Polymetal: Q2 2019 production results

Polymetal International plc

Q2 2019 production results

Polymetal reports strong production for the second quarter and the six months ended June 30, 2019.

"Excellent results from Kyzyl drove our production growth while other operations delivered strong performances", said Vitaly Nesis, Group CEO of Polymetal."

HIGHLIGHTS

• The Company's Q2 gold equivalent ("GE") production grew 19% year-on-year to 384 Koz as Kyzyl delivered at full capacity with 81 Koz of gold produced in the quarter. GE production from continuing operations was up 29% year-on-year.
• Q2 gold production was up 30% over the previous year at 302 Koz. Silver production was down 11% at 6.0 Moz on the back of asset disposals.
• GE production for H1 2019 was 756 Koz, up 22% year-on-year. We expect stronger production in 2H driven by seasonal concentrate de-stockpiling at Mayskoye.
• Revenue for Q2 increased 13% year-on-year to US$ 492 million, with gold sales rising 31% on strong production. Silver sales fell 22% due to a temporary logistical lag between production and sales to be eliminated in H2.

• The Company is well positioned to meet its full-year 2019 production guidance of 1.55 Moz of GE and reiterates its cost guidance: TCC of US$ 600-650/ GE oz and AISC of US$ 800-850/ GE oz1.
• Polymetal generated significant free cash flow in Q2. Net debt remained unchanged during the quarter at US$ 1,700 million as of 30 June 2019, while the Company paid US$ 146 million of final dividends for FY 2018 (US$ 0.31 per share). As in previous 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 drawdown.
• We are saddened to report a fatal accident that occurred on 10 May 2019. A pump station operator died at Omolon. The Company's risk management activities increasingly focus on behavioral and cultural issues underpinning unsafe labor practices. We remain committed to our strategic objective of zero fatalities.
• At Nezhda, mining activities focused on constructing pit access roads. Construction proceeded according to schedule with the concentrator building comfortably on track for full winterization by the time the cold season starts in November. The project is expected to start up in Q4 2021.
• At POX-2, detailed engineering of the facility is in full swing. All long-lead equipment has been contracted. Site preparation activities including deforestation and topsoil removal are in progress. The project is on track for launch in H2 2023.

Note: (1) The cost guidance remains contingent on the Russian rouble and Kazakh tenge exchange rate dynamics, which has a significant effect on the Group's operating costs.

PRODUCTION BY MINE

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

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast on Wednesday, 24 July 2019 at 12:00 London time (14:00 Moscow time).

To participate in the call, please dial:

8 800 500 98 63 access code 34668237# (free from Russia), or

+44 203 009 24 80 (free from the UK), or

+1 646 722 49 14 (free from the US), or 

follow the link: https://webcasts.eqs.com/polymetal20190724. 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 https://webcasts.eqs.com/polymetal20190724. 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 418860357#, from 14:30 Moscow time Wednesday, 24 July, till 14:30 Moscow time Wednesday, 31 July, 2019.

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

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 shipment to off-taker or dore production at Amursk POX.

Kyzyl continued to outperform in Q2. The operation continued to benefit from high-grade softer ore and exceeded design specifications on throughput, grade and production. Half-year gold production came in at 159.5 Koz of gold with 187.4 Koz of gold produced in concentrate.

The average concentrate recovery rate increased to 87.8% despite low mass pulls achieved to improve transportation economics and attractiveness of concentrate for Chinese off-takers. Share of gold in low-carbon concentrate processed at the Amursk POX exceeded 50%.

The processing plant is now running at a rate of 2 Mt per annum - above its nameplate capacity of 1.8 Mtpa. Recent performance tests demonstrate that further improvement in throughput can be achieved with US$ 3 million investment in hydrocyclones and concentrate filtering area.

Open-pit mining continued at a stable pace. A detailed technical study is under way to re-optimize the open pit under updated operational and economic assumptions with the results, including the updated Ore Reserves estimate, to be presented in Q4 2019.

DUKAT OPERATIONS

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

The Dukat hub demonstrated a stable performance in Q2 with silver output up 1% year-on-year to 5.3 Moz. Silver grades at the Omsukchan concentrator increased by 5% as it processed high-grade ore from the Terem satellite underground mine. Stronger performance at Omsukchan has compensated for a planned decrease in grade at the Lunnoye plant.

Gold output increased 7% year-on-year to 11.4 Koz, driven mainly by increase in gold grade at Lunnoye.

Underground development declined by 2% as Goltsovoye approaches the end of its reserves with mining focused on pillar removal.

ALBAZINO

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 after dore production at the Amursk POX

At Albazino, gold in concentrate production decreased by 18% to 47.7 Koz driven by continued processing of a lower grade ore from the Ekaterina-1 open pit. This, in turn, impacted total gold output which fell 13% year-on-year to 55.1 Koz. Grade decline was partially compensated by an increase in recoveries from 83.7% in Q1 to 86.9% in Q2.

Underground mine productivity continued to improve with ore mined up 14% year-on-year as underground development at the Ekaterina-2 underground mine continues according to plan. Ekaterina-2 should become the main source of higher-grade ore starting from H2 2020.

AMURSK POX

Notes: (1) Veduga and purchased concentrates which are included in reportable production in the Albazino segment

                (2) For information only. Already accounted for in production at operating mines.

Quarterly gold production at the Amursk POX increased 52% to 96 Koz on the back of the increased volume of concentrate processed and Kyzyl-driven higher average concentrate grade.

The introduction of large quantities of Kyzyl concentrate to the feed significantly changed operating parameters and led to a temporary decline in recoveries by 3 percentage points from 96.7% to 93.4%. Over the last two months, the POX team successfully introduced new operating procedures that resulted in recoveries climbing back up over 95%. The changes focus on tighter control of feed variability.

The Amursk POX underwent a planned 15-day shutdown, the first one since the launch of the debottlenecked facility in November. No material issues have been identified.

OMOLON OPERATIONS

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

In Q2, gold and silver production decreased by 9% and 37% respectively on the back of lower grades at Kubaka Mill which processed ore from Sopka low-grade stockpiles. H1 gold output increased 24% year-on-year as higher-grade ore from Olcha was introduced to the feed in Q1. 

At Birkachan, open-pit mining rate achieved 500 Kt per in Q2, while heap leach operation has doubled production on the back of higher stacking volumes and higher gold grade.

Open-pit mining at Sopka is completed. The mining fleet has re-located to a new satellite deposit, Yolochka (80 km from the Kubaka mill), where mining commenced and will continue for 12 months.

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 dore production at Amursk POX

(3) Gold produced from carbon at Amursk POX

At Mayskoye, gold in concentrate decreased by 4% year-on-year to 25.2 Koz on the back of lower processing volumes and reduced grades in ore from the open-pit as the processing plant at Mayskoye switched over to the seasonal treatment of oxide feed.

The management selected conveyor ore haulage for the long-term upgrade of the underground mine materials handling system. The key considerations in the decision included lower capital intensity, lower execution risk and greater flexibility (compared with the conventional shaft). Total investment in the project is estimated at approximately US$45m in 2020-2022. The project is expected to yield US$150/oz cost savings in diesel fuel, electricity and maintenance as well as to reduce operation's carbon footprint. The expected IRR is 45%.

In parallel, Polymetal selected Paterson & Cooke, a UK engineering firm, to evaluate options regarding conversion from conventional tailings to cemented paste backfill. Potential benefits include lower dilution in flat-dipping ore bodies and the reduction of surface waste disposal. Detailed study results are expected in Q4 2019.

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 solid gold production increase of 25% to 35.9 Koz. The jump was driven by increases in throughput, gold grade and recovery at the leaching circuit, all benefiting from higher Komar ore tonnage.

Flotation circuit production declined as it did not process high-grade 3rd-party material available in 2018.

Varvara continued to toll-treat high-grade ore from Veduga and plans to process more than 100 Kt in 2019.

VORO

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

Q2 gold production at Voro increased 2% year-on-year to 29.0 Koz driven by seasonal contributions from the residual heap leach operation. Higher gold recoveries partially offset a planned decline in grade at the CIP plant.

Ore mined volume continued to decrease as the open pit nears the end of its life in Q3 2019. Exploration drilling identified substantial mineralisation below the open pit with technical studies currently under way to determine the feasibility of underground mining.

SVETLOYE

At Svetloye, gold production increased 16% to 51.8 Koz as the operation has achieved the third full year of operation. However, rainy weather in Q2 impacted the pace of stacking and availability of high-grade material. 

DEVELOPMENT UPDATE

At Nezhda, mining and construction activities proceeded according to plan. Pouring of concrete for the concentrator building and mill is complete. Construction of the mine camp and storage facilities is complete. The construction of the haulage road between the mine and the concentrator commenced in May.

Statutory permitting process entered its final phase with the submission of full design documentation to the Chief Environmental Expertise, a government agency in charge of environmental permitting.

At POX-2, Polymetal signed comprehensive contract for the detailed engineering of high-pressure sections of the facility with Hatch. Equipment for the concentrate preparation section (roll crushers, acid-resistant mills, steep-angle conveyors) and intensive cyanidation unit has been contracted. The land use rights for construction have now been received. Construction of a new concentrate storage facility is under way.

At Veduga, Polymetal published an updated JORC-compliant Ore Reserve estimate which comprised 18.9 Mt of ore with an average grade of 4.6 g/t containing 2.8 Moz of gold (a 111% increase in gold contained). Exploration drilling is ongoing with further resource and reserve upgrade expected in Q1 2020.

SUSTAINABILITY, HEALTH AND SAFETY

In Q2, our LTIFR stood at 0.22 (versus 0.17 in Q2 2018) with a total of 6 work-related incidents recorded across the Group (5 incidents in Q2 2018). The increase is driven by minor incidents that occurred on site but not during the production process.

We regret to report a fatality that occurred on 10 May 2019 at our Omolon operation. A pump station operator died at the Kubaka pit. We extend our sincere condolences to the family, friends and colleagues of the deceased employee.

Earlier in Q2, Polymetal provided full disclosure on its tailings storage facilities management in response to public investor enquiries to mining companies, while two of Polymetal gold production operations, Voro and the Amursk POX plant, became certified as being in full compliance with the International Cyanide Management Code.