/oz
In the first quarter, TCC at Olimpiada increased to $377 per ounce, up 40% compared to the fourth quarter of 2019. This was driven by lower average grade in ore processed (3.20 grams per tonne in the first quarter compared to 3.88 grams per tonne in the fourth quarter, following a temporary decline in average grades in ore mined) and a decreased share of lower cost flotation concentrate in total gold sold during the quarter. The absence of sales of antimony-rich flotation concentrate, which resulted in a zero by-product credit in the first quarter compared to $27 per ounce in the fourth quarter of 2019, also negatively impacted the group’s TCC.
At Blagodatnoye, TCC amounted to $361 per ounce, down 3% compared to the fourth quarter, primarily driven by the local currency depreciation during the reporting period. This factor was partially offset by higher maintenance expenses in the first quarter of 2020 compared the previous quarter.
TCC at Verninskoye amounted to $353 per ounce, down 5% compared to the fourth quarter. Among other factors, a 6% increase in hourly throughput (398 t/h in the first quarter of 2020 compared to 374 t/h in the fourth quarter of 2019) contributed to the improved cost performance.
At Kuranakh, TCC amounted to $568 per ounce, up 6% compared to the fourth quarter, primarily due to the seasonal downscaling of heap leaching operations.
At Natalka, TCC increased to $414 per ounce, up 10% compared to the previous quarter primarily due to scheduled maintenance works at the Natalka Mill, which were completed in February 2020. A lower recovery rate of 70.7% compared to 72.3% in the previous quarter also negatively impacted the cost performance for the period. This reflects the calibration of comminution parameters, following the installation of rubber-steel lining in the ball mill repair and temporary variations in the feed composition, with a higher share of ore from the Northern pit area with lower gravity recoverability.
Due to the seasonality of activity at placer deposits, no gold was produced at Alluvials in the first quarter of 2020. The washing season ended in November 2019, and was resumed in April 2020 as usual.
All-in sustaining costs (AISC)
In the first quarter, the group’s AISC increased to $684 per ounce, up 19% reflecting higher TCC per ounce for the period.
All-in sustaining costs by mine, $/oz
In the first quarter, AISC at Olimpiada increased to $668 per ounce, driven by higher TCC for the period. AISC at Blagodatnoye decreased to $488 per ounce, while AISC at Verninskoye decreased to $570 per ounce, both driven by lower sustaining capital expenditures during the period. AISC at Kuranakh decreased to $822 per ounce due to lower sustaining capital expenditures and lower levels of stripping activity in the reporting period. AISC at Natalka increased to $601 per ounce driven by higher TCC for the period.
In the first quarter of 2020, capital expenditures decreased to $124 million, from $220 million in the fourth quarter of 2019. This reflects lower capital expenditures across all business units.
Capital expenditures at Natalka decreased by 19% to $38 million in the first quarter compared to $47 million in the previous reporting period. Over the course of the first quarter, Polyus progressed with the construction of auxiliary infrastructure at the Natalka Mill. The Company plans to complete the construction and commissioning of the main tailings storage facility in 2020.
The Company continues to implement operational initiatives targeting further improvement in recovery rate at Natalka. Polyus is currently proceeding with the installation of the first Outotec flotation machine. The Company targets the roll out of flash flotation technology at the Natalka Mill in 2020.
In the reporting period, Polyus’s technical team completed the introduction of a magnetic separation to remove recirculating scrap metal at the ball mill and at the intensive cyanidation tailings circuit. In addition, the Company commissioned two concentration shaker tables at the first and the fourth stages of the gravity circuit to increase the productivity of intensive cyanidation.
At Olimpiada, capital expenditures in the first quarter decreased to $25 million compared to $67 million in the fourth quarter, as the Company completed the procurement of dump trucks in 2019 (11 units in the fourth quarter). In addition, in the fourth quarter of 2019 Polyus proceeded with the initiatives, targeting recovery improvement. In the first quarter of 2020, the Company started exploration, hydrogeological and geomechanical drilling activities at the deep levels of the Vostochnyi pit at Olimpiada. Polyus continued to upgrade and expand its existing BIO units. This includes the modernization of two reactors at BIO-3 unit and the introduction of magnetic separation, which improves the quality of flotation concentrate, fed into the BIO-reactors. In addition, Polyus is proceeding with the calibration of processing parameters of the Jameson Cell flotation unit at Mill No. 1, while two Jameson Cell flotation units at Mill No. 3 were fully ramped up during the first quarter of 2020.
At Blagodatnoye, capital expenditures decreased by 20% to $8 million in the first quarter compared to $10 million in the previous quarter. In the first quarter of 2020, the Company fully ramped up the Jameson Cell flotation unit at Mill No. 4, targeting further recovery improvement. Polyus is now proceeding with the Feasibility Study for the construction of a new mill (Mill No. 5). The Company expects to complete the Feasibility Study in 2020.
At Verninskoye, capital expenditures decreased to $16 million in the first quarter compared to $20 million in the previous quarter. In the first quarter of 2020, the Company implemented a number of initiatives, including an optimisation of particle size distribution, installation of an additional HP300 cone crusher and the temporary addition of a Knelson concentrator at the first stage of gravity concentration, which led to an increase in hourly throughput. Polyus continues further expansion of the Verninskoye Mill to 3.5 million tonnes per annum.
At Kuranakh, capital expenditures decreased more than two-fold to $6 million in the first quarter, reflecting the scheduled replacement of the mining fleet during the fourth quarter of 2019. In the reporting period, Polyus tendered conveyor equipment and contractors for the construction of the second heap leaching pad.
At Alluvials, capital expenditures amounted to $4 million in the first quarter and consisted of the ongoing replacement of worn-out equipment as well as exploration activity.
IT-related capital expenditures amounted to $6 million. The Company continues to implement the ERP programme and other IT related projects.
Capital expenditures at Sukhoi Log totaled $4 million. In the reporting period, the Company proceeded with the Project’s capital estimate. The Project’s mine plan is currently being finalised with the focus on optimising mining and stripping volumes to provide for smooth ramp-up and optimal grades in processing. Other parts of the Pre-Feasibility Study, including metallurgy and processing, project infrastructure, environment and logistics have been completed and are undergoing a comprehensive internal review.
In the first quarter of 2020, Polyus completed 5,417 meters of a 30,000 meter in-fill drilling programme planned for 2020. The drilling works are focused on the future pit area, where Polyus expects to carry out mining activities during the first years of Sukhoi Log’s operations. This will allow the Company to better define the gold mineralisation within this area and enable more accurate planning and sequence of the mining works.
|$ million||1Q 2020||4Q 2019||Q-o-Q||1Q 2020||1Q 2019||Y-o-Y|
|Omchak electricity transmitting line||8||8||0%||8||7||14%|
|Items capitalised , net12||26||35||(26%)||26||40||(35%)|
|Change in payables for purchase of property, plant and equipment||27||(29)||N.A.||27||7||N.A.|
|Purchase of PP&E13||185||234||(21%)||185||153||21%|
In the first quarter of 2020, the total cash amount spent on the purchase of PP&E decreased to $185 million, compared to $234 million in the previous quarter. This mainly reflects the respective decrease in total capital expenditures outlined above.
In March 2020, the Company exercised the next tranche of options in SL Gold, the Sukhoi Log deposit JV, and increased its participation interest from 68.2% to 78%. The Company paid approximately $29 million equivalent in Polyus’ existing treasury shares for a 5% stake and $28 million in cash for 4.8% stake in SL Gold. These payments were executed in line with the remaining outstanding option agreements, which are presented within note 21 of the condensed consolidated interim financial statements.
Other investing activities in the first quarter reflect $11 million of interest received.
Conference callA 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 1 June 2020 at 11.00 (London) / 13.00 (Moscow). To join the conference call, please dial:
Conference ID: 13733728#
+44 207 194 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 5147 (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 five gold miners globally with the lowest cost position. Based on its 2019 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).
Investor and Media contact
Victor Drozdov, Director Communications & Investor Relations (CIR) Department
+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 533 thousand ounces of refined gold and 62 thousand ounces of gold in flotation concentrate in the first quarter of 2020 and 721 thousand ounces of refined gold and 83 thousand ounces of gold in flotation concentrate in the fourth quarter of 2019 respectively.
2The Strategic Price Protection Programme (SPPP) comprises a series of zero-cost Asian gold collars (revenue stabiliser)
3Adjusted net profit is defined by the group as net profit for the period adjusted for impairment loss, unrealised (gain) / loss on revaluation of derivative financial instruments, 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 expense, depreciation and amortisation, (gain) / loss on revaluation of derivative financial instruments, finance costs, net, interest income, foreign exchange (gain) / loss, net, 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). For details see reconciliation on page 25 of MD&A.
6 TCC is defined by the group as the cost of gold sales, less property, plant and equipment depreciation and intangible assets 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, employee benefit obligations cost, and change in allowance for obsolescence of inventory less amortisation and depreciation related to 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 also includes assets and liabilities under cross-currency and interest rate swaps at the reporting date. Net debt excludes derivative financial instrument assets/liabilities other than cross-currency and interest rate swaps, 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 (incl. derivatives) to Adjusted EBITDA as net debt (incl. derivatives) divided by Adjusted EBITDA.
10 The capex above presents the capital construction-in-progress unit as allocated to other business units, whilst in the consolidated financial statements capital construction-in-progress is presented as a separate business unit.
11 Reflects expenses related to exploration business unit, IT projects 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 11 of the consolidated financial statements.
13 Presented net of the Sukhoi Log deposit license acquisition cost and payments to Rostec.