POLYUS 
By 30.01.2014
For immediate release
Polyus Gold International Limited
Trading update for Q4 and the full year 2013
Polyus Gold International Limited (LSE - PGIL, OTC (US) - PLZLY, "PGIL", "Polyus Gold" or the "Company"), the largest gold producer in Russia, today releases its operating results for Q4 and the full year 2013.
Highlights
- Record annual refined gold production from continuing operations of 1.65 million ounces (+5% year-on-year)
- Sixth consecutive year of organic growth in gold production
- 2013 production was towards the higher end of the Company's guidance (1.59-1.68 million ounces)
- Significant increase in gold production at Olimpiada (+6%), Titimukhta (+12%) and Verninskoye (+95%)
- Natalka development project re-sequenced to ensure funding stability, de-risk the construction schedule and the ramp up and identify additional opportunities for operational improvements
- Estimated 2013 gold sales of USD 2.3 billion, a 12% decrease over 2012 amid a 17% decline in gold prices
- Guidance for refined gold production for 2014 set between 1.58 and 1.65 million ounces.
Pavel Grachev, Interim Chief Executive Officer of Polyus Gold, commented:
"Amid an almost unprecedented decline in gold prices, Polyus Gold delivered another year of operational excellence with production increasing 5% placing us towards the higher end of the guidance. This enabled us to mitigate in part the 17% decline in gold prices and achieve sales of USD 2.3 billion. Our continued drive to reduce costs and enhance efficiency saw the sixth consecutive year of organic production growth.
Given the challenging market conditions, we have taken a prudent approach to the development of the Natalka project with the launch delayed by 12 months to summer 2015. The re-sequencing of the construction schedule will enable us to preserve funding stability while improving the project's economics by optimising its capex and identifying further cost and operational efficiencies. We remain confident in the potential of Natalka, which will be Russia's largest gold mine, to deliver significant shareholder value."
Health and safety update
No work-related fatalities were reported in Q4 2013. In the full year 2013, regrettably, the Company reported three fatalities (reduced by half from 2012). Following an independent third-party health and safety audit conducted at the alluvial operations in the Irkutsk region, where these three fatalities took place, a comprehensive health and safety action plan was developed to be rolled out by the start of the production season in spring 2014.
Eight lost time injuries (LTI's) were reported in Q4 2013. In 2013, the LTI frequency rate was 0.12, a 33% decrease from 0.18 in 2012. The LTI frequency rate has substantially declined for the second year in a row, down from 0.26 in 2011.
As part of its continuous effort to improve health and safety in 2013, the Company made its HSE reporting standards compliant with the Global Reporting Initiative G4 guidelines and with the standards of the International Council for Metals and Mining.
Additionally, a minimum standard for personal protective equipment and work uniform has been developed and is expected to be implemented in Q1 2014.
Operating results
In 2013, the Company produced 1,650 thousand ounces of refined gold from continuing operations, a 5% increase compared to 1,569 thousand ounces a year ago. The growth in total production was achieved as a result of higher gold output at Verninskoye, Olimpiada and Titimukhta. In Q4 2013, the Company produced 465 thousand ounces of refined gold, a 3% increase over the 450 thousand ounces produced in Q4 2012. The increase was due to a substantial growth in gold production at Verninskoye (+116%) and Titimukhta (+11%), compared to Q4 2012.
Polyus Gold moved 66 million cubic meters of rock in total in 2013 compared to 67 million cubic meters in 2012. In Q4 2013, the Company's mines moved 17 million cubic meters of rock in total, in line with Q4 2012.
The average stripping ratio for the Company in 2013 was 1.8 m³/t (2012: 2.4 m³/t). In Q4 2013, the average stripping ratio for the Company was 1.8 m³/t compared to 3.0 m³/t in Q4 2012. A total of 30 million tonnes of ore was mined in 2013, an increase of 28% compared to 2012 (24 million tonnes). The increase was mainly due to higher mining volumes at Olimpiada and Verninskoye. In Q4 2013, a total of 8 million tonnes of ore were mined, a 53% increase over Q4 2012 (5 million tonnes).
In 2013, the Company processed 22 million tonnes of ore, which is 3% higher than a year ago. This was due to increased ore processing across the Company, with the exception of Olimpiada. In Q4 2013, the Company's mines processed 6 million tonnes of ore, in line with Q4 2012.
With the exception of Kuranakh, recovery rates were up across the business in both Q4 and the full year 2013, most importantly, at Olimpiada (+3%) and Blagodatnoye (+4%) in Q4 2013.
Refined gold production | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Olimpiada | 691.3 | 653.1 | 6% | 197.3 | 201.4 | -2% |
| Blagodatnoye | 395.3 | 401.4 | -2% | 111.3 | 111.1 | 0% |
| Titimukhta1 | 130.8 | 116.8 | 12% | 37.1 | 33.3 | 11% |
| Verninskoye | 89.1 | 45.6 | 95% | 34.2 | 15.8 | 116% |
| Alluvials | 205.4 | 214.0 | -4% | 51.4 | 52.9 | -3% |
| Kuranakh | 137.6 | 138.3 | 0% | 33.2 | 35.3 | -6% |
|
Total refined gold production from continuing operations2 | 1,649.5 | 1,569.2 | 5% | 464.5 | 449.8 | 3% |
Mining works and ore processing | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, mln m3 | 66.4 | 66.7 | -1% | 16.9 | 17.3 | -2% |
| Average stripping ratio, m3/tonne | 1.8 | 2.4 | -25% | 1.8 | 3.0 | -40% |
| Total ore mining, mln tonnes 3 | 30.0 | 23.5 | 28% | 7.7 | 5.0 | 53% |
| Total ore processed, mln tonnes | 22.4 | 21.8 | 3% | 5.7 | 5.8 | 0% |
Estimated capital expenditure
The Company's total capital expenditure in 2013 was approximately USD 1.2 billion 4 (2012: USD 851 million), including USD 223 million of maintenance capital expenditure, in line with the plan (USD 1.2-1.3 billion).
Operating results by mine
Olimpiada
In 2013, Olimpiada produced 691 thousand ounces of refined gold, compared to 653 thousand ounces a year ago. The increase was mainly due to improved recovery rates and an increase in the average gold grade in processed ore, despite slightly lower processing volumes. The increase in mined ore was a result of the mine plan revision aimed at increasing efficiency and improving safety.
In Q4 2013, Olimpiada produced 197 thousand ounces of gold, compared to 201 thousand ounces in Q4 2012.
Recovery rates continued to increase, reaching 76.8% in Q4 2013, compared to 72.9% in Q3 2013 and 74.3% in Q4 2012. Further improvements in recovery rates are anticipated following the completion of the automation of the bio-oxidation facility in Q2 2014. All mechanical and piping works have now been completed; the installation of control valves is scheduled to be completed by Q2 2014.
Two dormitories for 570 staff have been commissioned to replace old facilities which were closed.
Olimpiada | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, '000 m3 | 25,052 | 24,368 | 3% | 6,368 | 6,134 | 4% |
| including stripping | 20,757 | 21,384 | -3% | 5,217 | 5,737 | -9% |
| Stripping ratio (m3/t) | 1.8 | 2.7 | -33% | 1.7 | 5.4 | -69% |
| Ore mined, '000 tonnes | 11,597 | 8,056 | 44% | 3,108 | 1,071 | 190% |
| Average grade in ore mined (g/t) | 3.6 | 3.4 | 8% | 3.8 | 3.6 | 4% |
| Ore processed, '000 tonnes | 7,822 | 8,068 | -3% | 1,881 | 2,256 | -17% |
| Average grade in ore (g/t) | 3.6 | 3.4 | 5% | 3.7 | 3.4 | 10% |
| Recovery (%) | 74.5 | 73.7 | 1% | 76.8 | 74.3 | 3% |
| Refined gold production, '000 oz | 691.3 | 653.1 | 6% | 197.3 | 201.4 | -2% |
1Including 9.4 thousand ounces of refined gold produced in 2013 from ore purchased from the third party-owned Veduga mine in accordance with an off-take agreement
2Calculation may be not precise due to rounding
3Excluding ore mined at Natalka
4Capital expenditure estimates for 2013 assume an average exchange rate of 31.84 RUB/USD.
Blagodatnoye
Blagodatnoye produced 395 thousand ounces of gold in 2013 (2012: 401 thousand ounces). In Q4 2013, the mine produced 111 thousand ounces of gold which was in line with Q4 2012. The automation of the Blagodatnoye plant has been successfully completed which resulted in processing volumes and recovery rates significantly exceeding design parameters and offsetting a decrease in the gold grade of processed ore.
A dormitory for 987 staff has been commissioned to replace the old facility which was shut.
Blagodatnoye | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, '000 m3 | 13,321 | 15,355 | -13% | 3,396 | 3,838 | -12% |
| including stripping | 10,851 | 13,040 | -17% | 2,818 | 3,257 | -13% |
| Stripping ratio (m3/t) | 1.6 | 2.0 | -21% | 1.8 | 2.0 | -12% |
| Ore mined, '000 tonnes | 6,840 | 6,463 | 6% | 1,596 | 1,616 | -1% |
| Average grade in ore mined (g/t) | 2.1 | 2.1 | -2% | 2.1 | 2.2 | -6% |
| Ore processed, '000 tonnes | 6,755 | 6,499 | 4% | 1,681 | 1,651 | 2% |
| Average grade in ore (g/t) | 2.0 | 2.1 | -4% | 2.0 | 2.2 | -7% |
| Recovery (%) | 88.3 | 86.4 | 2% | 89.3 | 86.2 | 4% |
| Refined gold production, '000 oz | 395.3 | 395.3 | -2% | 111.3 | 111.1 | 0% |
Titimukhta
Gold production at Titimukhta increased by 12% year-on-year to 131 thousand ounces in 2013, including 9 thousand ounces of refined gold produced from ore purchased from the third party-owned Veduga mine in accordance with an off-take agreement.
In Q4 2013, the mine produced 37 thousand ounces of gold, including 5 thousand ounces produced from the Veduga ore, compared to 33 thousand ounces in Q4 2012. The increase was mainly due to higher processing and improved recovery rates following the Titimukhta plant upgrade.
Excluding the Veduga ore, refined gold production at Titimukhta totalled 121 thousand ounces in the full year 2013 (a 4% increase over 2012) and 33 thousand ounces in Q4 2013 (in line with Q4 2012).
Titimukhta | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, '000 m3 | 10,195 | 10,211 | 0% | 2,539 | 2,533 | 0% |
| including stripping | 9,280 | 9,328 | -1% | 2,308 | 2,340 | -1% |
| Stripping ratio (m3/t) | 3.7 | 3.9 | -4% | 3.6 | 4.4 | -18% |
| Ore mined, '000 tonnes | 2,514 | 2,422 | 4% | 635 | 532 | 19% |
| Average grade in ore mined (g/t) | 2.0 | 2.1 | -2% | 1.9 | 2.1 | -6% |
| Ore processed, '000 tonnes5 | 2,391 | 2,131 | 12% | 673 | 549 | 22% |
| Average grade in ore (g/t)5 | 1.8 | 2.1 | -12% | 1.6 | 2.1 | -25% |
| Recovery (%)5 | 85.0 | 82.2 | 3% | 85.6 | 82.9 | 3% |
| Refined gold production, '000 oz6 | 130.8 | 116.8 | 12% | 37.1 | 33.3 | 11% |
5Excluding the ore purchased from Veduga
6Including the refined gold production from the ore purchased from Veduga
Verninskoye
As the ramp up of the mine continued through the year, Verninskoye produced 89 thousand ounces of gold in 2013, a nearly two-fold increase compared to 46 thousand ounces in 2012 as a result of higher processing volumes, increased gold grade in the ore and improved recovery rates.
In Q4 2013, the mine produced 34 thousand ounces of gold, compared to 16 thousand ounces in Q4 2012.
Following the completion of the automation in Q4 2013, the Verninskoye plant is currently being fine-tuned to reach the design performance parameters.
Verninskoye | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, '000 m3 | 4,539 | 2,408 | 88% | 1,285 | 547 | 135% |
| including stripping | 2,712 | 1,439 | 88% | 800 | 270 | 196% |
| Stripping ratio (m3/t) | 0.5 | 0.6 | 0% | 0.6 | 0.4 | 69% |
| Ore mined, '000 tonnes | 4,934 | 2,616 | 89% | 1,311 | 747 | 75% |
| Average grade in ore mined (g/t) | 2.0 | 1.8 | 8% | 2.0 | 1.9 | 7% |
| Ore processed, '000 tonnes | 1,626 | 1,324 | 23% | 556 | 363 | 53% |
| Average grade in ore (g/t) | 2.5 | 2.2 | 13% | 2.6 | 2.1 | 21% |
| Recovery (%) | 70.8 | 64.2 | 10% | 77.1 | 54.9 | 41% |
| Refined gold production, '000 oz | 89.1 | 45.6 | 95% | 34.2 | 15.8 | 116% |
Alluvials (Irkutsk region)
In 2013, the Company's alluvial operations produced 205 thousand ounces of gold, compared to 214 thousand a year ago.
In Q4 2013, the Company's alluvial operations produced 51 thousand ounces of gold, compared to 53 thousand ounces in Q4 2012.
Alluvials | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Sands washed (thousand m3) | 10,107 | 9,962 | 1% | 1,952 | 1,829 | 7% |
| Average grade (g/m3) | 0.63 | 0.67 | -5% | 0.57 | 0.52 | 10% |
| Refined gold production, '000 oz | 205.4 | 214.0 | 4% | 51.4 | 52.9 | -3% |
Kuranakh
Kuranakh produced 138 thousand ounces of gold in 2013 which was in line with 2012.
In Q4 2013, the mine produced 33 thousand ounces of gold, compared to 35 thousand ounces in Q4 2012. The decrease in gold output at Kuranakh in Q4 2013 reflects the Company's ongoing effort to balance production at the mine against its cost profile.
Kuranakh | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, '000 m3 | 13,244 | 14,361 | -8% | 3,359 | 4,224 | -20% |
| including stripping | 10,952 | 12,064 | -9% | 2,782 | 3,613 | -23% |
| Stripping ratio (m3/t) | 2.6 | 3.0 | -13% | 2.6 | 3.4 | -22% |
| Ore mined, '000 tonnes | 4,146 | 3,984 | 4% | 1,054 | 1,068 | -1% |
| Average grade in ore mined (g/t) | 1.4 | 1.3 | 2% | 1.3 | 1.3 | 2% |
| Ore processed, '000 tonnes | 3,811 | 3,735 | 2% | 954 | 941 | 1% |
| Average grade in ore (g/t) | 1.4 | 1.3 | 2% | 1.3 | 1.3 | 3% |
| Recovery (%) | 84.0 | 86.6 | -3% | 86.4 | 87.1 | -1% |
| Refined gold production, '000 oz | 137.6 | 138.3 | 95% | 33.2 | 35.3 | -6% |
Development projects
Natalka
As announced in December 2013, in light of the challenging market conditions, the Company has decided to re-sequence the development of the Natalka project and delay the launch of the plant to summer 2015 from the previously announced target of summer 2014.
Although it is operationally possible to commence gold production at the Natalka mine as previously planned, the Company deems it prudent to postpone its commissioning given the recent substantial decline in gold prices and the possibility of further weakness. The decision to re-sequence the construction schedule will enable the Company to better balance the capital requirements of Natalka with the need to maintain a sound balance sheet and robust funding position in the uncertain macro environment.
In addition to a deferral of the project's residual capex, the re-sequencing will allow the Company the opportunity to identify further cost and operational efficiencies, including the optimisation of capital and operating expenditure, improvements to the project design and the potential implementation of the photometric separation technology (optical sorting) as a way to pre-concentrate the ore.
A detailed plan of project improvements is expected to be finalised by the middle of 2014. The plan will benefit from the findings of an additional project assessment review initiated in early January 2014. In the meantime, construction works are continuing onsite, albeit at a slower pace than previously planned. Mining works which commenced in 2013 in accordance with the license terms also continue.
In 2013, 4.1 million tonnes of ore were mined for stock-piling, including 947 thousand tonnes at 2.0 g/t, 1,498 thousand tonnes of ore at 1.0 g/t and 1,668 thousand tonnes at 0.6 g/t. In Q4 2013, 1.7 million tonnes of ore were mined, including 415 thousand tonnes of high grade ore, compared to 291 thousand tonnes of high grade ore mined in Q3 2013.
Natalka | FY 2013 FY 2012 Change Q4 2013 Q4 2012 Change | |||||
| Total rock moved, '000 m3 | 5,317 | - | 1,733 | - | ||
| including stripping | 3,783 | - | 1,106 | - | ||
| Stripping ratio (m3/t) | 0.9 | - | 0.7 | - | ||
| Ore mined, '000 tonnes | 4,112 | - | 1,679 | - | ||
| Average grade in ore mined (g/t) | 1.1 | - | 1.1 | - | ||
Most of the processing equipment, including both mills, gravity concentrators, flotation, CIL, desorption and carbon regeneration equipment, has been delivered onsite.
The building for the processing plant is 99% complete.
Foundations for the return water supply pump station and the slurry pump station have been completed. The installation of power line poles for a double 110 kV high-voltage power line and construction of main step-down substation 1 is underway.
The Company carried out two stages of pilot testing of the photometric separation technology (optical sorting). The potential viability of this technology for processing of ore at Natalka has been confirmed in small-scale testing and, in January-August 2014, the Company will conduct the tests on continuous industrial scale using the existing pilot plant.
The decision to implement photometric separation, if it is made, could lead to material changes in the Natalka plant flowsheet and layout, primarily to the ore crushing and conveying complex, a critical part of the plant.
Financial update
In 2013, the Company sold 1,631 thousand ounces of gold from continuing operations, a 4% increase compared to 1,571 thousand ounces a year ago. In Q4 2013, the Company sold 457 thousand ounces of gold from continuing operations, which was in line with Q4 2012.
The Company estimates its gold sales from continuing operations for 2013 will be approximately USD 2.3 billion, which is 12% lower than last year (USD 2.6 billion). The estimated realised gold price was USD 1,386 per ounce, a 17% decrease compared to USD 1,666 in 2012. In Q4 2013, the estimated realised gold price was USD 1,269 per ounce, a 25% decrease year-on-year (Q4 2012: USD 1,690).
At 31 December 2013, the Company's approximate cash position was USD 850 million. The Company's estimated net debt position was USD 356 million, compared to the net cash position of USD 680 million a year ago.
Corporate update
On 13 November 2013, Lord Clanwilliam resigned from the Board, and Mr. Pavel Grachev, nominated by Wandle Holdings Limited, a company associated with Mr. Suleyman Kerimov, was appointed to the Board as Non-Executive Director.
On 27 November 2013, Mr. Pavel Grachev was appointed Interim Chief Executive Officer of the Company following Mr. German Pikhoya's resignation as CEO and Director of the Company. Mr. Grachev splits this interim role with his responsibilities as Chairman of Nafta Moskva (Cyprus) Limited. Mr. Fyodor Kirsanov was appointed the General Director of the subsidiaries which manage the assets of the Polyus Gold Group in Russia.
2014 Outlook
Guidance for refined gold production for 2014 is set between 1.58 and 1.65 million ounces.
The possible small decrease in total gold production is expected to be driven by a planned reduction in mining works at the highest cost alluvial deposits due to the current gold environment, and lower ore grades at Blagodatnoye and Kuranakh.
Total capital expenditure in 20147 is expected to be in the range of USD 650-750 million, including USD 150-200 million of maintenance capital expenditure.
Conference call information
Polyus Gold will host an analyst conference call today at 2:00 pm London time to present and discuss the Q4 and full year 2013 operating results.
To join the conference call, please dial:
UK toll free 0808 237 0033
UK International +44 (0) 20 3426 2845
USA toll free 1877 841 4558
Russia toll free 8108 00206 85011
7Capital expenditure estimates for 2014 and beyond assume an average exchange rate of 33 RUB/USD.
A live webcast of the presentation will be available at:
Event passcode: 644957
A replay of the conference call will be available from 6 pm London time on 30 January 2014, for the duration of 7 days.
To access the replay, please dial:
UK toll free: 0808 237 0026
UK International: +44 (0) 20 3426 2807
Access number: 644957#
Enquiries:
Investor contact
Mikhail Seleznev, Director Investor Relations and Capital Markets
+44 (0) 203 585 35 37 ir@polyusgold.com
Media contact
Investor contact
Sergey Lavrinenko, Director Communications
+44 (0) 203 585 35 37 lavrinenkosn@polyusgold.com
Forward looking statements
This announcement may contain "forward-looking statements" concerning PGIL. 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 PGIL's operations. Many of these risks and uncertainties relate to factors that are beyond PGIL'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. PGIL assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.
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