Trading update for the third quarter of 2019

Press Release 22 October 2019

PJSC Polyus

Trading update for the third quarter of 2019

3Q 2019 Highlights

·; Total gold output increased 10% to 753 thousand ounces compared to the previous quarter. Year on year, volumes of doré gold and total gold output grew by 10% and 9% respectively.

·; Volumes of ore mined amounted to 17,477 thousand tonnes, a 12% increase on the previous quarter. On a year on year basis, volumes of ore mined rose by 38%, driven by intensified mining activities at Blagodatnoye and Natalka.

·; Volumes of ore processed totalled 11,366 thousand tonnes, up 4% on the previous quarter. Year on year, volumes of ore processed rose by 9% mainly due to the ramp-up of Natalka.

·; Recovery rate stood at 82.1%, compared to 82.2% in the previous quarter.

·; Estimated gold sales amounted to $1,061 million, up 20% compared to the previous quarter, with an estimated weighted-average gold selling price of $1,482/oz, a 13% increase on the second quarter of 2019.

·; As at 30 September 2019, the estimated net debt stood at $3,317 million, compared to $3,639 million as at the end of the previous quarter.

9M 2019 Highlights

·; Total gold output increased to 2,037 thousand ounces, compared to 1,800 thousand ounces in the prior-year period, a 13% increase year on year. Doré volumes totalled 2,132 thousand ounces, up 14% compared to the same period of the previous year.

·; Volumes of ore processed rose 13% year-on-year to 32,551 thousand tonnes mainly due to the ramp-up of the Natalka Mill and throughput capacity expansion projects at existing operations.

·; Recovery rate stood at 81.9%, up 1.0 ppts from the prior-year period.

·; Estimated gold sales increased 27% year-on-year to $2,688 million, with an estimated weighted-average gold selling price of $1,372/oz (9M 2018: $1,278/oz).

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

Polyus has had a strong third quarter, setting a new historical high in quarterly total gold output, with 753 thousand ounces produced in the reporting period. We remain well on track proceeding with the company-wide debottlenecking initiatives. Taking those factors into account, as well as Natalka operating at full capacity, we are confirming our production guidance of approximately 2.8 million ounces of gold for the full year.

Our focus remains on further improvement of safety standards within the Company, with LTIFR for the first nine months of 2019 residing at 0.06, one of the lowest levels in industry. On top of that the Company continues to further enhance its disclosure of ESG related activities and metrics. And I'm proud to mention, that our endeavors have been once again recognized, with Polyus SAM rating score upgraded to 45 from 22 in 2018."

esg update

3Q 2019 highlights:

·; LTIFR at 0.06, same as in the second quarter of 2019

·; One fatality

·; No serious environmental incidents

Health and safety:

·; Health and safety management system and regulatory compliance audits completed at Kuranakh, Polyus Stroy, Verninskoye, Alluvials, Polyus Energy.

·; Road traffic safety seasonal action plan template drawn up and circulated across business units ahead of the autumn-winter season.

·; Fasten Your Seatbelt safety campaign completed.

·; We are very sad to report a fatality at Olimpiada's Vostochny pit in July. An investigation into the incident showed that the employee had not been operating within the Company's safety procedures and rules. The Company takes this extremely seriously and continues to enhance its safety culture and ensure all employees fully understand the importance of the safety regulations, through enhanced training and monitoring.

·; Following the incident, the Company carried out an unscheduled electrical safety audit across the Krasnoyarsk Business Unit, comprising Olimpiada and Blagodatnoye mines. A specific plan has been drawn up to improve electrical safety related injury performance.

Environment:

·; Environmental safety audits took place at Polyus Krasnoyarsk, Alluvials, Polyus Stroy, Polyus Logistics.

·; Internal safety audits were carried out of tailings facilities at Olimpiada and Blagodatnoye, Natalka, Verninskoye.

·; Ongoing preparation to receive multiple-purpose environmental permits for Olimpiada and Blagodatnoye, Verninskoye, Natalka, in accordance with recent changes to the Russian legislation.

·; Polyus received second prize in Russia for corporate environmental projects at the Climate Forum 2019 held in Moscow.

Social:

·; Polyus' corporate Olympics took place in Yakutia and the 95th anniversary of the gold industry of Yakutia was celebrated; public sports infrastructure in Nizhny Kuranakh was upgraded.

·; A company-wide professional skills contest took place.

ESG ratings and initiatives:

·; Polyus joined UN Global Compact Russia, the national community of Russian UNGC participants.

·; Polyus SAM rating score was upgraded to 45, up from 22 in 2018.

Consolidated operating results

3Q 2019 Highlights

·; Total gold output amounted to 753 thousand ounces, compared to 684 thousand ounces in the previous quarter. This growth was mainly driven by higher seasonal production volumes at Alluvials and higher refined gold production at Kuranakh, Natalka and Verninskoye.

·; Volumes of ore mined amounted to 17,477 thousand tonnes, up 12% on the previous quarter, driven by higher ore volumes mined at Blagodatnoye, Verninskoye and Natalka.

·; Volumes of ore processed increased 4% quarter-on-quarter to 11,366 thousand tonnes, mainly due to the seasonal ramp up of heap leaching operations at Kuranakh.

·; Recovery rate stood at 82.1%, compared to 82.2% in the previous quarter, due to higher volumes of ore processed at heap leaching facilities.

·; Flotation concentrate output rose to 39 thousand tonnes, up 70% on the previous quarter, while volumes of gold contained in flotation concentrate increased 50% quarter-on-quarter to 103 thousand ounces. The Company produced 15 thousand tonnes of merchant gold containing flotation concentrate and 24 thousand tonnes of antimony-rich flotation concentrate. Volumes of antimony in flotation concentrate increased to 5.0 thousand tonnes.

9M 2019 Highlights

·; Total gold output was 2,037 thousand ounces, compared to 1,800 thousand ounces produced in the same period of 2018. This growth was mainly driven by the ramp up of Natalka as well as increased production volumes at Olimpiada, Verninskoye, Alluvials and Kuranakh. Doré volumes totalled 2,132 thousand ounces, up 14% year-on-year.

·; Volumes of ore processed increased 13% to 32,551 thousand tonnes, reflecting the launch of the Natalka Mill and the implementation of throughput capacity expansion projects across core assets.

·; Recovery rate stood at 81.9%, up 1.0 ppts from the prior-year period, primarily driven by an increase in recoveries at Olimpiada.

Olimpiada

3Q 2019 Highlights

Ø Ore processed volumes totalled 3,416 thousand tonnes.

Ø Recovery rate rose to 82.5%, from 82.1% in the previous quarter.

Gold output

Doré gold output stood at 356 thousand ounces in the third quarter of 2019, up 4% compared to the previous quarter, driven mainly by higher processing volumes and recovery rate. Total gold output declined by 2% to 343 thousand ounces, reflecting changes in gold in inventory at the refinery. On a year on year basis, doré gold output grew by 3%, while total gold production was down 2%.

Mining works

Rock moved volumes totalled 35,508 thousand tonnes, up 6% on the second quarter of 2019. This increase was mainly driven by improved efficiency of WK-35 excavators operating on site. The Company also commissioned an additional PV-351 drilling rig in June 2019, which contributed to higher volumes of blasted rock mass. 

Under the mine plan, Polyus decreased volumes of ore mined to 5,043 thousand tonnes, down 11% from the previous quarter. The average grade in ore mined rose to 3.52 g/t, up from 3.48 g/t in the previous quarter.

During the third quarter of 2019, Polyus continued to upgrade its mining fleet at Olimpiada. The Company delivered three 220-tonne CAT 793D trucks and one Hyundai HL780 wheel loader to the site.

Ore processing

Volumes of ore processed totalled 3,416 thousand tonnes, up 2% compared to the previous quarter.

Average grades in ore processed remained almost unchanged quarter-on-quarter at 4.01 g/t, while recovery rate rose further to 82.5%, up 0.4 ppts compared to the second quarter of 2019.

The Company continues implementation of a throughput capacity expansion project at Olimpiada, aimed at increasing capacity to 13.4 million tonnes per annum. Polyus has commissioned and is now ramping up four flash flotation units at the Olimpiada mills complex. Polyus is also working on introduction of the second stage of alkaline leaching, with construction works being close to completion. In addition, Polyus is continuing to install three Jameson Cell flotation units at Mill No. 1 and Mill No. 3.

Flotation concentrate production

On a quarter-on-quarter basis, flotation concentrate production rose 70% to approximately 39 thousand tonnes, with volumes of gold contained in flotation concentrate up 50% to 103 thousand ounces.

The growth in flotation concentrate output was driven by several factors, including a gradual increase in ore processing volumes, which reflects the ongoing throughput capacity expansion at the Olimpiada mills complex. Also, high temperatures in Krasnoyarsk region in July and August alongside greater pyrite ore content had a negative impact on bio-oxidation efficiency and throughput. To address this Polyus is evaluating options for further upgrade and expansion of its existing BIO units and construction of an additional BIO-5 unit. Final investment decision on the BIO-5 unit is expected in the first quarter of 2020.

Mining works and ore processing

Blagodatnoye

3Q 2019 Highlights

Ø Average grade in ore processed rose to 1.72 g/t, compared to 1.61 g/t in the previous quarter.

Ø Refined gold output totalled 96 thousand ounces.

Gold output

Doré gold output in the third quarter of 2019 amounted to 101 thousand ounces, down 3% compared to the previous quarter. Refined gold output amounted to 96 thousand ounces, compared to 104 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 decreased 12%.

Mining works

Volumes of rock moved increased 8% to 17,691 thousand tonnes compared to the previous quarter.

Polyus intensified mining activities at lower-grade flanks, which will enable the Company to extract higher-grade ore from the underlying horizons in the Southern area of the deposit going forward. Consequently, volumes of ore mined rose by 70% to 4,392 thousand tonnes, while the average grade in ore mined decreased to 1.17 g/t (from 1.34 g/t in the previous quarter).

Ore processing

The average grade in ore processed increased to 1.72 g/t during the reporting period, from 1.61 g/t in the second quarter of 2019, reflecting selective feeding of higher-grade stockpiled ore.

Volumes of ore processed declined by 11% to 2,061 thousand tonnes due to scheduled maintenance works.

Recovery rate stood at 87.7%, compared to 87.5% in the second quarter of 2019. The Company is currently installing a Jameson Cell flotation unit at Mill No. 4, aiming at further recovery improvement at the flotation circuit.

Mining works and ore processing

Verninskoye

3Q 2019 Highlights

Ø Volumes of ore mined rose to 1,256 thousand tonnes, compared to940 thousand tonnes in the second quarter of 2019.

Ø Refined gold production totalled 63 thousand ounces, up 3% on the previous quarter.

Gold output

Doré gold output stood at 61 thousand ounces, down 8% quarter-on-quarter. Refined gold output amounted to 63 thousand ounces, compared to 62 thousand ounces in the second quarter of 2019. Year-on-year, doré gold output and refined gold output grew by 12% and 6%, respectively.

Mining works

Volumes of rock moved increased 7% to 6,682 thousand tonnes. The commissioning of an WK-20 excavator in July contributed to higher volumes of rock moved during the reporting period.

Volumes of ore mined rose to 1,256 thousand tonnes, up 34% from 940 thousand tonnes in the previous quarter. Under the sequence of mining works, mining activities were focused on lower-grade areas of the deposit, which resulted in a 24% grade decline (2.30 g/t in the third quarter of 2019 vs 3.01 g/t in the second quarter of 2019).

Ore processing

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

Volumes of ore processed amounted to 724 thousand tonnes, down 8% on the previous quarter, reflecting scheduled maintenance works at the Verninskoye Mill, which were completed in September 2019. 

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

Polyus proceeds with the further expansion of the Verninskoye Mill to 3.5 million tonnes per annum. The Company continued construction works at the extension to the main building, where an additional grinding circuit will be installed.

Mining works and ore processing

Alluvials

3Q 2019 Highlights

Ø Gold in slime production amounted to 85 thousand ounces.

Ø Refined gold output totalled 81 thousand ounces.

In the third quarter of 2019, alluvial deposits produced 85 thousand ounces of gold in slime, up 114 % on the second quarter of 2019.

Refined gold output totalled 81 thousand ounces, compared to 30 thousand ounces in the previous quarter.

 Sands washing

Kuranakh

3Q 2019 Highlights

Ø Volumes of ore processed totalled 2,313 thousand tonnes, up 34% on the previous quarter.

Ø Refined gold output increased to 68 thousand ounces.

Gold output

Doré gold output in the third quarter of 2019 amounted to 68 thousand ounces, a 25% increase compared to the second quarter of 2019, mainly driven by higher volumes of ore processed at heap leaching facilities. On a year on year basis, doré gold output increased 24%. Refined gold output amounted to 68 thousand ounces, up 36% on the previous quarter.  

Mining works

Volumes of rock moved amounted to 8,083 thousand tonnes, up 1% on the previous quarter. Volumes of ore mined stood at 2,252 thousand tonnes, almost unchanged from the previous quarter. Grade in ore mined was 1.03 g/t, compared to 1.04 g/t in the second quarter of 2019.

Ore processing

Volumes of ore processed at the Kuranakh Mill amounted to 1,469 thousand tonnes, up 8% on the previous quarter, reflecting the completion of the 3rd ore feeder refurbishment. This allowed to increase the duration of simultaneous operation of all three comminution lines at the Kuranakh Mill.

Average grade in ore processed at the Mill stood at 1.21 g/t, remaining broadly flat on a quarter-on-quarter basis.

Recovery rate was 88.8%.

The company is continuing the project to expand Kuranakh mill to 5.8 million tonnes per annum.

Heap leaching

The third quarter period is the peak production season for the heap leaching operations due to its seasonality. 844 thousand tonnes were processed at heap leaching facilities in the third quarter of 2019, with an average grade of 0.78 g/t. Doré gold output amounted to 17.4 thousand ounces.

Mining works and ore processing

Natalka

3Q 2019 Highlights

Ø Volumes of ore processed amounted to 2,852 thousand tonnes

Ø Recovery rate stood at 71.6%.

Ø Refined gold output reached 100 thousand ounces.

Mining works

In the third quarter of 2019, volumes of rock moved totalled 18,904 thousand tonnes, while volumes of ore mined rose to 4,534 thousand tonnes, an 8% increase from the second quarter of 2019. The average grades in ore mined rose to 1.13 g/t (1.10 g/t in the second quarter of 2019).

In the reporting period, the Company commissioned an additional TYHI WK-20 shovel and completed construction works at the fuel storage facility.

Ore processing

Polyus' technical team achieved a 7% increase in hourly throughput at the Natalka Mill, reaching another record-high of 1,533 t/h, compared to 1,430 t/h in the second quarter of 2019. This improvement was driven by optimised grinding media loading into the SAG and ball mills as well as reduced circulation load at the ball mill.

Average grade in ore processed stood at 1.51 g/t, compared to 1.56 g/t in the second quarter of 2019, as the share of higher-grade material in ore mined declined in the reporting period. This resulted from downscaling of mining activities at lower benches of the open pit temporarily flooded on the back of severe weather conditions in the region in August.

Recovery rate averaged at 71.6% in the reporting period, up 0.2 ppts from the previous quarter.

The Company is continuing to implement operational initiatives targeting further recovery rate improvement at Natalka. In the reporting period, Polyus debottlenecked the first stage of gravity concentration by introducing two additional Knelson concentrators, bringing the total number of concentrators operating at the first stage to 22. In the fourth quarter of 2019, Polyus plans to install a belt magnet to remove recirculating scrap metal at the ball mill, which is expected to positively impact recovery rate at Natalka and reduce wear on the equipment.

Mining works and ore processing 

Sukhoi Log

3Q 2019 Highlights

Ø Polyus completed the exploration drilling programme during the reporting period.

Ø The Pre-Feasibility Study is in an advanced stage

Drilling campaign

In September 2019, the Company completed the exploration programme of approximately 204 kilometers, which was launched in 2017. The Company is now proceeding with a comprehensive assessment of the drilling samples. The final fire assays results are anticipated by the end of 2019.

Based on the assessment results, the Company expects to provide a further update on the Inferred & Indicated Mineral Resources estimates and a maiden Ore Reserve estimate for Sukhoi Log in the first half of 2020.

Additional drilling activity at Sukhoi Log

Polyus is currently finalizing hydrogeological and geotechnical surveys at Sukhoi Log. Outstanding drilling activities scheduled for 2019 include 4,000 meters of geotechnical drilling and 1,700 meters of hydrogeological drilling.

In 2020, Polyus plans to complete an additional 30,000 meters of in-fill drilling at Sukhoi Log. The drilling works will be focused on the future pit area, where Polyus expects to carry out mining activities during the first years of Sukhoi Log's operations. This will allow the Company to better define the gold mineralisation within this area and support the more accurate planning and sequence of mining works.

The Company also plans to conduct additional drilling at Sukhoi Log's flanks and deep levels in 2020.

Pre-Feasibility Study highlights

Ore variability tests and domain testwork are being finalized, assays to be completed till the end of November.

FINANCIAL UPDATE

Gold sales

In the third quarter of 2019, the Company sold a total of 729 thousand ounces of gold, a 6% increase on the previous quarter. Total gold sales include 79 thousand ounces of gold contained in concentrate from Olimpiada.

Estimated gold sales in the reporting period totalled approximately $1,061 million, compared to $886 million in the previous quarter and $821 million in the third quarter of 2018.

Debt management

The Company's gross debt decreased to $4,855 million, compared to $4,888 million as at the end of the second quarter of 2019. The Company's debt maturity profile remains smooth with limited debt maturities outstanding until the end of 2019.

As at 30 September 2019, the Company's estimated cash position increased to $1,538 million (30 June 2019: $1,249 million) and its estimated net debt position decreased, compared to the previous quarter and amounted to $3,317 million (30 June 2019: $3,639 million).

SPPP programme update

The Company adjusted part of its revenue stabiliser agreements, which effectively resulted in a partial close out, increase in strikes and "knock-in" barriers for certain call options expiring in 2019-2020, with total premium of ca. $30 million paid.

In July, the Company adjusted the call options for 2020, resetting call strike price to call barriers. In August, call options for 210 thousand ounces were relocated from the fourth quarter of 2019 to the fourth quarter of 2020 with call strikes and barriers adjusted upwards. Following that, the callable amount for 2020 was cut in half from 560 thousand ounces to 280 thousand ounces in September.

As a result of the abovementioned adjustments, there are no call options left for the remainder of 2019. The amounts under call options for 2020 stay at 280 thousand ounces with no gold hedges outstanding post 2020.

Dividend update

In August, the Board of Directors of PJSC Polyus has recommended the dividends for the first six months ended 30 June 2019 in the amount of 162.98 Russian roubles per ordinary share. The dividend amount is equivalent to approximately $2.53 per ordinary share, or $1.27 per depositary share (with two depositary shares representing interest in one ordinary share) [vi].

The total recommended dividend payout for the first half of 2019 amount to 21,708,394,906.40 Russian roubles and correspond to $337 million, representing 30% of the Company's EBITDA for the first half of 2019, in line with the Company's dividend policy. The dividend has been approved by the Company's Extraordinary General Shareholders' Meeting on 30 September 2019. The dividend record date was set on 10 October 2019.

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 22 October 2019 at 3 pm London time (5 pm Moscow time) to present and discuss the third quarter operating results.

To join the conference call, please dial:

Conference ID: 55297362#

UK

+44 203 009 24 70 (Local access)

0800 2794054 (Toll free)  

USA

+1 877 423 08 30 (Local access)

Russia

+7 495 646 93 13 (Local access)

8 800 500 98 20 (Toll free)

To access the replay, please dial:

Passcode: 315567870#

UK

+44 20 3364 5150

US 

+1 (844) 307-9362

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.