PLZL.L Regulatory News (PLZL)

Press Release 23 April 2019

PJSC Polyus

Trading update for the first quarter of 2019

1Q 2019 Highlights

· Total gold output decreased 6% to 601 thousand ounces compared to the previous quarter (4Q 2018: 640 thousand ounces). Year on year, volumes of doré gold and total gold output grew by 22% and 19% respectively.

· Volumes of ore mined amounted to 13,946 thousand tonnes, representing a 16% increase on the previous quarter. On a year on year basis, volumes of ore mined rose by 58%, reflecting intensified mining activities at Natalka as well as higher ore feed requirements at existing operations following the implementation of processing capacity expansion projects.

· Volumes of ore processed totalled 10,284 thousand tonnes, up 11% on the previous quarter. Year on year, volumes of ore processed rose by 21%, driven by the completion of the ramp-up at Natalka as well as ongoing capacity expansion projects at Polyus' core assets.

· Estimated gold sales amounted to $741 million, down 3% compared to the previous quarter, with an estimated weighted-average gold selling price of $1,308/oz (up 6% on the fourth quarter of 2018).

· As at 31 March 2019, the estimated net debt stood at $3,011 million, compared to $3,086 million as at the end of the previous quarter and $3,079 million as 31 March 2018.

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

Polyus enjoyed a strong first quarter. Natalka, which has been operating at full capacity since late December 2018, contributed 85 thousand ounces of gold.

Polyus continues implementation of brownfield projects across its asset portfolio. In Krasnoyarsk region, the Company conducts expansion projects at Olimpiada and Blagodatnoye to increase throughput capacities of the milling complex to 22.4 million tonnes per year on a combined basis. At Kuranakh, Polyus proceeds with Stage 3 of the Kuranakh Mill expansion to 5.8 million tonnes per year.

At Sukhoi Log, we are progressing well with the drilling campaign, which is 70% complete, and are on track with the preparation of the Pre-feasibility study. The Company expects to provide a maiden estimate of Proven & Probable Ore Reserves for Sukhoi Log in the first half of 2020.

Sustainability update

There have been no serious environmental incidents reported at Polyus' operations during the first quarter of 2019.

LTIFR for the period decreased to 0.06 from 0.07 in the fourth quarter of 2018.

During the first quarter, health and safety compliance audits were conducted at Kuranakh, Polyus Logistics, Polyus Project and MFC Polyus. Polyus Logistics launched a road traffic safety action plan at its Krasnoyarsk branch.

Based on reviews of injury causes in the full-year 2018 and first-quarter of 2019, injury prevention activities relating to Falls Prevention and Equipment and Tools Impact have been prioritised at all business units.

The Enhanced Safety Action Plan has been completed at Natalka, increasing the involvement of the business unit's management in safety-related issues and ensuring an overall improvement of personnel safety. Polyus approved the feasibility study and road map for the creation of an environmetal laboratory at Natalka. The opening of the laboratory is planned for 2020.

At a Company level, the general HSE guidelines ('the Golden Safety rules') were updated. Polyus has approved a new training program for managers and engineers focused on Leadership, Risk assessment and Accident investigation.

In March, Polyus joined the United Nations Global Compact, an international corporate sustainability initiative promoting sustainable development principles under the auspices of the UN.

Additionally, during the first quarter of 2019 Polyus participated in several ICMM initiatives, including working group meetings on tailings storage facilities, the H&S Forum, and the work of the Principal Liaison Council. Consolidated operating results

1Q 2019 Highlights

· Total gold output in the first quarter of 2019 amounted to 601 thousand ounces, compared to 640 thousand ounces in the fourth quarter of 2018. The decrease reflects a seasonal slowdown in production at Alluvials and lower refined gold volumes at Olimpiada, Blagodatnoye and Kuranakh. At Olimpiada and Blagodatnoye, a decrease in refined gold volumes mainly reflects changes in gold in inventory at the refinery. The decline in the group's refined gold output was partially offset by the growing output at Natalka following completion of its ramp-up, with 85 thousand ounces of gold produced over the period.

· Doré volumes totalled 656 thousand ounces, up 12% on the previous quarter. This growth is mainly attributable to increased doré gold production at Natalka (99 thousand ounces in the first quarter of 2019 vs 20 thousand ounces in the previous quarter) and release of work-in-progress inventories at Olimpiada.

· Volumes of ore mined amounted to 13,946 thousand tonnes, up 16% on the previous quarter, primarily driven by higher ore volumes mined at Natalka, Blagodatnoye and Verninskoye.

· Volumes of ore processed increased 11% to 10,284 thousand tonnes, compared to the previous quarter, primarily driven by the completion of the ramp-up at the Natalka Mill in December 2018.

· Recovery rate rose to 81.4%, compared to 80.6% in the fourth quarter of 2018, driven by higher recoveries at Natalka and Olimpiada. In January-February, Polyus temporarily halted introduction of antimony-rich ore into the processing at the Mill No. 1 and operated the mill on run-of-mine ore, producing merchant gold containing flotation concentrate.

· Flotation concentrate output amounted to 26 thousand tonnes, up 24% on the fourth quarter, comprising of 17 thousand tonnes of merchant gold containing flotation concentrate and 9 thousand tonnes of antimony-rich flotation concentrate. In 2018, the Company produced 9 thousand tonnes of merchant gold containing flotation concentrate and 107 thousand tonnes of antimony-rich flotation concentrate.

· Volumes of antimony in flotation concentrate declined by 68%, to 1.1 thousand tonnes, reflecting a temporarily decline in antimony-rich ore volumes in processing operations at the Mill No. 1. 

· Volumes of gold in flotation concentrate increased 22%, to 62.7 thousand ounces.

Olimpiada

1Q 2019 Highlights

Ø Ore processed volumes totalled 3,489 thousand tonnes.

Ø Recovery rate rose to 80.8%, from 78.8% in the previous quarter.

Ø Doré gold output was 348 thousand ounces.

Gold output

Doré gold output in the first quarter of 2019 stood at 348 thousand ounces, up 9% compared to the previous quarter, partially reflecting release of work-in-progress inventories. Total gold output (refined and concentrate) declined by 10% compared to the previous quarter, to 311 thousand ounces, due to changes in gold in inventory at the refinery. On a year on year basis, doré gold output grew by 9%, while refined gold production was up 17%.

Mining works

Rock moved volumes totalled 32,232 thousand tones, an 8% decrease on the fourth quarter of 2018.

Volumes of ore mined remained almost flat on a quarter-on-quarter basis, at 5,167 thousand tonnes. In line with the mining plan, Polyus temporarily intensified mining activities at lower-grade zones of the Vostochny pit, which resulted in an 8% decrease in average grades, to 3.36 g/t from 3.67 g/t in the fourth quarter of 2018.

Polyus continued upgrading its mining fleet at Olimpiada in the reporting period, delivering two large Epiroc PV-351 drilling rigs to the site. During 2019, Polyus expects to commission three additional excavators, two bulldozers, two wheel loaders and 12 trucks, including seven САТ 793D with payload capacity of 220 tonnes, two Komatsu HD-1500-8 with capacity of 136 tonnes and three 90 tonnes CAT 777E.

Ore processing

Volumes of ore processed totalled 3,489 thousand tonnes, up 2% compared to the previous quarter.

Following a temporary decline in grades in ore mined, average grades in ore processed decreased 6% to 3.76 g/t, compared to the previous quarter.

Recovery rate increased to 80.8%, up 2.0 ppts compared to the previous quarter. Under the mine sequencing, Polyus temporarily halted introduction of antimony-rich ore into the processing at the Mill No. 1 for two months and operated the mill on run-of-mine ore, producing merchant gold containing flotation concentrate. In addition, the Company commissioned a sorption tailings filtration circuit, which led to lower gold losses in tailings.

Over the course of the first quarter, Polyus continued the roll out of the flash flotation project at Olimpiada. Currently, the Company is conducting a ramp up of two flash flotation units at Mill No. 3 and proceeding with the construction and installation works at Mills No. 1, 2.

In line with the plan, volumes of antimony contained in flotation concentrate decreased to 1.1 thousand tonnes in the reporting period, reflecting a temporary decline in share of antimony-rich material in ore processed.

Mining works and ore processing

Blagodatnoye

1Q 2019 Highlights

Ø Volumes of ore processed totalled 2,282 thousand tonnes, compared to 2,135 thousand tonnes in the previous quarter.

Ø Doré gold output was 101 thousand ounces.

Gold output

Doré gold output in the first quarter of 2019 amounted to 101 thousand ounces, down 3% compared to the previous quarter and largely flat compared to the prior-year period. Refined gold output amounted to 94 thousand ounces, compared to 112 thousand ounces in the previous reporting period, reflecting changes in gold in inventory at the refinery. On a year on year basis, refined gold output increased 3%.

Mining works

Volumes of rock moved decreased 6% to 17,050 thousand tonnes compared to the previous quarter.

Volumes of ore mined increased 12% to 2,215 thousand tonnes, compared to 1,972 thousand tonnes in the fourth quarter of 2018. A 23% decline in average grades to 1.20 g/t in first quarter (from 1.56 g/t in the previous quarter) reflects the sequence of mining works. The latter was concentrated at lower-grade areas of the deposit, which will allow the Company to extract higher-grade material going forward.

Ore processing

The average grade in ore processed declined to 1.57 g/t during the reporting period, from 1.76 g/t in the fourth quarter of 2018, due to lower grades in ore mined.

Volumes of ore processed totalled 2,282 thousand tonnes, a 7% increase compared to the previous quarter, as scheduled maintenance works were carried out at Mill No. 4 in November-December 2018.

Recovery rate stood at 87.5%.

Mining works and ore processing

Verninskoye

1Q 2019 Highlights

Ø Average grade in ore processed stood at 2.90 g/t, compared to 2.63 g/t in the fourth quarter of 2018.

Ø Total gold output totalled 67 thousand ounces, up 30% on the previous quarter.

Gold output

Doré gold output stood at 61 thousand ounces, remaining almost flat quarter on quarter. Refined gold output amounted to 67 thousand ounces, compared to 52 thousand ounces in the fourth quarter of 2018, reflecting changes in gold in inventory at the refinery. Refined gold output grew by 14% compared to the first quarter of 2018. 

Mining works

Volumes of rock moved increased 35% to 5,649 thousand tonnes, in line with the mining plan. Mine-to-Mill programme introduced at Verninskoye in 2018 alongside with the Wenco mining fleet management system contributed to higher rock moved volumes. Volumes of ore mined increased to 978 thousand tonnes, up 51% on the previous quarter.

Average grades remained largely unchanged at 2.66 g/t (2.70 g/t in the fourth quarter of 2018).

Ore processing

During the reporting period, the average grade in ore processed stood at 2.90 g/t, up 10% compared to the previous quarter. This reflects increased volumes of high-grade material in ore mined.

Volumes of ore processed amounted to 725 thousand tonnes, down 8% on the previous quarter, reflecting scheduled maintenance works at the Verninskoye Mill, completed in March 2019. 

The recovery rate stood at 89.5%, compared to 89.6% in the previous quarter.

Mining works and ore processing

Alluvials

1Q 2019 Highlights

Ø Due to the seasonality of placer deposits no gold was produced at Alluvials in the first quarter of 2019.

Ø As usual, the washing season ended in November 2018 and was resumed in April 2019.

Ø Maintenance and preparation works were conducted at the deposits.

Sands washing

Kuranakh

1Q 2019 Highlights

Ø Ore processed volumes totalled 1,344 thousand tonnes, down 9% on the previous quarter.

Ø Refined gold output was 44 thousand ounces.

Gold output

Doré gold output in the first quarter of 2019 amounted to 47 thousand ounces, a 9% decline compared to the fourth quarter of 2018, mainly due to temporary suspension of heap leaching operations. On a year on year basis, doré gold output increased 7%. Refined gold output amounted to 44 thousand ounces, down 32% on the previous quarter, reflecting lower doré gold output and changes in gold in inventory at the refinery.  

Mining works

Volumes of rock moved amounted to 7,392 thousand tonnes, down 4% on the previous quarter. Volumes of ore mined declined by 4%, to 1,626 thousand tonnes, compared to the fourth quarter of 2018.

Average grades stood at 1.14 g/t compared to 1.13 g/t in the fourth quarter of 2018.

Ore processing

Volumes of ore processed at the Kuranakh Mill amounted to 1,344 thousand tonnes, up 1% on the previous quarter.

Both recovery rate and average grade in ore processed at the Mill stood at 88.7% and 1.22 g/t, respectively, remaining unchanged from the fourth quarter of 2018.

Heap leaching

Due to the seasonality of heap leaching operations, the latter will be resumed in the second quarter of 2019.

Mining works and ore processing

Natalka

1Q 2019 Highlights

Ø Volumes of ore processed amounted to 2,444 thousand tonnes, up 66% on the previous quarter.

Ø Recovery rate stood at 71.7%.

Ø Refined gold output reached 85 thousand ounces.

Mining works

In the first quarter of 2019, volumes of rock moved totalled 15,343 thousand tonnes, while volumes of ore mined rose to 3,960 thousand tonnes, posting a 54% increase from the fourth quarter of 2018. The average grades in ore mined stood at 1.08 g/t.

During the course of the first quarter, Polyus progressed with construction activities at the Natalka Mill's auxiliary infrastructure, including ground works at tailings facility and tanks installation at the fuel storage facility. In addition, the Company commissioned the assay laboratory.

Ore processing

Volumes of ore processed increased to 2,444 thousand tonnes, up 66% on the previous quarter. This reflects the ramp-up completion in December 2018 and hourly throughput of the Natalka Mill reaching 1,306 t/h in the reporting period.

Starting January 2019, the Company began introducing higher head grades into the ore processing operations (1.78 g/t in the first quarter of 2019 vs 0.90 g/t in the fourth quarter of 2018). Recovery rate increased to 71.7%, reflecting the low base of the fourth quarter of 2018, when the Company switched to a shortened flowsheet due to the ball mill motor breakdown.

The Company targets further gradual recovery improvement via identified list of operational measures, including introduction of the fourth stage of gravity concentration, transition to new 63 mm milling balls, installation of a belt magnet to remove recirculating scrap metal at the ball mill and reduction of recirculation load by maximizing cyclones efficiency.

In addition, Polyus' technical team, together with Outotec, a Finnish technology company, is currently evaluating the option of flash flotation introduction at the Natalka Mill, allowing to reduce gold content in recirculating flows increasing direct gold recovery.

Mining works and ore processing 

Sukhoi Log

1Q 2019 Highlights

Ø Polyus proceeds with the Pre-feasibility study.

Drilling campaign

The Company progressed with in-fill, deep levels, flanks and other drilling, which will last until the end of 2019.

Polyus has already drilled approximately 160,000 meters since October 2017 to date and completed the first stages of hydrogeology and geotechnical drilling.

In order to further update and upgrade the estimation of Indicated Mineral Resources at Sukhoi Log, the Company decided to expand the drilling campaign. Polyus now expects to drill approximately 223,000 meters until the end of the year, compared to 197,000 meter initially planned.

Following the completion of the drilling campaign, the Company expects to provide a Maiden estimate of Proven & Probable Ore Reserves for Sukhoi Log in the first half of 2020.

Pre-Feasibility Study highlights

Polyus continues to work on the Pre-Feasibility Study jointly with international engineering consultants.

A total of 64 core samples were selected for ore variability tests in the SGS laboratory in Chita. 44 samples have been already assayed, and 20 samples are on the way to the laboratory. Development of geological, geophysical, hydrometeorological surveys were completed. The results of those surveys will be used for infrastructure layout and processing facilities design at Sukhoi Log. Trade-off studies on throughput capacity and comminution circuits design are being finalized.

FINANCIAL UPDATE

Gold sales

In the first quarter of 2019, the Company sold a total of 570 thousand ounces of gold, an 11% decrease on the previous quarter. Total gold sales include 22 thousand ounces of gold contained in the concentrate from Olimpiada.

Estimated gold sales in the reporting period totalled approximately $741 million, compared to $764 million in the previous quarter and $608 million in the first quarter of 2018.

Debt management

In the reporting period, Polyus attracted several credit facilities in a total amount of approximately $474 million. This includes a debut pre-export financing type credit facility from Societe Generale for a total amount of $150 million due in 2024. Consequently, the Company's gross debt increased to $4,572 million, compared to $3,982 million as of the end of the fourth quarter of 2018.

Polyus' debt maturity profile remains smooth with limited debt maturities outstanding until the end of 2019. As at 31 March 2019, the Company's estimated cash position was $1,561 million (31 December 2018: $896 million). This growth reflects drawdown of new borrowings as well as free cash flow generation during the quarter. The portion of cash on balance, in a total amount of $250 million, was secured for the Sberbank 2023 loan prepayment, which was fully redeemed in April 2019.

The estimated net debt position remained flat compared to the previous quarter and amounted to $3,011 million (31 December 2018: $3,086 million). The group's net debt does not include liabilities under cross currency swaps related to RUB-denominated bank credit facilities and rouble bonds, in a total amount of approximately $544 million as of the end of the first quarter (31 December 2018: $591 million).

In April 2019, the Company repaid the principal amount and liabilities under cross-currency swaps in a total amount of $965 million, utilizing a credit facility with Sberbank in a total amount of RUB 65 billion due in 2024. The current portion of the aforementioned derivative liabilities amounted to $472 million as of the end of the first quarter and will be included into the net debt calculation following the repayment (subject to FX fluctuations post the end of the first quarter).

Dividend update

The Board of Directors of PJSC Polyus recommended the dividends for the second half of 2018 in the amount of 143.62 Russian roubles per ordinary share. The dividend is subject to approval by the Company's annual general shareholders' meeting on 6 May 2019.

The dividend amount is equivalent to approximately $2.22 per ordinary share or $1.11 per depositary share. The total recommended dividend payout for the second half of 2018 will correspond to approximately $296 million[iv].

The total dividend payout for the full year of 2018 will correspond to approximately $560 million. This amount includes $264 million paid out in form of dividend for the first half of 2018.

The dividend record date will be 16 May 2019.

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 23 April 2019 at 2 pm London time (4 pm Moscow time) to present and discuss the first quarter operating results.

To join the conference call, please dial:

Conference ID: 40550784#

UK

+44 207 194 37 59 (Local access)

0800 376 61 83 (Toll free)

USA

+1 646 722 49 16 (Local access)

844 286 06 43 (Toll free)

Russia

+7 495 646 93 15 (Local access)

8 800 500 98 63 (Toll free)

To access the replay, please dial:

Passcode: 418846120#

UK

+44 20 3364 5147

USA

+1 (646) 722-4969

Russia

+7 (495) 249-16-71

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.