Preliminary results for the year ended 31 December 2021

Polymetal is pleased to announce the Group’s preliminary results for the year ended 31 December 2021.

“We are reporting strong net earnings for the year amidst a variety of macroeconomic and pandemic-related challenges. Excellent financial results were supported by robust operating performance, successful launch and ramp-up of Nezhda, as well as advancement of our POX-2 project and Veduga investment decision. Crucially – for the second year in a row – we had no fatalities among Group employees. Polymetal also continues to generate significant free cash flows and pay substantial dividends.

We are shocked and appalled by the events going on in Ukraine. The conflict in Ukraine and related economic and political developments are likely to require a lot of management efforts to maintain company performance. However, despite a wide range of uncertainties we will be working under in 2022, it is our current intention to operate as normally as possible”, said Vitaly Nesis, Group CEO, commenting on the results.

FINANCIAL HIGHLIGHTS

• In 2021, revenue increased by 1%, totalling US$ 2,890 million (2020: US$ 2,865 million). Average realised gold and silver prices tracked market dynamics: gold price remained flat year-on-year while silver price was higher by 19%. Gold equivalent (“GE”) production was 1,677 Koz, a 2% increase year-on-year. Gold sales were stable year-on-year at 1,386 Koz, while silver sales were down 9% to 17.5 Moz and lagged production by 2.9 Moz due to the strong December production at Dukat, the gap is expected be closed in 1H 2022.

• Group Total Cash Costs (“TCC”)¹for the full year were US$ 730/GE oz, within the Group’s guidance of US$ 700-750/GE oz, and up 15% year-on-year, predominantly due to above-CPI inflation in the mining industry and planned decline in grades processed at Kyzyl, Svetloye and Mayskoye.

• All-in Sustaining Cash Costs (“AISC”)¹ amounted to US$ 1,030/GE oz, up 18% year-on-year, 6% above the upper end of the guidance range of US$ 925-975/GE, reflecting higher inflationary pressures on capital expenditure.

• Adjusted EBITDA1 was US$ 1,464 million, 12% lower than in 2020, mainly driven by higher costs against the backdrop of relatively stable sales volumes and revenue. The Adjusted EBITDA margin decreased by 7 percentage points. to 51% (2020: 58%).

• Net earnings² were US$ 904 million (2020: US$ 1,066 million), with basic EPS of US$ 1.91 per share (2020: US$ 2.25 per share), reflecting the decrease in operating profit as a result of the higher costs described above.

• Capital expenditure was US$ 759 million², up 36% compared to US$ 558 million in 2020 and 5% above the upper end of the guidance range of US$ 675-725 million. This was due to continuing macroeconomic pressures and significant materials and wage inflation, and reflects peak capital spending, including construction works at POX-2 and Nezhda, acceleration of the Kutyn and Veduga projects, the start of the feasibility study for the Pacific POX and, combined with higher stripping at Nezhda, Veduga and Kyzyl.

• Net debt¹ increased to US$ 1,647 million during the year (31 December 2020: US$ 1,351 million), representing a Net debt/Adjusted EBITDA ratio of 1.13x (2020: 0.81x), which remains significantly and favourably below the Group’s target leverage ratio of 1.5x. The increase in net debt was mainly driven by US$ 635 million of dividend payments (2020: US$ 481 million) combined with accelerated capital expenditures.

• The Group generated significant free cash flow¹ which amounted to US$ 418 million (2020: US$ 610 million), supported by a net operating cash inflow of US$ 1,195 million (up 2% compared to US$ 1,166 million in 2020, and almost unaffected by changes in working capital despite an increase in production volumes and the scope of operations).

• In light of the strong balance sheet position and underlying business performance in 2021, the Board has proposed a final dividend of US$ 0.52 per share (approx. US$ 246 million), representing 50% of underlying net earnings for the 2H 2021, in accordance with Polymetal’s dividend policy. This will bring the total dividend declared for FY 2021 to US$ 459 million (2020: US$ 608 million), which represents US$ 0.97 per share, compared to US$ 1.29 per share in 2020.

Notes:
(1) The financial performance reported by the Group contains certain Alternative Performance Measures (APMs) disclosed to compliment measures that are defined or specified under International Financial Reporting Standards (IFRS). For more information on the APMs used by the Group, including justification for their use, please refer to the “Alternative performance measures” section below.
(2) Profit for the financial period.
(3) On a cash basis, representing cash outflow on purchases of property, plant and equipment in the consolidated statement of cash flows.

Notes:
(1) Totals may not correspond to the sum of the separate figures due to rounding. % changes can be different from zero even when absolute amounts are unchanged because of rounding. Likewise, % changes can be equal to zero when absolute amounts differ due to the same reason. This note applies to all tables in this release.
(2) Restated due to a voluntary change in accounting policy. Starting from 1 January 2021, exploration and evaluation (E&E) expenses costs are capitalised into assets only when mineral resources are published; and before that are expensed as incurred.  Previously capitalised E&E assets with no mineral resource estimates were written off via retrospective adjustments to the 2020 income statement and balance sheet amounts brought forward. This note applies to all comparative data for 2020 in this release.
(3) Defined in the “Alternative performance measures” section below.
(4) In accordance with IFRS, revenue is presented net of treatment charges which are subtracted in calculating the amount to be invoiced. Average realised prices are calculated as revenue divided by gold and silver volumes sold, excluding effect of treatment charges deductions from revenue.
(5) FY 2021: final dividend for FY 2020 paid in 2021 and interim dividend for the 1H 2021 paid in September 2021. FY 2020: special and final dividend for FY 2019 paid in 2020 and interim dividend for the 1H 2020 paid in September 2020.
(6) FY 2021: interim and final dividend for FY2021. FY 2020: interim, final and special dividend for FY2020.

OPERATING HIGHLIGHTS

• No fatal accidents among the Group’s employees occurred in 2021 (nor any in 2020). Sadly, a contract driller lost his life in July 2021 at Saum, part of the Voro hub (there were no fatalities among contractors in 2020). The lost time injury frequency rate (LTIFR) among the Group’s employees was stable at 0.12. Days lost due to work-related injuries (DIS) for the full year decreased by 10% y-o-y to 1,516.

• The Covid-19 related epidemiological situation in the Group remains under control. Operations and development projects continue undisrupted.

• The Group’s 2021 gold equivalent (“GE”) production amounted to 1,677¹ Koz, a 2% increase y-o-y and 5% above the original production guidance of 1.6 Moz. Strong performances at Varvara and Dukat offset planned grade declines at Kyzyl, Albazino and Svetloye.

• Nezhda ramped up smoothly to full design throughput and recovery within three months of the first concentrate production in the 2H 2021. Following that, the Board approved a US$ 447 million investment in the 4 Moz Veduga project which is forecast to produce 200 Koz of gold per year on average over a 21-year mine-life. Construction will commence in Q3 2022, with the start of production scheduled for Q2 2025.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) HIGHLIGHTS

• In 2021, Polymetal received further external recognition of its ESG efforts with improved ratings and scores by MSCI ESG Ratings, Sustainalytics, CDP, Vigeo Eiris and ISS ESG Corporate Rating.

• The Group announced a new target to cut Greenhouse Gas (“GHG”) emission intensity by 30% and reduce absolute emissions by 35% by 2030, and is developing a detailed plan to achieve longer-term carbon neutrality (to be announced in Q4 2022).

• During 2021, the Group raised US$ 400 million of new sustainability-linked financing with interest rates linked to the GHG emission intensity reduction targets. Our total green and sustainability-linked loan portfolio is now US$ 648 million, 30% of the total outstanding debt.

• Greenhouse gas emissions intensity reduced by 9% in 2021 compared to 2019, attributed to increasing our renewable generating capacity (including the new solar power plant at Omolon), as well as energy efficiency initiatives, such as improving heat utilization systems and the implementation of small local renewable energy sources.

• In 2021, the share of water we reused and recycled amounted to 90% of the total water consumption at our sites (compared to 89% in 2020). In 2021, fresh water intensity for ore processing² decreased by 42% (as compared to the 2019 baseline), to 155 m3/1000 t of ore processed. We aim to reduce fresh water withdrawal intensity by 55% by 2030 (as compared to the 2019 baseline), to 120 m3/1000 t of ore processed.

• In 2021, in accordance with the Initial Guidance for Business published by the Science Based Targets for Nature initiative, we assessed our impacts on ecosystems and identified land use change from mining and related infrastructure to be the main pressure on biodiversity. In 2022, we plan to design measures to reduce land use change and set a relevant target.

• In 2021, we developed a reforestation program. By 2025, we expect to plant at least 4,400 ha (8.8 million trees) of new forests, predominantly in the Far East of Russia. In 2021, we planted 993 ha with larch and spruce as part of this programme. The US$ 7 million programme will allow us to restore the multiple eco-services that forests provide, including homes and food for species, a natural water cycle and carbon capture.

CORPORATE UPDATE

• There were no material transactions during 2021.

2022 OUTLOOK

• The current devastating conflict in Ukraine and related economic and political developments are likely to require a lot of management efforts to maintain Company performance. However, despite a wide range of uncertainties we will be working under in 2022, it is our current intention to operate as normally as possible, but remain agile to evolving circumstances.

• The Group reiterates its current production guidance of 1.7 Moz of GE for FY 2022. Production will be weighted towards 2H 2022 due to seasonality.

• The scope of operational activities and capital project advancement is not expected to change materially in the light of recent developments, however in light of substantial changes in the macro landscape our cost and capital expenditure guidance for 2022 is suspended. Further updates will be provided as the circumstances change.

• In 2022, Polymetal plans to develop long-term GHG reduction goals until 2050, develop a plan to achieve carbon neutrality across the Group, as well as set Scope 3 targets.

Notes:
(1) Based on 80:1 Au/Ag conversion ratio and excluding base metals. Comparative data for 2020 and guidance for 2021 restated accordingly (120:1 Au/Ag conversion ratio was used previously).
(2) Hereinafter this indicator excludes water used for non-technological purposes.

CONFERENCE CALL AND WEBCAST

Polymetal will release the Group’s FY 2021 preliminary financial results on Wednesday, March 2.

The Company will hold a conference call and webcast on Wednesday, 2 March 2022 at 11:00 London time (14:00 Moscow time).

To participate in the call, please dial:

From the UK:
+44 (0) 330 336 9601 (local access)
0800 279 6877 (toll free)

From the US:
+1 646 828 8073 (local access)
800 289 0720 (toll free)

From Russia:
+7 495 646 5137 (local access)
8 10 8002 8655011 (toll free)

To participate from other countries, please dial any of the local access numbers listed above.

Conference code:

EN – 3330104

RU (Simultaneous Interpreting) – 5773182 

Webcast and reply link: https://www.webcast-eqs.com/polymetal20220302.

Please be prepared to introduce yourself to the moderator or register.