PJSC Polyus (MOEX — PLZL) (“Polyus”, the “Company and together with the Company subsidiaries, the “Group”), the largest gold producer in Russia, has today released its consolidated audited financial results for the year 2016.
- Gold sales increased 8% y-o-y to 1,915 koz driven by the execution of our growth projects and our focus on operational efficiency.
- Revenue amounted to $2,458 million, as compared to $2,188 million in 2015, due to an increase in sales volumes and higher realised gold price.
- The Group’s TCC1 and AISC2 declined 8% y-o-y to $389/oz and 4% y-o-y to $572/oz, respectively. Strong operational performance and efficiency improvement initiatives continued to support the Group’s cost profile.
- Adjusted EBITDA3 increased 20% y-o-y to $1,536 million driven by higher gold sales volumes and realised gold price as well as further decline in TCC. The adjusted EBITDA margin expanded 4 ppts y-o-y to 62%.
- Profit for the period totalled $1,445 million (up 42% y-o-y) partially reflecting the impact of one-off non-cash items, including a foreign exchange gain and gain on derivatives. Adjusting for the aforementioned non-cash items adjusted net profit4 stood largely flat y-o-y at $952 million, which primarily reflects higher interest expense.
- Net cash inflow from operations increased 7% y-o-y to $1,178 million driven by increased earnings generation.
- Capex5 was $468 million, up 75% y-o-y, as Natalka and brownfield development projects entered an active phase of development.
- On 21 December 2016, the Group transferred $138 million to the Federal Subsoil Resources Management Agency in form of a prepayment for the participation in the Sukhoi Log auction.
- Cash and cash equivalents at the end of 2016 amounted to $1,740 million, as compared to $1,825 million at the end of 2015.
- Net debt6 increased to $3,241 million as of the end of 2016 as compared to $364 million as of the end of 2015.
- Net debt/adjusted EBITDA stood at 2.1x as of the end of 2016, declining from 2.3x as of the end of 3Q 2016 reflecting last 12 months EBITDA expansion.
- Total gold output increased 12% y-o-y to 1,968 koz driven by higher production volumes at all the hard rock deposits.
- Volumes of ore processed increased 7% y-o-y to 26.4 mt with throughput capacity expansion projects at the Olimpiada, Blagodatnoye, Verninskoye and Kuranakh being either completed or entering the second stage of implementation.
- Volumes of ore mined increased 35% y-o-y to 29.7 mt, following prolonged and extensive stripping works which were completed in 1Q 2016 as part of a pit cutback at Olimpiada.
- The reconfiguration of Mill No. 1 to process higher-grade ore from the Olimpiada deposit was completed in September 2016.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
“2016 was a transformational year for Polyus. The Group once again surpassed its production guidance by delivering 1.97 moz of gold, a 12% increase on 2015 and a record for Polyus. The company entered an active phase of development of its brownfield projects, and progressed well with the construction works at Natalka, our main greenfield project.
Polyus maintained its disciplined focus on cost control, solidifying its position as one of the lowest-cost producers globally, with TCC down a further 8% to $389/oz and AISC down by 4% to $572/oz. The company remained strongly FCF positive during the year despite a pick up in capital spending.
Polyus continued to proactively manage its debt portfolio and successfully tapped the Eurobond market twice during the last four months, placing a total amount of $1.3 billion. Our $500 million and $800 mln Eurobond issues attracted significant demand from investors and demonstrated continued commitment to public capital markets.
2017 is expected to become another year of growth as we anticipate breaking through the 2 moz level and delivering
Comparative financial results for the years ended 31 December 2015 and 2016
|$ mln (if not mentioned otherwise)||2016||2015||Y-o-Y|
|Gold production7 (koz)||1,968||1,763||12%|
|Gold sold (koz)||1,915||1,768||8%|
|Average realised refined gold price (excluding effect of SPPP8) ($/oz)||1,250||1,159||8%|
|Average realised refined gold price (including effect of SPPP) ($/oz)||1,287||1,225||5%|
|Operating profit margin (%)||55||53||2 ppts|
|Profit for the year||1,445||1,021||42%|
|Earnings per share — basic & diluted(US Dollar)||10.09||5.18||95%|
|Adjusted net profit||952||937||2%|
|Adjusted net profit margin (%)||39||43||(4) ppts|
|Adjusted EBITDA margin (%)||62||58||4 ppts|
|$ mln (if not mentioned otherwise)||2016||2015||Y-o-Y|
|Net cash inflow from operations||1,178||1,103||7%|
|Capital expenditure (Capex)||468||268||75%|
|Cash and cash equivalents and bank deposits||1,740||1,825||(5%)|
|Net debt/adjusted EBITDA (x)||2.1||0.3||N.A.|
|Total cash cost (TCC) per ounce sold ($/oz)||389||424||(8%)|
|All-in sustaining cash cost (AISC) per ounce sold ($/oz)||572||596||(4%)|
In 2016, capex rose 75% to $468 million, from $268 million in 2015 reflecting higher maintenance capex as well as the Natalka and brownfield development projects entering an active phase during the last twelve months.
The Group’s main development project, Natalka saw a 90% growth in capex in 2016, to $215 million, due to the project execution being relaunched in 2H 2015. In December 2016 construction of the primary crushing and main conveyor complex was completed, while the construction of a crushed ore storage and reclaim facility is progressing as planned. Equipment for the grinding circuit has been installed and the construction of power facilities and auxiliary infrastructure is on-going with deliveries of beneficiation equipment underway. The construction works are expected to continue and expand during 2017, with the works at the grinding circuit and the gravity circuit expected to be finalized by the fourth quarter of 2017. The Group anticipates commissioning the Natalka project by the end of 2017, followed by a ramp-up period to reach design parameters. Separately, mining at Natalka has been relaunched already in January 2017 (the deposit was previously mined from 2013 through 2014).
Capex at Olimpiada increased to $80 million due to the reconfiguration of Mill-1, which was completed in September 2016. The Group is also implementing a project to expand BIOX capacities, which is expected to be completed by end 2017 with sufficient capacity to enable processing of gold in concentrate into doré gold.
At Blagodatnoye, capex rose to $20 million, primarily as a result of projects to upgrade and expand the Mill’s processing capacity. The Group completed the first stage of this project, with throughput capacity reaching 8.0 mtpa on an annualised basis. In 2017, the Company expects to stabilise these levels and to increase recoveries. In addition, the Company continued design works related to the heap leach project.
Completion of the first stage of the Mill’s capacity expansion project at Verninskoye, with throughput capacity reaching 2.5 mtpa on annualised basis, resulted in capex growth to $24 million. The target designed throughput capacity of 3.0 mtpa is expected to be achieved over several stages during
Capex at Kuranakh increased to $33 million, largely due to the completion of the first stage of the capacity expansion at Kuranakh mill. The mill currently operates at a throughput capacity of 4.5 million tonnes, allowing not only for increased production volumes but a substantial improvement in the Kuranakh cost profile. The project is expected to be finalised by the end of 2017.
At Alluvials, capex increased to $16 million on the back of higher exploration activity as well as the on-going worn-out equipment replacement programme.
Capex by mine
|Other (incl. power projects)||70||59||19%|
Total cash costs
The Group’s TCC declined 8% to $389/oz. This was underpinned by the strong operational performance of the Group’s assets, efficiency improvement initiatives and rouble devaluation. All the hard rock operations demonstrated y-o-y cost declines.
TCC performance by mine, $/oz
TCC at Olimpiada declined 3% y-o-y to $405/oz as the negative impact of higher consumables prices, greater repair expenses and annual salary indexation was fully offset by rouble weakening. Additional adverse effect came on the back of reduced volumes of processing of low-cost stockpiled ore, which significantly reduced TCC in 2015.
At Blagodatnoye, TCC declined 16% y-o-y to $290/oz, primarily driven by improvements on the production side including higher grades and higher grinding circuit capacity. The use of the mining fleet, temporarily reallocated from the Olimpiada mine’s Vostochnyi pit resulted in elevated stripping activity and higher volumes of ore mined leading to a lower cost per tonne of ore mined.
The most visible cost progress was achieved at Kuranakh where TCC decreased 17% y-o-y to $499/oz. This was driven primarily by operational improvements including increased throughput volumes. In January 2016, Kuranakh entered the electricity wholesale market, which also had a significant beneficial impact on electricity costs.
At Titimukhta, TCC decreased 17% y-o-y to $414/oz. In line with the completion of the Mill-1 reconfiguration project in September 2016, mining and processing activities at Titimukhta have been ceased in favour of treating the Olimpiada ore in 2H 2016.
Verninskoye reduced its TCC 7% y-o-y to $389/oz. Though marginally impacted by higher cost scheduled maintenance works, this decline was mainly attributable to operational improvements, including gradual increase in recoveries. Better performance at the sorption and cyanidation circuits enabled the mill to improve recovery to above 87% levels.
At Alluvials, TCC increased 3% y-o-y, to $598/oz. Rouble devaluation partially offset growth in spares expenses and outsourced mining services costs.
All-in sustaining costs (AISC)
Similarly to the TCC/oz, the Group’s AISC/oz demonstrated a 4% y-o-y decline to $572/oz in 2016. Lower TCC and reduced stripping expenses were the key drivers behind the positive performance.
In terms of individual mine performance, AISC at Titimukhta declined 38% y-o-y to $465/oz. This fully reflected a decision to cease activities at the mine in line with the completion of the Mill-1 reconfiguration project in September 2016. In the meantime, at Kuranakh, AISC rose 5% y-o-y to $782/oz on the back of the mining fleet renovation.
All-in sustaining costs by mine, $/oz
In 2017, the Group anticipates another year of production growth and expects total gold output to exceed the previously guided 2.0 million ounces and now total
Management is confident in Polyus’ growth prospects and that, based on its existing portfolio, and the development of Natalka, the Group will achieve the announced output target of at least 2.7 million ounces by 2020.
Conference call information
Polyus will host an analyst and media conference call on 21 February at 1 p.m. London time to present and discuss the financial results for the year 2016.
To join the conference call, please dial:
UK Free 0800 368 0934
UK International +44 (0)330 336 9105
Russia free 8 800 500 9283
Conference ID: 1866755
A replay of the conference call will be available for 30 days post the release of this announcement.
UK International +44 (0) 207 660 0134
UK Free 0 808 101 1153
Russia Free 8 800 2702 1012
Victor Drozdov, Director Investor Relations
+7 (495) 641 33 77 firstname.lastname@example.org
Victoria Vasilyeva, Director Public Relations
+7 (495) 641 33 77 email@example.com
Forward looking statement
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 “Total cash costs per ounce sold” is defined by the Group as total cash costs divided by the ounces of gold sold during the period.
2 All-in-sustaining costs per ounce sold" is defined by the Group as costs related to sustaining production including TCC, SG&A expenses, sustaining CAPEX and other cash costs attributable to current sales divided by the ounces of gold sold during the period.
3 Adjusted EBITDA is defined by the Group as profit for the year adjusted for income tax expense, foreign exchange gain, gain/(loss) on derivative financial instruments and investments, interest income, finance cost, loss on property, plant and equipment disposal, Long term incentive plan, reversal of impairment and depreciation and amortisation. 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.
4 Adjusted Net Profit is defined by the Group as profit for the year adjusted for reversal of impairment, gain/(loss) on derivative financial instruments and investments, foreign exchange gain and deferred income tax related to derivatives.
5 Capital expenditure figures are presented on an accrual basis.
6 Net debt is defined as short- and long-term debt, less cash and cash equivalents and short-term bank deposits. Short-term bank deposits with an original maturity of more than three months can be withdrawn on demand and therefore have the same liquidity as cash and cash equivalents. Net debt excludes derivative financial instrument assets/liabilities, site restoration and environmental obligations, deferred tax, deferred revenue and other non-current liabilities. Net debt should not be considered as an alternative to current and non-current loans and borrowings, and should not necessarily be construed as a comprehensive indicator of the Group’s overall of liquidity.
7 Gold production is comprised of 1,842 koz of refined gold and 126 koz of gold in flotation concentrate
8 The Strategic Price Protection Programme comprises a series of zero-cost Asian gold collars (“revenue stabiliser”) and gold forward contracts.
9 N.A. stands for “not applicable”.
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.