Q2 2017 production results

RNS Number : 9824L

Polymetal International PLC

25 July 2017

 

Release time	IMMEDIATE
Date	25 July 2017

Polymetal International plc

Q2 2017 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 second quarter and six months ended June 30, 2017.

HIGHLIGHTS

·     Polymetal produced 278 Koz of gold equivalent (GE) in Q2 2017, a 6% increase year-on-year. Strong performances at Varvara and Kapan, as well as contributions from the Svetloye heap leach at Okhotsk more than offset a planned grade decline at Dukat and the impact of the scheduled maintenance shutdown at the Amursk POX plant that was successfully completed in May.

·     GE production for 1H 2017 was at 558 Koz, up 7% year-on-year and in line with the 2017 production plan. Materially stronger production is expected in the 2H and will be driven by the seasonal concentrate de-stockpiling at Mayskoye, heap leach production at Svetoye, and higher throughput at the Amursk POX plant.

·     Gold production for the quarter was 190 Koz, up 12% over the previous year, while silver production was down 6% to 6.6 Moz.

·     Gold and silver sales for the quarter increased by 29% and 19% respectively, generating US$ 385 million in revenues, an increase of 26% over the previous year. The timing gap between production and sales was largely eliminated over H1.

·     At Kyzyl, full-scale construction activities are progressing in line with the project schedule. During the quarter, foundations for the mill and other processing equipment have been completed. The tailings facility diversion dike was finalized, with activities now focused on lining of the tailings pond.The project remains on track to produce first concentrate in Q3 2018.

·     We regret to report the death of one of our employees at Varvara as a result of a fire that broke out in the laboratory on April 30. Guidelines and procedures are now in place to prevent similar occurrences.

·     Net debt increased marginally from US$ 1,506 million as at March 31, 2017 to US$ 1,583 million as at June 30, 2017 while the Company paid out US$ 77 million in final dividends for FY2016 (US$ 0.18 per share) and has actively invested in construction of Kyzyl. As in prior years, free cash flow generation will be significantly stronger in the second half of the year driven by higher production and the traditional seasonal working capital drawdown.

·     The Company remains on track to meet its FY2017 production guidance of 1.4 Moz of gold equivalent at TCC of US$ 600-650/GE oz and AISC of US$ 775-825/GE oz. The cost guidance remains contingent on the Rouble/Dollar exchange rate dynamic that has a significant effect on the Group's Rouble-denominated operating costs. Polymetal will announce its half-yearly financial results on 29 August 2017.

"Polymetal has delivered a solid operational performance in Q2 2017 and is on track to meet its FY 2017 guidance", said Vitaly Nesis, Group CEO of Polymetal, commenting on the results. "In addition, it is great to see that our recent acquisitions, Komar and Kapan, are demonstrating strong results."

	3 months ended Jun 30,		% change1	6 months ended Jun 30,		% change1
	2017	2016		2017	2016
Waste mined, Mt	29.5	20.5	+44%	55.1	34.3	+61%
Underground development, km	28.9	23.6	+23%	53.8	43.7	+23%
Ore mined, Kt	3,277	2,734	+20%	6,590	5,732	+15%
Open-pit	2,198	1,852	+19%	4,402	4,043	+9%
Underground	1,079	883	+22%	2,189	1,689	+30%
Ore processed, Kt	3,443	2,778	+24%	6,286	5,285	+19%
Production
Gold, Koz	190	169	+12%	389	338	+15%
Silver, Moz	6.6	7.0	-6%	12.8	14.2	-10%
Copper, Kt	0.5	0.7	-26%	1.0	1.0	+4%
Zinc, Kt	1.2	0.7	+73%	2.3	0.7	+222%
Gold equivalent, Koz2	278	262	+6%	558	522	+7%
Sales
Gold, Koz	203	157	+29%	380	319	+19%
Silver, Moz	7.8	6.5	+19%	12.4	13.0	-4%
Copper, Kt	0.5	0.1	+254%	0.5	0.1	+310%
Zinc, Kt	1.7	0.2	NM6	2.2	0.2	NM6
Revenue, US$m3	385	307	+26%	683	593	+15%
Net debt, US$m4	1,583	1,506	+5%	1,583	1,329	+19%
Safety5
LTIFR	0.19	0.17	+12%	0.15	0.18	-17%
Fatalities	1	2	-50%	1	2	-50%
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, 5:1 Cu/Au and 2:1 Zn/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 and includes the liability for dividend payable. Comparative information is presented for 31 March 2017 (for the three months period) and 31 December 2016 (for the six months period).                 (5) LTIFR = lost time injury frequency rate per 200,000 hours worked.                 (6) NA = not available, NM - not material

PRODUCTION BY MINE

	3 months ended Jun 30,		% change1	6 months ended Jun 30,		% change1
	2017	2016		2017	2016
GOLD EQ. (KOZ) 2
Dukat	79	88	-10%	158	187	-15%
Albazino-Amursk	40	54	-26%	108	118	-8%
Mayskoye	4	10	-63%	9	21	-57%
Omolon	43	38	+12%	93	68	+38%
Voro	33	29	+14%	59	57	+4%
Varvara	27	22	+22%	55	35	+56%
Okhotsk	39	15	+166%	50	30	+67%
Kapan	14	6	+131%	25	6	+299%
TOTAL	278	262	+6%	558	522	+7%

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, 5:1 Cu/Au and 2:1 Zn/Au conversion ratios.

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast on Tuesday, July 25, 14:00 London time (16:00 Moscow time).

To participate in the call, please dial:

8 10 800 204 140 11 access code 73174863# (free from Russia), or

[phone] (free from the UK), or

1 855 402 7761 (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=4801.

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=4801. A recording of the call will be available immediately after the call at [phone] (from within the UK), 1 877 642 3018 (from within the US) and [phone] (from within Russia), access code 310094#, from 16:00 Moscow time Tuesday, July 25, till 16:00 Moscow time Tuesday, August 1, 2017.

Enquiries

Media		Investor Relations
FTI Consulting Leonid Fink Jenny Payne	[phone]	Polymetal Evgenia Onuschenko Maryana Nesis Michael Vasiliev	[e-mail] [phone] (UK) [phone] (Russia)
Joint Corporate Brokers
Morgan Stanley Sam McLennan Richard Brown Panmure Gordon Adam James Tom Salvesen	[phone] [phone]	RBC Europe Limited Tristan Lovegrove Marcus Jackson	[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 Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Dukat
Underground development, m	8,201	9,011	-9%	16,213	17,586	-8%
Ore mined (underground), Kt	418	382	+9%	817	802	+2%
Goltsovoye
Underground development, m	1,877	1,509	+24%	3,264	3,263	+0%
Ore mined (underground), Kt	47	46	+4%	92	93	-1%
Lunnoye + Arylakh
Underground development, m	2,154	1,442	+49%	3,802	2,545	+49%
Ore mined (underground), Kt	142	103	+38%	286	211	+36%
Perevalnoye
Underground development, m	755	-	NA	1,257	-	NA
Nachalny-2
Waste mined, Kt	75	-	NA	75	-	NA
Ore mined (open pit), Kt	16	-	NA	16	-	NA
Terem
Underground development, m	458	-	NA	458	-	NA
Ore mined (underground), Kt	5	-	NA	5	-	NA
TOTAL HUB
Waste mined, Kt	75	-	NA	75	-	NA
Underground development, m	13,445	11,962	+12%	24,994	23,394	+7%
Ore mined, Kt	627	531	+18%	1,215	1,106	+10%
Open-pit	16	-	NA	16	-	NA
Underground	611	531	+15%	1,199	1,106	+8%
PROCESSING
Dukat
Ore processed, Kt	491	484	+1%	967	984	-2%
Grade
Gold, g/t	0.4	0.6	-25%	0.4	0.6	-20%
Silver, g/t	310	356	-13%	319	368	-13%
Recovery1
Gold	87.3%	85.7%	+2%	85.4%	85.8%	-0%
Silver	89.1%	84.8%	+5%	88.3%	85.0%	+4%
Production
Gold, Koz	6.2	7.5	-17%	11.7	14.8	-21%
Silver, Moz	4.3	4.6	-6%	8.6	9.9	-13%
Lunnoye
Ore processed, Kt	116	110	+5%	228	218	+5%
Grade
Gold, g/t	1.2	1.4	-13%	1.3	1.6	-21%
Silver, g/t	346	425	-19%	364	462	-21%
Recovery1
Gold	90.2%	92.4%	-2%	91.0%	92.5%	-2%
Silver	92.0%	92.3%	-0%	92.2%	92.4%	-0%
Production
Gold, Koz	4.2	5.0	-16%	8.5	10.7	-21%
Silver, Moz	1.2	1.5	-21%	2.4	3.0	-20%
TOTAL PRODUCTION
Gold, Koz	10.4	12.5	-17%	20.2	25.5	-21%
Silver, Moz	5.5	6.1	-9%	11.0	12.9	-14%

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

Q2 silver production at Dukat remained flat over Q1 at 5.5 Moz, but decreased 9% year-on-year due to the planned grade decline at the Dukat underground mine.

As the Golstovoye mine is winding down, the increased share of lower-grade feed from Lunnoye at the Omusckhan concentrator resulted in lower head grades during the period. Nevertheless, the concentrator continues to operate above nameplate throughput capacity, with ore processed increasing 5% year-on-year.

At Lunnoye, mining volumes continued to increase, growing 38% in the second quarter. Gold and silver production declined by 16% and 21% respectively, as grades declined in line with the mine plan.

ALBAZINO-AMURSK

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Waste mined, Kt	4,988	4,524	+10%	9,388	8,619	+9%
Underground development, m	1,898	1,513	+25%	3,485	2,932	+19%
Ore mined, Kt	509	434	+17%	992	886	+12%
Open-pit	424	365	+16%	830	753	+10%
Underground	85	69	+24%	161	132	+22%
PROCESSING
Albazino concentrator
Ore processed, Kt	439	430	+2%	856	830	+3%
Gold grade, g/t	4.8	5.1	-6%	4.8	5.0	-5%
Gold recovery1	87.9%	87.2%	+1%	87.1%	86.5%	+1%
Concentrate produced, Kt	36.1	35.6	+1%	71.5	68.6	+4%
Concentrate gold grade, g/t	51.6	53.9	-4%	50.1	53.0	-5%
Gold in concentrate, Koz2	60.0	61.8	-3%	115.1	116.9	-2%
Amursk POX
Concentrate processed, Kt	23.1	33.2	-30%	66.2	73.2	-10%
Gold grade, g/t	59.9	51.8	+16%	55.4	51.4	+8%
Recovery	96.0%	94.1%	+2%	96.1%	94.1%	+2%
Gold produced, Koz3	39.8	54.0	-26%	108.1	118.0	-8%
TOTAL PRODUCTION
Gold, Koz	39.8	54.0	-26%	108.1	118.0	-8%

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

(3) 1H 2016 now includes gold produced from the third-party concentrate, previously accounted in Mayskoye production

At Albazino/Amursk, gold production in the second quarter of 2017 decreased 26% year-on-year due to a 7-week maintenance and retrofit shutdown that was successfully completed in May. The autoclave vessel has been fully re-lined with all additional high-pressure auxiliary equipment required for the de-bottlenecking project installed and operational.

Gold recovery at the Amursk POX plant improved by 2 percentage points to 96% year-on-year following the commissioning of the expanded water treatment and heat exchange sections.

Gold recovery at the Albazino concentrator continued to increase towards 88% as the plant introduced corrosion-resistant grinding media to avoid the interference of oxidized iron with the reagent efficiency.

Underground mine productivity and grades continued to improve with the completion of the transition to partially consolidated backfill in primary stopes.

Stage 3 construction activities at the Amursk POX plant are advancing on schedule. Current activities are focused on new thickening, filtration, and limestone preparation units. Polymetal plans to ramp up the debottlenecked POX plant to its full expanded capacity in the second half of 2018, in time to take feed from the Kyzyl concentrator.

OMOLON OPERATIONS

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Sopka
Waste mined, Kt	1,903	-	NA	2,330	-	NA
Ore mined (open pit), Kt	64	-	NA	64	-	NA
Tsokol
Underground development, m	992	1,017	-2%	1,897	1,932	-2%
Ore mined (underground), Kt	26	23	+13%	61	29	+111%
Birkachan
Waste mined, Kt	-	986	-100%	-	1,382	-100%
Underground development, m	1,202	705	+70%	2,348	705	+233%
Ore mined, Kt	28	60	-54%	54	362	-85%
Open-pit	-	56	-100%	-	358	-100%
Underground	28	4	+571%	54	4	NM
Oroch
Waste mined, Kt	-	1,461	-100%	109	2,907	-96%
Ore mined (open pit), Kt	-	192	-100%	81	409	-80%
Olcha
Waste mined, Kt	-	-	NA	184	-	NA
Underground development, m	820	-	NA	1,326	-	NA
Ore mined (open pit), Kt	-	-	NA	73	-	NA
TOTAL HUB
Waste mined, Kt	1,903	2,447	-22%	2,622	4,289	-39%
Underground development, m	3,014	1,722	+75%	5,571	2,637	+111%
Ore mined, Kt	117	275	-57%	333	800	-58%
Open-pit	64	248	-74%	218	768	-72%
Underground	54	27	+98%	115	33	+250%
PROCESSING
Birkachan Heap Leach
Ore stacked, Kt	121	-	NA	121	-	NA
Gold grade, g/t	1.3	-	NA	1.3	-	NA
Kubaka Mill
Ore processed, Kt	214	213	+1%	429	417	+3%
Grade
Gold, g/t	5.3	4.7	+12%	6.3	4.8	+33%
Silver, g/t	134	118	+13%	78	73	+6%
Recovery1
Gold	94.0%	86.5%	+9%	93.8%	89.9%	+4%
Silver	82.3%	80.1%	+3%	81.8%	79.7%	+3%
Gold production, Koz	35.3	30.0	+18%	84.3	58.3	+45%
Silver production, Moz	0.6	0.7	-7%	0.7	0.7	-1%
TOTAL PRODUCTION
Gold, Koz	35.3	30.0	+18%	84.3	58.3	+45%
Silver, Moz	0.6	0.7	-7%	0.7	0.7	-1%

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

In Q2, Omolon delivered a strong set of results with gold production increasing 18% year-on-year, while production for 1H 2017 grew by 45%. Gold grade in ore processed increased 12% to 5.3 g/t over the previous year on the back of higher-grade ore from Tsokol and Birkachan underground mines.

Recovery levels at the Kubaka mill in Q2 are up 9% over 2016 at 94%, as ore with better metallurgical properties was processed through the circuit. The bulk of ore processed during the quarter came from Oroch.  

At Sopka, open-pit mining has resumed with the first 64 Kt of ore mined in Q2, while at Olcha, underground development is underway with first ore from underground expected in Q4 2017.

MAYSKOYE

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Waste mined, Kt	1,554	-	NA	2,571		NA
Underground development, m	4,996	4,704	+6%	9,604	10,032	-4%
Ore mined, Kt	284	168	+69%	538	289	+86%
Open-pit	120	-	NA	143	-	NA
Underground	164	168	-2%	395	289	+37%
PROCESSING
Mayskoye concentrator
Flotation
Ore processed, Kt	157	178	-12%	363	326	+11%
Gold grade, g/t	5.6	5.2	+8%	5.9	5.6	+5%
Gold recovery1	88.6%	88.1%	+0%	87.7%	87.9%	-0%
Concentrate produced, Kt	11.5	17.7	-35%	30.1	33.0	-9%
Concentrate gold grade, g/t	59.8	45.8	+30%	60.2	49.4	+22%
Gold in concentrate, Koz2	22.2	26.0	-15%	58.2	52.3	+11%
Cyanidation
Ore processed, Kt	65	-	NA	65	-	NA
Gold grade, g/t	9.9	-	NA	9.9	-	NA
Recovery	55.0%	-	NA	55.0%	-	NA
Gold in carbon, Koz3	8.0	-	NA	8.0	-	NA
Amursk POX
Concentrate processed, Kt	1.0	5.8	-83%	5.2	11.7	-55%
Gold grade, g/t	55.9	53.0	+5%	50.0	55.3	-10%
Recovery	96.3%	94.1%	+2%	96.1%	94.1%	+2%
Gold produced, Koz4	3.8	10.3	-63%	9.0	20.9	-57%
TOTAL PRODUCTION
Gold, Koz	3.8	10.3	-63%	9.0	20.9	-57%

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

(3) Work in progress. For information only; not considered as gold produced and therefore not reflected in the table representing total production

(4) 1H 2016 now excludes gold produced from the third-party concentrate, which is accounted in Albazino/Amursk production

For the first six months of 2017, gold production at Mayskoye totalled 9 Koz, a 57% drop from the prior year period as most of Mayskoye concentrate stockpiled in the port of Pevek was shipped to third party off-takers, while Amursk POX capacity was taken up by third-party material.

In the meantime, a change in the mining method (sublevel open stoping with backfill) at Mayskoye reduced dilution levels from secondary stopes, resulting in an 8% increase in head grades, while ore mined volumes increased both quarter-on-quarter and year-on-year, by 12% and 69% respectively.

The crown pillar project is running as planned. The first 120 Kt of ore was mined via the open-pit during Q2, and the new CIL section was commissioned. Although the CIL section struggled with initially low recoveries caused by intense preg-robbing in the near-surface ore, several initiatives are under way to counteract this effect.

Loaded carbon from the CIL will be shipped to and processed into dore bars at Omolon and Amursk with production booked in Q3 and Q4 of 2017.

VARVARA

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Varvara
Waste mined, Kt	2,982	4,566	-35%	6,659	9,454	-30%
Ore mined, Kt	376	577	-35%	878	1,236	-29%
Komarovskoye
Waste mined, Kt	2,956	-	NA	5,260	-	NA
Ore mined, Kt	466	-	NA	900	-	NA
PROCESSING
Flotation
Ore processed, Kt	32	232	-86%	89	354	-75%
Grade
Gold, g/t	3.1	1.4	+117%	2.4	1.3	+81%
Copper	0.70%	0.35%	+101%	0.61%	0.33%	+82%
Recovery1
Gold	69.4%	75.0%	-7%	65.0%	70.2%	-7%
Copper	87.2%	75.0%	+16%	80.7%	72.6%	+11%
Production
Gold (in concentrate), Koz	1.7	4.9	-66%	3.3	6.5	-50%
Copper (in concentrate), Kt	0.2	0.6	-67%	0.4	0.8	-51%
Toll-treated ore processed, Kt2	52	-	NA	63	-	NA
Leaching
Ore processed, Kt	671	597	+12%	1,409	1,224	+15%
Gold grade, g/t	1.1	0.8	+44%	1.3	0.8	+67%
Gold recovery1	79.7%	76.2%	+5%	81.1%	74.5%	+9%
Gold production (in dore), Koz	24.0	14.0	+71%	50.0	24.9	+101%
Total ore processed, kt	755	829	-9%	1,560	1,578	-1%
TOTAL PRODUCTION
Gold, Koz	25.7	18.9	+36%	53.3	31.4	+70%
Copper, Kt	0.2	0.6	-67%	0.4	0.8	-51%

Note:       (1) Technological recovery, includes gold and copper within work-in-progress inventory. Does not include toll-treated ore

(2) To be further processed at Amursk POX.

In the second quarter, Varvara delivered a 36% increase in gold production compared to the previous year, while 1H 2017 production grew 70% year-on-year driven by increased processing volumes and improved head grades at the leaching circuit, enabled by the quick ramp-up in ore railed from Komar. The successful streamlining of Komar ore logistics prompted the decision to shift more mining and processing volumes from Varvara to Komar. Some of fresh Varvara ore was supplanted by Komar ore from historic stockpiles.

The results of significant in-fill and step-out drilling at Komar together with the updated cost estimates based on recent performance, will form the foundation for the re-assessment of Komar mineral resources and ore reserves. The updated estimate is expected to be completed in Q4 2017.

In the period, Varvara toll-treated some of the refractory gold ore bought by Polymetal in Russia. The produced gold concentrate will then be processed at the Amursk POX facility. Gold production from this material will be booked following dore production from concentrate at Amursk.

VORO

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Voro
Waste mined, Kt	2,539	2,664	-5%	5,057	5,315	-5%
Ore mined, Kt	402	329	+22%	822	634	+30%
PROCESSING
Voro Heap Leach
Ore stacked, Kt	180	61	+182%	180	61	+182%
Gold grade, g/t	1.3	1.2	+5%	1.3	1.2	+5%
Gold production, Koz	3.2	2.6	+24%	5.8	5.5	+5%
Voro CIP
Ore processed, Kt	252	253	-0%	498	498	+0%
Gold grade, g/t	4.9	4.4	+13%	4.3	4.4	-2%
Gold recovery1	82.6%	78.1%	+6%	81.8%	78.4%	+4%
Gold production, Koz	29.3	25.9	+13%	52.6	50.8	+4%
TOTAL PRODUCTION
Gold, Koz	32.5	28.5	+14%	58.4	56.3	+4%

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

Q2 gold production at Voro increased 14% year-on-year, primarily driven by improved head grades, higher CIP recovery, and higher volumes at the heap leach operation.

Processing volumes at the CIP plant remained flat year-on-year. Recovery levels improved by 4.5 percentage points as more high-grade oxide ore was introduced to the circuit.

OKHOTSK OPERATIONS

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Avlayakan
Underground development, m	1,223	1,259	-3%	2,467	2,331	+6%
Ore mined (underground), Kt	29	19	+53%	68	61	+12%
Svetloye
Waste mined, Kt	66	236	-72%	255	505	-49%
Ore mined (open pit), Kt	331	332	-0%	595	652	-9%
TOTAL HUB
Waste mined, Kt	66	236	-72%	255	505	-49%
Underground development, m	1,223	1,259	-3%	2,467	2,331	+6%
Ore mined, Kt	360	351	+3%	663	712	-7%
Open-pit	331	332	-0%	595	652	-9%
Underground	29	19	+53%	68	61	+12%
PROCESSING
Khakanja
Ore processed, Kt	153	157	-2%	307	309	-1%
Grade
Gold, g/t	1.7	2.4	-30%	1.5	2.5	-40%
Silver, g/t	99	64	+55%	99	66	+50%
Recovery1
Gold	96.2%	95.1%	+1%	96.5%	95.0%	+2%
Silver	73.7%	71.9%	+3%	73.8%	73.3%	+1%
Gold production, Koz	7.8	11.7	-33%	14.8	24.0	-38%
Silver production, Moz	0.4	0.2	+55%	0.7	0.5	+47%
Svetloye Heap Leach
Ore stacked, Kt	370	-	NA	466	-	NA
Gold grade, g/t	4.7	-	NA	4.5	-	NA
Gold production, Koz	26.4	-	NA	26.4	-	NA
TOTAL PRODUCTION
Gold, Koz	34.2	11.7	+193%	41.3	24.0	+72%
Silver, Moz	0.4	0.2	+56%	0.7	0.5	+47%

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

At Okhotsk, gold production in Q2 jumped more than three-fold over the previous year, mainly driven by the re-start of the Svetloye heap leach operation. Silver production grew 56% to 0.4 Moz as 3^rd party ore with higher silver grades was introduced to the feed at the Khakanja plant.

At Avlayakan, ore mined during the quarter increased 53% to 29 Kt over the previous year. As reported previously, Avlayakan's life-of-mine has been extended to H2 2018 on the back of positive down-dip exploration results earlier this year.

KAPAN

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016(1)		2017	2016(1)
MINING
Kapan
Underground development, m	4,355	2,401	+81%	7,723	2,401	+222%
Ore mined (underground), Kt	135	69	+96%	250	69	+263%
PROCESSING
Ore processed, Kt	132	64	+106%	246	64	+286%
Grade
Gold, g/t	2.6	2.3	+17%	2.4	2.3	+7%
Silver, g/t	45	43	+6%	44	43	+4%
Copper, %	0.32%	0.27%	+18%	0.30%	0.27%	+10%
Zinc, %	1.31%	1.52%	-13%	1.32%	1.52%	-13%
Recovery
Gold	86.3%	84.1%	+3%	85.0%	84.1%	+1%
Silver	84.9%	84.1%	+1%	84.1%	84.1%	-0%
Copper	91.6%	92.3%	-1%	91.3%	92.3%	-1%
Zinc	90.8%	91.2%	-0%	89.7%	91.2%	-2%
TOTAL PRODUCTION
Gold, Koz	8.6	3.4	+153%	14.4	3.4	+323%
Silver, Moz	0.1	0.1	+128%	0.2	0.1	+311%
Copper, Kt	0.3	0.1	+145%	0.6	0.1	+325%
Zinc, Kt	1.2	0.7	+73%	2.3	0.7	+222%

Note:  (1) Since the acquisition date (28 April 2016)

Kapan continued to improve across almost all metrics, including a significant increase in mining volumes that reflects the ongoing improvement measures to debottleneck the underground mine.

Gold production during the quarter increased 153% year-on-year on the back of increased processing volumes and substantially improved head grades.

The Company remains on track to produce a JORC-compliant reserve estimate and a combined LOM for Kapan and Lichkvaz in Q3 2017.

KYZYL PROJECT

	3 months ended Jun 30,		% change	6 months ended Jun 30,		% change
	2017	2016		2017	2016
MINING
Bakyrchik
Waste mined, Kt	12,479	6,0951	+105%	23,178	6,0951	+280%

Note:       (1) Restated data 

In the second quarter, stripping volumes at Kyzyl increased two-fold over the previous year to 12,749 Kt. Mining activities are proceeding in line with the schedule to produce first ore in March of 2018.

Foundations for the mills and other processing equipment have been completed together with the tunnel gallery leading from the crusher to the main concentrator building.

All of the major processing equipment is on site with installation expected to commence in Q3 2017. The tailings facility diversion dike was also finalized, with activities now focused on lining of the tailings pond.

The project remains on track to deliver its first concentrate in Q3 2018.

OTHER DEVELOPMENTS

As announced on 17 July 2017, an initial resource estimate in accordance with the JORC Code (2012) has been prepared at Nezhda, with the resource inventory comprising 71 Mt of mineralized material containing 11 Moz of gold equivalent at an average grade of 4.8 g/t, including open-pittable resources of 16.6 Mt containing 2.1 Moz of gold equivalent at an average grade of 3.9 g/t. In addition, Polymetal has agreed to increase its stake in the project to 24.7% with an option to acquire the remaining 75.3%.

HEALTH AND SAFETY

Polymetal regrets to report the death of one of our employees at Varvara due to a fire that broke out in the laboratory on April 30, 2017. Guidelines and procedures are now in place to prevent similar occurrences.

The safety of our employees at all operations remains a top priority for Polymetal. The Company is determined to commit further effort and resources to make sure that we provide a safe operating environment for all workers throughout the Group by taking the necessary steps to ensure that such events do not occur again in the future.

PERSONNEL

Igor Nikolishin (41) has been appointed the Managing Director of Varvara operations effective May 29, 2017.

Mr Nikolishin joined Polymetal in 2011 as head engineer of the Lunnoye site and was promoted to site manager in 2012. Prior to that, Igor held various position in Kazakhmys, including mine director. In 2013, Mr. Nikolishin assumed the position of the managing director at Mayskoye. Recently, he served as technical director of the Polymetal's regional unit in Yekaterinburg.

Mr. Nikolishin graduated from the East-Kazakhstan State Technical University with a degree in Mining.

 

END

 

 

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