60GT.L Regulatory News (60GT)

Release time IMMEDIATE

11 August, 2017

PJSC Polyus ("Polyus" or the "Company"), the largest gold producer in Russia, today releases its 2Q 2017 and 1H 2017 Operating results for the period ending 30th June 2017.

1H 2017 Highlights

Ø Total gold output increased 12% y-o-y to 938 koz driven by higher production volumes at Olimpiada and Verninskoye

Ø Volumes of ore mined increased 29% y-o-y to 17.8 mt as a result of mining volumes growth at Olimpiada, Kuranakh and commencement of full-scale mining activity at Natalka.

Ø Volumes of ore processed increased 5% y-o-y to 13.6 mt with throughput capacity expansion projects at Company's core assets either being completed or entering the second stage of implementation.

Ø Gold sales amounted to $1,217 million (up 14% y-o-y) with the average selling price (incl. the impact from the Strategic Price Protection Programme (SPPP)) of $1,263/oz, 2% above the LBMA spot price.

Ø Net debt decreased to $3,084 million from $3,128 million as of the end of 1Q 2017 and $3,241 million as of the end of 2016.

2Q 2017 Highlights

Ø Total gold output increased 7% y-o-y to 488 koz (up 8% q-o-q).

Ø Volumes of ore mined increased 33% y-o-y to 9.2 mt (up 7% q-o-q).

Ø Volumes of ore processed rose 6% y-o-y to 7.0 mt (up 4% q-o-q) with higher volumes of ore treated at Olimpiada, Blagodatnoye, Verninskoye and Kuranakh.

Ø Quarterly gold sales amounted to $617 million (up 9% y-o-y) with the average selling price (incl. the impact from the SPPP) of $1,268/oz, 1% above the LBMA spot price.

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

Polyus has continued to build on its position as a low cost gold producer with a clear growth strategy. In 1H 2017 Polyus once again delivered consistent production growth, achieving a 12% year-on-year increase to 938 thousand ounces. Over the course of the first half, we remained focused on operational efficiency, whilst making strong progress on our development projects. Based on the operational results for 1H 2017, the Company reiterates its production guidance for 2017 to meet the range of 2.075-2.125 million ounces.

Our strong operational performance and established track record of delivering sustainable growth, have given confidence to revise our production guidance for 2018-2019. With the majority of our brownfield development projects scheduled for completion in 2017-2018 and production at Natalka expected to be commissioned by the end of 2017, Polyus now expects total gold output to further increase to 2.35-2.40 million ounces in 2018 and to 2.80 million ounces in 2019.

Health and safety update

The LTIFR rate in 1H 2017 stood at 0.14, broadly in line with the 1H 2016 level.

During the reporting period, the Company continued to further enhance its on-site health and safety system, with the launch of an internal coaching programme. The programme is aimed at improving safety and reducing workplace injuries. Training sessions for employees began in July led by 54 trained coaches at the Krasnoyarsk, Verninskoye and Natalka operations. Additionally, all of Polyus' business units have now introduced the Company's Transportation Safety Plan to identify and address local transportation safety issues.

In addition, an audit was carried out on the HSE management system at Verninskoye to measure compliance with corporate and state regulatory standards.

1 LTIFR is calculated based on a 200,000 work hours factor.

Consolidated operating results

In 1H 2017, the Company produced 938 koz of gold (including 61 koz of gold contained in concentrate from Olimpiada), which represents a 12% increase on 1H 2016. This reflects the strong performance at all of Polyus' hard rock deposits. The growth in output was mainly driven by an increase in volumes of ore processed following throughput capacity expansion projects at Olimpiada, Blagodatnoye, Verninskoye and Kuranakh. Meanwhile, recoveries reduced 0.5 ppts y-o-y to 83.6% mainly due to a decline in recoveries at Olimpiada and Blagodatnoye, resulting from temporarily lower flotation recoveries.

In 2Q 2017, the Company produced 488 koz of gold (including 33 koz of gold contained in concentrate from Olimpiada), 7% higher y-o-y as a result of increased throughput capacity at the Company's core assets. Average recoveries declined 0.3 ppts y-o-y to 83.9% mainly due to lower rates at Olimpiada and Blagodatnoye.A 6% y-o-y increase in volumes of ore processed was due to higher volumes of ore treatment at Olimpiada, Blagodatnoye, Kuranakh and Verninskoye. Volumes of ore mined grew 33% y-o-y, as a result of increased mining activity at Olimpiada, Verninskoye and Kuranakh.

2 Including refined gold produced from ore purchased from the 3rd party-owned Veduga mine under an off-take agreement.

Operating results by mine

Olimpiada

In 1H 2017, doré gold output increased 34% y-o-y, to 516 koz, driven by both higher processed volumes and grade in ore treated. Total gold output (refined and concentrate) was 506 koz, up 40% y-o-y.

Rock moved volumes increased 25% y-o-y to 31.1 mt, which is partially a low base effect. In May 2016, the pit wall failure led to temporary suspension of mining activity at the Vostochny pit. In 1H 2017, mining operations at higher-grade areas drove a 24% y-o-y increase in the grade of ore mined to 4.12 g/t, which is in line with the mining plan.

Despite the cheduled maintenance works at Mill-2, volumes of ore processed increased 12% y-o-y during 1H 2017, to 5.8 mt. This is primarily a result of Mill-1 reconfiguration, with Olimpiada ore processing having started there from September 2016. The recovery rate declined to 79.7% (compared to 80.8% in 1H 2016) following a decrease in flotation recovery due to temporary variations in the feed mineralogy, with higher calcium and lower sulphide content in ore. Average grades in ore processed increased 23% y-o-y to 3.65 g/t resulting from higher grades mined.

The BIO expansion at Mills No. 1,2,3 project is progressing well and expected to be completed by the end of 2017.

In 2Q 2017, doré gold output increased 35% y-o-y to 278 koz driven by higher processing volumes and improved grades.

Mining works and ore processing

3 Including ore purchased from the 3rd party-owned Veduga mine under an off-take agreement.

OPERATING RESULTS BY MINE

Blagodatnoye

In 1H 2017, doré gold output increased 2% y-o-y to 229 koz due to the growth in volumes of ore processed. Refined gold output amounted to 214 koz, slightly down 3% y-o-y.

Volumes of ore mined were flat y-o-y, while intensified mining works, conducted in line with the mine plan led to 54% y-o-y growth in rock moved. Consequently, the stripping ratio increased 72% y-o-y to 5.0. The lower grade of ore mined reflected a larger portion of operational lower-grade mining sites.

Volumes of ore processed increased 7% y-o-y, to 4.1 mt, following the upgrades of the conveyor belts and cone crusher. Polyus is proceeding with technical works to ensure the Mill continues to operate consistently following the capacity expansion to 8.0 mtpa, which will support the increased recovery rates. In 1H 2017, the recovery rate declined marginally, to 87.8%, partially due to higher losses in the flotation circuit reflecting a higher arsenic content in flotation feed.

In 2Q 2017, doré gold production increased 2% y-o-y to 117 koz driven primarily by higher processing volumes resulting from Mill's capacity expansion.

Mining works and ore processing

OPERATING RESULTS BY MINE

Titimukhta

Following the completion of the Mill-1 reconfiguration project in September 2016 to process mainly sulphide ore from Olimpiada, mining activities at Titimukhta have been downscaled to the minimum level.

Mining works and ore processing

OPERATING RESULTS BY MINE

Verninskoye

In 1H 2017, doré gold output increased 7% y-o-y to 99 koz, driven by growth in volumes of ore processed and improved recovery rates. Refined gold output amounted to 107 koz, up 7% y-o-y.

Volumes of ore mined rose 9% y-o-y to 1.9 mt driven by extraction of higher volumes of low-grade ores. This triggered a decline in the stripping ratio to 3.8 with volumes of rock moved growing to 9.2 mt.

Volumes of ore processed increased 8% y-o-y to 1.3 mt. The Mill's strong performance was driven by greater efficiency at the regrinding mills following the modification of the sand separator and intensified thickening of flotation tailings. This was also supported by reduced down time of the grinding equipment for planned maintenance. These factors as well as higher utilization of the intensive cyanidation reactor supported an increase in recoveries to 88.2%. The latter fully mitigated the negative impact from the decline in average grade of ore processed.

The aforementioned operational improvements are in line with the Company's development project to further expand throughput capacity. Polyus expects to achieve the designed throughput capacity of 3.0 mtpa over several stages during 2017-2018.

In 2Q 2017, doré gold output increased 14% y-o-y to 56 koz due to the growth in volumes of ore processed and the higher recovery rate. The mine achieved a stable average grade in ore processed.

Mining works and ore processing

OPERATING RESULTS BY MINE

Alluvials

In 1H 2017, Alluvial deposits produced 38 koz of gold in slime, down 12% y-o-y. Refined gold output totalled 31 koz (down 7% y-o-y).

The y-o-y decrease was primarily the result of a lower average grade, due to the planned reduction of the average sand grade, which was partially offset by a 9% y-o-y increase in volumes of sands washed to 2.3 mt as a result of favorable weather and geological conditions.

In 2Q 2017, gold in slime production declined 12% y-o-y to 38 koz due to the lower average grade.

Sands washing

OPERATING RESULTS BY MINE

Kuranakh

In 1H 2017, doré gold output increased 6% y-o-y to 82 koz, attributable to higher volumes of ore processed. Refined gold output amounted to 80 koz, up 3% y-o-y. 

Volumes of ore mined rose 37% y-o-y to 2.9 mt in order to provide feed for the expanded processing capacities. Average grades in ore mined declined 10% y-o-y in line with the mine plan.

An 11% y-o-y increase in volumes of ore processed to 2.3 mt was the result of initiatives to debottleneck the Mill's throughput capacity in 2016, including refurbishment of the flocculant preparation plant and thickeners upgrade. The average grade in ore processed and recovery rates declined marginally to 1.28 g/t and 88.3% respectively.

The heap leaching project at Kuranakh is expected to be completed in 2017, enabling the mine to process 1.5 mtpa of the deposit's low-grade ore stockpiled during mining operations in previous years.

In 2Q 2017, doré gold output increased 4% y-o-y to 42 koz reflecting the higher volumes of ore processed.

Mining works and ore processing

OPERATING RESULTS BY MINE

Natalka

Full-scale mining operations were relaunched in January 2017. In 1H 2017, volumes of rock moved totaled 8.5 mt, while the volumes of ore mined were 1.2 mt. Average grades in ore mined declined 23% y-o-y as mining work was concentrated on lower grade areas of the ore body in line with the mine plan.

In 1H 2017, processing at the 100 kt pilot plant continued with ore processed volumes increasing two times y-o-y to 32 kt and 1.2 koz of doré gold produced. As the Company plans to process lower grade stockpiles during the ramp up period following the commissioning of Natalka, ores grading from 0.6 to 1.1 g/t have been processed at the pilot plant during the 1H 2017.

Construction works at Natalka are progressing well with early pre-commissioning already well advanced. In June, the total construction personnel headcount was approximately 840 people, including contractors and the Group's employees. The primary crusher, the main SAG mill and the main ball mill have completed a successful trial run. Polyus has finalised delivery of all process equipment. The installation of all gravity concentrators and electrowinning cells has been completed. The installation of thickeners is currently under way. The construction of power facilities and auxiliary infrastructure is ongoing. Major equipment vendors are on site to assist with the commissioning.

The Company continues to anticipate the commissioning of the Natalka project to take place by the end of 2017, followed by a ramp-up period to achieve the project's design parameters.

FINANCIAL UPDATE

In 1H 2017, the Company sold a total of 983 koz of gold, up 17% y-o-y. Total gold sales include 71 koz of gold contained in the concentrate from Olimpiada.

The Company's 1H 2017 gold sales (including the SPPP effect) amounted to $1,217 million, an increase of 14% over 1H 2016 due to higher sales volumes.

The weighted-average gold selling price (excluding the SPPP effect) in 1H 2017 rose 1% y-o-y to $1,239/oz. However, with the inclusion of the SPPP, the weighted-average gold selling price amounted to $1,263/oz, down 1% y-o-y. Correspondingly, the positive effect from the SPPP totalled $22 million.

As of 30 June 2017, the Company's cash position was $1,477 million (31 March 2017: $1,487 million) and its net debt position amounted to $3,084 million (31 March 2017: $3,128 million). In the meantime, on 30 June 2017, Polyus priced a Secondary Public Offering ("SPO") on the London Stock Exchange and the Moscow Exchange with the size of $858 million including the greenshoe.

The Company recognised the proceeds from the Offering as accounts receivable as of 30 June 2017. Accounting for the proceeds of the Offering, pro-forma net debt stood at $2,684 million as of 30 June 2017.

The Offering was the largest internationally marketed equity offering in Russia since February 2014 and the largest offering of gold miner globally since 2010. The primary component amounted to $400 million.

On a separate note, dividend payments for the 2H 2016, approved at the AGM meeting on 30 June 2017, were paid in July 2017 in the amount of $339 million, which supported the Company's intention to delivery industry leading returns to shareholders.

CORPORATE UPDATE

PGIL Transaction with Fosun

On 31 May 2017, Polyus Gold International Limited ("PGIL") entered into an agreement to sell 12,561,868 of the ordinary shares in the Company, representing 10 per cent of the Company's share capital excluding treasury shares (the "Initial Stake") at $70.6025 per share (the "Initial Stake Price") to a consortium (the "Consortium") led by Fosun International Limited (HKSE:00656) ("Fosun"). In addition to Fosun, the Consortium includes Hainan Mining Co., Ltd ("Hainan Mining") and Zhaojin Mining Industry Company Limited ("Zhaojin Mining"), both partially owned by Fosun.

As part of the agreement, PGIL also granted the Consortium an option to acquire, subject to completion of the acquisition of the Initial Stake, up to an additional 5 per cent of the Company's share capital at $77.6628 per share ("the Option Exercise Price), exercisable not later than May 31, 2018.

The completion of the Initial Stake transaction is expected to occur before the end of 2017 and remains subject to certain conditions, including receipt of governmental approvals. The Consortium has already obtained preliminary approvals from certain governmental authorities.

The Initial Stake Price is subject to a completion adjustment for dividends paid per share during the period between transaction signing and completion. The Option Exercise Price is not subject to any adjustment for dividends.

The agreement also provides for minimum annual dividend payments by the Company to all shareholders for the years 2017-2021 (the "Mandatory Dividends") at the greater of (i) 30% of the full-year EBITDA calculated based on IFRS accounts and (ii) $550 million for each of 2017, 2018 and 2019 and $650 million for each of 2020 and 2021.

Dividends will be paid semi-annually. Should the amount of dividends actually paid by the Company for any relevant year be less than the Mandatory Dividend for such year, any dividend shortfall (net of the amount of dividends paid in excess of the Mandatory Dividend in respect of prior years) will accumulate and will be payable together with the Mandatory Dividend or regular dividend for the following calendar year(s). After 2021, dividends will be paid in line with the Company's existing dividend policy, which provides for payment of dividends in the amount equal to 30% of adjusted EBITDA, subject to the Company's net debt/adjusted EBITDA ratio being lower than 2.5x.

Ore Reserves and Mineral Resources Update

On 5 June 2017, Polyus announced the results of the review of the Company's Ore Reserves and Mineral Resources as of 31 December 2016 in accordance with the JORC Code 2012.

Polyus' Proved and Probable (P&P) Ore Reserves equate to 71 moz of gold and its Measured, Indicated and Inferred (MI&I) Mineral Resources stand at 193 moz5.

Correspondingly, Polyus ranks second by attributable gold reserves (after Barrick Gold) and third by attributable gold resources (after AngloGold and Barrick Gold) among the world's largest gold mining companies.

A maiden estimate of the JORC Mineral Resources for Sukhoi Log has been made at 58 moz and included in the Group figures. The ore reserves at the asset have not yet been estimated.

The following data has been drawn from the June 2017 Competent Person's Report (CPR), on the Mineral Assets of Polyus, as prepared by AMC Consultants Pty Ltd (AMC).

Ore Reserves Highlights:

· Polyus' Ore Reserves amounted to 71 moz of gold.

· Over 70% of the Company's Ore Reserves are located at the operating assets. With the inclusion of Natalka, where production will be commissioned by the end of 2017, this share increases to 95%:

o The Krasnoyarsk Business Unit has the largest share of the Company's reserves, with 30 moz of Ore Reserves reported at Olimpiada and 10 moz at Blagodatnoye.

o Ore Reserves at Verninskoye and Kuranakh were recorded at 5.3 moz and 4.5 moz, respectively.

· Natalka, Polyus' main greenfield project, has estimated Ore Reserves of 16 moz.

· Sukhoi Log's Ore Reserves have not yet been estimated and the Company expects these to be included in its reserve statement before the end of 2019. The asset was acquired in February 2017 and additional exploration work has started.

· Whilst the average Ore Reserve grade is estimated at 1.8 g/t, it stands at 2.0 g/t when excluding estimates for Alluvial operations and lower grade ore for heap leaching operations at Kuranakh and Blagodatnoye.

Mineral Resources Highlights

· The Company's Mineral Resources stand at 193 moz largely reflecting the inclusion of 58 moz of Inferred Mineral Resources for Sukhoi Log6.

· Almost 50% of the Company's Mineral Resources are attributable to operational mines:

o Olimpiada's Mineral Resources are estimated at 46 moz.

o Blagodatnoye's Mineral Resources stand at 19 moz.

o Verninskoe and Kuranakh's Mineral Resources include estimates of 12moz and 9.2 moz, respectively.

· Natalka Mineral Resources amount to 34 moz.

· First mineral resources estimates for Sukhoi Log indicate the deposit contains 58 moz of gold grading 2.0 g/t. This corresponds to the latest available Russian standards GKZ (C1+C2) estimate of 62.8 moz grading 2.1 g/t.

Enquiries: 

Investor contact

Victor Drozdov, Investor Relations Director

+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 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.