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 second quarter of 2020.
- Total gold sales volumes amounted to 672 thousand ounces, up 24% compared to the first quarter of 2020. This includes 26 thousand ounces of gold contained in concentrate from Olimpiada.
- Revenue for the second quarter 2020 totalled $1,157 million, up 33% compared to the previous quarter. This was driven by higher volumes of refined gold output from almost all hard rock deposits, as well as the start of the washing season at Alluvials. At the same time, the average realised refined gold price was 8% higher than in the first quarter, at $1,723 per ounce.
- The group’s TCC for the second quarter decreased 14% to $340 per ounce compared to $394 per ounce in the previous quarter. This reflects higher average grade in ore processed at Olimpiada (3.47 grams per tonne in the second quarter compared to 3.20 grams per tonne in the first quarter) and Natalka (1.76 grams per tonne in the second quarter compared to 1.59 grams per tonne in the first quarter), in addition to local currency depreciation on average during the quarter. These factors were supported by lower maintenance expenses during the reporting period.
- Adjusted EBITDA for the second quarter 2020 amounted to $860 million, a 46% increase compared to $589 million in the previous quarter, driven by higher gold sales volumes and higher gold prices during the period.
- Adjusted net profit amounted to $485 million in the second quarter of 2020, remaining flat compared to the previous quarter.
- Net cash generated from operations was $652 million in the second quarter, compared to $544 million in the previous quarter.
- Capital expenditures («capex») for the period remained largely flat, at $127 million, compared to $124 million in the previous quarter.
- The net debt (incl. derivatives)/adjusted EBITDA ratio decreased to 0.8x compared to 1.1x as at the end of the previous quarter, reflecting a lower net debt position and adjusted EBITDA growth over the last twelve months.
The Company’s Board of Directors recommends the dividends for the first half of 2020 in the total amount of approximately $435 million, representing 30% of the Company’s EBITDA for the first half of 2020, in line with the Company’s dividend policy. Based on the current number of shares dividend amount is expected to be $3.19 per ordinary share or $1.60 per depositary share. The dividend record date will be 20 October 2020.
As previously reported, Polyus was able to maintain uninterrupted operations at all assets during the second quarter, despite the virus outbreak at Olimpiada which was successfully contained by the end of the reporting period.
Strict protective measures and safety protocols remain in place across all the Company operations. These include special access control arrangements requiring all rotational employees to be tested for COVID-19 and quarantined in observation facilities prior to their transfer to Polyus’ sites. Use of personal protective equipment is mandatory. All communal areas are regularly disinfected, and all employees working both at offices or production sites are subject to regular testing. In addition, the Company is carrying out daily temperature checks for all Polyus and contractor employees.
During the first six month of 2020 the Company has spent $56 million on measures aimed at preventing the spread of the COVID-19 pandemic. Out of this amount, $36 million was recognised in profit or loss («P&L») as part of Cost of gold sales (additional staff expenses related to extended working shifts) and Other expenses (COVID-19 test kits, medical services and support to regional hospitals) in amount of $19 million and $17 million, respectively. The remaining $20 million was attributable to in-progress inventory and capitalised as part of property, plant and equipment. The expenses associated with COVID-19 and recognised as part of Cost of gold sales were excluded from both TCC and AISC calculation. At the same time, the P&L expenses related to COVID-19 of $36 million were excluded from adjusted EBITDA calculation, respectively.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
«Polyus delivered solid financial results in the second quarter of 2020. A strong operational performance and the ongoing favourable gold price environment drove a 46% quarter-on-quarter increase in the Company’s adjusted EBITDA, which stood at $860 million. Polyus remained strongly free-cash-flow positive in the reporting period, with almost $450 million of levered free cash flow, bringing the first half figure to $709 million.
Polyus has further enhanced corporate governance structure with the appointment of Maria Gordon as Senior Independent Director in line with best market practices. We believe Maria will add significant value in this role with her extensive board experience in public companies and strong financial and capital markets expertise.
Polyus continues its efforts to mitigate risks posed by COVID-19, while all the Company’s operations remain uninterrupted. With strict COVID-19 protocols in place at all sites, the safety of thousands of our employees and their families is our absolute priority.»
Comparative financial results
|$ million (if not mentioned otherwise)||2Q 2020||1Q 2020||Q-o-Q||2Q 2019||Y-o-Y||1H 2020||1H 2019||Y-o-Y|
|Gold production (koz)1||690||595||16%||684||1%||1,285||1,285||0%|
|Gold sold (koz)||672||544||24%||685||(2%)||1,216||1,255||(3%)|
|Average realised refined gold price ($/oz)||1,723||1,592||8%||1,314||31%||1,664||1,311||27%|
|Operating profit margin||61%||55%||6 ppts||56%||5 ppts||58%||55%||3 ppts|
|(Loss) / profit for the period||684||(389)||N.A.||419||63%||295||947||(69%)|
|(Loss) / earnings per share – basic (US Dollar)||5.11||3.06)||N.A.||3.13||63%||2.07||7.14||(71%)|
|(Loss) / earnings per share – diluted (US Dollar)||5.11||(3.06)||N.A.||3.15||61%||2.07||7.14||(71%)|
|Adjusted net profit2||485||486||0%||365||33%||971||608||60%|
|Adjusted net profit margin||42%||56%||(14) ppts||41%||1 ppts||48%||37%||11 ppts|
|Adjusted EBITDA margin||74%||68%||6 ppts||67%||7 ppts||71%||66%||5 ppts|
|Net cash flow from operations||652||544||20%||451||45%||1,196||889||35%|
|Total cash cost (TCC) per ounce sold ($/oz)5||340||394||(14%)||352||(3%)||364||355||3%|
All-in sustaining cash cost (AISC)
per ounce sold ($/oz)6
|Cash and cash equivalents||1,654||1,878||(12%)||1,249||32%||1,654||1,249||32%|
|Net debt (incl. derivatives)7||2,506||3,056||(18%)||3,665||(32%)||2,506||3,665||(32%)|
|Net debt (incl. derivatives)/adjusted EBITDA (x)8||0.8||1.1||(27%)||1.7||(53%)||0.8||1.7||(53%)|
Total Cash Costs
In the second quarter, the group’s TCC decreased 14% to $340 per ounce compared to $394 per ounce in the previous quarter. This reflects higher average grade in ore processed at Olimpiada (3.47 grams per tonne in the second quarter compared to 3.20 grams per tonne in the first quarter) and Natalka (1.76 grams per tonne in the second quarter compared to 1.59 grams per tonne in the first quarter) and the local currency depreciation on average during the quarter. These factors were supported by lower maintenance expenses during the reporting period.
TCC performance by mine, $/oz
In the second quarter, TCC at Olimpiada declined to $314 per ounce, a 17% decrease compared to the first quarter of 2020. This was driven by a higher average grade in ore processed (3.47 grams per tonne in the second quarter compared to 3.20 grams per tonne in the first quarter). In addition, a higher share of sales of lower cost flotation concentrate in total gold sold during the quarter also positively impacted the costs performance.
At Blagodatnoye, TCC amounted to $324 per ounce, down 10% compared to the first quarter, driven by higher average grade in ore processed (1.80 grams per tonne in the second quarter compared to 1.76 grams per tonne in the first quarter).
At Natalka, TCC declined to $361 per ounce, down 13% compared to the previous quarter, driven by a higher average grade in ore processed (1.76 grams per tonne in the second quarter compared to 1.59 grams per tonne in the first quarter). In addition, a lower maintenance expenses in the second quarter of 2020, also contributed to the improved costs performance.
TCC at Verninskoye amounted to $306 per ounce, down 13% compared to the first quarter, primarily due to rouble depreciation during the reporting period and lower maintenance expenses compared to the previous quarter.
At Kuranakh, TCC declined to $511 per ounce, down 10% compared to the first quarter, primarily due to the local currency depreciation. At Alluvials, TCC stood at $746 per ounce, reflecting the start of the washing season in April 2020.
All-in sustaining costs (AISC)
In the second quarter, the group’s AISC decreased to $574 per ounce, down 16% reflecting higher volumes of sales with TCC in absolute terms remained almost flat.
All-in sustaining costs by mine, $/oz
In the second quarter, AISC at Olimpiada decreased to $543 per ounce, driven by lower TCC and lower stripping activity in the reporting period. AISC at Blagodatnoye decreased to $475 per ounce, while AISC at Verninskoye decreased to $526 per ounce, both driven by lower TCC for the period. AISC at Kuranakh decreased to $723 per ounce due to lower stripping activity in the reporting period. AISC at Natalka decreased to $534 per ounce driven by lower TCC for the period.
In the second quarter of 2020, capital expenditures remained broadly flat compared to the previous quarter, at $127 million. Capital expenditures at Natalka decreased to $28 million, down 26% compared to the previous quarter due to mining fleet procurement in the first quarter of 2020. Polyus is progressing with construction activities at the operation’s main tailings storage facility, which is expected to be commissioned by the end of 2020.
The Company is proceeding with the implementation of operational initiatives targeting recovery improvement in the second half of 2020. In the reporting period Polyus commissioned the first flash flotation unit and is currently proceeding with its ramp-up. Polyus expects to complete the project by commissioning one more flash flotation unit along with additional CIL columns in the second half of 2020.
At Olimpiada, capital expenditures in the second quarter increased to $33 million compared to $25 million in the first quarter, as the Company continued to upgrade and expand its existing BIO units. During the second quarter of 2020 four upgraded BIO-reactors were put into operation at BIO-3 unit and two additional bio-reactors were installed and put into operation at the BIO-4 unit: this will increase the volume of flotation concentrate processing at BIO-units.
At Blagodatnoye, capital expenditures decreased to $6 million, down 25% compared to $8 million in the previous quarter. This is due to the completion of the main construction activities that have been implemented to increase the productivity of Mill No. 4 to 9 mtpa. In the second quarter Polyus finished calibrating the processing parameters of the Jameson Cell flotation unit at Mill No. 4, which led to a reduction in the volume of pulp fed to sorption, higher gold grades in flotation concentrate, lower losses of gold in tailings and reduced consumption of cyanide.
At Verninskoye, capital expenditures decreased to $14 million in the second quarter compared to $16 million in the previous quarter due to the completion of scheduled procurement of technological equipment required to expand the capacity of the Verninskoye Mill to 3.5 mtpa in the first quarter of 2020.
At Kuranakh, capital expenditures increased to $9 million in the second quarter due to the commencement of active phase of construction activities for the second heap leaching pad and the reconstruction of the tailings storage facility.
At Alluvials, capital expenditures amounted to $5 million in the second quarter and consisted of the ongoing replacement of worn-out equipment as well as exploration activity. IT-related capital expenditures amounted to $7 million, remaining flat throughout 2020. The Company continues to implement the ERP programme and other IT-related projects.
Capital expenditures at Sukhoi Log totaled $6 million. In the reporting period, the Project’s mine plan has been finalised with a focus on optimising mining and stripping volumes to enable a smooth ramp-up and optimal grades in processing. The Project’s capital estimate has been realigned with the mining plan optimization. Other parts of the Pre-Feasibility Study, including metallurgy and processing, project infrastructure, environment and logistics have been completed and are currently undergoing a comprehensive internal review.
The Company decided to expand the in-fill drilling campaign and now expects to drill approximately 33,700 meters before the end of the year, rather than the 30,000 meters initially planned. During the reporting period, Polyus completed 20,568 meters of the in-fill drilling programme. The drilling works are focused on the future pit area, where Polyus expects to carry out mining activities during the first years of Sukhoi Log’s operations. This will allow the Company to better define the gold mineralisation within this area and enable more accurate planning and sequence of the mining works. The Company also proceeded with additional drilling at Sukhoi Log’s flanks and deep levels in 2020.
|$ million||2Q 2020||1Q 2020||Q-o-Q||1H 2020||1H 2019||Y-o-Y|
|Omchak electricity transmitting line||10||8||25%||18||13||38%|
|Items capitalised, net11||28||26||8%||54||81||(33%)|
|Change in payables for purchase of property, plant and equipment||1||27||(96%)||28||1||N.A.|
|Purchase of PP&E12||166||185||(10%)||351||348||1%|
In the second quarter of 2020, the total cash amount spent on the purchase of PP&E decreased to $166 million, compared to $185 million in the previous quarter.
Polyus is proceeding with implementation of the Omchak electricity transmitting line project. The Company has completed the main construction activities and carried out a comprehensive check-up of all systems and facilities. In June and August, Polyus received supervisory approvals from Glavgosexpertiza, a federal technical audit institution, and Rostekhnadzor, a supervisory body of the Russian Government. In the fourth quarter of 2020, the Company expects to obtain the permit, allowing to commission the Omchak electricity transmitting line.
Other investing activities in the second quarter reflect $4 million of interest received.
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 7 September 2020 at 14.00 (London) / 16.00 (Moscow).
Conference ID: 34715265#
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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 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 Gold production is comprised of 646 thousand ounces of refined gold and 44 thousand ounces of gold in flotation concentrate in the second quarter of 2020 and 533 thousand ounces of refined gold and 62 thousand ounces of gold contained in flotation concentrate in the first quarter 2020.
2 Adjusted 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.
3 Adjusted EBITDA is defined by the group as profit for the period before income tax, depreciation and amortisation, (gain) / loss on derivative financial instruments (including the effect of the disposal of a subsidiary and subsequent accounting at equity method), finance costs, net, interest income, foreign exchange loss / (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, expenses associated with covid-19 and special charitable contributions as required to ensure calculation of the Adjusted EBITDA is comparable with the prior period.
4 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.
5 TCC is defined by the group as the cost of gold sales, less property, plant and equipment depreciation and amortisation and change in allowance for obsolescence of inventory, expenses associated with covid-19 and adjusted by non-monetary change in inventory. 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.
6 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.
7 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.
8 The group calculates net debt (incl. derivatives) to Adjusted EBITDA as net debt (incl. derivatives) divided by Adjusted EBITDA.
9 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.
10Reflects expenses related to exploration business unit, IT projects and construction of Razdolinskaya-Taiga, Peleduy-Mamakan grid lines.
11 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.
12 Presented net of the Sukhoi Log deposit license acquisition cost and payments to Rostec.