TIDMPOG
RNS Number : 6441Z
Petropavlovsk PLC
16 March 2017
PRESS RELEASE
16 March 2017
Petropavlovsk PLC
POX Hub Update
Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together
with its subsidiaries, the "Group") is pleased to provide a
development update on the Pressure Oxidation Hub ("POX Hub"):
Highlights:
-- Full scale POX Hub project development from January 2017
following the refinancing of US$430m bank debt
-- Construction of the POX Hub is 65% complete and construction
of the Malomir flotation plant (Stage 1) is 90% complete (as at 28
February 2017)
-- Commissioning of the POX Hub is scheduled to start in Q4 2018
with production ramping up through 2019
-- Completion of the POX Hub potentially doubles the Company's
average life of mine plan to greater than 15 years
-- The POX Hub is set to add at least an additional 200koz pa to
the production profile at a steady rate, with upside potential from
exploration, expansion and tolling opportunities
-- Including US$32million for the Malomir flotation plant
(Stages 1 & 2), total pre production capital expenditure for
the POX Hub is US$152million, as at 31 December 2016.
CEO Pavel Maslovskiy comments:
"I am pleased to report that construction activities at our POX
Hub have fully resumed. This marks an exciting stage in
Petropavlovsk's journey, achieving our vision of being
strategically positioned as both a leading refractory and non
refractory gold producer.
The POX Hub is 65% complete. The updated project economics, as
audited by two independent consultants, mark the culmination of 24
months of project optimisation and balance sheet restructuring,
allowing us to further de risk this core growth project.
Refractory gold is the future of the gold sector. The sector is
increasingly unable to replace depleted oxide ounces. More than 50%
of Russia's defined gold resources are refractory or partially
refractory. The POX Hub positions Petropavlovsk as a solution to
unlocking this embedded value within the Group and in Russia more
broadly."
Background
Defined within Petropavlovsk's substantial 20.2Moz JORC resource
(7.2Moz JORC reserve) is 9.3Moz refractory gold resource (4Moz
refractory reserve), with under explored resource upside within the
highly prospective 3,600km2 license holding.
In 2017, the Company expects to produce between 420,000oz -
460,000oz (2016 - 416,000oz), at US$800/oz - $900/oz AISC, from the
non refractory operations at Pioneer, Albyn, Malomir and
Pokrovskiy.
Unlocking the 9.3Moz refractory resource supports
Petropavlovsk's long term growth objectives in doubling the average
life of mine and sustaining the production profile.
The Company's defined economic refractory ounces are within the
Malomir license area (964km(2) ) and Pioneer license areas
(1,375km(2) ,). Both licenses sit along or above the
Mongolo-Okhotskiy mineralised belt. Refractory mineralisation at
both Malomir and Pioneer is hosted mainly within carbonaceous
schists and meta alevrolites. This same belt also hosts a number of
large deposits, including Sukhoi Log and Teseevskoe-Baley to the
west of the Amur region.
-- Malomir (of which 62% JORC reserves are refractory) is the
only large refractory deposit within the north east part of the
Amur Region and remains largely under explored. The area is highly
prospective for further resource growth due to favourable geology
and large neighbouring alluvial deposits, many of which have
unidentified hard rock sources.
-- Pioneer (of which 58% JORC reserves are refractory) in
addition to the significant non refractory reserves, further
refractory resource potential exists within the Pioneer license,
particularly along the contact between granitoid and Jurassic host
rocks, south and south west of the Pioneer RIP plant.
POX Feasibility
In 2010, an extensive feasibility study into refractory ore
processing solutions was carried out by PHM Engineering, the
Company's 100% owned subsidiary. This incorporated a base
engineering study prepared by Outotec in cooperation with RDC
Hydrometallurgy, the Company's 100% owned subsidiary. The results
demonstrated that pressure oxidation (POX), via autoclaves, was the
most technically and economically viable and advantageous
processing solution, in addition to being the most efficient, safe
and environmentally friendly method.
POX is a globally recognised process for treating refractory ore
and flotation concentrate, by applying high temperature and high
pressure within an autoclave. This allows the gold bearing
sulphides to break down, making the gold amendable to cyanide
leaching.
In 2011, the Company decided to proceed with the POX Hub
development. The final design requires the construction of
flotation plants at Malomir (5.4Mtpa) and Pioneer (6.0Mtpa) and a
500ktpa pressure oxidation facility (POX Hub) at Pokrovskiy,
utilising four separate autoclave vessels (15m x 4m, each with a
volume of 66m3).
This allows operations to be significantly more flexible, as
flotation concentrates from Malomir and Pioneer with varying
metallurgic properties can be separately processed simultaneously,
without compromising productivity or gold recovery. The final
design also allowed for a further 30% expansion in processing
capacity from 500ktpa to 650ktpa, with the addition of two further
autoclaves.
The Pokrovskiy mine, in the Amur region, was identified as the
optimal strategic location for the POX Hub, due to the excellent
regional and on site infrastructure. The Malomir mine is 670km from
site and the Pioneer mine 40km from site via all weather federal
roads. The Trans-Siberian Railway is 10km from the site and
Blagoveshchensk, the Russia-China trading hub of the Far East, is
450km from site via federal motorway. Furthermore, the region
benefits from access to ample, low cost hydropower from four
regional hydroelectric stations (c.5GW capacity) and the
availability of highly skilled labour.
Pokrovskiy is a mature project with declining production but
excellent on site infrastructure (including a 2Mtpa RIP plant).
Utilising and adapting this existing infrastructure has a
beneficial impact on capital costs, with US$90million gross value
of buildings and equipment being incorporated directly into the POX
Hub facility. By leveraging our existing mine site, we do not need
to increase our environmental footprint.
Ore will first be mined, crushed, ground and put through a
flotation circuit at Malomir (and Pioneer from 2023). The resultant
high grade flotation concentrate, equating to 5.5% mass of the
original ore, will be dried and transported to the POX Hub for
autoclave oxidation, neutralisation, filtration and then leached in
the existing Pokrovskiy RIP circuit before Doré smelting.
Extensive autoclave test work is regularly carried out at the
Company's Blagoveshchensk metallurgical test plant (operating since
2011). This enables the Company to run permutations of the key
operating paramters with which to better understand the optimal
solutions for autoclave concentrate recovery.
Alongside an independent technical audit, in 2016 the Company
conducted an internal review of the 2010 study. As confirmed by RDC
Hydrometallurgy, the updated estimates for operating and
metallurgical project parameters are set out below:
Malomir Pioneer
---------------------- -------- -------- --------
Malomir Flotation
Plant
---------------------- -------- -------- --------
Ore processed Kt 5,400 6,000
---------------------- -------- -------- --------
Ore grade g/t 1.04 0.91
---------------------- -------- -------- --------
Flotation recovery % 86% 82%
---------------------- -------- -------- --------
Sulphur content % 25% 21%
---------------------- -------- -------- --------
Concentrate
yield mass % 5.5% 2.9%
---------------------- -------- -------- --------
Concentrate
grade g/t 24 24
---------------------- -------- -------- --------
POX Hub
---------------------- -------- -------- --------
Concentrate
processed kt 300-330 150-170
---------------------- -------- -------- --------
Gold recovery % 93% 98%
---------------------- -------- -------- --------
TOTAL POX Hub
recovery % 79% 80%
---------------------- -------- -------- --------
Project Economics
Capital Costs
As at 31 December 2016, the total project capital spent was
c.US$200million.
The total outstanding pre production estimated capex is
c.US$120million for the POX Hub, including a contingency allowance.
Total outstanding estimated capital expenditure for the Malomir
flotation plant is US$32million.
Operating Costs
The updated operating cost estimates are detailed in the table
below. These are competitive with other global operating refractory
gold producers and also comparable to the Company's non refractory
open pit total cash costs. This reflects lower mining costs
resulting from a lower strip ratio and materially lower RIP
processing costs due to only 3-5.5% of volume of raw ore being
treated.
Malomir Pioneer
----------------------- --------------- -------- --------
Total operating costs
(inc flotation) US$/oz 615-675 785-865
----------------------- --------------- -------- --------
Mining costs US$/m3 2.5 2.6
----------------------- --------------- -------- --------
Transport costs US$/t conc 26.0 1.7
----------------------- --------------- -------- --------
US$/t treated
Flotation costs ore 4.6 4.6
----------------------- --------------- -------- --------
POX costs US$/t conc 78.2 78.1
----------------------- --------------- -------- --------
Updated Project Economics
The updated project economics, set out in the table below,
account for updated operating and capital costs, assuming a long
term average gold price of $1,200/oz and a foreign exchange rate of
USD:RUR60.
Avg production
Project Project Project Revenue 2018-2032
NPV IRR payback 2018-2032 (koz
(10%) (%) (yrs) (US$m) pa)
----------- -------- -------- --------- ----------- ---------------
Base case 603 65 3.25 3,965 220
----------- -------- -------- --------- ----------- ---------------
Refinancing
The Company's successful refinancing of the Group's bank debt
totalling c.US$430 million (December 2016) required 100% self
funding of the POX Hub from internal cash flow generated by the
Group's current non refractory operations. This was modelled based
on an average US$1250/oz gold price throughout the construction and
ramp up phase.
The Sberbank US$100million commodity linked loan facility
remains on schedule for completion of final documentation effective
Q1 2017.
As at 15 March 2017, the Company has hedged 459koz of gold at
US$1,253/oz over 2017-2019.
Construction
The POX Hub and Malomir flotation plant are fully permitted for
construction.
Following the downward trend in the gold price in 2013, the
Company put the POX Hub development on care and maintenance while
exploring potential external funding solutions, namely with the
Company's lenders and possible joint venture partners. Prior to
this, significant design work, earth works, civil works and
construction had been completed.
Malomir Flotation Plant (nameplate capacity 5.4Mtpa)
The Malomir flotation plant is a staged build.
-- Stage 1 capacity is 3.6Mtpa across two parallel 1.8Mtpa
lines. Stage 1 construction is 90% complete. Flotation concentrate
production is scheduled for Q1 2018. Initially the concentrate will
be stockpiled before being transported to the POX Hub ahead of the
staged autoclave commissioning from Q4 2018.
-- Stage 2 expands the flotation plant to 5.4Mtpa by adding a
third 1.8Mtpa line. This will fully calibrate the flotation plant
capacity with the existing 6Mtpa crushing and grinding capacity.
Stage 2 expansion is scheduled for completion and commissioning in
2019.
-- Note. During Stage 1 operation, the spare crushing and
grinding capacity will be fully utilised for nonrefractory feed
from the open pit and underground ore into the RIP plant.
Pioneer Flotation Plant (nameplate capacity 6.0Mtpa)
The Pioneer flotation plant is scheduled for construction in
2021, ahead of concentrate production from 2023.
POX Hub (nameplate capacity c.500ktpa)
The POX Hub construction is approximately 65% complete. Greater
than 80% of the project equipment is on site, including all
critical path items and long lead items. The four 15m x 4m
autoclaves, each with a volume of 66m3, were received on site,
installed and lined in 2013.
All core structures are complete including the oxygen, autoclave
and filtration plants.
During 2016, the Company renewed key contracts with Outotec.
Outotec is responsible for the design and development of the plant.
All assembling, installation and commissioning works are carried
out under Outotec installation and technical supervision. As part
of the recommencing of the POX Hub development Outotec (alongside
the Company) ran checks on all the major equipment in situ and
commenced work on the automation and control systems.
In January 2017, the contract was awarded to commence all the
piping, welding and assembly works which will be ongoing throughout
the year.
Key Construction Milestones
During 2017, the oxygen plant, supporting POX Hub infrastructure
and all piping, welding and assembly works are scheduled for
completion. This leaves the completion of the autoclave plant, RIP
refurbishment and Hub integration to be completed by Q3 2018.
During Q4 2017, the Malomir flotation plant (Stage 1) is
scheduled for commissioning, whilst flotation concentrate
production is due to commence from Q1 2018.
In Q4 2018, the POX Hub is scheduled to commence a staged dry
and wet commissioning, one autoclave at a time.
The ramp up to commercial production is due to occur throughout
2019.
Upside Potential
Exploration
The Company continues to explore the potential for further mine
life extension and production expansion.
At Malomir, exploration work has identified several highly
prospective satellite refractory targets for further exploration
work, including Ozhidaemoe.
At Pioneer, refractory targets have been identified south of the
main Pioneer orebody zone. Initial exploration drill results
included: 68.4m@0.65g/t, 48.1m@0.74g/t and 30.9m@0.79g/t. The
Alexandra zone and Sosonovaya license are also expected to provide
further refractory resource upside.
There is also known refractory mineralisation with the Albyn
license holding.
Expansion
The autoclave plant was designed and constructed to allow for an
additional two autoclaves to be installed, increasing processing
capacity by 30% to 650ktpa.
Marketing Optionality
Given the scale of the POX Hub and the large amount of
undeveloped refractory gold mineralisation in the Russian Far East,
the hub opens a new dimension for the Group's future growth beyond
its own existing reserves and potential reserves.
-- Selling Concentrate
Market analysis is being carried out to explore the possible
economic benefit of selling concentrate to generate near term
revenue stream ahead of the POX Hub commissioning.
-- Third Party Tolling
The POX Hub could treat third party refractory ore under a
tolling arrangement. As part of running optimisation scenarios on
our production plan, upside opportunities exist for increasing the
concentrate grade of the feed to the POX Hub organically within our
own assets or in cooperation with third party high grade ore.
-- Regional License Acquisition
The POX Hub also creates opportunities to treat ores from
deposits available for acquisition in the Amur region, especially
those with significant reserves and resources but abandoned during
the Soviet Era due to a lack of technology.
Investor Morning, 29 March 2017
The Company will be hosting an event in London on 29 March 2017
from 09.00am to 11.30am.
The event will include a corporate and financial overview,
followed by technical presentations on our foundation open pit
operations and transformational development growth projects: the
POX Hub, and development of underground operations at Pioneer and
Malomir,
Further details of the event will be published on the Company's
new website. www.petropavlovsk.net
About Petropavlovsk
Petropavlovsk is one of Russia's leading gold mining companies.
As at 31 December 2016, the Company had produced approximately
6.4Moz of gold.
Petropavlovsk is in the construction phase of a state of the art
pressure oxidation facility to process the Company's substantial
refractory resource base. The Company's combined 3,600km(2) license
holding has untapped resource potential. The Company is a leading
employer and contributor to the development of the local economy in
the Amur region, Russian Far East, where it has operated since
1994.
Petropavlovsk is a shareholder (31.1%) of IRC Limited and is the
guarantor of the US$340m project finance facility (US$234m
principal outstanding, as at 31 December 2016). IRC is a vertically
integrated iron ore producer and developer in the Russian Far East
and North Eastern China. IRC is listed on the Hong Kong Stock
Exchange (Ticker: 1029.HK).
Petropavlovsk is listed on the Main Market of the London Stock
Exchange (Ticker POG.LN)
Enquiries
For more information, please visit www.petropavlovsk.net and
www.ircgroup.com.hk or contact:
Petropavlovsk plc Maitland
Alexandra Carse Neil Bennett
Grace Hanratty James Isola
+44 (0) 20 7201 8900 +44 (0) 20 7379 5151
TeamIR@petropavlovsk.net Petropavlovsk-Maitland@maitland.co.uk
Forward-looking statements
This release may include statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"projects", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or
comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These forward-
looking statements include all matters that are not historical
facts. They appear in a number of places throughout this release
and include, but are not limited to, statements regarding the
Group's intentions, beliefs or current expectations concerning,
among other things, the Group's results of operations, financial
position, liquidity, prospects, growth, strategies and expectations
of the industry.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances.
Forward- looking statements are not guarantees of future
performance and the development of the markets and the industry in
which the Group operates may differ materially from those described
in, or suggested by, any forward- looking statements contained in
this release. In addition, even if the development of the markets
and the industry in which the Group operates are consistent with
the forward-looking statements contained in this release, those
developments may not be indicative of developments in subsequent
periods. A number of factors could cause developments to differ
materially from those expressed or implied by the forward-looking
statements including, without limitation, general economic and
business conditions, industry trends, competition, commodity
prices, changes in law or regulation, currency fluctuations
(including the US dollar and Rouble), the Group's ability to
recover its reserves or develop new reserves, changes in its
business strategy, political and economic uncertainty. Save as
required by the Listing and Disclosure and Transparency Rules, the
Company is under no obligation to update the information contained
in this release.
Past performance cannot be relied on as a guide to future
performance.
The content of websites referred to in this announcement does
not form part of this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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