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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 Third Quarter of 2019

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 third quarter of 2019.

Key highlights

  1. Total gold sales volumes amounted to 729 thousand ounces, up 6% compared to the second quarter of 2019.
  2. Revenue for the third quarter was $1,070 million, up 19% compared to $897 million in the previous quarter, driven by the increase in average realised gold price during the reporting period. This was supported by a seasonal increase in refined gold output from the alluvial operations and higher gold production at Kuranakh, Natalka and Verninskoye.
  3. The group’s TCC for the third quarter amounted to $412 per ounce, up 17% compared to $352 per ounce in the second quarter, primarily due to the seasonal increase in output at the structurally higher cost alluvial operations and scheduled maintenance works at Olimpiada, Blagodatnoye, Natalka and Verninskoye.
  4. Polyus amends its TCC guidance for the full year of 2019 and now expects the group’s TCC to remain in a range of $375-$425 per ounce, as compared to the previous forecast, which set TCC guidance at below $425 per ounce.
  5. Adjusted EBITDA for the third quarter was $705 million, up 17% compared to $604 million in the previous quarter, driven by a higher average realised gold price and higher gold sales volumes during the reporting period.
  6. Adjusted net profit amounted to $459 million, representing a 26% increase from the second quarter.
  7. Net cash generated from operations was $603 million in the third quarter, compared to $451 million in the previous quarter.
  8. Capital expenditures (“capex) amounted to $157 million, remained almost flat compared with the previous quarter.
  9. In 2019, Polyus plans to invest approximately $650-$700 million across the business. Previous guidance was set at $725 million. This downwards adjustment reflects a capex carry-forward from 2019 to 2020, related to several infrastructure development projects.
  10. The net debt/adjusted EBITDA ratio decreased to 1.5x compared to 1.7x as at the end of the second quarter 2019, reflecting a decrease in the net debt position and growth in adjusted EBITDA.

Dividend update

In the fourth quarter of 2019, the Company paid out the dividends for the first half of 2019 in the amount of 21.7 billion Russian roubles, which corresponds to $341 million1, representing 30% of the Company’s EBITDA for the first half of 2019, in line with the Company’s dividend policy. The dividend amount is equivalent to approximately $2.56 per ordinary share, or $1.28 per depositary share.

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

Polyus posted another set of solid financial results, with EBITDA reaching a new record-high of $705 million in the third quarter of 2019.

With TCC for the nine months of 2019 standing at $376 per ounce, Polyus comes up with a more precise guidance for 2019 and now expects its total cash costs to stay in the range of $375-425 per ounce.

In the meantime, we adjust our full year capex guidance for 2019 downwards and expect it come in the range of $650-700 million, compared to the previous guidance of $725 million. This mainly reflects a capex carry-forward from 2019 to 2020, related to several infrastructure development projects.

The Company reiterates its guidance of approximately 2.8 million ounces of gold output in 2019.

Comparative financial results

$ million
(if not mentioned otherwise)
3Q
2019
2Q
2019
Q-o-Q 3Q
2018
Y-o-Y 9M
2019
9M
2018
Y-o-Y
Operating highlights
Gold production (koz) 2 753 684 10% 691 9% 2,037 1,800 13%
Gold sold (koz) 729 685 6% 699 4% 1,984 1,689 17%
Realised prices
Average realised refined gold price (excluding effect of SPPP) ($/oz) 3 1,482 1,314 13% 1,209 23% 1,372 1,275 8%
Average realised refined gold price (including effect of SPPP) ($/oz) 1,482 1,314 13% 1,213 22% 1,372 1,277 7%
Financial performance
Total revenue 1,070 897 19% 832 29% 2,718 2,141 27%
Operating profit 590 506 17% 442 33% 1,492 1,159 29%
Operating profit margin 55% 56% (1) ppts 53% 2 ppts 55% 54% 1 ppts
Profit / (loss) for the period 300 419 (28%) 144 N.A. 1,247 502 N.A.
Earnings per share — basic
(US Dollar)
2.13 3.13 (32%) 1.02 N.A. 9.27 3.72 N.A.
Earnings / (loss) per share – diluted (US Dollar) 2.13 3.15 (32%) 1.00 N.A. 9.26 3.53 N.A.
Adjusted net profit3 459 365 26% 355 29% 1,067 1,035 3%
Adjusted net profit margin 43% 41% 2 ppts 43% 0 ppts 39% 48% (9) ppts
Adjusted EBITDA4 705 604 17% 537 31% 1,797 1,381 30%
Adjusted EBITDA margin 66% 67% (1) ppts. 65% 1 ppts 66% 65% 1 ppts
Net cash flow from operations 603 451 34% 423 43% 1,492 1,060 41%
Capital expenditure5 157 154 2% 146 8% 410 547 (25%)
Cash costs
Total cash cost (TCC) per ounce sold ($/oz) 6 412 352 17% 345 19% 376 355 6%
All-in sustaining cash cost (AISC) per ounce sold ($/oz) 7 628 584 8% 555 13% 602 593 2%
Financial position
Cash and cash equivalents 1,538 1,249 23% 1 000 54% 1,538 1,000 54%
Net debt 8 3,317 3&,639 (9%) 3,029 10% 3,317 3,029 10%
Net debt/adjusted EBITDA (x) 9 1.5 1.7 (12%) 1.6 (6%) 1.5 1.6 (6%)

Total Cash Costs

In the third quarter, the group’s TCC increased 17% to $412 per ounce compared to the previous quarter due to the seasonal increase in output at the structurally higher cost alluvial operations and scheduled maintenance works at Olimpiada, Blagodatnoye, Natalka and Verninskoye. In addition, higher MET expenses, driven by the increase in average realised gold price put additional pressure on the group’s TCC.

These factors were partially offset by a 7% increase in hourly throughput (1,533 t/h in the third quarter compared to 1,430 t/h in the second quarter) at Natalka and a higher average grade in ore processed (1.72 grams per tonne in the third quarter compared to 1.61 grams per tonne in the second quarter) at Blagodatnoye.

TCC performance by mine, $/oz

Mine
Rate

In the third quarter, TCC at Olimpiada increased to $317 per ounce, up 7% compared to the second quarter. This increase reflected lower sales of antimony-rich flotation concentrate, which resulted in a decrease in by-product credit ($16 per ounce in the third quarter compared to $23 per ounce in the second quarter) and scheduled maintenance works. These factors were partially offset by higher share of lower cost flotation concentrate in total gold sold during the quarter.

At Blagodatnoye, TCC amounted to $438 per ounce, up 11% compared to the second quarter, mainly due to scheduled maintenance works and higher consumption of reagents in the reporting period. These factors were partially offset by higher average grade in ore processed (1.72 grams per tonne in the third quarter compared to 1.61 grams per tonne in the second quarter).

TCC at Verninskoye amounted to $377 per ounce, up 4% compared to the second quarter due to scheduled maintenance works at the Verninskoye Mill, which were completed in September 2019.

At Kuranakh, TCC declined to $505 per ounce, a 4% decrease compared to the second quarter driven by a higher share of lower cost gold produced from the heap leaching facilities in the total gold sold during the reporting period.

TCC at Alluvials declined to $768 per ounce, compared to $783 per ounce reflecting the improved equipment efficiency due to lower boulderiness of sands washed during the active phase of the washing season.

At Natalka, TCC increased 13% to $420 per ounce compared to the second quarter due to scheduled maintenance works. At the same time, a weather-related emergency led to unscheduled idle time of the Natalka Mill and downscaling of mining activities at lower benches of the open pit, which have been temporarily flooded. Consequently, the share of higher-grade material in ore mined declined in the reporting period, resulting in a lower average grade in ore processed (1.51 grams per tonne in the third quarter compared to 1.56 grams per tonne in the second quarter). In addition, the increase in power tariff also negatively impacted the cost performance. These factors were partially offset by the increase in hourly throughput (1,533 t/h in the third quarter compared to 1,430 t/h in the second quarter).

All-in sustaining costs (AISC)

In the third quarter, the group’s AISC increased to $628 per ounce, up 8% compared to the second quarter, trending in line with TCC per ounce. This was partially offset by the decrease in stripping expenses and sustaining capital expenditures during the reporting period.

All-in sustaining costs by mine, $/oz

Mine
Rate

In the third quarter, AISC at Olimpiada increased to $519 per ounce, while AISC at Blagodatnoye increased to $607 per ounce, both driven by higher TCC for the period. AISC at Verninskoye decreased to $592 per ounce, primarily due to the lower stripping and lower sustaining capital expenditures in the reporting period. AISC at Kuranakh decreased to $693 per ounce, driven by lower TCC for the period. AISC at Natalka decreased to $644 per ounce driven by lower sustaining capital expenditures during the period. AISC at Alluvials decreased to $914 per ounce, driven by lower TCC and sustaining capital expenditures in the reporting period.

Capex

In the third quarter of 2019, capital expenditures (“capex”) remained broadly flat compared to the previous quarter and stood at $157 million.

Capital expenditures at Natalka decreased to $37 million in the third quarter compared to $48 million in the previous period. Construction at the Natalka Mill’s auxiliary and infrastructure facilities is in progress. This includes site excavation and rock embankment construction for the slurry pipeline and starter dams at a new tailings facility. The Company completed the construction of additional water wells and the fuel warehouse.

The Company is continuing to implement operational initiatives targeting further recovery rate improvement. In the reporting period, Polyus expanded the first stage of gravity concentration via introduction of two additional Knelson concentrators, bringing the total number of concentrators operating at the first stage to 22. Polyus plans to install a belt magnet to remove recirculating scrap metal at the ball mill at Natalka, which is expected to reduce equipment wear.

At Olimpiada, capital expenditures increased to $38 million in the third quarter compared to $35 million in the second quarter. The Company continued its expansion of throughput capacity at the mills to 13.4 million tonnes per annum as well as the upgrade of its mining fleet. In the reporting period, 2 units of large-load haul trucks (CAT 793D) were put into operation. Polyus is also working on introduction of the second stage of alkaline leaching, with construction works being close to completion. In addition, Polyus is continuing to install three Jameson Cell flotation units at Mill No. 1 and Mill No. 3.

At Blagodatnoye, capital expenditures amounted to $9 million in the third quarter. The Company proceeds with works on the mill expansion project to reach throughput capacity of 9.0 million tonnes per annum. This includes the replacement of pumps at hydrocyclones, upgrade of the milling circuit and the installation of a Jameson Cell flotation unit at Mill No. 4, aiming at further recovery improvement at the flotation circuit.

At Verninskoye, capital expenditures amounted to $11 million in the third quarter, down from $15 million in the second quarter. The Company proceeds with the mill’s throughput expansion to 3.5 million tonnes per annum, conducting construction works at the extension to the main building, where an additional grinding circuit will be installed.

At Kuranakh, capital expenditures remained flat compared with the previous quarter at $10 million. Polyus installed a new crusher as part of the mill’s throughput expansion. At the Kuranakh heap leaching operations interlift liners for the second lift were layed and mobile conveyor equipment was delivered.

At Alluvials, capital expenditures amounted to $5 million in the third quarter and consisted of ongoing replacement of worn-out equipment as well as the exploration activity.

IT-related capital expenditures amounted to $13 million. The Company continues to implement the ERP programme and other IT related projects.

Capital expenditures at Sukhoi Log totaled $7 million. At the end of the third quarter of 2019, the Company completed the exploration programme of approximately 204 kilometers, which was launched in 2017. The Company is now proceeding with a comprehensive assessment of the drilling samples. The final fire assays results are anticipated by the end of 2019. Based on the assessment results, the Company expects to provide a further update on the Inferred & Indicated Mineral Resources estimates and a maiden Ore Reserve estimate for Sukhoi Log in the first half of 2020.

Polyus is currently finalising hydrogeological and geotechnical surveys at Sukhoi Log. Outstanding drilling activities scheduled for 2019 include 4,000 meters of geotechnical drilling and 1,700 meters of hydrogeological drilling.

In 2020, Polyus plans to complete an additional 30,000 meters of in-fill drilling at Sukhoi Log. The drilling works will be 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 support more accurate planning and sequence of mining works. The Company also plans to conduct additional drilling at Sukhoi Log’s flanks and deep levels in 2020.

Capex breakdown10

$ million 3Q
2019
2Q
2019
Q-o-Q 9M
2019
9M
2018
Y-o-Y
Natalka, including
Purchase of equipment - - N.A. - 127 (100%)
Capitalisation of borrowing costs - - N.A. - 54 (100%)
Operating costs - - N.A. - 25 (100%)
Net proceeds from selling gold produced
during the ramp-up period
- - N.A. - (20) (100%)
Natalka, total 37 48 (23%) 108 186 (42%)
Olimpiada 38 35 9% 98 146 (33%)
Blagodatnoe 9 12 (25%) 27 57 (53%)
Verninskoye 11 15 (27%) 37 30 23%
Alluvials 5 6 (17%) 16 18 (11%)
Kuranakh 10 10 0% 24 33 (27%)
Sukhoi Log 7 8 (13%) 21 15 40%
IT capex 13 9 44% 31 26 19%
Other11 27 11 Н/Д 48 36 33%
CAPEX 157 154 2% 410 547 (25%)
Omchak electricity
transmitting line
5 6 (17%) 18 27 (33%)
Items capitalised12, net 45 41 10% 126 43 N.A.
Change in working capital for purchase property, plant and equipment 6 (6) N.A. 7 (4) N.A.
Purchase of PP&E13 213 195 9% 561 613 (8%)

In the third quarter, the total cash amount spent on the purchase of PP&E increased to $213 million, compared to $195 million in the previous quarter. Other investing activities in the third quarter include $11 million of interest received.

Conference call

PJSC Polyus (LSE, MOEX — PLZL) will report its financial results for the third quarter of 2019 on 5 November 2019.

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 5 November 2019 at 11.00 (London) / 14.00 (Moscow).

To join the conference call, please dial:

Conference ID: 92463495#

UK
+44 207 194 37 59 (Local access)
0800 376 61 83 (Toll free)

USA
+1 646 722 49 16 (Local access)
844 286 06 43 (Toll free)

Russia
+7 495 646 93 15 (Local access)
8 800 500 98 63 (Toll free)

To access the replay, please dial:

Passcode:418883672#

UK
+44 20 3364 5147 (Local access)

USA
+1 (646) 722-4969 (Local access)

Russia
+7 (495) 249-16-71 (Local access)

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 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).

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 Gold production is comprised of 650 thousand ounces of refined gold and 103 thousand ounces of gold in flotation concentrate in the third quarter of 2019 and 615 thousand ounces of refined gold and 69 thousand ounces of gold in flotation concentrate in the second quarter of 2019 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). For details see reconciliation on page 21 of MD&A.

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 consolidated 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 amortisation 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.