Trading update for the second quarter of 2019

Press Release 22 July 2019

PJSC Polyus

Trading update for the second quarter of 2019

2Q 2019 Highlights

·; Total gold output increased 14% to 684 thousand ounces compared to the previous quarter. Year on year, volumes of doré gold and total gold output grew by 12% and 14%, respectively.

·; Volumes of ore mined amounted to 15,661 thousand tonnes, a 12% increase on the previous quarter. On a year on year basis, volumes of ore mined rose by 68%, driven by intensified mining activities across all operating assets.

·; Volumes of ore processed totalled 10,901 thousand tonnes, up 6% on the previous quarter. Year on year, volumes of ore processed rose by 10%, primarily reflecting the completion of the ramp-up at Natalka.

·; Recovery rate stood at 82.2%, compared to 81.4% in the previous quarter.

·; Estimated gold sales amounted to $886 million, up 20% compared to the previous quarter, with an estimated weighted-average gold selling price of $1,314/oz, broadly unchanged from the first quarter of 2019.

·; As at 30 June 2019, the estimated net debt stood at $3,639 million, compared to $3,011 million as at the end of the previous quarter, reflecting the repayment of the derivative liabilities and dividend payout for the second half of 2018.

1H 2019 Highlights

·; Total gold output increased to 1,285 thousand ounces, compared to 1,109 thousand ounces in the first half of 2018, a 16% increase year on year. Doré volumes totalled 1,362 thousand ounces, up 17% compared to the same period of the previous year.

·; Volumes of ore processed rose 15% year-on-year to 21,185 thousand tonnes mainly due to the Natalka Mill ramp-up as well as expansion projects at existing operations.

·; Recovery rate stood at 81.8%, up 0.8 ppts from the prior-year period.

·; Estimated gold sales increased 26% year-on-year to $1,627 million, with an estimated weighted-average gold selling price of $1,311/oz, broadly flat from the first half of 2018.

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

Polyus has delivered another strong quarter, with gold production increasing by 14% to 684 thousand ounces, both on a quarter-on-quarter and a year-on-year basis. This performance was supported by the Natalka Mill operating at full capacity and ongoing expansion across our entire asset portfolio. We are continuously working to introduce further operational improvements at Natalka, including a set of initiatives to increase the recovery rate.

We are focused on enhancing our ESG disclosure. In the second quarter we published a special report on the safety of Polyus' tailings storage facilities, responding to increasing requests for transparency on this area from international investors. The report describes in detail the technical features of Polyus' tailings facilities, their history and the current state of their operation and maintenance. Polyus is committed to transparency and to ensuring safety across all of our operations.

Based on the production results for the first half of 2019, the Company remains on track to achieve production of approximately 2.8 million ounces of gold for the full year, in line with its guidance."

esg update

2Q 2019 Highlights:

·; No fatalities.

·; LTIFR at 0.06, unchanged from the first quarter of 2019.

·; No serious environmental incidents.

Monitoring and analysis:

·; Interim safety culture evaluation completed;

·; Olimpiada: audits confirm compliance with sanitary and epidemiological standards, including meeting toxic emissions and waste disposal requirements;

·; Safety audits conducted by state auditors at Verninskoye, Natalka, Kuranakh, Alluvials, Polyus Stroy;

·; Natalka: analysis of critical risks related to the construction of fuel and lubricants storage facilities Kuranakh: review of explosives storage container construction project, feedback provided.

New technologies:

·; Polyus Logistics: vehicle video systems and driver identification devices ordered, driver drowsiness detection system trialled.

Environment:

·; Safety report covering all of the Company's tailings storage facilities published;

·; Water Preservation Campaign launched, using new technologies and managerial expertise to promote responsible water usage;

·; New waste management facility commissioned at Olimpiada and Blagodatnoye;

·; Additional audits and actions carried out to mitigate risk of ignition at production sites during the wildfire season.

Employee training and education:

·; Educational campaigns on safe driving and injury prevention;

·; Numerous training sessions for members of the corporate talent pool.

Social projects:

·; Polyus Golden Season theatre contest and Territoriya theatre festival held in Magadan;

·; Krasnoyarsk: the first yeargroup of Polyus' student training course graduated;

·; Polyus employees participated in charity marathons and volunteering projects.

Consolidated operating results

2Q 2019 Highlights

·; Total gold output amounted to 684 thousand ounces, compared to 601 thousand ounces in the first quarter of 2019. This increase was mainly driven by higher refined gold production at Olimpiada and Blagodatnoye, the start of the washing season at Alluvials and the recommencement of heap leaching operations at Kuranakh.

·; Volumes of ore mined amounted to 15,661 thousand tonnes, up 12% on the previous quarter, driven by higher ore volumes mined at Olimpiada, Blagodatnoye, Kuranakh and Natalka.

·; Volumes of ore processed increased 6% quarter-on-quarter to 10,901 thousand tonnes, mainly due to the start of heap leaching operations at Kuranakh and higher processing volumes at Natalka.

·; Recovery rate rose to 82.2%, primarily reflecting higher recoveries at Olimpiada.

·; Flotation concentrate output amounted to 23 thousand tonnes, down 13% on the first quarter of 2019, comprising of 5 thousand tonnes of merchant gold containing flotation concentrate and 18 thousand tonnes of antimony-rich flotation concentrate.

·; Volumes of antimony in flotation concentrate rose to 3.7 thousand tonnes, up from 1.1 thousand tonnes in the previous quarter. In January-February, Polyus temporarily halted the introduction of antimony-rich ore into processing at the Mill No. 1 and operated the mill on run-of-mine ore, producing merchant gold containing flotation concentrate.

·; Volumes of gold in flotation concentrate increased 9% quarter-on-quarter to 68.5 thousand ounces.

1H 2019 Highlights

·; Total gold output was 1,285 thousand ounces, compared to 1,109 thousand ounces in the first half of 2018. This growth was mainly driven by the start of operations at Natalka as well as increased production volumes across all operating assets. Doré volumes totalled 1,362 thousand ounces, up 17% year-on-year.

·; Volumes of ore processed increased 15% to 21,185 thousand tonnes, reflecting the launch of the Natalka Mill and the implementation of expansion projects across core assets.

·; Recovery rate stood at 81.8%, up 0.8 ppts from the prior-year period, primarily driven by an increase in recoveries at Olimpiada.

·; The Company produced 48.9 thousand tonnes of flotation concentrate, down 23% on the prior-year period.

Olimpiada

2Q 2019 Highlights

Ø Ore processed volumes totalled 3,358 thousand tonnes.

Ø Recovery rate rose to 82.1%, from 80.8% in the previous quarter.

Ø Refined gold output amounted to 351 thousand ounces.

Gold output

Doré gold output in the second quarter of 2019 stood at 343 thousand ounces, down 1% compared to the previous quarter. Total gold output (refined and concentrate) rose by 13% compared to the previous quarter, to 351 thousand ounces, reflecting changes in gold in inventory at the refinery. On a year on year basis, doré gold output grew by 1%, while total gold production was up 4%.

Mining works

Rock moved volumes totalled 33,361 thousand tones, a 4% increase on the first quarter of 2019.

Volumes of ore mined increased 10% to 5,669 thousand tonnes, in line with the mining plan. Average grade in ore mined stood at 3.48 g/t, compared to 3.36 g/t in the previous quarter.

During the second quarter of 2019, Polyus delivered three 90-tonne CAT 777E trucks, four bulldozers, four SmartROC D65 drilling rigs, one Komatsu PC400-7 excavator and one Komatsu WA430-6 wheel loader to the site.

Ore processing

Volumes of ore processed totalled 3,358 thousand tonnes, down 4% compared to the previous quarter. This decrease reflects the sequence of maintenance works at Olimpiada, with Mill No. 3 undergoing scheduled maintenance in May 2019.

Following an increase in average grades in ore mined, average grades in ore processed rose by 7% to 4.03 g/t, compared to the previous quarter.

Recovery rate rose to 82.1%, up 1.3 ppts compared to the first quarter of 2019. This increase is mainly attributable to improved performance of sorption tailings filtration circuit, which led to lower gold losses in tailings.

In the reporting period, Polyus continued the roll out of flash flotation and alkaline leaching projects at Olimpiada. The Company is currently ramping up two flash flotation units commissioned at Mill No. 1 and Mill No. 2. In addition, Polyus is in the process of launching of the first stage of alkaline leaching, allowing to reduce gold losses with CIL tailings.

Mining works and ore processing

Blagodatnoye

2Q 2019 Highlights

Ø Average grade in ore mined rose to 1.34 g/t, compared to 1.20 g/t in the previous quarter.

Ø Refined gold output totalled 104 thousand ounces.

Gold output

Doré gold output in the second quarter of 2019 amounted to 104 thousand ounces, up 3% compared to the previous quarter. Refined gold output amounted to 104 thousand ounces, compared to 94 thousand ounces in the previous reporting period, reflecting changes in gold in inventory at the refinery. On a year on year basis, refined gold output increased 2%.

Mining works

Volumes of rock moved decreased 4% to 16,334 thousand tonnes compared to the previous quarter.

Volumes of ore mined increased 16% to 2,580 thousand tonnes, compared to 2,215 thousand tonnes in the first quarter of 2019. In line with the sequence of mining works, average grades in ore mined rose to 1.34 g/t in second quarter of 2019 (from 1.20 g/t in the previous quarter). Polyus expects a further gradual increase in grades in ore mined over the course of the second half of 2019.

The Company delivered one Komatsu D63E-12 bulldozer to the site in the reporting period.

Ore processing

The average grade in ore processed increased to 1.61 g/t during the reporting period, from 1.57 g/t in the first quarter of 2019.

Volumes of ore processed and recovery rate stood at 2,322 thousand tonnes and 87.5%, respectively, remaining broadly flat from the first quarter of 2019.

Mining works and ore processing

Verninskoye

2Q 2019 Highlights

Ø Average grade in ore mined stood at 3.01 g/t, compared to 2.66 g/t in the first quarter of 2019.

Ø Doré output totalled 66 thousand ounces, up 9% on the previous quarter.

Gold output

Refined gold output amounted to 62 thousand ounces, compared to 67 thousand ounces in the first quarter of 2019, mainly reflecting changes in gold in inventory at the refinery. Refined gold output grew by 16% compared to the second quarter of 2018. Doré gold output stood at 66 thousand ounces, up 9% both on a quarter-on-quarter and year-on-year basis.

Mining works

Volumes of rock moved increased 11% to 6,263 thousand tonnes. Three Komatsu HD-1500 trucks commissioned in March contributed to higher volumes of rock moved during the reporting period.

Volumes of ore mined decreased to 940 thousand tonnes, down 4% from 978 thousand tonnes in the previous quarter. Average grades rose to 3.01 g/t (2.66 g/t in the first quarter of 2019), reflecting an increased share of higher-grade material in ore mined.

Ore processing

During the reporting period, the average grade in ore processed stood at 2.90 g/t, remaining unchanged from the previous quarter.

Volumes of ore processed amounted to 790 thousand tonnes, up 9% on the previous quarter, reflecting scheduled maintenance works at the Verninskoye Mill, completed in March 2019. 

The recovery rate stood at 89.5% and remained flat compared to the previous quarter.

Mining works and ore processing

Alluvials

2Q 2019 Highlights

Ø Start of the washing season.

Ø Gold in slime production amounted to 40 thousand ounces.

Ø Refined gold output totalled 30 thousand ounces.

In the second quarter of 2019, Alluvial deposits produced 40 thousand ounces of gold in slime, up 19% on the second quarter of 2018. This increase was primarily due to higher volumes of sands washed.

Refined gold output totalled 30 thousand ounces, compared to 24 thousand ounces in the second quarter of 2018.

Sands washing

Kuranakh

2Q 2019 Highlights

Ø Ore processed volumes totalled 1,720 thousand tonnes, up 28% on the previous quarter.

Ø Refined gold output amounted to 50 thousand ounces.

Gold output

Doré gold output in the second quarter of 2019 amounted to 54 thousand ounces, a 15% increase compared to the first quarter of 2019, mainly due to the recommencement of the heap leaching operations. On a year on year basis, doré gold output increased 11%. Refined gold output amounted to 50 thousand ounces, up 15% on the previous quarter.  

Mining works

Volumes of rock moved amounted to 7,965 thousand tonnes, up 8% on the previous quarter. Volumes of ore mined increased 40% to 2,280 thousand tonnes, compared to the first quarter of 2019. In line with the mining plan, Polyus intensified its mining activities and increased the share of lower-grade material in ore mined due to the start of the heap leaching activities, resulting in a decrease in the average grade to 1.04 g/t (1.14 g/t in the first quarter of 2019).

Ore processing

Volumes of ore processed at the Kuranakh Mill amounted to 1,364 thousand tonnes, up 1% on the previous quarter.

Average grade in ore processed at the Mill stood at 1.23 g/t, remaining broadly flat on a quarter-on-quarter basis.

Recovery rate rose to 88.9%, up 0.2 ppts from the previous quarter.

Heap leaching

Leaching activities were recommenced in May 2019. 356 thousand tonnes were processed at heap leaching facilities in the second quarter of 2019, with an average grade of 0.73 g/t. Doré gold output totalled 6 thousand ounces.

Mining works and ore processing

Natalka

2Q 2019 Highlights

Ø Volumes of ore processed amounted to 2,711 thousand tonnes

Ø Recovery rate stood at 71.4%.

Ø Refined gold output reached 87 thousand ounces.

Mining works

In the second quarter of 2019, volumes of rock moved totalled 16,809 thousand tonnes, while volumes of ore mined rose to 4,191 thousand tonnes, a 6% increase from the first quarter of 2019. The average grades in ore mined stood at 1.10 g/t (1.08 g/t in the first quarter of 2019). In the reporting period, the Company delivered and started assembling an additional TYHI WK-20 shovel, which is expected to be commissioned during the third quarter of 2019.

Polyus completed the installation of four tanks at the fuel storage facility and is currently reconstructing the water intake system. Groundworks are also being carried out at the tailings facility.

Ore processing

Hourly throughput at the Natalka Mill reached a record-high of 1,430 t/h, compared to 1,306 t/h in the first quarter of 2019. A 9% improvement in hourly throughput was driven by optimised grinding media loading into the ball mill, the introduction of an air-conditioning system for SAG and ball mills engines and reducing the circulation load at the grinding circuit following an upgrade of hydrocyclones.

Average grade in ore processed decreased to 1.56 g/t, reflecting a temporary increase of lower-grade content in the ore feed.

Recovery rate averaged at 71.4% in the second quarter, compared to 71.7% in the previous quarter, despite lower grades in ore processed.

The Company is continuing to work on achieving a gradual increase in recovery at Natalka. In the reporting period, Polyus introduced two additional concentrators at the first stage of gravity separation and commissioned a CIC column and the fourth stage of gravity concentration.

Polyus plans to further debottleneck the first stage of gravity concentration by introducing a further two Knelson concentrators, which will positively impact recoveries. The Company has also approved the roll out of flash flotation technology at the Natalka Mill and anticipates the commissioning of flash flotation units in 2020.

Mining works and ore processing 

Sukhoi Log

2Q 2019 Highlights

Ø Polyus is proceeding with the Pre-feasibility study.

Drilling campaign

As of the end of the second quarter of 2019, the Company had completed approximately 90% of the planned 223 thousand meters drilling campaign. Following the completion of drilling activities, Polyus will focus on finalizing samples assaying and further data analytics.

In line with the initial schedule, the Company expects to provide an update on Measured & Indicated Mineral Resources along with a Maiden estimate of Proven & Probable Ore Reserves for Sukhoi Log in the first half of 2020.

Pre-Feasibility Study highlights

In the reporting period, Polyus progressed with trade-off development studies of the Sukhoi Log project. Polyus' technical team, together with international consultants, finalized studies on comminution, gravity and flotation circuits as well as the Mill's optimal throughput capacity. In addition, the Company completed trade-off studies on loading and drilling mining equipment.

fiNANCIAL UPDATE

Gold sales

In the second quarter of 2019, the Company sold a total of 685 thousand ounces of gold, a 20% increase on the previous quarter. Total gold sales include 57 thousand ounces of gold contained in concentrate from Olimpiada.

Estimated gold sales in the reporting period totalled approximately $886 million, compared to $741 million in the previous quarter and $683 million in the second quarter of 2018.

Debt management

The Company's gross debt increased to $4,888 million, compared to $4,572 million as at the end of the first quarter of 2019. In April 2019, the Company repaid the principal amount on credit facilities nominated in RUB and liabilities under cross-currency swaps totalling $1 billion, utilizing a RUB 65 billion credit facility with Sberbank due in 2024. In addition, Polyus utilised a portion of cash on balance, totalling $250 million, which was secured for the Sberbank 2023 loan prepayment, to fully redeem it in April 2019.

As at 30 June 2019, the Company's estimated cash position stood at $1,249 million (31 March 2019: $1,561 million). Among other factors, the change in cash position reflects a dividend payout for the second half of 2018 in the amount of $295 million.

The estimated net debt position increased compared to the previous quarter and amounted to $3,639 million (31 March 2019: $3,011 million) mainly due to the repayment of the aforementioned derivative liabilities amounting to $472 million.

Dividend update

Dividends for the second half of 2018, approved at the AGM on 6 May 2019, were paid in June 2019 in the amount of $295 million. The total dividend payout for the full year of 2018 corresponded to $559 million.

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 22 July 2019 at 2 pm London time (4 pm Moscow time) to present and discuss the second quarter operating results.

To join the conference call, please dial:

Conference ID: 17951896#

UK

+44 207 194 37 59 (Local access)

0800 376 61 83 (Toll free)  

USA

+1 646 722 49 16 (Local access)

844 286 06 43 (Toll free)

Russia

+7 495 646 93 15 (Local access)

8 800 500 98 63 (Toll free)

To access the replay, please dial:

Passcode: 418864821#

UK

+44 20 3364 5147

USA

+1 (646) 722-4969  

Russia

+7 (495) 249-16-71

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.