POLY.L Regulatory News (POLY)

Polymetal International plc

Q2 2018 production results

Polymetal International plc (LSE, MOEX: POLY; ADR: AUCOY) (together with its subsidiaries - "Polymetal", the "Company", or the "Group") is pleased to announce the Group's production results for the second quarter and six months ended June 30, 2018.

HIGHLIGHTS

· Polymetal produced 324 Koz of gold equivalent (GE) in the second quarter of 2018, up 16% year-on-year. Volumes at Svetloye and Amursk POX combined with improved grades at Omolon drove the strong performance. Gold production for the quarter was 232 Koz, up 22% year-on-year. Silver production grew by 2% to 6.8 Moz year-on-year.

· GE production for the first six months of 2018 was 619 Koz, an 11% increase year-on-year and fully in line with guidance. Stronger production in the 2H will be driven by traditional seasonal concentrate de-stockpiling at Mayskoye, as well as first contributions from the recently launched Kyzyl operation.

· Kyzyl produced first concentrate in June, one month ahead of schedule. The operation is expected to ramp up to full throughput capacity (150 Kt per month) and reach design recoveries (86%) by October 2018. The company plans to produce 80 Koz of payable gold at Kyzyl this year.

· Gold sales for the quarter increased by 17%, which largely offset a 7% decline in silver sales as the Company generated a total of US$ 435 million in revenues, up 13% compared to previous year.

· During the quarter the Company generated significant free cash flow. Net debt increased by approximately US$ 75 million as the company paid US$ 129 million of final dividends for FY2017 (US$ 0.30 per share). As in prior years, we expect significantly stronger free cash flow generation in the second half of the year on the back of higher production volumes and seasonal working capital drawdowns.

· Polymetal is pleased to report that no fatalities occurred in the quarter. The Group's LTIFR improved to 0.17 versus 0.19 in Q2 2017. As part of a continuous effort improve across health and safety metrics, in Q2 we have implemented two new standards - voice reporting of near-misses to improve communication underground, and an incident recording system to improve the efficiency of preventive measures.

· The Company remains on track to meet its FY 2018 production guidance of 1.55 Moz of gold equivalent at TCC of US$ 650-700/GE oz and AISC of US$ 875-925/GE oz. Due to the seasonality of revenues, both TCC and AISC are expected to be at the higher end of the guidance range for the first half of the year. The cost guidance remains contingent on the Rouble/Dollar exchange rate dynamic that has a significant effect on the Group's Rouble-denominated operating costs. Polymetal will announce its half-yearly financial results on 22 August 2018.

"Another strong quarter puts us into a very comfortable position vis-a-vis our guidance for 2018", said Vitaly Nesis, Group CEO of Polymetal, commenting on the results. "With Kyzyl launched ahead of schedule, the focus is now on its smooth ramp-up and the completion of the POX debottlenecking project."

PRODUCTION BY MINE

Notes: (1) Based on 1:80 Ag/Au, 5:1 Cu/Au and 2:1 Zn/Au conversion ratios.

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast on Thursday, 26 July 2018 at 10:00 London time (12:00 Moscow time).

To participate in the call, please dial:

8 800 500 98 63 access code 95582454# (free from Russia), or

0808 238 9671 (free from the UK), or

+1 646 722 4913 (free from the US), or

follow the link: http://polymetal260718-live.audio-webcast.com. Please be prepared to introduce yourself to the moderator or register.

Webcast replay will be available on Polymetal's website (www.polymetalinternational.com) and at http://polymetal260718-live.audio-webcast.com. A recording of the call will be available immediately after the call at +44 20 3364 5147 (from within the UK), 1 646 722 4969 (USA Toll Free) and +7 495 249 16 71 (from within Russia), access code 418779146#, from 12:30 Moscow time Thursday, 26 July, till 12:30 Moscow time Thursday, 2 August, 2018.

Enquiries

FORWARD-LOOKING STATEMENTS

THIS RELEASE MAY INCLUDE STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, "FORWARD-LOOKING STATEMENTS". THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF THIS RELEASE. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING THE WORDS "TARGETS", "BELIEVES", "EXPECTS", "AIMS", "INTENDS", "WILL", "MAY", "ANTICIPATES", "WOULD", "COULD" OR "SHOULD" OR SIMILAR EXPRESSIONS OR, IN EACH CASE THEIR NEGATIVE OR OTHER VARIATIONS OR BY DISCUSSION OF STRATEGIES, PLANS, OBJECTIVES, GOALS, FUTURE EVENTS OR INTENTIONS. THESE FORWARD-LOOKING STATEMENTS ALL INCLUDE MATTERS THAT ARE NOT HISTORICAL FACTS. BY THEIR NATURE, SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS BEYOND THE COMPANY'S CONTROL THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS REGARDING THE COMPANY'S PRESENT AND FUTURE BUSINESS STRATEGIES AND THE ENVIRONMENT IN WHICH THE COMPANY WILL OPERATE IN THE FUTURE. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE. THERE ARE MANY FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENTS ARE BASED

DUKAT OPERATIONS

Note: (1) Technological recovery, includes gold and silver within work-in-progress inventory (concentrate, precipitate)

Dukat underground development and processing volumes at the Omsukchan concentrator both hit record levels as the operation is trying to offset grade declines and the narrowing of the average vein width.

Q2 gold production at Dukat increased by 3% year-on-year as the concentrator processed ore from gold-rich veins at the deeper levels of Dukat. Silver production decreased by 5% over 2017 due to planned grade declines.

Underground development at the Perevalnoye and Terem satellite deposits is making significant progress as both ore sources are expected to deliver significant contributions to the feed at the Omsukchan concentrator during the year. Stoping at Perevalnoye is expected to ramp up by Q3.

At Lunnoye, mill throughput volumes remained flat, while both gold and silver production decreased year-on-year by 14% and 8%, respectively. This comes on the back of lower grades following the depletion of high-grade areas of Zone 7.

ALBAZINO-AMURSK

Notes: (1) To concentrate

(2) For information only; not considered as gold produced and therefore not reflected in the table representing total production. Included in total production upon completion of downstream processing at the Amursk POX

At Albazino, ore mining started at the new Ekaterina open pit. The processing of partially oxidized near-surface material has negatively impacted recoveries, a situation expected to be reversed by the end of the year.

Underground mine productivity and grades continued to improve on the back of a full transition to partially cemented waste backfill in primary stopes.

At Amursk POX, the scheduled 6-week maintenance shutdown was successfully completed in May with the installation of all new pipes and valves required for the debottlenecking project. Year-on-year production increased by 58% as 2017 performance was impacted by a longer autoclave re-line shutdown.

The debottlenecking project is on schedule. The new section to crush, mill and store lime and limestone has been commissioned. The focus now shifts to commissioning the new oxygen plant and installing sulphur filters and the acidic thickener. Polymetal plans to ramp up the debottlenecked POX plant in Q4 of 2018, with additional feed comprising Kyzyl and 3rd-party concentrates.

OMOLON OPERATIONS

Note: (1) Technological recovery, includes gold and silver within work-in-progress inventory

In Q2, gold production at Omolon was up 15% year-on-year with silver production jumping 79%. Higher grades and better metallurgical properties of Sopka ore drove improved recoveries and lower work-in-progress requirements.

Underground mines performed strongly with a continued shift towards underground ore mining, particularly in terms of metals contained.

The Birkachan heap leach operation recommenced in Q2 with stacking volumes positively impacted by the introduction of screening operation ahead of the crusher. The circuit is expected to deliver meaningful production in 2H.

MAYSKOYE

Notes: (1) To concentrate

(2) For information only; not considered as gold produced and therefore not reflected in the table representing total production. Included in total production upon sale to off-taker or internal downstream processing to saleable metal product

(3) Work in progress. For information only; not considered as gold produced and therefore not reflected in the table representing total production

Underground development at Mayskoye continued to increase as the new mine level (100m below surface) is expected to enter stoping in Q1 2019.

Oxide ore processing through the combined float-leach circuit has demonstrated broadly positive results. Recoveries are in line with metallurgical test work and, given very high grades of oxide material, gold production for the year is expected to jump significantly.

This year most of Mayskoye concentrate will be sold to Chinese off-takers as in-house POX capacity is taken up by higher-grade third-party material. Accordingly, production at Mayskoye will be booked in the second half of the year once the stockpiled concentrate is shipped to off-takers and loaded carbon is stripped at the Amursk POX.  

VARVARA

Note: (1) Technological recovery, includes gold and copper within work-in-progress inventory. Does not include toll-treated ore

(2) To be further processed at Amursk POX.

In Q2, Varvara delivered a 12% increase in gold production year-on-year. Continued increases in Komar ore railing capacity drove higher processing volumes and improved head grades at the leaching circuit. Gold recovery rates in the leaching circuit also improved thanks to the detailed geo-metallurgical mapping of Komar ore followed by the introduction of flexible reagent additions.

Open pit mining volumes continued to shift away from Varvara towards Komar following high-margin ore tonnes.

Varvara continued to toll-treat third-party refractory gold ore. The produced gold concentrate is processed at the Amursk POX facility. Gold production from this material is booked following dore production from concentrate at Amursk.

VORO

Note: (1) Technological recovery, includes gold within work-in-progress inventory 

Q2 gold production at Voro decreased by 13% year-on-year, largely driven by lower ore grades.

Mining volumes declined sharply as expected given that the open pit is nearing closure next year. Exploration drilling has identified substantial high-quality mineralization below the open pit. Technical studies are currently under way to determine the feasibility of underground mining.

The heap leach plant shifted to residual leaching, whereby previously leached ore is re-crushed and re-agglomerated to enable recoveries from previously impermeable material.

SVETLOYE

In Q2 Svetloye delivered a robust 69% year-on-year production increase.

Higher stacking volumes and continued leaching of material placed on pads last year more than offset grade declines.

Successful step-out drilling at the Emy pit and positive metallurgical test work for the material from the nearby Levoberezhny property indicate potential to extend the life-of-mine of Svetloye by approximately 4 years to 2028.

OKHOTSK OPERATIONS

Note: (1) Technological recovery, includes gold and silver within work-in-progress inventory (precipitate)

At Okhotsk, production was largely flat. Sea transportation of ore from Avlayakan commenced on time setting the stage for improvement in grades in Q3.

A new small-scale satellite open-pit mine, Khotorchan, entered production. The operation is expected to be completed in Q4 2018 with ore trucked by winter road to the Khakanja mill in Q1 2019.

KAPAN

Gold production for Q2 decreased slightly year-on-year as the upper levels of the mine with high-grade stopes were temporarily unavailable due to the official enquiry of the fatal incident on March 2.

Ore mined volumes continued to grow, reflecting the positive results of ongoing improvement measures to debottleneck the underground mine, especially as mine personnel completed a full transition from manual to mechanized drilling. The processing volumes grew in line with mining.

Gold grades declined year-on-year as manual shrinkage with minimal dilution was completely phased out due to health and safety concerns.

KYZYL 

Note:  (1) For information only; not considered as gold produced and therefore not reflected in the table representing total production. It will be Included in total production upon sale to off-taker or internal downstream processing to saleable metal product

The Kyzyl processing plant was started up on 17 June 2018, one month ahead of schedule, with the first 1.3 Kt of concentrate produced during the month from the lower-grade material.

The 3-month ramp up period so far has been progressing according to plan. Grade reconciliation is in line with the reserve model. The recoveries are being improved continuously, with the current average run-rate of 72% achieved in July to date.

OTHER DEVELOPMENTS

Nezhda - the Company decided to exercise its call option to acquire the remaining 75.3% stake in the gold property, which will bring its effective stake to 100% once completed. The total consideration for the call option exercise will amount to US$ 144 million, payable in Polymetal shares. The transaction is expected to be completed by the end of 2018 after the receipt of all required regulatory approvals. A detailed development plan for the asset will be presented after the completion of a Feasibility Study in Q4 2018.

Prognoz - the Company has brought its effective ownership in the silver asset to 100% via 2 separate transactions for a total of US$ 212 million paid in Polymetal shares. An updated JORC-compliant resource estimate is expected in Q4 2018.

HEALTH AND SAFETY

Polymetal had no fatalities in the quarter, with a Group Lost Time Injury Frequency Rate ("LTIFR") of 0.17 versus 0.19 in Q2 2017.

All our Russian and Kazakh operations maintained their OHSAS 18001 accreditation following external audits, with Kyzyl and Komar re-certified during Q2 2018. An audit of Kapan is scheduled for the next quarter.

Safety remains a top priority for Polymetal and the Company reaffirms its commitment to further improving across health and safety metrics to achieve our zero‑harm target. Details of the implemented safety and employee welfare initiatives are set out in the Sustainability Report, which can be found on our website.

Polymetal continues to invest in digital technologies and innovative practices to achieve greater levels of safety, efficiency, and productivity. In the reporting period, we have implemented two new standards - voice reporting of near-misses to improve communication underground, and an incident recording system to improve the efficiency of preventive measures.

PERSONNEL

Yerbol Rakhimov (51) was appointed as Managing Director of Mayskoye. Yerbol replaced Yevgeny Tsybin (41) who assumed the position of Technical Director in Polymetal's Magadan office. Mr Rakhimov was born in Kazakhstan in 1967 and in 1991 graduated from the Kazakh Polytechnic Institute with a degree in mining engineering. From 1991 until 2011 he held various positions with Kazzinc, first as an underground mine surveyor and all the way up to chief engineer and mine manager. In 2011, Mr. Rakhimov joined Polymetal as chief engineer of the Dukat underground mine, a position he held until 2015. In 2015, he was appointed chief engineer of the Dukat operations.