Trading update for 4Q and FY 2018

Press Release 24 January 2019

PJSC Polyus

Trading update for the fourth quarter and full year 2018

PJSC Polyus ("Polyus" or the "Company") today releases its 4Q 2018 and FY 2018 operating results for the period ending 31 December 2018.

4Q 2018 Highlights

· Total gold output decreased 8% to 637 thousand ounces compared to the previous quarter (3Q 2018: 691 thousand ounces). Year on year, volumes of doré gold and total gold output grew by 5% and 10%, respectively.

· Volumes of ore mined amounted to 12,030 thousand tonnes, representing a 5% decline on the previous quarter and a 20% increase year on year.

· Volumes of ore processed totalled 9,279 thousand tonnes, down 11% on the previous quarter. Year on year, volumes of ore processed rose by 19% as the Company continues to expand processing capacities at its core assets.

· Volumes of antimony contained in flotation concentrate declined by 45% to 3.5 thousand tonnes compared to the previous quarter (3Q 2018: 6.4 thousand tonnes).

· AMC has updated the Sukhoi Log Mineral Resources estimate in accordance with JORC Code 2012. According to AMC, estimated Mineral Resources at Sukhoi Log stand at 962 million tonnes, with an average grade of 2.1 g/t Au and containing 63 million ounces of gold as at 30 October 2018. The estimate is a nine per cent increase compared to the previous estimate. AMC has also upgraded 28 million ounces of Inferred Mineral Resources to Indicated Mineral Resource.

· The Company has completed the ramp-up of Natalka to annualised name-plate throughput capacity of 10 million tons. The Natalka Mill is now operating at a design flowsheet following the completion of repair works at the ball mill and scheduled maintenance works.

· Estimated gold sales amounted to $764 million, down 7% compared to the previous quarter, with an estimated weighted-average gold selling price (incl. the impact from the SPPP) of $1,232/oz (up 2% on the third quarter of 2018).

· As at 31 December 2018, the estimated net debt stood at $3,086 million, compared to $3,029 million as at the end of the previous quarter and $3,077 million as at the end of 2017.

FY 2018 Highlights

· Total gold output increased to 2,436 thousand ounces, compared to 2,160 thousand ounces in 2017, representing a 13% increase. This is higher than the guidance of 2.375-2.425 million ounces.

· Doré volumes totalled 2,450 thousand ounces, up 13% compared to the prior year.

· Volumes of ore processed rose by 33% year on year, to 38,025 thousand tonnes, driven by the ramp-up of the Natalka Mill, the capacity expansion projects at existing operations and the start of the heap leaching operations at Kuranakh.

· Estimated gold sales increased 7% year on year to $2,876 million, with an estimated weighted-average gold selling price (incl. the impact from the SPPP) of $1,265/oz, broadly in line with the prior year.

Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:

In 2018, Polyus exceeded its production guidance for the fifth consecutive year, setting a new record with total gold output of 2.43 million ounces. The Company remains focused on organic growth opportunities at its existing operations, and we are constantly evaluating potential additions to our brownfield project portfolio.

Over the course of the year, we have been focused on ramping up the Natalka operations. Its completion represents an important milestone for Polyus, with Natalka being a significant source of the Company's further production growth.

At Sukhoi Log, one of the world's largest gold greenfield projects, we have completed the scoping study and verification drilling, and entered the pre-feasibility stage. A thorough study of the results of verification drilling program conducted by AMC resulted in an update on the Sukhoi Log Mineral Resources estimates, with a 9% increase in contained ounces compared to previous estimates. We believe that Sukhoi Log will be the cornerstone of Polyus' next-generation growth opportunities.

I would also like to highlight that Polyus' sustained commitment to best ESG practices has been recognised by international ESG rating agencies. In November 2018, Sustainalytics upgraded Polyus from "Average performer" to "Outperformer", and in December FTSE Russell included Polyus' shares into the FTSE4Good Emerging Markets Index. High standards of corporate governance, HSE and stakeholder engagement remain an ongoing priority for the Company.

In 2019, we anticipate another year of production growth and expect our total gold output to reach approximately 2.8 million ounces as previously guided."

Sustainability update

Health, Safety and Environment

No serious environmental incidents have been reported at Polyus' operations during 2018. Polyus has introduced a plastic waste crusher at Verninskoye and completed the construction of a new waste management facility at the Krasnoyarsk Business Unit. A new biological waste testing lab was launched at Kuranakh.

The LTIFR rate for 2018 decreased 18% to 0.09, compared to 0.11 registered in 2017.

The Company is deeply saddened to report two accidents that resulted in a total of three fatalities at Polyus' production assets during 2018. One accident (falling from a height) took place during maintenance works at Olimpiada. The other accident (explosion), resulting in two fatalities, took place at the Company's Alluvials operations. Following a thorough investigation into the root causes of these accidents, the Company has taken appropriate corrective actions to ensure that similar situations do not occur in the future.

In December 2018, the integrated Health, Safety and Environment management system of Polyus received certification in accordance with ISO 14001 and ISO 45001 standards.

· ISO 45001 - Occupational Health and Safety provides a framework to improve employee safety, reduce workplace risks and create better, safer working conditions. Polyus is the first Russian company certified in accordance with this standard.

· ISO 14001 - Environmental Management Systems specifies the requirements for an organization's environmental management system that would enhance environmental performance, providing value for the environment, the organization itself and its stakeholders.

Sustainability ratings & memberships

As a reflection of ongoing improvements in its Sustainability management and reporting systems, in 2018 Polyus notably improved its position in several ratings:

· Polyus' Sustainalytics score rose from 62 ("Average Performer") to 71 ("Outperformer")

· Following the latest ESG assessment, FTSE Russell has included Polyus' shares in the FTSE4Good index.

Consolidated operating results

4Q 2018 Highlights

· Total gold output in the fourth quarter of 2018 amounted to 637 thousand ounces, compared to 691 thousand ounces in the third quarter of 2018. The decrease reflects a seasonal slowdown in production at Alluvials and lower gold production volumes at Natalka due to the ball mill motor breakdown, which resulted in lower throughput rates and recoveries. At Verninskoye, the decline in volumes of refined gold production was attributable to changes in gold in inventory at the refinery.

· Volumes of ore mined amounted to 12,030 thousand tonnes, down 5% on the previous quarter, primarily reflecting lower ore volumes mined at Olimpiada, Verninskoye and Kuranakh.

· Volumes of ore processed decreased 11%, to 9,279 thousand tonnes, compared to the previous quarter, mainly due to a seasonal slowdown of heap leaching operations at Kuranakh.

· Recovery rate stood at 80.6% and remained flat compared to the previous quarter. The recoveries at group level, adjusted for the Natalka operations, amounted to 82.2%.

· Flotation concentrate output amounted to 21.1 thousand tonnes, down 34% on the previous quarter. Volumes of antimony and gold contained in flotation concentrate declined by 45% to 3.5 thousand tonnes and 24% to 51 thousand ounces, respectively. This decrease was predominantly driven by scheduled maintenance works at Mill-1 in December.

FY 2018 Highlights

· Total gold output for 2018 stood at 2,436 thousand ounces (including 256 thousand ounces of gold contained in concentrate from Olimpiada), compared to 2,160 thousand ounces in 2017. This growth was driven by higher gold output at Olimpiada, the ramp-up of operations at Natalka and strong performance at Verninskoye and Kuranakh. Doré volumes totalled 2,450 thousand ounces, up 13% on a year on year basis.

· Ore processed volumes increased to 38,025 thousand tonnes, compared to 28,663 thousand tonnes in 2017, reflecting the launch of the Natalka Mill, the implementation of expansion projects and the start of heap leaching facilities at Kuranakh.

· Recovery rate stood at 80.8%, down 2.6 ppts from the prior-year period, reflecting the ramp-up at Natalka and a decrease in recoveries at Olimpiada and Blagodatnoye. The recoveries at group level, adjusted for the Natalka operations, amounted to 82.3%.

· Flotation concentrate volumes increased 37% compared to 2017 and reached 116.5 thousand tonnes. Volumes of antimony contained in flotation concentrate totalled 23.6 thousand tonnes.

Olimpiada

4Q 2018 Highlights

Ø Total gold output was 345 thousand ounces.

FY 2018 Highlights

Ø Ore processed volumes totalled 13,267 thousand tonnes

Ø Total gold output was 1,322 thousand ounces

Ø Polyus launched high-grade antimony rich ore processing at Mill-1.

Gold output

Doré gold output in the fourth quarter of 2018 stood at 320 thousand ounces, down 8% compared to the previous quarter, mainly driven by lower recoveries and grades in ore processed. Total gold output (refined and concentrate) declined by 2% compared to the previous quarter, to 345 thousand ounces. On a year on year basis, doré gold output and total gold output rose 4% and 6%, respectively, while refined gold production was down 2%.

Mining works

Rock moved volumes totalled 35,176 thousand tones, a 6% increase on the third quarter of 2018. Over the course of 2018, Polyus has been actively increasing the share of large-scale mining equipment operating on site. In the reporting period, the Company delivered one Komatsu D475A-5 bulldozer on site.

Volumes of ore mined declined 12% to 5,158 thousand tonnes, from 5,884 thousand tonnes in the previous quarter. In line with the mining plan, Polyus downscaled mining activities at low-grade flanks of the Vostochny pit, which resulted in a 5% increase in average grades, to 3.67 g/t from 3.48 g/t in the third quarter of 2018.

Ore processing

Volumes of ore processed totalled 3,410 thousand tonnes, remaining almost flat compared to the previous quarter. This reflects the sequence of maintenance works, with Mill-1 and Mill-2 undergoing scheduled maintenances during the fourth quarter of 2018.

In the reporting period, Polyus' technical team achieved a 4% increase in hourly throughput of Mill-3 following the installation of new turbo-elevators at SAG mill, designed to lower reintroduction of the pulp into the SAG mill. The latter allows reducing milling cycle. Similar turbo-elevators have previously been installed at Mill-1.

The average grades in ore processed decreased 3% to 4.01 g/t, compared to 4.12 g/t in the third quarter of 2018. Recovery rate stood at 78.8%. The decline in grades and recoveries was mainly attributable to temporary variations in the feed mineralogy, with higher antimony and lower gold content in ore.

In first quarter of 2019, the Company expects to commission the first stage of the alkaline leaching. This will lead to lower gold losses with CIL tailings and consequently higher recoveries. The Company also plans to commission flash flotation units at Olimpiada's Mills No. 1, 2 and 3 during the first half of 2019.

Volumes of antimony contained in flotation concentrate amounted to 3.5 thousand tonnes in the reporting period.

Mining works and ore processing

Blagodatnoye

4Q 2018 Highlights

Ø Volumes of ore mined totalled 1,972 thousand tonnes, compared to 1,512 thousand tonnes in the previous quarter.

Ø Refined gold output amounted to 112 thousand ounces.

FY 2018 Highlights

Ø Polyus launched a scheduled pit cutback.

Ø Volumes of ore processed totalled 8,719 thousand tonnes, up 7% on a year on year basis.

Gold output

Doré gold output in the fourth quarter of 2018 was 105 thousand ounces, down 6% compared to the previous quarter, mainly reflecting lower processing volumes. Refined gold output amounted to 112 thousand ounces, up 2% on the previous reporting period. Doré gold output decreased 17% compared to the fourth quarter of 2017 primarily mainly due to lower grades in ore processed.

Mining works

Volumes of rock moved decreased 10% to 18,151 thousand tonnes compared to the previous quarter. Volumes of ore mined rose 30% to 1,972 thousand tonnes, compared to 1,512 thousand tonnes in the third quarter of 2018. This growth reflects intensified mining activities at the Northern area of the deposit, where the Company conducted stripping works during previous quarters. Polyus continued upgrading its mining fleet at Blagodatnoye in the reporting period. The Company took delivery of two Komatsu D475A-5 bulldozers.

Average grade in ore mined stood at 1.56 g/t, remaining almost flat compared to the previous quarter.

Ore processing

The average grade in ore processed increased to 1.76 g/t during the reporting period, from 1.66 g/t in the third quarter of 2018. Volumes of ore processed totalled 2,135 thousand tonnes, a 9% decline compared to the previous quarter, reflecting scheduled maintenance works at Mill-4 in November-December 2018. During the reporting period, the Company added an additional flash flotation unit at Mill-4 for further recovery improvement.

The Company is conducting an expansion project at the Blagodatnoye Mill. Polyus expects to achieve a 9.0 million tonnes per annum throughput capacity by the end of 2019.

The recovery rate remained flat at 87.7%.

Mining works and ore processing

Verninskoye

4Q 2018 Highlights

Ø Total gold output totalled 48 thousand ounces.

Ø Recovery rate rose to a record high of 89.6%.

FY 2018 Highlights

Ø Volumes of ore processed rose 7% to 2,979 thousand tonnes on a year on year basis.

Ø Refined gold output totalled 219 thousand ounces, up 7% from the prior year.

Gold output

Doré gold output was 60 thousand ounces, up 11% on the previous quarter, due to higher processing volumes. Refined gold output amounted to 48 thousand ounces, compared to 60 thousand ounces in the third quarter of 2018, reflecting changes in gold in inventory at the refinery. Refined gold output rose 5% compared to the fourth quarter of 2017. 

Mining works

Volumes of rock moved declined by 12% to 4,174 thousand tonnes, in line with the mining plan. Volumes of ore mined decreased to 649 thousand tonnes, down 14% on the previous quarter. The Company intentionally reduced mining activity during the period in order to properly manage the composition of ore stockpiles.

Grades in ore mined stood at 2.70 g/t, compared to 2.60 g/t in the previous quarter, as mining activities were focused on higher-grade areas of the deposit.

Ore processing

In the reporting period, the average grade in ore processed stood at 2.63 g/t, remaining largely flat compared to the previous quarter. Volumes of ore processed amounted to 792 thousand tonnes, up 11% on the previous quarter. This increase reflects the sequence of maintenance works at the Verninskoye Mill (the Mill underwent scheduled maintenance in September 2018). 

The recovery rate reached a new record high of 89.6%, compared to 89.5% in the previous quarter.

Mining works and ore processing

Alluvials

4Q 2018 Highlights

Ø Gold in slime production amounted to 28 thousand ounces.

Ø Refined gold output totalled 40 thousand ounces.

FY 2018 Highlights

Ø Refined gold output amounted to 148 thousand ounces, up 1% from the prior year.

Ø In the reporting period, due to the seasonality of placer operations, gold in slime production declined to 28 thousand ounces, down 68% on the previous quarter.

Refined gold output totalled 40 thousand ounces, down 52% compared to the third quarter of 2018.

Sands washing

Kuranakh

4Q 2018 Highlights

Ø Refined gold output was 64 thousand ounces.

FY 2018 Highlights

Ø Ramp-up of the heap leaching operations.

Ø Refined gold output was 199 thousand ounces.

Gold output

Doré gold output in the fourth quarter of 2018 amounted to 52 thousand ounces, a 5% decline compared to the third quarter of 2018, due to lower volumes of ore processed at heap leaching facilities. On a year on year basis, doré gold output increased 13%. Refined gold output amounted to 64 thousand ounces, up 47% on the previous quarter, reflecting changes in gold in inventory at the refinery.  

Mining works

Volumes of rock moved amounted to 7,739 thousand tonnes, down 9% on the previous quarter. During the same period, volumes of ore mined declined 33%, to 1,688 thousand tonnes, compared to the previous quarter, as Polyus downscaled mining activities at low-grade areas due to a seasonal slowdown of heap leaching operations. Consequently, this resulted in higher grades in ore mined (1.13 g/t in 4Q 2018 vs 0.97 g/t in 3Q 2018).

Ore processing

Volumes of ore processed at the mill amounted to 1,329 thousand tonnes, up 2% on the previous quarter. Recovery rate at the Mill stood at 88.7%, a marginal decline compared to the previous quarter. Doré gold output was 45.5 thousand ounces, flat compared to the previous quarter.

Stage 3 of the throughput capacity expansion to 5.8 million tonnes per annum is expected to be completed in 2019.

Heap leaching

146 thousand tonnes of ore were processed at heap leaching facilities in the fourth quarter of 2018, with average grade of 0.73 g/t. Doré gold output amounted to 6.5 thousand ounces. Due to the seasonality of heap leaching operations, leaching activities were temporarily suspended until the spring 2019.

Mining works and ore processing

Natalka

4Q 2018 Highlights

Ø Volumes of ore mined amounted to 2,564 thousand tonnes, up 28% on the previous quarter.

Ø Natalka is now operating at a normalised flowsheet and has achieved annualised name-plate throughput capacity of 10 million tons

FY 2018 Highlights

Ø Volumes of ore processed amounted to 6,352 thousand tonnes.

Ø Grades in ore processed stood 1.10 g/t.

Ø Refined gold output was 133 thousand ounces.

Mining works

In the fourth quarter of 2018, volumes of rock moved totalled 15,707 thousand tonnes, while volumes of ore mined rose to 2,564 thousand tonnes, posting a 28% increase from the third quarter of 2018. The average grades in ore mined stood at 1.07 g/t.

During the reporting period, the Company commissioned one TYHI WK-20 excavator and one Komatsu PC-1250 excavator, which, along with 17 Komatsu E730 trucks already operating on site, contributed to higher rock moved volumes.

In the fourth quarter of 2018, mining fleet automation and wireless broadband systems were successfully introduced at Natalka, improving control of mining equipment. The construction works at the Natalka Mill's auxiliary facilities were ongoing. Polyus completed construction of the assay laboratory, now the Company expects to take delivery of assaying equipment.

Ore processing

Volumes of ore processed declined to 1,468 thousand tonnes reflecting the ball mill motor breakdown in September 2018. At that time the Company switched to a shortened flowsheet, utilizing a one-stage grinding process at the SAG mill and therefore bypassing the ball mill, which resulted in lower throughput rates and recoveries over the period.

Natalka is now operating at a design flowsheet following the completion of repair works at the ball mill and scheduled maintenance works at the end of 2018 and the Natalka Mill has now achieved annualised name-plate throughput capacity of 10 million tons. The Mill's recovery rate is gradually increasing to meet the design parameter level, reflecting the introduction of higher head grades into the ore processing operations.

All processing circuits, including crushing, milling, gravity separation, intensive cyanidation, CIL, electrowinning and smelting are now running in line with the design.

In 2019, Polyus will proceed with the development of auxiliary infrastructure at Natalka, as well as construction of the Ust-Omchug/Omchak power transmission line. The Company is currently reviewing options to further increase throughput capacity at the Natalka Mill, above its name-plate capacity, through debottlenecking initiatives.

Mining works and ore processing 

Sukhoi Log

4Q 2018 Highlights

Ø An update on Mineral Resources estimates.

FY 2018 Highlights

Ø Scoping study completed.

Ø Polyus has entered the Pre-feasibility stage, which is expected to be completed in 2020.

Mineral Resources Update

An update on Mineral Resources estimates for Sukhoi Log has been conducted by AMC in compliance with JORC Code 2012.

According to AMC, estimated Mineral Resources at Sukhoi Log stand at 962 million tonnes, with an average grade of 2.1 g/t Au and containing 63 million ounces of gold as at 30 October 2018. The estimate is a nine per cent increase compared to the previous estimate of 58 million ounces of gold as at 31 January 2017.

AMC has also upgraded 28 million ounces of Inferred Mineral Resources to Indicated Mineral Resource.

The 2018 Mineral Resource estimate is based on data from the verification drilling programme available at 14 September 2018 used in conjunction with historic drillhole data.

The Company continues in-fill, deep levels, flanks and other drilling. The drilling campaign will continue until the end of 2019. Polyus plans to drill a total of 197,000 meters, including the approximately 135,000 meters drilled since October 2017. Ongoing assessment of the drilling campaign samples may result in further upgrade of the Mineral Resources estimate classification.

As previously reported, the Company is proceeding with studies to enable estimation by AMC in 2020 of an Ore Reserve estimate based on Indicated Mineral Resources in the 2018 estimate and estimates resulting from the 2019 drilling campaign.

Sukhoi Log Mineral Resources at a 1.0 g/t Au cut-off grade[ii]

FINANCIAL UPDATE

Gold sales

In the fourth quarter of 2018, the Company sold a total of 644 thousand ounces of gold, an 8% decrease on the previous quarter. Total gold sales include 75 thousand ounces of gold contained in the concentrate from Olimpiada.

Estimated gold sales in the reporting period totalled approximately $764 million, compared to $821 million in the previous quarter and $734 million in the fourth quarter of 2017.

Debt management

As of the end of the fourth quarter of 2018, the Company's gross debt decreased to $3,982 million, compared to $4,029 million as of the end of the third quarter. Polyus' debt portfolio is predominantly comprised of US dollar denominated instruments in regards to currency allocation. The Company's debt maturity profile remains smooth with limited debt maturities outstanding until the end of 2019. The Company plans to repay the principal amount and liabilities under cross-currency swaps in the amount of approximately $1.0 billion in April 2019, utilizing a credit facility with Sberbank in a total amount of RUB 65 billion due in 2024. The funds under the credit facility will become available for drawdown in April 2019.

As at 31 December 2018, the Company's estimated cash position was $896 million (30 September 2018: $1,000 million) and its estimated net debt position amounted to $3,086 million (30 September 2018: $3,029 million). Among other factors, the change in cash position reflects a dividend payout for the first half of 2018 in amount of $264 million. Net debt amounts exclude liabilities under cross currency swaps related to RUB-denominated bank credit facilities and rouble bonds, in a total amount of approximately $591 million as of the end of the fourth quarter.

In the reporting period, Polyus attracted a new credit line facility with ING in a total amount of $75 million due in 2024. The funds under the new facility became available for drawdown in January 2019.

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 24 January 2019 at 1 pm London time (4 pm Moscow time) to present and discuss the fourth quarter operating results.

To join the conference call, please dial:

Conference ID: 1606861

UK

+44 330 336 9126 (Local access)

0800 358 6377 (Toll free)

 USA

+1 929-477-0324 (Local access)

800-458-4121 (Toll free)

Russia

+7 495 213 1767 (Local access)

8 800 500 9283 (Toll free) 

To access the replay, please dial:

Passcode: 1606861

UK

+44 (0) 207 660 0134 (Local access)

0 808 101 1153 (Toll free)

USA

+1 719-457-0820 (Local access)

888-203-1112 (toll free)

Russia

810 800 2702 1012 (Toll free)

Enquiries: 

Investor contact

Victor Drozdov, Investor Relations Director

+7 495 641 33 77

[email protected] 

Media contact

Victoria Vasilyeva, Director Public Relations

+7 (495) 641 33 77 

[email protected]

Forward looking statements

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 of the date of this announcement. Polyus and/or any Polyus Company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.