PLZL.L Regulatory News (PLZL)

Release time IMMEDIATE

16 January, 2018

PJSC Polyus ("Polyus" or the "Company"), the largest gold producer in Russia, today releases its 4Q 2017 and FY 2017 operating results for the period ending 31st December 2017.

4Q 2017 Highlights

Ø Total gold output decreased 10% q-o-q to 580 koz mainly due to a seasonal slowdown in production at Alluvials.

Ø Volumes of ore mined increased 2% to 10,065 kt.

Ø Volumes of ore processed increased 7% q-o-q to 7,809 kt driven by the start of hot commissioning at the Natalka mill and the completion of maintenance works at Blagodatnoye and Verninskoye.

Ø Estimated gold sales amounted to $734 million (flat q-o-q) with the estimated weighted-average gold selling price of $1,273/oz.

Ø As of 31 December 2017, the estimated net debt stood at $3,077 million, compared to $3,151 million as of the end of 3Q 2017 and $3,241 million as of the end of 2016.

2017 Highlights

Ø Total gold output increased 10% y-o-y to 2,160 koz.

Ø Volumes of ore mined rose 27% y-o-y to 37,810 kt.

Ø Volumes of ore processed increased 8% y-o-y to 28,663 kt, with higher volumes of ore treated at the Company's core assets as a result of the ongoing execution of expansion projects.

Ø Estimated gold sales amounted to $2,684 million with the average selling price (incl. the impact from the Company's strategic price protection programme ("SPPP")) of $1,270/oz, broadly in line with the LBMA spot price.

2018 Guidance

Ø The Company has updated its production guidance for 2018 and now expects its total gold production in 2018 to be in the range of 2.375-2.425 million ounces vs. 2.35-2.40 million ounces previously.

Ø Natalka is operating at ca. 50% of capacity currently and is expected to reach full production in 2H 2018 vs. by the end of 2018 as guided previously.

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

Polyus' gold output surpassed the official production guidance of 2.075-2.125 million ounces by 3%, with 2.160 million ounces of gold produced in 2017. It was the fourth consecutive year for the Company to beat its production estimate, which reflects our consistent drive for operational excellence.

With our rigorous promotion of a zero injury approach, I'm proud to report that no fatalities have been recorded across our operations in 2017. Safety is undoubtedly a top priority for Polyus.

2017 was a transformational year for the Company. We have successfully carried out most of the projects within our pipe-line under our development strategy. Significant progress has been made with respect to debottlenecking at all of the core operations, while at Kuranakh we have launched our first heap-leaching facility. In December 2017, the first gold has been poured at Natalka during the hot commissioning stage. The asset is currently already operating at 50% of the design capacity and once this long awaited project fully ramps up, Natalka will become a significant source of earnings and cash flow for the Company.

In early 2017, we were excited to win the auction for Sukhoi Log, one of the world's largest undeveloped gold deposits, which is set to become the cornerstone for Polyus' next-generation growth opportunities.

We anticipate Polyus' gold output to expand further in 2018 and we are raising our total gold production guidance for 2018 from 2.35-2.40 million ounces to 2.375-2.425 moz."

Health and safety update

The LTIFR rate for 2017 stood at 0.10, down 23% from 0.13 registered in 2016.

During the reporting period, the Company continued to further enhance its on-site health and safety system. In 2017, no fatalities have been recorded across all of Polyus' operations (versus 2 fatalities in 2016).

In 2017, Polyus initiated several programmes aimed at improving safety and reducing workplace injuries. Since the launching the hand injury prevention programme at Krasnoyarsk Business Unit, no incidents have been registered in 2017 (versus 4 hand injuries in 2016). At Verninskoye in February 2017, a pilot programme focused on the prevention of falling incidents was introduced. Following the initiation of the programme no falling incidents occurred. In addition, Polyus started the installation of lock out/tag out systems at the crushing and power facilities at Verninskoye, Natalka, Alluvials and Power Group. These initiatives will be introduced across all Polyus' business units during 2018.

Over the course of the year, the Company's HSE and Sustainable Development Department carried out inspections to ensure workplace safety. Furthermore, Polyus started a programme of training employees on the development of safety and injury prevention culture.

Polyus aims to achieve zero accidents and is committed to continuous improvement across all aspects of its health and safety management system, exercising rigorous monitoring and control of safety matters to prevent accidents and improve LTIFR.

Consolidated operating results

In 4Q 2017, the Company produced 580 koz of gold (including 28 koz of gold contained in concentrate from Olimpiada), which represents a 10% decrease on 3Q 2017. This decline was mainly driven by a seasonal slowdown in production at Alluvials. Average recoveries went 1.1 ppts lower q-o-q to 82.7% as a result of a decrease in recoveries at Olimpiada, driven by temporary variations in the feed mineralogy, as well as the start of the hot commisioning at Natalka. Recoveries at the Group level, adjusted for the Natalka operations, amounted to 83.3% in 4Q 2017. Volumes of ore processed rose 7% q-o-q reflecting the start of hot commissioning at the Natalka mill and the completion of maintenance works at Blagodatnoye and Verninskoye.

In 2017, the Company produced 2,160 koz of gold (including 170 koz of gold contained in concentrate from Olimpiada), 10% higher y-o-y as a result of increased throughput capacity at the Company's core assets and higher grades in ore processed. Average recoveries declined 0.5 ppts y-o-y to 83.4% due to lower rates at Olimpiada, Blagodatnoye and Natalka, which is currently operational in a ramp-up mode. Adjusted for Natalka, recoveries at the Group level amounted to 83.6% in 2017. An 8% y-o-y increase in volumes of ore processed was due to higher volumes of ore treatment at Olimpiada, Blagodatnoye, Kuranakh and Verninskoye.

Operating results by mine

Olimpiada

In 4Q 2017, doré gold output decreased 12% q-o-q, to 307 koz, mainly due to lower processing volumes. In addition, accumulation of in-progress inventory, which was required to ensure continuous operation of BIO during maintenance at Mill 3, impacted on doré gold production. Total gold output (refined and concentrate) was 326 koz, down 5% q-o-q.

Volumes of rock moved rose 16% q-o-q to 24,108 kt mainly due to the commissioning of new WK excavators produced by the Chinese company "TYHI". Stripping ratio increased 14% q-o-q to 6.7 t/t, as the Company reduced volumes of ore mined in order to manage stockpiled ore.

Volumes of ore mined increased 4% q-o-q to 3,149 kt, while average grade declined 7% q-o-q to 3.90 g/t, reflecting reduced mining works at high-grade areas in line with the mining plan.

The decline in volumes of ore processed was attributable to the rescheduled maintenance of Mill-1 from September to October as well as to the maintenance works at Mill-3, which were completed in December. Meanwhile, average grade in ore processed was flat q-o-q at 3.94 g/t.

The recovery rate declined to 80.2% (compared to 81.4% in 3Q 2017) following a decrease in recovery at the flotation tailings sorption circuit.

In 2017, doré gold output increased 23% y-o-y to 1,177 koz primarily due to higher processing volumes, resulted from Mill-1 reconfiguration, and increased hourly throughput capacity at Mill-2 and Mill-3, which fully offset a minor decline in recoveries. Also, mining operations at higher-grade areas in line with the mining plan contributed to a strong performance in the reporting period.

Mining works and ore processing

OPERATING RESULTS BY MINE

Blagodatnoye

In 4Q 2017, doré gold output increased 21% q-o-q to 126 koz due to to higher processing volumes and grades. Refined gold output amounted to 127 koz, up 9% q-o-q.

Volumes of ore mined rose 3% q-o-q to 3,569 kt, while rock moved volumes amounted to 20,392 kt, broadly in line with the previous quarter. Hence, stripping ratio declined 4% q-o-q to 4.7 t/t.

Volumes of ore processed rose 17% q-o-q to 2,199 kt, reflecting the completion of maintenance works at Mill-4 in September as well as improved throughput of the Mill, which was supported by processing the material, mined under the Mine-to-Mill programme. This technology, designed to optimise mining and processing operations and minimise energy consumption via more suitable mill feed size, was trial tested in April 2017 and demonstrated its effectiveness, with ore size reduction positively impacting the Mill performance. Currently, Polyus is working on a full roll-out of the Mine-to-Mill project at Blagodatnoye from 2018.

A 0.3 ppts temporary decline in recovery resulted from the higher losses in the flotation circuit reflecting variations in mineral composition of the flotation feed.

In 2017, doré gold output remained flat y-o-y at 458 koz, as higher processing volumes fully mitigated the negative impact from the decline in grades and recoveries.

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 4Q 2017, doré gold output rose 9% q-o-q, to 56 koz, due to growth in ore treatment volumes. Refined gold output amounted to 46 koz, down 14% q-o-q.

Volumes of ore mined rose 16% to 982 kt q-o-q due to intensified mining activities at low-grade areas that were conducted in line with the mining plan. This, in turn, led to a 13% q-o-q decline in average grade in ore mined.

A 10% q-o-q increase in volumes of ore processed was mainly attributable to the completion of maintenance works at Verninskoye Mill in September 2017. Meanwhile, operational initiatives, undertaken over the past quarters, continued to contribute to the Mill's performance. This was also supported by enhanced hourly throughput of grinding equipment, resulted from reduced downtime during the maintenance period. Grades in ore processed and recovery rate remained stable on a q-o-q basis.

In 2017, doré gold output rose 11% y-o-y, to 207 koz, due to higher ore treatment volumes and improved recovery rates, this followed the implementation of the capacity expansion project at the Verninskoye Mill.

Mining works and ore processing

OPERATING RESULTS BY MINE

Alluvials 

In 4Q 2017, due to the seasonality of placer operations, gold in slime production declined 79%q-o-q to 18 koz. Refined gold output totalled 30 koz (down 65% q-o-q).

In 2017, alluvial deposits produced 146 koz of gold in slime, a 14% decrease on 2016. Refined gold output amounted to 146 koz (down 14% 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.

Sands washing

OPERATING RESULTS BY MINE

Kuranakh

In 4Q 2017, doré gold output was largely unchanged q-o-q at 46 koz. Refined gold output amounted to 48 koz, an 11% increase on 3Q 2017. 

Volumes of ore mined decreased 16% q-o-q, to 1,424 kt, in line with the plan, while grade rose 8% q-o-q, to 1.25 g/t, due to intensified mining activities at high-grade areas.

The heap leaching project at Kuranakh was successfully launched, with the first doré gold produced in 4Q 2017. Due to the seasonality of heap leaching operations, leaching activities were temporarily suspended until the end of the 1Q 2018.

Volumes of ore processed at the Mill were largely flat, as compared to the previous quarter. Grades in ore processed and recovery rate also remained stable on a q-o-q basis.

In 2017, total doré gold output at Kuranakh rose 9% y-o-y to 172 koz on the back of the higher volumes of ore processed and increased recovery rate, reflecting ongoing initiatives to further expand throughput capacity and operational improvements targeting recovery.

Mining works and ore processing

OPERATING RESULTS BY MINE

Natalka

Full-scale mining operations were relaunched in January 2017. In 4Q 2017, volumes of rock moved totalled 6,458 kt, while the volumes of ore mined amounted to 942 kt. Average grades in ore mined were 0.96 g/t, as mining works were concentrated on lower grade zones of the ore body according to the mine plan.

In 4Q 2017, ore treatment volumes reached 536 kt and the first doré gold has been poured at the Natalka Mill. As the Company plans to process lower grade stockpiles during the ramp up period, ores grading from 0.5 to 0.6 g/t have been treated during the 4Q 2017.

In December 2017, the Company received a positive resolution from Federal Industrial Supervision Service of Russia ("Rostechnadzor"), which conducted an industrial audit at Natalka. While technical works and tests are ongoing at the cake filtration and desorption circuits, the entire processing flow sheet now is fully operational. This includes primary crushing, SAG and ball milling circuits, three stages of gravity separation, intensive cyanidation, CIL circuit, electrowinning and smelting facilities.

Currently, Natalka operates in a ramp-up mode at ca. 50% of design capacity, processing 14-15 kt of ore on a daily basis.

In April-May 2018, Polyus plans to carry out scheduled maintenance at Natalka. Following that, the Mill will be gradually ramped up to its design parameters over the course of 2H 2018 versus the previously anticipated timeline to ramp up the Natalka operations by the end of 2018.

In addition, Polyus will proceed with the construction of power and auxiliary facilities as well as tailings facility expansion in 2018.

Mining works and ore processing 

FINANCIAL UPDATE

In 4Q 2017, the Company sold a total of 596 koz of gold, a 3% increase on 3Q 2017. Total gold sales include 82 koz of gold contained in the concentrate from Olimpiada.

Estimated 4Q 2017 gold sales remained largely unchanged q-o-q at approximately $734 million.

Over the course of 2017, the Company continued to pro-actively manage its loan portfolio. Polyus' liquidity position, combined with the proceeds from the Eurobond placement ($800 million) and the inflow from the Secondary Public Offering ($400 million), enabled Polyus to make an early prepayment of several bank credit facilities.

The Company's gross debt decreased to $4,281 million, compared to $4,981 million as of the end of 4Q 2016. In addition, Polyus continued to shift from floating to fixed interest rate, bringing the overall share of fixed-rate liabilities to 67% (as compared to 46% as of the end of 4Q 2016).

Currency-wise, Polyus' debt portfolio remains dominated by US dollar denominated instruments. The Company's debt profile remains smooth with limited debt maturities outstanding till the end of 2018.

As of 31 December 2017, the Company's estimated cash position was $1,204 million (30 September 2017: $1,121 million) and its estimated net debt position amounted to $3,077 million (30 September 2017: $3,151 million).

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 16th January 2018 at 12 pm London time (3 pm Moscow time) to present and discuss the 4Q and FY 2017 operating results.

To join the conference call, please dial:

Conference ID: 5789655

UK

+44 (0)330 336 9105 (Local access)

0800 358 6377 (Toll free)

USA

+1 323-794-2551 (Local access)

800-239-9838 (Toll free)

Russia

+7 495 213 1767 (Local access)

8 800 500 9283 (Toll free)

To access the replay, please dial:

Passcode: 5789655

 UK +44 (0) 207 660 0134 (Local access)

0 808 101 1153 (Toll free)

USA

+1 719-457-0820 (Local access)

888-203-1112 (Toll free)

Russia

810 800 2702 1012 (Toll free)

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.