Half-yearly report for the six months ended 30 June 2020


Polymetal has completed the divestment of its Russian business on 7 March 2024. Please see the relevant announcement at the link. Operating and financial results as well as other information on this website until 7 March 2024 represent the Group in its former organizational structure, i.e. including Russian business, unless otherwise stated.

26 August 2020

“We are pleased to report a strong financial performance in the first half of the year amidst a challenging global backdrop. Favourable commodity prices and our tight cost control, as well as the impact of foreign exchange and improved grades, drove a significant increase in the Group’s earnings, cash flow and dividends. Importantly, we’ve been able to minimise the impact of the COVID-19 pandemic on our people, communities, and operations. Our key development projects continue to progress on schedule”, said Vitaly Nesis, Group CEO, commenting on the results.

FINANCIAL HIGHLIGHTS

  • Revenue in 1H 2020 increased by 21% to US$ 1,135 million compared to 1H 2019 (“year-on-year”) on the back of higher gold and silver prices. Gold equivalent (“GE”) production was 723 Koz, an increase of 4% year-on-year. Gold sales were 595 Koz, down 1% year-on-year, as there was a lag between gold concentrate production and sales, which is expected to close in 2H 2020. Silver sales were down 4% to 9.9 Moz, in line with production. Average realised prices tracked market dynamics: gold prices achieved were up 25% year-on-year, while silver prices were up 10%.

  • Group Total Cash Costs (“TCC”)1 were US$ 638/GE oz for 1H 2020, down 4% year-on-year, and 2% below the lower end of the Company’s full year guidance of US$ 650-700/GE oz mostly due to a weakness in the Russian Rouble and the Kazakh Tenge combined with a positive impact of change in production structure towards the lower cost operations (notably Kyzyl).

  • All-in Sustaining Cash Costs (“AISC”)1 amounted to US$ 880/GE oz, down 3% year-on-year, within the Company’s full year guidance of US$ 850-900/GE oz.

  • Adjusted EBITDA1 was US$ 616 million, an increase of 53% year-on-year, against the backdrop of higher commodity prices and lower cash costs. The Adjusted EBITDA margin increased by 11 p.p. and reached an all-time high of 54% (1H 2019: 43%).

  • Net earnings2 were US$ 381 million (1H 2019: US$ 153 million), with basic EPS of US$ 0.81 per share (1H 2019: US$ 0.33 per share), reflecting the increase in operating profit.  Underlying net earnings1 increased by 98% to US$ 373 million (1H 2019: US$ 188 million).

  • Capital expenditure was US$ 248 million3, up 31% compared to US$ 189 million in 2019, reflecting the construction at POX-2. The Group is on track with the development activities at both POX-2 and Nezhda. 

  • An interim dividend of US$ 0.40 per share (1H 2019: US$ 0.20 per share) representing 50% of the Group’s underlying net earnings for 1H 2020 has been approved by the Board in accordance with the dividend policy. In 1H 2020, the Group has paid dividends totalling US$ 0.62 per share (including special dividend and final dividend for FY 2019).

  • Net debt1 increased to US$ 1,690 million during the period (31 December 2019: US$ 1,479 million), representing 1.3x last twelve months Adjusted EBITDA.  Increase in debt was driven by seasonal working capital build-up and payment of special and final dividends in the amount of US$ 291 million. Free cash flow1 was US$ 53 million, compared to US$ 63 million net outflow a year earlier. As usual, FCF is expected to be stronger in the second half of the year due to seasonally higher production and working capital drawdown.

  • Polymetal is on track to meet its 2020 production guidance of 1.5 Moz of gold equivalent. The company maintains its guidance range of US$ 650-700/GE oz and US$ 850-900/GE oz for TCC and AISC, respectively, as depreciation of the Russian Rouble and Kazakh Tenge is currently counterbalanced by COVID-related costs and increase in mining tax on the back of rising gold and silver prices.

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.

Financial highlights1 

1H 2020

1H 20192 

Change, %

Revenue, US$m

1,135

941

+21%

Total cash cost3, US$/GE oz

638

667

-4%

All-in sustaining cash cost3, US$/GE oz

880

904

-3%

Adjusted EBITDA3, US$m

616

403

+53%

 

 

 

 

Average realised gold price4, US$/oz

1,661

1,332

+25%

Average realised silver price4, US$/oz

16.7

15.2

+10%

 

 

 

 

Net earnings, US$m

381

153

+149%

Underlying net earnings3, US$m

373

188

+98%

Return on Assets3, %

23%

14%

+9 p.p.

Return on Equity (underlying)3,%

23%

13%

+10 p.p.

 

 

 

 

Basic EPS, US$/share

0.81

0.33

+145%

Underlying EPS, US$/share

0.79

0.40

+98%

Dividend declared during the period5, US$/share

0.62

0.31

+100%

Dividend proposed for the period6, US$/share

0.40

0.20

+100%

 

 

 

 

Net debt3, US$m

1,690

1,479

+14%

Net debt/Adjusted EBITDA7

1.31

1.38

-5%

 

 

 

 

Net operating cash flow, US$m

300

127

+136%

Capital expenditure, US$m

248

189

+31%

Free cash flow3, US$m

53

(63)

n/a

Free cash flow post-M&A3, US$m

55

(23)

n/a

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) Excluding Kapan in 1H 2019 (disposed in January 2019). This note applies to all tables 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) 1H 2020: Special and final dividend for FY 2019 paid in 2020. 1H 2019: Final dividend for FY 2018 paid in May 2019.
(6) 1H 2020: interim dividend for FY2020. 1H 2019: interim dividend for FY2019.
(7) On a last twelve months basis. Adjusted EBITDA for 2H 2019 was US$ 672 million.

COVID-19 IMPACT ON GROUP’s PERFORMANCE TO DATE

  • No material COVID-19 outbreaks have so far occurred at our operations. Multiple employees tested positive for the virus with the vast majority of confirmed cases occurring during intra-shift breaks away from mines or during mandatory observatory period.

  • At Olcha (Omolon hub), mining operations have been temporarily suspended in August due to COVID-19 on-site cases. Olcha employs 164 employees, including contractors, and approximately a third of them tested positive. Employees are under constant medical supervision. This will not have a material impact on the Group’s annual production, as the mine has been outperforming the plan to date. Olcha is expected to resume normal operational activity within 10-14 days.

  • In both Russia and Kazakhstan, Polymetal has had no interruptions in supply chain. The vast majority of operating consumables and spares are sourced domestically and from China.

  • Sales and refining activities remain unaffected. Refineries in Russia and Kazakhstan continue to operate normally.

OPERATING HIGHLIGHTS

  • There were no fatal accidents during 1H 2020 within Polymetal and the Company’s contractors. LTIFR improved by 70% year-on-year to 0.07 with only four minor injuries recorded for the period.

  • GE production in 1H 2020 was 723 Koz, up 4% year-on-year. Stronger production in the 2H will be driven by traditional seasonal concentrate de-stockpiling at Mayskoye. The Company remains on track to meet its FY2020 production guidance of 1.5 Moz of gold equivalent.

  • Construction and development activities at Nezhda and POX-2 progressed on schedule. COVID-related restrictions and cautionary measures have not slowed down execution progress of these projects.

 

 

1H 2020

1H 2019

Change, %

 

 

 

 

 

Waste mined, Mt

 

79.1

77.6

+2%

Underground development, km

 

46.4

54.3

-15%

Ore mined, Mt

 

8.1

8.6

-6%

Open-pit

 

6.0

6.5

-7%

Underground

 

2.0

2.1

-4%

Ore processed, Mt

 

7.8

7.6

+2%

Average grade processed, GE g/t

 

4.0

3.7

+7%

Production

 

 

 

 

Gold, Koz

 

 642

 602

+7%

Silver, Moz

 

 9.8

 11.0

-11%

Gold equivalent, Koz1

 

 723

 694

+4%

Sales

 

 

 

 

Gold, Koz

 

 595

 601

-1%

Silver, Moz

 

 9.9

 10.3

-4%

Gold equivalent, Koz2

 

 695

719

-3%

Headcount

 

12,083

11,715

+3%

Health and safety

 

 

 

 

LTIFR3

 

 0.07

 0.23

-70%

Fatalities

 

-

2

-100%

Notes:
(1) Based on 120:1 Ag/Au conversion ratio.
(2) Based on actual realised prices.
(3) LTIFR = lost time injury frequency rate per 200,000 hours worked.

CORPORATE UPDATE

  • In March 2020, Polymetal acquired a 9.1% stake in ThreeArc, 100% owner of the Tomtor project, through a US$ 20 million cash investment into newly issued share capital. The proceeds will be used to complete the Tomtor pre-feasibility study and initial JORC-compliant ore reserve and mineral resource estimate. Tomtor is one of the largest and highest grade rare earth elements (REE) projects in Russia and considered to be the highest grade development stage niobium (Nb) project globally.

  • In April 2020, VTB invested US$ 35 million in cash in exchange for newly issued Amikan (Veduga) share capital resulting in VTB holding a 40.6% stake in the asset. These cash-in proceeds will be used to fund the Project’s ongoing exploration and development costs. As part of transaction VTB was granted a put option to sell its stake in Amikan to Polymetal at certain conditions, along with the similar call option granted to Polymetal. Both put and call options are to be settled in Polymetal shares.

  • In June 2020, Polymetal entered into a preliminary lease agreement to lease on pre-agreed terms the single-circuit 110 kV grid power line running from Khandyga to Nezhda production site and the related substation. The power line will be built, owned and operated by an independent grid management company. The construction will be funded with the Far East and Arctic Development Fund 10-year senior loan, guaranteed by the Group, and Credit Bank of Moscow subordinated loan facility. The completion and commencement date of lease scheduled for second quarter 2022.

  • During 1H 2020, the Group disposed non-core assets (Irbychan Gold, PGGK and North Kaluga) with the total consideration amounting to US$ 32 million, including cash proceeds of US$ 23 million and deferred consideration of US$ 9 million.

Conference call and webcast

The Сompany will hold a conference call and webcast on Wednesday, 26 August 2020 at 12:00 London time (14:00 Moscow time).

To participate in the call, please dial:

From the UK:
+44 330 336 9125 (local access)
0800 358 6377 (toll free)

From the US:
+1 646 828 8143 (local access)
800 263 0877 (toll free)

From Russia:
+7 495 213 1767 (local access)
8 800 500 9283 (toll free)

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

Conference code: 5168315

To participate in the webcast follow the link: https://webcasts.eqs.com/polymetal20200826.

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

A recording of the call will be available at +44 207 660 0134 (from the UK), +1 719 457 0820 (from the USA) and 8 10 800 2702 1012 (from Russia), access code 5168315, from 17:30 Moscow time Wednesday, 26 August till 17:30 Moscow time Wednesday, 2 September 2020. Webcast replay will be available on Polymetal’s website (www.polymetalinternational.com) and at https://webcasts.eqs.com/polymetal20200826.

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2019