PLZL.L Regulatory News (PLZL)

Press Release 16 October 2018

PJSC Polyus

Trading update for the third quarter of 2018

PJSC Polyus ("Polyus" or the "Company") today releases its 3Q 2018 operating results.

3Q 2018 Highlights

· Total gold output increased 15% to 691 thousand ounces compared to the previous quarter (2Q 2018: 602 thousand ounces). Year on year, volumes of doré gold and total gold output rose by 10% and 8%, respectively.

· Volumes of ore mined amounted to 12,673 thousand tonnes, a 36% increase on the previous quarter and 28% increase year on year.

· Volumes of ore processed rose to 10,382 thousand tonnes, up 5% on the previous quarter as the Company is continuing to expand processing capacities at its core assets.

· Volumes of antimony contained in flotation concentrate amounted to 6.4 thousand tonnes, up 3% on the previous quarter.

· Sukhoi Log: Polyus has launched the Pre-feasibility Study ("PFS") at Sukhoi Log. The drilling campaign remains in progress.

· Estimated gold sales amounted to $821 million, up 20% compared to the previous quarter, with an estimated weighted-average gold selling price (incl. the impact from the SPPP) of $1,209/oz (down 7% on the second quarter of 2018).

· Estimated net debt stood at $3,029 million as at 30 September 2018, compared to $3,208 million as at the end of the previous quarter and $3,077 million as at the end of 2017.

9M 2018 Highlights

· Total gold output increased to 1,800 thousand ounces, compared to 1,580 thousand ounces during the respective period of 2017, representing a 14% increase. Doré volumes totalled 1,865 thousand ounces, up 16% compared to the prior-year period.

· Volumes of ore processed rose by 38% year on year, to 28,746 thousand tonnes, driven by the ramp-up of the Natalka Mill as well as the expansion of existing operations.

· Recovery rate stood at 80.9%, down 2.8 ppts from the prior-year period. Recoveries at the group level, adjusted for the Natalka operations, stood at 82.3%.

· Estimated gold sales increased 8% year on year to $2,112 million, with an estimated weighted-average gold selling price (incl. the impact from the SPPP) of $1,275/oz, broadly in line with the respective period of 2017.

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

"Polyus delivered another robust operational performance in the third quarter. Our debottlenecking initiatives at Olimpiada, Blagodatnoye and Kuranakh are progressing well, each posting a gradual increase in throughput. We remain focused on addition of profitable ounces within the perimeter of existing operations as this is where we see the greatest opportunity for ongoing value-creation.

With 1.8 million ounces of gold produced during the nine months of 2018, the Company remains confident of delivering on its production guidance of 2.375-2.425 million ounces for the full year.

The ramp-up of production at Natalka, our key development project, is approaching completion. Being among the top largest deposits globally, Natalka is not only a cornerstone of our production growth, but also an affirmation of Polyus' team ability to bring operations on line in an efficient manner."

Health and safety update

The LTIFR rate for the third quarter of 2018 stood at 0.11, compared to 0.10 registered in the prior-year period.

The Company works continually to ensure that it has the appropriate health and safety practices in place and that all personnel receive the optimal training. Over the course of the third quarter of 2018, three HSE inspections took place in the Krasnoyarsk Business Unit, Natalka and the Power Group in order to ensure their compliance with HSE requirements. At Kuranakh, a pre-certification audit of the integrated Health & Safety management system was carried out and confirmed that there were no critical non-compliance issues

Consolidated operating results

3Q 2018 Highlights

· Total gold output in the third quarter of 2018 amounted to 691 thousand ounces, compared to 602 thousand ounces in the second quarter of 2018. The increase was mainly driven by higher seasonal production volumes at Alluvials and supported by solid performance at hard rock deposits.

· Volumes of ore mined amounted to 12,673 thousand tonnes, up 36% on the previous quarter, primarily reflecting higher ore volumes mined at Olimpiada and Kuranakh.

· Volumes of ore processed increased 5%, to 10,382 thousand tonnes, compared to the previous quarter, due to the ramp up of heap leaching operations at Kuranakh and higher processing volumes at Blagodatnoye.

· Recovery rate stood at 80.6% and remained flat compared to the previous quarter. The recoveries at the group level, adjusted for the Natalka operations, amounted to 82.1%.

· Flotation concentrate output amounted to 31.8 thousand tonnes, up 14% on the previous quarter. Volumes of antimony and gold contained in flotation concentrate increased 3% to 6.4 thousand tonnes and 7% to 67 thousand ounces, respectively.

9M 2018 Highlights

· Total gold output for the first nine months of 2018 stood at 1,800 thousand ounces (including 205 thousand ounces of gold contained in concentrate from Olimpiada), compared to 1,580 thousand ounces in the prior-year period. This growth was driven by increased production volumes at Olimpiada and the start of operations at Natalka. Doré volumes totalled 1,865 thousand ounces, up 16% on a year on year basis.

· Volumes of ore processed increased to 28,746 thousand tonnes, compared to 20,854 thousand tonnes in the first nine months of 2017, reflecting the implementation of expansion projects at Polyus' core assets as well as the launch of the Natalka Mill.

· Recovery rate stood at 80.9%, down 2.8 ppts from the prior-year period, reflecting the on-going ramp up at Natalka and a decrease in recoveries at Olimpiada and Blagodatnoye. The recoveries at group level, adjusted for the Natalka operations, amounted to 82.3%.

· Flotation concentrate volumes increased 34% compared to the prior-year period and reached 95.4 thousand tonnes. Volumes of antimony contained in flotation concentrate totaled 20.1 thousand tonnes.

Olimpiada

3Q 2018 Highlights

Ø Total gold output was 350 thousand ounces.

Ø Recoveries increased 0.2 ppts to 79.2%.

Ø Volumes of antimony contained in flotation concentrate amounted to 6.4 thousand tonnes.

Gold output

Doré gold output in the third quarter of 2018 stood at 347 thousand ounces, up 2% compared to the previous quarter. Total gold output (refined and concentrate) grew by 3% compared to the previous quarter, to 350 thousand ounces, driven by higher production volumes of gold contained in concentrate, increased ore processed volumes and improved recoveries. On a year on year basis, doré gold output remained largerly unchanged, while refined gold production and total gold output increased 7% and 2%, respectively.

Mining works

Rock moved volumes totalled 33,234 thousand tones, a 12% increase on the second quarter of 2018.

Polyus continued upgrading its mining fleet at Olimpiada in the reporting period. The Company delivered two Komatsu bulldozers and two large wheel loaders to the site. In addition, the Company commissioned two TYHI WK-35 shovels. Four WK-35 shovels and 34 CAT 793 trucks with capacity of 220 t are currently operating on site, contributing to the higher volumes of rock moved.

Volumes of ore mined rose to 5,884 thousand tonnes, from 3,698 thousand tonnes in the previous quarter. In line with the mining plan, Polyus intensified mining activities at low-grade flanks of the Vostochny pit, which resulted in a 14% decline in average grades, to 3.48 g/t from 4.04 g/t in the second quarter of 2018.

Ore processing

Volumes of ore processed totalled 3,365 thousand tonnes, remaining almost flat compared to the previous quarter. This reflects the sequence of maintenance works, with Mill-3 undergoing a scheduled maintenance in August. The average grades in ore processed at Olimpiada remained almost in line with the average grades in the second quarter of 2018, at 4.12 g/t.

Polyus' technical team proceeds with optimization of the processing parameters at Mill-1. Installation of turbo-elevators drove a 6% increase in hourly throughput of Mill-1, compared to the previous quarter.

Recovery rate increased to 79.2% reflecting lower gold losses with flotation tailings. Polyus expects recovery rates to increase going forward as the Company proceeds with operational initiatives targeting recovery improvement, including the launch of the alkaline leaching circuit and flash flotation.

Volumes of antimony contained in flotation concentrate amounted to 6.4 thousand tonnes, a 3% increase on the previous quarter.

Mining works and ore processing

Blagodatnoye

3Q 2018 Highlights

Ø Refined gold output amounted to 110 thousand ounces.

Ø Volumes of ore mined totalled 1,512 thousand tonnes, compared to 1,445 thousand tonnes in the previous quarter.

Ø Volumes of ore processed were 2,349 thousand tonnes, compared to 2,195 thousand tonnes in the second quarter of 2018.

Gold output

Doré gold output in the third quarter of 2018 was 111 thousand ounces, up 9% compared to the previous quarter, mainly reflecting higher processing volumes. Refined gold output amounted to 110 thousand ounces, up 8% on the previous reporting period. Doré gold output increased 7% compared to the third quarter of 2017 on the back of higher processing volumes.

Mining works

Volumes of rock moved increased 2% to 20,231 thousand tonnes compared to the previous quarter. Volumes of ore mined rose 5% to 1,512 thousand tonnes, compared to 1,445 thousand tonnes in the second quarter of 2018. The pit cutback at Blagodatnoye remains in progress. A 3% decline in average grade (1.54 g/t in the third quarter of 2018 vs 1.59 g/t in the second quarter of 2018) was the result of continuing mining activities at low-grade flank areas of the deposit, which will allow the Company to extract higher-grade material in later periods.

Ore processing

The average grade in ore processed was 1.66 g/t during the reporting period. Volumes of ore processed totaled 2,349 thousand tonnes, a 7% increase compared to the previous quarter, reflecting the sequence of maintenance works (maintenance of the first line of Mill-4 was carried out in May). Installation of turbo-elevators at SAG mills positively impacted the hourly throughput of Mill-4 and contributed to a strong performance in the reporting period.

The recovery rate increased to 87.7% from 87.3% in the previous quarter, owing to decreased gold losses at CIL due to lower arsenic content in ore feed.

Mining works and ore processing

Verninskoye

3Q 2018 Highlights

Ø Total gold output totalled 60 thousand ounces.

Ø Recovery rate stood at 89.5%.

Gold output

Doré gold output was 54 thousand ounces, down 11% on the previous quarter, due to scheduled maintenance works at the Mill. Refined gold output amounted to 60 thousand ounces, compared to 53 thousand ounces in the second quarter of 2018, reflecting changes in gold in inventory at the refinery. Refined gold output rose 12% compared to the third quarter of 2017.

Mining works

Volumes of rock moved declined by 13% to 4,726 thousand tonnes, in line with the mining paln. Volumes of ore mined rose to 755 thousand tonnes, up 2% on the previous quarter, with grades remaining flat at 2.60 g/t. Implemetation of Mine-to-Mill programme along with the Wenco mining fleet management system continued to positively impact equipment productivity at Verninskoye in the reporting period.

Ore processing

In the reporting period, the average grade in ore processed stood at 2.64 g/t vs 2.63 g/t in the second quarter of 2018. Volumes of ore processed amounted to 712 thousand tonnes, down 11% on the previous quarter. This decline was driven by scheduled maintenance works at the Verninskoye Mill in September.

The recovery rate stood at 89.5%.

Mining works and ore processing

Alluvials

3Q 2018 Highlights

Ø Gold in slime production amounted to 86 thousand ounces.

Ø Refined gold output totalled 84 thousand ounces.

In the third quarter of 2018, Alluvial deposits produced 86 thousand ounces of gold in slime, up 158 % on the second quarter of 2018. The third quarter period is peak production season for the alluvial operations.

Refined gold output totalled 84 thousand ounces, compared to 24 thousand ounces in the previous quarter.

Sands washing

Kuranakh

3Q 2018 Highlights

Ø Ramp up of the heap leaching operations.

Ø Refined gold output was 44 thousand ounces, remaining flat to the previous quarter.

Gold output

Doré gold output in the third quarter of 2018 amounted to 55 thousand ounces, a 13% increase compared to the second quarter of 2018, driven by higher volumes of ore processed at heap leaching facilities. On a year on year basis, doré gold output has increased by 24%. Refined gold output amounted to 44 thousand ounces, in line with the second quarter of 2018, reflecting changes in gold in inventory at the refinery.

Mining works

Volumes of rock moved amounted to 8,477 thousand tonnes, up 5% on the previous quarter.

During the same period, volumes of ore mined increased 27% to 2,522 thousand tonnes compared to the previous quarter, as Polyus continued mining activities at the areas with a lower stripping ratio. Polyus increased the share of lower-grade material in ore mined in order to provide the leaching facilitites with a continous feed of material. Consequently, the average grade decreased to 0.97 g/t.

Ore processing

Volumes of ore processed at the mill stood at 1,303 thousand tonnes, in line with the previous quarter. Re Recovery rate at the Mill stood at 88.9%, remaining unchanged from the second quarter of 2018.

Heap leaching

Leaching activities were recommenced in May 2018 and reached design parameters in July 2018. 1,030 thousand tonnes were processed at heap leaching facilities in the third quarter of 2018, with average grade of 0.75 g/t. Doré gold output amounted to 9.2 thousand ounces.

Mining works and ore processing

Natalka

3Q 2018 Highlights

Ø Volumes of ore mined amounted to 1,998 thousand tonnes, up 39% on the previous quarter.

Ø Grades in ore processed stood 1.32 g/t.

Mining works

In the third quarter of 2018, volumes of rock moved totaled 13,088 thousand tonnes, while volumes of ore mined increased to 1,998 thousand tonnes, posting a 39% increase from the second quarter of 2018. In accordance with the mine plane, the average grades in ore mined increased to 1.05 g/t.

During the reporting period, the Company finished assembling three Komatsu E730 trucks, bringing the total number of operating Komatsu E730 trucks of 186 t capacity to 17 units. In addition, Polyus delivered a TYHI WK -20 excavator to the site, to be commissioned in October.

Ore processing

In August 2018, Polyus stopped capitalising borrowing costs and other directly attributable operating costs related to the development of Natalka, as the Natalka Mill reached commercial production.

In the third quarter of 2018, the Company proceeded with the construction works at the Natalka Mill's auxiliary infrastructure, including earthworks at the fuel warehouse and finishing works for an assay laboratory. The Company is also developing wireless broadband at Natalka, which, along with mining fleet automation system, will allow to improve control of mining equipment.

The Company conducted scheduled maintenance works in July-August. The latter resulted in a temporary decline in ore treatment volumes compared to the previous quarter (1,623 thousand tonnes vs. 1,893 thousand tonnes). Over the course of the maintenance works, Polyus put the gyratory crusher MK-60-110E back into operation, in line with the previously outlined schedule. The average grade in ore processed was 1.32 g/t, an 18% increase on the previous quarter.

By the end of the third quarter, as the Natalka Mill reached its annualized design throughput run rate, the ball mill motor went out of order due to a deformation of the mounting face for the bearing on the rotor shaft. Consequently, the Company has switched to a shortened flowsheet, utilizing a one-stage grinding process at the SAG mill and therefore bypassing the ball mill, which resulted in lower throughput rates and recoveries. The Company anticipates putting the ball mill back into operation post repairs in November 2018 and expects the mill to revert promptly to operating at full capacity. In December, Natalka will undergo scheduled maintenance.

Mining works and ore processing

Sukhoi Log

3Q 2018 Highlights

Ø Polyus has entered the Pre-feasibility stage.

Current status

In the reporting period, Polyus launched the Pre-feasibility Study at Sukhoi Log, which is expected to be completed in 2020.

The Company is currently proceeding with the drilling campaign. As at the end of the third quarter of 2018, Polyus had completed approximately 50% of the planned 105 thousand meters of in-fill drilling, which will be followed by deep-level and flank drilling. Polyus had also launched hydrogeological and geotechnical drilling program in the reporting period.

The Company expects to have the Measured and Indicated Mineral Resources estimate by the end of 2018, and the Proven and Probable Mineral Reserves report - in 2020.

Financial update

Gold sales

In the third quarter of 2018, the Company sold a total of 699 thousand ounces of gold, a 32% increase on the previous quarter. Total gold sales include 92 thousand ounces of gold contained in the concentrate from Olimpiada.

Estimated gold sales in the reporting period increased to approximately $819 million, compared to $683 million in the previous quarter and $733 million in the third quarter of 2017.

Debt management

As of the end of the third quarter of 2018, the Company's gross debt decreased to $4,029 million, compared to $4,116 million as of the end of the second quarter. Polyus' debt portfolio is predominantly comprised of US dollar denominated instruments in regards to currency allocation. The Company's debt maturity profile remains smooth with limited debt maturities outstanding until the end of 2018.

As at 30 September 2018, the Company's estimated cash position was $1,000 million (30 June 2018: $908 million) and its estimated net debt position amounted to $3,029 million (30 June 2018: $3,208 million). Net debt amounts exclude liabilities under cross currency swaps related to RUB-denominated bank credit facilities and rouble bonds, in a total amount of $507 million as of the end of the third quarter.

In the reporting period, Polyus attracted a new credit line facility with Sberbank in a total amount of RUB 65 billion due in 2024 to refinance existing Sberbank credit line facility due in 2019. The funds under the new facility will become available for drawdown by maturity of the existing Facility in April 2019. The Company plans to repay the principal amount and liabilities under cross-currency swaps in the amount of approximately $1.0 billion in 2019, in line with the current maturity schedule.

Debt capital markets activities

In September, Polyus has invited holders of its notes due 2020, 2022, 2023 and 2024 (the "Series"). to tender those notes for purchase in the aggregate maximum consideration amount of $300 million. The purchase prices were determined pursuant to a Modified Dutch Auction. Polyus repurchased ca. $132 million in aggregate principal amount of notes across all the Series.

Dividends

In August, the Board of Directors of PJSC Polyus has recommended the dividends for the first six months ended 30 June 2018 in the amount of 131.11 Russian roubles per ordinary share. The dividend amount is equivalent to approximately 1.91 U.S. dollars per ordinary share, or 0.96 U.S. dollars per depositary share (with two depositary shares representing interest in one ordinary share).[1]

The total recommended dividend payout for the first half of 2018 will amount to 17,351,049,675.96 Russian roubles and correspond to $253.2 million, representing 30% of the Company's EBITDA for the first half of 2018, in line with the Company's dividend policy.

The dividend has been approved by the Company's Extraordinary General Shareholders' Meeting on 28 September 2018. The dividend record date is set on 18 October 2018.

Conference call

Polyus will host an analyst conference call on 16 October 2018 at 3 pm London time (5 pm Moscow time) to present and discuss the third quarter operating results.

To join the conference call, please dial:

Conference ID: 6018397

UK+44 (0)330 336 9411 (Local access)

0800 279 7204 (Toll free)

USA

+1 646-828-8143 (Local access)

800-949-2175 (Toll free)

Russia+7 495 646 9190 (Local access)

8 10 8002 8675011 (Toll free)

To access the replay, please dial:

Passcode: 6018397

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.