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En Ru
2,440 koz of gold
produced in 2018 (2017: 2,160 koz)
348 $/oz
Total cash cost per ounce sold
605 $/oz
All-in sustaining cash cost
Ore processed, kt
28,663 2017
38,025 2018
Adj. EBITDA $ mln
1,702 2017
1,865 2018
6 6 operating assets: 5 hard-rock mines and alluvial operations
2,915 $ mln
Total Revenue in 2018
0.09
Lost time injury frequency rate (LTIFR) per 200k hours worked in 2018
Factsheet
Press releases

Financial results for the Fourth Quarter and Full Year 2018

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 fourth quarter and full year 2018.

Key highlights

  1. Total gold sales volumes amounted to 644 thousand ounces, down 8% compared to the third quarter. In 2018, the Company sold a total of 2,333 thousand ounces of gold, up 8% compared to the prior-year. Total gold sales include 211 thousand ounces of gold contained in concentrate from Olimpiada.
  2. Revenue for the fourth quarter was $774 million, down 7% compared to $832 million in the previous quarter, reflecting seasonally lower sales from the alluvial operations and lower flotation concentrate sales volumes. In 2018, revenue totaled $2,915 million, compared to $2,721 million in 2017, driven by increased sales volumes.
  3. The group’s TCC in the fourth quarter amounted to $331 per ounce, down 4% compared to $345 per ounce in the third quarter. In 2018, the group’s TCC decreased to $348 per ounce, primarily as a result of production expansion and cost inflation containment initiatives. A by-product credit of $21 per ounce in 2018 had a positive bearing on group TCC.
  4. Polyus now expects the group’s TCC to remain below $425 per ounce in 2019, as compared to the initial forecast, which set TCC guidance at below $450 per ounce. The estimate continues to be based on the assumption of foreign exchange rate of 60 roubles per dollar.
  5. Adjusted EBITDA for the fourth quarter was $484 million, a 10% decrease from the third quarter, due to lower gold sales volumes. In 2018, adjusted EBITDA increased 10% compared to the prior-year, to $1,865 million. The improved adjusted EBITDA performance in 2018 was primarily attributable to group production growth.
  6. Adjusted net profit amounted to $291 million, an 18% decrease from the third quarter. For the full year, adjusted net profit increased to $1,326 million, which mainly reflects the growth in operating profit in 2018.
  7. Capital expenditures (“capex”) was $189 million, a 29% increase on the previous quarter. For the full year of 2018, capex decreased to $736 million from $804 million in the previous year.
  8. In 2019, Polyus plans to invest approximately $725 million1 across the business. Previous guidance was set at $650 million for this period. The updated guidance reflects a capex roll over from 2018, related to a recalibration of brownfield projects and mining machinery equipment procurement at Olimpiada and Blagodatnoye, as well as delayed construction of some infrastructure projects at Natalka. The Company has a number of new mid-sized projects in pre-feasibility and feasibility stages as well as set of smaller efficiency improvement projects in the pipeline. In addition, spending on exploration at the core assets (both in fill and step out) will be increased. Finally, Polyus continues further roll out of IT infrastructure improvement initiatives and ERP transformation program.
  9. The Company’s Board of Directors intends to recommend a dividend for the second half of 2018 in the total amount of $296 million. Based on the current number of shares (excluding treasury stock) dividend per share is expected to be $2.2 per ordinary share. Polyus’s current dividend policy suggests the total dividend payout in respect of 2018 as the higher of 30% of the Company’s EBITDA for the year or $550 million. The total dividend payout for the full year of 2018 will expectedly correspond to $560 million. The dividend record date is expected to be in May 2019.
  10. Net debt increased to $3,086 million, compared to $3,077 million as at the end of the fourth quarter of 2017.
  11. The net debt/adjusted EBITDA ratio decreased to 1.7x compared to 1.8x as at the end of 2017, reflecting growth in adjusted EBITDA in 2018.

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

In line with our proven strategy, in 2018 Polyus continued to drive organic growth while maintaining low costs and delivering high returns. As a result, we have achieved double-digit growth in both production and EBITDA.

At $348 per ounce, our TCC for 2018 once again declined compared to the previous year. This is also well below our initial guidance of less than $425 per ounce, which was revised to below $400 per ounce. Given the continued strong cost performance of our operations, we are now adjusting our 2019 cost guidance downwards, with TCC for 2019 expected to stay below $425 per ounce, compared to previous guidance of below $450 per ounce.

Polyus demonstrated solid free cash flow generation during the year despite a capex-intensive period. The Company’s capital expenditure in 2018 stood at $736 million and was below our forecast of $850 million. Polyus expects to deliver approximately 2.8 million ounces of gold in 2019, which is in line with our initial guidance. The Natalka operations, now running at name-plate capacity, and a number of ongoing throughput capacity expansion projects across our assets will underpin further production growth.

Comparative financial results

$ million
(if not mentioned otherwise)
4Q
2018
3Q
2018
Q-o-Q 4Q
2017
Y-o-Y 2018 2017 Y-o-Y
Operating highlights
Gold production (koz) 2 640 691 (7%) 580 10% 2, 440 2, 160 13%
Gold sold (koz) 644 699 (8%) 597 8% 2, 333 2, 158 8%
Realised prices
Average realised refined gold price
(excluding effect of SPPP) ($/oz)3
1, 229 1, 209 2% 1, 275 (4%) 1, 263 1, 260 0%
Average realised refined gold price
(including effect of SPPP) ($/oz)
1, 232 1, 213 2% 1, 275 (3%) 1, 265 1, 271 0%
Financial performance
Total revenue 774 832 (7%) 743 4% 2, 915 2, 721 7%
Operating profit 365 442 (17%) 391 (7%) 1, 524 1, 455 5%
Operating profit margin 47% 53% (6) ppts 53% (6) ppts 52% 53% (1) ppts
Loss / profit for the period (28) 144 N.A. 267 N.A. 474 1, 241 (62%)
Loss / earnings per
share – basic (US Dollar)
(0,27) 1,02 N.A. 2,05 N.A. 3,45 9,64 (64%)
Loss / earnings per
share – diluted (US Dollar)
(0,26) 1,00 N.A. 2,05 N.A. 3,30 9,61 (66%)
Adjusted net profit4 291 355 (18%) 242 20% 1 326 1 015 31%
Adjusted net profit margin 38% 43% (5) ppts 33% 5 ppts 45% 37% 8 ppts
Adjusted EBITDA5 484 537 (10%) 465 4% 1, 865 1, 702 10%
Adjusted EBITDA margin 63% 65% (2) ppts 63% 0 ppts 64% 63% 1 ppts
Net cash flow from operations 404 423 (4%) 344 17% 1, 464 1, 292 13%
Capital expenditure6 189 146 29% 279 (32%) 736 804 (8%)
Cash costs
Total cash cost (TCC)
per ounce sold ($/oz)7
331 345 (4%) 324 2% 348 364 (4%)
All-in sustaining cash cost (AISC)
per ounce sold ($/oz) 8
634 554 14% 662 (4%) 605 614 (1%)
Financial position
Cash and cash equivalents 896 1, 000 (10%) 1, 204 (26%) 896 1, 204 (26%)
Net debt9 3, 086 3, 029 2% 3, 077 0% 3, 086 3, 077 0%
Net debt/adjusted EBITDA (x)10 1.7 1.6 6% 1.8 (6%) 1.7 1.8 (6%)

Total Cash Costs

In the fourth quarter, the group’s TCC decreased to $331 per ounce compared to the previous quarter. The improvement was partially attributable to a seasonal decrease in output at the structurally higher cost alluvial operations. In 2018, the group’s TCC decreased 4% to $348 per ounce, as a result of production expansion and cost inflation containment initiatives as well as the local currency depreciation. A by-product credit, of $21 per ounce in 2018 had a positive bearing on the group TCC.

TCC performance by mine, $/oz

3-4Q 2018

Mine
Rate

2017-2018

Mine
Rate

In the fourth quarter, TCC at Olimpiada amounted to $221 per ounce. In 2018, TCC at Olimpiada declined 22% compared to the prior-year, to $267 per ounce. This was mainly attributable to implementation of operational initiatives at Olimpiada’s Mills, which resulted in higher hourly throughput at Olimpiada. Higher average grades in ore processed and a by-product credit from sales of antimony-rich flotation concentrate in the amount of $37 per ounce also had a positive impact on TCC. These factors were partially offset by inflation in consumables and diesel prices as well as a higher power tariff in 2018.

At Blagodatnoye, TCC amounted to $371 per ounce, up 4% compared to the third quarter, mainly due to scheduled repair works and the power tariff increase. In 2018, TCC at Blagodatnoye were $360 per ounce, up 17% compared to the previous year mainly due to a decline in the average grade in ore processed. Inflation in consumables and diesel prices put further pressure on costs. These factors were partially mitigated due to set of operational initiatives introduced by the Company

TCC at Verninskoye amounted to $353 per ounce, up 4% compared to the third quarter mainly due to the raised power tariff. In 2018, TCC at Verniskoye decreased 8% compared to the previous year, to $369 per ounce, primarily due to an improved hourly throughput of the Mill and higher recovery rates. Inflation in consumables and diesel prices, and the increase in power tariff were offset by rouble depreciation during the year.

At Kuranakh, TCC were $491 per ounce, a 2% increase compared to the third quarter, primarily due to a seasonal downscaling of the relatively low cost heap leaching operations. In 2018, TCC at Kuranakh amounted to $511 per ounce, down 4% compared to the previous year, primarily as a result of production expansion due to operational improvements and start of heap leaching operations.

TCC at Alluvials increased to $821 per ounce, compared to $725 per ounce in the third quarter. In 2018, TCC at Alluvials amounted to $746 per ounce, down 3% compared to the previous year due to an increase in alluvial gold grade and rouble depreciation. These factors were partially offset by the increased repairs expenses and diesel price inflation in the reporting period.

At Natalka, TCC increased 18% compared to the third quarter, to $810 per ounce primarily due to repair works at the ball mill and scheduled maintenance works at the end of 2018. In 2018, TCC at Natalka amounted to $747 per ounce, which reflects a subdued hourly throughput of the Mill as well as introduction of lower grade material into the processing circuit during the ramp-up period. The Natalka Mill is now running at annualised name-plate capacity, following the completion of repair works at the ball mill and scheduled maintenance works at the end of 2018.

All-in sustaining costs (AISC)

In the fourth quarter, the group’s AISC increased 14% compared to the third quarter, to $634 per ounce, reflecting higher sustaining capital expenditures and SG&A. In 2018, the group’s AISC per ounce decreased 1% compared to the previous year, to $605 per ounce. The improvement reflects the lower TCC per ounce for the period, which fully offset the respective increase in SG&A, stripping activity and sustaining capital expenditures in 2018.

All-in sustaining costs by mine, $/oz

3-4Q 2018

Mine
Rate

2017-2018

Mine
Rate

In the fourth quarter, AISC at Olimpiada increased to $389 per ounce, driven by higher stripping expenses and sustaining capital expenditures. AISC at Blagodatnoye increased to $595 per ounce, primarily due to the increase in sustaining capital expenditures during the period. AISC at Verninskoye increased to $677 per ounce, while AISC at Kuranakh increased to $819 per ounce, both in line with TCC performance and reflecting higher sustaining capital expenditures during the period. AISC at Natalka were $1,361 per ounce and not representative due to the repair works at the ball mill conducted over the period and scheduled maintenance works at the end of 2018.

In 2018, AISC at Olimpiada decreased to $468 per ounce as a decline in TCC was partially offset by the increase in stripping expenses and sustaining capital expenditures. AISC at Blagodatnoye increased to $547 per ounce, in line with TCC performance and due to the rise in stripping expenses and sustaining capital expenditures. Verninskoye posted a 2% decrease in AISC from the previous year due to TCC performance. At Kuranakh, AISC decreased to $771 per ounce, driven by a decline in TCC and lower stripping expenses. AISC at Natalka were $1,253 per ounce, driven by SG&A and stripping expenses during the period. The Company anticipates AISC at Natalka to normalize on a per ounce basis, as the Mill is currently running at annualised name-plate throughput capacity.

Capex

In the fourth quarter, capital expenditures increased to $189 million, from $146 million in the third quarter. For the full year of 2018 capital expenditures decreased to $736 million from the $804 million in the previous year. This decrease mainly reflects the lower capital expenditures at Natalka, the group’s main development project.

In 2018, capital expenditures at Natalka decreased 40%, to $228 million as a construction of key production facilities was completed in 2017. Total capitalised operating and borrowing costs net of gold revenue amounted to $59 million in 2018. The Company ceased the capitalisation of borrowing costs and other directly attributable operating costs on the 1st August 2018.

The Natalka Mill achieved annualised name-plate throughput capacity of 10 million tons following the completion of repair works at the ball mill and scheduled maintenance works at the end of 2018 and is now operating at the design flowsheet.

Capital expenditures at Olimpiada decreased 22% to $36 million in the fourth quarter compared to $46 million in the previous period.

In 2018, capital expenditures at Olimpiada increased 3%, to $182 million. The Company completed an active phase of mining fleet procurement, increasing the share of large-scale mining equipment. The construction of Bio Oxidation circuit (“BIO-4”) at the Mills-1, 2, 3 complex was completed. The Company implemented a set of initiatives targeting higher recoveries, in particular alkaline leaching and flash-flotation. Polyus continues to implement operational initiatives, aimed at expanding throughput of the Olimpiada Mill complex to 13.4 million tonnes per annum.

At Blagodatnoye, capital expenditures reached $14 million in the fourth quarter and $71 million for the full year of 2018, primarily reflecting an active phase of the Mill expansion. The latter is accompanied by growing mining activity, which was supported by a mining fleet procurement. The Company put into operation the second stage of flash flotation. The company expects the Blagodatnoye Mill to reach throughput capacity of 9.0 million tonnes per annum by 2020.

At Verninskoye, capital expenditures increased to $15 million in the fourth quarter mainly due to the delivery of three Komatsu 136t dump trucks at the end of the year. In 2018, capital expenditures increased by 15% to $45 million due to the replacement of equipment and higher maintenance costs.

At Kuranakh, capital expenditures increased to $24 million in the fourth quarter. For the full year of 2018, capital expenditures at Kuranakh decreased 12%, to $57 million, as the main activities for the launch of heap leaching operations had been completed in the previous year. By the end of the year, the Kuranakh Mill throughput capacity stabilised at 5.0 million tonnes per annum, while Stage 3 of the capacity expansion project to reach 5.8 million tonnes per annum is expected to be completed in 2019.

At Alluvials, capital expenditures amounted to $24 million in 2018.

Other capital expenditures increased to $106 million in 2018 mainly due to the implementation of the ERP program and related IT projects.

In 2018, Polyus completed the scoping study and verification drilling program at Sukhoi Log. With the scoping study completed, the Company has launched the pre-feasibility stage. Capital expenditures amounted to $23 million as drilling program entered an active stage in 2018. Polyus continues in-fill, deep levels, flanks and other drilling. The drilling campaign will continue until the end of 2019.

An update on Mineral Resources estimates for Sukhoi Log has been conducted by AMC in compliance with JORC Code 2012. According to AMC, estimated Mineral Resources at Sukhoi Log stand at 962 million tonnes, with an average grade of 2.1 g/t Au and containing 63 million ounces of gold as at 30 October 2018. AMC has also upgraded 28 million ounces of Inferred Mineral Resources to Indicated Mineral Resource. Ongoing assessment of the drilling campaign samples may result in a further upgrade of the Mineral Resources estimate classification.

Capex breakdown11

$ million 4Q
2018
3Q
2018
Q-o-Q 2018 2017 Y-o-Y
Natalka, including
Purchase of equipment 42 36 17% 169 226 (25%)
Capitalisation of borrowing costs - 7 (100%) 54 93 (42%)
Operating costs - - N.A. 25 59 (58%)
Net proceeds from selling gold
produced during the ramp-up period
- (3) (100%) (20) - N.A.
Natalka, total 42 40 (5%) 228 378 (40%)
Olimpiada 36 46 (22%) 182 177 3%
Blagodatnoe 14 6 6 N.A. 71 49 45%
Verninskoye 15 11 36% 45 39 15%
Alluvials 6 4 50% 24 26 (8%)
Kuranakh 24 10 N.A. 57 65 (12%)
Sukhoi Log 8 6 33% 23 6 N.A.
Other12 44 23 91% 106 64 66%
CAPEX 189 146 29% 536 804 (8%)
Omchak electricity transmitting line 9 10 (10%) 36 69 (48%)
Items capitalised13, net 52 28 86% 95 25 N.A.
Change in working capital for purchase
property, plant and equipment
(13) 14 N.A. (17) (67) (75%)
Purchase of PP&E14 237 198 20% 850 831 2%

In 2018, the total cash spent on the purchase of PP&E increased to $850 million compared to $831 million in the previous year. This mainly reflects the respective increase in stripping activity at Olimpiada, Blagodatnoye and Verninskoye during the full year of 2018.

Conference call

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 11 February 2019 at 12.00 (London) / 15.00 (Moscow).

To join the conference call, please dial:

Conference ID: 6165515

UK
+44 (0) 330 336 9125 (Local access)
0800 358 6377 (Toll free)

USA
+1 929-477-0402 (Local access)
888-204-4368 (Toll free)

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

To access the replay, please dial:

Passcode: 6165515

UK
+44 (0) 207 660 0134 (Local access)
0 808 101 1153 (Toll free)

USA
+1 719-457-0820 (Local access)
888-203-1112 (toll free)

Russia
810 800 2702 1012 (Toll free)

Polyus

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 2017 Ore Reserves and Mineral Resources, Polyus group ranks second both by attributable gold reserves and gold resources 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).

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.

1 On the assumption of foreign exchange rate of 60 roubles per dollar.

2 Gold production is comprised of 589 thousand ounces of refined gold and 51 thousand ounces of gold in flotation concentrate in the fourth quarter of 2018 and 2,184 thousand ounces of refined gold and 256 thousand ounces of gold in flotation concentrate in 2018 respectively.

3 The Strategic Price Protection Programme (“SPPP”) comprises a series of zero-cost Asian gold collars (“revenue stabiliser”).

4 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.

5 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.

6 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).

7 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.

8 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.

9 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.

10 The Group calculates net debt to Adjusted EBITDA as net debt divided by Adjusted EBITDA.

11 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.

12 Reflects expenses related to exploration business unit, IT projects and construction of Razdolinskaya-Taiga, Peleduy-Mamakan grid lines.

13 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 condensed consolidated interim financial statements.

14 Presented net of the Sukhoi Log deposit license acquisition cost and payments to Rostec.