TIDMPOG
RNS Number : 4643Q
Petropavlovsk PLC
12 September 2017
12 September 2017
Petropavlovsk PLC
Half Year Report for the Period Ended 30 June 2017
Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together
with its subsidiaries, the "Group") today issues its Half Year
Report for the period from 1 January 2017 to 30 June 2017 ("H1
2017" or the "Period").
Chairman's Comments
Ian Ashby, Independent Non-Executive Chairman, comments:
"This is a strong set of half year results that demonstrates the
Company is making good progress with its ambitious development
plans whilst achieving solid operational results and maintaining
continued financial discipline.
During H1, management remained focused on optimising production
plans to ensure the most efficient use of our existing asset base,
whilst maximising profitability. This strategy, together with the
continued excellent work of our experienced operational team, has
contributed to a 91% increase in operating profit for H1 compared
with the same period in 2016 - US$65 million from US$34
million.
A more than twofold increase in net cash from operating
activities to US$74.6 million gives us further confidence to
proceed with our capital expenditure program to ensure the timely
delivery of our development projects. The recent gold price
environment has assisted with cash generation and helped to de-risk
the delivery of our key development assets. Our management team
constantly monitors the gold price and maintains the Group's
hedging positon to ensure levels of cash generation that meet
development budget needs, as a downturn in the gold price could
stress the company's liquidity position.
We achieved Total Cash Costs (TCC..) of US$675/oz, slightly up
from US$663/oz in H1 2016 but within our original forecast range
for 2017 of US$600 - 700/oz. Costs for the year are now expected to
be c.US$700/oz at current exchange rates, at the upper end of
original guidance. The increases in the Company's All-in-Sustaining
Costs ("AISC"(u) ) to US$965/oz and All-in Costs ("AIC"(u) ) to
US$1,044/oz primarily reflect sustaining capital expenditure
relating to underground developments and tailing dam expansion,
exploration, stripping and greater central administration expenses.
AIC was also affected by capital expenditure in relation to the POX
project.
Both development projects progressed well during the period. The
delay with the underground development of Malomir caused by the
late mobilization of equipment by the mining subcontractors was
partially offset by the steady work of our team. The wide range in
our full year production forecast reflects our conservative
approach to the commissioning of scalable production from
underground mining. We are currently on schedule for first
production from POX to begin in Q4 2018.
We continue to look for ways to de-risk our development plans,
including focusing on securing free cash from the operating
business and improving the Company's capital structure.
Additionally, we are assessing the best way to realise value for
IRC.
The non-executive directors, myself included, are still
relatively new to their roles within the Company following the
recent changes to the Board at the June AGM. As such, we continue
to develop and deepen our understanding of the business, its
substantial potential and the work we must do to realise the best
returns for all stakeholders. However, I have been impressed by
what I have seen and heard so far, particularly during a recent
visit with Vladislav Egorov, Non-Executive Director, to the Group's
operations in the Amur region. We visited all the operational sites
including the underground developments and the POX construction.
Additionally, we visited key support facilities and the regional
office in Blagoveschensk, where we met with employees to discuss
the business. I was very impressed with the level of diligence and
enthusiasm that our people apply in executing the Company's
strategy.
Mr Sergey Ermolenko, the Acting CEO of the Group who previously
held this position from December 2011 to November 2014, has been
instrumental in guiding our operations since his appointment on 18
July 2017. The
Board is confident that Mr Ermolenko is well positioned to
manage the Company during the transition to new leadership. In the
meantime, the Board has engaged an agency to facilitate the search
for a permanent CEO candidate, and we will update the market on
further progress in due course."
(..) Throughout this document, when discussing the Group's
financial performance, reference is made to a number of financial
measures, known as Alternative Performance Measures (APM), which
are not defined or calculated in accordance with IFRS. Please refer
to Section "The Use and Application of APMs" of this report for
further information on APMs, their definition, how they are
calculated and their relevance to Petropavlovsk.
Financial Highlights
-- 20% increase in Group Revenue to US$304 million (compared to
US$254million in 2016) due to 19% increase in production and 5%
increase in average realised gold price
-- Profit for the period increased by 166% at US$24.5 million
(compared to US$9.2 million in 2016) benefited from higher revenues
and only a modest increase in costs
-- 91% increase in Operating Profit to US$65 million (H1 2016: US$34 million)
-- 30% increase in EBITDA.. to US$114 million (H1 2016: US$88 million)
-- 150% increase in Net Cash from Operating Activities(u) to US$74.6 million
-- 5% increase in average realised gold price(u) of US$1,255/oz
(H1 2016: US$1,194/oz) somewhat benefited from US$2.8 million
contribution from cash flow hedge
-- Total Cash Costs(u) increased by only 2% from H1 2016:
- TCC(u) US$675/oz within the original forecast range for the
full year of US$600 - 700/oz (H1 2016: US$663/oz)
- AISC(u) up 27% to US$965/oz (H1 2016: US$762/oz) primarily
reflecting sustaining capital expenditure relating to underground
developments and tailing dam expansion, exploration, stripping and
greater central administration expenses
- AIC(u) up 37% to US$1,044/oz (H1 2016: US$761/oz), reflecting
the increase in AISC(u) and capital expenditure(u) in relation to
the POX Hub
-- 5% reduction in Net Debt(u) to US$570 million (FY 2016: US$599 million)
-- Capital expenditure(u) of US$41.8 million includes US$10.9
million of exploration spend and US$31 million of development
capex, (u) the majority of which related to the POX and underground
projects, expansion of tailing dams and ongoing exploration (H1
2016: US$11.9 million)
The Group continues to adopt the going concern position,
however, under a layered stress scenario, the Group would be
required to take mitigating actions in order to avoid any liquidity
or covenant compliance issues.
H1 Production Highlights
-- 19% yoy increase in H1 total gold production - c.232,400oz (H1 2016: 195,600oz)
Gold production - Dore (incl. GIC movement), '000oz
-------------------------------------------------------------
Q2 2017 Q2 2016 H1 2017 H1 2016
================ ========== ========= ========= =========
Pioneer 47.9 34.7 96.4 71.0
================ ========== ========= ========= =========
Pokrovskiy 8.4 9.1 14.2 17.2
================ ========== ========= ========= =========
Malomir 12.3 12.2 28.7 24.8
================ ========== ========= ========= =========
Albyn 45.7 38.8 93.1 82.6
---------------- ---------- --------- --------- ---------
Total 114.3 94.8 232.4 195.6
---------------- ---------- --------- --------- ---------
Note: from the beginning of 2017, the Company moved to using
gold poured as the definition for production. Comparable 2016 gold
production numbers are adjusted accordingly.
FY 2017 Outlook
-- Production forecast for full year of c.420,000 - 460,000oz reconfirmed
-- TCC(u) guidance for full year 2017 at c.US$700/oz, at upper
end of original guidance (US$600 - 700/oz)
-- Forward contracts to sell an aggregate of 500Koz of gold over
a period from July 2017 to December 2019 at an average price of
US$1,252/oz were outstanding as at 30 June 2017
-- Year-end Net Debt(u) is expected to decrease to c.US$560
million, assuming an average gold price of US$1,265/oz for the
remainder of the year
Development Update
-- POX construction progressing well - on time and on budget for commissioning in Q4 2018
-- Malomir flotation plant (Stage 1) being prepared for
production of flotation concentrate in H1 2018
-- After delays at Malomir in the beginning of the year,
underground development at both Pioneer and Malomir mines is moving
ahead for full scale high grade ore production by the end of
2017
Exploration Update
-- Two new zones of non-refractory mineralisation suitable for
open pit mining discovered at Pioneer:
-- High grade pay shoot at NE Bakhmut - 2 proven to a depth of
140m below the pit floor and remains open; the best deep
intersection (19.6m @ 10.90g/t) indicates strong exploration
upside
-- New non-refractory satellite deposit Katrin (near Pioneer)
confirmed offering immediate production upside
-- New continuation of Unglichikan deposit identified; the
discovery confirms strong exploration potential near the Albyn
mine
-- Exploration at Ulgen, an early stage exploration target
c.30km southwest from the Albyn plant, suggests there are many
similarities with the 2.8Moz Elginskoye deposit
-- New high grade pay shoot discovered at Quartzitovoye,
Malomir, with preparations under way to mine it from
underground
IRC Update
IRC Ltd. is a producer and developer of industrial commodities
with its shares quoted on the Hong Kong Stock Exchange (Stock Code
1029). IRC released its interim results for the six months ended 30
June 2017 on 31 August 2017. The results are available to view on
the IRC website at http://www.ircgroup.com.hk.
Key highlights from this report are as follows:
-- K&S is operating at c.50% capacity as at June and ramp-up
continues for near full capacity at the year end
-- Threefold revenue increase to US$51.2 million (30 June 2016: US$16.1 million)
-- K&S generated EBITDA(u) of US$14 million
-- Production and sales volumes of iron ore concentrate more than tripled
- Production volume up 271% to 697,431 tonnes (30 June 2016: 188,111 tonnes)
- Sales volume up 218% to 698,632 tonnes (30 June 2016: 219,352 tonnes)
-- Net operating gain of US$2.3 million (30 June 2016: loss of US$11.4 million)
-- Loss for the period reduced to US$9.7 million (30 June 2016: loss of US$9.9 million)
-- ICBC agreed to restructure loan repayment schedule, including
full principal repayment holiday in 2017
CEO Comments
Commenting on the announcement, Sergey Ermolenko, Acting Chief
Executive Officer, said:
Operationally, the Company had a positive first half of the year
with a 19% year on year increase in total gold production for the
period of c.232,400oz, compared to 195,600oz in H1 2016. As
indicated in the H1 Update on 18 July 2017, these results were to
plan and are the outcome of operational efficiencies and a strong
performance in all operational areas across our mines.
The production results are especially encouraging given that the
first half of the year is usually weaker than the second half for
Petropavlovsk, due to the scheduling of heap leach operations and
extensive stripping works in the first half of the year. The
decision to introduce underground operations for the mining of high
grade material will allow us to plan our mining operations in a
smoother manner.
In line with this success, we reiterate our full year forecast
for gold production of c.420,000 - 460,000oz, reflecting mainly our
conservative approach to planned underground developments.
At the beginning of the year, a dedicated resin treatment
facility was established to cost effectively improve the processing
efficiency of resin at the Group's Resin in Pulp plants. The
implementation of these upgrades has been successful as measured by
the positive contribution towards gold production throughout the
first half of the year. Following these improvements, the Company
moved to using gold poured as the definition for production,
bringing production reported in line with production sold and
thereby reducing the impact of GIC. In our results, comparable 2016
gold production numbers are adjusted accordingly.
Regarding the POX hub, the oxygen plant and other key
construction works are progressing well and in places nearing
completion as scheduled for 2017, with some outstanding
construction at an early stage. More than 80% of the project
equipment is on site, including all critical and long lead items.
The four 15m x 4m autoclaves are installed and lined with acid
resistant lining. All core supporting structures are complete,
including the oxygen, autoclave and filtration plants. An
independent technical consultancy is monitoring our progress and
considers that a one year time frame to complete remaining work is
achievable.
We are targeting commissioning of the Malomir flotation plant
(Stage 1) in Q4 2017 with flotation concentrate production in H1
2018. This is to be followed by oxygen plant commissioning in Q2
2018 and POX Hub commissioning in Q4 2018; the ramp up to
commercial production is due to occur throughout 2019.
Underground developments progressed well during the period,
advancing 1,446.1m at Pioneer, and 696.9m at Malomir despite delays
with contractor mobilisation. We expect scalable production from
underground operations by the end of the year.
Following a 1.55Moz increase in JORC non-refractory reserves in
2016, reinforcing our belief in the strong exploration potential of
our existing assets, exploration work during 2017 continued to
deliver positive results, including the discovery of a new
non-refractory deposit Katrin, near Pioneer, and a new high grade
pay shoot discovered in May at Quartzitovoye, Malomir. We are
preparing to start production from both these new discoveries in
the near future.
I am committed to driving operational stability during the
transition to new management in my tenure as acting CEO. I will be
focusing particularly on the successful implementation of our POX
hub and underground development projects, underpinned by smooth and
stable work at our producing mines, generating substantial cash
flows for further developments. I am very happy to be supported by
our team of specialists, whose commitment was clearly demonstrated
during the recent Board visit to the mines."
Conference Call
There will be a presentation and conference call with management
today at 09.00am and there will be an opportunity for callers to
ask questions. The presentation itself will be available via the
Petropavlovsk website, http://www.petropavlovsk.net.
Please use the following numbers to dial in to the call, quoting
the word 'Petropavlovsk' to the operator:
From the UK 020 3059 8125 or toll free 0800 368 0649
All other locations +4420 3059 8125
Enquiries
For more information, please visit www.petropavlovsk.net and
www.ircgroup.com.hk or contact:
Petropavlovsk PLC
Alya Samokhvalova
Grace Hanratty
+44 (0) 20 7201 8900
TeamIR@petropavlovsk.net
Maitland
Neil Bennett
James Isola
+44 (0) 20 7379 5151
Petropavlovsk-Maitland@maitland.co.uk
About Petropavlovsk
Petropavlovsk is one of Russia's leading gold mining companies.
As at 30 June 2017, the Company had produced approximately 6.5Moz
of gold.
At this time, 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$340 million project finance facility (US$234
million principal outstanding as at 31 December 2016). IRC is a
vertically integrated iron ore producer and developer in the
Russian Far East and Northeastern China. IRC is listed on the Hong
Kong Stock Exchange (ticker: 1029.HK).
Petropavlovsk is listed on the Main Market of the London Stock
Exchange (ticker POG:LN).
Financial Review
Note: Figures may not add up due to rounding
Financial Highlights
H1 2017 H1 2016
------------------------------------------ ------------- -------- --------
Gold produced '000oz 232.4 195.6
Gold sold '000oz 231.8 195.4
Group revenue US$ million 304.0 254.0
Average realised gold price.. US$/oz 1,255 1,194
Average LBMA gold price afternoon
fixing US$/oz 1,238 1,221
Total average cash costs(u)
(a) US$/oz 675 663
All-in sustaining costs(u)
(b) US$/oz 965 762
All-in costs(u) (b) US$/oz 1,044 761
Underlying EBITDA(u) US$ million 114.1 88.0
Operating profit US$ million 64.9 34.2
Profit before tax US$ million 46.8 4.8
Profit for the period US$ million 24.5 9.2
Profit for the period attributable
to equity shareholders of Petropavlovsk
PLC US$ million 23.3 9.2
Basic profit per share US$ 0.01 0.00
Net cash from operating activities US$ million 74.6 29.9
------------------------------------------ ------------- -------- --------
(a) Calculation of total cash costs ("TCC") is set out in the section Hard-rock mines below.
(b) All-in sustaining costs ("AISC") and all-in costs ("AIC")
are calculated in accordance with guidelines for reporting all-in
sustaining costs and all-in costs published by the World Gold
Council. Calculation is set out in the section All-in sustaining
costs and all-in costs below.
30 June 2017 31 December
2016
--------------------------- ------------ ------------ -----------
Cash and cash equivalents US$ million 32.7 12.6
Loans US$ million (512.9) (522.8)
Convertible bonds (c) US$ million (89.9) (88.4)
--------------------------- ------------ ------------ -----------
Net Debt(u) US$ million (570.1) (598.6)
--------------------------- ------------ ------------ -----------
(c) US$100 million convertible bonds due on 18 March 2020 at amortised cost.
Revenue
H1 2017 H1 2016
US$ million US$ million
------------------------------ ----------- -----------
Revenue from hard-rock mines 291.7 234.2
Revenue from other operations 12.4 19.8
------------------------------- ----------- -----------
304.0 254.0
------------------------------ ----------- -----------
Group revenue during the period was US$304.0 million, 20% higher
than the US$254.0 million achieved in H1 2016.
Revenue from hard-rock mines was US$291.7 million, 25% higher
than the US$234.2 million achieved in H1 2016. Gold remains the key
commodity produced and sold by the Group, comprising 96% of total
revenue generated in H1 2017. The physical volume of gold sold from
hard-rock mines increased by 19% from 195,434 ounces in H1 2016 to
231,760 ounces in H1 2017. The average realised gold price(u)
increased by 5% from US$1,194/oz in H1 2016 to US$1,255/oz in H1
2017. The average realised gold price(u) includes a US$12/oz effect
from hedge arrangements (H1 2016: US$(28)/oz).
Hard-rock mines sold 48,182 ounces of silver in H1 2017 at an
average price of US$17/oz, compared to 48,124 ounces in H1 2016 at
an average price of US$15/oz.
Revenue generated as a result of third-party work by the Group's
in-house service companies was US$12.4 million in H1 2017, a US$7.4
million decrease compared to US$19.8 million in H1 2016. This
revenue is substantially attributable to sales generated by the
Group's engineering and research institute, Irgiredmet, primarily
through engineering services and the procurement of materials,
consumables and equipment for third parties, which comprised
US$11.4 million in H1 2017 compared to US$17.5 million in H1
2016.
Cash flow hedge arrangements
In order to increase certainty in respect of a significant
proportion of its cash flows, the Group has entered into a number
of gold forward contracts.
Forward contracts to sell an aggregate of 99,998 ounces of gold
matured during the H1 2017 and contributed US$2.8 million to cash
revenue (H1 2016: US$(5.5) million net cash settlement paid by the
Group from forward contracts to sell an aggregate of 65,828 ounces
of gold).
The Group constantly monitors the gold price and hedges some
portion of production as considered necessary. Forward contracts to
sell an aggregate of 500Koz of gold at an average price of US$1,252
per ounce were outstanding as at 30 June 2017. Forward contracts to
sell an aggregate of 479Koz of gold at an average price of US$1,253
per ounce are outstanding as at 11 September 2017.
Underlying EBITDA.. and analysis of operating costs
H1 2017 H1 2016
US$ million US$ million
-------------------------------------------- -------------- ------------
Profit for the period 24.5 9.2
Add/(less):
Investment income (0.4) (0.2)
Interest expense 14.4 30.5
Other finance gains (2.0) (2.3)
Other finance losses 6.1 1.5
Foreign exchange losses 0.5 5.9
Taxation 22.3 (4.4)
Depreciation 48.0 59.3
Reversal of impairment of ore stockpiles (6.3) (12.3)
Impairment of gold in circuit 1.4 -
Impairment of non-trading loans 0.5 -
Share of results of associates (a) 5.1 0.9
Underlying EBITDA(u) 114.1 88.0
-------------------------------------------- -------------- ------------
(a) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange losses, taxation,
depreciation and impairment recognised by an associate (IRC)
Underlying EBITDA(u) as contributed by business segments is set
out below.
H1 2017 H1 2016
US$ million US$ million
-------------------------------------------- -------------- ------------
Pioneer 52.9 43.5
Pokrovskiy (0.5) 6.6
Malomir 3.2 7.0
Albyn 78.8 46.7
-------------------------------------------- -------------- ------------
Total Hard-rock mines 134.5 103.8
Corporate and other (20.3) (15.8)
Underlying EBITDA(u) 114.1 88.0
-------------------------------------------- -------------- ------------
Hard-rock mines
During this period, hard-rock mines generated underlying
EBITDA(u) of US$134.5 million compared to US$103.8 million
underlying EBITDA in H1 2016.
Total cash costs.. for hard-rock mines increased from US$663/oz
in H1 2016 to US$675/oz in H1 2017. The increase in TCC primarily
reflects the effect of Rouble appreciation, inflation of certain
Rouble denominated costs and lower recoveries at Pioneer and
Malomir, which was compensated by a mining tax concession the Group
continued to apply in H1 2017. The increase in the average realised
gold price(u) from US$1,194/oz in H1 2016 to US$1,255/oz in H1 2017
and the increase in physical ounces sold had a US$33.3million
positive contribution to underlying EBITDA(u) in H1 2017. This
effect was offset by the increase in total cash costs(u) , which
had a US$2.6 million impact on the underlying EBITDA...
The key components of the operating cash expenses are wages,
electricity, diesel, chemical reagents and consumables, as set out
in the table below. The key cost drivers affecting the operating
cash expenses are stripping ratios, production volumes of ore mined
and processed, grades of ore processed, recovery rates, cost
inflation and fluctuations in the Rouble to US Dollar exchange
rate.
Compared with H1 2016 there was ongoing inflation of certain
Rouble denominated costs, in particular, electricity costs
increased by up to 12% in Rouble terms (increased by up to 37% in
US Dollar terms) and the cost of diesel increased by up to 9% in
Rouble terms (increased by up to 33% in US Dollar terms). An 18%
appreciation of the Rouble against the US Dollar has occurred
during H1 2017 compared to H1 2016, with the average exchange rate
for the period going from 70.54 Roubles per US Dollar in H1 2016 to
57.93 Roubles per US Dollar in H1 2017.
Refinery and transportation costs are variable costs dependent
on production volume. Mining tax is also a variable cost dependent
on production volume and the gold price realised. The mining tax
rate is 6%. The Group continued applying a two-year mining tax
concession.
H1 2017 H1 2016
------------------
US$ million % US$ million %
------------------------------------- ------------ ---- ------------ ----
Staff cost 34.4 23 25.6 21
Materials 50.7 33 44.1 35
Fuel 21.0 14 19.1 15
Electricity 15.0 10 10.6 9
Other external services 16.7 11 12.1 10
Other operating expenses 12.8 9 11.9 10
150.6 100 123.4 100
------------------------------------- ------------ ---- ------------ ----
Movement in ore stockpiles, work
in progress and bullion in process
attributable to gold production
(a) (5.5) (19.8)
-------------------------------------- ------------ ---- ------------ ----
Total operating cash expenses 145.1 103.6
-------------------------------------- ------------ ---- ------------ ----
(a) Excluding deferred stripping
Hard-rock mines H1 2017 H1 2016
----------------------------------------
Pioneer Pokrovskiy Malomir Albyn Total Total
US$ US$ US$ US$ US$ US$
million million million million million million
---------------------------- -------- ---------- -------- -------- -------- --------
Revenue
Gold 119.0 19.3 35.9 116.6 290.8 233.4
Silver 0.5 0.1 0.0 0.1 0.8 0.7
---------------------------- -------- ---------- -------- -------- -------- --------
119.5 19.4 36.0 116.7 291.7 234.2
---------------------------- -------- ---------- -------- -------- -------- --------
Expenses
Operating cash expenses 65.5 19.7 30.0 29.9 145.1 103.6
Refinery and transportation 0.2 0.0 0.0 0.2 0.4 0.3
Other taxes 1.0 0.2 0.9 1.0 3.1 3.2
Mining tax - - - - - 14.2
Deferred stripping costs - - 1.8 6.8 8.6 9.0
Depreciation 14.9 3.4 7.5 22.2 47.9 59.0
Impairment/(reversal
of impairment) of ore
stockpiles (3.1) 0.1 0.3 (3.6) (6.3) (12.3)
Impairment of gold in
circuit - 0.8 0.6 - 1.4 -
Operating expenses 78.5 24.2 41.1 56.4 200.2 177.2
Result of precious metals
operations 41.0 (4.7) (5.1) 60.3 91.5 57.0
---------------------------- -------- ---------- -------- -------- -------- --------
Add/(less):
Depreciation 14.9 3.4 7.5 22.2 47.9 59.0
Impairment/(reversal
of impairment) of ore
stockpiles (3.1) 0.1 0.3 (3.6) (6.3) (12.3)
Impairment of gold in
circuit - 0.8 0.6 - 1.4 -
---------------------------- -------- ---------- -------- -------- -------- --------
Segment EBITDA.. 52.9 (0.5) 3.2 78.8 134.5 103.8
---------------------------- -------- ---------- -------- -------- -------- --------
Physical volume of gold
sold, oz 94,690 15,402 28,700 92,967 231,760 195,434
---------------------------- -------- ---------- -------- -------- -------- --------
Cash costs
Operating cash expenses 65.5 19.7 30.0 29.9 145.1 103.6
Refinery and transportation 0.2 0.0 0.0 0.2 0.4 0.3
Other taxes 1.0 0.2 0.9 1.1 3.1 3.2
Mining tax - - - - - 14.2
Deferred stripping costs - - 1.8 6.8 8.6 9.0
Operating cash costs 66.6 19.9 32.8 37.9 157.2 130.4
Deduct: co-product revenue (0.5) (0.1) (0.0) (0.1) (0.8) (0.7)
---------------------------- -------- ---------- -------- -------- -------- --------
Total cash costs(u) 66.1 19.8 32.7 37.8 156.4 129.7
---------------------------- -------- ---------- -------- -------- -------- --------
Average TCC(u) , US$/oz 698 1,286 1,140 406 675 663
All-in sustaining costs.. and all-in costs(u)
AISC(u) increased from US$762/oz in H1 2016 to US$965/oz in H1
2017. The increase in AISC(u) reflects the sustaining capital
expenditure, primarily in relation to Pioneer and Malomir
underground projects and expansion of tailing dams at Pioneer and
Albyn, ongoing exploration focused on near mine resource expansion,
prospective stripping at Albyn in advance of the mining in 2018 and
the increase in central administration expenses.
AIC(u) increased from US$761/oz in H1 2016 to US$1,044/oz in H1
2017, primarily reflecting the increase in
AISC(u) explained above and capital expenditure in relation to the POX project.
Hard-rock mines H1 2017 H1 2016
----------------------------------------
Pioneer Pokrovskiy Malomir Albyn Total Total
US$ US$ US$ US$ US$ US$
million million million million million million
--------------------------- -------- ---------- -------- -------- -------- --------
Physical volume of
gold sold, oz 94,690 15,402 28,700 92,967 231,760 195,434
--------------------------- -------- ---------- -------- -------- -------- --------
Total cash costs(u) 66.1 19.8 32.7 37.8 156.4 129.7
Average TCC(u) , US$/oz 698 1,286 1,140 406 675 663
--------------------------- -------- ---------- -------- -------- -------- --------
Impairment/(reversal
of impairment) of ore
stockpiles (0.8) 0.1 0.3 (3.6) (4.1) (4.1)
Impairment of gold
in circuit - 0.8 0.6 - 1.4 -
--------------------------- -------- ---------- -------- -------- -------- --------
Adjusted operating
costs 65.3 20.7 33.6 34.1 153.7 125.6
Central administration
expenses 9.4 1.5 2.9 9.3 23.1 13.1
Capitalised stripping
at end of the period - - 6.8 44.1 50.9 24.2
Capitalised stripping
at beginning of the
period - - (3.6) (22.6) (26.2) (18.0)
Close-down and site
restoration 0.1 0.1 0.2 0.4 0.7 0.1
Sustaining exploration
expenditures 1.9 - 2.4 2.9 7.2 -
Sustaining capital
expenditure 10.0 0.1 1.4 2.6 14.1 3.9
--------------------------- -------- ---------- -------- -------- -------- --------
All-in sustaining costs(u) 86.6 22.4 43.7 70.9 223.6 148.9
--------------------------- -------- ---------- -------- -------- -------- --------
All-in sustaining costs(u)
, US$/oz 915 1,454 1,523 762 965 762
--------------------------- -------- ---------- -------- -------- -------- --------
Exploration expenditure 3.2 - 0.0 0.4 3.6 7.6
Capital expenditure 8.5 - 8.3 - 16.8 0.4
Reversal of impairment
of ore stockpiles (a) (2.2) - - - (2.2) (8.2)
--------------------------- -------- ---------- -------- -------- -------- --------
All-in costs(u) 96.1 22.4 52.1 71.3 241.8 148.7
--------------------------- -------- ---------- -------- -------- -------- --------
All-in costs(u) , US$/oz 1,015 1,454 1,814 766 1,044 761
--------------------------- -------- ---------- -------- -------- -------- --------
(a) Refractory ore stockpiles to be processed at the POX Hub.
Corporate and other
The Group has corporate offices in London, Moscow and
Blagoveschensk, which together represent the central administration
function. Central administration expenses increased by US$10.0
million from US$13.1 million in H1 2016 to US$23.1 million in H1
2017. The increase in central administration expenses is primarily
attributed to a US$5.2 million increase in staff costs, mainly as a
result of the proposed key management bonus accrual, an increase in
Russian staff costs due to the appreciation of RUB against US
Dollar and general increase in Russian salaries, and US$4 million
professional fees incurred in relation to corporate projects.
During H1 2017, other operations contributed US$(20.3) million
to underlying EBITDA vs. US$(15.8) million in H1 2016. Included in
result of corporate and other operations in H1 2017 is a US$3.0
million share in losses generated by IRC.
Interest income and expense
H1 2017 H1 2016
US$ million US$ million
------------------ ----------- -----------
Investment income 0.4 0.2
------------------- ----------- -----------
The Group earned US$0.4 million interest income on its cash
deposits with banks.
H1 2017 H1 2016
US$ million US$ million
--------------------- ----------- -----------
Interest expense 30.4 30.4
Interest capitalised (16.0) -
---------------------- ----------- -----------
Other 0.1 0.1
---------------------- ----------- -----------
14.4 30.5
--------------------- ----------- -----------
Interest expense for the period was comprised of US$6.0 million
effective interest on the Convertible Bonds and US$24.3 million
interest on bank facilities (H1 2016: US$5.9 million and US$24.5
million, respectively). A further US$16.0 million of this interest
expense was capitalised as part of mine development costs within
property, plant and equipment (H1 2016: US$nil).
Other finance gains and losses
-
Other finance gains for the period comprised US$2.0 million
compared to US$2.3 million in H1 2016. Included in other finance
gains is a financial guarantee fee of US$2.0 million (H1 2016:
US$2.3 million) charged in connection with the ICBC facility.
Other finance losses for the period comprised US$6.1 million
compared to US$1.5 million in H1 2016. Included in other finance
losses are US$5.8 million (H1 2016: US$1.5 million) fair value
losses on the revaluation of the embedded option for the
bondholders to convert into the equity of the Company and a US$0.4
million (H1 2016: US$nil) loss on bank debt refinancing.
Taxation
H1 2017 H1 2016
US$ million US$ million
-------------------- ----------- -----------
Tax charge/(credit) 22.3 (4.4)
--------------------- ----------- -----------
The Group is subject to corporation tax under UK, Russia and
Cyprus tax legislation. The average statutory tax rate for H1 2017
was 19.5% in the UK and 20% in Russia.
The tax charge for the period arises primarily in relation to
the Group's gold mining operations and is represented by a current
tax charge of US$19.9 million (H1 2016: US$15.0 million) and a
deferred tax charge, which is a non-cash item, of US$2.4 million
(H1 2016: deferred tax credit of US$19.5 million). Included in the
deferred tax is a US$4.5 million credit (H1 2016: US$17.6 million
credit) arising foreign exchange effect which primarily arises
because the tax base for a significant portion of the future
taxable deductions in relation to the Group's property, plant and
equipment are denominated in Russian Roubles, whilst the future
depreciation charges associated with these assets will be based on
their US Dollar carrying value.
During the period, the Group made corporation tax payments in
aggregate of US$14.4 million in Russia (H1 2016: corporation tax
payments in aggregate of US$19.3 million in Russia).
Earnings per share
H1 2017 H1 2016
--------------------------------------------- --------------- --------------
Profit for the period attributable to equity
holders of Petropavlovsk PLC US$23.3 million US$9.2 million
Weighted average number of Ordinary Shares 3,303,768,532 3,300,501,688
Basic profit per ordinary share US$0.01 US$0.00
--------------------------------------------- --------------- --------------
Basic profit per share for H1 2017 was US$0.01 compared to
US$0.00 basic profit per share for H1 2016. The key factor
affecting the basic profit per share was the increase of net profit
for the period attributable to equity holders of Petropavlovsk PLC
from the net profit of US$9.2 million for the first half of 2016 to
US$23.3 million net profit for the first half of 2017.
The total number of Ordinary Shares in issue as at 30 June 2017
was 3,303,768,532 (30 June 2016: 3,303,768,532).
Financial position and cash flows
30 June 2017 30 June 2016
US$ million US$ million
------------------------------------------------------ -------------- -------------
Cash and cash equivalents 32.7 18.3
Loans (512.9) (529.1)
Convertible bonds (a) (89.9) (86.9)
------------------------------------------------------ -------------- -------------
Net Debt.. (570.1) (597.6)
------------------------------------------------------ -------------- -------------
(a) US$100.0 million convertible bonds due on 18 March 2020 at amortised
cost.
H1 2017 H1 2016
US$ million US$ million
------------------------------------------------------ -------------- -------------
Net cash from operating activities 74.6 29.9
Net cash (used in)/ from investing activities (41.3)(b) 3.9
Net cash used in financing activities (13.3) (45.9)
------------------------------------------------------ -------------- -------------
(b) Including US$41.8 million cash CAPEX
Key movements in cash and net debt
Cash Debt Net Debt(u)
US$ million US$ million US$ million
------------------------------------------- ----------- ----------- -----------
As at 1 January 2017 12.6 (611.2) (598.6)
Net cash generated by operating activities
before working capital changes 102.3
Decrease in working capital 13.5
Income tax paid (14.4)
Capital expenditure (31.0)
Exploration expenditure (10.9)
Amounts repaid under bank loans, net (11.6) 11.6
Interest accrued (30.4)
Interest paid (26.8) 26.8
Transaction costs in connection with
bank loans (1.7) 0.8
Bank debt refinancing (0.4)
Other 0.7
------------------------------------------- ----------- ----------- -----------
As at 30 June 2017 32.7 (602.8) (570.1)
------------------------------------------- ----------- ----------- -----------
As at 30 June 2017, there were no undrawn facilities available
to the Group.
Capital expenditure ..
The Group invested an aggregate of US$41.8 million in H1 2017
compared to US$11.9 million in H1 2016. The key areas of focus this
year were on the POX project, for which active development was
recommenced ahead of scheduled commissioning in 2018, exploration
and development to support the underground mining at Pioneer and
Malomir, expansion of tailing dams at Pioneer and Albyn and ongoing
exploration related to the areas adjacent to the ore bodies of the
Group's main mining operations.
Following the recommencement of active development of the POX
project and the development of Pioneer and Malomir underground
mining operations, the Group capitalised US$16 million of interest
expense incurred in relation to the Group's debt into the cost of
the aforementioned assets.
Exploration Development Total
expenditure expenditure CAPEX
and other
CAPEX
US$ million US$ million US$ million
-------------------------------------- ------------ ------------ -----------
POX (a) - 15.5 15.5
Pokrovskiy and Pioneer (b) 5.1 9.5 14.5
Malomir(c), (d) 2.5 2.6 5.1
Albyn 3.3 2.0 5.4
Upgrade of in-house service companies - 1.3 1.3
10.9 31.0 41.8
-------------------------------------- ------------ ------------ -----------
(a) Including US$15.5 million of development expenditure in
relation to the POX Hub which is considered to be non-sustaining
capital expenditure for the purposes of calculating all-in
sustaining costs and all-in costs.
(b) Including US$7.5 million of expenditure in relation to the
underground mining project at Pioneer to be sustaining capital
expenditure for the purposes of calculating the all-in sustaining
costs and all-in costs.
(c) Including US$2.2 million of expenditure in relation to the
underground mining project at Malomir to be sustaining capital
expenditure for the purposes of calculating the all-in sustaining
costs and all-in costs.
(d) Including US$1.3 million of expenditure in relation to
Malomir flotation (including tailing dams), which is considered to
be non-sustaining capital expenditure for the purposes of
calculating all-in sustaining costs and all-in costs.
Foreign currency exchange differences
The Group's principal subsidiaries have a US Dollar functional
currency. Foreign exchange differences arise on the translation of
monetary assets and liabilities denominated in foreign currencies,
which for the principal subsidiaries of the Group are the Russian
Rouble and GB Pounds Sterling.
The following exchange rates to the US Dollar have been applied
to translate monetary assets and liabilities denominated in foreign
currencies.
30 June 2017 31 December 2016
------------------------- ------------ ----------------
GB Pounds Sterling (GBP:
US$) 0.77 0.81
Russian Rouble (RUB:
US$) 59.09 60.66
-------------------------- ------------ ----------------
The Rouble recovered by 3% against the US Dollar during H1 2017,
from RUB60.66 : US$1 as at 31 December 2016 to RUB59.09 : US$1 as
at 30 June 2017. The average year-on-year appreciation of the
Rouble against the US Dollar was approximately 18%, with the
average exchange rate for H1 2017 being RUB57.93 : US$1 compared to
RUB70.54 : US$1 for H1 2016. The Group recognised foreign exchange
losses of US$0.5 million in H1 2017 (H1 2016: US$5.9 million)
arising primarily on Rouble denominated net monetary assets.
- Contingent liabilities
The Group applies a two years mining tax concession since 1 July
2016 in its capacity of a participant to the Regional investment
project in accordance with the Russian Federal Law 144-FZ dated 25
May 2016. The position of the Russian tax authorities is that the
effective date for the aforementioned concession should be 1
January 2017 and, accordingly, the Group should be liable for the
mining tax of approximately RUB1 billion (an equivalent of
approximately US$16.9 million as at 30 June 2017) for the six month
period to 31 December 2016. The matter is currently being
considered by the courts. To date decisions made by the Tribunal
which took place in May 2017 and the Court of Appeal which took
place in August 2017 have not been in favour of the Group. The
Group continues to consider its interpretation of relevant tax
legislation and tax filing position are appropriate and has filed
an appeal to the Cassation Court accordingly.
- Going concern
The Group monitors and manages its liquidity risk on an ongoing
basis to ensure that it has access to sufficient funds to meet its
obligations. Cash forecasts are produced regularly based on a
number of inputs including, but not limited to, forecast commodity
prices and impact of hedging arrangements, Group mining plan,
forecast expenditure and debt repayment schedules. Sensitivities
are run for different scenarios including, but not limited to,
changes in commodity prices, cost inflation, different production
rates from the Group's producing assets and the timing of
expenditure on development projects. This is done to identify risks
to liquidity and covenant compliance and enable management to
develop appropriate and timely mitigation strategies. The Group
meets its capital requirements through a combination of sources
including cash generated from operations and external debt.
The Group performed an assessment of the forecast cash flows and
covenant compliance in relation to bank facilities for the period
of 12 months from the date of approval of the Half Year Report for
the period ended 30 June 2017. As at 30 June 2017, the Group had
sufficient liquidity headroom and complied with related financial
covenants. Following the successful completion of the Bank Debt
Refinancing, the Group is also satisfied that it has sufficient
headroom under a base case scenario for the period to September
2018 and expects to comply with related financial covenants. In the
meantime, the Group's projections under a layered stressed case
that is based on US$1,125/oz gold price, which is at the bottom end
of market consensus forecasts, indicate that unless mitigating
actions can be taken, there will be insufficient liquidity and
non-compliance with certain covenants under a layered stressed case
for the relevant period to September 2018. These mitigating actions
include items within the control of the management, such as
accessing deposits not currently in the Group's mining plan, cost
cutting and reduction of capital expenditure subject to receipt of
necessary consents. These actions would account for approximately
50% of the forecast shortfall under the layered stressed case.
Furthermore, management would also pursue raising additional
equity, refinancing the existing debt and/or divesting the shares
in IRC including an immediate settlement of any amounts of the
guarantee fee outstanding to fully mitigate any shortfalls.
Management is also reasonably confident that necessary waivers or
consents could be obtained from the senior lenders if necessary. If
a missed debt repayment occurs or financial covenant requirements
are not met, this would result in events of default which, through
cross-defaults and cross-accelerations, could cause all other
Group's debt arrangements to become repayable on demand.
The Group has guaranteed the outstanding amounts IRC owes to
ICBC. The outstanding loan principal was US$234 million as at 30
June 2017. The assessment of whether there is any material
uncertainty that IRC will be able to repay this facility as it
falls due is another key element of the Group's overall going
concern assessment. IRC has agreed with ICBC to restructure and
reschedule two repayment instalments under the ICBC Facility
Agreement, which were originally due for payment on 20 June 2017
and 20 December 2017, with the next repayment instalment due on 20
June 2018. IRC also obtained waivers from ICBC in respect of
obligations to maintain certain cash deposits with ICBC until 30
June 2018 and obligations to comply with certain financial
covenants until 31 December 2017 (inclusive). Following the ramp up
and commercial production at K&S, IRC management are
forecasting that IRC will have sufficient capital through working
capital to pay its financial obligations as and when they fall due
in the foreseeable future and throughout the going concern period.
However, if scheduled full commercial production of the K&S
project is not achieved or the market conditions turn out to be
significantly less favorable than predicted IRC's financial
liquidity may be adversely impacted. IRC would then need to carry
out contingency plans including entering into negotiations with
banks or other investors for additional debt or equity
financing.
Having taken into account the aforementioned factors and after
making enquiries and considering the uncertainties described above,
the Directors have a reasonable expectation that the Group will
have adequate resources to continue in operational existence for
the foreseeable future, being at least the next 12 months from the
date of approval of the Half Year Report for the period ended 30
June 2017. Accordingly, they continue to adopt the going concern
basis of accounting in preparing the interim consolidated financial
statements for the period ended 30 June 2017.
2017 Outlook
The Group is confident it can achieve 2017 production guidance
of 420 - 460Koz. The Group's operating cash expenses are
substantially Rouble denominated. The Group expects its total
average cash costs of production in 2017 to be c.US$700/oz at
current exchange rates. Net debt is expected to decrease to
c.US$560 million by the end of 2017, assuming an average gold price
of US$1,265/oz for the remainder of 2017.
Operations Report
Pioneer
Pioneer mining operations
--------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
---------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 3, 812 4, 754 7, 206 9, 597
---------------- ---------- -------- -------- -------- --------
Ore mined t '000 1, 895 788 2, 935 1, 656
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.78 1.05 0.90 0.94
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 47.5 26.5 85.1 49.9
---------------- ---------- -------- -------- -------- --------
Pioneer processing operations
--------------------------------------------------------------------
Resin-in-pulp (RIP) plant
--------------------------------------------------------------------
Total milled t '000 1, 707 1, 775 3, 349 3,372
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.78 0.69 0.79 0.74
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 42.7 39.5 85.4 80.2
---------------- ---------- -------- -------- -------- --------
Recovery % 82.4 85.8 76.8 82.6
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 35.2 33.8 65.6 66.3
---------------- ---------- -------- -------- -------- --------
Heap leach operations
--------------------------------------------------------------------
Total stacked t '000 359 281 359 281
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.51 0.53 0.51 0.53
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 5.9 4.8 5.9 4.8
---------------- ---------- -------- -------- -------- --------
Recovery % 39.6 30.2 39.6 30.2
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 2.3 1.5 2.3 1.5
---------------- ---------- -------- -------- -------- --------
Pioneer gold
production -
Dore oz. '000 47.9 34.7 96.4 71.0
---------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using
gold poured as the definition for production
The main sources of low grade ore were pits of the Alexandra,
Yuzhnaya and Promezhutachnaya zones. This ore was blended with
lower grade material from stockpiles.
Heap leach operations commenced on schedule in April.
The development of the North East Bakhmut underground mine
progressed as planned. Underground work during H1 totaled c.1,446m.
The first ore was mined in June - c.3.5kt with an average gold
content of c.2.7 g/t. As per the mine plan, production began at a
low grade 'bridge' area between North East Bakhmut 2 and 3. Ore
grades are expected to improve as mining moves into the higher
grade North East Bakhmut 3 zone.
The significant increase in doré gold production in relation to
gold recovered is mainly due to the successful implementation of
measures for cleaning resin, and the resulting reduction in gold in
circuit.
In H2, the main sources of low grade ore are expected to be
Alexandra, Yuzhnaya and Andreevskaya West, with high grade ore to
be mined from NE Bahkmut via underground.
The H2 gold production forecast for Pioneer is
c.73,000-98,000oz.
Pokrovskiy
Pokrovskiy mining operations
--------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
---------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 1 ,036 1,223 2 ,073 2,253
---------------- ---------- -------- -------- -------- --------
Ore mined t '000 392 134 520 332
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.51 1.14 0.50 0.98
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 6.4 4.9 8.4 10.5
---------------- ---------- -------- -------- -------- --------
Pokrovskiy processing operations
--------------------------------------------------------------------
Resin-in-pulp (RIP) plant
--------------------------------------------------------------------
Total milled t '000 450 451 888 899
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.47 0.65 0.44 0.62
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 6.8 9.5 12.4 17.9
---------------- ---------- -------- -------- -------- --------
Recovery % 84.8 91.7 78.3 91
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 5.8 8.7 9.7 16.2
---------------- ---------- -------- -------- -------- --------
Heap leach operations
--------------------------------------------------------------------
Total stacked t '000 246 193 246 193
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.40 0.4 0.40 0.4
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 3.2 2.7 3.2 2.7
---------------- ---------- -------- -------- -------- --------
Recovery % 22.4 46 22.4 46
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 0.7 1.2 0.7 1.2
---------------- ---------- -------- -------- -------- --------
Pokrovsky gold
production -
Dore oz. '000 8.4 9.1 14.2 17.2
---------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using
gold poured as the definition for production
The Zeyskaya and Vodorazdelnaya zones were the main sources of
low grade ore, which was blended with ore from stockpiles. This
contributed to the decrease in processing recovery at the plant
compared to H1 2016, due to the technological qualities of ores
from stockpiles (initially scheduled), which were worse than
expected.
Heap leaching began in April in line with the mining plan.
In H2, the main sources of low grade ore (c.15,000oz) are again
expected to be Zeyskaya and Vodorazdelnaya.
Malomir
Malomir mining operations
--------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
---------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 2, 772 1,957 5, 126 3,721
---------------- ---------- -------- -------- -------- --------
Ore mined t '000 675 253 1, 434 390
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.68 1.2 0.78 1.2
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 14.9 9.5 36.0 15.1
---------------- ---------- -------- -------- -------- --------
Malomir processing operations
--------------------------------------------------------------------
Resin-in-pulp (RIP) plant
--------------------------------------------------------------------
Total milled t '000 858 771 1, 652 1,554
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.71 0.8 0.78 0.7
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 19.6 19.4 41.7 37.1
---------------- ---------- -------- -------- -------- --------
Recovery % 58.9 66.8 59.8 67.3
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 11.5 13.0 24.9 25.0
---------------- ---------- -------- -------- -------- --------
Malomir gold
production -
Dore oz. '000 12.3 12.2 28.7 24.8
---------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using
gold poured as the definition for production
The main sources of low grade ore were pits at the Quartzitovoye
and Magnetitovoye zones. Ore from stockpiles also contributed to
production.
Construction of an underground mine at Quartzitovoye 1 began in
January 2017, after delays due to the late mobilization of
equipment by the mining contractor. Since May, the contractor has
worked at the scheduled capacity in accordance with the mining
plan. In the first half of the year, c.697m of underground workings
had been completed. In spite of the delay, the first ore was mined
in June - a total of c.4.2kt with an average gold content of c.5.4
g/t.
The volumes of ore treated through the plant were in line with
the plan. Recovery rates were lower than planned for H1 2016 due to
ore from the Quartzitovoye 2 pit being more refractory than
expected. This pit was completed in H1.
In H2, the main sources of low grade ore will be Quartzitovoye 1
and Magnetitovoye. High grade ore will be mined from underground at
Quartzitovoye 1.
The Malomir production forecast for the second half of the year
is c.20,000-30,000oz.
Albyn
Albyn mining operations
---------------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
----------------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 7, 426 7,775 14, 942 16,009
----------------------- ---------- -------- -------- -------- --------
Ore mined t '000 1, 258 867 2, 633 2,530
----------------------- ---------- -------- -------- -------- --------
Average grade g/t 1.19 1.1 1.14 1.1
----------------------- ---------- -------- -------- -------- --------
Gold content oz. '000 48.1 29.7 96.4 88.0
----------------------- ---------- -------- -------- -------- --------
Albyn processing operations
---------------------------------------------------------------------------
Resin-in-pulp (RIP) plant
---------------------------------------------------------------------------
Total milled t '000 1, 152 1,177 2, 290 2,341
----------------------- ---------- -------- -------- -------- --------
Average grade g/t 1.23 1.1 1.14 1.1
----------------------- ---------- -------- -------- -------- --------
Gold content oz. '000 45.6 41.2 84.3 83.9
----------------------- ---------- -------- -------- -------- --------
Recovery % 93.6 90.1 93.0 92.0
----------------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 42.6 37.1 78.4 77.2
----------------------- ---------- -------- -------- -------- --------
Albyn gold production
- Dore oz. '000 45.7 38.8 93.1 82.6
----------------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using
gold poured as the definition for production
The main sources of ore were the Central and Eastern zones of
the Albyn main pit, with a small amount of ore supplied from
stockpiles. The plant operated as normal throughout the year.
In H2, the main source of ore will be the Central zone of the
Albyn main pit, with some ore from stockpiles. The gold production
forecast for the second half of the year is c.80,000-85,000oz.
Note: figures in this release may not add up due to rounding
Development Projects
POX
POG Refractory Mineral Resource Base
Defined within Petropavlovsk's substantial 20.2Moz JORC
resources (including 7.2Moz JORC reserves) are 9.3Moz refractory
gold resources (including 4Moz refractory reserves), with
underexplored resource upside within the highly prospective
3,600km(2) license holding. Unlocking the 9.3Moz refractory
resources supports Petropavlovsk's long term growth objectives in
doubling the average life of mine and sustaining the production
profile.
All Petropavlovsk's defined economic refractory ounces are
within the Malomir license area (964km(2) ) and Pioneer license
areas (1,375km(2) ). Both areas sit along or above the
Mongolo-Okhotskiy mineralised belt. This same belt also hosts a
number of large deposits, including Sukhoi Log and Taseevskoe-Baley
to the west of the Amur region.
-- Malomir is the only large known refractory deposit within the
north east part of the Amur Region and remains largely under
explored. 62% of Malomir's JORC reserves are refractory. The area
is highly prospective for further resource growth due to favorable
geology and alluvial gold deposits, for many of which the hard rock
sources are yet to be found
-- In addition to Pioneer's significant non refractory reserves,
further refractory resource potential exists within the Pioneer
licenses, particularly along the contact between granitoid and
Jurassic host rocks, south and south west of the Pioneer RIP plant.
56% of Pioneer's Mineral Resources are refractory.
Construction
In 2010, the POX Hub and the Malomir flotation plant were fully
permitted for construction, and in 2011 construction began. It was
put on hold in 2013 following the decline in the gold price. The
plant (including equipment) was carefully put on care and
maintenance to allow active construction to restart in 2017.
Malomir Flotation Plant (nameplate capacity 5.4Mtpa)
The Malomir flotation facility is a staged build plant largely
utilising existing crushing and grinding capacities and
infrastructure.
-- Stage 1 capacity is 3.6Mtpa across two parallel 1.8Mtpa
lines. Stage 1 utilises existing crushers and mills currently used
for non-refractory processing. Flotation concentrate production is
scheduled for H1 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
-- Non-refractory processing will continue using a smaller
existing crushing and grinding line and the RIP plant
-- Stage 1 of the Malomir flotation plant is more than 90%
complete. During H1 2017, work concentrated on piping, ventilation,
and the interior of the flotation building, including fittings, and
also work on auxiliary facilities
Pioneer Flotation Plant (nameplate capacity 6.0Mtpa)
The Pioneer flotation plant is scheduled for construction in
2021, ahead of concentrate production from 2023. Like Malomir it
will utilise existing crushing and grinding circuits, reducing
capital requirements.
POX Hub (nameplate capacity c.500ktpa)
Construction of the POX Hub is now approximately 75% 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 66m(3) , were received on site,
installed and lined in 2013. All core structures are complete
including the oxygen, autoclave and filtration plant buildings.
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.
In January 2017, the contract was awarded to commence all the
piping, welding and assembly works, which are now well under
way.
POX Construction Progress
During 2017, the oxygen plant, supporting POX Hub infrastructure
and all piping, welding and assembly works are scheduled for
completion. The oxygen plant is now very close to overall
mechanical completion with only electrical and
control/instrumentation construction less than 90% complete.
Commissioning of the oxygen plant is scheduled for Q2 2018.
At the autoclave section the civil and structural construction
is now 85 to 90% complete. Mechanical construction is 70% complete
and progressing well, with all large mechanical equipment,
including four autoclave vessels, in place. The major outstanding
construction includes piping, electrical construction and control
& instrumentation, which is at an early stage but remains on
schedule for POX plant commissioning in Q4 2018.
Construction of the filtration building is rapidly progressing
with piping, civil and structural construction now 80% complete.
The mechanical construction is 45% complete and the installation of
the first press-filter is in progress. Piping work, electrical
construction and the installation of control & instrumentation
is yet to start as per the construction schedule.
The outside construction including thickeners, diesel generators
and the steam plant are progressing fast in order to complete the
principal outside work before winter. Civil construction is now 80%
complete whilst structural construction is 60% complete. The latter
mainly relates to large structures and access platforms with piping
support - other minor structures are still outstanding. Platework
on thickeners is 75% complete and mechanical construction is 50%
complete with significant equipment in the steam and diesel
generator plant scheduled be installed. Piping, electrical
construction and control & instrumentation is yet to be
completed.
Construction progress has been monitored by an independent
technical consultancy, which considers that a one year time frame
to complete the remaining work is very achievable.
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.
POX Capital Cost
The budget for the POX Hub and flotation plant at Malomir
remains unchanged. Of the c.US$120 million outstanding capital
estimated as of the beginning of 2017, c.US$16.8 million has been
spent during the first six months of 2017. The independent
technical consultants who monitor the project noted that based on
the current average spend and remaining budget, there is sufficient
capital for 20 months; the project is to be completed in eighteen
months.
Underground
During H1 2017, development of the underground mines at Pioneer
and Malomir progressed towards planned full scale production. The
Group is finalising works and establishing safety permits and
certifications to start full scale mining in H2 2017.
In H1 2017, development of Pioneer's underground mine declines
advanced by 1446.1m. The main ventilation fan has been delivered to
the site and is now being installed by a reputable Russian
contractor. It is expected to be commissioned by the end of
September 2017. The first ore was already mined from the sublevel
development in June 2017. At the end of July, a total of 3.5kt of
ore at 2.7g/t of gold had been produced from the lower grade zone.
Full scale production from the high grade NE Bakhmut No 3 zone is
expected to start by the end of 2017.
Despite a slow start at Malomir due to delays with contractor
mobilisation, the underground developments advanced 696.9m in the
first six months of the year and in July 2017, developments reached
the main Quartzitovoye ore body 55. Work on a sublevel drift on
level +390m began in August. The first development ore was produced
in June 2017 with total production of 4.2kt of ore at 5.4g/t of
gold at the end of July 2017.
The first stope mining from ore body 55 will require the lower
sublevel at an elevation of +375 to be completed. In addition, a
pumping station would need to be constructed and commissioned at
the +375m level, as well as a main ventilation facility. An
agreement with a reputable Russian contractor has been signed to
deliver, install and commission the main ventilation facility
before the end of September 2017. Completion of this work and first
stope mining is currently expected to commence in Q4 2017.
As reported, a new high grade pay shoot was discovered at
Quartzitovoye (zone 49, west of ore body 55). Sublevels +390 and
+375 have already been developed here in preparation for mining the
first stope. The decision to start mining here will depend on the
result of geotechnical assessment into how this may affect declines
located nearby.
Because of the conservative approach taken to production
guidance, the delays in underground production are currently not
expected to impact the Group's 2017 production target.
Exploration
Pioneer
Pioneer's 1,375km(2) area offers a number of exploration
opportunities for both non-refractory and refractory resources,
including potentially high grade exploration targets. As previously
reported, the Pioneer exploration program for 2016 was successful,
leading to the expansion of Pioneer's non-refractory resources and
reserves and the identification of promising new exploration
targets. Significant 2016 results include:
-- First NE Bakhmut JORC reserve for underground mining
-- First JORC resource for potential underground mining at Bakhmut-Promezhutochnaya
-- New high grade pay shoot at Andreevskaya
-- Identification of Sosnovaya, a large (9km long) gold-arsenic anomaly, south of Pioneer
-- Discovery of Katrin, a new satellite non-refractory deposit
-- Discovery of extensions at the Brekchievaya and Shirokaya
zones in the Alexandra area, north of Pioneer
In the first six months of 2017 the Group continued exploration,
focusing mainly on near mine resource expansion. The most notable
results of this work include:
-- Discovery of two new zones of non-refractory mineralisation
suitable for open pit mining, north of NE Bakhmut No 2
-- Identification of further down dip extensions of the high
grade pay shoot at NE Bakhmut No 2, which remains open at depth
offering further potential for underground resource and reserve
expansion
-- First JORC mineral resources and ore reserves (unaudited) for
the Katrin satellite deposit, suggesting it offers an immediate
opportunity to provide high grade open pit ore
Drilling and trenching also confirmed the presence of large
scale refractory gold mineralisation at the Sosnovaya anomaly,
although the grade of the intersections is too low to represent an
immediate interest.
Katrin
Katrin is a high grade non-refractory satellite deposit situated
south of Pioneer within the same geological setting to the
Zheltunak deposit, which has been mined since 2011 producing 926kt
of ore at an average grade of 1.91g/t Au (57koz of contained gold).
To date, five individual ore bodies were discovered and explored.
Three out of the five orebodies have sufficient exploration to
support a JORC resource estimate. These three have a JORC resource
of 32koz including c.26koz of Indicated resource, at a grade of
2.53g/t and c.6koz of Inferred at a grade of 1.29g/t. This estimate
is yet to undergo an independent technical audit.
Katrin is hosted within a 1km long silification zone within
Cretaceous volcanites. The zone is open in both strike directions
as well as down-dip, offering the opportunity for further
discoveries. Two ore bodies, which are yet to be explored and
included in the resource estimate, have already been identified.
One of them is located 200m south from Ore Body 1 and another
north-west from Ore Body 3. Furthermore, drilling in August 2017
discovered extensions to the Ore Body No 3 that are yet to be
included in the estimate. Significant high-grade drill
intersections from these new discoveries include:
-- 8.5m @ 2.9g/t (drill hole C-511-5, interval 73.5-82.0m)
-- 2.0m @ 4.12g/t (drill hole C-515-29, interval 8.0-12.0m)
-- 4.0m @ 3.97g/t (drill hole C-515-32, interval 76.0-80.0m)
-- 3.7m @ 5.38g/t (drill hole C-519-21, interval 113.0-116.7m)
-- 7.0m @ 2.52g/t (drill hole C-518-17, interval 60.8-67.8m)
NE Bakhmut
Underground resource and reserve exploration took place at NE
Bakhmut (surface and underground drilling and underground
development). In 2017, the most significant results were in the NE
Bakhmut No 2 area. Two new zones of mineralisation potentially
suitable for open pit mining were discovered north from the
depleted pit at NE Bakhmut No 2. The Oblomochnaya zone, which has
been extensively explored, is being prepared for open pit mining
and should contribute to the 2017 and 2018 production profile. It
is a shallow, sub-horizontal mineralised zone only 30-35m below the
surface. Geological interpretations suggest this zone was formed as
a result of the NE Bakhmut hard rock orebody being eroded and
material being deposited, forming a soft oxide mineralised seam
which later was buried under a layer of Neogenic sand formation.
The unaudited resource estimate suggests Oblomochnaya contains
c.23koz of JORC gold resources, of which c.19koz at 0.98g/t is
Indicated and 4.5koz at 1.05g/t is Inferred. Metallurgical tests
have confirmed that the material is suitable for RIP processing. It
is expected that both the overburden and the ore will be amenable
to free digging, making it a low cost open pit mining target.
In the course of Oblomochnaya exploration, a second new zone was
identified directly below Oblomochnaya. To date, it has been
intersected by only three drill holes, with the best intersections
including 5.3m at 1.64g/t and 5.2m at 7.56g/t. It remains open in a
down dip direction and in both strike directions.
Surface drilling proved a high grade pay shoot mined from open
pit at NE Bakhmut No 2 to a depth of 140m below the pit floor. The
best deep intersection is 19.6m @ 10.90g/t. The pay shoot is 145m
long and remains open in a down dip direction. There are several
further high grade intersections including 1.1m@8.10g/t and
1.0m@19.30g/t, which belong to smaller parallel zones and/or
apophysis; these await follow up exploration and inclusion in the
resource model.
In-fill underground drilling continued at a 'bridge' area
between pay shoots at NE Bakhmut No 2 and 3. It did not result in
changes to the overall resources or reserves - the results are in
line with earlier exploration.
Alexandra Area
In 2017, drilling discovered additional low grade mineralisation
at the Shirokaya zone (profile 976) with the following drill
intersections:
-- 135.2m @ 0.48g/t (drill hole C-9244)
-- 122.0m @ 0.71g/t (drill hole C-9245)
-- 136.0m @ 0.50g/t (drill hole C-9246)
-- 30.0 @ 0.42g/t (drill hole C-9247)
These drill holes did not exit from the mineralisation, which
appears to be a bulk stockwork potentially suitable for open pit
mining. Mineralisation is expected to be refractory, which is
typical for Shirokaya.
Nikolaevskaya
Exploration continued at south west extensions of the
Nikolaevskaya zone with eight drill holes and seven trenches
completed in H1 2017. A strike extension exceeding 1,200m in length
has been proven. The gold mineralisation discovered is relatively
narrow, not particularly high grade and refractory, which is
typical for Nikolaevskaya.
The best drill intersections for 2017 include:
-- 1.9m @ 4.02g/t (drill hole C-9355, interval 36.2 - 38.1m)
-- 2.9m @ 1.41g/t (drill hole C-9354, interval 29.3 - 32.2m)
-- 1.6m @ 2.35g/t (drill hole C-9386, interval 44.7 - 46.3m)
This mineralisation is yet to be modelled and included in JORC
resource estimates.
Sosnovaya
Trenching and drilling completed in late 2016 at a 9km long
geochemical anomaly at Sosnovaya confirmed the presence of low
grade gold mineralisation with selected intersections
including:
-- 14.2m @ 0.80g/t (drill hole C-182-4, interval 26.7 - 40.9m)
-- 42.6m @ 0.31g/t (drill hole C-599-11, interval 36.4 - 79.0m)
-- 1.3m @ 1.14g/t (trench K-622-3, interval 227.5 - 228.8m)
Mineralisation discovered so far is too low grade to represent
an immediate economic interest. However, since almost every drill
hole completed intersected bulk gold grade halos (0.1 - 0.3g/t)
indicating extensive hydrothermal processes, these results are
still considered encouraging. Group geologists are analysing
results, updating their exploration model and intend to continue
exploring this target in the future.
Geochemical surveys and geological traversing started at two
other early stage exploration targets, Aprelskiy and Talali
(Sosnovaya). Aprelskiy is located c.10km west from the Pioneer RIP
plant within an area of extensive historical alluvial mining.
Talali is located west from the Alexandra deposit and c.20km north
west from the Pioneer plant on the same tectonic structure that
hosts Alexandra, and also within an area of historical alluvial
production. The results of this work are expected to be available
in H1 2018.
Albyn
Ulgen
In 2017, exploration also continued at Ulgen, located c.30km
south west from the Albyn plant in an area of extensive historical
alluvial gold production. The best new trench intersections include
7.0m@5.11g/t, 5.0m@3.58g/t and 2.0m@2.84g/t. Exploration completed
to date, which includes 80m to 350m spaced trenches and six drill
holes, proved gold mineralisation extends along the strike for 3km.
It remains open in both strike directions as well as in a down dip
direction. Exploration results at Ulgen are very encouraging as
there are many similarities with Elginskoye, where JORC Resources
and Reserves currently stand at 2.8Moz. No further exploration is
planned at Ulgen in 2017 as due to its remote location and lack of
local infrastructure it is unlikely to offer an immediate
production upside. Ulgen remains a significant exploration target
and work is expected to continue in the future.
Unglichikan
In 2017, exploration at Unglichikan continued with drilling at
the south group of the mineralised zones over a strike length of
1,200m. The 2017 drilling results confirmed known mineralisation
and extended it down dip to a depth of 90 to 130m from the surface.
The last down dip intersections include 4.7m at 5.34g/t, 14.7m at
2.97g/t, and 0.8m at 26.9g/t where both grade and thickness appear
to increase with depth, suggesting there may also be potential for
underground mining at Unglichikan. The 2017 drilling results are
yet to be incorporated into the JORC resource model.
Malomir
Following successful exploration drilling at Quartzitovoye in
2016, a maiden non-refractory reserve of 207koz @ 5.85g/t was
defined in 2017, underpinning an initial six year production plan
for high grade underground mining. 2016 drilling confirmed that
high grade mineralisation remains open at depth, with the deepest
holes greater than 440m below the surface (245m below the open pit
floor), intersecting attractive grades and thicknesses.
In May 2017, underground developments at Quartzitovoye led to
the discovery of a previously unknown high grade pay shoot
producing three intersections: 5.32m @ 69.9g/t, 1.8m @ 42.9 g/t and
1.01m @ 12.2 g/t. The pay shoot is steep dipping and hosted within
low grade zone No 49 and mined from the open pit, which stopped
approximately 90m above. It appears this high grade shoot is
controlled by an intersection between the structure of zone No 49,
striking north south, and a steep east west contact between
plagiogranites and schists.
In preparation for the trial mining, the pay shoot has now been
explored by underground workings on 390m and 375m levels. It now
has a proven strike length of c.55m, an average thickness of c.3m
with an average grade of c.14g/t and grades of up to 458g/t in
selected samples. It remains open in both up and down directions.
It is also considered possible that other similar pay shoots could
be discovered within zone 49, which has a total strike length of
280m.
Underground development has now reached the main high grade
Quartzitovoye orebody 55, intersecting it in two points on a 390m
level at the north and in the centre. Underground sampling results
are in agreement with the drill hole data and the resource
model.
FY17 Outlook
The Company reconfirms its full year production forecast of
c.420,000 - 460,000oz, maintaining this range in case of possible
delays in scalable production from underground, whilst the first
production from POX is expected as planned.
Total cash costs for the year are expected to be c.US$700/oz at
current exchange rates, at the upper end of original guidance
(US$600 - 700/oz). Net debt is expected to decrease to c.US$560
million, assuming an average gold price of US$1,265/oz for the rest
of the period.
Forward contracts to sell an aggregate of 500Koz of gold over a
period from July 2017 to December 2019 at an average price of
US$1,252/oz were outstanding as at 30 June 2017.
IRC
IRC Ltd. is a producer and developer of industrial commodities
with its shares quoted on the Hong Kong Stock Exchange (Stock Code
1029). IRC released its interim results for the six months ended 30
June 2017 on 31 August 2017, highlights from which are described
below.
During the period, satisfactory progress was made with the ramp
up of K&S, IRC's key development project, which is now
producing significant volumes of concentrate (over one million
tonnes since inception). The plant was operating at c.50% capacity
as at June 2017. IRC remains confident in resolving the outstanding
issues and aims at operating the plant at close to full capacity by
the end of 2017.
IRC enjoyed a threefold increase in revenue for the period to
US$51.2 million (30 June 2016: US$16.1 million), whilst K&S
generated EBITDA(u) of US$14 million. Overall, IRC made a net
operating gain of US$2.3 million (30 June 2016: loss of US$11.4
million), and the loss for the period fell to US$9.7 million (30
June 2016: loss of US$9.9 million).
The production and sales volumes of iron ore concentrate more
than tripled, with production volume up 271% to 697,431 tonnes (30
June 2016: 188,111 tonnes), and sales volume up 218% to 698,632
tonnes (30 June 2016: 219,352 tonnes).
Finally, ICBC agreed to restructure the loan repayment schedule,
including a full principal repayment holiday in 2017.
The full report is available to view on the IRC website at
http://www.ircgroup.com.hk
Principal Risks and Uncertainties
The Group is exposed to a variety of risks and uncertainties
which could significantly affect its business and financial
results. A detailed review of the key risks facing the Group is set
out in the Risks to Our Performance section on pages 22 to 33 of
the 2016 Annual Report, which is available on the Group's website,
www.petropavlovsk.net. This also includes a description of the
potential impact of such risks on the Group together with measures
in place to manage or mitigate against each specific risk where
this is within the Group's control.
The Board's view of the principal risks that could impact the
Group for the remainder of the current financial year remain
largely unchanged from those set out in the 2016 Annual Report,
with the exception of the matter detailed below under 'Funding and
liquidity'.
The principal risks relate to the following:
Operational risks
-- Production
-- Exploration
-- The quality and quantity of the Group's Mineral Resources and Ore Reserves
-- Projects, specifically in relation to the POX and underground mining projects
Financial risks
-- Funding and liquidity: The Group is satisfied that it has
sufficient headroom under a base case scenario for the period to
September 2018 and expects to comply with related financial
covenants. However, under a layered stress case the Group's
projections indicate that there will be insufficient headroom and
non-compliance with certain covenants unless certain mitigating
actions are taken. Further details are provided in the 'going
concern' section of this interim announcement.
-- Gold price
-- Foreign exchange
-- IRC
Health, safety and environmental risks
-- Safety of our employees and third parties
Legal and regulatory risks
-- The various licences and permits which are needed by the Group in order to operate
-- Operating in Russia
Directors' Responsibilities Statement
We confirm that to the best of our knowledge:
-- The condensed set of financial statements, which has been
prepared in accordance with IAS34 "Interim Financial Reporting" as
endorsed and adopted by the European Union, gives a true and fair
view of the assets, liabilities, financial position and profit or
loss of the company, or the undertakings included in the
consolidation as a whole as required by DTR4.2.4R;
-- The interim management report includes a fair review of the
information required by DTR4.2.7R (indication of important events
and their impact, and description of principal risks and
uncertainties for the remaining six months of the financial year);
and
-- The interim management report includes a fair review of the
information required on related party transactions as required by
DTR4.2.8R.
By order of the Board,
Ian Ashby Andrey Maruta
Chairman Chief Financial Officer
11 September 2017
Independent Review Report (Auditors)
INDEPENT REVIEW REPORT TO PETROPAVLOVSK PLC
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly financial report for the
six months ended 30 June 2017 which comprises the income statement,
the balance sheet, the statement of changes in equity, the cash
flow statement and related notes 1 to 24. We have read the other
information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with
International Standard on Review Engagements (UK and Ireland) 2410
"Review of Interim Financial Information Performed by the
Independent Auditor of the Entity" issued by the Auditing Practices
Board. Our work has been undertaken so that we might state to the
company those matters we are required to state to it in an
independent review report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company, for our review work, for this
report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of financial statements included
in this half-yearly financial report has been prepared in
accordance with International Accounting Standard 34 "Interim
Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
11 September 2017
Consolidated Financial Statements
PETROPAVLOVSK PLC
Condensed Consolidated Income Statement
Six months ended 30 June 2017
Six months Six months
ended ended
30 June 2017 30 June 2016 Year ended
31 December
(unaudited) (unaudited) 2016
note US$'000 US$'000 US$'000
------------------------------------- ---- ------------- ------------------- -----------------------
Group revenue 304,049 253,953 540,684
Operating expenses 5 (236,165) (216,154) (460,103)
------------------------------------- ---- ------------- ------------------- -----------------------
67,884 37,799 80,581
Share of results of associates 11 (2,965) (3,563) (3,581)
------------------------------------- ---- ------------- ------------------- -----------------------
- Operating profit 64,919 34,236 77,000
Investment income 6 386 200 556
Interest expense 6 (14,448) (30,479) (60,976)
Other finance gains 6 2,045 2,334 11,976
Other finance losses 6 (6,138) (1,506) (1,548)
------------------------------------- ---- ------------- ------------------- -----------------------
Profit before taxation 46,764 4,785 27,008
Taxation 7 (22,305) 4,438 4,698
------------------------------------- ---- ------------- ------------------- -----------------------
Profit for the period 24,459 9,223 31,706
------------------------------------- ---- ------------- ------------------- -----------------------
Attributable to:
Equity shareholders of Petropavlovsk
PLC 23,332 9,203 33,719
------------------------------------- ---- ------------- ------------------- -----------------------
Non-controlling interests 1,127 20 (2,013)
------------------------------------- ---- ------------- ------------------- -----------------------
Profit per share
Basic profit per share 8 US$0.01 US$0.00 US$0.01
------------------------------------- ---- ------------- ------------------- -----------------------
Diluted profit per share 8 US$0.01 US$0.00 US$0.01
------------------------------------- ---- ------------- ------------------- -----------------------
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2017
Six months Six months Year ended
ended ended
30 June 2017 30 June 2016 31 December
2016
(unaudited) (unaudited)
US$'000 US$'000 US$'000
---------------------------------------------------- ------------- ------------- ---------------------
Profit for the period 24,459 9,223 31,706
-------------------------------------------------------- ------------- ------------- ---------------------
- Items that may be reclassified subsequently
to profit or loss:
---------------------------------------------------- ------------- ------------- ---------------------
Revaluation of available-for-sale investments (294) 307 834
Exchange differences:
Exchange differences on translating foreign
operations 2,597 1,781 2,577
Share of other comprehensive income of
associate 110 - 560
Cash flow hedges:
Fair value losses (11,909) (16,313) (4,940)
Tax thereon 2,382 3,263 988
Transfer to revenue (2,781) 5,504 8,494
Tax thereon 556 (1,101) (1,699)
Other comprehensive (loss)/profit for
the period net of tax (9,339) (6,559) 6,814
-------------------------------------------------------- ------------- ------------- ---------------------
Total comprehensive profit for the period 15,120 2,664 38,520
-------------------------------------------------------- ------------- ------------- ---------------------
Attributable to:
Equity shareholders of Petropavlovsk PLC 14,117 2,764 40,494
Non-controlling interests 1,003 (100) (1,974)
-------------------------------------------------------- ------------- ------------- ---------------------
15,120 2,664 38,520
------------------------------------------------------- ------------- ------------- ---------------------
PETROPAVLOVSK PLC
Condensed Consolidated Balance Sheet
At 30 June 2017
30 June 2017 30 June 2016 31 December
2016
(restated) (restated)
(a) (a)
note (unaudited) (unaudited)
US$'000 US$'000 US$'000
----------------------------------------- ------ ------------- ------------- ------------
- Assets
Non-current assets
Exploration and evaluation assets 9 52,889 56,163 49,270
Property, plant and equipment 10 952,133 982,953 953,794
Prepayments for property, plant
and equipment 10,979 187 694
Investments in associates 11 33,285 35,600 36,140
Available-for-sale investments 812 578 1,105
Inventories 12 68,489 54,459 51,686
Other non-current assets 10,938 10,437 11,383
1,129,525 1,140,377 1,104,072
----------------------------------------- ------ ------------- ------------- ------------
Current assets
Inventories 12 180,769 186,959 183,266
Trade and other receivables 13 75,129 62,804 89,736
Derivative financial instruments 15 661 - 7,478
Cash and cash equivalents 14 32,671 18,311 12,642
----------------------------------------- ------ ------------- ------------- ------------
289,230 268,074 293,122
----------------------------------------- ------ ------------- ------------- ------------
Total assets 1,418,755 1,408,451 1,397,194
----------------------------------------- ------ ------------- ------------- ------------
Liabilities
Current liabilities
Trade and other payables 16 (58,770) (75,500) (55,638)
Current income tax payable (4,478) (794) (2,288)
Borrowings 17 (53,713) (344,159) (85,306)
Derivative financial instruments 15 (397) (6,885) -
Provision for close down and (3,563) - -
restoration costs
(120,921) (427,338) (143,232)
----------------------------------------- ------ ------------- ------------- ------------
Net current assets/(liabilities) 168,309 (159,264) 149,890
----------------------------------------- ------ ------------- ------------- ------------
Non-current liabilities
Borrowings 17 (549,072) (271,783) (525,906)
Derivative financial instruments 15 (23,541) (16,190) (10,314)
Deferred tax liabilities (116,289) (131,186) (119,028)
Provision for close down and
restoration costs (15,863) (17,271) (19,152)
Financial liabilities 20 (7,616) (10,206) (9,229)
----------------------------------------- ------ ------------- ------------- ------------
(712,381) (446,636) (683,629)
----------------------------------------- ------ ------------- ------------- ------------
Total liabilities (833,302) (873,974) (826,861)
----------------------------------------- ------ ------------- ------------- ------------
Net assets 585,453 534,477 570,333
----------------------------------------- ------ ------------- ------------- ------------
Equity
Share capital 18 48,920 48,920 48,920
Share premium 518,142 518,142 518,142
Hedging reserve (5,728) (5,431) 5,900
Other reserves (15,271) (18,897) (17,574)
Retained earnings/(losses) 21,940 (26,578) (1,502)
----------------------------------------- ------ ------------- ------------- ------------
Equity attributable to the shareholders
of Petropavlovsk PLC 568,003 516,156 553,886
----------------------------------------- ------ ------------- ------------- ------------
Non-controlling interests 17,450 18,321 16,447
----------------------------------------- ------ ------------- ------------- ------------
Total equity 585,453 534,477 570,333
----------------------------------------- ------ ------------- ------------- ------------
(a) See note 2 for details regarding the restatement.
This condensed consolidated interim financial information was
approved by the Directors on 11 September 2017.
Ian Ashby Andrey Maruta
Director Director
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2017
Total attributable to equity holders of Petropavlovsk
PLC
Share
based Retained
Share Share Own payments Hedging Other earnings/ Non-controlling Total
capital premium shares(a) reserve reserve reserves(b) (losses) Total interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- ---- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 1 January 2016 48,874 518,142 (8,933) 280 3,096 (20,985) (47,922) 492,552 18,421 510,973
Correction of error
in accounting for
deferred tax
liabilities
(c) - - - - - - 20,700 20,700 - 20,700
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 1 January 2016
(restated) 48,874 518,142 (8,933) 280 3,096 (20,985) (27,222) 513,252 18,421 531,673
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Total comprehensive
(loss)/income - - - - (8,527) 2,088 9,203 2,764 (100) 2,664
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Profit for the
period - - - - - - 9,203 9,203 20 9,223
Other comprehensive
(loss)/income - - - - (8,527) 2,088 - (6,439) (120) (6,559)
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Deferred share
awards 46 - 8,933 (280) - - (8,559) 140 - 140
Balance
at 30 June 2016
(unaudited) 48,920 518,142 - - (5,431) (18,897) (26,578) 516,156 18,321 534,477
Total comprehensive
income/(loss) - - - - 11,331 1,323 25,076 37,730 (1,874) 35,856
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Profit/ (loss)
for the period - - - - - - 24,516 24,516 (2,033) 22,483
Other comprehensive
income - - - - 11,331 1,323 560 13,214 159 13,373
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 31 December
2016 (restated) 48,920 518,142 - - 5,900 (17,574) (1,502) 553,886 16,447 570,333
Total comprehensive
(loss)/income - - - - (11,628) 2,303 23,442 14,117 1,003 15,120
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Profit for the
period - - - - - - 23,332 23,332 1,127 24,459
Other comprehensive
(loss)/income - - - - (11,628) 2,303 110 (9,215) (124) (9,339)
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 30 June 2017
(Unaudited) 48,920 518,142 - - (5,728) (15,271) 21,940 568,003 17,450 585,453
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
(a) Own shares represented 1,441,406 Ordinary Shares held by the
Company's EBT until they were transferred upon vesting of the
Deferred Share Award on 1 May 2016.
(b) Including translation reserve of US$(13.0) million (30 June
2016: US$(16.4) million, 31 December 2016: US$(15.6) million).
(c) See note 2 for details regarding the restatement
PETROPAVLOVSK PLC
Condensed Consolidated Cash Flow Statement
Six months ended 30 June 2017
Six months Six months Year ended
ended ended
30 June 2017 30 June 2016 31 December
2016
(unaudited) (unaudited)
note US$'000 US$'000 US$'000
----------------------------------------------------- ------ -------------- -------------- -----------------------
- Cash flows from operating activities
Cash generated from operations 19 115,793 74,350 126,013
Interest paid (26,771) (25,136) (53,708)
Income tax paid (14,420) (19,295) (35,305)
----------------------------------------------------- ------ -------------- -------------- -----------------------
Net cash from operating activities 74,602 29,919 37,000
----------------------------------------------------- ------ -------------- -------------- -----------------------
Cash flows from investing activities
Proceeds from disposal of subsidiaries, net of cash
disposed and liabilities settled - 14,790 19,188
Proceeds from disposal of the Group's interests in
associates - 231 231
Purchase of property, plant and equipment (30,965) (4,331) (12,770)
Exploration expenditure (10,867) (7,556) (16,590)
Proceeds from disposal of property, plant and
equipment 155 561 742
Repayment of amounts loaned to other parties - 1 1
Interest received 383 193 540
Net cash used in investing activities (41,294) 3,889 (8,658)
----------------------------------------------------- ------ -------------- -------------- -----------------------
Cash flows from financing activities
Proceeds from borrowings - - 295,250(a)
Repayments of borrowings (11,630) (26,971) (322,221)(a)
Debt transaction costs paid in connection with bank
loans (1,674) (447) (4,031)
Transaction costs - (2,695) -
Funds advanced to the Group under investment
agreement with the Russian Ministry of Far East
Development 22 - - 30,771
Funds transferred under investment agreement with
the Russian Ministry of Far East Development 22 - (16,894) (47,665)
Guarantee fee in connection with ICBC facility - 1,126 1,126
Net cash used in financing activities (13,304) (45,881) (46,770)
----------------------------------------------------- ------ -------------- -------------- -----------------------
Net increase/(decrease) in cash and cash equivalents
in the period 20,004 (12,073) (18,428)
Effect of exchange rates on cash and cash
equivalents 25 2,145 2,831
Cash and cash equivalents at beginning of period 14 12,642 28,239 28,239
Cash and cash equivalents at end of period 14 32,671 18,311 12,642
----------------------------------------------------- ------ -------------- -------------- -----------------------
(a) Including US$295.25 million in connection to bank debt refinancing.
PETROPAVLOVSK PLC
Notes to the condensed consolidated interim financial
statements
Six months ended 30 June 2017
- 1. General information
Petropavlovsk PLC (the 'Company') is a company incorporated and
registered in England and Wales. The address of the registered
office is 11 Grosvenor Place, London SW1X 7HH.
These condensed consolidated interim financial statements are
for the six months ended 30 June 2017. The interim financial
statements are unaudited.
The information for the year ended 31 December 2016 does not
constitute statutory accounts as defined in section 434 of the
Companies Act 2006. This information was derived from the statutory
accounts for the year ended 31 December 2016, a copy of which has
been delivered to the Registrar of Companies. The auditor's report
on those accounts was not qualified.
The auditor's report did not contain a statement under section
498(2) or 498(3) of the Companies Act 2006.
- 2. Basis of preparation and presentation
The annual financial statements of the Company and its
subsidiaries (the "Group") for the year ended 31 December 2016 were
prepared in accordance with International Financial Reporting
Standards ("IFRS"s) as adopted by the European Union.
The condensed set of financial statements has been prepared
using accounting policies consistent with those set out in the
annual financial statements for the year ended 31 December 2016,
with adoption of new and revised standards and interpretations as
set out below, and in accordance with IAS 34 "Interim Financial
Reporting", as adopted by the European Union.
Going concern
The Group monitors and manages its liquidity risk on an ongoing
basis to ensure that it has access to sufficient funds to meet its
obligations. Cash forecasts are produced regularly based on a
number of inputs including, but not limited to, forecast commodity
prices and impact of hedging arrangements, Group mining plan,
forecast expenditure and debt repayment schedules. Sensitivities
are run for different scenarios including, but not limited to,
changes in commodity prices, cost inflation, different production
rates from the Group's producing assets and the timing of
expenditure on development projects. This is done to identify risks
to liquidity and covenant compliance and enable management to
develop appropriate and timely mitigation strategies. The Group
meets its capital requirements through a combination of sources
including cash generated from operations and external debt.
The Group performed an assessment of the forecast cash flows and
covenant compliance in relation to bank facilities for the period
of 12 months from the date of approval of the Half Year Report for
the period ended 30 June 2017. As at 30 June 2017, the Group had
sufficient liquidity headroom and complied with related financial
covenants. Following the successful completion of the Bank Debt
Refinancing, the Group is also satisfied that it has sufficient
headroom under a base case scenario for the period to September
2018 and expects to comply with related financial covenants. In the
meantime, the Group's projections under a layered stressed case
that is based on US$1,125/oz gold price, which is at the bottom end
of market consensus forecasts, indicate that unless mitigating
actions can be taken, there will be insufficient liquidity and
non-compliance with certain covenants under a layered stressed case
for the relevant period to September 2018. These mitigating actions
include items within the control of the management, such as
accessing deposits not currently in the Group's mining plan, cost
cutting and reduction of capital expenditure subject to receipt of
necessary consents. These actions would account for approximately
50% of the forecast shortfall under the layered stressed case.
Furthermore, management would also pursue raising additional
equity, refinancing the existing debt and/or divesting the shares
in IRC including an immediate settlement of any amounts of the
guarantee fee outstanding to fully mitigate any shortfalls.
Management is also reasonably confident that necessary waivers or
consents could be obtained from the senior lenders if necessary. If
a missed debt repayment occurs or financial covenant requirements
are not met, this would result in events of default which, through
cross-defaults and cross-accelerations, could cause all other
Group's debt arrangements to become repayable on demand.
The Group has guaranteed the outstanding amounts IRC owes to
ICBC. The outstanding loan principal was US$234 million as at 30
June 2017. The assessment of whether there is any material
uncertainty that IRC will be able to repay this facility as it
falls due is another key element of the Group's overall going
concern assessment. IRC has agreed with ICBC to restructure and
reschedule two repayment instalments under the ICBC Facility
Agreement, which were originally due for payment on 20 June 2017
and 20 December 2017, with the next repayment instalment due on 20
June 2018. IRC also obtained waivers from ICBC in respect of
obligations to maintain certain cash deposits with ICBC until 30
June 2018 and obligations to comply with certain financial
covenants until 31 December 2017 (inclusive). Following the ramp up
and commercial production at K&S, IRC management are
forecasting that IRC will have sufficient capital through working
capital to pay its financial obligations as and when they fall due
in the foreseeable future and throughout the going concern period.
However, if scheduled full commercial production of the K&S
project is not achieved or the market conditions turn out to be
significantly less favorable than predicted IRC's financial
liquidity may be adversely impacted. IRC would then need to carry
out contingency plans including entering into negotiations with
banks or other investors for additional debt or equity
financing.
Having taken into account the aforementioned factors and after
making enquiries and considering the uncertainties described above,
the Directors have a reasonable expectation that the Group will
have adequate resources to continue in operational existence for
the foreseeable future, being at least the next 12 months from the
date of approval of the Half Year Report for the period ended 30
June 2017. Accordingly, they continue to adopt the going concern
basis of accounting in preparing these consolidated financial
statements.
Adoption of new and revised standards and interpretations
During the period the Group adopted all standards, amendments
and interpretations that were effective for annual periods
beginning on or after 1 January 2017 (such standards, amendments
and interpretations were disclosed in note 2 to the Group's
consolidated financial statements for the year ended 31 December
2016). These standards, amendments, and interpretations have not
had a significant impact on the presentation or disclosure in
Group's condensed consolidated financial statements for the interim
period ended 30 June 2017. No other changes have been made to the
Group's accounting policies in the period ended 30 June 2017.
Additional disclosures with respect to the annual period
requirements will be included in the Group's consolidated financial
statements for the year ending 31 December 2017.
Areas of judgement in applying accounting policies and key
sources of estimation uncertainty
When preparing the consolidated financial statements, management
necessarily makes judgements and estimates that can have a
significant impact on the financial statements. Areas of judgement
in applying accounting policies and key sources of estimation
uncertainty are consistent with those set out in the annual
financial statements for the year ended 31 December 2016, with the
addition of recognition of a contingent liability regarding mining
tax concessions which is discussed further in note 23.
Correction of error in accounting for deferred tax
liabilities
In 2017, the Group undertook a detailed review of implications
of impairment provision recognised in relation to property, plant
and equipment in prior periods on deferred taxation and concluded
that deferred tax liability has been overstated. The error has been
corrected by restating each of the affected financial statement
line items for the prior periods as follows:
31 December (Decrease)/ 31 December 1 January (Decrease)/ 1 January
2016 increase 2016 2016 increase 2016
Restated Restated
US$' 000 US$' 000 US$'000 US$'000 US$' 000 US$'000
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
Deferred tax liabilities 139,728 (20,700) 119,028 173,499 (20,700) 152,799
Net assets 549,633 20,700 570,333 510,973 20,700 531,673
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
Retained losses 22,202 (20,700) 1,502 47,922 (20,700) 27,222
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
Total equity 549,633 20,700 570,333 510,973 20,700 531,673
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
30 June (Decrease)/ 30 June 1 January (Decrease)/ 1 January
2016 increase 2016 2016 increase 2016
Restated Restated
US$' 000 US$' 000 US$'000 US$'000 US$' 000 US$'000
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Deferred tax liabilities 151,886 (20,700) 131,186 173,499 (20,700) 152,799
Net assets 513,777 20,700 534,477 510,973 20,700 531,673
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Retained losses 47,278 (20,700) 26,578 47,922 (20,700) 27,222
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Total equity 513,777 20,700 534,477 510,973 20,700 531,673
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Presentation of the ICBC guarantee arrangements
As at 30 June 2017, the Group reviewed arrangements under the
ICBC guarantee (note 20) and concluded it would be more appropriate
to disclose associated receivable from IRC and financial liability
under the ICBC guarantee contract on a gross basis. Assets and
liabilities as at 31 December 2016 and 30 June 2016 have been
re-presented accordingly as set out below. This re-presentation did
not have any impact on the net assets, retained losses or total
equity.
31 December Increase 31 December 30 June Increase 30 June
2016 2016 2016 2016
Restated Restated
US$' 000 US$' 000 US$'000 US$'000 US$' 000 US$'000
-------------------------- ------------ --------- ------------ -------- --------- ----------
Other non-current assets 2,154 9,229 11,383 231 10,206 10,437
Financial liabilities - 9,229 9,229 - 10,206 10,206
-------------------------- ------------ --------- ------------ -------- --------- ----------
- 3. Foreign currency translation
The following exchange rates to the US dollar have been applied
to translate balances and transactions in foreign currencies:
Average Average
six months six months Average
As at ended As at ended As at year ended
30 June 30 June 30 June 30 June 31 December 31 December
2017 2017 2016 2016 2016 2016
-------------------------- --------- ------------ --------- ------------ ------------- -------------
GB Pounds Sterling (GBP:
US$) 0.77 0.79 0.75 0.70 0.81 0.74
Russian Rouble (RUB:
US$) 59.09 57.93 64.26 70.54 60.66 67.18
-------------------------- --------- ------------ --------- ------------ ------------- -------------
- 4. Segment information
The Group's reportable segments under IFRS 8, which are aligned
with its operating locations, were determined to be Pokrovskiy,
Pioneer, Malomir and Albyn hard-rock gold mines which are engaged
in gold and silver production as well as field exploration and mine
development.
Corporate and Other segment amalgamates corporate
administration, in-house geological exploration and construction
and engineering expertise, engineering and scientific operations
and other supporting in-house functions as well as various gold
projects and other activities that do not meet the reportable
segment criteria.
Reportable operating segments are based on the internal reports
provided to the Chief Operating Decision Maker ('CODM') to evaluate
segment performance, decide how to allocate resources and make
other operating decisions and reflect the way the Group's
businesses are managed and reported.
The financial performance of the segments is principally
evaluated with reference to operating profit less foreign exchange
impacts.
Six months ended 30 June Corporate
2017 Pioneer Pokrovskiy Malomir Albyn and other Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Revenue
Gold (a) (,) (b) 118,956 19,350 35,937 116,603 - 290,846
Silver 548 89 35 134 - 806
Other external revenue - - - - 12,397 12,397
Inter-segment revenue - - 783 172 70,843 71,798
Intra-group eliminations - - (783) (172) (70,843) (71,798)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Total Group revenue from
external customers 119,504 19,439 35,972 116,737 12,397 304,049
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating expenses and
income
Operating cash costs (66,632) (19,897) (32,762) (37,897) (11,780) (168,968)
Depreciation (14,933) (3,394) (7,450) (22,158) (32) (47,967)
Central administration
expenses - - - - (23,095) (23,095)
Reversal of impairment/
(impairment) of ore stockpiles 3,069 (63) (275) 3,616 - 6,347
Impairment of gold in
circuit - (807) (633) - - (1,440)
Impairment of non-trading
loans - - - - (538) (538)
Total operating expenses
(c) (78,496) (24,161) (41,120) (56,439) (35,445) (235,661)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Share of results of associates - - - - (2,965) (2,965)
Segment result 41,008 (4,722) (5,148) 60,298 (26,013) 65,423
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Foreign exchange losses (504)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating profit 64,919
Investment income 386
Interest expense (14,448)
Other finance gains 2,045
Other finance losses (6,138)
Taxation (22,305)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Profit for the period 24,459
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Segment assets 457,427 18,961 410,625 406,028 116,636 1,409,677
Unallocated cash 9,003
Loans given 75
Consolidated total assets 1,418,755
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
(a) Including US$2.8 million contribution from the cash flow hedge.
(b) Heap leach operations at Pioneer and Pokrovskiy are seasonal
with production skewed towards the second half of the year.
(c) Operating expenses less foreign exchange losses (note 5).
Six months ended 30 June Corporate
2016 Pioneer Pokrovskiy Malomir Albyn and other Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Revenue
Gold (d) (,) (e) 84,836 20,506 29,616 98,466 - 233,424
Silver 459 105 56 124 - 744
Other external revenue - - - - 19,785 19,785
Inter-segment revenue - - 572 181 44,788 45,541
Intra-group eliminations - - (572) (181) (44,788) (45,541)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Total Group revenue from
external customers 85,295 20,611 29,672 98,590 19,785 253,953
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating expenses and
income
Operating cash costs (41,809) (14,038) (22,687) (51,860) (18,968) (149,362)
Depreciation (21,899) (3,136) (8,414) (25,599) (241) (59,289)
Central administration
expenses - - - - (13,096) (13,096)
Reversal of impairment
of ore stockpiles 4,730 631 5,903 1,003 - 12,267
Loss on disposal of subsidiaries - - - - (791) (791)
Total operating expenses
(f) (58,978) (16,543) (25,198) (76,456) (33,096) (210,271)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Share of results of associates - - - - (3,563) (3,563)
Segment result 26,317 4,068 4,474 22,134 (16,874) 40,119
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Foreign exchange losses (5,883)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating profit 34,236
Investment income 200
Interest expense (30,479)
Other finance gains 2,334
Other finance losses (1,506)
Taxation 4,438
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Profit for the period 9,223
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Segment assets 435,925 45,600 386,592 409,662 122,128 1,399,907
Unallocated cash 7,980
Loans given 564
Consolidated total assets 1,408,451
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
(d) Including US$(5.5) million net cash settlement paid by the Group under the cash flow hedge.
(e) Heap leach operations at Pioneer and Pokrovskiy are seasonal
with production skewed towards the second half of the year.
(f) Operating expenses less foreign exchange losses (note 5).
Year ended 31 December Pioneer Pokrovskiy Malomir Albyn Corporate Consolidated
2016 and other
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Revenue
Gold (g) 163,514 46,692 67,107 211,155 - 488,468
Silver 958 275 101 207 - 1,541
Other external revenue - - - - 50,675 50,675
Inter-segment revenue - - 1,233 390 101,032 102,655
Intra-group
eliminations - - (1,233) (390) (101,032) (102,655)
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Total Group revenue
from
external customers 164,472 46,967 67,208 211,362 50,675 540,684
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Operating expenses and
income
Operating cash costs (85,273) (33,777) (45,243) (100,979) (48,995) (314,267)
Depreciation (38,776) (6,586) (13,632) (45,729) (529) (105,252)
Central administration
expenses - - - - (32,623) (32,623)
Impairment of
exploration
and evaluation assets - - - (9,155) - (9,155)
(Impairment)/reversal
of impairment of ore
stockpiles (6,110) (1,002) 5,826 123 - (1,163)
Gain on disposal of
non-trading
loans - - - - 6,724 6,724
Gain on disposal of
subsidiaries - - - - 791 791
Total operating
expenses
(h) (130,159) (41,365) (53,049) (155,740) (74,632) (454,945)
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Share of results of
associates - - - - (3,581) (3,581)
Segment result 34,313 5,602 14,159 55,622 (27,538) 82,158
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Foreign exchange
losses (5,158)
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Operating profit 77,000
Investment income 556
Interest expense (60,976)
Other finance gains 11,976
Other finance losses (1,548)
Taxation 4,698
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Profit for the period 31,706
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Segment assets 444,611 19,724 402,878 390,646 133,894 1,391,753
Unallocated cash 4,843
Loans given 598
Consolidated total
assets 1,397,194
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
(g) Including US$(8.5) million net cash settlement paid by the Group under the cash flow hedge.
(h) Operating expenses less foreign exchange losses (note 5).
- 5. Operating expenses and income
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
------------------------------------------ -------------- -------------- --------------
Net operating expenses (a) 216,935 208,651 419,519
Impairment of exploration and evaluation
assets - - 9,155
(Reversal of impairment)/ impairment
of ore stockpiles (a) (6,347) (12,267) 1,163
Impairment of gold in circuit 1,440 - -
Central administration expenses
(a) 23,095 13,096 32,623
Foreign exchange losses 504 5,883 5,158
Impairment of non-trading loans 538 - -
Gain on disposal of non-trading
loans - - (6,724)
Loss/(gain) on disposal of subsidiaries - 791 (791)
236,165 216,154 460,103
------------------------------------------ -------------- -------------- --------------
(a) As set out below.
Net operating expenses
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
Depreciation 47,967 59,289 105,252
Staff costs 38,196 29,009 63,022
Materials 50,984 44,424 100,638
Fuel 20,950 19,224 40,621
External services 17,571 13,516 25,619
Mining tax - 14,226 14,713
Electricity 14,958 10,651 23,305
Smelting and transportation costs 434 332 699
Movement in ore stockpiles, deferred
stripping, work in progress and
bullion in process attributable
to gold production 3,098 (10,808) (22,475)
Taxes other than on income 3,156 3,187 6,352
Insurance 4,309 2,937 6,409
Professional fees 855 456 877
Office costs 142 139 324
Operating lease rentals 1,933 477 3,173
Business travel expenses 540 617 1,434
Provision for impairment of trade
and other receivables 348 141 282
Bank charges 122 87 205
Goods for resale 4,303 8,980 24,186
Other operating expenses 10,210 11,343 25,231
Other (income)/ expenses (3,141) 424 (348)
-------------------------------------- -------------- -------------- --------------
216,935 208,651 419,519
-------------------------------------- -------------- -------------- --------------
Central administration expenses
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
Staff costs 13,946 8,744 17,067
Professional fees 4,674 616 8,214
Insurance 393 412 789
Operating lease rentals 965 926 1,893
Business travel expenses 605 419 881
Office costs 268 246 489
Other 2,244 1,733 3,290
23,095 13,096 32,623
-------------------------- -------------- -------------- --------------
- Impairment charges
Impairment of mining assets
The Group undertook an impairment review of the tangible assets
attributable to the gold mining projects and the supporting
in-house service companies and concluded no impairment was required
as at 30 June 2017.
The forecast future cash flows are based on the Group's mining
plan that assumes POX Hub completion in the year 2018. The other
key assumptions which formed the basis of forecasting future cash
flows and the value in use calculation are set out below:
Six months Year ended
ended 31 December 2016
30 June 2017
----------------------- -------------- ------------------
Long-term gold price US$1,265/oz US$1,200/oz
Discount rate (a) 8% 8%
RUB/US$ exchange rate RUB60.0/US$ RUB60.0/US$
----------------------- -------------- ------------------
(a) Being the post-tax real weighted average cost of capital
Impairment of ore stockpiles
The Group assessed the recoverability of the carrying value of
ore stockpiles and recorded reversals of impairment/ impairment
charges as set out below:
Six months ended 30 June
Six months ended 30 June 2017 2016
----------------------------------------------- -------------------------------------------
Pre-tax Post-tax
(reversal (reversal
of impairment)/ of impairment)/ Pre-tax Post-tax
impairment impairment reversal reversal
charge Taxation charge of impairment Taxation of impairment
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------ ----------------- --------- ----------------- --------------- --------- ---------------
Pokrovskiy 63 (13) 50 (631) 126 (505)
Pioneer (3,069) 613 (2,456) (4,730) 945 (3,785)
Malomir 275 (55) 220 (5,903) 1,181 (4,722)
Albyn (3,616) 723 (2,893) (1,003) 201 (802)
------------ ----------------- --------- ----------------- --------------- --------- ---------------
(6,347) 1,268 (5,079) (12,267) 2,453 (9,814)
------------ ----------------- --------- ----------------- --------------- --------- ---------------
- 6. Financial income and expenses
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016
US$'000 2016 US$'000
US$'000
----------------------------------------- -------------- ----------- --------------
Investment income
Interest income 386 200 556
----------------------------------------- -------------- ----------- --------------
386 200 556
----------------------------------------- -------------- ----------- --------------
Interest expense
Interest on bank loans (24,338) (24,527) (48,934)
Interest on convertible bonds (6,015) (5,865) (11,867)
----------------------------------------- -------------- ----------- --------------
(30,353) (30,392) (60,801)
Interest capitalised 16,037 - -
Unwinding of discount on environmental
obligation (132) (87) (175)
(14,448) (30,479) (60,976)
----------------------------------------- -------------- ----------- --------------
Other finance gains
Fair value gain on derivative financial
instruments (a) - - 7,434
Financial guarantee fee (b) 2,045 2,334 4,542
----------------------------------------- -------------- ----------- --------------
2,045 2,334 11,976
Other finance losses
Loss on bank debt refinancing (388) - (1,548)
Fair value loss on derivative financial
instruments (a) (5,750) (1,506) -
(6,138) (1,506) (1,548)
----------------------------------------- -------------- ----------- --------------
(a) Result from re-measurement of the conversion option of the
Convertible Bonds to fair value (note 17).
(b) Note 20.
- 7. Taxation
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
---------------------------------------------- -------------- -------------- --------------------------
Current tax
Russian current tax 19,918 15,021 29,788
19,918 15,021 29,788
---------------------------------------------- -------------- -------------- --------------------------
Deferred tax
Origination/(reversal) of timing differences
(a) 2,387 (19,459) (34,486)
---------------------------------------------- -------------- -------------- --------------------------
Total tax charge/(credit) 22,305 (4,438) (4,698)
---------------------------------------------- -------------- -------------- --------------------------
(a) Including effect of foreign exchange movements in respect of
deductible temporary differences of US$(4.5) million (six months
ended 30 June 2016: US$(17.6) million, year ended 31 December 2016:
US$(26.0) million) which primarily arises as the tax base for a
significant portion of the future taxable deductions in relation to
the Group's property, plant and equipment are denominated in
Russian Rouble whilst the future depreciation charges associated
with these assets will be based on their US Dollar carrying value
and reflects the movements in the Russian Rouble to the US Dollar
exchange rate.
- 8. Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
--------------------------------------------- -------------- -------------- ---------------
Profit for the period attributable to
equity holders of Petropavlovsk PLC 23,332 9,203 33,719
--------------------------------------------- -------------- -------------- ---------------
Interest expense on convertible bonds 6,015 -(a) -(a)
--------------------------------------------- -------------- -------------- ---------------
Profit used to determine diluted earnings
per share 29,347 9,203 33,719
--------------------------------------------- -------------- -------------- ---------------
No of shares No of shares No of shares
Weighted average number of Ordinary Shares 3,303,768,532 3,300,501,688 3,302,148,536
Adjustments for dilutive potential Ordinary
Shares 798,005,000 -(a) -(a)
Weighted average number of Ordinary Shares
for diluted earnings per share 4,101,773,532 3,300,501,688 3,302,148,536
--------------------------------------------- -------------- -------------- ---------------
US$ US$ US$
--------------------------------------------- -------------- -------------- ---------------
Basic profit per share 0.01 0.00 0.01
--------------------------------------------- -------------- -------------- ---------------
Diluted profit per share 0.01 0.00 0.01
--------------------------------------------- -------------- -------------- ---------------
(a) Convertible bonds which could potentially dilute basic
profit per ordinary share in the future are not included in the
calculation of diluted profit per share because they were
anti-dilutive for the six months ended 30 June 2016 and the year
ended 31 December 2016.
- 9. Exploration and evaluation assets
Flanks Flanks
of Pokrovskiy of Malomir Total
Albyn
US$'000 US$'000 US$'000 US$'000
------------------- --------------- -------- ---------- --------
At 1 January 2017 3,173 33,949 12,148 49,270
Additions 3,196 388 35 3,619
At 30 June 2017 6,369 34,337 12,183 52,889
-------------------- --------------- -------- ---------- --------
- 10. Property, plant and equipment
Capital
construction
Mining Non-mining in progress
assets assets (a) Total
US$'000 US$'000 US$'000 US$'000
------------------------------------- ---------- ----------- -------------- ----------
Cost
At 1 January 2017 1,875,341 193,554 332,962 2,401,857
Additions 18,972 750 10,436 30,158
Interest capitalised - - 16,037 16,037
Close down and restoration cost
capitalised 143 - - 143
Transfers from capital construction
in progress 15,425 345 (15,770) -
Disposals (3,641) (1,854) (39) (5,534)
Reallocation and other transfers 1,685 (2,251) 566 -
Foreign exchange differences - 616 - 616
---------- ----------- -------------- ----------
At 30 June 2017 1,907,925 191,160 344,192 2,443,277
---------- ----------- -------------- ----------
Accumulated depreciation and
impairment
At 1 January 2017 1,267,822 173,757 6,484 1,448,063
Charge for the year 46,582 1,751 - 48,333
Disposals (3,401) (2,356) (2) (5,759)
Reallocation and other transfers 150 (150) - -
Foreign exchange differences - 507 - 507
--------------------------------------
At 30 June 2017 1,311,153 173,509 6,482 1,491,144
-------------------------------------- ---------- ----------- -------------- ----------
Net book value
At 1 January 2017 (b) 607,519 19,797 326,478 953,794
-------------------------------------- ---------- ----------- -------------- ----------
At 30 June 2017 (b) 596,772 17,651 337,710 952,133
-------------------------------------- ---------- ----------- -------------- ----------
(a) Including US$241.3 million costs associated with the POX Hub
project (31 December 2016: US$224.1 million).
(b) Property, plant and equipment with a net book value of
US$103.5 million (30 June 2016: US$117.2 million, 31 December 2016:
US$110.0 million) have been pledged to secure borrowings of the
Group.
- 11. Investments in associates
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
--------------------- -------------- -------------- --------------
IRC Limited ('IRC') 33,285 35,600 36,140
33,285 35,600 36,140
--------------------- -------------- -------------- --------------
Summarised financial information for those associates that are
material to the Group is set out below.
IRC IRC IRC
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
------------------------------------- -------------- -------------- --------------
Non-current assets
Exploration and evaluation assets 7,130 6,811 6,966
Property, plant and equipment 245,229 215,979 246,191
Prepayments for property, plant and
equipment 87,879 88,377 87,499
Other non-current assets 4,872 2,117 4,773
345,110 313,284 345,429
------------------------------------- -------------- -------------- --------------
Current assets
Cash and cash equivalents 15,612 24,578 31,342
Other current assets 41,864 35,631 44,184
57,476 60,209 75,526
------------------------------------- -------------- -------------- --------------
Current liabilities
Borrowings (a) 31,689 42,790 66,147
Other current liabilities 32,163 18,211 21,414
63,852 61,001 87,561
------------------------------------- -------------- -------------- --------------
Non-current liabilities
Borrowings (a) 191,496 196,434 177,239
Other non-current liabilities 31,854 13,098 34,431
223,350 209,532 211,670
------------------------------------- -------------- -------------- --------------
Net assets 115,384 102,960 121,724
------------------------------------- -------------- -------------- --------------
(a) On 6 December 2010, KS GOK LLC ('K&S'), a subsidiary of
IRC, entered into a US$400 million Engineering Procurement and
Construction Contract with China National Electric Engineering
Corporation for the construction of the Group's mining operations
at K&S. On 13 December 2010, K&S entered into a project
finance facility agreement with the Industrial and Commercial Bank
of China Limited ('ICBC') (the 'ICBC Facility Agreement') pursuant
to which ICBC would lend US$340 million to K&S to be used to
fund the construction of the Group's mining operations at K&S
in time for the start of major construction works in early 2011.
Interest under the facility was charged at 2.80% above London
Interbank Offering rate ('LIBOR') per annum. The facility is
guaranteed by the Company (notes 20) and is repayable semi-annually
in 16 instalments US$21.25 thousand each, starting from December
2014 and is fully repayable by June 2022. ICBC has agreed to
restructure two repayment instalments originally due for payment on
20 June 2017 and 20 December 2017 in an aggregate amount of US$42.5
million evenly into five subsequent semi-annual repayment
instalments as such each of the repayment instalment due on 20 June
2018, 20 December 2018, 20 June 2019, 20 December 2019 and 20 June
2020 is increased by US$8.5 million to an amount equal to US$42.5
million. The outstanding loan principal was US$233.75 million as at
30 June 2017 (30 June 2016: US$255 million and 31 December 2016:
US$233.75 million). The loan is carried at amortised cost with
effective interest rate at 6.3% per annum. In January 2016, IRC
placed US$28.3 million in order to replenish the DSRA level
pursuant to the security deposit agreement. In accordance with the
waiver and consent letter dated 19 April 2016, which conditions
precedent were satisfied on 21 June 2016, ICBC waived the
restriction on withdrawing from the DSRA for the repayment of the
ICBC loan and related interest and the requirement of IRC to
maintain the DSRA until 30 June 2018. Accordingly, balance of
US$1.98 million remained in the DSRA as at 30 June 2017 without
replenishment. ICBC Facility Agreement contains certain financial
covenants to which ICBC has agreed to grant a waiver until 31
December 2017, inclusive. As at 30 June 2017 and 31 December 2016,
the Group's entire 31.1% ownership in the issued capital of IRC was
pledged to ICBC as security for the obligations of the Company as
guarantor and in consideration for the waiver of financial
covenants under the ICBC facility.
IRC IRC IRC
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
----------------------------------- ------------- ------------- -----------------------------
Revenue 51,253 16,147 16,467
Net operating expenses (51,048) (26,734) (34,503)
----------------------------------- ------------- ------------- -----------------------------
including
Depreciation (4,017) (433) (1,155)
Impairment of mining assets (243) - -
Impairment of ore stockpiles - - (841)
Impairment of investments in joint
ventures (4) (147) (47)
Foreign exchange losses (306) (2,300) (3,440)
----------------------------------- ------------- ------------- -----------------------------
Investment income 65 276 413
Interest expense (9,739) (635) (1,189)
Taxation (64) 1,002 (315)
----------------------------------- ------------- ------------- -----------------------------
Loss for the period (9,533) (9,944) (19,127)
----------------------------------- ------------- ------------- -----------------------------
Other comprehensive profit 355 1,254 1,555
Total comprehensive loss (9,178) (8,690) (17,572)
----------------------------------- ------------- ------------- -----------------------------
- 12. Inventories
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
--------------------------------- -------- -------- ------------
Current
Construction materials 6,031 5,923 5,072
Stores and spares 59,303 51,984 57,699
Ore in stockpiles (a), (c) 33,175 22,475 17,104
Gold in circuit 40,887 66,583 70,996
Deferred stripping costs 34,250 24,177 26,187
Bullion in process 1,861 1,530 1,189
Other 5,262 14,287 5,019
--------------------------------- -------- -------- ------------
180,769 186,959 183,266
--------------------------------- -------- -------- ------------
Non-current
Ore in stockpiles (a), (b), (c) 51,857 54,459 51,686
Deferred stripping costs 16,632 - -
68,489 54,459 51,686
--------------------------------- -------- -------- ------------
(a) Note 5.
(b) Ore in stockpiles that is not planned to be processed within
twelve months after the reporting period.
(c) As at 30 June 2017, ore in stockpiles include balances in
the aggregate of US$17.8 million carried at net realisable value
(31 December 2016: US$45.5 million, 30 June 2016: US$16.0
million).
- 13. Trade and other receivables
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
----------------------- -------- -------- ------------
VAT recoverable 32,596 30,812 30,265
Advances to suppliers 14,478 8,959 11,394
Trade receivables 5,109 5,942 6,160
Other debtors 22,946 17,091 41,917
----------------------- -------- -------- ------------
75,129 62,804 89,736
----------------------- -------- -------- ------------
- 14. Cash and cash equivalents
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
-------------------------- -------- -------- ------------
Cash at bank and in hand 32,512 18,155 10,284
Short-term bank deposits 159 156 2,358
32,671 18,311 12,642
-------------------------- -------- -------- ------------
- 15. Derivative financial instruments
30 June 2017 30 June 2016 31 December 2016
-------------------- -------------------- --------------------
Assets Liabilities Assets Liabilities Assets Liabilities
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Forward gold contracts - cash flow hedge (a),
(b), (c) 661 (7,873) - (6,885) 7,478 -
Call Option over the Company's shares (d) - (2,965) - - - (3,064)
Conversion option (e), (f) - (13,100) - (16,190) - (7,250)
661 (23,938) - (23,075) 7,478 (10,314)
(a) Forward contracts to sell an aggregate of 500,002 ounces of
gold at an average price of US$1,252 per ounce are outstanding as
at 30 June 2017 (30 June 2016: 118,723 ounces at an average price
of US$1,269 per ounce, 31 December 2016: 50,006 ounces of gold at
an average price of US$1,303 per ounce).
(b) Measured at fair value and considered as Level 2 of the fair
value hierarchy which valuation incorporates the following
inputs:
- gold forward curves observable at quoted intervals; and
- observable credit spreads.
(c) The hedged forecast transactions are expected to occur at
various dates during the period to December 2019.
Gain and losses recognised in the hedging reserve in equity as
at the reporting date will be recognised in the income statement in
the periods during which the hedged gold sale transactions affect
the income statement.
There was no ineffectiveness to be recorded from the cash flow
hedge during the six months ended 30 June 2017 and 2016 and the
year ended 31 December 2016.
(d) Cash settled call option issued in relation to 3.6 per cent.
of the outstanding aggregate ordinary share capital in the Company
exercisable between December 2019 and March 2023 at strike price of
GBP0.068.
(e) Note 17.
(f) Measured at fair value and considered as Level 2 of the fair
value hierarchy which valuation incorporates the following
inputs:
- the Group's credit risk;
- historic share price volatility;
- the conversion price;
- time to maturity; and
- risk free rate.
- 16. Trade and other payables
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
Trade payables 22,656 36,014 25,068
Advances from customers 511 1,847 2,148
Advances received on resale and commission
contracts (a) 2,363 9,715 1,847
Accruals and other payables 33,240 27,924 26,575
58,770 75,500 55,638
(a) Amounts included in advances received on resale and
commission contracts at 30 June 2017, 30 June 2016 and 31 December
2016 relate to services performed by the Group's subsidiary,
Irgiredmet, in its activity to procure materials such as reagents,
consumables and equipment for third parties.
The Directors consider that the carrying amount of trade and
other payables approximates their fair value.
- 17. Borrowings
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
Borrowings at amortised cost
Convertible Bonds (a), (b) 89,885 86,867 88,369
Bank loans (c) 512,900 529,075 522,843
602,785 615,942 611,212
85,306
Amount due for settlement within 12 months 53,713 344,159 (c)
Amount due for settlement after 12 months 549,072 271,783 525,906
602,785 615,942 611,212
(a) Liability component of the US$100 million Convertible Bonds
due on 18 March 2020, measured at amortised cost. The interest
charged was calculated by applying an effective interest rate of
13.89% to the liability component.
The conversion option of the US$100 million Convertible Bonds
represents the fair value of the embedded option for the
bondholders to convert into the equity of the Company ("the
Conversion Right"). As the Company can elect to pay the cash value
in lieu of delivering the Ordinary Shares following the exercise of
the Conversion Right, the conversion option is a derivative
liability. Accordingly, the conversion option is measured at fair
value and is presented separately within derivative financial
liabilities. [If the Company's share price exceeds 150% of the
strike price then the Company will have the right to repay the
Convertible Bonds early, therefore the fair value of the conversion
option is capped.]
(b) As at 30 June 2017, the fair value of debt component of the
convertible bonds, considered as Level 2 of the fair value
hierarchy, amounted to US$100.4 million (30 June 2016: US$95.2
million, 31 December 2016: US$97.3 million). Valuation incorporates
the following inputs: the Group's credit risk, time to maturity and
risk free rate.
As at 30 June 2017, the fair value of the Convertible Bonds,
considered as Level 1 of the fair value hierarchy and calculated by
applying the market traded price to the convertible bonds
outstanding, amounted to US$113.5 million (30 June 2016: US$110.0
million, 31 December 2016: US$103.9 million).
(c) The carrying value of the bank loans approximated their fair value at each period end.
- 18. Share capital
30 June 2017 30 June 2016 31 December 2016
No of shares US$'000 No of shares US$'000 No of shares US$'000
Allotted, called up
and fully paid
At the beginning of
the period 3,303,768,532 48,920 3,300,561,697 48,874 3,300,561,697 48,874
Issued during the period - - 3,206,835 46 3,206,835 46
At the end of the period 3,303,768,532 48,920 3,303,768,532 48,920 3,303,768,532 48,920
The Company has one class of ordinary shares which carry no
right to fixed income.
- 19. Notes to the cash flow statement
Reconciliation of profit before tax to operating cash flow
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
US$'000 US$'000 US$'000
----------- ----------- -------------
Profit before tax 46,764 4,785 27,008
Adjustments for:
Share of results of associates 2,965 3,563 3,581
Investment income (386) (200) (556)
Interest expense 14,448 30,479 60,976
Other finance gains (2,045) (2,334) (11,976)
Other finance losses 6,138 1,506 1,548
Share based payments - 140 140
Depreciation 47,967 59,289 105,252
Impairment of exploration and evaluation
assets - - 9,155
(Reversal of impairment)/ impairment of
ore stockpiles (6,347) (12,267) 1,163
Impairment of gold in circuit 1,440 - -
Effect of processing previously impaired
stockpiles (9,900) (7,536) (7,536)
Provision for impairment of trade and
other receivables 348 141 282
(Gain)/loss on disposals of property,
plant and equipment (380) 2,148 2,431
Loss/(gain) on disposal of subsidiaries - 791 (791)
Foreign exchange losses 504 5,883 5,158
Impairment of non-trading loans 538 - -
Gain on disposal of non-trading loans - - (6,724)
Other non-cash items 246 (1,223) 177
Changes in working capital:
Decrease/(increase) in trade and other
receivables 11,493 (2,066) (25,828)
Decrease in inventories 415 7,922 298
Increase/(decrease) in trade and other
payables 1,585 (16,671) (37,745)
----------- -------------
Net cash generated from operations 115,793 74,350 126,013
----------- -------------
Non-cash transactions
There were no significant non-cash transactions during the six
months ended 30 June 2017 and 30 June 2016 and the year ended 31
December 2016.
- 20. Related parties
Related parties the Group entered into transactions with during
the reporting period
PJSC Asian-Pacific Bank ('Asian-Pacific Bank'), LLC Insurance
Company Helios Reserve ('Helios') and Peter Hambro Limited are
considered to be related parties as members of key management have
an interest in and collectively exercise significant influence over
these entities until 22 June 2017 when the Group lost significant
influence over these companies.
The Petropavlovsk Foundation for Social Investment (the
'Petropavlovsk Foundation') is considered to be a related party due
to the participation of the key management of the Group in the
governing board of the Petropavlovsk Foundation and their presence
in its board of guardians.
IRC Limited and its subsidiaries are associates to the Group and
hence are related parties since 7 August 2015.
Transactions with related parties the Group entered into during
the six months ended 30 June 2017 and 30 June 2016 and the year
ended 31 December 2016 are set out below.
Trading Transactions
Related party transactions the Group entered into that relate to
the day-to-day operation of the business are set out below.
Sales to related parties Purchases from related
parties
Six Six months
Six months months Year Six months ended
ended ended ended ended 30 June Year ended
30 June 30 June 31 December 30 June 2016 31 December
2017 2016 2016 2017 US$'000 2016
US$'000 US$'000 US$'000 US$'000 US$'000
Asian-Pacific Bank
Other 3 12 22 35 39 102
3 12 22 35 39 102
Trading transactions with other
related parties
Insurance arrangements with
Helios, rent and other
transactions
with other entities in which
key management have interest
and exercises a significant
influence or control - 98 66 836 1,786 3,514
Associates
IRC Limited and its subsidiaries 43 24 69 1,559 950 1,996
43 122 135 2,395 2,736 5,510
During the six months ended 30 June 2017, the Group made US$0.1
million charitable donations to the Petropavlovsk Foundation (six
months ended 30 June 2016: US$0.1 million and year ended 31
December 2016: US$0.2 million).
The outstanding balances with related parties at 30 June 2017,
30 June 2016 and 31 December 2016 are set out below.
Amounts owed by related Amounts owed to related
parties parties
30 June 30 June 31 December 30 June 30 June 31 December
2017 2016 2016 2017 2016 2016
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Helios and other entities
in which key management have
interest and exercises a significant
influence or control (b) 233 1,318 1,383 - - 1
Asian-Pacific Bank (b) - - 1 - - -
IRC Limited and its subsidiaries 2,072 2,073 14,502(a) 1,626 1,320 1,704
2,305 3,391 15,886 1,626 1,320 1,705
(a) Including US$12.5 million advanced to IRC in December 2016.
This balance was fully repaid in January 2017.
(b) PJSC Asian-Pacific Bank ("Asian-Pacific Bank"), LLC
Insurance Company Helios Reserve ("Helios") and Peter Hambro
Limited ceased being related parties to the Group from 22 June
2017.
Banking arrangements
The Group has current and deposit bank accounts with
Asian-Pacific Bank.
The bank balances at 30 June 2017, 30 June 2016 and 31 December
2016 are set out below.
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
Asian-Pacific Bank -(c) 2,739 629
(c) PJSC Asian-Pacific Bank ("Asian-Pacific Bank") ceased being
related party to the Group from 22 June 2017.
Financing transactions
The Group has charged a fee for the provision of the guarantee
to IRC (note 11), equal to 1.75% on the outstanding loan amount
under the ICBC Facility Agreement and which amounted to US$2.0
million during the six months ended 30 June 2017 (six months ended
30 June 2016: US$2.3 million; year ended 31 December 2016: US$4.5
million). The Guarantee fee outstanding amounted to US$5.5 million
(31 December 2016: US$3.4 million).
Key management compensation
Key management personnel, comprising a group of 14 (30 June
2016: 15 and 31 December 2016: 15) individuals, including Executive
and Non-Executive Directors of the Company and members of senior
management, are those having authority and responsibility for
planning, directing and controlling the activities of the
Group.
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
Wages and salaries 4,872 2,744 6,103
Pension costs 86 96 182
Share-based compensation - 140 610
4,958 2,980 6,895
- 21. Analysis of net debt
At 1 January Net cash Exchange Non-cash At 30 June
2017 movement movement changes 2017
US$'000 US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents 12,642 20,004 25 - 32,671
Borrowings (611,212) 38,607 - (30,180) (602,785)
(30,180)
Net debt (598,570) 58,611 25 (a) (570,114)
(a) Being amortisation of borrowings and the effect of the bank
debt refinancing (note 17).
At 1 January Disposal Net cash Exchange Non-cash At 31 December
2016 of subsidiaries Movement movement changes 2016
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------- ---------
28,239
Cash and cash equivalents (a) (99) (18,329) 2,831 - 12,642
Borrowings (638,278) - 84,710 173 (57,817) (611,212)
(57,817)
Net debt (610,039) (99) 66,381 3,004 (b) (598,570)
---------- --------- ---------------
(a) Including US$15.1 million received under investment
agreement with the Russian Ministry of Far East Development (note
22).
(b) Being amortisation of borrowings and the effect of the bank
debt refinancing (note 17).
- 22. Capital commitments
At 30 June 2017, the Group had entered into contractual
commitments for the acquisition of property, plant and equipment
and mine development costs in relation to POX Hub project amounting
to US$12.7 million (30 June 2016: US$1.0 million, 31 December 2016:
US$3.8 million).
Investment agreement with the Russian Ministry of Far East
Development
On 14 December 2015, the Group entered into an investment
agreement with the Russian Ministry of Far East Development (the
'Investment Agreement'). The Investment Agreement involves
provision of RUB5.5 billion (an equivalent to c.US$91 million as at
31 December 2016) funding towards the construction of the
electricity power line in the North-East of the Amur Region of
Russia, where the Group's Albyn and Malomir mines and adjacent
licence areas are operated, during the period 2015 - 2019. The
funds are advanced to the Group and then should be transferred to
the joint-stock company Far East Grid Distribution Company
('DRSK'), who is to engage a contractor to build the relevant power
supply infrastructure. The Group's responsibility under the
Investment Agreement will be to monitor the progress and to report
to the Russian Ministry of Far East Development. The Group will be
taking ultimate responsibility for the construction of the power
line. Upon completion, the Group will get access to the enhanced
capacity of the power supply infrastructure in the region. Under
the terms of the Investment Agreement, the Group has certain
capital commitments, including further development of Albyn and
Malomir mines.
As at 31 December 2015, the Group received RUB1.1 billion (an
equivalent to US$15.1 million) funds under the Investment
Agreement. During 2016, the Group received further RUB2.0 billion
(an equivalent to US$30.8 million) under the Investment Agreement
and transferred an aggregate RUB3.1 billion (an equivalent to
US$47.7 million) to DRSK. During the six months ended 30 June 2017
the Group did not receive and made no transfers of funds under the
Investment Agreement.
23. Contingent liabilities
The Group applies a two years mining tax concession since 1 July
2016 in its capacity of a participant to the Regional investment
project in accordance with the Russian Federal Law 144-FZ dated 25
May 2016. The position of the Russian tax authorities is that the
effective date for the aforementioned concession should be 1
January 2017 and, accordingly, the Group should be liable for the
mining tax of approximately RUB1 billion (an equivalent of
approximately US$16.9 million as at 30 June 2017) for the six month
period to 31 December 2016. The matter is currently being
considered by the courts. To date decisions made by the Tribunal
which took place in May 2017 and the Court of Appeal which took
place in August 2017 have not been in favour of the Group. The
Group continues to consider its interpretation of relevant tax
legislation and tax filing position are appropriate and has filed
an appeal to the Cassation Court accordingly.
- 24. Reconciliation of non-GAAP measures (unaudited)
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
-------------- -------------
Profit for the period 24,459 9,223 31,706
Add/(less):
Investment income (386) (200) (556)
Interest expense 14,448 30,479 60,976
Other finance gains (2,045) (2,334) (11,976)
Other finance losses 6,138 1,506 1,548
Foreign exchange losses 504 5,883 5,158
Taxation 22,305 (4,438) (4,698)
Depreciation 47,967 59,289 105,252
Impairment of exploration and evaluation
assets - - 9,155
(Reversal of impairment)/ impairment
of ore stockpiles (6,347) (12,267) 1,163
Impairment of gold in circuit 1,440 - -
Impairment of non-trading loans 538 - -
Share in results of associates (a) 5,096 894 2,356
Underlying EBITDA 114,117 88,035 200,084
-------------- -------------
(a) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange losses, taxation,
depreciation and impairment recognised by an associate (note
11).
Note: figures in this release may not add up due to rounding
The Use and Application of Alternative Performance Measures
(APMs)
Throughout this release, when discussing the Group's financial
performance, reference is made to APMs.
Each of the APMs is defined and calculated by the Group and as
such they are non-IFRS measures because they may include or exclude
certain items that an IFRS measure ordinarily would or would not
take into account. APMs should not be regarded as an alternative or
substitute for the equivalent measures calculated and presented in
accordance with IFRS but instead should be seen as additional
information provided to investors to enable the comparison of
information between different reporting periods of the Group.
Although the APMs used by the Group may be calculated in a
different manner and defined differently by other peers in the
precious metals mining sector (despite being similar in title),
they are nonetheless relevant and commonly used measures for the
industry in which Petropavlovsk operates. These and similar
measures are used widely by certain investors, analysts and other
interested parties as supplemental measures of financial
performance.
Some of the APMs form part of the Group's Key Performance
Indicators (KPIs), which are used to monitor progress and
performance against strategic objectives and to benchmark the
performance of the business each year.
A discussion of the relevance of each APM as well as a
description of how they are calculated is set out below, with
reconciliation to IFRS equivalents from the consolidated IFRS
financial statements (Consolidated Income Statement (IS),
Consolidated Balance Sheet (BS), Consolidated Cash Flows Statement
(CF) and the notes to the consolidated IFRS financial
statements).
Total Cash Costs (TCC)
Definition
The total cash cost per ounce is the cost of producing and
selling an ounce of gold from the Group's four hard-rock
operations.
Calculation
TCC are calculated by the Group as operating cash costs less
co-product revenue. TCC per oz are calculated as total cash costs
divided by the ounces of gold sold. TCC per oz are presented on a
segment basis.
Operating cash costs are defined by the Group as operating cash
expenses plus refinery and transportation costs, other taxes,
mining tax and the amortisation of deferred stripping costs. This
also equates to the Group's segment result as reported under IFRS
plus each segment's share of results of associates, loss/gain on
disposal of subsidiaries, impairment of ore stockpiles and gold in
circuit, impairment of exploration and evaluation assets,
impairment of mining assets, impairment of non-trading loans,
central administration expenses and depreciation, minus each
segment's revenue from external customers. Operating cash costs are
presented on a segment basis.
Operating cash expenses are defined by the Group as the total of
staff costs, materials, fuel, electricity, other external services,
other operating expenses, and the movement in ore stockpiles, work
in progress and bullion in process attributable to gold production
(excluding deferred stripping costs). The main cost drivers
affecting operating cash expenses are stripping ratios, production
volumes of ore mined / processed, recovery rates, cost inflation
and fluctuations in the rouble to US dollar exchange rate.
Other companies may calculate this measure differently.
Relevance
The Group closely monitors its current and projected costs to
track and benchmark the ongoing efficiency and effectiveness of its
operations. This monitoring includes analysing fluctuations in the
components that operating cash costs and cost per tonne mined and
processed to identify where and how efficiencies may be made.
Reconciliation
The tables below provide a reconciliation between operating
expenses and total cash costs to calculate the cash cost per ounce
sold for relevant periods.
H1 2017 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- ---------
Operating expenses IS 236,165
Deduct:
Foreign exchange note
losses 5 (504)
note
Depreciation 5 (47,967)
Reversal of impairment note
of ore stockpiles 5 6,347
Impairment of gold note
in circuit 5 (1,440)
Impairment of non-trading note
loans 5 (538)
Central administration note
expenses 5 (23,095)
---------- ------------- ---------- -------- ----------- ---------
note
Operating cash costs 4 66,632 19,897 32,762 37,897 11,780 168,968
Deduct:
Corporate and other note
segment 4 - - - - (11,780) (11,780)
note
Deduct: silver revenue 4 (548) (89) (35) (134) - (806)
---------- ------------- ---------- -------- ----------- ---------
Total cash costs 66,084 19,808 32,727 37,763 - 156,382
---------- ------------- ---------- -------- ----------- ---------
Total ounces sold oz 94,690 15,402 28,700 92,967 231,760
Total cash cost per
ounce sold US$/oz 698 1,286 1,140 406 675
H1 2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- ---------
Operating expenses IS 216,154
Deduct:
Foreign exchange note
losses 5 (5,883)
note
Depreciation 5 (59,289)
Reversal of impairment note
of ore stockpiles 5 12,267
Loss on disposal note
of subsidiaries 5 (791)
Central administration note
expenses 5 (13,096)
---------- ------------- ---------- -------- ----------- ---------
note
Operating cash costs 4 41,809 14,038 22,687 51,860 18,968 149,362
Deduct:
Corporate and other note
segment 4 - - - - (18,968) (18,968)
note
Deduct: silver revenue 4 (459) (105) (56) (124) - (744)
---------- ------------- ---------- -------- ----------- ---------
Total cash costs 41,350 13,933 22,631 51,736 - 129,650
---------- ------------- ---------- -------- ----------- ---------
Total ounces sold oz 71,095 17,200 24,693 82,447 195,434
Total cash cost per
ounce sold US$/oz 582 810 917 628 663
FY2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- ----------
Operating expenses IS 460,103
Deduct:
Foreign exchange note
losses 5 (5,158)
note
Depreciation 5 (105,252)
Impairment of ore note
stockpiles 5 (1,163)
Impairment of exploration note
and evaluation assets 5 (9,155)
Gain on disposal note
of non-trading loans 5 6,724
Gain on disposal note
of subsidiaries 5 791
Central administration note
expenses 5 (32,623)
---------- ------------- ---------- -------- ----------- ----------
note
Operating cash costs 4 85,273 33,777 45,243 100,979 48,995 314,267
Deduct:
Corporate and other note
segment 4 - - - - (48,995) (48,995)
note
Deduct: silver revenue 4 (958) (275) (101) (207) - (1,541)
---------- ------------- ---------- -------- ----------- ----------
Total cash costs 84,315 33,502 45,142 100,772 - 263,731
---------- ------------- ---------- -------- ----------- ----------
Total ounces sold oz 133,605 38,151 54,760 173,342 399,858
Total cash cost per
ounce sold US$/oz 631 878 824 581 660
All in Sustaining Costs (AISC)
Definition
AISC includes both operating and capital costs required to
sustain gold production on an ongoing basis, over and above the
direct mining and selling costs shown by TCC.
Calculation
AISC are calculated by the Group as TCC plus/(minus)
impairment/(reversal of impairment) of ore stockpiles and gold in
circuit, central administration expenses, plus capitalised
stripping at end of the period, less capitalised stripping at
beginning of the period, plus close-down and site restoration and
sustaining capital and exploration expenditure. This is then
divided by the ounces of gold sold. AISC are presented on a segment
basis.
AISC are calculated in accordance with guidelines for reporting
AISC as published by the World Gold Council in June 2013. Other
companies may calculate this measure differently.
Relevance
AISC allows for a better understanding of the true cost of
producing gold once key components such as central admin costs and
the cost of sustaining capital and exploration expenditure are
taken into account. Management uses this measure to monitor the
performance of our assets and their ability to generate positive
cash flows.
Reconciliation
The tables below provide a reconciliation between total cash
costs and all-in sustaining costs to calculate all-in sustaining
cost per ounce sold for relevant periods.
H1 2017 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
Total cash costs 66,084 19,808 32,727 37,763 - 156,382
Add:
(Reversal of impairment)/
impairment of ore note
stockpiles 5 (828) 63 275 (3,616) - (4,106)
Impairment of gold note
in circuit 5 - 807 633 - - 1,440
Central administration note
expenses 5 9,436 1,535 2,860 9,264 - 23,095
note
Net capitalised stripping 12 - - 3,185 21,510 - 24,695
Site restoration
costs 50 101 163 432 - 746
Sustaining exploration
expenditures 1,874 - 2,427 2,947 - 7,248
Sustaining capital
expenditures 10,019 89 1,442 2,568 - 14,118
All-in sustaining
costs 86,635 22,403 43,712 70,868 - 223,618
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 94,690 15,402 28,700 92,967 231,760
All-in sustaining
costs per ounce sold US$/oz 915 1,454 1,523 762 965
H1 2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
Total cash costs 41,350 13,933 22,631 51,736 - 129,650
Add:
Reversal of impairment note
of ore stockpiles 5 (2,298) (631) (106) (1,003) - (4,038)
Central administration note
expenses 5 4,764 1,153 1,655 5,524 - 13,096
note
Net capitalised stripping 12 5,161 - 1,199 (164) - 6,196
Site restoration
costs 27 9 24 27 - 87
Sustaining capital
expenditures 1,234 32 645 2,011 - 3,922
All-in sustaining
costs 50,238 14,496 26,048 58,131 - 148,913
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 71,095 17,200 24,693 82,447 195,434
All-in sustaining
costs per ounce sold US$/oz 707 843 1,055 705 762
FY2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
Total cash costs 84,315 33,502 45,142 100,772 - 263,731
Add:
Impairment/ (reversal
of impairment) of note
ore stockpiles 5 6,301 1,002 (30) (123) - 7,150
Central administration note
expenses 5 10,900 3,113 4,468 14,142 - 32,623
note
Net capitalised stripping 12 - - 3,610 4,596 - 8,206
Site restoration
costs 54 19 48 54 - 175
Sustaining capital
expenditures 3,902 61 1,724 5,209 - 10,896
All-in sustaining
costs 105,472 37,697 54,962 124,650 - 322,781
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 133,605 38,151 54,760 173,342 399,858
All-in sustaining
costs per ounce sold US$/oz 789 988 1,004 719 807
All in Costs (AIC)
Definition
AIC comprises of AISC as well as capital expenditures for major
growth projects or enhancement capital for significant improvements
at existing operations.
Calculation
AIC are calculated by the Group as AISC plus non-sustaining
exploration and capital expenditure and (reversal of
impairment)/impairment of refractory ore stockpiles. This is then
divided by the ounces of gold sold. AIC are presented on a segment
basis.
AIC is calculated in accordance with guidelines for reporting
AIC as published by the World Gold Council in June 2013. Other
companies may calculate this measure differently.
Relevance
AIC reflect the costs of producing gold over the life-cycle of a
mine.
Reconciliation
The tables below provide a reconciliation between all-in
sustaining costs and all-in costs to calculate all-in cost per
ounce sold for relevant periods.
H1 2017 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in sustaining
costs 86,635 22,403 43,712 70,868 - 223,618
Add:
Reversal of impairment note
of ore stockpiles 5 (2,241) - - - - (2,241)
Exploration expenditure 3,196 - 35 388 - 3,619
Capital expenditure 8,535 - 8,312 - - 16,847
All-in costs 96,125 22,403 52,059 71,256 - 241,843
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 94,690 15,402 28,700 92,967 231,760
All-in costs per
ounce sold US$/oz 1,015 1,454 1,814 766 1,044
H1 2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in sustaining
costs 50,238 14,496 26,048 58,131 - 148,913
Add:
Reversal of impairment note
of ore stockpiles 5 (2,432) - (5,797) - - (8,229)
Exploration expenditure 3,292 31 1,201 3,032 - 7,556
Capital expenditure 226 - 182 1 - 409
All-in costs 51,324 14,527 21,634 61,164 - 148,649
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 71,095 17,200 24,693 82,447 195,434
All-in costs per
ounce sold US$/oz 722 845 876 742 761
FY2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in sustaining
costs 105,472 37,697 54,962 124,650 - 322,781
Add:
Reversal of impairment note
of ore stockpiles 5 (191) - (5,796) - - (5,987)
Exploration expenditure 8,455 76 1,887 6,172 - 16,590
Capital expenditure 1,037 - 836 1 - 1,874
All-in costs 114,773 37,773 51,889 130,823 - 335,258
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 133,605 38,151 54,760 173,342 399,858
All-in costs per
ounce sold US$/oz 859 990 948 755 838
Average Realised Gold Sales Price
Definition
The average realised gold sales price is the mean price at which
the Group sold its gold production output throughout the reporting
period, including the realised effect of cash flow hedge contracts
during the period.
Calculation
The average realised gold sales price is calculated by dividing
total revenue received from gold sales (including the realised
effect of any hedging contracts) by the total quantity of gold sold
during the period. Other companies may calculate this measure
differently.
Relevance
As gold is the key commodity produced and sold by the Group, the
average realised gold sales price is a key driver behind the
Group's revenues and profitability.
Reconciliation
The average realised gold price has been calculated as set out
in the table below.
Ref H1 2017 H1 2016 FY2016
-------- -------- --------
note
Gold revenue 4 US$' 000 290,846 233,424 488,468
Gold sold ounces 231,760 195,434 399,858
-------- --------
Average realised gold
price US$/oz 1,255 1,194 1,222
-------- --------
Capital Expenditure (CAPEX)
Definition
CAPEX is the investment required by the Group to explore and
develop its gold assets and keep current plants and other equipment
at its gold mines in good working order.
Calculation
CAPEX represents cash flows used in investing activities, namely
Purchases of property, plant and equipment and Exploration
expenditure.
Relevance
Capital expenditure is necessary in order not only to maintain
but also to develop and grow the business. Capex requirements need
to be balanced in line with the Group's strategy and provide an
optimal allocation of the Group's funds.
Reconciliation
The table below provides a reconciliation between capital
expenditure and cash flows used in investing activities.
Ref H1 2017 H1 2016 FY2016
US$' 000 US$' 000 US$' 000
---------- ---------- -----------
Purchase of property,
plant and equipment CF 30,965 4,331 12,770
Exploration expenditure CF 10,867 7,556 16,590
---------- -----------
Total capital expenditure 41,832 11,887 29,360
---------- -----------
Net Debt
Definition
Net Debt shows how indebted a company is after total debt and
any cash (or its equivalent) are netted off against each other.
Calculation
Net Debt is calculated as the sum of current borrowings and
non-current borrowings less cash and cash equivalents. Other
companies may calculate this measure differently.
Relevance
Management considers Net Debt a key measure of the Company's
leverage and its ability to repay debt as well showing what
progress is being made in strengthening the balance sheet. The
measure is also used by investors and the Group's lenders in
calculating financial covenants, including Net Debt / EBITDA.
Reconciliation
The table below provides calculation of net debt at relevant
reporting dates.
Ref 30 June 2017 31 December
US$' 000 2016
US$' 000
----- ------------- -------------
Cash and cash equivalents BS 32,671 12,642
Borrowings BS (602,785) (611,212)
----- -------------
Net debt (570,114) (598,570)
-------------
Underlying EBITDA
Definition
EBITDA is a common measure used to assess profitability without
the impact of different financing methods, tax, asset depreciation
and amortisation of intangibles and items of an exceptional /
non-recurring nature, or those that could make comparison of
results from prior periods less meaningful.
Calculation
Underlying EBITDA is calculated as profit/(loss) for the period
before financial income, financial expenses, foreign exchange gains
and losses, fair value changes, taxation, depreciation and
impairment charges. Other companies may calculate this measure
differently.
Relevance
Underlying EBITDA is an indicator of the Group's ability to
generate operating cash flows, which are the source of funding for
the Group's working capital requirements, capital expenditure and
debt service obligations. The measure is also used by investors and
the Group's lenders in calculating financial covenants, including
Net Debt / EBITDA and EBITDA / Finance Costs.
Reconciliation
The tables below provide reconciliations between net profit and
Underlying EBITDA as well as reconciliation between operating
profit and Underlying EBITDA for relevant periods.
Ref H1 2017 H1 2016 FY2016
US$'000 US$'000 US$'000
--------- ---------
Profit for the period IS 24,459 9,223 31,706
Add/(less):
Investment income IS (386) (200) (556)
Interest expense IS 14,448 30,479 60,976
Other finance gains IS (2,045) (2,334) (11,976)
Other finance losses IS 6,138 1,506 1,548
Foreign exchange losses note 5 504 5,883 5,158
Taxation IS 22,305 (4,438) (4,698)
Depreciation note 5 47,967 59,289 105,252
Impairment of exploration
and evaluation assets note 5 - - 9,155
(Reversal of impairment)/
impairment of ore stockpiles note 5 (6,347) (12,267) 1,163
Impairment of gold in circuit note 5 1,440 - -
Impairment of non-trading note 5
loans 538 - -
Share in results of associates
(a) note 11 5,096 894 2,356
Underlying EBITDA 114,117 88,035 200,084
--------- ---------
Corporate Consolidated
H1 2017 Pioneer Pokrovskiy Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- ---------- ------------- ---------- -------- ----------- -------------
Operating profit IS 64,919
Foreign exchange
losses note 5 504
Segment result note 4 41,008 (4,722) (5,148) 60,298 (26,013) 65,423
Add/ (less):
notes
Depreciation 4,5 14,933 3,394 7,450 22,158 32 47,967
(Reversal of impairment)
/
impairment of ore notes
stockpiles 4,5 (3,069) 63 275 (3,616) - (6,347)
Impairment of gold notes
in circuit 4,5 - 807 633 - - 1,440
Impairment of non-trading notes
loans 4,5 - - - - 538 538
Share in results
of associates (a) note 11 5,096 5,096
--------- ---------- ------------- ---------- -------- ----------- -------------
Underlying EBITDA 52,872 (458) 3,210 78,840 (20,347) 114,117
---------- ------------- ---------- -------- ----------- -------------
Corporate Consolidated
H1 2016 Pioneer Pokrovskiy Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- ---------- ------------- ---------- -------- ----------- -------------
Operating profit IS 34,236
Foreign exchange
losses note 5 5,883
Segment result note 4 26,317 4,068 4,474 22,134 (16,874) 40,119
Add/ (less):
notes
Depreciation 4,5 21,899 3,136 8,414 25,599 241 59,289
Reversal of impairment notes
of ore stockpiles 4,5 (4,730) (631) (5,903) (1,003) - (12,267)
Share in results
of associates (a) note 11 894 894
--------- ---------- ------------- ---------- -------- ----------- -------------
Underlying EBITDA 43,486 6,573 6,985 46,730 (15,739) 88,035
---------- ------------- ---------- -------- ----------- -------------
Corporate Consolidated
FY2016 Pioneer Pokrovskiy Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ----------------- ----------------- --------------------- --------------------- ---------------------- -----------------
Operating
profit IS 77,000
Foreign
exchange
losses note 5 5,158
Segment
result note 4 34,313 5,602 14,159 55,622 (27,538) 82,158
Add/ (less):
notes
Depreciation 4,5 38,776 6,586 13,632 45,729 529 105,252
Impairment of
exploration
and
evaluation notes
assets 4,5 - - - 9,155 - 9,155
Impairment/
(reversal
of
impairment)
of ore notes
stockpiles 4,5 6,110 1,002 (5,826) (123) - 1,163
Share in
results
of
associates note
(a) 11 2,356 2,356
------- ----------------- ----------------- --------------------- --------------------- ---------------------- -----------------
Underlying EBITDA 79,199 13,190 21,965 110,383 (24,653) 200,084
----------------- ----------------- --------------------- --------------------- ---------------------- -----------------
(a) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange losses, taxation,
depreciation and impairment recognised by an associate
-------------------------------------------------------------------------------------------------------------------------------------------------------
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014.
Cautionary note on 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 future price of gold, the Group's results
of operations, financial position, liquidity, prospects, growth,
estimation of mineral reserves and resources and strategies, and
exchange rates and the expectations of the industry.
By their nature, forward-looking statements involve risk and
uncertainty because they relate to future events and circumstances
[outside the control of the Group. 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 results and/or developments to differ materially from those
expressed or implied by the forward-looking statements including,
without limitation, general economic and business conditions,
demand, supply and prices for gold and other long-term commodity
price assumptions (and their effect on the timing and feasibility
of future projects and developments), trends in the gold mining
industry and conditions of the international gold markets,
competition, actions and activities of governmental authorities
(including changes in laws, regulations or taxation), currency
fluctuations (including as between the US Dollar and Rouble), the
Group's ability to recover its reserves or develop new reserves,
changes in its business strategy, any litigation, and political and
economic uncertainty. Except as required by applicable law, rule or
regulation (including the Listing and Disclosure Guidance and
Transparency Rules), the Group does not undertake any obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
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
IR SFASIEFWSEEU
(END) Dow Jones Newswires
September 12, 2017 02:14 ET (06:14 GMT)
Petropavlovsk (LSE:POG)
Historical Stock Chart
From Jun 2024 to Jul 2024
Petropavlovsk (LSE:POG)
Historical Stock Chart
From Jul 2023 to Jul 2024