TIDMPOG
RNS Number : 6946D
Petropavlovsk PLC
30 October 2020
30 October 2020
Petropavlovsk PLC
Interim Results for the Period Ended 30 June 2020 and Third
Quarter Sales Report
Petropavlovsk PLC ("Petropavlovsk", or the "Company" and,
together with its subsidiaries, the "Group") today issues its
Interim Results for the period from 1 January 2020 to 30 June 2020
("H1 2020" or the "Period") and a Third Quarter Sales Report ("Q3
2020").
James W Cameron Jr, Petropavlovsk Chairman said : EBITDA almost
doubled from the first half of 2019 to US$193m, benefitting from
higher gold prices and increased production. Petropavlovsk has some
excellent assets with substantial opportunities. Our guiding focus
is to deliver greater value for all shareholders. This will involve
reducing costs, improving controls and raising standards of
governance across the Company.
As previously announced, over the past few months the Board and
interim CEO have encountered a lack of cooperation from certain
employees and received legal actions, which have no legal merit,
led by Sergey Ermolenko and Alexey Maslovskiy (Pavel Maslovskiy's
son).
The Board is finalising the selection of a forensic investigator
to examine all transactions in the past few years which may have
involved 'connected parties', as requested by shareholders at the
Requisitioned General Meeting on 10 August 2020.
Financial Highlights
H1 2020 H1 2019(1) % Change
-------------------------------- -------- -------- ----------- ---------
Total gold produced koz 320.6 225.0 +42%
Total gold sold koz 312.4 225.0 +39%
Avg. realised gold price US$/oz 1,640 1,286 +28%
Total Cash Costs [1] US$/oz 983 774 +27%
Total Cash Costs from
own material US$/oz 800 774 +3%
All-in Sustaining Costs US$/oz 1,220 1,029 +19%
-------------------------------- -------- -------- ----------- ---------
Group revenue (including
non-precious operations) US$m 522.7 305.3 +71%
Underlying EBITDA US$m 192.6 98.5 +96%
Operating profit US$m 146.1 2.5 n/m
(Loss) / profit for the
period US$m (22.0) 3.9 n/m
Capital expenditure US$m 59.6 45.0 +32%
Cash generated from operations
before working capital
changes US$m 183.3 85.8 +114%
Cash generated from operations US$m 172.8 55.2 +213%
(Net debt ) US$m (538.0) (561.3) (4%)
(1) All figures reflect the H1 2019 period except Net debt of
US$561.3m which was the position as at 31 December 2019
-- Total gold produced increased 42% : 320.6koz (H1 2019:
225.0koz), including 178.0koz from the processing of own and
third-party refractory gold concentrates at the POX Hub
-- Total gold sales increased 39% : 312.4koz (H1 2019: 225.0koz)
driven by the increase in gold production
-- Average realised gold price increased 28% : US$1,640/oz (H1
2019: US$1,286/oz) driven by higher gold prices and zero impact
from the Company's hedging arrangements which compares to a H1 2019
hedging loss of US$(26)/oz
-- Total Cash Costs (TCC) increased 27% : US$983/oz (H1 2019:
US$774/oz) primarily due to higher costs associated with
third-party gold concentrate
-- Total Cash Costs from own material have marginally increased
by 3% : US$800/oz (H1 2019: US$774/oz) due to lower grades of
non-refractory ore at Albyn and Malomir, lower RIP recoveries at
Malomir, inflation of certain Rouble denominated costs, and an
increase in mining tax rates from 1.2% to 6.0% at LLC Malomirskiy
Rudnik. The increase was partly offset by higher grades and
recoveries of non-refractory ore processed at Pioneer, higher
grades and recoveries of refractory ore processed at Malomir and
Rouble depreciation
-- All-in Sustaining Costs (AISC ) increased 19% : US$1,220/oz
(H1 2019: US$1,029/oz) mainly due to higher TCC as well as an
increase in capitalised stripping expenditure at both Pioneer and
Malomir
-- Group revenue (including non-precious operations) increased
71% : US$522.7m (H1 2019: US$305.3m) reflecting higher production
volumes and a higher average gold sales price
-- Underlying EBITDA ([2]) increased 96% : US$192.6m (H1 2019:
US$98.5m) due to higher revenues and partly offset by higher
TCC
-- Headline loss for the period of US$(22.0)m : compares to a
gain in H1 2019 of US$3.9m and caused by a negative non-cash
adjustment of US$(122.2)m related to a fair value loss on the
conversion option (H1 2019: US$(9.2)m) reflecting the increase in
the Company's share price
-- Capital expenditure increased by 32%: to US$59.6m (H1 2019:
US$45.0m) with expenditure focused on construction of the Pioneer
and Malomir flotation plants, Elginskoye mine development and
development work to support underground mining at Pioneer
-- Cash generated from operations increased by 213% : US$172.8m
(H1 2019: US$55.2m) driven by higher gold sales, higher gold prices
and Rouble weakness, partly offset by an increase in costs
associated with the purchase of third-party concentrates and higher
mining taxes
-- Net debt reduction : US$538.0m as at 30 June 2020 (31
December 2019: US$561.3m) principally driven by an increase in
cash
-- Gold prepays reduction : The Company continues to prioritise
settlement of the interest-bearing gold prepays which stood at
c.US$121.0m as at 30 June 2020 (US$187.4m as at 31 December 2019),
a net decrease of US$66.4m over the period
Comments from James W Cameron Jr, Chairman
This is the first report since I became Chairman of
Petropavlovsk PLC ("Petropavlovsk" or the "Company"), following the
Requisitioned General Meeting of 10 August 2020 (the "RGM"). Since
the RGM, the Board has been steadfastly focussed on ensuring the
ongoing operational stability of the Company and its subsidiaries
(the "Group"). At the same time, we are making good progress in
strengthening the governance of the Group and working towards our
stated ambition of achieving full compliance with the UK Corporate
Governance Code.
ASSESSMENT AND ACTIONS
First and foremost, the Company has some excellent assets in its
three active gold mines and the world-class POX Hub, a dedicated
workforce of highly-qualified employees, robust operational
capability and significant future potential.
However, since my appointment as Chairman, it has become
increasingly apparent that the substantial opportunities open to us
will only be achieved when some fundamental (and largely legacy)
issues are addressed, including:
-- Ensuring a greater focus on providing returns to all
shareholders, who have helped provide the capital for the
significant projects and development of the Group.
-- Taking advantage of the current pricing environment to
further reduce the levels and cost of debt, which have historically
been a source of instability and undervaluation.
-- Introducing more robust and up-to-date systems, such as SAP,
to provide the tools to control and reduce operating costs.
-- Continuing to improve standards of governance and
transparency across the Group. This comes both from installing
relevant controls, but also in demanding integrity in behaviours,
in line with our corporate values. This includes simplifying an
unnecessarily complex organisational structure, with over 30
subsidiaries.
-- Enlarging the Board, which following the RGM is not an
appropriate size for the Company. We are actively engaged with an
external consultant in appointing new members. Finding the right
people with relevant skills and backgrounds will inevitably take
some time. We believe that a Board of around seven to eight
directors, the majority of whom are independent, would be optimal
to provide sufficient diversity and allocate responsibilities
effectively.
-- Increasing the rigour and realism applied to budgeting and
guidance procedures. This is already exemplified by the
announcement on 9 October of lower production guidance for 2020,
revising the numbers set out on 23 July 2020, which proved to be
overly optimistic, particularly in light of the COVID-19
pandemic.
The Board and management team are committed to driving these
improvements, to ensure that Petropavlovsk can deliver on its
significant potential, providing improved returns and maximising
value for all its shareholders.
DISRUPTION AND LEGAL MATTERS
As we first announced on 28 August 2020, since his appointment,
the interim Chief Executive Officer has encountered a lack of
co-operation from certain employees and ex-employees. This lack of
co-operation is still continuing from a very small number of senior
employees and officers of the Company's subsidiaries, who appear to
have been subjected to pressure to withhold certain documents and
operational data from the Board and to disregard the Board's
instructions in certain respects.
Further, some individuals, in particular Sergey Ermolenko and
Alexey Maslovskiy (Pavel Maslovskiy's son) are pursuing litigation
in Russia against certain of the Company's subsidiaries. This
litigation, which has no proper legal basis, has arisen principally
as a result of the Company's efforts to undo actions taken in June
and July of this year, when a few key Russian subsidiaries changed
their constitutional arrangements. These changes took place without
the knowledge of the current Board, and apparently at the direction
of Pavel Maslovskiy.
While the directors believe that these actions have had no
material adverse impact on the Group's financial position and its
operations to date, they are clearly not in the interests of the
Group, its employees nor its many stakeholders. Not least, the
ongoing litigation has caused (and will continue to cause) the
Company to incur legal and other costs, which could be more
usefully deployed elsewhere.
In this context, we note that 84% of shareholders voted in
favour of Resolution 19 at the RGM, which mandated the Board to
commission an independent forensic investigation to review all
transactions over the preceding three years which may have involved
'connected parties'. The Board is currently finalising the
appointment of an independent forensic investigator as required by
the terms of the Resolution.
EXECUTIVE COMMITTEE
We have reconstituted our Executive Committee, which now
consists of Maksim Meshcheryakov, Danila Kotlyarov, Dmitrii
Chekashkin, John Smelt and Dorcas Murray. The Executive Committee
will commence a corresponding refresh of governance controls
throughout the organisation. We are delighted to have recruited
John Smelt and Dorcas Murray in London to assist us with these
efforts. Once the enlarged Board is constituted and the ongoing
litigations is concluded, the Board will embark on the process of
appointing a permanent CEO.
Maksim Meshcheryakov has recently been unwell, as a result of
COVID, but I am pleased to say that he is returning to full
strength.
CONCLUSION
The Board is clear that, going forward, there must be a greater
focus on providing returns to all shareholders, who have helped
provide the capital for significant projects and development of the
Group. Petropavlovsk has not declared a dividend for eight
years.
The period since the RGM has been a challenging one, combining
continued governance disruption and the COVID-19 pandemic. I would
like to thank our employees for their resilience and hard work in
the face of these difficulties.
The Board is unwavering in its dedication to resolving the
legacy issues that are currently hampering the Group from achieving
its potential. We have a clear plan which will drive change and
will ensure that the Company's shares more fully reflect the
substantial underlying worth and potential of the business,
creating value for all stakeholders.
Third Quarter Sales Report
Gold sales
-- A marginal 4% decrease in total gold sales to 121.1koz (Q3
2019: 126.4koz) primarily reflecting the depletion of Albyn
non-refractory reserves that are planned to be replaced with
Elginskoye reserves per Company development plans and also decrease
of Malomir production reflecting transfer to refractory ore
processing
-- Brings total gold sales for the first nine months of 2020 to
433.4koz (first nine months of 2019: 351.4koz), an increase of
23%
-- Average realised gold price increase of 38% to US$1,919/oz in
Q3 2020 (Q3 2019: US$1,388/oz)
Gold sales '000oz
Three months Three months Nine months Nine months
to to to to
30 Sept 30 Sept 30 Sept 30 Sept
2020 2019 2020 2019
Asset (Q3 2020) (Q3 2019) (YTD 2020) (YTD 2019)
---------------------------------- ------------- ------------- ------------ ------------
JSC Pokrovskiy Mine 65.5 39.8 224.4 92.6
Pioneer 30.8 31.0 90.8 83.8
Third-party concentrate
(POX Hub) 34.7 8.8 133.6 8.8
LLC Malomirskiy Rudnik (Malomir) 29.1 39.6 110.8 132.6
LLC Albynskiy Rudnik (Albyn) 26.4 47.0 98.2 126.3
---------------------------------- ------------- ------------- ------------ ------------
Total Group 121.1 126.4 433.4 351.4
---------------------------------- ------------- ------------- ------------ ------------
Note: Numbers may not add up due to rounding effect
Net debt
-- Net debt (unaudited) reduced by c.US$56.8m to c.US$481.2m as
of 30 September 2020 (30 June 2020: US$ 538.0m) principally
reflecting partial conversion of the US$125 million Convertible
Bonds
-- The Company continues to prioritise settlement of the
interest-bearing gold prepays which stood at c.US$ 72.3m as at 30
September 2020 (US$121.0m as at 30 June 2020), a net decrease of
US$48.7m for the third quarter
COVID-19 Update
-- The Company continues to implement strict quarantine and
safety measures at all its operations with remote working practices
established at offices in Moscow, Blagoveshchensk and London
-- At the time of reporting, there have been 29 reported cases
among the Company's employees, the majority of which have been at
the Company's offices in the far east of Russia with a small number
of cases reported at the Albyn mine
-- All affected employees are self isolating or receiving
medical care
FY 2020 Outlook
The outlook for the full year 2020, assuming no further
significant disruption arising from the current COVID-19 pandemic,
is as follows:
Total Group Production (includes processing of third-party
refractory concentrates):
-- Between 560koz to 600koz (versus previous forecasts of 620koz
to 720koz)
Gold production (Company's own ore):
-- Between 395koz and 415koz (versus previous 430koz to
460koz)
-- Lower grades from Malomir underground and slower development
of underground operations at the Andreevskaya zone at Pioneer
TCC (Company's own gold production):
-- Between US$800/oz and US$850/oz (versus previous US$700/oz to
US$800/oz)
-- Lower production and higher unit costs at the POX Hub due to
lower throughput following the delay to the start-up of the Pioneer
flotation plant
Capital Expenditure:
-- Between US$90m to US$100m (versus previous US$70m to
$80m)
-- Reclassification of part of Pioneer underground workings as
Capex, accelerated expenditure on the Malomir flotation plant
expansion and POX related upgrade expenditure
IRC Update
Petropavlovsk is a major shareholder in IRC (31.1%), a
Hong-Kong-listed producer and developer of industrial
commodities
On 23 October 2020, IRC Limited released its Q3 2020 trading
update, confirming that US$8.8m had been paid during the quarter to
Gazprombank as principal repayment and interest. This is in
accordance with the repayment schedule for the facility agreements
guaranteed by Petropavlovsk
On 26 August 2020, IRC released its interim results for the six
months ended 30 June 2020. The results are available to view on the
IRC website at http://www.ircgroup.com.hk
Key highlights from the report are as follows:
Financials
-- Revenue increased by 19% to US$106.2m (30 June 2019:
US$89.2m)
-- Cash cost down by 4.7% to US$48.8/t (30 June 2019:
US$51.2/t)
-- EBITDA has more than doubled, increasing to US$33.2m (30 June
2019: US$13.2m)
-- Profit of US$5.9m (30 June 2019: loss of US$25.2m)
Operations
-- 14.3% and 11.4% improvement in production and sales
respectively over the same period in 2019
-- Stable production capacity of 89% (30 June 2019: 78%)
-- K&S operated at more than 90% capacity in July and the
early part of August. Planned ball mill maintenance and a period of
heavy rains affected production in August. Normal production has
now been resumed, month-to-date capacity of c.80%.
-- Impact of COVID-19 not as yet significant
Conference Call and Webcast
The Company's Chief Financial Officer will host a webcast
conference to present the Company's financial results today at
09:00 GMT (12:00 Moscow). Details of the webcast can be accessed
via the following link:
https://www.lsegissuerservices.com/spark/Petropavlovsk/events/02cfaef0-7753-4ad4-b1ff-a6e9393dcd0b
About Petropavlovsk
Petropavlovsk PLC (LSE: POG. MOEX: POGR) is a major integrated
Russian gold producer with JORC Resources of 21.03Moz Au which
include Reserves of 8.46Moz Au. Following its IPO on the
Alternative Investment Market (AIM) in 2002, Petropavlovsk was
promoted to the London Stock Exchange in 2009, where today it is a
Premium Listed company and a constituent of the FTSE 250, FTSE 350
and FTSE All Share indices. The Company's shares also trade on the
Moscow Exchange and are a constituent of the flagship RTS / MOEX
index.
Petropavlovsk's key operating mines (Pioneer, Malomir and Albyn)
are in the Amur Region in the Russian Far East. Petropavlovsk has
produced a total of c.8.1Moz of gold since operations began in 1994
and has a strong track record of mine development, expansion and
asset optimisation.
The Group recently entered a new era of growth following the
successful commissioning and start-up of its flagship asset, the
Pressure Oxidation (POX) Hub at Pokrovskiy, which enables the
processing of the Company's abundant refractory reserves and
resources.
Petropavlovsk is one of the region's largest employers and one
of the largest contributors to the sustainable development of the
local economy.
For more information
Please visit www.petropavlovsk.net and www.ircgroup.com.hk or
contact:
Petropavlovsk PLC +44 (0) 20 7201 8900
Patrick Pittaway / Max Zaltsman / Viktoriya TeamIR@petropavlovsk.net
Kim
Citigroup Global Markets Limited
Tom Reid / Andrew Miller-Jones +44 (0) 20 7986 4000
UBS Investment Bank
David Roberts / Alistair Smith +44 (0) 20 7567 8000
Hudson Sandler +44 (0) 20 7796 4133
Charlie Jack / Katerina Parker / Elfie Petropavlovsk@hudsonsandler.com
Kent
Citigroup Global Markets Limited ("Citi") is authorised by the
Prudential Regulation Authority and regulated in the UK by the
Financial Conduct Authority and the Prudential Regulation
Authority. UBS AG London Branch ("UBS") is authorised and regulated
by the Financial Market Supervisory Authority in Switzerland. It is
authorised by the Prudential Regulation Authority and subject to
regulation by the Financial Conduct Authority and limited
regulation by the Prudential Regulation Authority in the United
Kingdom. Citi and UBS are acting exclusively for Petropavlovsk PLC
("Petropavlovsk") and for no-one else in connection with the
contents of this announcement and will not be responsible to anyone
other than Petropavlovsk for providing the protections afforded to
clients of Citi or UBS for providing advice in relation to the
contents of this announcement or any matters referred to
herein.
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, the impact of the current Covid-19 pandemic, 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 do not form part of this announcement.
Financial Review
Note: Figures may not add up due to rounding
Financial Highlights
H1 2020 H1 2019
-------------------------------------- ------------- ----------- ---------
Gold produced '000oz 320.6 225.0
Gold sold '000oz 312.4 225.0
Group revenue US$ million 522.7 305.3
Average realised gold price
.. US$/oz 1,640 1,286
Average LBMA gold price afternoon
fixing US$/oz 1,645 1,307
Total Cash Costs (u) (a) US$/oz 9 8 3 774 (c)
All-in Sustaining Costs (u)
(b) US$/oz 1,2 20 1,029(c)
All-in Costs (u) (b) US$/oz 1,3 25 1,091
Underlying EBITDA (u) US$ million 19 2 . 6 98.5 (c)
Operating profit US$ million 146.1 2.5
Profit before tax US$ million 16.5 7.2 (d)
(Loss)/profit for the period US$ million (2 2 . 0 ) 3.9 (d)
(Loss)/profit for the period
attributable to equity shareholders
of Petropavlovsk PLC (d) US$ million (23 . 9) 4.7(d)
Basic (loss)/profit per share
(d) US$ (0.01) 0.00(d)
Cash generated from operations
before working capital changes US$ million 183.3 85.8
Net cash from operating activities US$ million 112. 1 11.9 (c)
-------------------------------------- ------------- ----------- ---------
(a) Calculation of Total Cash Costs (u) ("TCC") is set out in the section Hard rock mines below.
(b) All-in Sustaining Costs (u) ("AISC") and All-in Costs (u)
("AIC") are calculated in accordance with guidelines for reporting
All-in Sustaining Costs (u) and All-in Costs (u) published by the
World Gold Council. Calculation is set out in the section All-in
Sustaining Costs (u) and All-in Costs (u) below.
(c) Following a review of the nature of the deferred stripping
costs the Group has made a reclassification of deferred stripping
costs balance from the Inventory balance into the Mining assets
within Property, plant and equipment. Comparative information on
TCC, AISC, EBITDA and Net cash from operating activities for H1
2019 have been re-calculated accordingly to reflect the effect of
the aforementioned re-classification. Please refer to note 2 in the
condensed consolidated interim financial statements for further
details.
(d) In the condensed consolidated interim financial statements
for the six months ended 30 June 2019 the fair value of the call
option over non-controlling interests, net of the remaining unpaid
premium, was recognised at US$16.2 million, comprising the initial
gain of US$9.6 million, a revaluation loss of US$(0.4) million and
the premium paid to date of US$7.0 million, with a corresponding
net gain of US$9.2 million recognised within Net other finance
gains and losses in the statement of profit or loss. After further
analysis and consideration of the IFRS 9 application guidance
(which prohibits the recognition of day 1 gains based on valuation
techniques that use unobservable inputs), this economic gain
previously recognised in the period ended 30 June 2019 has been
deferred for accounting purposes in the consolidated financial
statements for the year ended 31 December 2019. The comparative
financial information has been aligned to be on a consistent basis
by restating the comparative amounts. Please refer to note 2 in the
condensed consolidated interim financial statements for further
details.
30 June 2020 31 December
2019
--------------------------- ------------ ------------ -----------
Cash and cash equivalents US$ million 73.5 48.2
Notes (a) US$ million (501.1) (500.4)
Convertible bonds (b) US$ million (110.4) (109.1)
--------------------------- ------------ ------------ -----------
Net Debt (u) US$ million (538 .0 ) (561.3)
--------------------------- ------------ ------------ -----------
(a) US$500 million Guaranteed Notes due on 14 November 2022 at amortised cost.
(b) US$125 million convertible bonds due on 03 July 2024 at amortised cost.
Revenue
H1 2020 H1 2019
US$ million US$ million
------------------------------ ----------- -----------
Revenue from hard rock mines 512.3 290.0
Revenue from other operations 10.4 15.3
------------------------------- ----------- -----------
522.7 305.3
------------------------------ ----------- -----------
Group revenue during the period was US$522.7 million, 71% higher
than the US$305.3 million achieved in H1 2019.
Revenue from hard rock mines was US$512.3 million, 77% higher
than the US$290.0 million achieved in H1 2019. Gold remains the key
commodity produced and sold by the Group, comprising 98% of total
revenue generated in H1 2020. The physical volume of gold sold from
hard rock mines increased by 39% from 225,031 oz in H1 2019 to
312,354 oz in H1 2020. The average realised gold price (u)
increased by 28% from US$1,286/oz in H1 2019 to US$1,640 /oz in H1
2020. The average realised gold price (u) was not affected by hedge
arrangements (H1 2019: US$(26)/oz).
There were no sales of silver in H1 2020, compared to 42,976 oz
in H1 2019 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$10.4 million in H1 2020, a
US$(4.9) million decrease compared to US$15.3 million in H1 2019.
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$9.0 million in H1 2020 compared to US$13.0 million in
H1 2019.
Cash flow hedge arrangements
In March 2020 the Group has entered into a number of gold option
contracts and currency option contracts, in both cases structured
as zero cost collars where the Company purchased a put option and
sold a call option, in order to increase certainty in respect of a
proportion of its operating cash flows.
Zero cost collars for the underlying aggregate of US$21 million
(US$7 million per month for the period April to June 2020) with a
RUB:USD exercise price of RUB75.00 for put options and a RUB:USD
exercise price in the range of between RUB90.65 and RUB100.00 for
call options matured during H1 2020 and resulted in US$0.9 million
net cash settlement received by the Group. Zero cost collars for
the underlying aggregate of US$126 million (US$7 million per month
until December 2021) with a RUB:USD exercise price of RUB75.00 for
put options and a RUB:USD exercise price in the range between
RUB90.65 and RUB100.00 for call options were outstanding as at 30
June 2020.
Zero cost collars for the underlying aggregate of 10,500oz of
gold (3,500 oz of gold per month for the period from April to June
2020) with an exercise price of US$1,600/oz for put options and
US$1,832/oz for call options matured during H1 2020 and expired
unexercised. In H1 2019 the Group used gold forward contracts as
cash flow hedge arrangements which resulted in US$(6.0) million net
cash settlement paid by the Group on forward contracts to sell
99,984 oz of gold. Zero cost collars for the underlying aggregate
of 63,000 oz of gold (3,500 oz of gold per month until December
2021) with an exercise price of US$1,600/oz for put options and
US$1,832/oz for call options were outstanding as at 30 June
2020.
Corresponding fair values for gold and currency option contracts
are disclosed in note 16 to the Group's consolidated interim
financial statements for the six months ended 30 June 2020.
Underlying EBITDA.. and analysis of operating costs
H1 2020 H1 201 9
US$ million US$ million
---------------------------------------------- ------------ ------------
(Loss)/profit for the period (22.0 ) 3.9
Add/(less):
Net impairment losses/(impairment reversals)
on financial instruments 1.3 (33.1)
Investment and other finance income (4.0) (4.9)
Interest expense 33.4 26.0
Net other finance losses (a) 98. 9 7.4
Foreign exchange (gains) / losses (2 6 .7) 14.0
Taxation 3 8 . 5 3.2
Depreciation 64. 7 69.2
Reversal of impairment of ore stockpiles - (0.8)
Reversal of impairment of gold in circuit - (0.1)
Share of results of associates (b) 8.6 13.7
Underlying EBITDA (u) 19 2 . 6 98.5
---------------------------------------------- ------------ ------------
(a) Including US$(122.2) million fair value loss from
re-measurement of the conversion option of the convertible
bonds.
(b) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange gains/losses, taxation,
depreciation and impairment/reversal of impairment recognised by an
associate (IRC).
Underlying EBITDA (u) as contributed by business segments is set
out below.
H1 20 20 H1 201 9
US$ million US$ million
----------------------- ------------ ------------
Pioneer 59. 3 12.4
Malomir 7 0 . 9 44.9
Albyn 75. 0 57.9
----------------------- ------------ ------------
Total Hard rock mines 20 5 . 1 115.2
Corporate and other (12. 5 ) (16.7)
Underlying EBITDA (u) 19 2 . 6 98.5
----------------------- ------------ ------------
Hard rock mines
During this period, hard rock mines generated Underlying EBITDA
(u) of US$205.1 million compared to US$115.2 million Underlying
EBITDA in H1 2019.
Total Cash Costs (u) for hard rock mines increased from
US$774/oz in H1 2019 to US$ 983 /oz in H1 2020.
The marginal increase in Total Cash Costs from own material from
US$774/oz in H1 2019 to US$ 800 /oz in H1 2020 primarily reflects
the effect of lower grades of non-refractory ore processed at Albyn
and Malomir and lower recoveries achieved at Malomir , the effect
of inflation of certain Rouble denominated costs, and mining tax
rates as set out below. This effect was partially mitigated by the
effect of higher grades and recoveries of non-refractory ore
processed at Pioneer and the effect of higher grades and recoveries
of refractory ore processed at Malomir, as well as by the effect of
Rouble depreciation.
Total Cash Costs from 3d parties concentrate in H1 2020 was
US$1,380/oz (in H1 2019 no 3d parties concentrate was processed at
POX Hub). Total Cash Costs from 3d parties concentrate is directly
dependent on gold price that has significantly increased over H1
2020 .
The increase in physical ounces sold from 225,031 oz in H1 2019
to 312,354 oz in H1 2020 resulted in US$44.7 million increase in
the Underlying EBITDA (u) . The increase in the average realised
gold price (u) from US$1,286/oz in H1 2019 to US$ 1,640 /oz in H1
2020 contributed to a further US$110.6 million increase in the
Underlying EBITDA (u) . This effect was partly offset by the
increase in TCC .. with US$(6 5 . 4 ) million negative contribution
to the Underlying EBITDA .. , primarily resulted from the higher
TCC of the 3(rd) parties concentrate
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 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.
The Rouble depreciated against the US Dollar by 6 % in H1 2020
compared to H1 2019, with the average exchange rate for the period
of 69.42 Roubles per US Dollar in H1 2020 compared to 65.20 Roubles
per US Dollar in H1 2019, somewhat mitigating the effect of Rouble
denominated costs inflation.
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 Russian
statutory mining tax rate is 6%. Under the Russian Federal Law
144-FZ dated 23 May 2016 that introduced certain amendments to the
Russian Tax Code, taxpayers who are participants in Regional
Investment Projects ("RIP") have the right to apply the reduced
mining tax rate provided certain conditions are met. JSC Pokrovskiy
Rudnik and LLC Malomirskiy Rudnik applied full mining tax rate in
H1 2020, resulting in US$ 15.2 million mining tax expense compared
to US$6.7 million in H1 2019 when 1.2% mining tax rate was applied
by both LLC Albynskiy Rudnik and LLC Malomirskiy Rudnik.
H1 2020 H1 2019
------------------
US$ million % US$ million %
-------------------------------------- ------------ ---- ------------ ----
Staff cost 40.8 15 40.8 25
Materials 40.8 15 42.4 26
Flotation concentrate purchased 130.2 47 - -
Fuel 17.5 6 22.5 14
Electricity 17.7 6 17.0 10
Other external services 18.1 6 28.3 17
Other operating expenses 1 2 .9 5 12.5 8
278.1 100 163.5 100
-------------------------------------- ------------ ---- ------------ ----
Movement in ore stockpiles, gold
in circuit, bullion in process,
limestone and flotation concentrate
attributable to gold production 9.3 0.8
--------------------------------------- ------------ ---- ------------ ----
Total operating cash expenses 287.4 164.4
--------------------------------------- ------------ ---- ------------ ----
Hard rock mines H1 2020 H1 2019
---------------------------------------
Pioneer Malomir Albyn Total Total
US$ US$ US$ US$ US$
million million million million million
--------------------------------- ------------- ----------- ----------- ----------- --------
Revenue
Gold 258.4 136.4 117.6 512.3 289.4
--------------------------------- ------------- ----------- ----------- ----------- --------
Including:
353 .
Gold from own material 99.6 136.4 117.6 6 289.4
Gold from 3d parties concentrate 158.8 - - 158.8 -
--------------------------------- ------------- ----------- ----------- ----------- --------
Silver - - - - 0.7
258.4 136.4 117.6 512.3 290.0
--------------------------------- ------------- ----------- ----------- ----------- --------
Expenses
28 7 .
Operating cash expenses 191. 5 55. 7 40. 2 4 164.4
Refinery and transportation 0.3 0.1 0.1 0.5 0.4
Other taxes 1.2 2.1 0.9 4.1 3.4
Mining tax 6.1 7.7 1.4 15.2 6.7
Depreciation 2 3 . 0 23.9 16.6 63.5 68.5
R eversal of impairment
of ore stockpiles and gold
in circuit - (0.1) - (0.1) (0.9)
22 2 . 3 70 .
Operating expenses 1 89. 4 59. 2 7 2 42 .4
--------------------------------- ------------- ----------- ----------- ----------- --------
Result of precious metals 14 1 .
operations 36. 3 47. 0 58. 4 7 47 .6
--------------------------------- ------------- ----------- ----------- ----------- --------
Add/(less):
Depreciation 2 3 . 0 23.9 16.6 63.5 68.5
Reversal of impairment
of ore stockpiles and gold
in circuit - (0.1) - (0.1) (0.9)
7 0 . 20 5 . 1 15 .
Segment EBITDA .. 59. 3 9 75. 0 1 2
--------------------------------- ------------- ----------- ----------- ----------- --------
Physical volume of gold
sold, oz 158,844 81,726 71,785 312,354 225,031
Including:
G old sold from own material,
oz 59,925 81,726 71,785 213,436 225,031
G old sold from 3d parties
concentrate, oz 98,919 - - 98,919 -
--------------------------------- ------------- ----------- ----------- ----------- --------
Cash costs
28 7 .
Operating cash expenses 191. 5 55. 7 40. 2 4 164.4
Refinery and transportation 0.3 0.1 0.1 0.5 0.4
Other taxes 1.2 2.1 0.9 4.1 3.4
Mining tax 6.1 7.7 1.4 15.2 6.7
19 9 . 30 7 . 1 74 .
Operating cash costs 1 65. 5 42. 6 2 8
Deduct: co-product revenue - - - - (0.7)
19 9 . 30 7 . 1 74 .
Total ash osts (u) 1 65. 5 42. 6 2 2
--------------------------------- ------------- ----------- ----------- ----------- --------
Including:
Total cash costs from own
material 62.6 65.5 42.6 170.7 174.2
Total cash costs from 3d
parties concentrate
1 36 . 1 36 .
concentrate 5 - - 5 -
--------------------------------- ------------- ----------- ----------- ----------- --------
TCC (u) , US$/oz 1,25 3 802 59 3 98 3 774
TCC from own material,
US$/oz 1,045 802 593 800 774
TCC from 3d parties concentrate,
US$/oz 1,380 - - 1,380 -
--------------------------------- ------------- ----------- ----------- ----------- --------
All-in Sustaining Costs (u) and All-in Costs (u)
AISC (u) increased from US$1,029/oz in H1 2019 to US$1,220/oz in
H1 2020. The increase in AISC (u) primarily reflects increase in
TCC (u) and increase in capitalized stripping expenditure during
the period at Pioneer and Malomir. This effect was partially offset
by the increase in physical ounces sold in H1 2020 with an
aggregate of sustaining capital expenditures related to the
existing mining operations, underground mining projects at Pioneer
and Malomir, POX project, and Malomir flotation plant remaining at
approximately the same level as the aggregate of sustaining capital
expenditures in H1 2019.
AIC (u) increased from US$1,091/oz in H1 2019 to US$1,325/oz in
H1 2020, reflecting the increase in AISC (u) explained above,
development expenditure in relation to Pioneer flotation plant and
Elginskoye infrastructure. This effect was partially offset by
decrease in Capital Expenditure (u) in relation to the POX project,
with POX Hub commissioned in 2019 and being considered as
sustaining in the period.
Hard rock mines H1 2020 H1 2019
-------------------------------------------
Pioneer Malomir Albyn Total Total
US$ US$ US$ US$ US$
million million million million million
-------------------------------- -------------- ------------ ------------- ------------ ----------
Physical volume of gold
sold, oz 158,844 81,726 71,785 312,354 225,031
-------------- ------------ ------------- ------------
19 9 . 30 7 .
Total Cash Costs (u) 1 65. 5 42. 6 2 174 . 2
TCC (u) , US$/oz 1,25 3 802 593 98 3 774
-------------------------------- -------------- ------------ ------------- ------------ ----------
Reversal of impairment
of ore stockpiles and gold
in circuit - (0.1) - (0.1) (0.9)
19 9 . 30 7 . 1 73 .
Adjusted operating costs 1 65. 5 42. 6 1 2
Central administration
expenses 10 . 5 5. 4 4. 8 20 . 7 22.0
Capitalised stripping 13.0 10.7 - 23.7 4.9
Close-down and site restoration 0.6 - 0.1 0.7 0.5
Sustaining exploration
expenditures 0.4 - 0.2 0.5 3.4
Sustaining Capital Expenditure 12.4 10. 6 3 . 2 26 . 2 27.6
Sustaining lease 0.1 1.0 0.9 2.1 -
-------------------------------- -------------- ------------ ------------- ------------ ----------
All-in Sustaining Costs 23 6 . 9 3 . 3 81 .
(u) 1 3 51 . 6 0 231.7
-------------------------------- -------------- ------------ ------------- ------------ ----------
All-in Sustaining Costs
(u) , US$/oz 1,4 87 1,1 41 718 1,2 20 1,029
-------------------------------- -------------- ------------ ------------- ------------ ----------
Exploration Expenditure
(u) (0.0) 1.3 3.4 4.6 4.8
Capital Expenditure (u) 16.1 - 12.1 28 . 2 9.2
25 2 . 9 4 . 6 7 . 4 13 .
All-in Costs (u) 2 6 0 8 245.6
-------------------------------- -------------- ------------ ------------- ------------ ----------
All-in Costs (u) , US$/oz 1,5 88 1,1 57 9 34 1,3 25 1,091
-------------------------------- -------------- ------------ ------------- ------------ ----------
Corporate and other
Corporate and other operations contributed US$(12.5) million to
Underlying EBITDA .. in H1 2020 compared to US$(16.7) million in H1
2019. Corporate and other operations primarily include central
administration function, result of in-house service companies and
the Group's share of results of its associate IRC.
The Group has corporate offices in London, Moscow and
Blagoveschensk, which together represent the central administration
function. Central administration expenses decreased by US$1.3
million from US$22.0 million in H1 2019 to US$20.7 million in H1
2020.
The Group's share of profit generated by IRC is US$1.8 million
(H1 2019: US$(7.9) million share of losses generated by IRC). IRC
contributed US$ 10.5 million to the Group's Underlying EBITDA (u)
in H1 2020 (H1 2019: US$5.8 million).
Impairment review
Impairment of mining assets
As at 30 June 2020 and 30 June 2019, the Group identified no
impairment indicators or indicators of impairment reversal for the
cash generating units related to its gold mining projects and
supporting in-house service companies.
As at 31 December 2019, the Group recognised impairment
reversals at the Pioneer CGU and the supporting in-house service
companies of US$43.5 million (US$34.8 million post-tax) and US$9.4
million (US$7.8 million post-tax), respectively.
Impairment of exploration and evaluation assets
As at 30 June 2020, the Group performed a review of its
exploration and evaluation assets and concluded no impairment was
required (31 December 2019: the Group performed a review of its
exploration and evaluation assets and concluded no impairment was
required). Exploration and evaluation assets in the statement of
financial position relate to the areas adjacent to the existing
mines.
Investment and other finance income
H1 2020 H1 2019
US$ million US$ million
------------------------- ----------- -----------
Investment income (a) 0.6 2.5
Guarantee fee income (b) 3.4 2.4
-------------------------- ----------- -----------
4.0 4.9
------------------------- ----------- -----------
(a) Interest income on bank deposits .
(b) Guarantee fee income under Gazprombank Guarantee
arrangements, as set out in section "Corporate activities"
below.
Interest expense
H1 2020 H1 2019
US$ million US$ million
--------------------- ----------- -----------
Interest expense 34.0 35.1
Interest capitalised (1.0) (9.4)
Other 0.4 0.3
---------------------- ----------- -----------
33.4 26.0
--------------------- ----------- -----------
Interest expense for the period comprised of US$21.0 million
effective interest on the Notes, US$6.5 million effective interest
on the Convertible Bonds, US$6.3 million interest on prepayments on
gold sale agreements and US$0.3 million interest on finance lease
(H1 2019: US$20.8 million effective interest on the Notes, US$6.4
million effective interest on the Convertible Bonds, US$7.7 million
interest on prepayments on gold sale agreements and US$0.3 million
interest on finance lease).
As the Group continued with construction of flotation line at
Pioneer, this project met eligibility criteria for borrowing costs
capitalization under IAS 23 "Borrowing Costs" with US$1.0 million
of interest expense capitalized within property, plant and
equipment (H1 2019: US$9.4 million of interest expense was
capitalised within property, plant and equipment in relation to POX
Hub and Malomir flotation). With all four autoclaves of the POX Hub
fully functional, interest capitalisation in relation to POX Hub
ceased in December 2019, with increase in net interest expense from
December 2019 onwards.
Net other finance gains/(losses)
Net other finance losses for the period totalled US$(98.9)
million compared to US$(7.4) million of net other finance losses in
H1 2019. Key elements of other finance gains and losses this period
include:
- US$ (122.2) million fair value non-cash loss from
re-measurement of the conversion option of the convertible bonds,
reflecting the increase in the underlying share price of the
Company;
- US$20.6 million fair value gain on the call option to acquire
25% interest in the Group's subsidiary LLC TEMI from its current
shareholder as set out in section "Corporate activities" below,
reflecting the gold price increase;
- US$3.1 million fair value gain on gold and currency option contracts;
- US$(0.3) million net loss on other items.
Net impairment reversals/ (impairment losses) on financial instruments
In H1 2020, the Group recognised a US$1.3 million increase in
the provision for expected credit losses under Gazprombank
guarantee arrangements (H1 2019: net of US$30.1 million reversal of
provision for expected credit losses under Gazprombank and ICBC
guarantee arrangements and US$3.0 million revesal of impairment of
financial assets).
Taxation
H1 2020 H1 2019
US$ million US$ million
----------- ----------- -----------
Tax charge 38.5 3.2
------------ ----------- -----------
The Group is subject to corporation tax under the UK, Russia and
Cyprus tax legislation. The statutory tax rate for H1 2020 was 19%
in the UK and 20% in Russia.
The tax charge for the period primarily related to the Group's
gold mining operations and is represented by a current tax charge
of US$25.1 million (H1 2019: US$12.3 million) and a deferred tax
charge, which is a non-cash item, of US$13.4 million (H1 2019:
deferred tax credit of US$9.1 million). Included in the deferred
tax charge in H1 2020 is a US$23.7 million charge (H1 2019: US$16.3
million credit) from the effect of foreign exchange 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. The effective tax rate is also
affected by expenses that are not deductible for tax purposes which
primarily relate to fair value loss on re-measurement of the
conversion option of the Convertible Bonds, effect of tax losses
for which no deferred income tax asset was recognised which
primarily relate to interest expense incurred in the UK and Russian
withholding tax on intercompany dividends.
During the period, the Group made corporation tax payments in
aggregate of US$28.5 million in Russia (H1 2019: corporation tax
payments in aggregate of US$16.6 million in Russia).
Earnings per share
H1 2020 H1 201 9
US$ million US$ million
------------------------------------------- ------------- ----------------
(Loss)/profit for the period attributable
to equity holders of Petropavlovsk PLC US$(23. 9 ) US$4.7 million
million
Weighted average number of Ordinary Shares 3,310,369,237 3,308,154,243
Basic (loss)/profit per ordinary share US$(0.01) US$0.0 0
------------------------------------------- ------------- ----------------
Basic loss per share for H1 2020 was US$(0.01) compared to
US$0.00 basic profit per share for H1 2019.
The total number of Ordinary Shares in issue as at 30 June 2020
was 3,310,369,237 (30 June 2019: 3,308,154,243 ).
Financial position and cash flows
30 June 2020 31 December 2019
US$ million US$ million
--------------------------------------- ------------------ ------------------------
Cash and cash equivalents 73.5 48.2
Notes (a) (501.1) (500.4)
Convertible bonds (b) (110.4) (109.1)
--------------------------------------- ------------------ ------------------------
Net Debt .. (538.0) (561.3)
--------------------------------------- ------------------ ------------------------
(a) US$500 million Guaranteed Notes due on 14 November 2022 at amortised
cost.
(b) US$125 million convertible bonds due on 03 July 2024 at amortised
cost.
H1 2020 H1 201 9
US$ million US$ million
----------------------------------------------- --------------------------- -----------
Net cash from operating activities 11 2 . 1 11.9
Net cash (used in) / from investing activities
(c) (8 2 . 7 ) 1.5
Net cash used in financing activities (2. 0 ) (2.8)
----------------------------------------------- --------------------------- -----------
(c) Including US$59.6 million cash CAPEX (H1 2019: US$45.0
million) .. .
Key movements in cash and Net Debt (u)
Net Debt
Cash Debt (u)
US$ million US$ million US$ million
------------------------------------------- ----------- ----------- -----------
As at 1 January 2020 48.2 (609.5) (561.3)
Net cash generated by operating activities 18 3 .
before working capital changes 3
Decrease in working capital (10.5 )
Corporation tax paid (28.5 )
( 59 .
Capital Expenditure (u) 6 )
Capitalized stripping (23.7 )
Interest accrued (27.4)
(32.1)
Interest paid (d) 25.5
Interest received 0.6
Other (4. 2 )
------------------------------------------- ----------- ----------- -----------
(53 8 . 0
As at 30 June 2020 73.5 (611.4) )
------------------------------------------- ----------- ----------- -----------
(d) Including US$6.3 million interest paid in relation to
advance payments from Gazprombank and Sberbank.
Capital Expenditure ..
The Group invested an aggregate of US$59.6 million in H1 2020
compared to US$45.0 million in H1 2019. The key areas of focus in
this period were on Pioneer and Malomir flotation, Elginskoye mine
development and development to support the underground mining at
Pioneer. The Group capitalised US$1.0 million of interest expense
incurred in relation to the Group's debt into the cost of the
Pioneer flotation (H1 2019: US$9.4 million into the cost of the POX
Hub and Malomir flotation).
Exploration Development Total
expenditure expenditure CAPEX (u)
and other
CAPEX (u)
US$ million US$ million US$ million
-------------------------------- ------------ ------------ -----------
POX (a) - 4.2 4.2
Pioneer (b), (c) 0.4 24.1 24.5
Malomir(d), (e) 1.3 6.8 8.1
Albyn(f) 3.5 14. 1 1 7 . 6
Corporate and in-house services - 5.2 5.2
5.2 54. 4 59 . 6
-------------------------------- ------------ ------------ -----------
(a) Including US$4.2 million of development expenditure in
relation to the POX Hub which is considered to be sustaining
Capital Expenditure for the purposes of calculating AISC and AIC
.
(b) Including US$5.6 million of expenditure in relation to the
underground mining project at Pioneer to be sustaining Capital
Expenditure for the purposes of calculating AISC and AIC .
(c) Including US$ 16.1 million development expenditure in
relation to the Pioneer flotation (including tailing dams) to be
non-sustaining Capital Expenditure for the purposes of calculating
the AISC and AIC .
(d) Including US$0.6 million of development expenditure in
relation to the underground mining project at Malomir to be
sustaining Capital Expenditure for the purposes of calculating AISC
and AIC .
(e) Including US$4.9 million of development expenditure in
relation to Malomir flotation (including tailing dams), which is
considered to be sustaining Capital Expenditure for the purposes of
calculating AISC and AIC .
(f) Including US$3.4M of exploration expenditure in relation to
Elginskoye, US$5.8M of development expenditure in relation to road
between Elginskoye and Albyn processing facilities and US$6.3M of
development expenditure in relation to tailing dam for Elginskoye
project, which are considered to be non-sustaining Capital
Expenditure for the purposes of calculating AISC and AIC .
Foreign currency exchange differences
The Group's principal subsidiaries have a US Dollar functional
currency. Foreign exchange differences arise on the translation of
monetary assets and liabilities denominated in foreign currencies,
which for the principal subsidiaries of the Group are the Russian
Rouble and GB Pounds Sterling.
The following exchange rates to the US Dollar have been applied
to translate monetary assets and liabilities denominated in foreign
currencies.
30 June 2020 31 December 2019
------------------------- ------------ ----------------
GB Pounds Sterling (GBP:
US$) 0.81 0.75
Russian Rouble (RUB:
US$) 69.95 61.91
-------------------------- ------------ ----------------
The Rouble depreciated by 13% against the US Dollar during H1
2020, from RUB61.91: US$1 as at 31 December 2019 to RUB69.95: US$1
as at 30 June 2020. The average period-on-period depreciation of
the Rouble against the US Dollar was approximately 6%, with the
average exchange rate for H1 2020 being RUB69.42: US$1 compared to
RUB65.20 : US$1 for H1 2019. The Group recognised foreign exchange
gains of US$27.9 million in H1 2020 (H1 2019: US$14.0 million
losses) arising primarily on Rouble denominated net monetary
liabilities (including advance payments received from Gazprombank
and Sberbank under gold sales agreements).
Corporate activit ies
Guarantee over IRC's external borrowings
The Group historically entered into an arrangement to provide a
guarantee over its associate's, IRC, external borrowings, the ICBC
Facility ('ICBC Guarantee'). Under the terms of the arrangement the
Group was entitled to receive an annual fee equal to 1.75% of the
outstanding amount. As at 30 June 2020 the remaining outstanding
contractual guarantee fee was US$5.0 million, which had a
corresponding fair value of US$4.7 million and is payable by IRC no
later than 31 December 2020 (31 December 2019: outstanding
contractual guarantee fee of US$5.0 million with corresponding fair
value after provision for credit losses of US$4.4 million).
In March 2019, IRC has refinanced the ICBC Facility through
entering into a US$240 million new facility with Gazprombank
('Gazprombank Facility'). The facility was fully drawn down during
the year ended 31 December 2019. The outstanding loan principal was
US$214 million as at 30 June 2020.
A new guarantee was issued by the Group over part of the
Gazprombank Facility ('Gazprombank Guarantee'), the guarantee
mechanism is implemented through a series of five guarantees that
fluctuate in value through the eight-year life of the loan, with
the possibility of the initial US$160 million principal amounts
guaranteed reducing to US$40 million within two to three years,
subject to certain conditions being met. For the final two years of
the Gazprombank Facility, the guaranteed amounts will increase to
US$120 million to cover the final principal and interest
repayments. If certain springing recourse events transpire,
including default on a scheduled payment, then full outstanding
loan balance is accelerated and subject to the guarantee. Under the
Gazprombank Guarantee arrangements, the guarantee fee receivable is
determined at each reporting date on an independently determined
fair value basis, which for the six months ended 30 June 2020 was
estimated at the annual rate of 3.07% for 2020 by reference to the
average outstanding principal balance under Gazprombank Facility.
The guarantee fee charged for six months ended 30 June 2020 was
US$3.4 million, with corresponding value of US$3.2 million after
provision for expected credit losses (H1 2019: US$$2.4 million,
with corresponding value of $2.2 million after provision for
expected credit losses).
The following assets and liabilities have been recognised in
relation to the ICBC Guarantee and Gazprombank Guarantee as at 30
June 2020 and 31 December 2019:
31 December
30 June 2020 2019
US$ million US$ million
------------------------------------------- ------------- ------------
Other receivables - ICBC Guarantee 4.7 4.4
Other receivables - Gazpombank Guarantee 8.4 5.0
Financial guarantee contract - Gazpombank
Guarantee (10.2) (8.9)
------------------------------------------- ------------- ------------
Option to acquire non-controlling 25% interest in LLC TEMI
In May 2019, the Group entered into the option contract to
acquire non-controlling 25% interest in LLC TEMI, holder of
licenses for the Elginskoye Ore Field and Afanasievskaya
Prospective Ore Area, from its shareholder Agestinia Trading
Limited for an aggregate consideration of US$60 million (adjusted
to US$53.5 million if certain conditions are met). The option
premium payable is US$13 million, which was paid in 2019. The
exercise period of the option is 730 days from 22 May 2019.
The Group employed an independent third-party expert to
undertake the valuations of the underlying 25% interest in LLC TEMI
and the call option. As at 30 June 2020, the fair value of the
derivative financial asset was US$31.6 million reflecting
cumulative gain on re-measurement to fair value from initial
recognition in the amount of US$18.6 million and the initial US$13
million cash payment.
Partial conversion of US$125 million Convertible Bonds
During the period after 30 June 2020, the Company has received
Conversion Notices in respect of the exercise of conversion rights
under the US$125 million Convertible Bonds. The principal amount of
the Convertible Bonds in respect of which the Conversion Notices
have been served amounted to an aggregate of US$86.8 million,
which, at a fixed exchange price of US$0.1350 per ordinary share,
resulted in the issue and allotment of an aggregate of 642,962,951
new ordinary shares.
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 prepared regularly based on a
number of inputs including, but not limited to, forecast commodity
prices and the impact of hedging arrangements, the Group's 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 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, advances received from customers under
prepayment arrangements and external debt.
The Group performed an assessment of the forecast cash flows for
the period of 12 months from the date of approval of the Half Year
Report for the period ended 30 June 2020. As at 30 June 2020, the
Group had sufficient liquidity headroom. The Group is also
satisfied that it has sufficient headroom under a base case
scenario for the period to December 2021. The Group has also
performed projections under a layered stressed case that is based
on :
- a gold price, which is approximately 10% lower than the upper
quartile of the average of the market consensus forecasts;
- processing of third-party concentrate through POX facilities
is approximately 10% lower than projected and oxide gold production
from underground operations at Pioneer and Malomyr approximately
10% lower than projected; and
- Russian Rouble: US Dollar exchange rate that is approximately
10% stronger than the average of the market consensus
forecasts.
Following the removal of the majority of the non-executive
directors and all executive directors at the Company's annual
general meeting on 30 June 2020 and the requisitioned general
meeting held on 10 August 2020, and the subsequent appointment of
the interim CEO, the Company has encountered a lack of co-operation
from certain senior employees and ex-employees in some of the
Company's material Russian subsidiaries. While the directors
believe that these factors have had no material adverse impact on
the Group's financial position and its operations to date, the
Group has further stressed its cash flow projections to reflect
potential operational inefficiencies for a three-month period from
November 2020, including the following:
- production from gold mining operations being approximately additional 10% lower;
- operating cash costs for gold mining operations being approximately additional 10% higher.
The results of this analysis indicate sufficient liquidity for a
period of at least 12 months, including if there is
underperformance at IRC Ltd (in which the Group holds a 31.1%
interest). In selecting the assumptions in its cash flow stress
testing, the directors have also considered the potential impact of
Covid-19.
As at 30 June 20 20 , the Group had guaranteed the outstanding
amounts owed by IRC Ltd to Gazprombank under a credit facility. The
outstanding loan principal was US$ 214 million as at 30 June 20 20
and the facility is subject to a $160 million guarantee given by
the Group (see note 21). The directors have considered whether
there is any material uncertainty that IRC will be able to repay
this facility as it falls due in its overall going concern
assessment. IRC projections demonstrate that IRC expects to have
sufficient liquidity over the next 12 months and expects to meet
its obligations under the Gazprombank facility.
As at 30 June 2020, the Group has outstanding debt issued under
US$125 million Convertible Bonds and US$500 million Guaranteed
Notes (see note 19). If the Group fails to comply with its
obligations (including interest payment obligations) under the
Convertible Bonds, Guaranteed Notes or Gazprombank guarantee
arrangements then, if not remedied by the Group, this would result
in events of default which, through cross-defaults and
cross-accelerations, could cause all of the Group's indebtedness to
become repayable on demand. The assessment of whether there is any
material uncertainty that the Group will be able to meet its
repayment and compliance obligations under debt or guarantee
arrangements as they fall due is another key element of the Group's
overall going concern assessment.
Since the requisitioned general meeting held on 10 August 2020,
the Group has made changes to the boards of directors of certain
material subsidiaries of the Company in Russia and reversed changes
to those subsidiaries' constitutional documents which were
instituted by the Group's former CEO during June and July 2020 and
which had the effect of entrenching the previous management of
those subsidiaries. Those changes have been challenged by certain
employees and ex-employees of the Group in legal proceedings in
Russia. In the view of Company legal advisors, these actions are
entirely baseless and without merit. However, it may take several
months for these issues to be resolved and until such time it may
be difficult for the Directors to appoint new management and for
the newly appointed management of the relevant subsidiaries to
interact successfully with 3rd parties as a result of injunctions
granted by the Russian courts pending resolution of the
proceedings.
The Company relies on cash flows from certain Russian
subsidiaries to secure repayments under its debt obligations and
other ongoing expenses as they fall due. The lack of co-operation
from some employees and ex-employees in certain of the Russian
subsidiaries as described above has led to delays in receiving cash
from those subsidiaries in circumstances where those subsidiaries
have not complied fully with the requests of the Company for funds.
The Company has received sufficient cash to enable it to meet its
October 2020 payment obligations under US$125 million Convertible
Bonds and expects to receive cash required to meet its November
2020 payment obligations under US$500 million Guaranteed Notes. The
Company is seeking additional external funding sources to meet its
obligations in the event that future funding from the Russian
subsidiaries is not received.
Having taken into account the aforementioned factors and after
making enquiries and considering the matters described above, the
Directors have concluded that they do not constitute material
uncertainties that may cast significant doubt about the ability of
the Group to continue as a going concern and 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 2020. Accordingly, they
continue to adopt the going concern basis of accounting in
preparing these condensed consolidated financial statements.
Principal Risk 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 Principal Risks and Mitigation section on pages 26 to 41
of the 2019 Annual Report, which is available on the Group's
website, http://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 and uncertainties that
could impact the Group for the remainder of the current financial
year remains substantially unchanged save as set out below and/or
in Note 2 Going concern to these financial statements.
There may be additional risks unknown to the Group and other
risks, currently believed to be immaterial, which could turn out to
be material. These risks, whether they materialise individually or
simultaneously, could significantly affect the Group's business and
financial results. The Group will continue to monitor internal and
external areas of uncertainty and threat closely as well as remain
vigilant on internal controls, and incorporate any further
developments as part of the full-year assessment of principal risks
and uncertainties.
The principal risks relate to the following:
Corporate
-- Legal dispute between the Company and a number of employees
and ex-employees
-- Lack of co-operation of certain employees with the interim
CEO and the Board
Covid-19
-- Impact of Covid-19 on the Group's employees and its
operations
Operational
-- Production
-- Exploration
-- Decline in operational efficiency resulting from the
Corporate matters referred to above
-- Disruption in Group reporting processes
Processing
-- Mechanical failure of POX Hub
-- Processing of third party concentrate being lower than
expected
-- Availability of underground oxide ore at Pioneer and
Malomir
Financial
-- Lack of funding and liquidity including resulting from the
Corporate matters referred to above
-- Gold price
-- Exchange rate
-- Guarantee of IRC's debt
Health, safety and environmental
-- POX
-- Underground mining
-- Contamination
Loss of key personnel
-- The Company is dependent on long-serving members of the
senior executive and site teams
-- There have been a large number of recent changes in the
senior executive team
Country/Compliance
-- The Group requires various licences and permits in order to
operate
-- Russian sovereign risks
Director's 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,
James W Cameron Jr Danila Kotlyarov
Chairman Chief Financial Officer
29 October 2020
Independent Review Report to Petropavlovsk PLC (Auditors)
Introduction
We have been engaged by Petropavlovsk plc (the Company) to
review the condensed set of financial statements in the half-yearly
financial report for the six months ended 30 June 2020 which
comprises the Condensed Consolidated Statement of Profit or Loss,
the Condensed Consolidated Statement of Comprehensive Income, the
Condensed Consolidated Statement of Financial Position, the
Condensed Consolidated Statement of Changes in Equity, the
Condensed Consolidated Statement of Cash Flows and related notes 1
to 25. 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 for the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our 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 Guidance 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 enquiries, 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 2020 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
of the United Kingdom's Financial Conduct Authority.
MHA MacIntyre Hudson
Statutory Auditor
London
29 October 2020
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Profit or Loss
Six months ended 30 June 2020
Six months
ended
Six months
ended 30 June 2019
(restated)
30 June 2020 (a) Year ended
31 December
(unaudited) (unaudited) 2019
note US$'000 US$'000 US$'000
------------------------------------- ---- ------------- ------------- ------------
Group revenue 5 522,731 305,328 741,589
Operating expenses 6 (378,440) (294,910) (590,853)
Share of results of associates 12 1,845 (7,905) (35,376)
------------------------------------- ---- ------------- ------------- ------------
- Operating profit 146 , 136 2,513 115,360
------------------------------------- ---- ------------- ------------- ------------
Net (impairment losses)/impairment
reversals on financial instruments 7 (1,274) 33,093 30,797
Investment and other finance
income 7 3,962 4,939 8,826
Interest expense 7 (33,383) (25,979) (59,854)
Net other finance (losses)/gains 7 (98,893) (7 , 407) (42,190)
------------------------------------- ---- ------------- ------------- ------------
Profit before taxation 1 6 , 548 7,159 52,939
( 27 , 246
Taxation 8 (38,542) (3,233) )
------------------------------------- ---- ------------- ------------- ------------
(Loss)/profit for the period (21,994) 3,926 25,693
------------------------------------- ---- ------------- ------------- ------------
Attributable to:
Equity shareholders of Petropavlovsk
PLC (23 , 934) 4,673 26,883
Non-controlling interests 1,940 (747) (1,190)
------------------------------------- ---- ------------- ------------- ------------
Profit/(loss) per share
US$ ( 0.01 US$0.00 US$0.01
Basic (loss)/profit per share 9 )
US$ ( 0.01 US$0.00 US$0.01
Diluted (loss)/profit per share 9 )
------------------------------------- ---- ------------- ------------- ------------
(a) See note 2 for details regarding the restatement.
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2020
Six months Six months
ended ended Year ended
30 June 2020 30 June 2019 31 December
(unaudited) (unaudited) 2019
US$'000 US$'000 US$'000
---------------------------------------------------- -------------- -------------- -------------
(Loss)/ profit for the period (21,994) 3,926 25,693
----------------------------------------------------- -------------- -------------- -------------
- Items that may be reclassified subsequently
to profit or loss:
---------------------------------------------------- -------------- -------------- -------------
Exchange differences:
Exchange differences on translating foreign
operations (2,261) 1,701 2,102
Share of other comprehensive income/(loss)
of associate 42 5 (6,386) (1,084)
Cash flow hedges:
Fair value losses - (15,624) (22,652)
Tax thereon - 2,911 4, 234
Transfer to revenue - 5,963 31,471
Tax thereon - (1,103) (5,8 65 )
(1,836) (12,538) 8,206
---------------------------------------------------- -------------- -------------- -------------
Total comprehensive (loss)/profit for
the period (23,830) (8,612) 33,899
----------------------------------------------------- -------------- -------------- -------------
Attributable to:
Equity shareholders of Petropavlovsk PLC (25,770) (7,838) 35,067
Non-controlling interests 1,940 (774) (1, 168 )
----------------------------------------------------- -------------- -------------- -------------
(23,830) (8,612) 33,899
---------------------------------------------------- -------------- -------------- -------------
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Financial Position
At 30 June 2020
30 June 2020 30 June 2019 31 December
2019
(restated)
(a)
note (unaudited) (unaudited)
US$'000 US$'000 US$'000
----------------------------------- ----------------- ------------- ------------- ------------
- Assets
Non-current assets
Exploration and evaluation assets 10 57,751 47,982 53,123
1, 209 ,
Property, plant and equipment 11 1,219,716 1,135,497 817
Investments in associates 12 5 0 , 950 70,848 48,680
Inventories 13 64,556 51,938 60 , 257
Trade and other receivables 1 4 578 538 556
Derivative financial instruments 16 2,730 6,541 11 , 022
Other non-current assets 763 974 880
1,397, 0
44 1,314,318 1,384,335
----------------------------------- ----------------- ------------- ------------- ------------
Current assets
Inventories 1 3 221,554 176,135 3 07 , 773
10 5 ,97
Trade and other receivables 1 4 86,827 83 ,159 5
Current tax assets 10,535 4,943 5,807
Derivative financial instruments 16 37,647 - -
Cash and cash equivalents 1 5 73,458 39,138 48,153
----------------------------------- ----------------- ------------- ------------- ------------
430,021 303,375 4 67 , 708
----------------------------------- ----------------- ------------- ------------- ------------
Total assets 1,827,065 1,617,693 1,852,043
----------------------------------- ----------------- ------------- ------------- ------------
Liabilities
Current liabilities
(3 89 , 041
Trade and other payables 1 7 (229,648) (216,700) )
Current tax liabilities (2,138) (80) (535)
Borrowings 1 8 - (97,045) -
( 30 ,1 10
Derivative financial instruments 1 6 (3,168) ) (266)
Provision for close down and - (1,364) -
restoration costs
Lease liabilities (2,473) (2,856) (5, 373 )
(3 48 , 155
(237,427) ) (3 95 ,215)
----------------------------------- ----------------- ------------- ------------- ------------
( 44,780
Net current assets/(liabilities) 192,594 ) 72 , 493
----------------------------------- ----------------- ------------- ------------- ------------
Non-current liabilities
Borrowings 1 8 (611 , 436) (499,504) (609,463)
( 46 , 313
Derivative financial instruments 1 6 (171,939) - )
(102, 473 (1 12 , 566
Deferred tax liabilities (126,045) ) )
Provision for close down and ( 36 , 231
restoration costs (36,616) (20,289) )
Financial guarantee contract 2 1 (10,199) (7,274) (8,923)
Trade and other payables 17 (19,473) (43,761) -
Lease liabilities (2,144) (3,370) (7,805)
----------------------------------- ----------------- ------------- ------------- ------------
(67 6 , 671 (8 21 , 301
(977,852) ) )
----------------------------------- ----------------- ------------- ------------- ------------
(1,0 24 , (1, 216 ,
Total liabilities (1,215,279) 826 ) 516 )
----------------------------------- ----------------- ------------- ------------- ------------
Net assets 611,786 592,867 635,527
----------------------------------- ----------------- ------------- ------------- ------------
Equity
Share capital 1 9 49,035 49,003 49,003
Share premium 518,142 518,142 518,142
Hedging reserve - (14,992) -
Share based payments reserve - 49 199
Translation reserves (18,139) (16,279) (15,878)
Retained earnings 50,352 46,094 73,605
----------------------------------- ----------------- ------------- ------------- ------------
Equity attributable to the
shareholders of Petropavlovsk
PLC 599,390 582,017 625,071
----------------------------------- ----------------- ------------- ------------- ------------
Non-controlling interests 12,396 10,850 10, 456
----------------------------------- ----------------- ------------- ------------- ------------
Total equity 611,786 592,867 635,527
----------------------------------- ----------------- ------------- ------------- ------------
(a) See note 2 for details regarding the restatement.
These condensed consolidated financial statements for
Petropavlovsk PLC, registered number 4343841, were approved by the
Directors on 29 October 2020 and signed on their behalf by
James W Cameron Jr Danila Kotlyarov
Chairman Chief Financial Officer
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2020
Total attributable to equity holders of Petropavlovsk
PLC
Share
based Retained
Share Share payments Hedging Translation earnings/ Non-controlling Total
capital premium reserve reserve reserve (losses) Total interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Balance
at 1 January 11,6 601,
2019 48,963 518,142 227 (7,166) (17,980) 47,538 589,724 24 348
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Total
comprehensive
(loss)/income - - - (7,826) 1,701 (1,713) (7,838) (774) (8,612)
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Profit for the
period - - - - - 4,673 4,673 (747) 3,926
Other
comprehensive
(loss)/income - - - (7,826) 1,701 (6,386) (12,511) (27) (12,538)
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Deferred share
awards 40 - (178) - - 269 131 - 131
Balance
at 30 June
2019
(restated) (a)
(unaudited) 49,003 518,142 49 (14,992) (16,279) 46,094 582,017 10,850 592,867
Total
comprehensive
income - - - 14,992 401 27,512 42,905 (394) 42,511
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Profit for the
period
(restated) - - - - - 22,210 22,210 (443) 21,767
Other
comprehensive
income - - - 14,992 401 5,302 20,695 49 20,744
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Deferred share
awards - - 150 - - (1) 149 - 149
Balance
at 31 December ( 15,878 10,
201 9 49,003 518,142 199 - ) 73,605 625,071 456 635,527
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Total
comprehensive
income/(loss) - - - - (2,261) (23,509) (25,770) 1,940 (23,830)
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Loss for the
period - - - - - (23,934) (23,934) 1,940 (21,994)
Other
comprehensive
income/(loss) - - - - (2,261) 425 (1,836) - (1,836)
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Deferred share
awards 32 - (199) - - 256 89 - 89
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
Balance
at 30 June 20
20
(unaudited) 49,035 518,142 - - (18,139) 50,352 599,390 12,396 611,786
---------------- -------- -------- --------- --------- ------------ ---------- --------- ---------------- ---------
(a) See note 2 for details regarding the restatement.
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 20 20
Six months
ended
Six months 30 June Year ended
ended 2019
30 June (restated) 31 December
2020 (a) 2019
(unaudited) (unaudited) US$'000
note US$'000 US$'000
-------------------------------------------------- ----------------- ------------- -------------- --------------
- Cash flows from operating activities
17 2 ,7
Cash generated from operations 20 58 55,194 1 89 , 321
(32, 149
Interest paid ) (32,694) (67,160)
Guarantee fee received in connection
with ICBC facility 21 - 6,000 6,000
(28,5
Income tax paid 13 ) (16,558) (32,723)
-------------------------------------------------- ----------------- ------------- -------------- --------------
112 ,
Net cash from operating activities 096 11,942 95 , 438
-------------------------------------------------- ----------------- ------------- -------------- --------------
Cash flows from investing activities
Purchase of property, plant and ( 44,969 ( 120 , 798
equipment 20 (78,618) ) )
Expenditure on exploration and
evaluation assets 10 (4,648) (4,929) (10,136)
Proceeds from disposal of property,
plant and equipment 57 3 11 1
Other loans granted 21 - (389) (389)
Repayment of loans granted to
an associate 21 - 56 , 211 56,243
Interest received 558 2,610 3,283
Call option over non-controlling
interests 16 - (7,000) (13,000)
Net cash (used in) /from investing
activities (82,651) 1,537 (84,686)
-------------------------------------------------- ----------------- ------------- -------------- --------------
Cash flows from financing activities
Issue of Bonds, net of transaction
cost - - 120,561
Repayment of Bonds - - (108,000)
Exercise of the Call Option over
the Company's shares 16 - (2,215) (2,215)
Exercise of gold options 16 (999) - -
Exercise of currency options 16 677 - -
Funds advanced to the Group under
investment agreement with the
Russian Ministry of Far East
Development - - 8,772
Funds transferred under investment
agreement with the Russian Ministry
of Far East Development - - (8,772)
Principal elements of lease payments (1,655) (608) (1,468)
Net cash (used in)/from financing ( 1 ,
activities 977 ) (2,823) 8,878
-------------------------------------------------- ----------------- ------------- -------------- --------------
Net increase in cash and cash 27 , 4
equivalents in the period 68 10,656 19,63 0
Effect of exchange rates on cash
and cash equivalents (2,163) 2,330 2,371
Cash and cash equivalents at
beginning of period 1 5 48,153 26,152 26,152
Cash and cash equivalents at
end of period 1 5 73,458 39,138 48,15 3
-------------------------------------------------- ----------------- ------------- -------------- --------------
(a) See note 2 for details regarding the restatement.
PETROPAVLOVSK PLC
Notes to the condensed consolidated interim financial
statements
Six months ended 30 June 2020
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 2020. The interim financial
statements are unaudited.
The information for the year ended 31 December 2019 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 2019, 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 2019 were
prepared in accordance with International Financial Reporting
Standards ("IFRS"s) as adopted by the European Union.
The condensed consolidated 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
2019, 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 prepared regularly based on a
number of inputs including, but not limited to, forecast commodity
prices and the impact of hedging arrangements, the Group's 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 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, advances received from customers under
prepayment arrangements and external debt.
The Group performed an assessment of the forecast cash flows for
the period of 12 months from the date of approval of the Half Year
Report for the period ended 30 June 2020. As at 30 June 2020, the
Group had sufficient liquidity headroom. The Group is also
satisfied that it has sufficient headroom under a base case
scenario for the period to December 2021. The Group has also
performed projections under a layered stressed case that is based
on:
- a gold price, which is approximately 10% lower than the upper
quartile of the average of the market consensus forecasts;
- processing of third-party concentrate through POX facilities
is approximately 10% lower than projected and oxide gold production
from underground operations at Pioneer and Malomyr approximately
10% lower than projected;
- and Russian Rouble : US Dollar exchange rate that is
approximately 10% stronger than the average of the market consensus
forecasts.
Following the removal of the majority of the non-executive
directors and all executive directors at the Company's annual
general meeting on 30 June 2020 and the requisitioned general
meeting held on 10 August 2020, and the subsequent appointment of
the interim CEO, the Company has encountered a lack of co-operation
from certain senior employees and ex-employees in some of the
Company's material Russian subsidiaries. While the directors
believe that these factors have had no material adverse impact on
the Group's financial position and its operations to date, the
Group has further stressed its cash flow projections to reflect
potential operational inefficiencies for a three-month period from
November 2020, including the following:
- production from gold mining operations being approximately additional 10% lower;
- operating cash costs for gold mining operations being approximately additional 10% higher.
The results of this analysis indicate sufficient liquidity for a
period of at least 12 months, including if there is
underperformance at IRC Ltd (in which the Group holds a 31.1%
interest). In selecting the assumptions in its cash flow stress
testing, the directors have also considered the potential impact of
Covid-19.
As at 30 June 2020, the Group had guaranteed the outstanding
amounts owed by IRC Ltd to Gazprombank under a credit facility. The
outstanding loan principal was US$214 million as at 30 June 2020
and the facility is subject to a $160 million guarantee given by
the Group (see note 21). The directors have considered whether
there is any material uncertainty that IRC will be able to repay
this facility as it falls due in its overall going concern
assessment. IRC projections demonstrate that IRC expects to have
sufficient liquidity over the next 12 months and expects to meet
its obligations under the Gazprombank facility.
As at 30 June 2020, the Group has outstanding debt issued under
US$125 million Convertible Bonds and US$500 million Guaranteed
Notes (see note 19). If the Group fails to comply with its
obligations (including interest payment obligations) under the
Convertible Bonds, Guaranteed Notes or Gazprombank guarantee
arrangements then, if not remedied by the Group, this would result
in events of default which, through cross-defaults and
cross-accelerations, could cause all of the Group's indebtedness to
become repayable on demand. The assessment of whether there is any
material uncertainty that the Group will be able to meet its
repayment and compliance obligations under debt or guarantee
arrangements as they fall due is another key element of the Group's
overall going concern assessment.
Since the requisitioned general meeting held on 10 August 2020,
the Group has made changes to the boards of directors of certain
material subsidiaries of the Company in Russia and reversed changes
to those subsidiaries' constitutional documents which were
instituted by the Group's former CEO during June and July 2020 and
which had the effect of entrenching the previous management of
those subsidiaries. Those changes have been challenged by certain
employees and ex-employees of the Group in legal proceedings in
Russia. In the view of Company legal advisors, these actions are
entirely baseless and without merit. However, it may take several
months for these issues to be resolved and until such time it may
be difficult for the Directors to appoint new management and for
the newly appointed management of the relevant subsidiaries to
interact successfully with 3rd parties as a result of injunctions
granted by the Russian courts pending resolution of the
proceedings.
The Company relies on cash flows from certain Russian
subsidiaries to secure repayments under its debt obligations and
other ongoing expenses as they fall due. The lack of co-operation
from some employees and ex-employees in certain of the Russian
subsidiaries as described above has led to delays in receiving cash
from those subsidiaries in circumstances where those subsidiaries
have not complied fully with the requests of the Company for funds.
The Company has received sufficient cash to enable it to meet its
October 2020 payment obligations under US$125 million Convertible
Bonds and expects to receive cash required to meet its November
2020 payment obligations under US$500 million Guaranteed Notes. The
Company is seeking additional external funding sources to meet its
obligations in the event that future funding from the Russian
subsidiaries is not received.
Having taken into account the aforementioned factors and after
making enquiries and considering the matters described above, the
Directors have concluded that they do not constitute material
uncertainties that may cast significant doubt about the ability of
the Group to continue as a going concern and 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 2020. Accordingly, they
continue to adopt the going concern basis of accounting in
preparing these condensed consolidated financial statements.
Call option over non-controlling interests
As disclosed in note 18 to the Group's consolidated financial
statements for the year ended 31 December 2019, the fair value of
the option was initially recognised as US$9.6 million upon initial
recognition, resulting in a corresponding gain recognised within
Net other finance gains and losses in the statement of profit or
loss. This gain on initial recognition was primarily due to
improvement in the gold price outlook between the pricing and
completion of the transaction together with the judgements taken
with regards to certain inputs into the relevant valuation models,
in particular, historic volatility used as a proxy of the expected
volatility of the underlying assets and being historic volatility
of the comparable listed companies used for the valuations under
IFRS 13 as opposed to historic gold market volatility used for the
valuation of the contractual option premium.
In the condensed consolidated interim financial statements for
the six months ended 30 June 2019 the fair value of the call
option, net of the remaining unpaid premium, was recognised at
US$16.2 million, comprising the initial gain of US$9.6 million, a
revaluation loss of US$(0.4) million and the premium paid to date
of US$7.0 million, with a corresponding net gain of US$9.2 million
recognised within Net other finance gains and losses in the
statement of profit or loss. After further analysis and
consideration of the IFRS 9 application guidance (which prohibits
the recognition of day 1 gains based on valuation techniques that
use unobservable inputs), this economic gain previously recognised
in the period ended 30 June 2019 has been deferred for accounting
purposes in the consolidated financial statements for the year
ended 31 December 2019. The comparative financial information has
been aligned to be on a consistent basis by restating the
comparative amounts as set out below.
Condensed Consolidated Statement of Financial Position
(extract)
30 June Decrease 30 June
2019 2019
Restated
US$'000 US$'000 US$'000
---------------------------------- -------- --------- ---------
( 9,617
Derivative financial instruments 16,158 ) 6,541
( 9,617
Net assets 602,484 ) 592,867
( 9,617
Retained earnings 55,711 ) 46,094
( 9,617
Total equity 602,484 ) 592,867
---------------------------------- -------- --------- ---------
Condensed Consolidated Statement of Profit or Loss (extract)
Six months Increase/ Six months
ended decrease ended
30 June 30 June
2019 2019
Restated
US$' 000 US$' 000 US$' 000
------------------------------------------ ----------- ---------- -----------
( 9,617
Net other finance gains/(losses) 2,210 ) (7,407)
( 9,617
Profit for the period 13,543 ) 3,926
------------------------------------------ ----------- ---------- -----------
Attributable to:
( 9,617
Equity shareholders of Petropavlovsk PLC 14,290 ) 4,673
Non-controlling interests (747) - (747)
------------------------------------------ ----------- ---------- -----------
Condensed Consolidated Statement of Comprehensive Income
(extract)
Six months Decrease Six months
ended ended
30 June 30 June
2019 2019
Restated
US$' 000 US$' 000 US$' 000
------------------------------------------ ----------- --------- -----------
( 9,617
Profit for the period 13,543 ) 3,926
Other comprehensive loss for the period
net of tax (12,538) - (12,538)
------------------------------------------ ----------- --------- -----------
Total comprehensive profit/(loss) for ( 9,617
the period 1,005 ) (8,612)
Attributable to:
( 9,617
Equity shareholders of Petropavlovsk PLC 1,779 ) (7,838)
Non-controlling interests (774) - (774)
------------------------------------------ ----------- --------- -----------
Re-classification of deferred stripping costs
As set out in the 2019 consolidated financial statements ,
following a review of the nature of the deferred stripping costs
balance, the Group has concluded that these costs should had been
presented as mining assets under property, plant and equipment. The
comparative financial information has been aligned to be on a
consistent basis with re-classifications in the Consolidated
Statement of Financial Position from inventory current and
non-current assets to property, plant and equipment non-current
assets of US$36.7 million as at the period ended 30 June 2019. As a
consequence, a US$4.9 million reclassification from Net cash from
operating activities to Net cash used in investing activities in
the Consolidated Statement of Cash Flows for the period ended 30
June 2019 has been also made. There is no impact on the Group's
consolidated statement of profit or loss, profit per share,
retained earnings or net assets for the period ended 30 June
2019.
Other re-classifications
As set out in the 2019 consolidated financial statements ,
impairment losses and impairment reversals on financial instruments
have been reclassified to be presented in a separate line item in
the Consolidated Statement of Profit or Loss. Other finance gains
and other finance losses have been presented in the Consolidated
Statement of Profit or Loss on a net basis as the Group believes it
is more representative since gains and losses relate to similar
financial instruments. The comparative financial information for
the period ended 30 June 2019 has been aligned to be on a
consistent basis with re-classifications from Other finance losses
to Net impairment reversals/(impairment losses) on financial
instruments of US$33.1 million and the remaining Other finance
losses of US$10.6 million and Other finance gains of US$12.8
million presented on a net basis.
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 2020 (such standards, amendments
and interpretations were disclosed in note 2 to the Group's
consolidated financial statements for the year ended 31 December
2019). 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 2020. No other changes have been made to the
Group's accounting policies in the period ended 30 June 2020.
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 2020.
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 2019 .
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
20 20 2020 201 9 2019 201 9 20 19
-------------------------- --------- ------------ --------- ------------ ------------- -------------
GB Pounds Sterling (GBP:
US$) 0.81 0.79 0.79 0.77 0.75 0.78
Russian Rouble (RUB:
US$) 69.95 69.42 63.08 65.20 61.91 64.69
-------------------------- --------- ------------ --------- ------------ ------------- -------------
4. Segment information
The Group's reportable segments under IFRS 8, which are aligned
with its operating locations, were determined to be Pioneer,
Malomir and Albyn hard rock gold mines which are engaged in gold
and silver production as well as field exploration and mine
development. POX Hub facilities are allocated between Pioneer and
Malomir reportable segments based on the expected use by each
segment.
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 Corporate
June 20 20 Pioneer Malomir Albyn and other Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
Revenue
Gold 258,378 136,404 117,553 - 512,335
Silver - - - - -
Other external
revenue - - - 10,396 10,396
Inter segment revenue 17,169 179 6,633 71,166 95,147
Intra group
eliminations (17,169) (179) (6,633) (71,166) (95,147)
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
Total Group revenue
from external
customers 258,378 136,404 117,553 10,396 522,731
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
Operating expenses
and income
(19 (42, (1 2 (3 19
9 , 104 (65, 560 , 679 , 872
Operating cash costs ) 529 ) ) ) )
(22,9 (1,12 (64,6
Depreciation 87 ) (23,941) (16,607) 5 ) 60 )
Central
administration ( 20 ( 20
expenses - - - , 6 71) , 6 71)
Reversal of
impairment of ore
stockpiles - 15 - - 15
Reversal of
impairment of gold
in
circuit - 38 - - 38
(22 (5 (3 4 (40 5
Total operating 2 , 091 (89, 9 , , 475 , 150
expenses (a) ) 417 ) 16 7) ) )
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
Share of results of 1 ,
associates 845 1 , 845
(2 2
36, 4 6 58, , 234 1 19
Segment result 287 , 987 38 6 ) , 426
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
Foreign exchange 2 6 ,
gains 710
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
14 6
Operating profit , 136
Net impairment losses
on financial
instruments (1,274)
Investment and other
finance income 3,962
(33,3
Interest expense 83 )
( 98
Net other finance , 893
losses )
(3 8
, 542
Taxation )
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
(2 1
, 994
Loss for the period )
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
2 19
Segment assets 622,174 665,757 313,567 ,735 1,821,233
Unallocated cash 5,832
Consolidated total
assets 1,827,065
---------------------- ------------------- ----------------- ---------------- -------------- --------------------
(a) Operating expenses excluding foreign exchange gains (note 6).
Six months ended 30 June 201 9 Corporate
Pioneer Malomir Albyn and other Consolidated
(restated)
US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Revenue
Gold (b) 67,868 119,447 102,073 - 289,388
Silver 334 221 96 - 651
Other external revenue - - - 15,289 15,289
Inter segment revenue 23,520 284 2,895 75,615 102,314
Intra group eliminations (23,520) (284) (2,895) (75,615) (102,314)
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Total Group revenue from external
customers 68,202 119,668 102,169 15,289 305,328
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Operating expenses and income
( 55,778 ( 74,780 ( 44,262 (15,88 ( 190,707
Operating cash costs ) ) ) 8 ) )
( 21,645 ( 22,750 ( 24,104 ( 69,152
Depreciation ) ) ) (652) )
(21,95
Central administration expenses - - - (21,953) 3 )
(Impairment)/ reversal of impairment
of ore stockpiles (3,136) - 3,959 - 823
Reversal of impairment of gold in
circuit 101 - - - 101
Total operating expenses (c) (80,458) (97,530) (64,407) (38,493) (280,888)
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Share of results of associates (7,905) (7,905)
Segment result (12,256) 22,138 37,762 (31,109) 16,535
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Foreign exchange losses (14,022)
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Operating profit 2,513
Net impairment reversals on financial
instruments 33,093
Investment and other finance income 4,939
Interest expense (25,979)
Net other finance losses (7,407)
Taxation (3,233)
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Profit for the period 3 ,926
--------------------------------------- ---------- ---------- --------- ----------- ---------------
Segment assets 476,156 650,924 301,738 187,399 1,616,217
Unallocated cash 1,476
Consolidated total assets 1,617,693
--------------------------------------- ---------- ---------- --------- ----------- ---------------
(b) Including US$(6.0) million net cash settlement paid by the
Group for realised cash flow hedges.
(c) Operating expenses excluding foreign exchange losses (note 6).
2019 Pioneer Malomir Albyn Corporate Consolidated
and other
US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------------- ---- --------- ---------- --------- ----------- -------------
Revenue
Gold (e) 223,193 239,365 229,139 - 691,697
Silver 464 267 146 - 877
Other external revenue - - - 49,015 49,015
Inter segment revenue 45,970 537 4,493 145,326 196,326
Intra group eliminations (45,970) (537) (4,493) (145,326) (196,326)
-------------------------------------- --- --------- ---------- --------- ----------- -------------
Total Group revenue from external
customers 223,657 239,632 229,285 49,015 741,589
-------------------------------------- --- --------- ---------- --------- ----------- -------------
Operating expenses and income
(17 0 (4 34
, 349 (1 3 5, ( 80 , (48, 745 , 538
Operating cash costs ) 427 ) 017 ) ) )
(1 37
( 41 , ( 46 , ( 48 , , 775
Depreciation 225 ) 549 ) 144 ) (1,857) )
( 52 , ( 52 ,
Central administration expenses - - - 527 ) 527 )
Reversal of impairment of
mining assets and in-house
service 42,755 - - 9,404 52,159
(Impairment)/reversal of impairment
of ore stockpiles (664) (51 7 ) 3,959 - 2,7 78
Reversal of impairment/(impairment) (1 42
of gold in circuit 101 (2 43 ) - - )
( 169 ( 570
, 382 (18 2 , (12 4 , (9 3 , , 045
Total operating expenses (f) ) 736 ) 202 ) 725 ) )
-------------------------------------- --- --------- ---------- --------- ----------- -------------
Share of results of associate - - - (35,376) (35,376)
-------------------------------------- --- --------- ---------- --------- ----------- -------------
( 80,086
Segment result 54 , 275 5 6 , 896 105, 083 ) 136,168
-------------------------------------- --- --------- ---------- --------- ----------- -------------
(20, 808
Foreign exchange losses )
-------------------------------------- --- --------- ---------- --------- ----------- -------------
Operating profit 115,360
Net impairment reversals on
financial instruments 30,797
Investment and other finance
income 8,826
Interest expense (59,854)
Net other finance losses (42,190)
( 27 ,
Taxation 246 )
-------------------------------------- --- --------- ---------- --------- ----------- -------------
Profit for the year 25,693
629 ,1 70 5 , 31 5 ,
Segment assets 69 230 152 199,578 1,849,129
Unallocated cash 2,914
Consolidated total assets 1,852,043
-------------------------------------- --- --------- ---------- --------- ----------- -------------
(d) Net of US$(31.5) million net of cash settlement paid by the
Group for realised cash flow hedges.
(e) Operating expenses excluding foreign exchange losses (note 6).
5. Group revenue
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
----------------------------------------- -------------- -------------- --------------
Sales of goods:
Gold 512,335 289,388 691,697
Silver - 651 877
Other goods 3,976 7,941 33,395
Rendering of services:
Engineering and construction contracts 5,036 5,565 12,535
Other services 1,042 1,463 2,347
Rental income 342 320 738
522,731 305,328 741,589
----------------------------------------- -------------- -------------- --------------
Timing of revenue recognition:
At a point in time 516,311 297,980 725,969
Over time 6,420 7,348 15,620
----------------------------------------- -------------- -------------- --------------
522,731 305,328 741,589
----------------------------------------- -------------- -------------- --------------
6. Operating expenses and income
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
------------------------------------------ -------------- -------------- --------------
Net operating expenses (a) 38 4 , 532 259,859 5 72 , 313
Reversal of impairment of mining
assets and in-house service (a) - - (52,159)
Reversal of impairment of ore stockpiles
(a) (15) (823) (2,7 78 )
(Reversal of impairment)/impairment
of gold in circuit (38) (101) 1 42
Central administration expenses
(a) 20 , 6 71 21,953 52 , 527
(26, 710
Foreign exchange (gains)/losses ) 14,022 20, 808
37 8 , 440 294,910 590 , 853
------------------------------------------ -------------- -------------- --------------
(a) As set out below.
Net operating expenses
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
Depreciation 64,660 69,152 1 37 , 775
Staff costs 45,178 45,642 9 7 , 615
Materials 42,277 43,517 9 1 , 004
Flotation concentrate purchased 130,175 - 74,010
Fuel 17,652 22,636 4 3 , 612
External services 18,941 28,562 46 , 392
Mining tax charge 15,238 6,695 15,917
Electricity 17,779 17,038 34, 118
Smelting and transportation costs 466 381 858
Movement in ore stockpiles, work
in progress, bullion in process,
limestone and flotation concentrate ( 34 , 156
attributable to gold production 9,297 781 )
Taxes other than income 4,238 3,378 7,706
Insurance 2,225 4,210 8,437
Rental fee 1,6 09 1,247 3,194
(Reversal of)/provision for impairment
of trade and other receivables (27) (75) 2,021
Bank charges 553 319 876
Repair and maintenance 2,860 2,848 6 , 896
Security services 2,265 2,181 4,503
Travel expenses 606 1,31 0 2,902
Goods for resale 2,673 5,907 19,471
Other operating expenses 5,867 4,13 0 9, 162
38 4 , 532 259,859 5 72 , 313
Central administration expenses
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
Staff costs 13,217 16,008 3 3 , 466
Professional fees 3 , 6 62 2,174 1 , 771
Insurance 415 417 797
Rental fee 193 256 481
Business travel expenses 369 930 2,000
Office costs 383 331 832
Other 2,432 1,837 13 , 180
20 , 6 71 21,953 52 , 527
--------------------------
Impairment charges
Impairment of mining assets
As at 30 June 2020 and 30 June 2019, the Group identified no
impairment indicators or indicators of impairment reversal for the
cash generating units related to its gold mining projects and
supporting in-house service companies.
As at 31 December 2019, the Group identified impairment reversal
indicators for the Pioneer CGU and the supporting in-house service
companies. Detailed calculations of recoverable amounts, which are
value-in-use calculations based on discounted cash flows, were
prepared. The estimated recoverable amounts exceeded the carrying
values of the associated assets on the statement of financial
position as at 31 December 2019. Taking into consideration the
above and the removed uncertainty connected with the timing of the
final construction and performance of the POX hub, the Directors
concluded on the following:
- A reversal of impairment previously recorded against the
carrying value of the assets that are part of the Pioneer CGU would
be appropriate. Accordingly, a pre-tax impairment reversal of
US$43.5 million (being a post-tax impairment reversal of US$34.8
million) has been recorded against the associated assets within
property, plant and equipment. The aforementioned impairment
reversal takes into consideration the effect of depreciation
attributable to relevant mining assets and intra-group transfers of
previously impaired assets to Pioneer.
- A further reversal of impairment previously recorded against
the carrying value of the assets of the supporting in-house service
companies would be appropriate. Accordingly, a pre-tax impairment
reversal of US$9.4 million (being a post-tax impairment reversal of
US$7.8 million) has been recorded against the associated assets
within property, plant and equipment. The aforementioned impairment
reversal takes into consideration the effect of depreciation
attributable to relevant assets and intra-group transfers of
previously impaired assets.
The key assumptions which formed the basis of forecasting future
cash flows and the value in use calculation are set out below:
Year ended
31 December
2019
Long-term real gold price US$1,400/oz
Discount rate (a) 7 . 0 %
RUB/US$ exchange rate RUB65.8 : US$1
(a) Being the post-tax real weighted average cost of capital,
equivalent to a nominal pre-tax discount rate of 9.8%.
Impairment of exploration and evaluation assets
As at 30 June 2020, 30 June 2019 and 31 December 2019, the Group
performed a review of its exploration and evaluation assets and
concluded no impairment was required.
As at 30 June 2020, 30 June 2019 and 31 December 2019, all
exploration and evaluation assets in the statement of financial
position related to the areas adjacent to the existing mines (note
10).
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 Six months ended 30 Year ended 31 December
June 2020 June 2019 2019
Pre-tax Pre-tax Pre-tax
Impairment Impairment Impairment
charge Post-tax charge Post-tax charge Post-tax
/(reversal impairment /(reversal impairment /(reversal impairment
of charge/(reversal of charge/(reversal of charge/(reversal
impairment) Taxation of impairment) impairment) Taxation of impairment) impairment) Taxation of impairment)
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Pioneer - - - 3,136 (627) 2,509 664 (133) 531
Malomir (15) 3 (12) - - - 51 7 (88) 429
Albyn - - - (3,959) 673 (3,286) (3,959) 673 (3,286)
(2,7 78 45 (2,32
(15) 3 (12) (823) 46 (777) ) 2 6 )
7. Financial income and expenses and impairment of financial
instruments
Six months Six months Year
ended ended ended
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
Net impairment reversals/(impairment losses)
on financial instruments
Reversal of impairment of financial assets
(a) 2 2,980 2,333
Financial guarantee contract (b) (1,276) 30,113 28,464
(1,274) 33,093 30,797
Investment and other finance income
Interest income 574 2,522 3,216
Guarantee fee income (c) 3,388 2,417 5,610
3,962 4,939 8,826
Interest expense
( 41,995
Notes (20,986) (20,810) )
Convertible bonds (6,455) (6,375) (12,984)
Prepayment on gold sale agreements (6,295) (7,682) (16,019)
(2 81
Lease liabilities ) (270) (593)
(3 4 ,
017 ) (35,137) (71,591)
Interest capitalised 1,019 9,431 12,287
Unwinding of discount on environmental obligation (385) (273) (550)
(33,3
83 ) (25,979) (59,854)
Net other finance (losses)/gains
Fair value loss on the conversion option (3 1,127
(e) (122,248) (9,218) )
(11,211)
Loss on repurchase of the Existing Bonds - - (g)
Fair value gain on the guarantee receivable
(f) 226 3,607 3,607
Fair value gain/(loss) on the call option
over non-controlling interests (d) 20, 558 (459) (1,978)
Fair value loss on other derivative financial
instruments (733) (1,079) (1,345)
Fair value loss on listed equity investments (59) (258) (302)
Gain on lease modification 224 - 166
Fair value gain on commodity and currency
option contracts(h) 3,139 - -
( 98 ,8
93 ) (7,407) (42,190)
(a) S ix months ended 30 June and year ended 31 December 2019:
including US$3.2 million reversal of ECL in relation to loans
granted to IRC (note 21).
(b) Change in the guarantee contract liability under Gazprombank
facility in the amount of 12-month ECL during the period.
(Six months ended 30 June 2019 and year ended 31 December 2019:
US$30.1 million gain and US$28.5 million gain, correspondingly,
being net of:
- recognition of US$7.3 million and US$8.9 million guarantee
contract liability under Gazprombank guarantee arrangements as at
30 June 2019 and 31 December 2019, correspondingly, in the amount
of 12-month ECL; and
- de-recognition of US$( 37.4 ) million guarantee contract
liability previously recognised under ICBC guarantee arrangements
in the amount of the lifetime ECL following termination of the ICBC
Facility Agreement.)
The determination of the Group's US$10.2 million and US$8.9
million guarantee liability as at 30 June 2020 and 31 December
2019, correspondingly, relies upon the critical judgement as to
whether there has been a significant increase in IRC's credit risk
from March 2019 to June 2020 and December 2019. Management have
determined that there has not been a significant increase in credit
risk since March 2019 and therefore the guarantee liability is
measured in the amount of 12-month ECL. This is in contrast to the
ICBC guarantee which was measured int the amount of the lifetime
ECL as there had previously been a significant increase in credit
risk for that guarantee since 2010. This difference in measurement
has resulted in the net accounting gain during the six months ended
30 June and year ended 31 December 2019 as referred to above.
Further details on the financial guarantee contracts are set out
in note 21.
(c) Guarantee fee income under Gazprombank Guarantee arrangements (note 21).
(d) Result of re-measurement of the TEMI option to fair value (notes 16 and 21).
(e) Result of re-measurement of the conversion option to fair value (notes 16 and 18).
(f) Result of re-measurement of receivable from IRC under ICBC
Guarantee arrangements to fair value (six months ended 30 June and
year ended 31 December 2019: result of re-measurement of receivable
from IRC under ICBC guarantee arrangements to fair value, net of
US$0.7 million guarantee fee income) (note 21).
(g) US$100 million convertible bonds due 2020 (the 'Existing
Bonds'): difference between the US$108 million paid to fund the
Repurchase Price and the carrying value of the Existing Bonds at
redemption (note 18).
(h) Result of measurement of commodity and currency option contracts (note 16).
8. Taxation
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
--------------
Current tax
Russian current tax 25,100 12,322 2 9 , 660
25,100 12,322 2 9 , 660
Deferred tax
Origination/(reversal) of timing differences ( 9 ,0 89
(a) 13,442 ) (2, 414 )
Total tax charge (b) 38,542 3,2 33 27 , 246
(a) Including effect of foreign exchange movements in respect of
deductible temporary differences of US$23.7 million (six months
ended 30 June 2019: US$(16.3) million, year ended 31 December 2019:
US$(20.4) 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.
(b) Including effect of expenses that are not deductible for tax
purposes which primarily relate to fair value loss on
re-measurement of the conversion option of the Convertible Bonds
(note 7), effect of tax losses for which no deferred income tax
asset was recognised which primarily relate to interest expense
incurred in the UK (note 7) and Russian withholding tax on
intercompany dividends.
Tax laws, regulations and court practice applicable to the Group
are complex and subject to frequent change, varying interpretations
and inconsistent and selective enforcement. There are a number of
practical uncertainties associated with the application of relevant
tax legislation and there is a risk of tax authorities making
arbitrary judgements of business activities. If a particular
treatment, based on management's judgement of the Group's business
activities, was to be challenged by the tax authorities, the Group
may be subject to tax claims and exposures. Management has
calculated a total exposure (including taxes and respective
interest and penalties) estimated to be US$6.7 million (six months
ended 30 June 2019: US$8.6 million and 2019: US$10.5 million) of
contingent liabilities, including US$1.1 million (30 June 2019:
US$nil and 31 December 2019: US$4.8 million) in respect of income
tax and US$5.6 million (30 June 2019: US$8.6 million and 31
December 2019: US$5.7 million) in respect of other taxes.
9. Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
Restated
US$'000 US$'000 US$'000
(Loss)/profit for the period attributable (2 3 , 934
to equity holders of Petropavlovsk PLC ) 4 ,673 26,883
--------------
Interest expense on convertible bonds
(a) - - -
--------------
(Loss)/profit used to determine diluted (2 3 , 934
earnings per share ) 4 ,673 26,883
--------------
No of shares No of shares No of shares
3 , 309 ,
Weighted average number of Ordinary Shares 3,310,369,237 3,308,154,243 193 , 559
Adjustments for dilutive potential Ordinary
Shares (a) - - -
Weighted average number of Ordinary Shares 3 , 309 ,
for diluted earnings per share 3,310,369,237 3,308,154,243 193 , 559
US$ US$ US$
--------------
Basic (loss)/profit per share (0.01) 0.0 0 0.01
Diluted (loss)/profit per share (0.01) 0.0 0 0.01
(a) Convertible bonds which could potentially dilute basic
profit/(loss) per ordinary share in the future are not included in
the calculation of diluted profit/(loss) per share because they
were anti-dilutive for the six months ended 30 June 2020 and 2019
and the year ended 31 December 2019.
10. Exploration and evaluation assets
Flanks Flanks
of Pioneer of Other Total
Albyn
US$'000 US$'000 US$'000 US$'000
At 1 January 2020 7,544 43,397 2,182 53,123
Additions - 3,341 1,287 4,628
At 30 June 2020 7,544 46,738 3,469 57,751
11. Property, plant and equipment
Capital
Mining Non-mining construction
assets assets in progress Total
US$'000 US$'000 US$'000 US$'000
--------------
Cost
At 1 January 2020 2,509,276 194,515 40,739 2,744,530
Additions ( (a) () 41,328 1,327 40,466 83,121
Interest capitalised - - 1,019 1,019
Transfers from capital construction
in progress (b) 6,892 165 (7,057) -
Disposals ( (c) () (10,948) (10,813) (17) (21,778)
Foreign exchange differences - (2,941) (73) (3,014)
At 30 June 2020 2,546,548 182,253 75,077 2,803,878
Accumulated depreciation and
impairment
At 1 January 2020 1,405,097 129,616 - 1,534,713
Charge for the year (d) 63,228 1,976 - 65,204
Disposals (10,402) (3,126) - (13,528)
Reallocation and other transfers (2,365) 2,365 - -
Foreign exchange differences - (2,227) - (2,227)
At 30 June 2020 1,455,558 128,604 - 1,584,162
Net book value
64,89
At 1 January 2020 ( (e) () 1,104,179 9 40,739 1,209,817
--------------
At 30 June 2020 ( (e) () 1,090,990 53,649 75,077 1,219,716
(a) Including US$23.7 million stripping cost capitalised.
(a) Being costs primarily associated with the POX hub project .
(b) Including US$9.2 million of fleet lease modification, US$7.9
million of fully depreciated fleet that is not suitable for future
use due to wear and tear, US$2.2 million disposals of mining fleet
due to derecognition of the replaced part.
(c) Including US$13.5 million depreciation charge of capitalized stripping cost.
(d) Including US$52.0 million net book value of capitalized
stripping cost (31 December 2019: US$41.9 million).
12. Investments in associates
31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
--------------
IRC Limited ('IRC') 50,950 70 ,848 48,680
50,950 70,848 48,680
Summarised financial information for those associates that are
material to the Group is set out below.
IRC IRC IRC
30 June 2020 30 June 2019 31 December
2019
US$'000 US$'000 US$'000
Non-current assets
Exploration and evaluation assets 20,035 7,800 19,877
Property, plant and equipment 512,652 534,189 522,640
Other non-current assets 14,840 10,986 14,859
547,527 552,975 557,376
Current assets
Cash and cash equivalents 4,980 8,286 4,292
Other current assets 52,065 46,198 46,106
57,045 54,484 50,398
Current liabilities
( 20,710
Borrowings (a) (19,869) ) (20,703)
(82,78 1 ( 88,615
Other current liabilities ) ) (80,288)
(102,6 50 ( 109,325
) ) (100,991)
Non-current liabilities
( 211,113
Borrowings (a) (191,981) ) (201,204)
( 24,610
Other non-current liabilities (24,181) ) (27,578)
( 235,723
(216,162) ) (228,782)
Net assets 285,76 0 262,411 278,001
(a) Gazprombank Facility: On 18 December 2018, IRC entered into
two facility agreements for a loan in aggregate of US$240 million
(the "Gazprombank Facility"). The Gazprombank Facility will mature
in 2026 and consists of two tranches. The principal under the first
tranche amounts to US$160 million with interest being charged at
the London Inter-bank Offer Rate ("LIBOR") + 5.7% per annum and is
repayable in equal quarterly payments during the term of the
Gazprombank Facility, the final payment in December 2026. The
principal under the second tranche amounts to US$80 million with
interest being charged at LIBOR + 7.7% per annum and is repayable
in full at the end of the term, in December 2026. Interest charged
on the drawn down amounts under the two tranches is payable in
equal quarterly payments during the term of the Gazprombank
Facility.
As at 30 June 2020, the entire facility amount of US$240 million
has been fully drawn down.
The Gazprombank Facility is secured by (i) IRC's property, plant
and equipment with net book value of US$53 million, (ii) 100%
equity share of Kapucius Services Limited in LLC KS GOK and (iii) a
guarantee from the Company. Please refer to the note 21 for the
details on the guarantee arrangements. The Gazprombank Facility is
also subject to certain financial covenants and requirements.
IRC IRC IRC
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
Revenue 106,173 89,244 177,164
Net operating expenses (86,489) (91,290) (178,653)
------------
including
Depreciation (13,465) (15,048) (28,504)
Impairment losses under expected credit
loss model (5,176) - -
Foreign exchange gains/(losses) 4,69 0 (5,681) (6,181)
Investment income 26 26 83
Interest expense (13,338) (24,108) (40,421)
Taxation (440) 708 3,157
------------
Profit/(loss) for the period 5,932 (25,420) (38,670)
------------
Other comprehensive profit/(loss) 1,368 (20,535) (3,483)
Total comprehensive profit/(loss) 7,300 (45,955) (42,153)
Group's share % 31.1% 31.1% 31.1%
Group's share in profit/(loss) for
the period 1,845 (7,905) (12,026)
Impairment of investment in associate - - (23,350)
Share of results of associate 1,845 (7,905) (35,376)
Impairment of investment in associate
As at 30 June 2020, the Group identified no impairment
indicators or indicators of impairment reversal in relation to its
investment in IRC (30 June 2019: no impairment indicators and 31
December 2019: detailed calculations of recoverable amounts, which
are value-in-use calculations based on discounted cash flows, were
prepared which concluded a US$23.4 million impairment was required
and recorded accordingly).
13. Inventories
30 June
30 June 201 9 31 December
20 20 (restated) 20 19
US$'000 US$'000 US$'000
--------
Current
Construction materials 9,652 5,456 6,600
Stores and spares 81,956 65,787 86,985
Ore in stockpiles (a), (b) 59,945 55,908 68,479
Gold in circuit 10,055 21,158 37,740
Bullion in process 17,936 528 4,732
Flotation concentrate 33,068 24,124 97,932
Other 8,942 3,174 5,305
221,554 176 , 135 307,773
Non-current
Ore in stockpiles (a), (b), (c) 64,556 51,938 60,257
64,556 51,938 60,257
(a) As at 30 June 2020, there were no balances of ore in
stockpiles carried at net realisable value (30 June 2019: US$36.4
million, 31 December 2019: US$0.1 million).
(b) For details of ore stockpile impairment see note 6.
(c) Ore in stockpiles that is not planned to be processed within
twelve months after the reporting period.
14. Trade and other receivables
30 June 30 June 31 December
20 20 201 9 201 9
US$'000 US$'000 US$'000
------------
Current
VAT recoverable 3 3 , 756 24,033 51,499
Advances to suppliers 13, 329 14,546 10,513
Prepayments for property, plant and
equipment 5 , 411 4,039 9,216
Trade receivables 5,467 8,361 10,254
Contract assets 1,211 1,960 2,856
Guarantee fee receivable (a) 13,041 6,670 9,417
Other debtors 14,61 2 23 ,550 12,220
------------
8 6 , 82
7 83 ,159 10 5,975
------------
Non-current
Other 578 538 556
------------
578 538 556
(a) Please refer to notes 2, 12 and 21 for the details of ICBC
and Gazprombank guarantee arrangements.
The Directors consider that the carrying amount of trade and
other receivables approximates their fair value.
15. Cash and cash equivalents
30 June 30 June 31 December
20 20 201 9 201 9
US$'000 US$'000 US$'000
Cash at bank and in hand 20,540 15,563 14,181
Short-term bank deposits 52,918 23,575 (a) 33,972 (a)
73,458 39,138 48,153
(a) 30 June 2019 and 31 December 2019: including restricted bank
deposit of US$1.0 million and US$1.1 million, correspondingly.
16. Derivative financial instruments
30 June 20 20 30 June 201 9 31 December 201 9
Assets Liabilities Assets (restated) Liabilities Assets Liabilities
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Current
Gold option contracts (a), (c) 1, 11 9 ( 2 , 936 ) - - - -
Currency option contracts (b),
(c) 4,948 (232) - - - -
Forward gold contracts - cash
flow hedge - - - (18,481) - -
Conversion option (e), (f) - - - (11,629) - -
Call option over non-controlling
interests (g), (h), (i) 31,580 - - - - -
Other - - - - (266)
37,647 (3,168) - (30,110) - (266)
Non-current
Gold option contracts (a), (c) 72 (2,799) - - - -
Currency option contracts (b),
(c) 2,658 (579) - - - -
Conversion option (d), (e) (168,561) - - - ( 46 , 313 )
Call option over non-controlling
interests (f), (g), (h) - - 6 , 5 41 - 11 , 022 -
2,730 (171,939) 6 ,541 - 11 , 022 ( 46 , 313 )
(a) Gold option contracts with an exercise price of US$1,600/oz
for purchased put options and US$1,832/oz for issued call options
for an aggregate of 63,000 ounces of gold maturing over a period
until December 2021.
(b) Currency option contracts with an exercise price of RUB75.00
for purchased put options and in the range between RUB90.65 and
RUB100.00 for issued call options for an aggregate of US$126
million maturing over a period until December 2021.
(c) Measured at fair value and considered as Level 2 of the fair
value hierarchy which valuation incorporates the following
inputs:
- Historic gold price and RUB: USD exchange rates volatility;
- exercise price;
- time to maturity; and
- risk free rate.
(d) Note 18.
(e) Measured at fair value and considered as Level 3 of the fair
value hierarchy which valuation incorporates the following
inputs:
- the Group's credit risk and implied credit spreads (Level 3);
- historic share price volatility;
- the conversion price;
- time to maturity; and
- risk free rate.
(f) Call option to acquire non-controlling 25% interest in the
Group's subsidiary LLC TEMI: In May 2019, the Group entered into
the option contract to acquire non-controlling 25% interest in LLC
TEMI from its shareholder Agestinia Trading Limited for an
aggregate consideration of US$60 million (adjusted to US$53.5
million if certain conditions are met). LLC TEMI holds the licences
for the Elginskoye Ore Field and Afanasievskaya Prospective Ore
Are, which have substantial non-refractory gold reserves and
resources, suitable for processing at the Albyn Plant. Further
details on this transaction are set out in note 21.
(g) Measured at fair value and considered as Level 3 of the fair
value hierarchy which valuation incorporates the following
inputs:
- the current valuation of the underlying investment (Level 3);
- historic peers' volatility attributed to the valuation of the
underlying investment (Level 3);
- the exercise price;
- time to maturity; and
- risk free rate.
(h) The fair value of the TEMI option at the period ended 30
June 2020 is US$31.6 million, which represent the premium paid to
acquire the option of US$13.0 million and a subsequent revaluation
gain of US$18.6 million.
17. Trade and other payables
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
Current
Trade payables (a) 64,217 50,666 134,818
Payables for property, plant and equipment 3,865 4,789 5,810
Advances from customers (b) 103,482 114,404 188,968
Advances received on resale contracts
(c) 12,808 11,287 7,698
Accruals and other payables 45,276 35,554 51 , 747
229,648 216,700 3 8 9, 041
Non-current
Advances from customers (d) 19,473 43,761 -
19,473 43,761 -
(a) The trade payables as at 30 June 2020 include US$28.5
million payable for flotation concentrate purchased (31 December
2019: US$81.0, 30 June 2019: US$nil).
(b) The current advances from customers as at 30 June 2020
include US$101.5 million (31 December 2019: US$152.5 million, 30
June 2019: US$106.5 million) and US$nil million (31 December 2019:
US$34.9 million, 30 June 2019: US$6.4 million) advance payments
received from Gazprombank and Sberbank, respectively, under gold
sales agreements. Advance payments are to be settled against
physical delivery of gold produced by the Group in regular
intervals over the period of up to twelve months from the reporting
date based on the sales price prevailing at delivery that is
determined with reference to LBMA fixing. For details of interest
charged in relation to the aforementioned advances please refer to
note 7.
(c) Amounts included in advances received on resale and
commission contracts at 30 June 2020, 30 June 2019 and 31 December
2019 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.
(d) The non-current advances from customers as at 30 June 2020
include US$19.5 million (31 December 2019: US$nil, 30 June 2019:
US$43.8 million) advance payments received from Gazprombank under
gold sales agreements. Advance payments are to be settled against
physical delivery of gold produced by the Group in regular
intervals over the period after twelve months from the reporting
date based on the sales price prevailing at delivery that is
determined with reference to LBMA fixing. For details of interest
charged in relation to the aforementioned advances please refer to
note 7.
The Directors consider that the carrying amount of trade and
other payables approximates their fair value.
-
18. Borrowings
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
Borrowings at amortised cost
Notes (a) 501,051 499,504 500,377
Convertible Bonds (b), (c) 110,385 97,045 109,086
611,436 596,549 609,463
Amount due for settlement within 12 months - 97,045 -
Amount due for settlement after 12 months 611,436 499,504 609,463
611,436 596,549 609,463
(a) US$500 million Guaranteed Notes due for repayment on 14
November 2022 (the "Notes"), measured at amortised cost. The Notes
were issued by the Group's wholly owned subsidiary Petropavlovsk
2016 Limited and are guaranteed by the Company and its subsidiaries
JSC Pokrovskiy Rudnik, LLC Albynskiy Rudnik and LLC Malomirskiy
Rudnik. The Notes have been admitted to the official list of the
Irish Stock Exchange and to trading on the Global Exchange Market
of the Irish Stock Exchange on 14 November 2017. The Notes carry a
coupon of 8.125% payable semi-annually in arrears. The interest
charged was calculated by applying an effective interest rate of
8.35%.
(b) 30 June 2020 and 31 December 2019: Debt component of the
US$125 million Convertible Bonds due on 03 July 2024 measured at
amortised cost and not revalued. The bonds were issued by the
Group's wholly owned subsidiary Petropavlovsk 2010 Limited (the
"Issuer") on 03 July 2019 and are guaranteed by the Company. The
bonds carry a coupon of 8.25% per annum, payable quarterly in
arrears. The bonds are, subject to certain conditions, convertible
into fully paid ordinary shares of the Company with an initial
exchange price of US$0.1350, subject to customary adjustment
provisions. The interest charged was calculated by applying an
effective interest rate of 12.08%.
The Group has used the US$120.6 million net proceeds from the
issue of US$125 million Convertible Bonds to fund the repurchase of
the outstanding US$100 million convertible bonds as set out below,
resulting in the net US$12.6 million cash inflow.
Concurrently with the issue of the US$125 million Convertible
Bonds, the Group also concluded the invitation to repurchase (the
"Repurchase") any and all of the outstanding US$100 million 9.00%
convertible bonds due 2020 (the "Existing Bonds"). Holders whose
Existing Bonds have been accepted for purchase by the Issuer
pursuant to the Repurchase were eligible to receive US$1,080 per
US$1,000 in principal amount of the Existing Bonds (the "Repurchase
Price"). The Issuer also paid, in respect of Existing Bonds
accepted for purchase pursuant to the Repurchase, a cash amount
representing the accrued but unpaid interest ("Accrued Interest")
on each US$1,000 in aggregate principal amount of Existing Bonds
accepted for repurchase from and including 18 June 2019, being the
immediately preceding interest payment date applicable to the
Existing Bonds, to but excluding the settlement date for the
Repurchase (the "Repurchase Settlement Date"). The Accrued
Interest, based on a Repurchase Settlement Date of 3 July 2019
comprised US$3.75 per US$1,000 in aggregate principal amount of
Existing Bonds.
The remaining Existing Bonds were redeemed at the Repurchase
Price on 9 July 2019. The Issuer also paid a cash amount
representing the Accrued Interest on each US$1,000 in aggregate
principal amount of Existing Bonds from and including 18 June 2019
to redemption.
The Existing Bonds were subsequently cancelled by the Issuer.
The US$11.2 million difference between the US$108.0 million paid to
fund the Repurchase Price and the carrying value of the Existing
Bonds at redemption was recognized as loss on repurchase of the
Existing Bonds (note 7).
The conversion option of the US$125 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 (note 16) which the fair value loss is included in the
net other finance (losses)/ gains (note 7).
The fair value of debt component of the convertible bonds,
considered as Level 3 of the fair value hierarchy, amounted to
US$124.7 million (31 December 2019: US$122.8 million), with the
carrying value of US$110.4 million (31 December 2019: US$109.0
million). Valuation incorporates the following inputs: the Group's
credit risk and implied credit spreads, time to maturity and risk
free rate.
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$293.3 million (31 December 2018: US$169.1 million).
(c) 30 June 2019: Debt 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
instruments.
As at 30 June 2019, the fair value of debt component of the
convertible bonds, considered as Level 3 of the fair value
hierarchy, amounted to US$98.5 million. Valuation incorporates the
following inputs: the Group's credit risk, time to maturity and
risk free rate.
As at 30 June 2019, 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$110.1 million.
The US$100 million Convertible Bonds were refinanced in July
2019 as set out above.
-
19. Share capital
30 June 2020 30 June 2019 31 December 2019
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 3,307,151, 3,307,151,
the period 3,310,210,281 49,003 71 2 48,963 71 2 48,9 63
Issued during the period 2,615,541 32 3 ,058,569 40 3 ,058,569 40
At the end of the period 3,312,825,822 49,035 3,310,210,281 49,003 3,310,210,281 49,003
The Company has one class of ordinary shares which carry no
right to fixed income.
-
20. Notes to the cash flow statement
Reconciliation of profit before tax to operating cash flow
Six months
ended 30
June 2019 Year ended
Six months
ended 30 31 December
June 2020 (restated) 2019
US$'000 US$'000 US$'000
Profit before tax 16,548 7,159 52,939
Adjustments for:
Share of results of associates (1,845) 7,905 35,376
Net impairment losses/(impairment reversals)
on financial instruments 1,274 (33,093) (30,797)
Investment and other finance income (3,962) (4,939) (8,826)
Interest expense 33,383 25,979 59,854
Net other finance losses 98,893 7,407 42,190
Share based payments 89 130 280
Depreciation 64,660 69,152 137,775
Reversal of impairment of ore stockpiles (15) (823) (2,778)
Effect of processing previously impaired
stockpiles (502) (5,733) (6,398)
(Reversal of)/provision for impairment
of trade and other receivables (21) (75) 2,280
(Reversal of impairment)/impairment of
gold in circuit (38) (101) 142
Effect of processing previously impaired
gold in circuit (206) (1,413) (1,413)
Loss on disposals of property, plant and
equipment 663 116 1,118
Foreign exchange losses/(gains) (26,710) 14,022 20,808
Reversal of impairment of mining assets
and in-house service - - (52,159)
Other non-cash items 999 73 129
Changes in working capital:
Decrease/(increase) in trade and other
receivables 13,045 (13,990) (31,204)
Decrease/(increase) in inventories 82,129 (735) (133,848)
(Decrease)/increase in trade and other
payables (105,626) (15,847) 103,853
Net cash generated from operations 172,758 55,19 4 189,321
Reconciliation of cash flows used to purchase property, plant
and equipment
Six months Six months Year ended
ended 30 ended 30 31 December
June 2020 June 2019 2019
US$'000 US$'000 US$'000
Additions to property, plant and equipment 83,121 49,513 125,524
Non-cash additions to property, plant
and equipment:
Transfer from materials 50 3,014 7,343
Capitalised depreciation (430) (399) (737)
Right-of-use assets additions (1,735) (4,552) (13,279)
81,006 47,57 6 118,85 1
Associated cash flows:
Purchase of property, plant and equipment 78,618 44,969 120,798
Increase in prepayments for property,
plant and equipment 3,804 3,194 (1,982)
(Decrease)/increase in payables for property,
plant and equipment (1,945) (452) 568
Cash movements presented in other cash
flow lines:
Changes in working capital 529 (135) (533)
81,006 47,57 6 118,851
Non-cash transactions
There were no significant non-cash transactions during the six
months ended 30 June 2020 and 30 June 2019.
An equivalent of US0.1$ million of VAT recoverable was offset
against profit tax during the year ended 31 December 2019 and
US$1.5 million of provision of profit tax relating to Albyn, was
accrued as at 31 December 2019.
21. Related parties
Related parties the Group entered into transactions with during
the reporting period
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
board of directors of the Petropavlovsk Foundation.
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 2020 and 30 June 2019 and the year
ended 31 December 2019 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 2019 31 December
2020 2019 2019 2020 US$'000 2019
US$'000 US$'000 US$'000 US$'000 US$'000
Entities in which key management
have interest and exercises
a significant influence or
control - - - 195 3,287 4,046
IRC Limited and its subsidiaries 58 23 42 58 219 5,458
58 23 42 253 3,506 9,504
On 13 December 2019, the Group entered into the sale and
purchase agreement with a seller (the "Seller"), a related party of
the Company, LLC GMMC. Pursuant to the sale and purchase agreement,
the Group agreed to purchase, and the Seller agreed to sell, a
helicopter for a consideration of RUB316.7 million (equivalent to
US$5.0 million). The transaction was completed in February
2020.
During the six months ended 30 June 2020, the Group made US$ 0.2
million charitable donations to the Petropavlovsk Foundation (six
months ended 30 June 2019: US$0.1 million and year ended 31
December 2019: US$ 1.0 million).
The outstanding balances with related parties at 30 June 2020,
30 June 2019 and 31 December 2019 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
2020 2019 2019 2020 2019 2019
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Entities in which key management
have interest and exercises
a significant influence or
control - - - - - 759
IRC Limited and its subsidiaries 3,622 2,101 3,651 1,166 1,117 5,863
3,622 2,101 3,651 1,166 1,117 6,622
Financing transactions
Guarantee over IRC's external borrowings
The Group historically entered into an arrangement to provide a
guarantee over its associate's, IRC, external borrowings, the ICBC
Facility ('ICBC Guarantee'). As at 30 June 2020 the remaining
outstanding contractual guarantee fee was US$5.0 million, which had
a corresponding fair value of US$4.7 million and is payable by IRC
no later than 31 December 2020 (30 June 2019: outstanding
contractual guarantee fee of US$5.7 million with corresponding fair
value after provision for credit losses of US$4.8 million; 31
December 2019: outstanding contractual guarantee fee of US$5.0
million with corresponding fair value after provision for credit
losses of US$4.4 million).
In March 2019, IRC has refinanced the ICBC Facility through
entering into a US$240 million new facility with Gazprombank
('Gazprombank Facility'). The facility was fully drawn down during
the year ended 31 December 2019 and was used, inter alia, to repay
the amounts outstanding under the ICBC Facility in full, the two
loans provided by the Group in the equivalent of approximately
US$57 million and part of the ICBC Guarantee fee of US$6 million
owed by IRC to the Group.
A new guarantee was issued by the Group over part of the
Gazprombank Facility ('Gazprombank Guarantee'), the guarantee
mechanism is implemented through a series of five guarantees that
fluctuate in value through the eight-year life of the loan, with
the possibility of the initial US$160 million principal amounts
guaranteed reducing to US$40 million within two to three years,
subject to certain conditions being met. For the final two years of
the Gazprombank Facility, the guaranteed amounts will increase to
US$120 million to cover the final principal and interest
repayments. If certain springing recourse events transpire,
including default on a scheduled payment, then full outstanding
loan balance is accelerated and subject to the guarantee. The
outstanding loan principal was US$214 million as at 30 June 2020
(31 December 2019: US$225 million and 30 June 2019: US$235
million). Under the Gazprombank Guarantee arrangements, the
guarantee fee receivable is determined at each reporting date on an
independently determined fair value basis, which for the six months
ended 30 June 2020 was at the annual rate of 3.07% for 2020 by
reference to the average outstanding principal balance under
Gazprombank Facility. The guarantee fee charged for the six months
ended 30 June 2020 was US$3.4 million, with corresponding value of
US$3.2 million after provision for expected credit losses (six
months ended 30 June 2019: US$$2.4 million, with corresponding
value of $2.2 million after provision for expected credit losses;
year ended 31 December 2019: US$5.6 million, with corresponding
value of US$5.0 million after provision for expected credit
losses).
On 18 March 2020, the Group announced a preliminary agreement to
dispose of its 29.9% out of 31.1% interest in IRC to Stocken Board
AG for a cash consideration of US$10 million, subject to certain
conditions precedent being met, including the release of the
Group's obligation to guarantee IRC's debt under the Gazprombank
Facility.
The following assets and liabilities have been recognised in
relation to the ICBC Guarantee and Gazprombank Guarantee as at 30
June 2020, 30 June 2019 and 31 December 2019:
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
--------
Other receivables - ICBC Guarantee
(a) 4,662 4,828 4,436
Other receivables - Gazpombank Guarantee
(b) 8,380 1,842 4,981
Financial guarantee contract - Gazpombank
Guarantee (c) 10,199 7,274 8,923
(a) The fair value of the receivable, comprising billed fee
receivable, less provision for credit losses. Considered Level 3 of
the fair value hierarchy which valuation incorporates the following
inputs:
- Assessment of the credit standing of IRC and implied credit spread;
- Share price and share price volatility of IRC as at 30 June
2020, 30 June 2019 and 31 December 2019;
(b) Amounts of guarantee fee for the period that are expected to
be received from IRC and calculated by applying annual rate of
3.07% for the six months ended 30 June 2020 and the year ended 31
December 2019 by reference to the average outstanding principal
balance under Gazprombank Facility for the relevant the period,
less provision for ECL.
(c) Measured in accordance with ECL model: the amount of the
loss allowance equals to 12-month ECL as it has been concluded that
the credit risk on the financial guarantee contract has not
increased significantly since initial recognition.
The results from relevant re-measurements of the aforementioned
assets and liabilities were recognised within Other finance gains
and losses and impairments of financial instruments (note 7).
Other financing transactions
In March 2018, the Group entered into a loan agreement with Dr
Pavel Maslovskiy. At 30 June 2020, the loan outstanding amounted to
an equivalent of US$0.2 million (30 June 2019: US$0.2 million ; 31
December 2019: US$0.2 million). Interest charged during the six
months ended 30 June 2020 comprised an equivalent of US$0.0 1
million (six months ended 30 June 2019: US$0.01 million; year ended
31 December 2019: US$0.01 million).
In April 2019, the Group entered into a loan agreement with Dr
Alya Samokhvalova. At 30 June 2020, the loan outstanding amounted
to an equivalent of US$0.4 million (30 June 2019: US$0.4 million ;
31 December 2019: US$0.4 million). Interest charged during the six
months ended 30 June 2020 comprised an equivalent of US$0.01
million (six months ended 30 June 2019: US$0.01 million ; year
ended 31 December 2019: US$0.02 million).
Investing transactions
In May 2019, the Group entered into the option contract to
acquire the remaining non-controlling 25% interest in the
subsidiary LLC TEMI from Agestinia Trading Limited, a
non-controlling holder of 25% interest in LLC TEMI, for an
aggregate consideration of US$60 million (adjusted to US$53.5
million if certain conditions are met). This represents a related
party transaction as it is over the equity of a subsidiary company.
The option premium payable is US$13 million, which was paid during
the year ended 31 December 2019. The exercise period of the option
is 730 days from 22 May 2019.
The Group employed an independent third party expert to
undertake the valuations of the underlying 25% interest in LLC TEMI
and the call option. As at 30 June 2020, the fair value of the
derivative financial asset was US$31.6 million (30 June 2019:
US$6.5 million; 31 December 2019: US$11.0 million) reflecting a
gain on re-measurement to fair value of US$20.6 million (six months
ended 30 June 2019: US$(0.5) million loss; year ended 31 December
2019: US$(2.0) million loss) (note 16).
There are no other related party relationships with Agestinia
Trading Limited present.
Key management compensation
Key management personnel, comprising a group of 17 individuals
during the period (six months ended 30 June 2019: 12 and year ended
31 December 2019: 14), including Executive and Non-Executive
Directors of the Company and members of senior management, are
those having authority and responsibility for planning, directing
and controlling the activities of the Group.
Six months Six months Year ended
ended ended 31 December
30 June 2020 30 June 2019 2019
US$'000 US$'000 US$'000
Wages and salaries 2,255 2,048 5,794
Pension costs 38 32 62
Share-based compensation 91 90 157
2,384 2,170 6,013
22. Analysis of Net Debt..
At 1 January Net cash Exchange Non-cash At 30 June
2020 movement movement changes 2020
US$'000 US$'000 US$'000 US$'000 US$'000
(2,1 63
Cash and cash equivalents 48,153 27,4 68 ) - 73,458
25,468 (27,441)
Borrowings (609,463) (a) - (b) (611,436)
(2,1 63
Net Debt (u) (561,310) 52,9 36 ) (27,441) (537,978)
( 4 ,
Lease liabilities (13,178) 2 , 053 769 5 , 739 617 )
Conversion option (c) (46,313) - - (122,248) (168,561)
(14 3
(1, 394 , 9 5 0 (7 11
(620,801) 54, 989 ) ) , 156 )
(a) Being US$25.5 million interest paid on borrowings, which is
presented as operating cash flows in the Statement of cash
flows.
(b) Being accrued interest expense which is presented as
operating cash flows in the Statement of cash flows when paid (note
7).
(c) Notes 16, 18.
At 1 January Net cash Exchange Non-cash At 30 June
2019 movement movement changes 2019
US$'000 US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents 26,152 10,656 2,330 - 39,138
24,813 (27,185)
Borrowings (594,177) (d) - (e) (596,549)
( 27,185
Net Debt (u) (568,025) 35,469 2,330 ) (557,411)
Lease liabilities (1,739) 789 (454) (4,822) (6,226)
Conversion option (f) (2,411) - - (9,218) (11,629)
Call option over Company's
shares (1,136) 2,215 - (1,079) -
(573,311) 38,473 1,876 (42,304) (575,266)
(d) Being US$24.8 million interest paid on borrowings, which is
presented as operating cash flows in the Statement of cash
flows.
(e) Being accrued interest expense which is presented as
operating cash flows in the Statement of cash flows when paid (note
7).
(f) Notes 16, 18.
At 1 January Net cash Exchange Non-cash At 31 December
2019 movement movement changes 2019
US$'000 US$'000 US$'000 US$'000 US$'000
--------------- ----------- ---------- ---------
Cash and cash equivalents 26,152 19,630 2,371 - 48,153
(53,414)
Borrowings (594,177) 38,128 (g) - (h) (609,463)
--------------- ----------- ---------- ---------
Net Debt (u) (568,025) 57,758 2,371 (53,414) (561,310)
Lease liabilities (1,739) 1,879 (570) (12,748) (13,178)
Conversion option (i) (2,411) - - (43,902) (46,313)
Call option over Company's
shares (1,136) 2,215 - (1,079) -
--------------- ----------- ---------- ---------
(573,311) 61,852 1,801 (111,143) (620,801)
(g) Being US$50.7 million interest paid on borrowings, which is
presented as operating cash flows in the Statement of cash flows,
and US$12.6 million net cash inflow from the issue of US$125
million Convertible Bonds and the repurchase of the outstanding
US$100 million convertible bonds (note 18).
(h) Being principally accrued interest expense which is
presented as operating cash flows in the Statement of cash flows
when paid (note 7).
(i) Notes 16, 18.
-
23. Capital commitments
At 30 June 2020, the Group had entered into contractual
commitments in relation to the acquisition of property, plant and
equipment amounting to US$9.7 million (30 June 2019: US$6.6
million, 31 December 2019: US$10.7 million) including US$5.8
million in relation to Pioneer Flotation project (30 June 2019:
nil, 31 December 2019: US$7.4 million) and US$2.7 million in
relation to POX Hub project (30 June 2019: US$5.1 million, 31
December 2019: US$2.5 million).
24. Subsequent events
Partial conversion of US$125 million Convertible Bonds
During the period after 30 June 2020, the Company has received
Conversion Notices in respect of the exercise of conversion rights
under the US$125 million Convertible Bonds (note 18). The principal
amount of the Convertible Bonds in respect of which the Conversion
Notices have been served amounted to an aggregate of US$86.8
million, which, at a fixed exchange price of US$0.1350 per ordinary
share, resulted in the issue and allotment of an aggregate of
642,962,951 new ordinary shares.
Other
Included in note 2 under the Going Concern section are details
of the events that followed the requisitioned general meeting held
on 10 August 2020 relating to the certain material subsidiaries
based in Russia. An estimate of the financial impact of the events
outlined in note 2 cannot be made.
25. Reconciliation of non-GAAP measures
Six months Six months Year ended
ended ended
30 June 2020 30 June 2019 31 December
2019
US$'000 (restated) US$'000
US$'000
-------------- -------------
(2 1 , 994
(Loss)/profit for the period ) 3,926 25,693
Add/(less):
Net impairment losses/(impairment
reversals) on financial instruments 1 , 274 (33,093) (30,797)
Investment and other finance income (3,962) ( 4,939 ) (8,826)
Interest expense 33,3 83 25,979 59,854
Net other finance losses 98 ,8 93 7,407 42,190
(26, 710
Foreign exchange (gains)/losses ) 14,022 20, 808
Taxation 3 8 , 542 3,233 27 , 246
Depreciation 64,66 0 69,152 1 37 , 775
Reversal of impairment of mining assets
and in-house service - - (52,159)
Reversal of impairment of ore stockpiles (15) (823) (2,7 78 )
(Reversal of impairment)/impairment
of gold in circuit (38) (101) 1 42
Share in results of associates (a) 8,615 13,715 45,699
Underlying EBITDA .. 19 2 , 648 98,478 264,847
-------------- -------------
(a) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange gains/losses, taxation,
depreciation and impairment/reversal of impairment recognised by
the associate and impairment recognised against investment in the
associate (note 12).
The Use and Application of Alternative Performance Measures
(APMs)
Throughout this Half Year Report, 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 Statement of Profit or Loss
(SPL), Consolidated Statement of Financial Position (SFP),
Consolidated Statement of Cash Flows (SCF) 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 three hard-rock
operations and processing and selling an ounce of gold by treatment
of third party sourced refractory concentrate at the POX Hub.
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 and
mining tax. 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, gold in circuit and flotation concentrate,
impairment of exploration and evaluation assets, impairment of
mining assets, impairment of non-trading loans, central
administration expenses, depreciation minus each segment's revenue
from external customers, reversal of impairment of ore stockpiles
and gold in circuit, reversal of impairment of mining assets and
in-house service. 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, bullion in process and flotation concentrate
attributable to gold production. 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 20 20 Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------- --------- ------------- -----------------------
37 8 ,
Operating expenses SPL 440
Deduct:
Foreign exchange note 2 6 ,
gains 6 710
note (64,6
Depreciation 6 60 )
Reversal of impairment note
of ore stockpiles 6 15
Reversal of impairment note
of gold in circuit 6 38
Central administration note ( 20 ,
expenses 6 6 71)
note 42, 56 1 2 , 3 19 ,
Operating cash costs 4 19 9 , 104 65, 529 0 679 872
Deduct:
Corporate and other note (1 2 , (1 2 ,
segment 4 679 ) 679 )
Deduct: silver revenue note - - - -
4 -
42, 56 307 ,
Total Cash Costs 19 9 , 104 65, 529 0 - 193
1 5 8 ,8 7 1 , 312 ,
Total ounces sold oz 44 81 , 726 785 354
Total Cash Cost per
ounce sold US$/oz 1, 253 802 593 983
H1 2019 (restated) Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ----------- ----------- ---------
Operating expenses SPL 294,910
Deduct:
Foreign exchange note
losses 6 (14,022)
note
Depreciation 6 (69,152)
Reversal of impairment note
of ore stockpiles 6 823
Reversal of impairment note
of gold in circuit 6 101
Central administration note
expenses 6 (21,953)
---------- ----------- ----------- ---------
note
Operating cash costs 4 55,778 74,779 44,262 15,888 190,707
Deduct:
Corporate and other note
segment 4 (15,888) (15,888)
note
Deduct: silver revenue 4 (334) (221) (96) - (651)
---------- ----------- ----------- ---------
Total Cash Costs 55,444 74,558 44,166 - 174,168
---------- ----------- ----------- ---------
Total ounces sold oz 52,805 92,938 79,288 225,031
Total Cash Cost per
ounce sold US$/oz 1,050 802 557 774
FY2019 Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------- --------- -------------- ---------------
Operating expenses SPL 590,853
Deduct:
Foreign exchange note
losses 6 (20,808)
note (137,
Depreciation 6 775 )
Reversal of impairment
of mining assets note
and in-house service 6 52,159
Reversal of impairment note
of ore stockpiles 6 2,778
Impairment of gold note (14 2
in circuit 6 )
Central administration note
expenses 6 (52,527)
---------- --------- -------------- ---------------
note 1 35 , 48,74 4 34 ,
Operating cash costs 4 17 0 , 349 42 7 80 , 017 5 538
Deduct:
Corporate and other note (48,74 (48,74
segment 4 5 ) 5 )
note
Deduct: silver revenue 4 (464) (267) (146) - (877)
---------- --------- -------------- ---------------
1 3 5, 384 ,9
Total Cash Costs 1 69 , 885 16 0 79 , 871 - 16
---------- --------- -------------- ---------------
Total ounces sold oz 163,398 179,791 170,817 514,005
Total Cash Cost per
ounce sold US$/oz 1,0 40 752 468 749
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, gold in
circuit and flotation concentrate, central administration expenses,
plus sustaining capitalised stripping, close-down and site
restoration, sustaining capital and exploration expenditure and
payments under sustaining leases. 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 20 20 Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------------- ------------ ----------- --------------- ------------------------
19 9 30 7 ,
Total cash costs , 104 65, 529 42, 560 - 193
Add:
Reversal of
impairment note
of ore stockpiles 6 - (15) - - (15)
Reversal of
impairment note
of gold in circuit 6 - (38) - - (38)
Central
administration note 10 , 20 , 6
expenses 6 512 5 , 409 4, 750 - 71
note
Capitalised stripping 11 12,995 10,713 - - 23,708
Site restoration
costs 629 - 57 - 686
Sustaining exploration
expenditures 362 - 158 - 520
Sustaining Capital 10,6 4
Expenditures 12, 393 5 3 , 174 - 26 , 212
Sustaining Lease 149 1,047 857 - 2,053
All-in Sustaining 236, 3 80 ,
costs 144 9 3 , 290 51 , 556 - 990
Total ounces sold oz 158,844 81,726 71,785 - 312,354
All-in Sustaining
costs per ounce sold US$/oz 1,4 87 1,1 41 718 - 1,2 20
H1 2019 (restated) Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
------------ ----------- ------------ --------------- --------------
Total cash costs 55,444 74,558 44,166 - 174,168
Add:
Impairment/(reversal
of impairment) of note
ore stockpiles 6 3,136 - (3,959) - (823)
Reversal of impairment note
of gold in circuit 6 (101) - - - (101)
Central administration note
expenses 6 5,151 9,067 7,735 - 21,953
Capitalised stripping 2,554 2,333 - - 4,887
Site restoration
costs 105 114 306 - 525
Sustaining exploration
expenditures 2,126 1,204 69 - 3,399
Sustaining Capital
Expenditures 11,130 6,900 9,619 - 27,649
All-in Sustaining
costs 79,545 94,176 57,936 - 231,657
------------ ---------------
Total ounces sold oz 52,805 92,938 79,288 - 225,031
All-in Sustaining
costs per ounce sold US$/oz 1,506 1,013 731 - 1,029
FY2019 Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ---------- --------- ----------- ---------
1 69 1 3 5, 384 ,9
Total cash costs , 885 16 0 79 , 871 - 16
Add:
Impairment/(reversal
of impairment) of note
ore stockpiles 6 664 517 (3,959) - (2,778)
Impairment/(reversal
of impairment) of note
gold in circuit 6 (101) 24 3 - - 14 2
Central administration note
expenses 6 16,698 1 8, 373 1 7 , 456 - 52 , 527
14 ,
Capitalised stripping 454 1 2 , 653 - - 27,107
Site restoration
costs 210 229 614 - 1, 053
Sustaining exploration
expenditures 3,983 77 29 - 4 , 089
Sustaining Capital 16,88
Expenditures 3 16 , 467 23 , 893 - 57 , 243
All-in Sustaining 222,67 1 8 3 ,71 1 17 ,
costs 6 9 904 - 524 , 299
---------- -----------
1 7 0,
Total ounces sold oz 163,398 179 , 791 817 - 514 , 005
All-in Sustaining
costs per ounce sold US$/oz 1,363 1,0 2 2 690 - 1, 020
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
capitalised stripping (when the resulting ore production phase is
more than five years), non-sustaining exploration and capital
expenditure, (reversal of impairment)/impairment of refractory ore
stockpiles and payments under non-sustaining leases. 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 2020 Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------------- --------------- ---------------- -----------------------
All-in sustaining 236, 3 80 ,
costs 144 9 3 , 290 51 , 556 - 990
Add :
Exploration expenditure - 1,289 3,359 - 4,648
Capital expenditure 16,075 - 12,103 - 28 , 178
25 2 6 7 , 4 13 ,
All-in costs , 219 9 4 , 579 018 - 816
Total ounces sold oz 158,844 81,726 71,785 - 312,354
All-in costs per
ounce sold US$/oz 1,5 88 1,1 57 9 34 - 1,3 25
H1 2019 Ref Corporate
Pioneer Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$' 000 US$'000
---------------- ---------- ----------- --------
All-in sustaining
costs 79,545 94,176 57,936 - 231,657
Add :
Exploration expenditure 608 266 3,921 - 4,795
Capital expenditure 3,406 5,762 - - 9,168
All-in costs 83,559 100,204 61,857 - 245,620
---------------- ---------- --------
Total ounces sold oz 52,805 92,938 79,288 - 225,031
All-in costs per
ounce sold US$/oz 1,582 1,078 780 - 1,091
FY2019 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in Sustaining 222 ,67 1 8 3 1 17 524 ,
Costs 6 - ,71 9 , 904 - 299
Add:
10 ,1
Exploration expenditure 691 - 1,0 95 8,350 - 36
22 , 10 , 32 ,
Capital Expenditure 169 - 190 - - 359
245 ,53 1 9 5,00 1 26 566 ,7
All-in costs 6 - 4 , 254 - 94
---------- ------------- ---------- -------- ----------- --------
1 63 1 7 9 1 7 0, 514 ,
Total ounces sold oz , 398 - , 791 817 - 005
All-in costs per 1, 50 1, 08 1, 10
ounce sold US$/oz 3 - 5 739 - 3
Average Realised Gold Sales Price
Definition
The average realised gold sales price is the mean price at which
the Group sold its gold production output throughout the reporting
period, including the realised effect of cash flow hedge contracts
during the period.
Calculation
The average realised gold sales price is calculated by dividing
total revenue received from gold sales (including the realised
effect of any hedging contracts) by the total quantity of gold sold
during the period. Other companies may calculate this measure
differently.
Relevance
As gold is the key commodity produced and sold by the Group, the
average realised gold sales price is a key driver behind the
Group's revenues and profitability.
Reconciliation
The average realised gold price has been calculated as set out
in the table below.
Ref H1 2020 H1 2019 FY201 9
---------- -------- ----------
note
Gold revenue 4 US$' 000 512 ,3 35 289,388 691,697
Gold sold ounces 312 , 354 225,031 514 , 005
-------- ----------
Average realised gold
price US$/oz 1,640 1,286 1,346
-------- ----------
Capital Expenditure (CAPEX)
Definition
CAPEX is the investment required by the Group to explore and
develop its gold assets and keep current plants and other equipment
at its gold mines in good working order.
Calculation
CAPEX represents cash flows used in investing activities, namely
Purchases of property, plant and equipment and Expenditure of
exploration and evaluation assets.
Relevance
Capital expenditure is necessary in order not only to maintain
but also to develop and grow the business. Capex requirements need
to be balanced in line with the Group's strategy and provide an
optimal allocation of the Group's funds.
Reconciliation
The table below provides a reconciliation between capital
expenditure and cash flows used in investing activities.
Ref H1 2020 H1 2019 FY2019
US$' 000 (restated) US$' 000
US$' 000
---------- ------------ -----------
Purchase of property,
plant and equipment SCF 7 8, 618 4 4 , 969 120 , 798
Expenditure on exploration
and evaluation assets SCF 4, 648 4,929 10,136
Less:
n ote
Capitalised stripping 11 (23,708) (4,887) (27,107)
------------ -----------
59 , 55
Total C apital E xpenditure 8 45,011 103,827
------------ -----------
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 e quivalents. 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 statement of financial
position. The measure is also widely used by various
stakeholders.
Reconciliation
The table below provides calculation of net debt at relevant
reporting dates.
Ref 30 June 2020 31 December
US$'000 2019
US$'000
----- ------------- ------------
Cash and cash equivalents SFP 73,458 48,153
Borrowings SFP (611,436) (609,463)
----- ------------
Net debt (537,978) (561,310)
------------
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, impairment
charges/reversal of impairment. 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 widely used by
various stakeholders.
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 2020 H1 2019 FY2019
US$'000 (restated) US$'000
US$'000
-------- ------------ ---------
(21, 994
(Loss)/profit for the period SPL ) 3,926 25 , 693
Add/(less):
Net impairment losses/(impairment
reversals) on financial instruments 1,274 (33,093) (30,797)
Investment and other finance
income SPL (3,962) (4,939) (8,826)
Interest expense SPL 33,3 83 25,979 59,854
Net other finance losses SPL 98 ,8 93 7 , 407 42,190
(2 6 ,7 10
Foreign exchange (gains)/losses note 6 ) 14,022 20,808
Taxation SPL 3 8 , 542 3,2 33 27,246
Depreciation note 6 6 4 ,66 0 69,152 137,775
Reversal of impairment of
ore stockpiles note 6 (15) (823) (2,778)
(Reversal of impairment)/
impairment of gold in circuit note 6 (38) (101) 142
Reversal of impairment of
mining assets and in-house
service note 6 - - (52,159)
Share in results of associates note 1
(a) 2 8 , 615 13,715 45 , 699
Underlying EBITDA 19 2 , 648 98,478 264,847
Corporate Consolidated
Pioneer Malomir Albyn and other
H1 2020
Ref US$'000 US$'000 US$'000 US$'000 US$'000
---------- ---------------------- ------------------------
Operating 14 6 ,
profit SPL 136
Foreign
exchange (2 6 ,
gains note 6 710 )
Segment 36, (2 2 , 1 19 ,
result note 4 287 4 6 , 987 58, 386 234 ) 426
Add/ (less):
22,9
Depreciation notes 4,6 87 23,941 16,607 1,12 5 64,6 60
Reversal of
impairment
of ore
stockpiles notes 4,6 - (15) - - (15)
Reversal of
impairment
of gold in notes
circuit 4,6 - (38) - - (38)
Share in
results
of
associates
(a) note 12 8,615 8,615
----------------------
59, 7 4 , (12, 494 19 2 ,
Underlying EBITDA 274 7 0 , 875 993 ) 648
----------------------
Corporate Consolidated
H1 2019 (restated) Pioneer Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000
------------ ---------------- -------------
Operating profit SPL 2,513
Foreign exchange
losses note 6 14,022
Segment result note 4 (12,256) 22,138 37,762 (31,109) 16,535
Add/ (less):
Depreciation notes 4,6 21,645 22,750 24,104 652 69,152
Impairment/ (reversal
of impairment)
of ore stockpiles notes 4,6 3,136 - (3,959) - (823)
Reversal of impairment
of gold in circuit notes 4,6 (101) - - - (101)
Share in results
of associates (a) note 12 13,715 13,715
------------ ----------------
Underlying EBITDA 12,424 44,888 57,907 (16,742) 98,478
------------ ----------------
Corporate Consolidated
FY2019 Pioneer Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000
-------- ----------- -------------
1 15 ,
Operating profit SPL 360
Foreign exchange
losses note 6 20,808
5 4 ( 80 , 1 36 ,
Segment result note 4 ,275 56,896 105,083 086 ) 168
Add/ (less):
Depreciation notes 4,6 41,225 46,549 48,144 1,85 7 137,775
Reversal of impairment
of mining assets
and in-house service notes 4,6 (42,755) - - (9,404) (52,159)
Impairment/(reversal
of impairment)
of ore stockpiles notes 4,6 664 517 (3,959) - (2,778)
Impairment/(reversal
of impairment)
of gold in circuit notes 4,6 (101) 243 - - 142
Share in results note 1
of associates (a) 2 45 , 699 45 , 699
-------- -----------
Underlying EBITDA 53,308 104,205 149,268 (41,934) 264,847
-------- -----------
(a) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange gains and losses,
taxation, depreciation and impairment/reversal of impairment
recognised by an associate and impairment recognised against
investment in the associate.
See "The Use and Application of Alternative Performance Measures
(APMs)" section for further information on our APMs
See "The Use and Application of Alternative Performance Measures
(APMs)" section for further information on our APMs
.. Throughout this document, when discussing the Group's
financial performance, reference is made to a number of financial
measures, known as Alternative Performance Measures (APMs), which
are not defined or calculated in accordance with IFRS. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. Throughout this document, when discussing the Group's
financial performance, reference is made to a number of financial
measures, known as Alternative Performance Measures (APMs), which
are not defined or calculated in accordance with IFRS. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. Throughout this document, when discussing the Group's
financial performance, reference is made to a number of financial
measures, known as Alternative Performance Measures (APMs), which
are not defined or calculated in accordance with IFRS. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. Throughout this document, when discussing the Group's
financial performance, reference is made to a number of financial
measures, known as Alternative Performance Measures (APMs), which
are not defined or calculated in accordance with IFRS. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. Throughout this document, when discussing the Group's
financial performance, reference is made to a number of financial
measures, known as Alternative Performance Measures (APMs), which
are not defined or calculated in accordance with IFRS. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. 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. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. 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. Go to "The
Use and Application of Alternative Performance Measures (APMs)"
section for further information on our APMs.
.. Net debt is an Alternative Performance Measure (APM), which
is not defined or calculated in accordance with IFRS. Go to "The
Use and Application of Alternative performance Measures (APMs)"
section for further information about our APMs.
.. Underlying EBITDA is an Alternative Performance Measure
(APM), which is not defined or calculated in accordance with IFRS.
Go to "The Use and Application of Alternative Performance Measures
(APMs)" section for further information on our APMs.
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