Financial Results for the First Half of 2023

PJSC Polyus (MOEX — PLZL) ("Polyus", the "Company", and together with the Company subsidiaries, the "group") has today released its consolidated financial results for the first half of 2023.

Key highlights

1. Total gold sales volumes in the first half of 2023 amounted to 1,261 thousand ounces of gold, a 24% increase compared to the corresponding period of the previous year. This growth was driven by higher production volumes at Olimpiada and Blagodatnoye. The difference between sales (1,261 thousand ounces) and the total gold output (1,448 thousand ounces) reflects the accumulation of gold inventory at the refinery as well as the accumulation of gold contained in concentrate. Sales of flotation concentrate have been typically lagging behind production for several months.
2. Revenue for the reporting period increased 29% year-on-year and amounted to $2,386 million. This is attributable to the aforementioned growth in gold sales volumes as well as the higher average realized refined gold price, compared to the first half of 2022.
3. The group’s TCC for the first half of 2023 decreased 8% year-on-year to $400 per ounce compared to $435 per ounce in the first half of 2022, mainly due to higher head grades at Olimpiada and Blagodatnoye as well as the resumption of sales of antimony-rich flotation concentrate. The latter resulted in higher by-product credit ($29 per ounce during the reporting period compared to zero by-product credit in the first half of 2022). In terms of negative factors, which are common to almost all operations, the Company notes inflation in consumables and diesel prices, growth in electricity tariffs and wage indexation.
4. Adjusted EBITDA for the reporting period amounted to $1,687 million, up 37% compared to $1,229 million in the first half of 2022, driven by growth in gold sales volumes and lower TCC on a per ounce basis during the first half of 2023.
5. Capital expenditures ("capex") for the first half of 2023 remained broadly flat compared to the same period of the previous year at $400 million.
6. The net debt (incl. derivatives)/adjusted EBITDA ratio stood at 0.6x in the first half of 2023 compared to 0.9x in the second half of 2022, reflecting a lower net debt position and increase in adjusted EBITDA over the last twelve months.

OUTLOOK FOR 2023

Based on the Company’s cost performance for the first half of 2023, Polyus is adjusting TCC guidance for the year downwards. The Company now expects total cash costs for the full year of 2023 to stay within the range of $475-$525 per ounce, compared to the previous estimate of $500-$550 per ounce. Meanwhile capex guidance of $1,300—$1,400 million remains intact.

Events after the reporting date

Buyback programme

On July 10^th, 2023 Polyus’ Board of Directors approved and launched a programme of purchasing up to 40,802,741 ordinary shares of the Сompany (share buyback). The purchase price was set at 14,200 rubles per share. As of August 29th, the Company has completed a share buyback, which was financed primarily through external bank credit facilities.

The purchased shares are expected to be used for the financial and commercial purposes of Polyus and its subsidiaries: as consideration in potential M&A transactions, for possible capital markets placements, for financing the long-term development projects via attraction of potential investors, as well as for other corporate purposes. The Company may potentially consider canceling a portion of the repurchased shares in case no specific purpose of their intended use is determined in the medium term.

Cancellation of DR listing and admission to trading

On 25 July 2023, the UK Financial Conduct Authority cancelled the listing on the Official List, and the London Stock Exchange cancelled the admission to trading on its Main Market of the following Polyus’ depositary receipts (DRs):

• Regulation S Global Depositary Receipts (ISIN US73181M1172);
• Rule 144A Global Depositary Receipts (ISIN US73181M1099);
• Level I American Depositary Receipts (ISIN US73181P1021);

The delisting followed the decision of Polyus’ Board of Directors to terminate the DR programmes as given current circumstances (including, among other things, the recent imposition of US and UK blocking sanctions against the Company), maintaining DR programmes is no longer reasonable for the Company.

Comparative financial results

Total Cash Costs

In the first half of 2023, the group’s TCC decreased 8% year-on-year to $400 per ounce compared to $435 per ounce in the first half of 2022, mainly due to higher head grades at Olimpiada and Blagodatnoye as well as the resumption of sales of antimony-rich flotation concentrate. The latter resulted in higher by-product credit ($29 per ounce during the reporting period compared to zero by-product credit in the first half of 2022). In terms of negative factors, which are common to almost all operations, the Company notes inflation in consumables and diesel prices, growth in electricity tariffs and wage indexation. The temporary decline in average grades in ore processed at Natalka and Verninskoye has also negatively impacted the Company’s cost performance in the first half of 2023.

TCC performance by mine, $/oz

In the first half of 2023, TCC at Olimpiada amounted to $331 per ounce, down 24% compared to the first half of 2022. Besides higher gold content in ore processed and recovery rate (82.9% in 1H2023 compared to 81.2% in 1H2022), the improvement in cost performance at Olimpiada reflects the addition of by-product credit of antimony-rich flotation concentrate ($53 per ounce in the first half of 2023 compared zero by-product credit in the first half of 2022).

TCC at Blagodatnoye in the first half of 2023 amounted to $408 per ounce, remaining broadly flat on the same period of the previous year. The aforementioned negative factors were offset by a 9% increase in head grades.

TCC at Natalka rose from $382 per ounce in the first half of 2022 to $544 per ounce in the reporting period. This increase was mainly driven by a temporary decline in average grades in ore processed (1.29 grams per tonne in 1H2023 compared to 1.66 grams per tonne in 1H2022) and an increase in the MET rate (from 1.2% to 2.4%) due to the conclusion of the regional investment project regime applicable for the deposit. Inflation in сonsumables and diesel prices, growth in electricity tariffs as well as wage indexation additionally contributed to the growth.

In the first half of 2023, TCC at Verninskoye amounted to $467 per ounce, a 16% increase compared to the first half of 2022. This increase was attributable to a temporary decline in average grades in ore processed (2.38 grams per tonne in 1H2023 compared to 2.70 grams per tonne in 1H2022) as well as scheduled maintenance works.

At Kuranakh, TCC in the first half of 2023 rose to $680 per ounce, up 5% compared to the same period of the previous year. The increase in TCC was mainly driven by growth in electricity tariffs and wage indexation.

During the reporting period, TCC at Alluvials increased to $1,248 per ounce, compared to $1,123 per ounce in the first half of 2022. This mainly reflects lower average grades in sands washed. In addition, scheduled maintenance works occurring during the period also negatively affected TCC.

All-in sustaining costs (AISC)

In the first half of 2023, the group’s AISC decreased to $764 per ounce, down 7% compared to the first half of 2022. This decrease was driven by lower TCC per ounce as well as lower stripping expenses during the reporting period at Olimpiada, Blagodatnoye and Kuranakh.

Debt management

The Company’s gross debt decreased to $3,422 million, compared to $3,586 million as at the end of 2022 (30 June 2022: $3,232 million).

As at 30 June 2023, the Company’s estimated cash position increased to $1,734 million (31 December 2022: $1,317 million; 30 June 2022: $780 million). The Company’s estimated net debt stood at $1,688 million (31 December 2022: $2,269 million; 30 June 2022: $2,452 million).

Among other factors, the change in cash position reflects free cash flow generation during the reporting period, as well as the issue of 5-year rouble-denominated bonds (Rub 20 bln with a coupon rate of 10.40% per annum). The cash inflows were offset by a redemption of Notes due 2023 (in the total amount of $330 million).

Debt maturity schedule (as at 30 June 2023)⁹, $ million

Capex

In the first half of 2023, capital expenditures remained broadly flat compared to the same period of the previous year at $400 million.

Capex breakdown¹⁰

In the first half, the total cash amount spent on the purchase of PP&E decreased to $508 million, compared to $551 million in the first half of 2022.

Enquiries

Investor and Media contact
Communications & Investor Relations (CIR) Department
+7 (495) 641 33 77
ir@polyus.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 of the date of this announcement. Polyus and/or any Polyus 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 1,226.7 thousand ounces of refined gold and 221.2 thousand ounces of gold in flotation concentrate in the first half of 2023.
² 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, foreign exchange (gain) / loss, gain on acquisition of subsidiaries and associated deferred and current 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 and investments (including the effect of the disposal of a subsidiary and subsequent accounting at equity method), finance costs, interest income, foreign exchange loss / (gain), 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, gain on acquisition of subsidiaries 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.
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 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 (including derivatives) divided by Adjusted EBITDA for the last twelve months
⁹ The breakdown is based on actual maturities and excludes $15 million of banking commissions and lease liabilities recognised under IFRS 16 as of 30 June 2023 in amount of $82 million.
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 other unallocated CAPEX.
¹² Including capitalised stripping costs.