Polyus Gold International Limited
Trading update for 6 months ended 30 June 2013
Polyus Gold International Limited (LSE - PGIL, OTC (US) - PLZLY, “PGIL”, “Polyus Gold” or the “Company”), the largest gold producer in Russia, today releases its operating results for the first half of 2013.
Highlights
- Gold production from continuing operations up by 7% year-on-year to 718 thousand ounces (first half of 2012: 670 thousand ounces)1
- Significant increase in gold production at Blagodatnoye (+12%) and Titimukhta (+38%) due to higher processing volumes and increased recovery rates, and Verninskoye (+80%) as a result of continuing ramp up
- On track to meet 2013 production target of between 1.59 and 1.68 million ounces
- Gold sales from continuing operations estimated to be USD 9872 million (first half of 2012: USD 1,224 million) reflecting a 9% decrease in the realised gold price year-on-year.
Health and safety update
No work-related fatalities were reported in the second quarter of 2013. The LTI frequency rate was 0.13 in the first half of 2013, compared to 0.18 a year ago. 4 LTI’s were reported in the second quarter of 2013.
Between May and June 2013, a health and safety audit was conducted by an independent third-party at the alluvial operations. Based on the audit’s results, a comprehensive plan aimed at enhancing the onsite health and safety management system, improving at-risk behaviour controls and increasing efficiency of post-incident corrective actions, will be developed. As part of an ongoing effort to improve employee health and safety awareness, a defensive driving training programme has been rolled out to employees of Polyus Logistics. Additionally, new field level risk assessment procedures have been implemented across the Company’s operations.
__________________________1 Excluding 17 thousand ounces of refined gold produced at divested Kazakhstan assets in January and February of 2013
2 Excluding USD 29 million of sales from divested Kazakhstan operations in January and February 2013
Operating results
In the first half of 2013, the Company produced 718 thousand ounces of refined gold from continuing operations, a 7% increase compared to 670 thousand ounces a year ago. The growth in production was achieved as a result of exceptional performance at Blagodatnoye (+12% year-on-year) and Titimukhta (+38% year-on-year) and continuing ramp up of Verninskoye (+80% year-on-year). In the second quarter of 2013, the Company produced 398 thousand ounces of refined gold, an 8% increase to 367 thousand ounces in the second quarter of 2012.
Polyus Gold moved 32.8 million cubic meters of rock in total during the first half of 2013, which is 1% more than a year ago. This was due to increased mining works at Verninskoe and Kuranakh, in line with the respective mine plans. In the second quarter of 2013 the Company’s mines moved 16.0 million cubic meters of rock in total, compared to 16.4 million cubic meters a year ago.
A total of 14.3 million tonnes of ore was mined in the first half of 2013, an increase of 11% compared to the first half of 2012 (12.9 million tonnes). The increase was mainly due to changes in the Olimpiada mine plan in the second quarter of 2013 aimed at optimisation of equipment utilisation. In the second quarter of 2013, a total of 7.9 million tonnes of ore were mined, a 28% increase compared to 6.2 million tonnes in the second quarter of 2012.
The average stripping ratio for the Company in the first half of 2013 decreased by 10% year-on-year to 1.9 m³/t (first half of 2012: 2.1 m³/t) due to a lower stripping ratio at Olimpiada because of higher ore production volumes. In the second quarter of 2013, the average stripping ratio for the Company was 1.6 compared to 2.3 in the second quarter of 2012.
In the first half of 2013, the Company processed 10.9 million tonnes of ore, which is 5% more than a year ago. This was due to increased processing at Blagodatnoye, Titimukhta and Verninskoye. In the second quarter of 2013, the Company’s mines processed 5.6 million tonnes of ore compared to 5.1 million tonnes in the second quarter of 2012.
|
Refined gold production
(in thousand ounces) |
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Olimpiada | 308.2 | 318.4 | -3% | 151.6 | 161.8 | -6% |
| Blagodatnoye | 194.8 | 173.9 | 12% | 108.4 | 90.3 | 20% |
| Titimukhta | 63.4 | 45.9 | 38% | 29.4 | 24.1 | 22% |
| Verninskoye | 32.2 | 17.9 | 80% | 21.2 | 11.4 | 85% |
| Alluvials | 50.7 | 43.6 | 16% | 50.0 | 42.6 | 17% |
| Kuranakh | 69.0 | 70.0 | -1% | 37.2 | 36.9 | 1% |
| Total refined gold production from continuing operations3 |
718.3 | 669.7 | 7% | 397.8 | 367.2 | 8% |
3 Calculation may not be precise due to rounding
|
Mining works and ore processing
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, mln m3 | 32.8 | 32.5 | 1% | 16.0 | 16.4 | -3% |
| Total ore mining, mln tonnes | 14.3 | 12.9 | 11% | 7.9 | 6.2 | 28% |
| Average stripping ratio, m3/tonne | 1.9 | 2.1 | -10% | 1.6 | 2.3 | -29% |
| Ore processed total, mln tonnes | 10.9 | 10.4 | 5% | 5.6 | 5.1 | 10% |
Operating results by mine
Olimpiada
In the first half of 2013, Olimpiada produced 308 thousand ounces of refined gold, compared to 318 thousand ounces a year ago, as a result of lower volumes of ore processing (3.8 million tonnes in the first half of 2013 compared to 4.0 million tonnes a year ago). The lower processing volumes were due to planned and unscheduled maintenance at both Olimpiada plants which, additionally, resulted in lower recovery rates (74.0% in the first half of 2013 compared to 75.6% a year ago).
In the second quarter of 2013, Olimpiada produced 152 thousand ounces of gold compared to 162 thousand ounces in the second quarter of 2012.
Automation of both Olimpiada plants is in progress. As part of the installation of a closed water cycle, construction of a cooling tower is approaching completion, which will facilitate stabilisation of temperatures at the bio-oxidation facility.
|
Olimpiada
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, 000 m³ | 12 448 | 12 129 | 3% | 5 788 | 6 136 | -6% |
| including stripping | 10 460 | 10 135 | 3% | 4 531 | 5 256 | -14% |
| Stripping ratio (m³/t) | 1.9 | 1.9 | 3% | 1.3 | 2.2 | -40% |
| Ore mined, 000 tonnes | 5 370 | 5 381 | 0% | 3 395 | 2 375 | 43% |
| Average grade in ore mined (g/t) | 3.6 | 3.3 | 10% | 3.6 | 3.3 | 9% |
| Ore processed, 000 tonnes | 3 796 | 3 952 | -4% | 1 951 | 1 870 | 4% |
| Average grade in ore (g/t) | 3.5 | 3.5 | 2% | 3.5 | 3.6 | -1% |
| Recovery (%) | 74.0 | 75.6 | -2% | 73.4 | 77.7 | -6% |
| Refined gold production, 000 oz | 308.2 | 318.4 | -3% | 151.6 | 161.8 | -6% |
Blagodatnoye
Blagodatnoye produced 195 thousand ounces of gold in the first half of 2013 (first half of 2012: 174 thousand ounces). The 12% increase in production was mainly due to higher than planned processing volumes and ongoing optimisation of the automated process control system at the plant.
In the second quarter of 2013, the mine produced 108 thousand ounces of gold compared to 90 thousand ounces in the second quarter of 2012.
The feasibility study for the expansion of the mill throughput to 8 million tonnes of ore per year from 6 million tonnes has been submitted for the regulatory review which is expected to be completed in autumn 2013. The Board is expected to review the expansion following the receipt of regulatory approvals and, more importantly, the commencement of construction of the Razdolinsk-Taiga grid by the Federal Grid Company.
|
Blagodatnoye
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, 000 m³ | 6 559 | 7 667 | -14% | 3 287 | 3 852 | -15% |
| including stripping | 5 294 | 6 526 | -19% | 2 631 | 3 274 | -20% |
| Stripping ratio (m³/t) | 1.5 | 2.0 | -26% | 1.5 | 2.0 | -28% |
| Ore mined, 000 tonnes | 3 503 | 3 193 | 10% | 1 814 | 1 615 | 12% |
| Average grade in ore mined (g/t) | 2.1 | 2.1 | 1% | 2.0 | 2.1 | -1% |
| Ore processed, 000 tonnes | 3 374 | 3 113 | 8% | 1 757 | 1 517 | 16% |
| Average grade in ore (g/t) | 2.1 | 2.1 | 0% | 2.1 | 2.2 | -2% |
| Recovery (%) | 88.1 | 85.7 | 3% | 88.7 | 85.9 | 3% |
| Refined gold production, 000 oz | 194.8 | 173.9 | 12% | 108.4 | 90.3 | 20% |
Titimukhta
Gold production at Titimukhta increased by 38% year-on-year to 63 thousand ounces in the first half of 2013. The increase was mainly due to higher processing volumes and continued upgrades at the plant resulting in higher recovery rates (84.6% compared to 81.7% a year ago).
In the second quarter of 2013, the mine produced 29 thousand ounces of gold compared to 24 thousand ounces in the second quarter of 2012.
The installation of a new thickener and the expansion of the hydro-metallurgical section have been completed as planned.
|
Titimukhta
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, 000 m³ | 5 019 | 5 134 | -2% | 2 510 | 2 603 | -4% |
| including stripping | 4 567 | 4 674 | -2% | 2 281 | 2 373 | -4% |
| Stripping ratio (m³/t) | 3.7 | 3.7 | -1% | 3.6 | 3.6 | -4% |
| Ore mined, 000 tonnes | 1 243 | 1 260 | -1% | 630 | 629 | 0% |
| Average grade in ore mined (g/t) | 2.0 | 2.1 | -1% | 2.0 | 2.1 | -1% |
| Ore processed, 000 tonnes | 1 208 | 921 | 31% | 5924 | 452 | 31% |
| Average grade in ore (g/t) | 1.9 | 2.1 | -8% | 1.9 | 2.1 | -11% |
| Recovery (%) | 84.6 | 81.7 | 4% | 85.1 | 82.9 | 3% |
| Refined gold production, 000 oz | 63.4 | 45.9 | 38% | 29.4 | 24.1 | 22% |
4 Including 37 thousand tonnes of ore at 4.5 g/t from third-party-owned Veduga mine processed in accordance with an off-take agreement
Verninskoye
As the ramp up of the mine continues, Verninskoye produced 32 thousand ounces of gold in the first half of 2013, compared to 18 thousand ounces a year ago. The increase was due to higher processing volumes compared to the first half of 2012 whilst operating on a partial flow sheet.
In the second quarter of 2013, the mine produced 21 thousand ounces of gold, compared to 11 thousand ounces in the second quarter of 2012.
The mobile primary crusher and the larger flotation concentrate pumps were delivered onsite in late June and are expected to be commissioned by August. This will facilitate the increase in both plant throughput and flotation concentrate mass pull, allowing the ramp up to design parameters. The option to install a more robust fixed primary crusher is currently being reviewed.
The design of the Peleduy-Mamakan grid has been completed and submitted for the regulatory review. The construction of the grid is aimed at bringing cheaper and more reliable grid power to Verninskoye. Tender procedures for the selection of the construction contractor will commence following the receipt of regulatory approvals.
|
Verninskoye
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, 000 m³ | 2 030 | 1 208 | 68% | 1 075 | 682 | 58% |
| including stripping | 1 234 | 793 | 56% | 689 | 461 | 49% |
| Stripping ratio (m³/t) | 0.6 | 0.7 | -19% | 0.7 | 0.8 | -15% |
| Ore mined, 000 tonnes | 2 151 | 1 120 | 92% | 1 045 | 596 | 75% |
| Average grade in ore mined (g/t) | 1.9 | 1.9 | 1% | 1.9 | 1.8 | 4% |
| Ore processed, 000 tonnes | 653 | 567 | 15% | 386 | 348 | 11% |
| Average grade in ore (g/t) | 2.4 | 2.3 | 5% | 2.4 | 2.3 | 4% |
| Recovery (%) | 64.9 | 89.05 | -27% | 65.5 | 90.5 | -28% |
| Refined gold production, 000 oz | 32.2 | 17.9 | 80% | 21.2 | 11.4 | 85% |
5 Recovery rates at Verninskoye in the first half of 2012 were due to stockpiling of gravity tailings as the mine plant operated a partial flow sheet
Alluvials (Irkutsk region)
In the reporting period, the Company’s alluvial operations produced 51 thousand ounces of gold, a 16% increase to the first half of 2012 (44 thousand ounces).
In the second quarter of 2013, the Company’s alluvial operations produced 50 thousand ounces of gold compared to 43 thousand ounces in the second quarter of 2012.
|
Alluvials
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Sands washed (thousand m³) | 2 872 | 2 536 | 13% | 2 863 | 2 506 | 14% |
| Average grade (g/m³) | 0.7 | 0.7 | -1% | 0.7 | 0.7 | -2% |
| Refined gold production, 000 oz | 50.7 | 43.6 | 16% | 50.0 | 42.6 | 17% |
Kuranakh
Kuranakh produced 69 thousand ounces of gold in the first half of 2013 compared to 70 thousand ounces a year ago. The slight decrease in gold output was due to lower recovery rates as a result of increased zinc content in ore fed to the plant. The issue has been successfully resolved and recovery rates have been above target since May 2013.
In the second quarter of 2013, the mine produced 37 thousand ounces of gold, a 1% increase over the second quarter of 2012.
Feasibility study for the expansion of the mine throughput, including the separation of ore into clay and coarse fractions, has been reviewed. It has been concluded that the project is unviable due to high capital requirements which cannot be justified by a corresponding decrease in operating cost. Going forward, the Company intends to take measures to balance production at Kuranakh against the mine’s cost profile.
|
Verninskoye
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, 000 m³ | 6 693 | 6 335 | 6% | 3 324 | 3 147 | 6% |
| including stripping | 5 540 | 5 185 | 7% | 2 776 | 2 596 | 7% |
| Stripping ratio (m³/t) | 2.7 | 2.6 | 2% | 2.8 | 2.7 | 2% |
| Ore mined, 000 tonnes | 2 062 | 1 978 | 4% | 994 | 949 | 5% |
| Average grade in ore mined (g/t) | 1.3 | 1.3 | 1% | 1.4 | 1.3 | 5% |
| Ore processed, 000 tonnes | 1 891 | 1 836 | 3% | 956 | 954 | 0% |
| Average grade in ore (g/t) | 1.4 | 1.3 | 1% | 1.4 | 1.3 | 5% |
| Recovery (%) | 82.8 | 86.6 | -4% | 83.8 | 86.3 | -3% |
| Refined gold production, 000 oz | 69.0 | 70.0 | -1% | 37.2 | 36.9 | 1% |
Development projects
Natalka
With significant progress made in the project development, Natalka remains on schedule for the commissioning of the full flowsheet in the summer 2014. The Company is considering an option to start production at Natalka in winter 2013/2014 using a partial flowsheet and the already installed pilot plant.
To date, earthworks totalling 7.0 million cubic meters, including 2.3 million cubic meters in the first half of 2013, have been completed across 18 sites including the mill, central repair workshop, solid waste landfill, car depot, fuel storage facility, logistics base, boilers 1 and 2, and power substations 2 and 3. Remaining earthworks are in progress on various roads.
Mining works commenced in February 2013, initially at low grade ore horizons before moving on to higher grade horizons. In the first half of 2013, 1.4 million tonnes of ore were mined for stock-piling, including 241 thousand tonnes at 2.0 g/t, 637 thousand tonnes at 1.0 g/t and 549 thousand tonnes of ore at 0.6 g/t. In the second quarter of 2013, 562 thousand tonnes of ore were mined, including 213 thousand tonnes of 2.0 g/t ore. It is expected that the increased proportion of high-grade ore to the total mined ore volumes seen in the second quarter of 2013 will be maintained in the second half of 2013.
Construction of the mill main building is well underway with the installation of metal frames and wall panels in progress. The installation of bored piles has been completed at desorption section and gold cash room sites, and is approaching completion at the cyanidation, thickening and filtration section sites.
Construction of the permanent camp started in May, with construction of foundations and installation of the bored piles currently in progress. The commissioning of the camp is expected in late autumn.
The SAG mill and ball mill, along with all ancillary equipment, have been delivered onsite. Shipment of drilling rigs, trucks and mix-pump trucks, as well as the equipment for the reagent preparation, desorption, carbon recovery and cyanidation sections, is in progress. This includes 8 flotation machines, 4 belt conveyors of various types, 2 thickeners and 3 electrolyzers.
Construction of 6 dormitories at the temporary construction camp has been completed. Construction staff headcount onsite reached 2,500 personnel.
Key short term priorities include the construction of a temporary tailings dam by October, installation and testing of the mill equipment in autumn, and the hiring of an international operations team by late autumn.
|
Natalka
|
6 months 2013
6 months 2012
Change
2Q 2013
2Q 2012
Change
|
|||||
|---|---|---|---|---|---|---|
| Total rock moved, 000 m³ | 2 059 | - | 710 | - | ||
| including stripping | 1 527 | - | 500 | - | ||
| Stripping ratio (m³/t) | 1.0 | - | 0.9 | - | ||
| Ore mined, 000 tonnes | 1 426 | - | 562 | - | ||
| Average grade in ore mined (g/t) | 1.0 | - | 0.9 | - | ||
Financial update
In the first half of 2013, the Company sold 654 thousand ounces of gold from continuing operations, a 5% decrease compared to 686 thousand ounces a year ago. As of the end of the reporting period, the Company had 79.8 thousand ounces of refined gold in stock (compared to 0 ounces a year ago). Sales were deliberately delayed during the reporting period due to the unfavourable gold price environment.
The Company estimates its first half of 2013 gold sales from continuing operations will be USD 987 million, which is 19% less than in the first half of 2012 (USD 1,224 million). The estimated realised gold price was USD 1510 per ounce, a 9% decrease compared to USD 1652 in the first half of 2012. In the second quarter of 2013, the estimated realised gold price was USD 1400 per ounce, a 14% decrease year-on-year (second quarter of 2012: USD 1633).
At 30 June 2013, the Company’s estimated net cash position was USD 13 million compared to USD 532 million a year ago due to a decrease in gold selling price, unsold gold stock (see this section above) and the payment of a dividend.
Corporate update
On 10 April 2013, Mr. Vladimir Chernukhin, a Non-Executive Director nominated by Lizarazu Holdings Limited (a company associated with Mr Mutsoev), resigned from the Board.
On 29 April 2013, Polyus Gold International Limited placed an issuance of USD 750 million notes due 2020 with a coupon of 5.625% per annum. The Company intends to use the net proceeds of the issue for general corporate purposes, including the financing of key development projects. The notes have been admitted to trading on the Irish Stock Exchange and the London Stock Exchange (TDIMs: 60ZY and 60ZN).
On 31 May 2013, Mr. Robert Buchan, Chairman, resigned as a director of the Company. The Board's Nominations Committee, which is comprised solely of independent directors, is currently in the process of carrying out the search for a new independent Chairman of the Board.
On 31 May 2013, the Annual General Meeting approved the payment by the Company of a final dividend in respect of the financial year ended 31 December 2012 of USD 0.0824 per ordinary share, which represents approximately 25% of the Company’s net profits for 2012 and an increase of 101% over the dividend paid in respect of the financial year ended 31 December 2011. In addition, the Annual General Meeting approved the payment by the Company of a special dividend in respect of the financial year ended 31 December 2012 of USD 0.0232 per ordinary share, in recognition of the successful sale of its gold mining assets in Kazakhstan, Kyrgyzstan and Romania. The special dividend and final dividend combined represent an aggregate dividend payment of USD 0.1056 per ordinary share for 2012.
On 18 June 2013, total proven and probable reserves were updated to 83.12 million ounces of gold and total measured, indicated and inferred resources were updated to 150.14 million ounces of gold.
On 24 June 2013, Polyus Gold International Limited was included into the FTSE Gold Mines Index and the Rogers™-Van Eck Hard Assets Producers Index.
2013 Outlook
Gold production guidance for 2013 is reconfirmed at between 1.59 and 1.68 million ounces, excluding divested assets in Kazakhstan.
It is expected that slightly lower output at Olimpiada and lower than planned production volumes at Verninskoye will be offset by higher than planned production at Blagodatnoye and alluvial operations.
Conference call information
Polyus Gold will host an analyst conference call today at 2:00 pm London time to present and discuss the first half of 2013 operating results.
To join the conference call, please dial:
| UK toll free | 0808 237 0033 |
| UK International | +44 (0) 20 3426 2845 |
| USA toll free | 1866 928 6048 |
| Russia toll free | 8108 00206 85011 |
A live webcast of the presentation will be available at:
https://arkadin-event.webex.com/arkadin-event/onstage/g.php?t=a&d=706262169
Event passcode: 640785
A replay of the conference call will be available from 6 pm London time on 25 July 2013, for the duration of 7 days.
To access the replay, please dial:
| UK toll free: | 0808 237 0026 |
| UK International: | +44 (0) 20 3426 2807 |
Access number: 640783#
Enquiries:
Investor contact
Mikhail Seleznev, Director Investor Relations and Capital Markets
+44 (0) 203 585 35 37 ir@polyusgold.com
Media contact
Sergey Lavrinenko, Director Communications
+44 (0) 203 585 35 37 lavrinenkosn@polyusgold.com
Forward looking statements
This announcement may contain “forward-looking statements” concerning PGIL. 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 PGIL’s operations. Many of these risks and uncertainties relate to factors that are beyond PGIL’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. PGIL assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.