PJSC Polyus (LSE, MOEX — PLZL) (“Polyus”, the “Company”, and together with the Company subsidiaries, the “group”) has today released its consolidated financial results for the third quarter of 2020.
Key highlights
- Total gold sales volumes amounted to 772 thousand ounces, up 15% compared to the second quarter of 2020. This reflects seasonally higher production volumes at Alluvials as well as increased refined gold production volumes across almost all hard-rock deposits. This also includes 70 thousand ounces of gold contained in concentrate from Olimpiada, compared to 26 thousand ounces in the second quarter of 2020.
- Revenue for the third quarter 2020 totalled $1,454 million, up 26% compared to the previous quarter. This is partially attributable to the aforementioned growth in gold sales volumes. At the same time, the average realised refined gold price was 11% higher compared to the second quarter, at $1,907 per ounce.
- The group’s TCC for the third quarter increased 9% to $369 per ounce compared to the previous quarter due to the seasonal increase in output at the structurally higher cost alluvial operations. In addition, higher MET expenses, driven by the increase in average realised gold price put additional pressure on the group’s TCC. These factors were partially offset by an increase in share of lower-cost antimony-rich flotation concentrate in total gold sold. The latter also resulted in higher by-product credit of $14 per ounce in the third quarter compared to $1 per ounce in the previous quarter.
- Polyus adjusts its TCC guidance for 2020 downwards, based on the Company’s operational performance for the nine months of 2020, with total cash costs now expected to stay within the range of $375-$425 per ounce for the full year 2020, compared to the previous estimate of $400-$450 per ounce. Polyus continues to apply the foreign exchange rate assumption of 60 rouble per dollar for TCC guidance calculation.
- Adjusted EBITDA for the third quarter of 2020 reached $1,103 million, a 28% increase compared to $860 million in the previous quarter, the highest on record and driven by growth in gold sales volumes and higher gold prices during the period.
- Capital expenditures (“capex”) for the period remained largely flat, at $130 million, compared to $127 million in the previous quarter.
- Levered free cash flow for the third quarter of 2020 reached $720 million, primarily due to growth in the operating profit for the period.
- The net debt /adjusted EBITDA ratio decreased to 0.7x compared to 0.8x as at the end of the previous quarter, reflecting a lower net debt position and adjusted EBITDA growth over the last twelve months.
- Polyus has today provided an overview of the key highlights of the Pre-Feasibility study for Sukhoi Log, confirming the outstanding economic viability of the project, in addition to selecting key areas of the project for further in-depth analysis.
Dividend update
In September, the Board of Directors of PJSC Polyus recommended dividends for the first six months ended 30 June 2020 in the amount of 240.18 Russian roubles per ordinary share. The dividend amount is equivalent to approximately $3.01 per ordinary share, or $1.51 per depositary share (with two depositary shares representing interest in one ordinary share)1.
The total recommended dividend payout for the first half of 2020 amounts to approximately $410 million1, in line with the Company’s dividend policy. The dividend has been approved by the Company’s Extraordinary General Shareholders’ Meeting on 30 September 2020. The dividend record date was on 20 October 2020.
COVID-19 update
Strict protective measures and safety protocols remain in place across all the Company operations. These include special access control arrangements requiring all rotational employees to be tested for COVID-19 and quarantined in observation facilities prior to their transfer to Polyus’ sites. Besides that, the Company has introduced antibody blood testing of employees going to production sites (those with a sufficient amount of antibodies can enter production sites through a simplified procedure). In total, since the beginning of the pandemic Polyus has conducted 131 thousand COVID-19 tests and donated medical equipment to local hospitals in the regions of operations. Use of personal protective equipment is mandatory. All communal areas are regularly disinfected, and all employees working both at offices and production sites are subject to regular testing. In addition, the Company is carrying out daily temperature checks for all Polyus and contractor employees.
During the third quarter of 2020, the Company allocated $50 million to measures aimed at preventing the spread of the COVID-19 pandemic. Out of the total amount the Company incurred $36 million was recorded in Cost of gold sales (additional staff expenses related to extended working shifts) and Other expenses (COVID-19 test kits, medical services and support to regional hospitals) in amounts of $15 million and $21 million, respectively. The remaining $14 million was attributable to in-progress inventory and capitalised as part of property, plant and equipment in the Statement of Financial position. The expenses associated with COVID-19 and recognised as part of Cost of gold sales were excluded from both TCC and AISC calculations. At the same time, all P&L expenses related to COVID-19, in the amount of $36 million were excluded from the adjusted EBITDA calculation, respectively.
1Based on the currency exchange rate of the Central Bank of Russia of 79.6845 Russian roubles per 1 U.S. dollar as of 30 September 2020. For additional information on dividends, see Note 18 and Note 29 of the condensed consolidated interim financial statements.
Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:
Polyus posted solid financial results for the third quarter of 2020, driven by growth in sales volumes and a higher gold price in the reporting period. For the first time in the Company’s history EBITDA surpassed a $1 billion threshold, setting a new record high at $1.1 billion.
Based on the Company’s cost performance for the first nine months of 2020, we are adjusting our TCC guidance for the year downwards. Polyus now expects total cash costs for the full year of 2020 to stay within the range of $375-$425 per ounce, compared to the previous estimate of $400-$450 per ounce.
We also continue to progress with the development of our flagship greenfield project, Sukhoi Log. Following the publication of the Maiden Ore Reserve estimate a few weeks ago, we have now published an overview of the key highlights from the Pre-Feasibility study. This has reconfirmed the outstanding quality of the largest untapped gold deposit globally, and we are now proceeding with further technical and financial analysis of the project at the Feasibility study stage. We expect to provide a further update on Sukhoi Log following the completion of the Feasibility Study in 2022.
Comparative financial results
| $ million (if not mentioned otherwise) |
3Q 2020 |
2Q 2020 |
Q-o-Q |
3Q 2019 |
Y-o-Y |
9M 2020 |
9M 2019 |
Y-o-Y |
| Operating highlights | ||||||||
| Gold production (koz)2 | 771 | 690 | 12% | 753 | 2% | 2,056 | 2,037 | 1% |
| Gold sold (koz) | 772 | 672 | 15% | 729 | 6% | 1,988 | 1,984 | 0% |
| Realised prices | ||||||||
| Average realised refined gold price ($/oz) | 1,907 | 1,723 | 11% | 1,482 | 29% | 1,755 | 1,372 | 28% |
| Financial performance | ||||||||
| Total revenue | 1,454 | 1,157 | 26% | 1,070 | 36% | 3,483 | 2,718 | 28% |
| Operating profit | 948 | 702 | 35% | 590 | 61% | 2,131 | 1,492 | 43% |
| Operating profit margin | 65% | 61% | 4 ppts | 55% | 10 ppts | 61% | 55% | 6 ppts |
| Profit for the period | 516 | 684 | (25%) | 300 | 72% | 811 | 1,247 | (35%) |
| Earnings per share — basic (US Dollar) | 3.59 | 5.11 | (30%) | 2.13 | 69% | 5.67 | 9.27 | (39%) |
| Earnings / (loss) per share — diluted (US Dollar) | 3.58 | 5.11 | (30%) | 2.13 | 68% | 5.65 | 9.26 | (39%) |
| Adjusted net profit | 771 | 485 | 59% | 459 | 68% | 1,742 | 1,067 | 63% |
| Adjusted net profit margin | 53% | 42% | 11 ppts | 43% | 10 ppts | 50% | 39% | 11 ppts |
| Adjusted EBITDA | 1,103 | 860 | 28% | 705 | 56% | 2,552 | 1,797 | 42% |
| Adjusted EBITDA margin | 76% | 74% | 2 ppts | 66% | 10 ppts | 73% | 66% | 7 ppts |
| Net cash flow from operations | 955 | 652 | 46% | 603 | 58% | 2,151 | 1,492 | 44% |
| Capital expenditure | 130 | 127 | 2% | 157 | (17%) | 381 | 410 | (7%) |
| Cash costs | ||||||||
| Total cash cost (TCC) per ounce sold ($/oz)3 | 369 | 340 | 9% | 412 | (10%) | 366 | 376 | (3%) |
|
All-in sustaining cash cost (AISC) per ounce sold ($/oz)4 |
571 | 568 | 1% | 628 | (9%) | 601 | 602 | 0% |
| Financial position | ||||||||
| Cash and cash equivalents | 1,633 | 1,654 | (1%) | 1,538 | 6% | 1,633 | 1,538 | 6% |
| Net debt (incl. derivatives)5 | 2,299 | 2,506 | (8%) | 3,393 | (32%) | 2,299 | 3,393 | (32%) |
| Net debt (incl. derivatives)/adjusted EBITDA (x) 6 | 0.7 | 0.8 | (13%) | 1.5 | (53%) | 0.7 | 1.5 | (53%) |
2Gold production is comprised of 701 thousand ounces of refined gold and 70 thousand ounces of gold in flotation concentrate in the third quarter of 2020 and 646 thousand ounces of refined gold and 44 thousand ounces of gold contained in flotation concentrate in the second quarter 2020
3TCC is defined by the group as the cost of gold sales, less property, plant and equipment depreciation and intangible assets amortisation, provision for annual vacation payment, employee benefits obligation cost and change in allowance for obsolescence of inventory and adjusted by inventories. TCC per ounce sold is the cost of producing an ounce of gold, which includes mining, processing and refining costs. The group calculates TCC per ounce sold as TCC divided by total ounces of gold sold for the period. The group calculates TCC and TCC per ounce sold for certain mines on the same basis, using corresponding mine-level financial information.
4AISC is defined by the group as TCC plus selling, general and administrative expenses, stripping activity asset additions, sustaining capital expenditures, unwinding of discounts on decommissioning liabilities, employee benefit obligations cost, and change in allowance for obsolescence of inventory less amortisation and depreciation related to selling, general and administrative expenses. AISC is an extension of TCC and incorporates costs related to sustaining production and additional costs which reflect the varying costs of producing gold over the life-cycle of a mine. The group believes AISC is helpful in understanding the economics of gold mining. AISC per ounce sold is the cost of producing and selling an ounce of gold, including mining, processing, transportation and refining costs, general costs from both mine and alluvial operations, and the additional expenditures noted in the definition of AISC. The group calculates AISC per ounce sold as AISC divided by total ounces of gold sold for the period.
5Net debt is defined as non-current borrowings plus current borrowings less cash and cash equivalents and bank deposits. Net debt also includes assets and liabilities under cross-currency and interest rate swaps at the reporting date. Net debt excludes derivative financial instrument assets/liabilities other than cross-currency and interest rate swaps, site restoration and environmental obligations, deferred tax, deferred revenue, deferred consideration for the Sukhoi Log licence and other non-current liabilities. Net debt should not be considered as an alternative to current and non-current borrowings, and should not necessarily be construed as a comprehensive indicator of the group’s overall liquidity.
6The group calculates net debt (incl. derivatives) to Adjusted EBITDA as net debt (incl. derivatives) divided by Adjusted EBITDA.
Total Cash Costs
In the third quarter, the group’s TCC increased by 9% to $369 per ounce compared to the previous quarter due to the seasonal increase in output at the structurally higher-cost alluvial operations. Moreover, higher MET expenses, driven by the increase in average realised gold price put additional pressure on the group’s TCC.
These factors were partially offset by a higher share of lower-cost antimony-rich flotation concentrate in total gold sold. The latter also resulted in higher by-product credit of $14 per ounce in the third quarter compared to $1 per ounce in the previous quarter.
TCC performance by mine, $/oz
In the third quarter, TCC at Olimpiada declined 10% compared to the second quarter, to $284 per ounce. This was driven by a higher share of lower-cost antimony-rich flotation concentrate in total gold sold during the quarter. This also resulted in an increase in by-product credit ($34 per ounce in the third quarter compared to $3 per ounce in the second quarter). In addition, a higher average grade in ore processed (3.56 grams per tonne in the third quarter compared to 3.47 grams per tonne in the second quarter) positively impacted the costs performance for the period. These factors were partially offset by higher MET expenses during the reporting period.
At Blagodatnoye, TCC amounted to $359 per ounce, up 11% compared to the second quarter, driven by higher MET expenses and higher consumption of reagents in the reporting period.
At Natalka, TCC declined to $316 per ounce, down 12% compared to the previous quarter, mainly driven by a 2.7 ppts increase in recovery rate (73.2% in the third quarter compared to 70.5% in the second quarter), following the installation of the second flash flotation unit and introduction of three CIL columns during the reporting period.
TCC at Verninskoye amounted to $323 per ounce, up 6% compared to the second quarter, primarily due scheduled maintenance works at the mill, which were completed in September 2020.
At Kuranakh, TCC declined to $485 per ounce, down 5% compared to the second quarter, driven by a higher share of lower-cost gold produced from the heap leaching facilities in the total gold sold during the reporting period.
At Alluvials, TCC increased 12% to $837, reflecting the write-off of seasonal deferred expenditures in the third quarter.
All-in sustaining costs (AISC)
In the third quarter, the group’s AISC remained broadly flat at $571 per ounce, as higher TCC per ounce was predominantly offset by lower stripping expenses and lower sustaining capital expenditures during the reporting period.
All-in sustaining costs by mine, $/oz
In the third quarter, AISC at Olimpiada decreased to $461 per ounce, driven by lower TCC per ounce and lower sustaining capital expenditures in the reporting period. AISC at Blagodatnoye increased to $495 per ounce, due to higher TCC per ounce for the reporting period. AISC at Natalka decreased to $475 per ounce, driven by lower TCC per ounce and lower SG&A expenses in the reporting period. AISC at Verninskoye decreased to $487 per ounce, while AISC at Kuranakh decreased to $657 per ounce, both driven by lower sustaining capital expenditures during the reporting period. AISC at Alluvials decreased to $935 per ounce, driven by lower sustaining capital expenditures in the reporting period.
Capex
In the third quarter of 2020, capital expenditures remained broadly flat compared to the previous quarter, at $130 million.
At Olimpiada, capital expenditures in the third quarter amounted to $32 million, remaining flat compared to the second quarter. During the reporting period, Polyus procured two drill rigs for the Vostochnyi pit and delivered a new SAG-mill to Mill-3. The Company expects to replace the existing SAG-mill at Mill-3 in the fourth quarter of 2020. Over the course of the third quarter, Polyus continued with the refurbishment of BIO tanks at BIO-3 and conducted the retrofitting of two BIO tanks at BIO-2 into agitation tanks.
At Blagodatnoye, capital expenditures increased to $14 million compared to $6 million in the previous quarter, as the Company continued to upgrade its mining fleet. During the third quarter, Polyus paid in advance for the delivery of WK-20 excavator and other bulk mining equipment. In addition, the Company commenced the active phase of exploration drilling activities at the South-Eastern part of the pit.
Capital expenditures at Natalka decreased to $23 million, down 18%, due to the active phase of the dams construction in the previous quarter. Polyus is progressing with construction activities at the operation’s main tailings storage facility, which is expected to be commissioned by the end of 2020.
The Company is progressing with a number of operational initiatives targeting further recovery improvement. During the reporting period, the Company installed the second flash flotation unit and completed the introduction of three CIL columns (out of eight) and is currently calibrating the optimal processing parameters. The Company targets the full scale commissioning of the flash flotation circuit at the Natalka Mill by the end of 2020.
At Verninskoye, capital expenditures increased to $21 million in the third quarter compared to $14 million in the previous quarter, due to the completion of the procurement of the additional ball mill to expand the capacity of the Verninskoye Mill to 3.5 mtpa.
At Kuranakh, capital expenditures remained broadly flat compared to the previous quarter. During the third quarter the Company proceeded with construction activities for the second heap leaching pad and the reconstruction of the tailings storage facility.
At Alluvials, capital expenditures amounted to $4 million in the third quarter and consisted of the ongoing replacement of worn-out equipment, as well as exploration activity.
IT-related capital expenditures amounted to $7 million, remaining flat throughout 2020. The Company continues to implement its ERP programme and other IT-related projects.
Capital expenditures at Sukhoi Log totalled $11 million. The Company completed a comprehensive internal review of the Pre-Feasibility Study (“PFS”) and provided an overview of the key highlights. The PFS has identified the preferred development approach, confirming the economic viability of Sukhoi Log, in addition to selecting key areas of the project for further in-depth analysis.
The Company is proceeding with a drilling campaign. In the third quarter, Polyus completed its in-fill drilling programme for 2020 with 35,200 meters drilled, compared to the 30,000 meters initially planned. This will allow the Company to better define the gold mineralisation within the future pit area, where Polyus expects to carry out mining activities during the first years of Sukhoi Log’s operations. The Company is also proceeding with further geotechnical drilling (1,700 meters drilled in the third quarter of 2020 out of 3,000 meters planned for 2020). The results of this drilling programme will be used in future studies. In the reporting period, the Company also proceeded with additional drilling at Sukhoi Log’s flanks and deep levels.
Capex breakdown7
| $ million | 3Q 2020 | 2Q 2020 | Q-o-Q | 9M 2020 | 9M 2019 | Y-o-Y |
| Olimpiada | 32 | 33 | (3%) | 90 | 98 | (8%) |
| Blagodatnoe | 14 | 6 | N.A. | 28 | 27 | 4% |
| Natalka | 23 | 28 | (18%) | 89 | 108 | (18%) |
| Verninskoye | 21 | 14 | 50% | 51 | 37 | 38% |
| Alluvials | 4 | 5 | (20%) | 13 | 16 | (19%) |
| Kuranakh | 8 | 9 | (11%) | 23 | 24 | (4%) |
| Sukhoi Log | 11 | 6 | 83% | 21 | 21 | 0% |
| IT capex | 7 | 7 | 0% | 20 | 31 | (35%) |
| Other | 10 | 19 | (47%) | 46 | 48 | (4%) |
| CAPEX | 130 | 127 | 2% | 381 | 410 | (7%) |
| Omchak electricity transmitting line | 9 | 10 | (10%) | 27 | 18 | 50% |
| Items capitalised , net8 | 38 | 28 | 36% | 89 | 126 | (29%) |
| Change in payables for purchase of property, plant and equipment | (8) | 1 | N.A. | 24 | 7 | N.A. |
| Purchase of PP&E9 | 169 | 166 | 2% | 521 | 561 | (7%) |
7The capex above presents the capital construction-in-progress unit as allocated to other business units, whilst in the consolidated financial statements capital construction-in-progress is presented as a separate business unit.
8Including capitalised stripping costs net of capitalised interest on loans and capitalised within capital construction-in-progress. For more details see Note 11 of the consolidated financial statements.
9Presented net of the Sukhoi Log deposit license acquisition cost and payments to Rostec.
In the third quarter of 2020, the total cash amount spent on the purchase of PP&E increased to $169 million, compared to $166 million in the previous quarter.
Following the completion of construction and receiving permits from state regulators, Natalka was connected to a new 220 kV power grid, Ust’- Omchug — Omchak. The total construction capex (excluding VAT) amounted to approximately RUB 10 bln (ca. $126 mln). Approximately RUB 6.5 bln (ca. $83 mln) out of the total capex spending is attributable to state subsidies, received by the Company in 2016-2019.
The new line provides additional energy transmission capacity, improving the reliability of low-cost renewable power supply in the region.
In the third quarter of 2020, Polyus exercised its right to accelerate the buy-out of the LLC «RT Business Development» participation interest in SL Gold, the holder of the Sukhoi Log deposit license, increasing its participation interest from 78% to 100% for a total consideration of approximately $128.2 million.
Other investing activities in the third quarter reflect $4 million of interest received.
Conference call
A conference call for investors and analysts hosted by Pavel Grachev (Chief Executive Officer) and Mikhail Stiskin (Senior Vice President, Finance and Strategy) will be held on 12 November 2020 at 10.00 (London) / 13.00 (Moscow).
Conference ID: 99244352#
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To access the replay, please dial:
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Polyus
Polyus is the largest gold producer in Russia and one of the top five gold miners globally with the lowest cost position. Based on its 2019 Ore Reserves and Mineral Resources, Polyus group ranks the third by attributable gold reserves among the world’s largest gold mining companies.
The Polyus group’s principal operations are located in Krasnoyarsk, Irkutsk and Magadan regions and the Republic of Sakha (Yakutia).
Enquiries
Investor and Media contact
Victor Drozdov, Director Communications & Investor Relations (CIR) Department
+7 (495) 641 33 77
drozdovvi@polyus.com
Forward looking statement
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 at the date of this announcement. Polyus and/or any Polyus group company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.