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Feasibility Study results and construction approval for the Nezhda gold project

12 November 2018

Polymetal International plc has completed the Feasibility Study (“FS”) for the Nezhda project based on the updated Ore Reserve estimate reported in accordance with the JORC Code. The Board has approved the start of project construction.

“Nezhda is a long-life, high-grade asset with robust economics”, said Vitaly Nesis, Group CEO of Polymetal. “The project is capital light and will rely heavily on our successful experience at Kyzyl. Nezhda will contribute to dividends per share already in 2022.”

HIGHLIGHTS

  • Mineral Resources (inclusive of Ore Reserves) comprise of 12.4 Moz of gold equivalent (“GE”) with an average GE grade of 4.5 g/t, a 1.6 Moz increase compared with the previous estimate.
  • The estimate of Proved and Probable Ore Reserves increased by 2.4 Moz of GE and now contains 38 Mt at an average grade of 3.6 g/t GE for 4.4 Moz of GE contained.
  • Open-pit reserves increased by 55% from 2.0 Moz to 3.1 Moz; open-pit reserves now comprise 70% of total reserves.
  • The FS envisions 25 years of production from 2021 to 2045. The life of mine plan includes 19 years of conventional open-pit mining from 2019 to 2037, and 17 years of production from underground ore from 2029 to 2045.  
  • The FS is based on a conventional 1.8 Mtpa flotation concentrator with gravity concentration circuit. Combined recovery to concentrate of 85% is supported by extensive external and in-house metallurgical testing.
  • Gravity gold concentrate will be processed at the existing Amursk POX facility while flotation concentrates will be sold to 3rd parties. Average annual production is expected at 180 Koz during the first full 3 years of operation and 155 Koz of payable gold during the first full 15 years of operation.
  • The FS has confirmed Nezhda’s low capital intensity and robust project economics:
    • Pre-production capital expenditures are estimated at US$ 234 million (including capitalised pre-stripping costs).
    • The project’s IRR is estimated at 29% with NPV of US$ 302 million (using a 10% discount rate, US$ 1,200/oz gold price, RUB/USD exchange rate of 63, and Brent oil price of US$ 67/bbl).
    • Total cash costs (TCC) for the open pit are estimated in the range of US$ 620-670/oz of GE and all-in sustaining cash costs (AISC) in the range of US$ 700-750/oz of GE. Life of mine TCC is expected in the range of US$ 700-750/oz of GE, with AISC in the range of US$ 800-850/oz of GE.
  • First production is planned for Q4 2021 with full ramp-up by Q2 2022.
  • The project has been approved by the Board of Directors subject to approval from the Russian anti-monopoly service, which is expected in December 2018. Following the final statutory clearance, Polymetal plans to consolidate 100% in Nezhda.

ORE RESERVE STATEMENT

The Nezhda Ore Reserve estimate is reported in accordance with the JORC Code (2012) as at 1 April 2018 using a gold price of US$ 1,200/oz and silver price of US$ 16/oz. A cut-off grade of 1.2 g/t gold equivalent has been applied for open pit and 2.8 g/t for the underground. The Ore Reserve statement was prepared by Polymetal and reviewed by CSA Global Pty Ltd (“CSA”).

Nezhda Ore Reserves estimate as at 1 April 2018

Ore Reserves 

Tonnage

Grade

Content

Mt

Au, g/t

Ag, g/t

GE, g/t

Au, Moz

Ag, Moz

GE, Moz

Open-pit

10.4

3.5

22.0

3.8

1.2

7.2

1.3

Underground

1.4

4.5

9.0

4.6

0.2

0.4

0.2

Total Proved

11.7

3.6

20.0

3.9

1.4

7.6

1.5

 

 

 

 

 

 

 

 

Open-pit

17.8

3.2

13.0

3.3

1.8

7.5

1.9

Underground

8.5

3.8

13.0

3.9

1.0

3.5

1.1

Total Probable

26.3

3.4

13.0

3.5

2.9

11.0

3.0

 

 

 

 

 

 

 

 

Open-pit

28.1

3.3

16.0

3.5

3.0

14.7

3.1

Underground

9.9

3.9

12.0

4.0

1.2

3.9

1.3

Total Proved + Probable

38.0

3.4

15.0

3.6

4.2

18.6

4.4

Notes: Ore Reserves were estimated as at 01.04.2018 with the following assumptions: Au=US$ 1,200/oz, Ag = US$ 16/oz, COG for the open-pit GE =1.2 g/t, for the underground GE = 2.8 g/t. Ore Reserves are reported in accordance with JORC Code (2012). Discrepancies in calculations are due to rounding. GE – Gold equivalent was calculated using conversion factor 95 for silver (kAg). Conversion factor for silver to gold equivalent was calculated using the following formula: kAg= ((Au Price/31.1035 - (Au Price/31.1035-Au Refinery cost) *(Taxes Au) /100 - (Au Refinery cost Au)) *(Au Recovery) / ((Ag Price/31.1035 - (Ag Price/31.1035-Ag Refinery cost) *(Taxes Ag) /100 - (Ag Refinery cost)) *(Ag Recovery)) where, Taxes – mining taxes; Recovery – complete recovery from ore to refined metal. Gold equivalent (g/t) was calculated using the following formula: GE = CAu + CAg / kAg where, CAu – in-situ gold grade, g/t, CAg – in-situ silver grade, g/t.

ADDITIONAL MINERAL RESOURCES    

Additional Mineral Resources for Nezhda are reported in accordance with the JORC Code (2012) as at 1 April 2018 using a gold price of US$ 1,200/oz and silver price of US$ 16/oz.

Nezhda Additional Mineral Resources as at 1 April 2018


Additional Mineral Resources

Tonnage

Grade

Content

Mt

Au, g/t

Ag, g/t

GE, g/t

Au, Moz

Ag, Moz

GE, Moz

Measured

 

 

 

 

 

 

 

Underground

0.2

4.0

9.0

4.1

0.0

0.1

0.0

Total Measured

0.2

4.0

9.0

4.1

0.0

0.1

0.0

 

 

 

 

 

 

 

 

Indicated

 

 

 

 

 

 

 

Underground

2.8

3.7

16.0

3.9

0.3

1.4

0.3

Total Indicated

2.8

3.7

16.0

3.9

0.3

1.4

0.3

 

 

 

 

 

 

 

 

Measured + Indicated

 

 

 

 

 

 

 

Underground

3.0

3.7

15.0

3.9

0.4

1.5

0.4

Total Measured + Indicated

3.0

3.7

15.0

3.9

0.4

1.5

0.4

 

 

 

 

 

 

 

 

Inferred

 

 

 

 

 

 

 

Open-pit

2.3

2.2

8.0

2.3

0.2

0.6

0.2

Underground

44.1

5.2

9.0

5.3

7.4

13.1

7.5

Total Inferred

46.4

5.1

9.0

5.2

7.6

13.7

7.7

 

 

 

 

 

 

 

 

Measured + Indicated + Inferred

 

 

 

 

 

 

 

Open-pit

2.3

2.2

8.0

2.3

0.2

0.6

0.2

Underground

47.1

5.1

10.0

5.2

7.7

14.6

7.9

Total Measured + Indicated + Inferred

49.4

5.0

10.0

5.1

7.9

15.1

8.1


Notes: Measured and Indicated Mineral Resources are additional to Ore Reserves. Inferred Mineral Resources are by definition always additional to Ore Reserves. Cut-off grades of 1.2 g/t and 2.8 g/t gold equivalent (GE) for the open pit and underground mining methods, respectively. Due to the effects of rounding, the sum of individual values will not necessarily equal the total. All Mineral Resources that were converted to Ore Reserves were excluded from the statement. GE – Gold equivalent was calculated using conversion factor 95 for silver (kAg).

The estimate has been updated with 217 additional drill holes (39 km) and is based on data from a total 64,708 m of diamond drilling completed by Polymetal between 2015 and 2018 in addition to the 339,392 m of drilling completed by previous owners. Two hundred and ninety-four mineralised intersections were identified based on fire assay results.

Mineral Resources for the open pit were estimated up to a depth of 250 m from the surface, with the underground portion estimated up to a depth of 440 m from the surface.

The largest mineralised structure is ore zone 1 (“OZ 1”) which has a strike length of 4,900 m and a vertical extent of over 1,800 m and comprises approximately 70% of currently estimated GE resources at Nezhda. For OZ 1, top cutting at 80 g/t gold was applied to reduce outlier grade influence on local estimation. Another first-priority mining area is Ore Zone (OZ) 56.

INFORMATION ON NEZHDA

Nezhda is the fourth largest gold deposit in Russia, located in northeast Yakutia in the Tompon municipal district, approximately 480 km east from the city of Yakutsk (population of 350,000). The property is remote with access by an all-season unpaved road and no grid connection. The nearest federal highway is 110 km away from the deposit by all-year unpaved road. The highway provides direct access to the Khandyga river port (170 km) and the Nizhniy Bestiakh railway spur (540 km). The climate is characterized by long severe winters and short hot summers. The relief is moderately mountainous with relative altitudes above valley floors not exceeding 600 m.

The deposit is composed of large mineralised zones, representing areas of intense brecciation comprised of crushed and sheared, hydrothermally altered, sedimentary rocks that have been variably enriched in quartz. The Nezhda mineralisation is double refractory due to the encapsulation of fine gold particles within sulphide minerals and significant presence of preg-robbing carbonaceous material.

The Nezhda gold deposit was discovered in 1951 during the Allakh-Yunskaya geological exploration expedition. From 1959, the deposit was subject to several exploration and evaluation initiatives resulting in newly identified ore zones. In 1975, a 180 Kt per annum underground mine and concentrator was commissioned at Nezhda with over 2 Mt of ore mined and processed before the operation was placed on care and maintenance in 2005. Polyus acquired the asset in 2006, subsequently undertaking an extensive exploration program and completing several technical studies.

Polymetal entered into the project by establishing a joint venture with Polyus for the Nezhda gold deposit in 2015, completing a total 42,479 m of diamond drilling by 2017, which resulted in an initial Mineral Resource estimate reported in accordance with the JORC code on July 17, 2017. Polymetal then agreed to buy out 75.3% interest in Nezhda from Pallavicino Holdings by serving an exercise notice for the call option in April 2018. The consideration will comprise US$ 144 million, payable in Polymetal shares (apart from US$ 10 million that will be paid in cash).

MINING

The updated mine plan envisages five open pits (four at OZ 1 and a separate pit at OZ 56) that will be mined over 19 years via conventional drill-and-blast and truck-shovel methods, with a subsequent gradual switch to underground mining that will last for 17 years. The total expected mine life currently stands at 27 years, and can potentially be increased by another 10 years, following additional exploration to improve the confidence of the remaining Mineral Resources.

The projected open-pit mining volumes are currently set at up to 2.2 Mtpa of ore with an average stripping ratio of 9 (excluding pre-strip).    

The underground mine will utilise long-hole stoping with partially consolidated backfill, a method currently used to good effect by Polymetal at the Albazino underground mine.

METALLURGY AND PROCESSING

The concentrator with a capacity of 1.8 Mtpa incorporates crushing, two-stage grinding, gravity and flotation, concentration. Concentrates are thickened, filtered, dried and bagged for off-site processing. Tails are thickened, filtered, and dry stacked in a fully lined tailings storage facility. Gold recovery to concentrate is anticipated at 85% with a mass pull ratio of 4.8%. An average concentrate grade of 61 g/t is expected.

Flotation concentrates will be sold to third party off-takers while gravity concentrate will be processed at the existing Amursk POX facility. The current feasibility study does not include any consideration of the potential second line at the Amursk POX that would be capable of processing flotation concentrate in-house.

CAPITAL EXPENDITURE

Total capital costs for Nezhda in 2019-2021 are estimated at US$ 234 million, including US$ 30 million of capitalised pre-stripping costs, and will be funded out of free cash flow.

Area

Capital Cost,

US$ million

 

Mining fleet

19

Processing plant equipment

39

Construction and infrastructure

126

Engineering

3

Contingency

17

Initial Capital Costs

204

Capitalised pre-stripping

30

Total Capital Costs

234

During 2015-2018 Polymetal has invested approximately US$ 120 million in Nezhda, including the acquisition of its current 17.7% stake, the option to increase ownership to 100%, substantial exploration, evaluation and engineering activities, as well as a significant infrastructure upgrade.

PROJECT DEVELOPMENT TIMELINE

Polymetal envisages the following conceptual development timeline for the Nezhda gold Project:

  • Final approval from the Federal Anti-Monopoly Service in Q4 2018

  • Mining activities to start in Q4 2018 subject to positive decision by Federal Anti-Monopoly Service

  • Start of construction in Q1 2019

  • Commissioning and first production: Q4 2021

  • Full ramp-up: Q2 2022

APPENDIX

Competent persons

This estimate was reviewed by CSA Global Pty Ltd., who assumes overall responsibility for the Mineral Resources and Ore Reserves Report.

Listed below are the Competent Persons employed by CSA that are responsible for relevant research on which the Mineral Resources and Ore Reserves estimate is based:

  • Geology and Mineral Resources – Dmitry Pertel, Principal Geologist CSA Global Pty Ltd. (MAIG) with over 30 years’ relevant experience;

  • Mining and Ore Reserves - Karl van Olden, Mining Manager / Principal Mining Engineer (FAusIMM) with over 25 years’ relevant experience;

All the above-mentioned Competent Persons have sufficient experience that is relevant to the style of mineralisation and types of deposits under consideration and to the activity being undertaken to qualify as a Competent Person as defined in the 2012 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’ (JORC Code).

All Competent Persons have given their consent to the inclusion in the report of the matters based on their information in the form and context in which it appears.

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Polymetal International plc (LSE, MOEX: POLY, ADR: AUCOY) (together with its subsidiaries — “Polymetal”, the “Company”, or the “Group”) is a top-20 global gold producer and top-5 global silver producer with assets in Russia, Kazakhstan and Armenia. The Company combines strong growth with a robust dividend yield.
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