Q3 and 9M 2012 production results

RNS Number : 8682O

Polymetal International PLC

17 October 2012

 



Release time	IMMEDIATE
Date	17 October 2012

Polymetal International plc

Q3 and 9M 2012 production results and interim management statement

Polymetal International plc (LSE: POLY) (together with its subsidiaries, including JSC "Polymetal" - "Polymetal", the "Company", or the "Group") is pleased to announce the Group's production results for the third quarter and nine months ended September 30, 2012.

HIGHLIGHTS

·     Polymetal has posted another strong quarter, with quarterly gold equivalent production reaching an all-time high of 317 Koz, growing 48% year-on-year and 7% quarter-on-quarter. Gold equivalent production for nine months ended 30 September 2012 was 818 Koz, up 46% year-on-year. This superior operating performance was driven by continued strong production growth at Omolon, further progress at Albazino-Amursk, and improved grade profile at Khakanja;

·     Sales were ahead of production, most importantly for silver, representing an expected reduction in inventory (most importantly, at Omolon and Dukat) and thus contributing to stronger operating cash flows.

·     Ramp-up of Amursk POX is catching up with the plan, after several unscheduled shutdowns in Q3 due to the need for additional welding work. Full ramp-up expected to be achieved in November 2012.

·     Based on the strong performance already achieved, the Company is revising its FY2012 production guidance to 1,050 Koz of gold equivalent, up from original 1,000 Koz. In 2013, the Company expects to produce approximately 1,200 Koz of gold equivalent, including approximately 760 - 800 Koz of gold and approximately 23 - 24 Moz of silver and 5 - 6 Kt of copper. The 2012 - 2013 production guidance is revised cumulatively down by 50 Koz of gold equivalent (approx. 2%), mostly due to the delay in the expected commissioning of Mayskoye concentrator.  Production guidance for 2014 remains unchanged at 1,400 Koz of gold equivalent.

·     The Board of Directors has approved changes to the Company's dividend policy, raising minimum payout ratio to 30% of net earnings (provided that Net debt / Adjusted EBITDA ratio does not exceed 1.75), introducing interim dividends, and instituting special dividend to be considered at the end of each financial year.

"We have demonstrated another record quarterly performance this year, driven by strong operational delivery at both mature and new operations and allowing us to beat our original production guidance. Importantly, during this quarter we have essentially closed the gap between production and sales, resulting in stronger than expected cash flow performance" said Vitaly Nesis, CEO of Polymetal. "The new dividend policy adopted by the Board will ensure sound capital discipline and consistent decision-making in allocation of our financial resources".

	3 months ended Sep 30,		% change1	9 months ended Sep 30,		% change1
	2012	2011		2012	2011
Waste mined, Kt	22,723	21,451	+6%	65,172	62,182	+5%
Underground development, m	11,363	8,779	+29%	33,938	24,635	+38%
Ore mined, Kt	3,714	3,551	+5%	9,492	7,990	+19%
Open-pit	3,296	3,198	+3%	8,260	6,963	+19%
Underground	418	352	+19%	1,232	1,026	+20%
Ore processed, Kt	2,680	2,609	+3%	7,506	6,679	+12%
Production
Gold, Koz	196	117	+68%	452	307	+47%
Silver, Moz	6.8	5.3	+27%	20.5	13.5	+52%
Copper, tonnes	1,718	1,796	-4%	4,897	5,308	-8%
Gold equivalent, Koz2	317	214	+48%	819	559	+46%
Sales
Gold, Koz	197	112	+77%	415	299	+39%
Silver, Moz	7.6	4.7	+61%	20.0	12.0	+67%
Copper, tonnes	1,506	683	+121%	4,887	3,254	+50%
Revenue, US$m3	530	374	+42%	1,283	920	+39%
Safety
LTIFR	0.46	0.50	-8%	0.60	0.70	-14%
FIFR	-	-	NA4	-	-	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 the tables in this release.                 (2) Based on 1:60 Ag/Au and 5:1 Cu/Au conversion ratios.                 (3) Calculated based on the unaudited consolidated management accounts (except for the 1H 2012 and 1H 2011 results which are based on the reviewed and audited  consolidated financial statements, respectively). Concentrate sales are recorded based on forward prices for the expected dated of final settlement and concentrate revenue is presented net of refining and treatment charges.                 (4) NA = not available

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast on Wednesday, October 17, 2012 at 5:30 pm Moscow time (2:30 pm London time; 9:30 am New York time).

To participate in the call, please dial:

810 8002 198 4011 (toll-free from Russia), or

0800 358 5256 (toll-free from the UK), or

1 877 941 6013 (toll-free from the US), or

44 20 7190 1596 (from outside the UK, the US and Russia), or follow the link:

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=1852 

Please be prepared to introduce yourself to the moderator or register.

A recording of the call will be available on Polymetal's website (www.polymetalinternational.com) and at http://polymetal171012-live.audio-webcast.com immediately after the call. It will also be available at 0800 358 9369 (toll-free from the UK) or 44 20 7959 6720 (from outside the UK), access code 4569864#, from 7:30 pm Moscow time Wednesday, October 17, till 11:59 pm Moscow time Wednesday, October 24, 2012.

Enquiries

Media		Investor Relations
College Hill Leonid Fink Tony Friend	[phone]	Polymetal Maxim Nazimok Evgenia Onuschenko Elena Revenko	[e-mail] [phone] (Russia) [phone] (UK)
Joint Corporate Brokers
Morgan Stanley Sam McLennan Sandip Patodia	[phone]	Canaccord Genuity John Prior Roger Lambert	[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 Sep 30,		% change	9 months ended Sep 30,		% change
	2012	2011		2012	2011
MINING
Dukat
Waste mined, Kt	269	192	+40%	865	558	+55%
Underground development, m	5,749	4,151	+38%	17,485	10,759	+63%
Ore mined, Kt	311	310	+0%	1030	862	+20%
Open-pit	16	60	-73%	131	139	-6%
Underground	295	250	+18%	899	723	+24%
Goltsovoye
Underground development, m	1,543	1,207	+28%	3,656	2,922	+25%
Ore mined (underground), Kt	31	39	-20%	51	118	-57%
Lunnoye + Arylakh
Waste mined, Kt	607	767	-21%	1,985	2,128	-7%
Underground development, m	1,124	554	+103%	3,303	1,613	+105%
Ore mined, Kt	87	75	+16%	280	235	+19%
Open-pit	43	37	+16%	133	121	+10%
Underground	44	38	+15%	147	114	+29%
PROCESSING
Dukat
Ore processed, Kt	301	377	-20%	1,073	1041	+3%
Head grades
Gold, g/t	0.69	0.62	+11%	0.67	0.7	-0%
Silver, g/t	398	334	+19%	407	365	+12%
Recovery1
Gold	82.7%	79.0%	+5%	79.9%	83.8%	-5%
Silver	86.0%	82.7%	+4%	83.8%	75.6%	+11%
Production
Gold, Koz	5.3	7.0	-24%	18.3	16.8	+9%
Silver, Moz	3.2	3.9	-17%	11.5	9.2	+26%
Lunnoye
Ore processed, Kt	87	66	+33%	251	219	+15%
Head grades
Gold, g/t	1.1	1.1	-1%	1.2	1.2	+0%
Silver, g/t	427	371	+15%	424	392	+8%
Recovery1
Gold	88.5%	91.5%	-3%	90.6%	92.0%	-2%
Silver	88.2%	87.2%	+1%	87.7%	87.5%	+0%
Production
Gold, Koz	2.7	2.1	+25%	8.9	8.0	+12%
Silver, Moz	1.0	0.6	+59%	2.9	2.4	+22%
TOTAL PRODUCTION
Gold, Koz	8.0	9.1	-13%	27.2	24.8	+10%
Silver, Moz	4.2	4.5	-6%	14.4	11.5	+25%

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

Quarterly silver production at Dukat decreased by 6% compared to same period of 2011 ("year-on-year") as the replacement of the SAG mill in August reduced throughput in Q3 by 20%.  Silver production for the nine months was 25% up year-on-year on the back of continued strength in grades and recoveries.

At Dukat underground mine, silver grades decreased quarter-on-quarter as extraction of pillars was completed in Q2.  Open-pit mining works are continuing to wind down and are expected to be fully completed in 2013.

At Goltsovoye, underground development increased 28% compared to previous quarter ("quarter-on-quarter") while ore mined was up more than twofold when ore body 9 was accessed.

At Lunnoye, ore mined in Q3 increased by 16% year-on-year, while throughput and silver grade processed increased by 33% and 15% respectively. Recoveries further improved to 88.2%.

At Arylakh, the deeper horizons are mined with increased silver grades while open-pit mining works are nearing completion, with underground development to be started in 2013.

KHAKANJA

	3 months ended Sep 30,		% change	9 months ended Sep 30,		% change
	2012	2011		2012	2011
MINING
Khakanja + Yurievskoye
Waste mined, Kt	656	2,749	-76%	4,034	7,794	-48%
Underground development, m	382	265	+44%	1,264	1,147	+10%
Ore mined, Kt	360	133	+171%	992	301	+230%
Open-pit	320	131	+143%	881	294	+200%
Underground	40	1	NM2	110	7	NM
Avlayakan
Waste mined, Kt	462	277	+67%	1,167	799	+46%
Ore mined (open pit), Kt	34	33	+5%	59	95	-38%
PROCESSING
Ore processed, Kt	155	157	-1%	463	469	-1%
Grade
Gold, g/t	6.0	3.7	+63%	4.6	3.9	+17%
Silver, g/t	287	172	+67%	292	150	+94%
Recovery1
Gold	96.1%	96.2%	-0%	95.3%	95.0%	+0%
Silver	84.0%	81.7%	+3%	80.0%	77.4%	+3%
TOTAL PRODUCTION
Gold, Koz	28.8	19.3	+50%	65.5	58.1	+13%
Silver, Moz	1.2	0.7	+67%	3.5	1.8	+94%

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

(2) NM = not meaningful

Gold and silver production in Q3 at Khakanja increased by 50% and 67%, respectively, year-on-year as the plant restarted treating higher gold grade ore from Avlayakan as well as continued to process high silver grade ore from Khakanja's pit 3.

After conducting geotechnical studies the decision was made to postpone the development of an underground mine at Khakanja in favor of another pushback at the open pit 1.  This approach will reduce short-term capital costs and risks associated with underground mining in difficult geotechnical conditions.

In 2013 Khakanja plant will operate as a true processing hub treating ore from 4 deposits: Khakanja, Yurievskoye, Avlayakan, and Ozerny,

VORO

	3 months ended Sep 30,		% change	9 months ended Sep 30,		% change
	2012	2011		2012	2011
MINING
Voro
Waste mined, Kt	2,885	3,217	-10%	8,518	8,471	+1%
Ore mined (open pit), Kt	930	1,017	-9%	1,359	1,456	-7%
-     primary	206	216	-5%	575	580	-1%
-     oxidised	724	801	-10%	784	877	-11%
Degtyarskoye
Waste mined, Kt	334	432	-23%	1,051	1,289	-18%
Ore mined (open pit), Kt	43	36	+20%	70	149	-53%
PROCESSING
Voro Heap Leach
Ore stacked, Kt	439	420	+5%	759	819	-7%
Gold head grade, g/t	1.8	1.9	-9%	1.6	1.7	-5%
Gold production, Koz	11	11	+2%	23	5	+338%
Voro CIP
Ore processed, Kt	241	233	+4%	692	672	+3%
Gold head grade, g/t	5.2	6.0	-13%	5.4	5.8	-8%
Gold recovery	79.7%	77.0%	+3%	78.9%	77.4%	+2%
Gold production, Koz	31	36	-15%	88	93	-6%
TOTAL PRODUCTION
Gold, Koz2	44.3	47.0	-6%	114.8	115.7	-1%
Silver, Moz	0.052	0.052	+1%	0.120	0.126	-4%

Notes:       (1) Heap leach recoveries are meaningful for full year only due to the influence of seasonality                                                                       (2) Including the effect of rounding

Gold production at Voro for the nine months was essentially flat, as a result of increased throughput mostly compensating for the grade decline at the CIP plant.

Ore mined was more than 3 times higher quarter-on-quarter, mainly as a result of increased mining of oxidized ore in the summer season to be used in HL circuit. Mining at Degtyarskoye is nearing completion; ore mined is processed at both Varvara and Voro plants.

VARVARA

	3 months ended Sep 30,		% change	9 months ended Sep 30,		% change
	2012	2011		2012	2011
MINING
Waste mined, Kt	7,023	5,279	+33%	19,476	19,601	-1%
Ore mined (open pit), Kt	874	1,134	-23%	2,797	2,840	-2%
PROCESSING
Flotation
Ore processed, Kt	249	252	-1%	736	719	+2%
Grade
Gold, g/t	1.2	1.4	-14%	1.3	1.3	+0%
Copper	0.75%	0.88%	-14%	0.76%	0.88%	-14%
Recovery1
Gold	61.7%	60.5%	+2%	61.7%	62.3%	-1%
Copper	92.5%	88.2%	+5%	91.7%	89.1%	+3%
Production
Gold (in concentrate), Koz	6.0	6.3	-5%	18.1	17.8	+1%
Copper (in concentrate), t	1,718	1,796	-4%	4,897	5,308	-8%
Leaching
Ore processed, Kt	632	670	-6%	1,981	1,890	+5%
Gold head grade, g/t	1.3	1.0	+26%	1.2	1.1	+8%
Gold recovery1	84.0%	81.0%	+4%	84.9%	81.0%	+5%
Gold production (in dore), Koz	18.8	19.5	-4%	56.6	52.7	+7%
TOTAL PRODUCTION
Gold, Koz	24.8	25.9	-4%	74.654	70.5	+6%
Copper, t	1,718	1,796	-4%	4897	5,308	-8%

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

At Varvara, gold production for the nine months 2012 grew 6% year-on-year, while gold production for Q3 was 4% below year-on-year due to planned grade decline at the flotation circuit and lower throughput at the leach circuit due to increased use of third-party purchased ore.

Stripping ratio at Varvara continues to display some volatility due to switch of the mining works between different parts of the pit and ore types.

Throughput at both float and leach circuits is changing depending on the hardness of the ore feedstock which has an impact on the milling capacity.

Copper production for the quarter increased by 6% quarter-on-quarter due to improvement in copper head grades and continued improvement in recoveries.

OMOLON OPERATIONS

	3 months ended Sep 30,		% change	9 months ended Sep 30,		% change
	2012	2011		2012	2011
MINING
Sopka
Waste mined, Kt	2,543	1,847	+38%	7,474	3,636	+106%
Ore mined (open pit), Kt	447	284	+57%	976	491	+99%
Birkachan
Waste mined, Kt	2,593	2,469	+5%	7,469	6,626	+13%
Ore mined (open pit), Kt	255	347	-26%	845	848	-0%
Tsokol
Waste mined, Kt	917	-	n/a	2,230	-	n/a
Ore mined (open pit), Kt	24	-	n/a	55	-	n/a
PROCESSING
Kubaka Heap Leach
Ore stacked, Kt	72	-	n/a	72	-	n/a
Gold head grade, g/t	1.1	-	n/a	1.1	-	n/a
Gold production, Koz	0.0	3.1	-100%	0.0	3.3	-100%
Kubaka Mill
Ore processed, Kt	192	159	+20%	540	458	+18%
Grade
Gold, g/t	7.7	2.7	+186%	6.6	2.1	+210%
Silver, g/t	243.8	17.3	+1307%	176.1	10.4	NM
Recovery1
Gold	94.9%	92.4%	+3%	95.0%	88.4%	+7%
Silver	90.5%	80.8%	+12%	86.4%	42.1%	+105%
Gold production, Koz	43.9	12.4	+255%	108.9	28.1	+287%
Silver production, Moz	1.3	0.049	NM	2.5	0.077	NM
TOTAL PRODUCTION
Gold, Koz	43.9	15.5	+184%	108.9	31.4	+247%
Silver, Moz	1.3	0.049	NM	2.5	0.077	NM

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

Omolon posted another strong quarter. Processing high-grade ore from Sopka at Kubaka plant through the Merrill Crowe section has been completed, and in Q4 the hub will be processing ore from Birkachan and Tsokol with relatively lower grades which will result in lower Q4 production in line with the plan.

Omolon full-year production is expected to surpass earlier estimates at the expense of production in 2013 due to the shift of high-grade ore trucking and processing to 2012.

At both Sopka and Birkachan, active ore mining has resumed after focus on waste stripping in previous quarter.

At Birkachan heap leach facility, crushing equipment was successfully commissioned and low-grade ore stacking resumed.  Heap leaching is expected to commence in June 2013.

ALBAZINO-AMURSK

	3 months ended Sep 30,		% change	9 months ended Sep 30,		% change
	2012	2011		2012	2011
MINING
Waste mined, Kt	4,432	4,111	+8%	10,904	11,038	-1%
Ore mined (open pit), Kt	309	114	+170%	953	520	+83%
PROCESSING
Albazino concentrator
Ore processed, Kt	310	275	+13%	940	392	+140%
Gold head grade, g/t	5.9	4.7	+24%	5.0	4.5	+13%
Gold recovery1	87.1%	65.4%	+33%	86.6%	65.5%	+32%
Concentrate produced, Kt	31.6	17.6	+79%	82.9	25.1	+230%
Concentrate gold grade, g/t	51.0	48.2	+6%	49.7	45.3	+10%
Gold in concentrate, Koz2	51.8	27.3	+90%	132.4	36.5	+263%
Concentrate sold, Kt	26.2	4.7	+458%	31.6	4.7	+573%
Payable gold in concentrate sold, Koz3	42.2	6.8	+518%	50.5	6.8	+640%
Amursk POX
Concentrate processed, Kt	3.8	-	NA	10.2	-	NA
Gold head grade, g/t	39.8	-	NA	38.9	-	NA
Recovery	85%	-	NA	88%	-	NA
Gold produced, Koz	4.1	-	NA	10.6	-	NA
TOTAL PRODUCTION
Gold, Koz	46.3	-	NA	61.1	6.8	+795%

Notes:     (1) To concentrate

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

                (3) Included in total production upon sale to off-taker

Albazino continued to operate with design recovery, with head grades improving 19% quarter-on-quarter as a result of higher grade in ore mined. Throughput in the quarter was lower 12% quarter-on-quarter due to unscheduled repair works at the diesel gensets, however gold in concentrate produced was flat due to improved grade.

The Company continued sales to the Chinese off-taker in Q3 2012 in order to maximize sales during the ramp-up of the POX facility. Total sales during nine months 2012 reached 42 Koz of payable gold, a 6-fold increase year-on-year.

Due to mechanical issues (mainly, defective stainless pipe welding) the Amursk POX facility underwent two lengthy maintenance shutdowns which led to a material delay in the original ramp-up schedule. Currently all mechanical issues have been resolved and the facility is continuing ramp-up.

Full design capacity at the POX is expected to be reached in mid-November this year.

MAYSKOYE

	3 months ended Sep 30,		% change	9 months ended Sep 30,			% change
	2012	2011		2012		2011
MINING
Underground development, m	2,565	2,602	-1%	8,230	8,194		+0%
Ore mined (underground), Kt	7	24	-70%	25	65		-61%

Underground development at Mayskoye continues, with the commencement of stoping scheduled for Q4 2012.

There were significant delays in delivering the remaining construction materials by railroad to the seaports (for further shipping to Mayskoye by sea).  Some of the materials will need to be airlifted after the navigation is over.

Given this fact and the need to interrupt construction for New Year holidays in Russia, the start-up of Mayskoye concentrator is now scheduled for April 2013. This will allow the concentrator to produce and ship concentrate to the POX facility and/or off-takers in the 2013 summer navigation, as originally planned, however the volume is expected to be lower.

Capital expenditure

The Company expects that FY 2012 capital expenditure will comprise approx. US$ 300 million compared with the previous guidance of $250 million, due to

·      increased costs at Mayskoye due to additional logistics expenses and extension of contractors' time on site ($15 million);

·      additional welding and other works performed at Amursk POX in the ramp-up process ($10 million);

·      intensified spending on logistics development at Kutyn and Svetloye ($15 million);

·      other increases due to changes in scope of smaller investment projects ($10 million).

CapEx guidance for 2013 will be updated at the time of the release of Q4 operating results in January 2013.  Updated development plans for Kutyn and Svetloye will be provided at the same time.

dividend policy changes

On 16 October, the Board of Directors of the Company reviewed the existing dividend policy and approved the following amendments:

·      the Company's target regular payout ratio is increased to 30% of net earnings, provided that net debt / adjusted EBITDA is below 1.75;

·      interim semi-annual dividends will be paid in accordance with the same rules;

·      at the end of each financial year, the Board will consider a special dividend payment, based on the Company's available free cash flow and future capital expenditure and other investment requirements. This practice will be started from December 2012.

The Board believes that the amended dividend policy will be significantly more aligned with the interests of the Company's stakeholders and global trends in the sector, and reaffirms the Company's commitment to capital allocation discipline and value distribution.

 

END

 

 

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