Polyus Gold Int Ltd

Price Protection Programme

RNS Number : 3406L
Polyus Gold International Ltd
03 July 2014
 



For immediate release                                                                                                       3 July 2014

Polyus Gold International Limited

 

Strategic Price Protection Programme

 

Polyus Gold International Limited (LSE - PGIL, OTC (US) - PLZLY, together with its subsidiaries, "Polyus Gold" or the "Company"), the largest gold producer in Russia, announces that it has initiated a Strategic Price Protection Programme (the "Programme") for the Company.

Under the Programme, Polyus Gold has entered into a series of price protection arrangements comprised of two components i.e.:

·    zero cost Asian gold collars ("revenue stabiliser") and

·    gold forward contracts.

The revenue stabiliser component represents a series of zero cost Asian barrier collar agreements to purchase put options and sell call options with "knock-out" and "knock-in" barriers.

Price protection period

Tranche 1

1 April 2014 -

30 March 2018

Tranche 2

1 July 2014 -

29 June 2018

Weighted average price for the price-protected amount, $/oz

Years 1-3 of the Programme

Size (per annum), koz

300

120


Leg 1 (put)

Strike, $/oz

1,382

1,359

1,375

Knock-out barrier, $/oz

950

950

950

Leg 2 (call)

Strike, $/oz

1,518

1,425

1,491

Knock-in barrier, $/oz

1,634

1,525

1,603

Year 4 of the Programme

Size (per annum), koz

900

360


Leg 3 (put)

Strike, $/oz

1,037

1,100

1,055

Knock-out barrier, $/oz[1]

907

900

905

Leg 4 (call)

Strike, $/oz

1,559

1,500

1,542

Knock-in barrier, $/oz

1,777

1,650

1,741

         

As a result of Tranche 1 of the revenue stabiliser, the Company ensures a minimum weighted average price of USD 1,382 per ounce for 300 thousand ounces of gold output annually during the first three years, provided the gold price does not fall below USD 950. During the first three years the Company will benefit from price increases until the gold price reaches USD 1,634 per ounce, in which case the weighted average price will be capped at USD 1,518 per ounce. In the fourth year of the Programme, the Company ensures a minimum weighted average price of USD 1,037 per ounce for the price-protected amount of 900 thousand ounces, provided the gold price does not fall below USD 907 per ounce. Additionally, the Company will have an obligation to sell 900 thousand ounces of gold at USD 1,559 per ounce should the gold price exceed USD 1,777 per ounce. By June 30 2014, the Company has realised a number of transactions under Tranche 1 and the financial effect will be reported in the Interim financial statements for the period ended 30 June 2014.

As a result of Tranche 2 of the revenue stabiliser, the Company ensures a minimum weighted average price of USD 1,359 per ounce for 120 thousand ounces of gold annually output during the first three years, provided the gold price does not fall below USD 950. During the first three years the Company will benefit from price increases until the gold price reaches USD 1,525 per ounce, in which case the weighted average price will be capped at USD 1,425 per ounce. In the fourth year of the Programme, the Company ensures a minimum weighted average price of USD 1,100 per ounce for the price-protected amount of 360 thousand ounces, provided the gold price does not fall below USD 900 per ounce. Additionally, the Company will have an obligation to sell 360 thousand ounces of gold at USD 1,500 per ounce should the gold price exceed USD 1,650 per ounce.

Under the forwards component, the Company has entered into financing contracts to sell a total of 310 thousand ounces of gold over a period of two years starting from 1 July 2014 and ending on 30 June 2016 in equal amounts of 155 thousand ounces per year at a fixed price of USD 1,321 per ounce.

The Programme was introduced and committed in full over a three months period of March-June 2014 in cooperation with leading Russian and international banks.

The Programme is aimed at increasing the certainty of a material proportion of the Company's cash flow as it continues its capital investment in the Natalka project. The Programme is intended to protect the operating margins of Polyus Gold and ensure the stability of its balance sheet given the unique circumstances of gold price volatility and substantial capital commitments to Natalka, in the short term. Once Natalka is ramped up to full capacity, it is expected to significantly augment the production of the Company and increase its cash flow generating capacity.

The Company established a special Board committee composed of Adrian Coates, Senior Independent Non-Executive Director, Kobus Moolman, Independent Non-Executive Director, and Pavel Grachev, Interim Chief Executive Officer, to authorise transactions under the Programme.

The Company expects the revenue stabiliser arrangements to qualify as a hedge under IFRS and under the Russian tax legislation.

 

 

Enquiries:

 

Investor contact
Sergey Krivokhizhin, Director Investor Relations
+44 (0) 203 585 35 37 [email protected]

 

Media contact
Sergey Lavrinenko, Director Communications
+44 (0) 203 585 35 37 [email protected]

Forward looking statements

 

This announcement may contain "forward-looking statements" concerning the Company. 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 the Company's operations. Many of these risks and uncertainties relate to factors that are beyond the Company's ability to control or estimate precisely and therefore undue reliance should not be placed on such statements which speak only as at the date of this announcement.  The Company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.



[1] Some instruments may have no knock-out barriers.


This information is provided by RNS
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