Q1 2016 production results

RNS Number : 3113V

Polymetal International PLC

15 April 2016

 

Release time	IMMEDIATE
Date	15 April 2016

Polymetal International plc

Q1 2016 production results

Polymetal International plc (LSE, MOEX: POLY, ADR: AUCOY) (together with its subsidiaries - "Polymetal", the "Company", or the "Group") is pleased to announce the Group's production results for the first quarter ended March 31, 2016.

HIGHLIGHTS

·     Polymetal produced 260 Koz of gold equivalent in the first quarter of 2016, down 4% year-on-year, mainly due to an expected grade decline at our mature Okhotsk operations, a one off release of work in progress at Voro in the same period last year and processing of lower grade stockpiles at Varvara. All other operations had strong performances and Varvara is expected to improve with the purchase of the Komarovskoye deposit.Quarterly gold production was 169 Koz, down 9% year-on-year, while silver production was 7.2 Moz, up 6% year-on-year.

·     Sales at 243 Koz lagged production by 17 Koz of gold equivalent mostly due to seasonal factors, including New Year stoppages at refineries and annual contract re-negotiation with silver concentrate off-takers. This lag in sales is expected to be fully reversed during the year.

·     Kyzyl project development is on track with all mining equipment is on site and all major contracts for processing equipment signed during the quarter.

·     Net debt increased by 7% from US$ 1,298 million at 31 December 2015 to US$ 1,383 million at 31 March 2016, as a result of the seasonal sales lag in Q1 and increased spending on Kyzyl and equipment purchases which resulted in negative free cash flow in the quarter.

·     Polymetal deeply regrets to report one fatality on its operations this year report which occurred on 10 April at the Dukat underground mine.

·     The Company reconfirms its production guidance of 1.23 Moz of gold equivalent in FY2016, along with its total cash cost guidance of US$ 525-575/ GE oz and all-in sustaining cash costs of US$ 700-750/GE oz. The cost guidance is contingent on the Rouble/Dollar exchange rate dynamic that has a significant effect on the Group's Rouble-denominated operating costs.

·     Since the beginning of the year, Polymetal has entered into binding agreements for the acquisition of two operating assets - Kapan gold-polymetallic mine in the Republic of Armenia and Komarovskoye gold deposit located 187 km from the Varvara plant in Kazakhstan. Polymetal will provide updated production guidance incorporating these new acquisitions after the closing of the transactions, which are subject to certain regulatory approvals and are expected in Q2 and Q3 2016, respectively.

"We are on track to deliver on our production and cost targets for the current year and remain on track regarding the Kyzyl development project", said Vitaly Nesis, Group CEO of Polymetal, commenting on the results. "I regret to report a fatal accident involving a Polymetal employee at the Dukat underground mine and I would personally like to extend my heart-felt condolences to the family and friends of our colleague who lost his life in this tragic accident."

	3 months ended Mar 31,		% change1
	2016	2015
Waste mined, Mt	13.7	16.0	-14%
Underground development, km	20.2	17.3	+16%
Ore mined, Kt	2,998	3,323	-10%
Open-pit	2,191	2,560	-14%
Underground	807	764	+6%
Ore processed, Kt	2,506	2,644	-5%
Production
Gold, Koz	169	186	-9%
Silver, Moz	7.2	6.8	+6%
Copper, tonnes	249	-	NA5
Gold equivalent, Koz2	260	270	-4%
Sales
Gold, Koz	162	171	-6%
Silver, Moz	6.5	5.2	+25%
Copper, tonnes	-	438	-100%
Revenue, US$m3	286	298	-4%
Net debt4	1,383	1,298	+7%
Safety6
LTIFR	0.19	0.24	-21%
Number of fatalities	-	2	NA
Notes:     (1) % changes can be different from zero even when absolute numbers are unchanged because of rounding. Likewise, % changes can be equal to zero when absolute numbers differ due to the same reason. This note applies to all tables in this release.                 (2) Based on 1:80 Ag/Au and 5:1 Cu/Au conversion ratios.                 (3) Calculated based on the unaudited consolidated management accounts. Concentrate sales are recorded based on forward prices for the expected dates of final settlement and concentrate revenue is presented net of refining and treatment charges. (4) Non-IFRS measure, based on unaudited consolidated management accounts. Net debt equals to current and non-current borrowings less cash and cash equivalents. Comparative information is presented for 31 December 2015.                 (5) NA = not available. (6) LTIFR =lost time injury frequency rate per 200,000 hours worked.

PRODUCTION BY MINE

	3 months ended March 31,		% change1 (Y-o-Y)
	2016	2015
GOLD EQ. (KOZ) 2
Dukat operations	98	91	+8%
Albazino-Amursk	60	56	+7%
Mayskoye	14	11	+26%
Omolon operations	29	29	+1%
Voro	28	41	-32%
Varvara	14	20	-32%
Okhotsk operations	15	21	-28%
TOTAL	260	270	-4%

Notes:     (1) % changes can be different from zero even when absolute numbers are unchanged because of rounding. Likewise, % changes can be equal to zero when absolute numbers differ due to the same reason. This note applies to all tables in this release.

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

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast on Friday, 15 April 2016, 17:30 Moscow time (15:30 London time).

To participate in the call, please dial:

8 10 8002 041 4011 access code 87375409# (free from Russia), or

[phone] (free from the UK), or

[phone] (free from the US), or

any of the above numbers (from outside the UK, the US and Russia) or follow the link: http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=3575

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 http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=3575. A recording of the call will be available immediately after the call at [phone] (from within the UK), [phone] (from within the US) and [phone] (from within Russia), access code 300665#, from 6:30 pm Moscow time Friday, April 15, till 6:30 pm Moscow time Friday, April 22, 2016.

Enquiries

Media		Investor Relations
FTI Consulting  Leonid Fink Jenny Payne	[phone]	Polymetal Maxim Nazimok Evgenia Onuschenko Maryana Nesis	[e-mail] [phone] (Russia) [phone] (UK)
Joint Corporate Brokers
Morgan Stanley Sam McLennan Richard Brown	[phone]	RBC Europe Limited Tristan Lovegrove Jonny Hardy	[phone]

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.

DUKAT OPERATIONS

	3 months ended Mar 31,		% change
	2016	2015
MINING
Dukat
Underground development, m	8,575	8,881	-3%
Ore mined (underground), Kt	420	384	+9%
Goltsovoye
Underground development, m	1,754	1,774	-1%
Ore mined (underground), Kt	48	63	-24%
Lunnoye + Arylakh
Underground development, m	1,103	1,397	-21%
Ore mined (underground), Kt	108	94	+14%
PROCESSING
Dukat
Ore processed, Kt	498	439	+13%
Head grades
Gold, g/t	0.5	0.5	+4%
Silver, g/t	380	417	-9%
Recovery1
Gold	85.8%	83.6%	+3%
Silver	85.2%	84.4%	+1%
Production
Gold, Koz	7.3	6.0	+21%
Silver, Moz	5.3	5.0	+5%
Lunnoye
Ore processed, Kt	110	104	+5%
Head grades
Gold, g/t	1.8	1.6	+12%
Silver, g/t	494	434	+14%
Recovery1
Gold	92.6%	89.3%	+4%
Silver	92.5%	88.0%	+5%
Production
Gold, Koz	5.7	5.2	+11%
Silver, Moz	1.6	1.4	+14%
TOTAL PRODUCTION
Gold, Koz	13.0	11.2	+16%
Silver, Moz	6.8	6.4	+7%

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

Quarterly silver and gold production at Dukat hub improved year-on-year by 7% and 16%, respectively as recoveries at both processing plants improved significantly and the grades at the Lunnoye mine were higher than the average reserve grades due to positive mine reconciliation.

Dukat delivered an excellent operating performance. Gold and silver production increased by 21% and 5% year-on-year respectively, as a result of higher recoveries and further increase of quarterly processing volumes which have approached 500 Kt per quarter. This was due to the continuous productivity improvement program at the plant.

The amount of ore mined at Dukat and Goltsovoye underground mines remained almost unchanged compared to the previous quarters.

Dukat is selling an increasing share of concentrate directly to industrial off-takers, as opposed to traders, which is expected to result in better economics of the off-take arrangements.

ALBAZINO-AMURSK

	3 months ended Mar 31,		% change
	2016	2015
MINING
Waste mined, Kt	3,922	3,880	+1%
Underground development, m	985	695	+42%
Ore mined, Kt	452	399	+13%
Open-pit	388	399	-3%
Underground	63	0	NA
PROCESSING
Albazino concentrator
Ore processed, Kt	400	398	+0%
Gold head grade, g/t	4.9	5.0	-2%
Gold recovery1	85.6%	88.2%	-3%
Concentrate produced, Kt	33.0	32.2	+2%
Concentrate gold grade, g/t	52.0	54.9	-5%
Gold in concentrate, Koz2	55.1	56.9	-3%
Amursk POX
Concentrate processed, Kt	40.1	39.4	+2%
Gold head grade, g/t	51.0	49.8	+3%
Recovery	94.1%	94.1%	-0%
Gold produced, Koz	60.2	56.1	+7%
TOTAL PRODUCTION
Gold, Koz	60.2	56.1	+7%

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 completion of downstream processing at the Amursk POX

Gold production at Albazino/Amursk in the first quarter was 60.2 Koz, up 7% year-on-year mainly driven by an increase in average grade in concentrate processed. Both Albazino concentrator and the POX plant demonstrated a strong performance in the quarter. POX recoveries are at a consistent 94% level. At Albazino, lower recoveries were due to changing metallurgy at the Olga pit.

Ore mining volumes at the Albazino underground continue to improve and the mine has smoothly ramped up to the capacity of 250 Ktpa.

Studies are under way to debottleneck the POX plant by building a second oxygen plant with the objective to accommodate gravity concentrate from Kyzyl.

MAYSKOYE

	3 months ended Mar 31,		% change
	2016	2015
MINING
Underground development, m	5,328	2,825	+89%
Ore mined (underground), Kt	121	223	-46%
PROCESSING
Ore processed, Kt	148	223	-34%
Gold head grade, g/t	6.2	8.1	-24%
Gold recovery1	87.6%	87.8%	-0%
Concentrate produced, Kt	15.3	24.0	-36%
Concentrate gold grade, g/t	53.5	66.2	-19%
Gold in concentrate, Koz2	26.3	51.1	-48%
Amursk POX
Concentrate processed, Kt	5.8	7.0	-16%
Gold head grade, g/t	57.6	58.4	-1%
Recovery	94.1%	94.1%	-0%
Gold produced, Koz	14.4	11.4	+26%
TOTAL PRODUCTION
Gold, Koz	14.4	11.4	+26%

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 internal downstream processing to saleable metal product.

Gold production at Mayskoye was 14.4 Koz, up 26% year-on-year and was fully generated by in-house POX processing. The POX plant operated stably with recoveries of more than 94%.

Mayskoye underground mining dynamics were stable with the setting of the objective to re-develop the stopes using a new mining method (sublevel open stoping with backfill). Grade and dilution dynamics were in line with plan while daily ore tonnage slowly increased and is expected to reach 100% of capacity in May.  

Mayskoye concentrator was successfully restarted on 1 February and produced 26 Koz of gold in concentrate during the quarter, which is being stockpiled in the port of Pevek until the start of the summer navigation period.

Grade processed improved to 6.2 g/t as compared to 5.4 g/t in Q4 2015 as a result of an ongoing improvement in grade control and dilution through optimisation of underground mining methods, although it is still below the average reserve grade of 8.5 g/t, a level expected to be achieved by the end of the second quarter.

Detailed mine engineering has started on the extraction of the crown pillar. 

OMOLON OPERATIONS

	3 months ended Mar 31,		% change
	2016	2015
MINING
Dalneye
Waste mined, Kt	-	1,032	-100%
Ore mined (open pit), Kt	-	625	-100%
Tsokol
Waste mined, Kt	-	383	-100%
Underground development, m	915	-	NA
Ore mined (open pit), Kt	-	165	-100%
Ore mined (underground), Kt	6	-	NA
Birkachan
Waste mined, Kt	396	4	NM
Underground development, m	-	680	-100%
Ore mined (open pit), Kt	302	-	NA
Oroch
Waste mined, Kt	1,446	-	NA
Ore mined (open pit), Kt	217	-	NA
TOTAL HUB
Waste mined, Kt	1,842	1,420	+30%
Underground development, m	915	680	+35%
Ore mined (open pit), Kt	519	791	-34%
Ore mined (underground), Kt	6	-	NA
PROCESSING
Kubaka Mill
Ore processed, Kt	205	206	-1%
Grade
Gold, g/t	4.8	4.6	+4%
Silver, g/t	27	42	-36%
Recovery1
Gold	93.3%	95.4%	-2%
Silver	78.1%	83.7%	-7%
Gold production, Koz	28.3	28.2	+0%
Silver production, Moz	0.1	0.1	+28%
TOTAL PRODUCTION
Gold, Koz	28.3	28.3	NM
Silver, Moz	0.08	0.07	+28%

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

Omolon has demonstrated solid results with gold production unchanged year-on-year. The decrease in recoveries driven by a change in the mix of ore feedstock was fully offset by increase in grades in ore processed.

In 2016, gold production at the Kubaka mill is set to increase, while silver production will decline as the shift in the Omolon hub's ore feedstock mix will provide ores with higher gold and lower silver grades.

At Tsokol, the first underground stope was mined in March and is expected to contribute high-grade ore to production during the remainder of FY2016.

At Oroch, the completion of ore mining is scheduled by the end of 2016. Open-pit mining at Olcha, which has become part of the Omolon hub on economic grounds, will start in Q3 2016, with a subsequent switch to underground mining.

VORO

	3 months ended Mar 31,		% change
	2016	2015
MINING
Voro
Waste mined, Kt	2,651	2,617	+1%
Ore mined (open pit), Kt	305	357	-15%
-     primary	291	302	-3%
-     oxidised	14	55	-76%
PROCESSING
Voro Heap Leach
Ore stacked, Kt	-	-	NA
Gold head grade, g/t	-	-	NA
Gold production, Koz	2.9	5.0	-42%
Voro CIP
Ore processed, Kt	245	222	+10%
Gold head grade, g/t	4.3	4.2	+3%
Gold recovery1	78.7%	78.2%	+1%
Gold production, Koz	24.9	35.8	-30%
TOTAL PRODUCTION
Gold, Koz	27.8	40.8	-32%
Silver, Moz	0.019	0.026	-26%

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

Gold production at Voro in Q1 2016 decreased by 32% year-on-year despite slight increase in grade and recoveries as a meaningful part of last year's quarterly production which was due to a one-off release of work in progress. We expect the heap leach will operate at 40-50% capacity in 2016 while the average grade processed is expected to increase slightly. Processing at the CIP plant continued at a stable pace.

Mining at Voro continues to be concentrated on the primary ore as oxidised ore reserves are nearing depletion.

VARVARA

	3 months ended Mar 31,		% change
	2016	2015
MINING
Waste mined, Kt	4,888	7,075	-31%
Ore mined (open pit), Kt	659	800	-18%
-     float ore	4	67	-95%
-     leach ore	655	733	-11%
PROCESSING
Flotation
Ore processed, Kt	123	-	NA
Grade
Gold, g/t	1.0	-	NA
Copper	0.31%	-	NA
Recovery1
Gold	57.6%	-	NA
Copper	67.5%	-	NA
Production
Gold (in concentrate), Koz	1.6	-	NA
Copper (in concentrate), t	249	-	NA
Leaching
Ore processed, Kt	626	898	-30%
Gold head grade, g/t	0.7	0.9	-16%
Gold recovery1	72.6%	79.9%	-9%
Gold production (in dore), Koz	10.9	20.2	-46%
TOTAL PRODUCTION
Gold, Koz	12.5	20.2	-38%
Copper, t	249	0	NA

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

At Varvara, gold production in Q1 2016 decreased by 38% as the plant was processing mostly ore from stockpiles with lower head grades and related lower recoveries. Mining was fully focused on the gold ore.

We expect an improvement both in grade and recovery further into 2016 as mining works will be redirected to new zones (River pit) and additional measures to improve geometallurgical mapping will be implemented.

Purchase of third-party ore resumed in Q1 2016, but the volumes are so far insignificant.

On 4 April 2016, Polymetal has entered into a binding agreement with Kazzinc LTD to acquire Komarovskoye Gold Deposit located 187 km by rail from Varvara plant. The asset is an operating open-pit. Polymetal aims to mine, deliver by rail and process at Varvara up to 1 Mtpa of ore with the potential to increase Varvara's annual production by approximately 70 Koz at lower cash costs. Komarovskoye ore will partially replace the lower-grade own feed at the leach circuit. Polymetal expects to estimate JORC compliant ore reserves at the property by the end of 2016. Closing of the transaction is expected in Q3 2016.

OKHOTSK OPERATIONS

	3 months ended Mar 31,		% change
	2016	2015
MINING
Khakanja
Waste mined, Kt	-	949	-100%
Ore mined (open-pit), Kt	-	76	-100%
Avlayakan
Underground development, m	1,072	797	+35%
Ore mined (underground), Kt	42	31	+33%
Ozerny
Waste mined, Kt	-	42	-100%
Ore mined (open pit), Kt	-	105	-100%
Svetloye
Waste mined, Kt	269	-	NA
Ore mined (open pit), Kt	320	-	NA
TOTAL HUB
Waste mined, Kt	269	991	-73%
Ore mined, Kt	361	213	+70%
Open-pit	320	181	+76%
Underground	42	31	+33%
PROCESSING
Ore processed, Kt	152	153	-1%
Grade
Gold, g/t	2.6	3.8	-31%
Silver, g/t	69	89	-23%
Recovery1
Gold	94.9%	94.9%	+0%
Silver	74.7%	66.6%	+12%
TOTAL PRODUCTION
Gold, Koz	12.3	17.8	-31%
Silver, Moz	0.2	0.3	-12%

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

Gold production at Okhotsk operations in Q1 2016 decreased by 31% year-on-year, while silver production was down 12% year-on-year to 0.2 Moz. This was due to planned decrease of grades as the plant was mainly processing low-grade ore stockpiles from the depleted Khakanja mine. Silver recoveries improved year-on-year, while gold recoveries remained stable.

Processing of high-grade material from Avlayakan underground mine and Ozerny mine will start in Q3.

At Svetloye, construction is progressing on schedule. Open-pit mining resumed at full capacity and a total of 320 Kt were mined during the quarter. 

KYZYL PROJECT

In Q1 2016, all mining equipment needed for the start of mining arrived on site. Site activities are progressing as planned with the site perimeter closed, construction of external infrastructure (access road, water pipeline, new stepdown substation) accelerating and limited earthworks initiated.

Polymetal has agreed contracts for most of the key milling equipment. First trial shipments of Kyzyl concentrate (produced at the 3rd-party toll mill) were shipped to two Chinese off-takers.

Polymetal is on track to start full-scale construction in Q2 2016.

HEALTH AND SAFETY

Polymetal regrettably reports the loss of our colleague on 10 April 2016. The fatality occurred at the Dukat mine. A miner was fatally injured by a rock mass fall in the underground mine.

Polymetal places great value in its workers' health and safety. In response to these and earlier events, the Company has tightened safety procedures across all its operating mines and implemented additional measures to ensure proper enforcement of these tightened safety standards. The review of these cases is ongoing and the results will be incorporated in our overall safety review and response. 

 

END

 

 

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