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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Petropavlovsk Plc | LSE:POG | London | Ordinary Share | GB0031544546 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.20 | 1.20 | 1.25 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMPOG
RNS Number : 4643Q
Petropavlovsk PLC
12 September 2017
12 September 2017
Petropavlovsk PLC
Half Year Report for the Period Ended 30 June 2017
Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issues its Half Year Report for the period from 1 January 2017 to 30 June 2017 ("H1 2017" or the "Period").
Chairman's Comments
Ian Ashby, Independent Non-Executive Chairman, comments:
"This is a strong set of half year results that demonstrates the Company is making good progress with its ambitious development plans whilst achieving solid operational results and maintaining continued financial discipline.
During H1, management remained focused on optimising production plans to ensure the most efficient use of our existing asset base, whilst maximising profitability. This strategy, together with the continued excellent work of our experienced operational team, has contributed to a 91% increase in operating profit for H1 compared with the same period in 2016 - US$65 million from US$34 million.
A more than twofold increase in net cash from operating activities to US$74.6 million gives us further confidence to proceed with our capital expenditure program to ensure the timely delivery of our development projects. The recent gold price environment has assisted with cash generation and helped to de-risk the delivery of our key development assets. Our management team constantly monitors the gold price and maintains the Group's hedging positon to ensure levels of cash generation that meet development budget needs, as a downturn in the gold price could stress the company's liquidity position.
We achieved Total Cash Costs (TCC..) of US$675/oz, slightly up from US$663/oz in H1 2016 but within our original forecast range for 2017 of US$600 - 700/oz. Costs for the year are now expected to be c.US$700/oz at current exchange rates, at the upper end of original guidance. The increases in the Company's All-in-Sustaining Costs ("AISC"(u) ) to US$965/oz and All-in Costs ("AIC"(u) ) to US$1,044/oz primarily reflect sustaining capital expenditure relating to underground developments and tailing dam expansion, exploration, stripping and greater central administration expenses. AIC was also affected by capital expenditure in relation to the POX project.
Both development projects progressed well during the period. The delay with the underground development of Malomir caused by the late mobilization of equipment by the mining subcontractors was partially offset by the steady work of our team. The wide range in our full year production forecast reflects our conservative approach to the commissioning of scalable production from underground mining. We are currently on schedule for first production from POX to begin in Q4 2018.
We continue to look for ways to de-risk our development plans, including focusing on securing free cash from the operating business and improving the Company's capital structure. Additionally, we are assessing the best way to realise value for IRC.
The non-executive directors, myself included, are still relatively new to their roles within the Company following the recent changes to the Board at the June AGM. As such, we continue to develop and deepen our understanding of the business, its substantial potential and the work we must do to realise the best returns for all stakeholders. However, I have been impressed by what I have seen and heard so far, particularly during a recent visit with Vladislav Egorov, Non-Executive Director, to the Group's operations in the Amur region. We visited all the operational sites including the underground developments and the POX construction. Additionally, we visited key support facilities and the regional office in Blagoveschensk, where we met with employees to discuss the business. I was very impressed with the level of diligence and enthusiasm that our people apply in executing the Company's strategy.
Mr Sergey Ermolenko, the Acting CEO of the Group who previously held this position from December 2011 to November 2014, has been instrumental in guiding our operations since his appointment on 18 July 2017. The
Board is confident that Mr Ermolenko is well positioned to manage the Company during the transition to new leadership. In the meantime, the Board has engaged an agency to facilitate the search for a permanent CEO candidate, and we will update the market on further progress in due course."
(..) Throughout this document, when discussing the Group's financial performance, reference is made to a number of financial measures, known as Alternative Performance Measures (APM), which are not defined or calculated in accordance with IFRS. Please refer to Section "The Use and Application of APMs" of this report for further information on APMs, their definition, how they are calculated and their relevance to Petropavlovsk.
Financial Highlights
-- 20% increase in Group Revenue to US$304 million (compared to US$254million in 2016) due to 19% increase in production and 5% increase in average realised gold price
-- Profit for the period increased by 166% at US$24.5 million (compared to US$9.2 million in 2016) benefited from higher revenues and only a modest increase in costs
-- 91% increase in Operating Profit to US$65 million (H1 2016: US$34 million) -- 30% increase in EBITDA.. to US$114 million (H1 2016: US$88 million) -- 150% increase in Net Cash from Operating Activities(u) to US$74.6 million
-- 5% increase in average realised gold price(u) of US$1,255/oz (H1 2016: US$1,194/oz) somewhat benefited from US$2.8 million contribution from cash flow hedge
-- Total Cash Costs(u) increased by only 2% from H1 2016:
- TCC(u) US$675/oz within the original forecast range for the full year of US$600 - 700/oz (H1 2016: US$663/oz)
- AISC(u) up 27% to US$965/oz (H1 2016: US$762/oz) primarily reflecting sustaining capital expenditure relating to underground developments and tailing dam expansion, exploration, stripping and greater central administration expenses
- AIC(u) up 37% to US$1,044/oz (H1 2016: US$761/oz), reflecting the increase in AISC(u) and capital expenditure(u) in relation to the POX Hub
-- 5% reduction in Net Debt(u) to US$570 million (FY 2016: US$599 million)
-- Capital expenditure(u) of US$41.8 million includes US$10.9 million of exploration spend and US$31 million of development capex, (u) the majority of which related to the POX and underground projects, expansion of tailing dams and ongoing exploration (H1 2016: US$11.9 million)
The Group continues to adopt the going concern position, however, under a layered stress scenario, the Group would be required to take mitigating actions in order to avoid any liquidity or covenant compliance issues.
H1 Production Highlights
Hot Features
Premium
-- 19% yoy increase in H1 total gold production - c.232,400oz (H1 2016: 195,600oz)
Gold production - Dore (incl. GIC movement), '000oz
-------------------------------------------------------------
Q2 2017 Q2 2016 H1 2017 H1 2016
================ ========== ========= ========= =========
Pioneer 47.9 34.7 96.4 71.0
================ ========== ========= ========= =========
Pokrovskiy 8.4 9.1 14.2 17.2
================ ========== ========= ========= =========
Malomir 12.3 12.2 28.7 24.8
================ ========== ========= ========= =========
Albyn 45.7 38.8 93.1 82.6
---------------- ---------- --------- --------- ---------
Total 114.3 94.8 232.4 195.6
---------------- ---------- --------- --------- ---------
Note: from the beginning of 2017, the Company moved to using gold poured as the definition for production. Comparable 2016 gold production numbers are adjusted accordingly.
FY 2017 Outlook
-- Production forecast for full year of c.420,000 - 460,000oz reconfirmed
-- TCC(u) guidance for full year 2017 at c.US$700/oz, at upper end of original guidance (US$600 - 700/oz)
-- Forward contracts to sell an aggregate of 500Koz of gold over a period from July 2017 to December 2019 at an average price of US$1,252/oz were outstanding as at 30 June 2017
-- Year-end Net Debt(u) is expected to decrease to c.US$560 million, assuming an average gold price of US$1,265/oz for the remainder of the year
Development Update
-- POX construction progressing well - on time and on budget for commissioning in Q4 2018
-- Malomir flotation plant (Stage 1) being prepared for production of flotation concentrate in H1 2018
-- After delays at Malomir in the beginning of the year, underground development at both Pioneer and Malomir mines is moving ahead for full scale high grade ore production by the end of 2017
Exploration Update
-- Two new zones of non-refractory mineralisation suitable for open pit mining discovered at Pioneer:
-- High grade pay shoot at NE Bakhmut - 2 proven to a depth of 140m below the pit floor and remains open; the best deep intersection (19.6m @ 10.90g/t) indicates strong exploration upside
-- New non-refractory satellite deposit Katrin (near Pioneer) confirmed offering immediate production upside
-- New continuation of Unglichikan deposit identified; the discovery confirms strong exploration potential near the Albyn mine
-- Exploration at Ulgen, an early stage exploration target c.30km southwest from the Albyn plant, suggests there are many similarities with the 2.8Moz Elginskoye deposit
-- New high grade pay shoot discovered at Quartzitovoye, Malomir, with preparations under way to mine it from underground
IRC Update
IRC Ltd. is a producer and developer of industrial commodities with its shares quoted on the Hong Kong Stock Exchange (Stock Code 1029). IRC released its interim results for the six months ended 30 June 2017 on 31 August 2017. The results are available to view on the IRC website at http://www.ircgroup.com.hk.
Key highlights from this report are as follows:
-- K&S is operating at c.50% capacity as at June and ramp-up continues for near full capacity at the year end
-- Threefold revenue increase to US$51.2 million (30 June 2016: US$16.1 million) -- K&S generated EBITDA(u) of US$14 million -- Production and sales volumes of iron ore concentrate more than tripled - Production volume up 271% to 697,431 tonnes (30 June 2016: 188,111 tonnes) - Sales volume up 218% to 698,632 tonnes (30 June 2016: 219,352 tonnes) -- Net operating gain of US$2.3 million (30 June 2016: loss of US$11.4 million) -- Loss for the period reduced to US$9.7 million (30 June 2016: loss of US$9.9 million)
-- ICBC agreed to restructure loan repayment schedule, including full principal repayment holiday in 2017
CEO Comments
Commenting on the announcement, Sergey Ermolenko, Acting Chief Executive Officer, said:
Operationally, the Company had a positive first half of the year with a 19% year on year increase in total gold production for the period of c.232,400oz, compared to 195,600oz in H1 2016. As indicated in the H1 Update on 18 July 2017, these results were to plan and are the outcome of operational efficiencies and a strong performance in all operational areas across our mines.
The production results are especially encouraging given that the first half of the year is usually weaker than the second half for Petropavlovsk, due to the scheduling of heap leach operations and extensive stripping works in the first half of the year. The decision to introduce underground operations for the mining of high grade material will allow us to plan our mining operations in a smoother manner.
In line with this success, we reiterate our full year forecast for gold production of c.420,000 - 460,000oz, reflecting mainly our conservative approach to planned underground developments.
At the beginning of the year, a dedicated resin treatment facility was established to cost effectively improve the processing efficiency of resin at the Group's Resin in Pulp plants. The implementation of these upgrades has been successful as measured by the positive contribution towards gold production throughout the first half of the year. Following these improvements, the Company moved to using gold poured as the definition for production, bringing production reported in line with production sold and thereby reducing the impact of GIC. In our results, comparable 2016 gold production numbers are adjusted accordingly.
Regarding the POX hub, the oxygen plant and other key construction works are progressing well and in places nearing completion as scheduled for 2017, with some outstanding construction at an early stage. More than 80% of the project equipment is on site, including all critical and long lead items. The four 15m x 4m autoclaves are installed and lined with acid resistant lining. All core supporting structures are complete, including the oxygen, autoclave and filtration plants. An independent technical consultancy is monitoring our progress and considers that a one year time frame to complete remaining work is achievable.
We are targeting commissioning of the Malomir flotation plant (Stage 1) in Q4 2017 with flotation concentrate production in H1 2018. This is to be followed by oxygen plant commissioning in Q2 2018 and POX Hub commissioning in Q4 2018; the ramp up to commercial production is due to occur throughout 2019.
Underground developments progressed well during the period, advancing 1,446.1m at Pioneer, and 696.9m at Malomir despite delays with contractor mobilisation. We expect scalable production from underground operations by the end of the year.
Following a 1.55Moz increase in JORC non-refractory reserves in 2016, reinforcing our belief in the strong exploration potential of our existing assets, exploration work during 2017 continued to deliver positive results, including the discovery of a new non-refractory deposit Katrin, near Pioneer, and a new high grade pay shoot discovered in May at Quartzitovoye, Malomir. We are preparing to start production from both these new discoveries in the near future.
I am committed to driving operational stability during the transition to new management in my tenure as acting CEO. I will be focusing particularly on the successful implementation of our POX hub and underground development projects, underpinned by smooth and stable work at our producing mines, generating substantial cash flows for further developments. I am very happy to be supported by our team of specialists, whose commitment was clearly demonstrated during the recent Board visit to the mines."
Conference Call
There will be a presentation and conference call with management today at 09.00am and there will be an opportunity for callers to ask questions. The presentation itself will be available via the Petropavlovsk website, http://www.petropavlovsk.net.
Please use the following numbers to dial in to the call, quoting the word 'Petropavlovsk' to the operator:
From the UK 020 3059 8125 or toll free 0800 368 0649 All other locations +4420 3059 8125
Enquiries
For more information, please visit www.petropavlovsk.net and www.ircgroup.com.hk or contact:
Petropavlovsk PLC
Alya Samokhvalova
Grace Hanratty
+44 (0) 20 7201 8900
TeamIR@petropavlovsk.net
Maitland
Neil Bennett
James Isola
+44 (0) 20 7379 5151
Petropavlovsk-Maitland@maitland.co.uk
About Petropavlovsk
Petropavlovsk is one of Russia's leading gold mining companies. As at 30 June 2017, the Company had produced approximately 6.5Moz of gold.
At this time, Petropavlovsk is in the construction phase of a state of the art pressure oxidation facility to process the Company's substantial refractory resource base. The Company's combined 3,600km(2) license holding has untapped resource potential. The Company is a leading employer and contributor to the development of the local economy in the Amur region, Russian Far East, where it has operated since 1994.
Petropavlovsk is a shareholder (31.1%) of IRC Limited and is the guarantor of the US$340 million project finance facility (US$234 million principal outstanding as at 31 December 2016). IRC is a vertically integrated iron ore producer and developer in the Russian Far East and Northeastern China. IRC is listed on the Hong Kong Stock Exchange (ticker: 1029.HK).
Petropavlovsk is listed on the Main Market of the London Stock Exchange (ticker POG:LN).
Financial Review
Note: Figures may not add up due to rounding
Financial Highlights
H1 2017 H1 2016
------------------------------------------ ------------- -------- --------
Gold produced '000oz 232.4 195.6
Gold sold '000oz 231.8 195.4
Group revenue US$ million 304.0 254.0
Average realised gold price.. US$/oz 1,255 1,194
Average LBMA gold price afternoon
fixing US$/oz 1,238 1,221
Total average cash costs(u)
(a) US$/oz 675 663
All-in sustaining costs(u)
(b) US$/oz 965 762
All-in costs(u) (b) US$/oz 1,044 761
Underlying EBITDA(u) US$ million 114.1 88.0
Operating profit US$ million 64.9 34.2
Profit before tax US$ million 46.8 4.8
Profit for the period US$ million 24.5 9.2
Profit for the period attributable
to equity shareholders of Petropavlovsk
PLC US$ million 23.3 9.2
Basic profit per share US$ 0.01 0.00
Net cash from operating activities US$ million 74.6 29.9
------------------------------------------ ------------- -------- --------
(a) Calculation of total cash costs ("TCC") is set out in the section Hard-rock mines below.
(b) All-in sustaining costs ("AISC") and all-in costs ("AIC") are calculated in accordance with guidelines for reporting all-in sustaining costs and all-in costs published by the World Gold Council. Calculation is set out in the section All-in sustaining costs and all-in costs below.
30 June 2017 31 December
2016
--------------------------- ------------ ------------ -----------
Cash and cash equivalents US$ million 32.7 12.6
Loans US$ million (512.9) (522.8)
Convertible bonds (c) US$ million (89.9) (88.4)
--------------------------- ------------ ------------ -----------
Net Debt(u) US$ million (570.1) (598.6)
--------------------------- ------------ ------------ -----------
(c) US$100 million convertible bonds due on 18 March 2020 at amortised cost.
Revenue
H1 2017 H1 2016
US$ million US$ million
------------------------------ ----------- -----------
Revenue from hard-rock mines 291.7 234.2
Revenue from other operations 12.4 19.8
------------------------------- ----------- -----------
304.0 254.0
------------------------------ ----------- -----------
Group revenue during the period was US$304.0 million, 20% higher than the US$254.0 million achieved in H1 2016.
Revenue from hard-rock mines was US$291.7 million, 25% higher than the US$234.2 million achieved in H1 2016. Gold remains the key commodity produced and sold by the Group, comprising 96% of total revenue generated in H1 2017. The physical volume of gold sold from hard-rock mines increased by 19% from 195,434 ounces in H1 2016 to 231,760 ounces in H1 2017. The average realised gold price(u) increased by 5% from US$1,194/oz in H1 2016 to US$1,255/oz in H1 2017. The average realised gold price(u) includes a US$12/oz effect from hedge arrangements (H1 2016: US$(28)/oz).
Hard-rock mines sold 48,182 ounces of silver in H1 2017 at an average price of US$17/oz, compared to 48,124 ounces in H1 2016 at an average price of US$15/oz.
Revenue generated as a result of third-party work by the Group's in-house service companies was US$12.4 million in H1 2017, a US$7.4 million decrease compared to US$19.8 million in H1 2016. This revenue is substantially attributable to sales generated by the Group's engineering and research institute, Irgiredmet, primarily through engineering services and the procurement of materials, consumables and equipment for third parties, which comprised US$11.4 million in H1 2017 compared to US$17.5 million in H1 2016.
Cash flow hedge arrangements
In order to increase certainty in respect of a significant proportion of its cash flows, the Group has entered into a number of gold forward contracts.
Forward contracts to sell an aggregate of 99,998 ounces of gold matured during the H1 2017 and contributed US$2.8 million to cash revenue (H1 2016: US$(5.5) million net cash settlement paid by the Group from forward contracts to sell an aggregate of 65,828 ounces of gold).
The Group constantly monitors the gold price and hedges some portion of production as considered necessary. Forward contracts to sell an aggregate of 500Koz of gold at an average price of US$1,252 per ounce were outstanding as at 30 June 2017. Forward contracts to sell an aggregate of 479Koz of gold at an average price of US$1,253 per ounce are outstanding as at 11 September 2017.
Underlying EBITDA.. and analysis of operating costs
H1 2017 H1 2016
US$ million US$ million
-------------------------------------------- -------------- ------------
Profit for the period 24.5 9.2
Add/(less):
Investment income (0.4) (0.2)
Interest expense 14.4 30.5
Other finance gains (2.0) (2.3)
Other finance losses 6.1 1.5
Foreign exchange losses 0.5 5.9
Taxation 22.3 (4.4)
Depreciation 48.0 59.3
Reversal of impairment of ore stockpiles (6.3) (12.3)
Impairment of gold in circuit 1.4 -
Impairment of non-trading loans 0.5 -
Share of results of associates (a) 5.1 0.9
Underlying EBITDA(u) 114.1 88.0
-------------------------------------------- -------------- ------------
(a) Group's share of interest expense, investment income, other finance gains and losses, foreign exchange losses, taxation, depreciation and impairment recognised by an associate (IRC)
Underlying EBITDA(u) as contributed by business segments is set out below.
H1 2017 H1 2016
US$ million US$ million
-------------------------------------------- -------------- ------------
Pioneer 52.9 43.5
Pokrovskiy (0.5) 6.6
Malomir 3.2 7.0
Albyn 78.8 46.7
-------------------------------------------- -------------- ------------
Total Hard-rock mines 134.5 103.8
Corporate and other (20.3) (15.8)
Underlying EBITDA(u) 114.1 88.0
-------------------------------------------- -------------- ------------
Hard-rock mines
During this period, hard-rock mines generated underlying EBITDA(u) of US$134.5 million compared to US$103.8 million underlying EBITDA in H1 2016.
Total cash costs.. for hard-rock mines increased from US$663/oz in H1 2016 to US$675/oz in H1 2017. The increase in TCC primarily reflects the effect of Rouble appreciation, inflation of certain Rouble denominated costs and lower recoveries at Pioneer and Malomir, which was compensated by a mining tax concession the Group continued to apply in H1 2017. The increase in the average realised gold price(u) from US$1,194/oz in H1 2016 to US$1,255/oz in H1 2017 and the increase in physical ounces sold had a US$33.3million positive contribution to underlying EBITDA(u) in H1 2017. This effect was offset by the increase in total cash costs(u) , which had a US$2.6 million impact on the underlying EBITDA...
The key components of the operating cash expenses are wages, electricity, diesel, chemical reagents and consumables, as set out in the table below. The key cost drivers affecting the operating cash expenses are stripping ratios, production volumes of ore mined and processed, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.
Compared with H1 2016 there was ongoing inflation of certain Rouble denominated costs, in particular, electricity costs increased by up to 12% in Rouble terms (increased by up to 37% in US Dollar terms) and the cost of diesel increased by up to 9% in Rouble terms (increased by up to 33% in US Dollar terms). An 18% appreciation of the Rouble against the US Dollar has occurred during H1 2017 compared to H1 2016, with the average exchange rate for the period going from 70.54 Roubles per US Dollar in H1 2016 to 57.93 Roubles per US Dollar in H1 2017.
Refinery and transportation costs are variable costs dependent on production volume. Mining tax is also a variable cost dependent on production volume and the gold price realised. The mining tax rate is 6%. The Group continued applying a two-year mining tax concession.
H1 2017 H1 2016
------------------
US$ million % US$ million %
------------------------------------- ------------ ---- ------------ ----
Staff cost 34.4 23 25.6 21
Materials 50.7 33 44.1 35
Fuel 21.0 14 19.1 15
Electricity 15.0 10 10.6 9
Other external services 16.7 11 12.1 10
Other operating expenses 12.8 9 11.9 10
150.6 100 123.4 100
------------------------------------- ------------ ---- ------------ ----
Movement in ore stockpiles, work
in progress and bullion in process
attributable to gold production
(a) (5.5) (19.8)
-------------------------------------- ------------ ---- ------------ ----
Total operating cash expenses 145.1 103.6
-------------------------------------- ------------ ---- ------------ ----
(a) Excluding deferred stripping
Hard-rock mines H1 2017 H1 2016
----------------------------------------
Pioneer Pokrovskiy Malomir Albyn Total Total
US$ US$ US$ US$ US$ US$
million million million million million million
---------------------------- -------- ---------- -------- -------- -------- --------
Revenue
Gold 119.0 19.3 35.9 116.6 290.8 233.4
Silver 0.5 0.1 0.0 0.1 0.8 0.7
---------------------------- -------- ---------- -------- -------- -------- --------
119.5 19.4 36.0 116.7 291.7 234.2
---------------------------- -------- ---------- -------- -------- -------- --------
Expenses
Operating cash expenses 65.5 19.7 30.0 29.9 145.1 103.6
Refinery and transportation 0.2 0.0 0.0 0.2 0.4 0.3
Other taxes 1.0 0.2 0.9 1.0 3.1 3.2
Mining tax - - - - - 14.2
Deferred stripping costs - - 1.8 6.8 8.6 9.0
Depreciation 14.9 3.4 7.5 22.2 47.9 59.0
Impairment/(reversal
of impairment) of ore
stockpiles (3.1) 0.1 0.3 (3.6) (6.3) (12.3)
Impairment of gold in
circuit - 0.8 0.6 - 1.4 -
Operating expenses 78.5 24.2 41.1 56.4 200.2 177.2
Result of precious metals operations 41.0 (4.7) (5.1) 60.3 91.5 57.0 ---------------------------- -------- ---------- -------- -------- -------- -------- Add/(less): Depreciation 14.9 3.4 7.5 22.2 47.9 59.0 Impairment/(reversal of impairment) of ore stockpiles (3.1) 0.1 0.3 (3.6) (6.3) (12.3) Impairment of gold in circuit - 0.8 0.6 - 1.4 - ---------------------------- -------- ---------- -------- -------- -------- -------- Segment EBITDA.. 52.9 (0.5) 3.2 78.8 134.5 103.8 ---------------------------- -------- ---------- -------- -------- -------- -------- Physical volume of gold sold, oz 94,690 15,402 28,700 92,967 231,760 195,434 ---------------------------- -------- ---------- -------- -------- -------- -------- Cash costs Operating cash expenses 65.5 19.7 30.0 29.9 145.1 103.6 Refinery and transportation 0.2 0.0 0.0 0.2 0.4 0.3 Other taxes 1.0 0.2 0.9 1.1 3.1 3.2 Mining tax - - - - - 14.2 Deferred stripping costs - - 1.8 6.8 8.6 9.0 Operating cash costs 66.6 19.9 32.8 37.9 157.2 130.4 Deduct: co-product revenue (0.5) (0.1) (0.0) (0.1) (0.8) (0.7) ---------------------------- -------- ---------- -------- -------- -------- -------- Total cash costs(u) 66.1 19.8 32.7 37.8 156.4 129.7 ---------------------------- -------- ---------- -------- -------- -------- -------- Average TCC(u) , US$/oz 698 1,286 1,140 406 675 663
All-in sustaining costs.. and all-in costs(u)
AISC(u) increased from US$762/oz in H1 2016 to US$965/oz in H1 2017. The increase in AISC(u) reflects the sustaining capital expenditure, primarily in relation to Pioneer and Malomir underground projects and expansion of tailing dams at Pioneer and Albyn, ongoing exploration focused on near mine resource expansion, prospective stripping at Albyn in advance of the mining in 2018 and the increase in central administration expenses.
AIC(u) increased from US$761/oz in H1 2016 to US$1,044/oz in H1 2017, primarily reflecting the increase in
AISC(u) explained above and capital expenditure in relation to the POX project.
Hard-rock mines H1 2017 H1 2016
----------------------------------------
Pioneer Pokrovskiy Malomir Albyn Total Total
US$ US$ US$ US$ US$ US$
million million million million million million
--------------------------- -------- ---------- -------- -------- -------- --------
Physical volume of
gold sold, oz 94,690 15,402 28,700 92,967 231,760 195,434
--------------------------- -------- ---------- -------- -------- -------- --------
Total cash costs(u) 66.1 19.8 32.7 37.8 156.4 129.7
Average TCC(u) , US$/oz 698 1,286 1,140 406 675 663
--------------------------- -------- ---------- -------- -------- -------- --------
Impairment/(reversal
of impairment) of ore
stockpiles (0.8) 0.1 0.3 (3.6) (4.1) (4.1)
Impairment of gold
in circuit - 0.8 0.6 - 1.4 -
--------------------------- -------- ---------- -------- -------- -------- --------
Adjusted operating
costs 65.3 20.7 33.6 34.1 153.7 125.6
Central administration
expenses 9.4 1.5 2.9 9.3 23.1 13.1
Capitalised stripping
at end of the period - - 6.8 44.1 50.9 24.2
Capitalised stripping
at beginning of the
period - - (3.6) (22.6) (26.2) (18.0)
Close-down and site
restoration 0.1 0.1 0.2 0.4 0.7 0.1
Sustaining exploration
expenditures 1.9 - 2.4 2.9 7.2 -
Sustaining capital
expenditure 10.0 0.1 1.4 2.6 14.1 3.9
--------------------------- -------- ---------- -------- -------- -------- --------
All-in sustaining costs(u) 86.6 22.4 43.7 70.9 223.6 148.9
--------------------------- -------- ---------- -------- -------- -------- --------
All-in sustaining costs(u)
, US$/oz 915 1,454 1,523 762 965 762
--------------------------- -------- ---------- -------- -------- -------- --------
Exploration expenditure 3.2 - 0.0 0.4 3.6 7.6
Capital expenditure 8.5 - 8.3 - 16.8 0.4
Reversal of impairment
of ore stockpiles (a) (2.2) - - - (2.2) (8.2)
--------------------------- -------- ---------- -------- -------- -------- --------
All-in costs(u) 96.1 22.4 52.1 71.3 241.8 148.7
--------------------------- -------- ---------- -------- -------- -------- --------
All-in costs(u) , US$/oz 1,015 1,454 1,814 766 1,044 761
--------------------------- -------- ---------- -------- -------- -------- --------
(a) Refractory ore stockpiles to be processed at the POX Hub.
Corporate and other
The Group has corporate offices in London, Moscow and Blagoveschensk, which together represent the central administration function. Central administration expenses increased by US$10.0 million from US$13.1 million in H1 2016 to US$23.1 million in H1 2017. The increase in central administration expenses is primarily attributed to a US$5.2 million increase in staff costs, mainly as a result of the proposed key management bonus accrual, an increase in Russian staff costs due to the appreciation of RUB against US Dollar and general increase in Russian salaries, and US$4 million professional fees incurred in relation to corporate projects.
During H1 2017, other operations contributed US$(20.3) million to underlying EBITDA vs. US$(15.8) million in H1 2016. Included in result of corporate and other operations in H1 2017 is a US$3.0 million share in losses generated by IRC.
Interest income and expense
H1 2017 H1 2016
US$ million US$ million
------------------ ----------- -----------
Investment income 0.4 0.2
------------------- ----------- -----------
The Group earned US$0.4 million interest income on its cash deposits with banks.
H1 2017 H1 2016
US$ million US$ million
--------------------- ----------- -----------
Interest expense 30.4 30.4
Interest capitalised (16.0) -
---------------------- ----------- -----------
Other 0.1 0.1
---------------------- ----------- -----------
14.4 30.5
--------------------- ----------- -----------
Interest expense for the period was comprised of US$6.0 million effective interest on the Convertible Bonds and US$24.3 million interest on bank facilities (H1 2016: US$5.9 million and US$24.5 million, respectively). A further US$16.0 million of this interest expense was capitalised as part of mine development costs within property, plant and equipment (H1 2016: US$nil).
Other finance gains and losses
-
Other finance gains for the period comprised US$2.0 million compared to US$2.3 million in H1 2016. Included in other finance gains is a financial guarantee fee of US$2.0 million (H1 2016: US$2.3 million) charged in connection with the ICBC facility.
Other finance losses for the period comprised US$6.1 million compared to US$1.5 million in H1 2016. Included in other finance losses are US$5.8 million (H1 2016: US$1.5 million) fair value losses on the revaluation of the embedded option for the bondholders to convert into the equity of the Company and a US$0.4 million (H1 2016: US$nil) loss on bank debt refinancing.
Taxation
H1 2017 H1 2016
US$ million US$ million
-------------------- ----------- -----------
Tax charge/(credit) 22.3 (4.4)
--------------------- ----------- -----------
The Group is subject to corporation tax under UK, Russia and Cyprus tax legislation. The average statutory tax rate for H1 2017 was 19.5% in the UK and 20% in Russia.
The tax charge for the period arises primarily in relation to the Group's gold mining operations and is represented by a current tax charge of US$19.9 million (H1 2016: US$15.0 million) and a deferred tax charge, which is a non-cash item, of US$2.4 million (H1 2016: deferred tax credit of US$19.5 million). Included in the deferred tax is a US$4.5 million credit (H1 2016: US$17.6 million credit) arising foreign exchange effect which primarily arises because the tax base for a significant portion of the future taxable deductions in relation to the Group's property, plant and equipment are denominated in Russian Roubles, whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value.
During the period, the Group made corporation tax payments in aggregate of US$14.4 million in Russia (H1 2016: corporation tax payments in aggregate of US$19.3 million in Russia).
Earnings per share
H1 2017 H1 2016
--------------------------------------------- --------------- --------------
Profit for the period attributable to equity
holders of Petropavlovsk PLC US$23.3 million US$9.2 million
Weighted average number of Ordinary Shares 3,303,768,532 3,300,501,688
Basic profit per ordinary share US$0.01 US$0.00
--------------------------------------------- --------------- --------------
Basic profit per share for H1 2017 was US$0.01 compared to US$0.00 basic profit per share for H1 2016. The key factor affecting the basic profit per share was the increase of net profit for the period attributable to equity holders of Petropavlovsk PLC from the net profit of US$9.2 million for the first half of 2016 to US$23.3 million net profit for the first half of 2017.
The total number of Ordinary Shares in issue as at 30 June 2017 was 3,303,768,532 (30 June 2016: 3,303,768,532).
Financial position and cash flows
30 June 2017 30 June 2016
US$ million US$ million
------------------------------------------------------ -------------- -------------
Cash and cash equivalents 32.7 18.3
Loans (512.9) (529.1)
Convertible bonds (a) (89.9) (86.9)
------------------------------------------------------ -------------- -------------
Net Debt.. (570.1) (597.6)
------------------------------------------------------ -------------- -------------
(a) US$100.0 million convertible bonds due on 18 March 2020 at amortised
cost.
H1 2017 H1 2016
US$ million US$ million
------------------------------------------------------ -------------- -------------
Net cash from operating activities 74.6 29.9
Net cash (used in)/ from investing activities (41.3)(b) 3.9
Net cash used in financing activities (13.3) (45.9)
------------------------------------------------------ -------------- -------------
(b) Including US$41.8 million cash CAPEX
Key movements in cash and net debt
Cash Debt Net Debt(u)
US$ million US$ million US$ million
------------------------------------------- ----------- ----------- -----------
As at 1 January 2017 12.6 (611.2) (598.6)
Net cash generated by operating activities
before working capital changes 102.3
Decrease in working capital 13.5
Income tax paid (14.4)
Capital expenditure (31.0)
Exploration expenditure (10.9)
Amounts repaid under bank loans, net (11.6) 11.6
Interest accrued (30.4)
Interest paid (26.8) 26.8
Transaction costs in connection with
bank loans (1.7) 0.8
Bank debt refinancing (0.4)
Other 0.7
------------------------------------------- ----------- ----------- -----------
As at 30 June 2017 32.7 (602.8) (570.1)
------------------------------------------- ----------- ----------- -----------
As at 30 June 2017, there were no undrawn facilities available to the Group.
Capital expenditure ..
The Group invested an aggregate of US$41.8 million in H1 2017 compared to US$11.9 million in H1 2016. The key areas of focus this year were on the POX project, for which active development was recommenced ahead of scheduled commissioning in 2018, exploration and development to support the underground mining at Pioneer and Malomir, expansion of tailing dams at Pioneer and Albyn and ongoing exploration related to the areas adjacent to the ore bodies of the Group's main mining operations.
Following the recommencement of active development of the POX project and the development of Pioneer and Malomir underground mining operations, the Group capitalised US$16 million of interest expense incurred in relation to the Group's debt into the cost of the aforementioned assets.
Exploration Development Total
expenditure expenditure CAPEX
and other
CAPEX
US$ million US$ million US$ million
-------------------------------------- ------------ ------------ -----------
POX (a) - 15.5 15.5
Pokrovskiy and Pioneer (b) 5.1 9.5 14.5
Malomir(c), (d) 2.5 2.6 5.1
Albyn 3.3 2.0 5.4
Upgrade of in-house service companies - 1.3 1.3
10.9 31.0 41.8
-------------------------------------- ------------ ------------ -----------
(a) Including US$15.5 million of development expenditure in relation to the POX Hub which is considered to be non-sustaining capital expenditure for the purposes of calculating all-in sustaining costs and all-in costs.
(b) Including US$7.5 million of expenditure in relation to the underground mining project at Pioneer to be sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.
(c) Including US$2.2 million of expenditure in relation to the underground mining project at Malomir to be sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.
(d) Including US$1.3 million of expenditure in relation to Malomir flotation (including tailing dams), which is considered to be non-sustaining capital expenditure for the purposes of calculating all-in sustaining costs and all-in costs.
Foreign currency exchange differences
The Group's principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on the translation of monetary assets and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are the Russian Rouble and GB Pounds Sterling.
The following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.
30 June 2017 31 December 2016
------------------------- ------------ ----------------
GB Pounds Sterling (GBP:
US$) 0.77 0.81
Russian Rouble (RUB:
US$) 59.09 60.66
-------------------------- ------------ ----------------
The Rouble recovered by 3% against the US Dollar during H1 2017, from RUB60.66 : US$1 as at 31 December 2016 to RUB59.09 : US$1 as at 30 June 2017. The average year-on-year appreciation of the Rouble against the US Dollar was approximately 18%, with the average exchange rate for H1 2017 being RUB57.93 : US$1 compared to RUB70.54 : US$1 for H1 2016. The Group recognised foreign exchange losses of US$0.5 million in H1 2017 (H1 2016: US$5.9 million) arising primarily on Rouble denominated net monetary assets.
- Contingent liabilities
The Group applies a two years mining tax concession since 1 July 2016 in its capacity of a participant to the Regional investment project in accordance with the Russian Federal Law 144-FZ dated 25 May 2016. The position of the Russian tax authorities is that the effective date for the aforementioned concession should be 1 January 2017 and, accordingly, the Group should be liable for the mining tax of approximately RUB1 billion (an equivalent of approximately US$16.9 million as at 30 June 2017) for the six month period to 31 December 2016. The matter is currently being considered by the courts. To date decisions made by the Tribunal which took place in May 2017 and the Court of Appeal which took place in August 2017 have not been in favour of the Group. The Group continues to consider its interpretation of relevant tax legislation and tax filing position are appropriate and has filed an appeal to the Cassation Court accordingly.
- Going concern
The Group monitors and manages its liquidity risk on an ongoing basis to ensure that it has access to sufficient funds to meet its obligations. Cash forecasts are produced regularly based on a number of inputs including, but not limited to, forecast commodity prices and impact of hedging arrangements, Group mining plan, forecast expenditure and debt repayment schedules. Sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, cost inflation, different production rates from the Group's producing assets and the timing of expenditure on development projects. This is done to identify risks to liquidity and covenant compliance and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.
The Group performed an assessment of the forecast cash flows and covenant compliance in relation to bank facilities for the period of 12 months from the date of approval of the Half Year Report for the period ended 30 June 2017. As at 30 June 2017, the Group had sufficient liquidity headroom and complied with related financial covenants. Following the successful completion of the Bank Debt Refinancing, the Group is also satisfied that it has sufficient headroom under a base case scenario for the period to September 2018 and expects to comply with related financial covenants. In the meantime, the Group's projections under a layered stressed case that is based on US$1,125/oz gold price, which is at the bottom end of market consensus forecasts, indicate that unless mitigating actions can be taken, there will be insufficient liquidity and non-compliance with certain covenants under a layered stressed case for the relevant period to September 2018. These mitigating actions include items within the control of the management, such as accessing deposits not currently in the Group's mining plan, cost cutting and reduction of capital expenditure subject to receipt of necessary consents. These actions would account for approximately 50% of the forecast shortfall under the layered stressed case. Furthermore, management would also pursue raising additional equity, refinancing the existing debt and/or divesting the shares in IRC including an immediate settlement of any amounts of the guarantee fee outstanding to fully mitigate any shortfalls. Management is also reasonably confident that necessary waivers or consents could be obtained from the senior lenders if necessary. If a missed debt repayment occurs or financial covenant requirements are not met, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand.
The Group has guaranteed the outstanding amounts IRC owes to ICBC. The outstanding loan principal was US$234 million as at 30 June 2017. The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. IRC has agreed with ICBC to restructure and reschedule two repayment instalments under the ICBC Facility Agreement, which were originally due for payment on 20 June 2017 and 20 December 2017, with the next repayment instalment due on 20 June 2018. IRC also obtained waivers from ICBC in respect of obligations to maintain certain cash deposits with ICBC until 30 June 2018 and obligations to comply with certain financial covenants until 31 December 2017 (inclusive). Following the ramp up and commercial production at K&S, IRC management are forecasting that IRC will have sufficient capital through working capital to pay its financial obligations as and when they fall due in the foreseeable future and throughout the going concern period. However, if scheduled full commercial production of the K&S project is not achieved or the market conditions turn out to be significantly less favorable than predicted IRC's financial liquidity may be adversely impacted. IRC would then need to carry out contingency plans including entering into negotiations with banks or other investors for additional debt or equity financing.
Having taken into account the aforementioned factors and after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the Half Year Report for the period ended 30 June 2017. Accordingly, they continue to adopt the going concern basis of accounting in preparing the interim consolidated financial statements for the period ended 30 June 2017.
2017 Outlook
The Group is confident it can achieve 2017 production guidance of 420 - 460Koz. The Group's operating cash expenses are substantially Rouble denominated. The Group expects its total average cash costs of production in 2017 to be c.US$700/oz at current exchange rates. Net debt is expected to decrease to c.US$560 million by the end of 2017, assuming an average gold price of US$1,265/oz for the remainder of 2017.
Operations Report
Pioneer
Pioneer mining operations
--------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
---------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 3, 812 4, 754 7, 206 9, 597
---------------- ---------- -------- -------- -------- --------
Ore mined t '000 1, 895 788 2, 935 1, 656
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.78 1.05 0.90 0.94
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 47.5 26.5 85.1 49.9
---------------- ---------- -------- -------- -------- --------
Pioneer processing operations
--------------------------------------------------------------------
Resin-in-pulp (RIP) plant
--------------------------------------------------------------------
Total milled t '000 1, 707 1, 775 3, 349 3,372
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.78 0.69 0.79 0.74
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 42.7 39.5 85.4 80.2
---------------- ---------- -------- -------- -------- --------
Recovery % 82.4 85.8 76.8 82.6
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 35.2 33.8 65.6 66.3
---------------- ---------- -------- -------- -------- --------
Heap leach operations
--------------------------------------------------------------------
Total stacked t '000 359 281 359 281
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.51 0.53 0.51 0.53
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 5.9 4.8 5.9 4.8
---------------- ---------- -------- -------- -------- --------
Recovery % 39.6 30.2 39.6 30.2
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 2.3 1.5 2.3 1.5
---------------- ---------- -------- -------- -------- --------
Pioneer gold
production -
Dore oz. '000 47.9 34.7 96.4 71.0
---------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using gold poured as the definition for production
The main sources of low grade ore were pits of the Alexandra, Yuzhnaya and Promezhutachnaya zones. This ore was blended with lower grade material from stockpiles.
Heap leach operations commenced on schedule in April.
The development of the North East Bakhmut underground mine progressed as planned. Underground work during H1 totaled c.1,446m. The first ore was mined in June - c.3.5kt with an average gold content of c.2.7 g/t. As per the mine plan, production began at a low grade 'bridge' area between North East Bakhmut 2 and 3. Ore grades are expected to improve as mining moves into the higher grade North East Bakhmut 3 zone.
The significant increase in doré gold production in relation to gold recovered is mainly due to the successful implementation of measures for cleaning resin, and the resulting reduction in gold in circuit.
In H2, the main sources of low grade ore are expected to be Alexandra, Yuzhnaya and Andreevskaya West, with high grade ore to be mined from NE Bahkmut via underground.
The H2 gold production forecast for Pioneer is c.73,000-98,000oz.
Pokrovskiy
Pokrovskiy mining operations
--------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
---------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 1 ,036 1,223 2 ,073 2,253
---------------- ---------- -------- -------- -------- --------
Ore mined t '000 392 134 520 332
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.51 1.14 0.50 0.98
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 6.4 4.9 8.4 10.5
---------------- ---------- -------- -------- -------- --------
Pokrovskiy processing operations
--------------------------------------------------------------------
Resin-in-pulp (RIP) plant
--------------------------------------------------------------------
Total milled t '000 450 451 888 899
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.47 0.65 0.44 0.62
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 6.8 9.5 12.4 17.9
---------------- ---------- -------- -------- -------- --------
Recovery % 84.8 91.7 78.3 91
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 5.8 8.7 9.7 16.2
---------------- ---------- -------- -------- -------- --------
Heap leach operations
--------------------------------------------------------------------
Total stacked t '000 246 193 246 193
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.40 0.4 0.40 0.4
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 3.2 2.7 3.2 2.7
---------------- ---------- -------- -------- -------- --------
Recovery % 22.4 46 22.4 46
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 0.7 1.2 0.7 1.2
---------------- ---------- -------- -------- -------- --------
Pokrovsky gold
production -
Dore oz. '000 8.4 9.1 14.2 17.2
---------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using gold poured as the definition for production
The Zeyskaya and Vodorazdelnaya zones were the main sources of low grade ore, which was blended with ore from stockpiles. This contributed to the decrease in processing recovery at the plant compared to H1 2016, due to the technological qualities of ores from stockpiles (initially scheduled), which were worse than expected.
Heap leaching began in April in line with the mining plan.
In H2, the main sources of low grade ore (c.15,000oz) are again expected to be Zeyskaya and Vodorazdelnaya.
Malomir
Malomir mining operations
--------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
---------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 2, 772 1,957 5, 126 3,721
---------------- ---------- -------- -------- -------- --------
Ore mined t '000 675 253 1, 434 390
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.68 1.2 0.78 1.2
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 14.9 9.5 36.0 15.1
---------------- ---------- -------- -------- -------- --------
Malomir processing operations
--------------------------------------------------------------------
Resin-in-pulp (RIP) plant
--------------------------------------------------------------------
Total milled t '000 858 771 1, 652 1,554
---------------- ---------- -------- -------- -------- --------
Average grade g/t 0.71 0.8 0.78 0.7
---------------- ---------- -------- -------- -------- --------
Gold content oz. '000 19.6 19.4 41.7 37.1
---------------- ---------- -------- -------- -------- --------
Recovery % 58.9 66.8 59.8 67.3
---------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 11.5 13.0 24.9 25.0
---------------- ---------- -------- -------- -------- --------
Malomir gold
production -
Dore oz. '000 12.3 12.2 28.7 24.8
---------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using gold poured as the definition for production
The main sources of low grade ore were pits at the Quartzitovoye and Magnetitovoye zones. Ore from stockpiles also contributed to production.
Construction of an underground mine at Quartzitovoye 1 began in January 2017, after delays due to the late mobilization of equipment by the mining contractor. Since May, the contractor has worked at the scheduled capacity in accordance with the mining plan. In the first half of the year, c.697m of underground workings had been completed. In spite of the delay, the first ore was mined in June - a total of c.4.2kt with an average gold content of c.5.4 g/t.
The volumes of ore treated through the plant were in line with the plan. Recovery rates were lower than planned for H1 2016 due to ore from the Quartzitovoye 2 pit being more refractory than expected. This pit was completed in H1.
In H2, the main sources of low grade ore will be Quartzitovoye 1 and Magnetitovoye. High grade ore will be mined from underground at Quartzitovoye 1.
The Malomir production forecast for the second half of the year is c.20,000-30,000oz.
Albyn
Albyn mining operations
---------------------------------------------------------------------------
Units Q2 2017 Q2 2016 H1 2017 H1 2016
----------------------- ---------- -------- -------- -------- --------
Total material
moved m3 '000 7, 426 7,775 14, 942 16,009
----------------------- ---------- -------- -------- -------- --------
Ore mined t '000 1, 258 867 2, 633 2,530
----------------------- ---------- -------- -------- -------- --------
Average grade g/t 1.19 1.1 1.14 1.1
----------------------- ---------- -------- -------- -------- --------
Gold content oz. '000 48.1 29.7 96.4 88.0
----------------------- ---------- -------- -------- -------- --------
Albyn processing operations
---------------------------------------------------------------------------
Resin-in-pulp (RIP) plant
---------------------------------------------------------------------------
Total milled t '000 1, 152 1,177 2, 290 2,341
----------------------- ---------- -------- -------- -------- --------
Average grade g/t 1.23 1.1 1.14 1.1
----------------------- ---------- -------- -------- -------- --------
Gold content oz. '000 45.6 41.2 84.3 83.9
----------------------- ---------- -------- -------- -------- --------
Recovery % 93.6 90.1 93.0 92.0
----------------------- ---------- -------- -------- -------- --------
Gold recovered oz. '000 42.6 37.1 78.4 77.2
----------------------- ---------- -------- -------- -------- --------
Albyn gold production
- Dore oz. '000 45.7 38.8 93.1 82.6
----------------------- ---------- -------- -------- -------- --------
Note: from the beginning of 2017, the Company moved to using gold poured as the definition for production
The main sources of ore were the Central and Eastern zones of the Albyn main pit, with a small amount of ore supplied from stockpiles. The plant operated as normal throughout the year.
In H2, the main source of ore will be the Central zone of the Albyn main pit, with some ore from stockpiles. The gold production forecast for the second half of the year is c.80,000-85,000oz.
Note: figures in this release may not add up due to rounding
Development Projects
POX
POG Refractory Mineral Resource Base
Defined within Petropavlovsk's substantial 20.2Moz JORC resources (including 7.2Moz JORC reserves) are 9.3Moz refractory gold resources (including 4Moz refractory reserves), with underexplored resource upside within the highly prospective 3,600km(2) license holding. Unlocking the 9.3Moz refractory resources supports Petropavlovsk's long term growth objectives in doubling the average life of mine and sustaining the production profile.
All Petropavlovsk's defined economic refractory ounces are within the Malomir license area (964km(2) ) and Pioneer license areas (1,375km(2) ). Both areas sit along or above the Mongolo-Okhotskiy mineralised belt. This same belt also hosts a number of large deposits, including Sukhoi Log and Taseevskoe-Baley to the west of the Amur region.
-- Malomir is the only large known refractory deposit within the north east part of the Amur Region and remains largely under explored. 62% of Malomir's JORC reserves are refractory. The area is highly prospective for further resource growth due to favorable geology and alluvial gold deposits, for many of which the hard rock sources are yet to be found
-- In addition to Pioneer's significant non refractory reserves, further refractory resource potential exists within the Pioneer licenses, particularly along the contact between granitoid and Jurassic host rocks, south and south west of the Pioneer RIP plant. 56% of Pioneer's Mineral Resources are refractory.
Construction
In 2010, the POX Hub and the Malomir flotation plant were fully permitted for construction, and in 2011 construction began. It was put on hold in 2013 following the decline in the gold price. The plant (including equipment) was carefully put on care and maintenance to allow active construction to restart in 2017.
Malomir Flotation Plant (nameplate capacity 5.4Mtpa)
The Malomir flotation facility is a staged build plant largely utilising existing crushing and grinding capacities and infrastructure.
-- Stage 1 capacity is 3.6Mtpa across two parallel 1.8Mtpa lines. Stage 1 utilises existing crushers and mills currently used for non-refractory processing. Flotation concentrate production is scheduled for H1 2018. Initially the concentrate will be stockpiled before being transported to the POX Hub ahead of the staged autoclave commissioning from Q4 2018
-- Stage 2 expands the flotation plant to 5.4Mtpa by adding a third 1.8Mtpa line. This will fully calibrate the flotation plant capacity with the existing 6Mtpa crushing and grinding capacity. Stage 2 expansion is scheduled for completion and commissioning in 2019
-- Non-refractory processing will continue using a smaller existing crushing and grinding line and the RIP plant
-- Stage 1 of the Malomir flotation plant is more than 90% complete. During H1 2017, work concentrated on piping, ventilation, and the interior of the flotation building, including fittings, and also work on auxiliary facilities
Pioneer Flotation Plant (nameplate capacity 6.0Mtpa)
The Pioneer flotation plant is scheduled for construction in 2021, ahead of concentrate production from 2023. Like Malomir it will utilise existing crushing and grinding circuits, reducing capital requirements.
POX Hub (nameplate capacity c.500ktpa)
Construction of the POX Hub is now approximately 75% complete. Greater than 80% of the project equipment is on site, including all critical path items and long lead items. The four 15m x 4m autoclaves, each with a volume of 66m(3) , were received on site, installed and lined in 2013. All core structures are complete including the oxygen, autoclave and filtration plant buildings.
During 2016, the Company renewed key contracts with Outotec. Outotec is responsible for the design and development of the plant. All assembling, installation and commissioning works are carried out under Outotec installation and technical supervision.
In January 2017, the contract was awarded to commence all the piping, welding and assembly works, which are now well under way.
POX Construction Progress
During 2017, the oxygen plant, supporting POX Hub infrastructure and all piping, welding and assembly works are scheduled for completion. The oxygen plant is now very close to overall mechanical completion with only electrical and control/instrumentation construction less than 90% complete. Commissioning of the oxygen plant is scheduled for Q2 2018.
At the autoclave section the civil and structural construction is now 85 to 90% complete. Mechanical construction is 70% complete and progressing well, with all large mechanical equipment, including four autoclave vessels, in place. The major outstanding construction includes piping, electrical construction and control & instrumentation, which is at an early stage but remains on schedule for POX plant commissioning in Q4 2018.
Construction of the filtration building is rapidly progressing with piping, civil and structural construction now 80% complete. The mechanical construction is 45% complete and the installation of the first press-filter is in progress. Piping work, electrical construction and the installation of control & instrumentation is yet to start as per the construction schedule.
The outside construction including thickeners, diesel generators and the steam plant are progressing fast in order to complete the principal outside work before winter. Civil construction is now 80% complete whilst structural construction is 60% complete. The latter mainly relates to large structures and access platforms with piping support - other minor structures are still outstanding. Platework on thickeners is 75% complete and mechanical construction is 50% complete with significant equipment in the steam and diesel generator plant scheduled be installed. Piping, electrical construction and control & instrumentation is yet to be completed.
Construction progress has been monitored by an independent technical consultancy, which considers that a one year time frame to complete the remaining work is very achievable.
During Q4 2017, the Malomir flotation plant (Stage 1) is scheduled for commissioning, whilst flotation concentrate production is due to commence from Q1 2018. In Q4 2018, the POX Hub is scheduled to commence a staged dry and wet commissioning, one autoclave at a time. The ramp up to commercial production is due to occur throughout 2019.
POX Capital Cost
The budget for the POX Hub and flotation plant at Malomir remains unchanged. Of the c.US$120 million outstanding capital estimated as of the beginning of 2017, c.US$16.8 million has been spent during the first six months of 2017. The independent technical consultants who monitor the project noted that based on the current average spend and remaining budget, there is sufficient capital for 20 months; the project is to be completed in eighteen months.
Underground
During H1 2017, development of the underground mines at Pioneer and Malomir progressed towards planned full scale production. The Group is finalising works and establishing safety permits and certifications to start full scale mining in H2 2017.
In H1 2017, development of Pioneer's underground mine declines advanced by 1446.1m. The main ventilation fan has been delivered to the site and is now being installed by a reputable Russian contractor. It is expected to be commissioned by the end of September 2017. The first ore was already mined from the sublevel development in June 2017. At the end of July, a total of 3.5kt of ore at 2.7g/t of gold had been produced from the lower grade zone. Full scale production from the high grade NE Bakhmut No 3 zone is expected to start by the end of 2017.
Despite a slow start at Malomir due to delays with contractor mobilisation, the underground developments advanced 696.9m in the first six months of the year and in July 2017, developments reached the main Quartzitovoye ore body 55. Work on a sublevel drift on level +390m began in August. The first development ore was produced in June 2017 with total production of 4.2kt of ore at 5.4g/t of gold at the end of July 2017.
The first stope mining from ore body 55 will require the lower sublevel at an elevation of +375 to be completed. In addition, a pumping station would need to be constructed and commissioned at the +375m level, as well as a main ventilation facility. An agreement with a reputable Russian contractor has been signed to deliver, install and commission the main ventilation facility before the end of September 2017. Completion of this work and first stope mining is currently expected to commence in Q4 2017.
As reported, a new high grade pay shoot was discovered at Quartzitovoye (zone 49, west of ore body 55). Sublevels +390 and +375 have already been developed here in preparation for mining the first stope. The decision to start mining here will depend on the result of geotechnical assessment into how this may affect declines located nearby.
Because of the conservative approach taken to production guidance, the delays in underground production are currently not expected to impact the Group's 2017 production target.
Exploration
Pioneer
Pioneer's 1,375km(2) area offers a number of exploration opportunities for both non-refractory and refractory resources, including potentially high grade exploration targets. As previously reported, the Pioneer exploration program for 2016 was successful, leading to the expansion of Pioneer's non-refractory resources and reserves and the identification of promising new exploration targets. Significant 2016 results include:
-- First NE Bakhmut JORC reserve for underground mining -- First JORC resource for potential underground mining at Bakhmut-Promezhutochnaya -- New high grade pay shoot at Andreevskaya -- Identification of Sosnovaya, a large (9km long) gold-arsenic anomaly, south of Pioneer -- Discovery of Katrin, a new satellite non-refractory deposit
-- Discovery of extensions at the Brekchievaya and Shirokaya zones in the Alexandra area, north of Pioneer
In the first six months of 2017 the Group continued exploration, focusing mainly on near mine resource expansion. The most notable results of this work include:
-- Discovery of two new zones of non-refractory mineralisation suitable for open pit mining, north of NE Bakhmut No 2
-- Identification of further down dip extensions of the high grade pay shoot at NE Bakhmut No 2, which remains open at depth offering further potential for underground resource and reserve expansion
-- First JORC mineral resources and ore reserves (unaudited) for the Katrin satellite deposit, suggesting it offers an immediate opportunity to provide high grade open pit ore
Drilling and trenching also confirmed the presence of large scale refractory gold mineralisation at the Sosnovaya anomaly, although the grade of the intersections is too low to represent an immediate interest.
Katrin
Katrin is a high grade non-refractory satellite deposit situated south of Pioneer within the same geological setting to the Zheltunak deposit, which has been mined since 2011 producing 926kt of ore at an average grade of 1.91g/t Au (57koz of contained gold). To date, five individual ore bodies were discovered and explored. Three out of the five orebodies have sufficient exploration to support a JORC resource estimate. These three have a JORC resource of 32koz including c.26koz of Indicated resource, at a grade of 2.53g/t and c.6koz of Inferred at a grade of 1.29g/t. This estimate is yet to undergo an independent technical audit.
Katrin is hosted within a 1km long silification zone within Cretaceous volcanites. The zone is open in both strike directions as well as down-dip, offering the opportunity for further discoveries. Two ore bodies, which are yet to be explored and included in the resource estimate, have already been identified. One of them is located 200m south from Ore Body 1 and another north-west from Ore Body 3. Furthermore, drilling in August 2017 discovered extensions to the Ore Body No 3 that are yet to be included in the estimate. Significant high-grade drill intersections from these new discoveries include:
-- 8.5m @ 2.9g/t (drill hole C-511-5, interval 73.5-82.0m) -- 2.0m @ 4.12g/t (drill hole C-515-29, interval 8.0-12.0m) -- 4.0m @ 3.97g/t (drill hole C-515-32, interval 76.0-80.0m) -- 3.7m @ 5.38g/t (drill hole C-519-21, interval 113.0-116.7m) -- 7.0m @ 2.52g/t (drill hole C-518-17, interval 60.8-67.8m)
NE Bakhmut
Underground resource and reserve exploration took place at NE Bakhmut (surface and underground drilling and underground development). In 2017, the most significant results were in the NE Bakhmut No 2 area. Two new zones of mineralisation potentially suitable for open pit mining were discovered north from the depleted pit at NE Bakhmut No 2. The Oblomochnaya zone, which has been extensively explored, is being prepared for open pit mining and should contribute to the 2017 and 2018 production profile. It is a shallow, sub-horizontal mineralised zone only 30-35m below the surface. Geological interpretations suggest this zone was formed as a result of the NE Bakhmut hard rock orebody being eroded and material being deposited, forming a soft oxide mineralised seam which later was buried under a layer of Neogenic sand formation. The unaudited resource estimate suggests Oblomochnaya contains c.23koz of JORC gold resources, of which c.19koz at 0.98g/t is Indicated and 4.5koz at 1.05g/t is Inferred. Metallurgical tests have confirmed that the material is suitable for RIP processing. It is expected that both the overburden and the ore will be amenable to free digging, making it a low cost open pit mining target.
In the course of Oblomochnaya exploration, a second new zone was identified directly below Oblomochnaya. To date, it has been intersected by only three drill holes, with the best intersections including 5.3m at 1.64g/t and 5.2m at 7.56g/t. It remains open in a down dip direction and in both strike directions.
Surface drilling proved a high grade pay shoot mined from open pit at NE Bakhmut No 2 to a depth of 140m below the pit floor. The best deep intersection is 19.6m @ 10.90g/t. The pay shoot is 145m long and remains open in a down dip direction. There are several further high grade intersections including 1.1m@8.10g/t and 1.0m@19.30g/t, which belong to smaller parallel zones and/or apophysis; these await follow up exploration and inclusion in the resource model.
In-fill underground drilling continued at a 'bridge' area between pay shoots at NE Bakhmut No 2 and 3. It did not result in changes to the overall resources or reserves - the results are in line with earlier exploration.
Alexandra Area
In 2017, drilling discovered additional low grade mineralisation at the Shirokaya zone (profile 976) with the following drill intersections:
-- 135.2m @ 0.48g/t (drill hole C-9244) -- 122.0m @ 0.71g/t (drill hole C-9245) -- 136.0m @ 0.50g/t (drill hole C-9246) -- 30.0 @ 0.42g/t (drill hole C-9247)
These drill holes did not exit from the mineralisation, which appears to be a bulk stockwork potentially suitable for open pit mining. Mineralisation is expected to be refractory, which is typical for Shirokaya.
Nikolaevskaya
Exploration continued at south west extensions of the Nikolaevskaya zone with eight drill holes and seven trenches completed in H1 2017. A strike extension exceeding 1,200m in length has been proven. The gold mineralisation discovered is relatively narrow, not particularly high grade and refractory, which is typical for Nikolaevskaya.
The best drill intersections for 2017 include:
-- 1.9m @ 4.02g/t (drill hole C-9355, interval 36.2 - 38.1m) -- 2.9m @ 1.41g/t (drill hole C-9354, interval 29.3 - 32.2m) -- 1.6m @ 2.35g/t (drill hole C-9386, interval 44.7 - 46.3m)
This mineralisation is yet to be modelled and included in JORC resource estimates.
Sosnovaya
Trenching and drilling completed in late 2016 at a 9km long geochemical anomaly at Sosnovaya confirmed the presence of low grade gold mineralisation with selected intersections including:
-- 14.2m @ 0.80g/t (drill hole C-182-4, interval 26.7 - 40.9m) -- 42.6m @ 0.31g/t (drill hole C-599-11, interval 36.4 - 79.0m) -- 1.3m @ 1.14g/t (trench K-622-3, interval 227.5 - 228.8m)
Mineralisation discovered so far is too low grade to represent an immediate economic interest. However, since almost every drill hole completed intersected bulk gold grade halos (0.1 - 0.3g/t) indicating extensive hydrothermal processes, these results are still considered encouraging. Group geologists are analysing results, updating their exploration model and intend to continue exploring this target in the future.
Geochemical surveys and geological traversing started at two other early stage exploration targets, Aprelskiy and Talali (Sosnovaya). Aprelskiy is located c.10km west from the Pioneer RIP plant within an area of extensive historical alluvial mining. Talali is located west from the Alexandra deposit and c.20km north west from the Pioneer plant on the same tectonic structure that hosts Alexandra, and also within an area of historical alluvial production. The results of this work are expected to be available in H1 2018.
Albyn
Ulgen
In 2017, exploration also continued at Ulgen, located c.30km south west from the Albyn plant in an area of extensive historical alluvial gold production. The best new trench intersections include 7.0m@5.11g/t, 5.0m@3.58g/t and 2.0m@2.84g/t. Exploration completed to date, which includes 80m to 350m spaced trenches and six drill holes, proved gold mineralisation extends along the strike for 3km. It remains open in both strike directions as well as in a down dip direction. Exploration results at Ulgen are very encouraging as there are many similarities with Elginskoye, where JORC Resources and Reserves currently stand at 2.8Moz. No further exploration is planned at Ulgen in 2017 as due to its remote location and lack of local infrastructure it is unlikely to offer an immediate production upside. Ulgen remains a significant exploration target and work is expected to continue in the future.
Unglichikan
In 2017, exploration at Unglichikan continued with drilling at the south group of the mineralised zones over a strike length of 1,200m. The 2017 drilling results confirmed known mineralisation and extended it down dip to a depth of 90 to 130m from the surface. The last down dip intersections include 4.7m at 5.34g/t, 14.7m at 2.97g/t, and 0.8m at 26.9g/t where both grade and thickness appear to increase with depth, suggesting there may also be potential for underground mining at Unglichikan. The 2017 drilling results are yet to be incorporated into the JORC resource model.
Malomir
Following successful exploration drilling at Quartzitovoye in 2016, a maiden non-refractory reserve of 207koz @ 5.85g/t was defined in 2017, underpinning an initial six year production plan for high grade underground mining. 2016 drilling confirmed that high grade mineralisation remains open at depth, with the deepest holes greater than 440m below the surface (245m below the open pit floor), intersecting attractive grades and thicknesses.
In May 2017, underground developments at Quartzitovoye led to the discovery of a previously unknown high grade pay shoot producing three intersections: 5.32m @ 69.9g/t, 1.8m @ 42.9 g/t and 1.01m @ 12.2 g/t. The pay shoot is steep dipping and hosted within low grade zone No 49 and mined from the open pit, which stopped approximately 90m above. It appears this high grade shoot is controlled by an intersection between the structure of zone No 49, striking north south, and a steep east west contact between plagiogranites and schists.
In preparation for the trial mining, the pay shoot has now been explored by underground workings on 390m and 375m levels. It now has a proven strike length of c.55m, an average thickness of c.3m with an average grade of c.14g/t and grades of up to 458g/t in selected samples. It remains open in both up and down directions. It is also considered possible that other similar pay shoots could be discovered within zone 49, which has a total strike length of 280m.
Underground development has now reached the main high grade Quartzitovoye orebody 55, intersecting it in two points on a 390m level at the north and in the centre. Underground sampling results are in agreement with the drill hole data and the resource model.
FY17 Outlook
The Company reconfirms its full year production forecast of c.420,000 - 460,000oz, maintaining this range in case of possible delays in scalable production from underground, whilst the first production from POX is expected as planned.
Total cash costs for the year are expected to be c.US$700/oz at current exchange rates, at the upper end of original guidance (US$600 - 700/oz). Net debt is expected to decrease to c.US$560 million, assuming an average gold price of US$1,265/oz for the rest of the period.
Forward contracts to sell an aggregate of 500Koz of gold over a period from July 2017 to December 2019 at an average price of US$1,252/oz were outstanding as at 30 June 2017.
IRC
IRC Ltd. is a producer and developer of industrial commodities with its shares quoted on the Hong Kong Stock Exchange (Stock Code 1029). IRC released its interim results for the six months ended 30 June 2017 on 31 August 2017, highlights from which are described below.
During the period, satisfactory progress was made with the ramp up of K&S, IRC's key development project, which is now producing significant volumes of concentrate (over one million tonnes since inception). The plant was operating at c.50% capacity as at June 2017. IRC remains confident in resolving the outstanding issues and aims at operating the plant at close to full capacity by the end of 2017.
IRC enjoyed a threefold increase in revenue for the period to US$51.2 million (30 June 2016: US$16.1 million), whilst K&S generated EBITDA(u) of US$14 million. Overall, IRC made a net operating gain of US$2.3 million (30 June 2016: loss of US$11.4 million), and the loss for the period fell to US$9.7 million (30 June 2016: loss of US$9.9 million).
The production and sales volumes of iron ore concentrate more than tripled, with production volume up 271% to 697,431 tonnes (30 June 2016: 188,111 tonnes), and sales volume up 218% to 698,632 tonnes (30 June 2016: 219,352 tonnes).
Finally, ICBC agreed to restructure the loan repayment schedule, including a full principal repayment holiday in 2017.
The full report is available to view on the IRC website at http://www.ircgroup.com.hk
Principal Risks and Uncertainties
The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. A detailed review of the key risks facing the Group is set out in the Risks to Our Performance section on pages 22 to 33 of the 2016 Annual Report, which is available on the Group's website, www.petropavlovsk.net. This also includes a description of the potential impact of such risks on the Group together with measures in place to manage or mitigate against each specific risk where this is within the Group's control.
The Board's view of the principal risks that could impact the Group for the remainder of the current financial year remain largely unchanged from those set out in the 2016 Annual Report, with the exception of the matter detailed below under 'Funding and liquidity'.
The principal risks relate to the following:
Operational risks
-- Production -- Exploration -- The quality and quantity of the Group's Mineral Resources and Ore Reserves -- Projects, specifically in relation to the POX and underground mining projects
Financial risks
-- Funding and liquidity: The Group is satisfied that it has sufficient headroom under a base case scenario for the period to September 2018 and expects to comply with related financial covenants. However, under a layered stress case the Group's projections indicate that there will be insufficient headroom and non-compliance with certain covenants unless certain mitigating actions are taken. Further details are provided in the 'going concern' section of this interim announcement.
-- Gold price -- Foreign exchange -- IRC
Health, safety and environmental risks
-- Safety of our employees and third parties
Legal and regulatory risks
-- The various licences and permits which are needed by the Group in order to operate -- Operating in Russia
Directors' Responsibilities Statement
We confirm that to the best of our knowledge:
-- The condensed set of financial statements, which has been prepared in accordance with IAS34 "Interim Financial Reporting" as endorsed and adopted by the European Union, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company, or the undertakings included in the consolidation as a whole as required by DTR4.2.4R;
-- The interim management report includes a fair review of the information required by DTR4.2.7R (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year); and
-- The interim management report includes a fair review of the information required on related party transactions as required by DTR4.2.8R.
By order of the Board,
Ian Ashby Andrey Maruta
Chairman Chief Financial Officer
11 September 2017
Independent Review Report (Auditors)
INDEPENT REVIEW REPORT TO PETROPAVLOVSK PLC
We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 24. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2017 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Deloitte LLP
Statutory Auditor
London, United Kingdom
11 September 2017
Consolidated Financial Statements
PETROPAVLOVSK PLC
Condensed Consolidated Income Statement
Six months ended 30 June 2017
Six months Six months
ended ended
30 June 2017 30 June 2016 Year ended
31 December
(unaudited) (unaudited) 2016
note US$'000 US$'000 US$'000
------------------------------------- ---- ------------- ------------------- -----------------------
Group revenue 304,049 253,953 540,684
Operating expenses 5 (236,165) (216,154) (460,103)
------------------------------------- ---- ------------- ------------------- -----------------------
67,884 37,799 80,581
Share of results of associates 11 (2,965) (3,563) (3,581)
------------------------------------- ---- ------------- ------------------- -----------------------
- Operating profit 64,919 34,236 77,000
Investment income 6 386 200 556
Interest expense 6 (14,448) (30,479) (60,976) Other finance gains 6 2,045 2,334 11,976 Other finance losses 6 (6,138) (1,506) (1,548) ------------------------------------- ---- ------------- ------------------- ----------------------- Profit before taxation 46,764 4,785 27,008 Taxation 7 (22,305) 4,438 4,698 ------------------------------------- ---- ------------- ------------------- ----------------------- Profit for the period 24,459 9,223 31,706 ------------------------------------- ---- ------------- ------------------- ----------------------- Attributable to: Equity shareholders of Petropavlovsk PLC 23,332 9,203 33,719 ------------------------------------- ---- ------------- ------------------- ----------------------- Non-controlling interests 1,127 20 (2,013) ------------------------------------- ---- ------------- ------------------- ----------------------- Profit per share Basic profit per share 8 US$0.01 US$0.00 US$0.01 ------------------------------------- ---- ------------- ------------------- ----------------------- Diluted profit per share 8 US$0.01 US$0.00 US$0.01 ------------------------------------- ---- ------------- ------------------- -----------------------
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2017
Six months Six months Year ended
ended ended
30 June 2017 30 June 2016 31 December
2016
(unaudited) (unaudited)
US$'000 US$'000 US$'000
---------------------------------------------------- ------------- ------------- ---------------------
Profit for the period 24,459 9,223 31,706
-------------------------------------------------------- ------------- ------------- ---------------------
- Items that may be reclassified subsequently
to profit or loss:
---------------------------------------------------- ------------- ------------- ---------------------
Revaluation of available-for-sale investments (294) 307 834
Exchange differences:
Exchange differences on translating foreign
operations 2,597 1,781 2,577
Share of other comprehensive income of
associate 110 - 560
Cash flow hedges:
Fair value losses (11,909) (16,313) (4,940)
Tax thereon 2,382 3,263 988
Transfer to revenue (2,781) 5,504 8,494
Tax thereon 556 (1,101) (1,699)
Other comprehensive (loss)/profit for
the period net of tax (9,339) (6,559) 6,814
-------------------------------------------------------- ------------- ------------- ---------------------
Total comprehensive profit for the period 15,120 2,664 38,520
-------------------------------------------------------- ------------- ------------- ---------------------
Attributable to:
Equity shareholders of Petropavlovsk PLC 14,117 2,764 40,494
Non-controlling interests 1,003 (100) (1,974)
-------------------------------------------------------- ------------- ------------- ---------------------
15,120 2,664 38,520
------------------------------------------------------- ------------- ------------- ---------------------
PETROPAVLOVSK PLC
Condensed Consolidated Balance Sheet
At 30 June 2017
30 June 2017 30 June 2016 31 December
2016
(restated) (restated)
(a) (a)
note (unaudited) (unaudited)
US$'000 US$'000 US$'000
----------------------------------------- ------ ------------- ------------- ------------
- Assets
Non-current assets
Exploration and evaluation assets 9 52,889 56,163 49,270
Property, plant and equipment 10 952,133 982,953 953,794
Prepayments for property, plant
and equipment 10,979 187 694
Investments in associates 11 33,285 35,600 36,140
Available-for-sale investments 812 578 1,105
Inventories 12 68,489 54,459 51,686
Other non-current assets 10,938 10,437 11,383
1,129,525 1,140,377 1,104,072
----------------------------------------- ------ ------------- ------------- ------------
Current assets
Inventories 12 180,769 186,959 183,266
Trade and other receivables 13 75,129 62,804 89,736
Derivative financial instruments 15 661 - 7,478
Cash and cash equivalents 14 32,671 18,311 12,642
----------------------------------------- ------ ------------- ------------- ------------
289,230 268,074 293,122
----------------------------------------- ------ ------------- ------------- ------------
Total assets 1,418,755 1,408,451 1,397,194
----------------------------------------- ------ ------------- ------------- ------------
Liabilities
Current liabilities
Trade and other payables 16 (58,770) (75,500) (55,638)
Current income tax payable (4,478) (794) (2,288)
Borrowings 17 (53,713) (344,159) (85,306)
Derivative financial instruments 15 (397) (6,885) -
Provision for close down and (3,563) - -
restoration costs
(120,921) (427,338) (143,232)
----------------------------------------- ------ ------------- ------------- ------------
Net current assets/(liabilities) 168,309 (159,264) 149,890
----------------------------------------- ------ ------------- ------------- ------------
Non-current liabilities
Borrowings 17 (549,072) (271,783) (525,906)
Derivative financial instruments 15 (23,541) (16,190) (10,314)
Deferred tax liabilities (116,289) (131,186) (119,028)
Provision for close down and
restoration costs (15,863) (17,271) (19,152)
Financial liabilities 20 (7,616) (10,206) (9,229)
----------------------------------------- ------ ------------- ------------- ------------
(712,381) (446,636) (683,629)
----------------------------------------- ------ ------------- ------------- ------------
Total liabilities (833,302) (873,974) (826,861)
----------------------------------------- ------ ------------- ------------- ------------
Net assets 585,453 534,477 570,333
----------------------------------------- ------ ------------- ------------- ------------
Equity
Share capital 18 48,920 48,920 48,920
Share premium 518,142 518,142 518,142
Hedging reserve (5,728) (5,431) 5,900
Other reserves (15,271) (18,897) (17,574)
Retained earnings/(losses) 21,940 (26,578) (1,502) ----------------------------------------- ------ ------------- ------------- ------------ Equity attributable to the shareholders of Petropavlovsk PLC 568,003 516,156 553,886 ----------------------------------------- ------ ------------- ------------- ------------ Non-controlling interests 17,450 18,321 16,447 ----------------------------------------- ------ ------------- ------------- ------------ Total equity 585,453 534,477 570,333 ----------------------------------------- ------ ------------- ------------- ------------ (a) See note 2 for details regarding the restatement.
This condensed consolidated interim financial information was approved by the Directors on 11 September 2017.
Ian Ashby Andrey Maruta Director Director
PETROPAVLOVSK PLC
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2017
Total attributable to equity holders of Petropavlovsk
PLC
Share
based Retained
Share Share Own payments Hedging Other earnings/ Non-controlling Total
capital premium shares(a) reserve reserve reserves(b) (losses) Total interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------- ---- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 1 January 2016 48,874 518,142 (8,933) 280 3,096 (20,985) (47,922) 492,552 18,421 510,973
Correction of error
in accounting for
deferred tax
liabilities
(c) - - - - - - 20,700 20,700 - 20,700
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 1 January 2016
(restated) 48,874 518,142 (8,933) 280 3,096 (20,985) (27,222) 513,252 18,421 531,673
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Total comprehensive
(loss)/income - - - - (8,527) 2,088 9,203 2,764 (100) 2,664
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Profit for the
period - - - - - - 9,203 9,203 20 9,223
Other comprehensive
(loss)/income - - - - (8,527) 2,088 - (6,439) (120) (6,559)
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Deferred share
awards 46 - 8,933 (280) - - (8,559) 140 - 140
Balance
at 30 June 2016
(unaudited) 48,920 518,142 - - (5,431) (18,897) (26,578) 516,156 18,321 534,477
Total comprehensive
income/(loss) - - - - 11,331 1,323 25,076 37,730 (1,874) 35,856
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Profit/ (loss)
for the period - - - - - - 24,516 24,516 (2,033) 22,483
Other comprehensive
income - - - - 11,331 1,323 560 13,214 159 13,373
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 31 December
2016 (restated) 48,920 518,142 - - 5,900 (17,574) (1,502) 553,886 16,447 570,333
Total comprehensive
(loss)/income - - - - (11,628) 2,303 23,442 14,117 1,003 15,120
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Profit for the
period - - - - - - 23,332 23,332 1,127 24,459
Other comprehensive
(loss)/income - - - - (11,628) 2,303 110 (9,215) (124) (9,339)
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
Balance
at 30 June 2017
(Unaudited) 48,920 518,142 - - (5,728) (15,271) 21,940 568,003 17,450 585,453
---------------------- --------- ---------- ------------ ----------- --------- ------------ ----------- ------------------ ---------------- ----------
(a) Own shares represented 1,441,406 Ordinary Shares held by the Company's EBT until they were transferred upon vesting of the Deferred Share Award on 1 May 2016.
(b) Including translation reserve of US$(13.0) million (30 June 2016: US$(16.4) million, 31 December 2016: US$(15.6) million).
(c) See note 2 for details regarding the restatement
PETROPAVLOVSK PLC
Condensed Consolidated Cash Flow Statement
Six months ended 30 June 2017
Six months Six months Year ended
ended ended
30 June 2017 30 June 2016 31 December
2016
(unaudited) (unaudited)
note US$'000 US$'000 US$'000
----------------------------------------------------- ------ -------------- -------------- -----------------------
- Cash flows from operating activities
Cash generated from operations 19 115,793 74,350 126,013
Interest paid (26,771) (25,136) (53,708)
Income tax paid (14,420) (19,295) (35,305)
----------------------------------------------------- ------ -------------- -------------- -----------------------
Net cash from operating activities 74,602 29,919 37,000
----------------------------------------------------- ------ -------------- -------------- -----------------------
Cash flows from investing activities
Proceeds from disposal of subsidiaries, net of cash
disposed and liabilities settled - 14,790 19,188
Proceeds from disposal of the Group's interests in
associates - 231 231
Purchase of property, plant and equipment (30,965) (4,331) (12,770)
Exploration expenditure (10,867) (7,556) (16,590)
Proceeds from disposal of property, plant and
equipment 155 561 742
Repayment of amounts loaned to other parties - 1 1
Interest received 383 193 540
Net cash used in investing activities (41,294) 3,889 (8,658)
----------------------------------------------------- ------ -------------- -------------- -----------------------
Cash flows from financing activities
Proceeds from borrowings - - 295,250(a)
Repayments of borrowings (11,630) (26,971) (322,221)(a) Debt transaction costs paid in connection with bank loans (1,674) (447) (4,031) Transaction costs - (2,695) - Funds advanced to the Group under investment agreement with the Russian Ministry of Far East Development 22 - - 30,771 Funds transferred under investment agreement with the Russian Ministry of Far East Development 22 - (16,894) (47,665) Guarantee fee in connection with ICBC facility - 1,126 1,126 Net cash used in financing activities (13,304) (45,881) (46,770) ----------------------------------------------------- ------ -------------- -------------- ----------------------- Net increase/(decrease) in cash and cash equivalents in the period 20,004 (12,073) (18,428) Effect of exchange rates on cash and cash equivalents 25 2,145 2,831 Cash and cash equivalents at beginning of period 14 12,642 28,239 28,239 Cash and cash equivalents at end of period 14 32,671 18,311 12,642 ----------------------------------------------------- ------ -------------- -------------- ----------------------- (a) Including US$295.25 million in connection to bank debt refinancing.
PETROPAVLOVSK PLC
Notes to the condensed consolidated interim financial statements
Six months ended 30 June 2017
- 1. General information
Petropavlovsk PLC (the 'Company') is a company incorporated and registered in England and Wales. The address of the registered office is 11 Grosvenor Place, London SW1X 7HH.
These condensed consolidated interim financial statements are for the six months ended 30 June 2017. The interim financial statements are unaudited.
The information for the year ended 31 December 2016 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. This information was derived from the statutory accounts for the year ended 31 December 2016, a copy of which has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified.
The auditor's report did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.
- 2. Basis of preparation and presentation
The annual financial statements of the Company and its subsidiaries (the "Group") for the year ended 31 December 2016 were prepared in accordance with International Financial Reporting Standards ("IFRS"s) as adopted by the European Union.
The condensed set of financial statements has been prepared using accounting policies consistent with those set out in the annual financial statements for the year ended 31 December 2016, with adoption of new and revised standards and interpretations as set out below, and in accordance with IAS 34 "Interim Financial Reporting", as adopted by the European Union.
Going concern
The Group monitors and manages its liquidity risk on an ongoing basis to ensure that it has access to sufficient funds to meet its obligations. Cash forecasts are produced regularly based on a number of inputs including, but not limited to, forecast commodity prices and impact of hedging arrangements, Group mining plan, forecast expenditure and debt repayment schedules. Sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, cost inflation, different production rates from the Group's producing assets and the timing of expenditure on development projects. This is done to identify risks to liquidity and covenant compliance and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.
The Group performed an assessment of the forecast cash flows and covenant compliance in relation to bank facilities for the period of 12 months from the date of approval of the Half Year Report for the period ended 30 June 2017. As at 30 June 2017, the Group had sufficient liquidity headroom and complied with related financial covenants. Following the successful completion of the Bank Debt Refinancing, the Group is also satisfied that it has sufficient headroom under a base case scenario for the period to September 2018 and expects to comply with related financial covenants. In the meantime, the Group's projections under a layered stressed case that is based on US$1,125/oz gold price, which is at the bottom end of market consensus forecasts, indicate that unless mitigating actions can be taken, there will be insufficient liquidity and non-compliance with certain covenants under a layered stressed case for the relevant period to September 2018. These mitigating actions include items within the control of the management, such as accessing deposits not currently in the Group's mining plan, cost cutting and reduction of capital expenditure subject to receipt of necessary consents. These actions would account for approximately 50% of the forecast shortfall under the layered stressed case. Furthermore, management would also pursue raising additional equity, refinancing the existing debt and/or divesting the shares in IRC including an immediate settlement of any amounts of the guarantee fee outstanding to fully mitigate any shortfalls. Management is also reasonably confident that necessary waivers or consents could be obtained from the senior lenders if necessary. If a missed debt repayment occurs or financial covenant requirements are not met, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand.
The Group has guaranteed the outstanding amounts IRC owes to ICBC. The outstanding loan principal was US$234 million as at 30 June 2017. The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. IRC has agreed with ICBC to restructure and reschedule two repayment instalments under the ICBC Facility Agreement, which were originally due for payment on 20 June 2017 and 20 December 2017, with the next repayment instalment due on 20 June 2018. IRC also obtained waivers from ICBC in respect of obligations to maintain certain cash deposits with ICBC until 30 June 2018 and obligations to comply with certain financial covenants until 31 December 2017 (inclusive). Following the ramp up and commercial production at K&S, IRC management are forecasting that IRC will have sufficient capital through working capital to pay its financial obligations as and when they fall due in the foreseeable future and throughout the going concern period. However, if scheduled full commercial production of the K&S project is not achieved or the market conditions turn out to be significantly less favorable than predicted IRC's financial liquidity may be adversely impacted. IRC would then need to carry out contingency plans including entering into negotiations with banks or other investors for additional debt or equity financing.
Having taken into account the aforementioned factors and after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the Half Year Report for the period ended 30 June 2017. Accordingly, they continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.
Adoption of new and revised standards and interpretations
During the period the Group adopted all standards, amendments and interpretations that were effective for annual periods beginning on or after 1 January 2017 (such standards, amendments and interpretations were disclosed in note 2 to the Group's consolidated financial statements for the year ended 31 December 2016). These standards, amendments, and interpretations have not had a significant impact on the presentation or disclosure in Group's condensed consolidated financial statements for the interim period ended 30 June 2017. No other changes have been made to the Group's accounting policies in the period ended 30 June 2017. Additional disclosures with respect to the annual period requirements will be included in the Group's consolidated financial statements for the year ending 31 December 2017.
Areas of judgement in applying accounting policies and key sources of estimation uncertainty
When preparing the consolidated financial statements, management necessarily makes judgements and estimates that can have a significant impact on the financial statements. Areas of judgement in applying accounting policies and key sources of estimation uncertainty are consistent with those set out in the annual financial statements for the year ended 31 December 2016, with the addition of recognition of a contingent liability regarding mining tax concessions which is discussed further in note 23.
Correction of error in accounting for deferred tax liabilities
In 2017, the Group undertook a detailed review of implications of impairment provision recognised in relation to property, plant and equipment in prior periods on deferred taxation and concluded that deferred tax liability has been overstated. The error has been corrected by restating each of the affected financial statement line items for the prior periods as follows:
31 December (Decrease)/ 31 December 1 January (Decrease)/ 1 January
2016 increase 2016 2016 increase 2016
Restated Restated
US$' 000 US$' 000 US$'000 US$'000 US$' 000 US$'000
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
Deferred tax liabilities 139,728 (20,700) 119,028 173,499 (20,700) 152,799
Net assets 549,633 20,700 570,333 510,973 20,700 531,673
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
Retained losses 22,202 (20,700) 1,502 47,922 (20,700) 27,222
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
Total equity 549,633 20,700 570,333 510,973 20,700 531,673
-------------------------- ------------ ------------ ------------ ---------- ------------ ----------
30 June (Decrease)/ 30 June 1 January (Decrease)/ 1 January
2016 increase 2016 2016 increase 2016
Restated Restated
US$' 000 US$' 000 US$'000 US$'000 US$' 000 US$'000
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Deferred tax liabilities 151,886 (20,700) 131,186 173,499 (20,700) 152,799
Net assets 513,777 20,700 534,477 510,973 20,700 531,673
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Retained losses 47,278 (20,700) 26,578 47,922 (20,700) 27,222
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Total equity 513,777 20,700 534,477 510,973 20,700 531,673
-------------------------- --------- ------------ ---------- ---------- ------------ ----------
Presentation of the ICBC guarantee arrangements
As at 30 June 2017, the Group reviewed arrangements under the ICBC guarantee (note 20) and concluded it would be more appropriate to disclose associated receivable from IRC and financial liability under the ICBC guarantee contract on a gross basis. Assets and liabilities as at 31 December 2016 and 30 June 2016 have been re-presented accordingly as set out below. This re-presentation did not have any impact on the net assets, retained losses or total equity.
31 December Increase 31 December 30 June Increase 30 June
2016 2016 2016 2016
Restated Restated
US$' 000 US$' 000 US$'000 US$'000 US$' 000 US$'000
-------------------------- ------------ --------- ------------ -------- --------- ----------
Other non-current assets 2,154 9,229 11,383 231 10,206 10,437
Financial liabilities - 9,229 9,229 - 10,206 10,206
-------------------------- ------------ --------- ------------ -------- --------- ----------
- 3. Foreign currency translation
The following exchange rates to the US dollar have been applied to translate balances and transactions in foreign currencies:
Average Average
six months six months Average
As at ended As at ended As at year ended
30 June 30 June 30 June 30 June 31 December 31 December
2017 2017 2016 2016 2016 2016
-------------------------- --------- ------------ --------- ------------ ------------- -------------
GB Pounds Sterling (GBP:
US$) 0.77 0.79 0.75 0.70 0.81 0.74
Russian Rouble (RUB:
US$) 59.09 57.93 64.26 70.54 60.66 67.18
-------------------------- --------- ------------ --------- ------------ ------------- -------------
- 4. Segment information
The Group's reportable segments under IFRS 8, which are aligned with its operating locations, were determined to be Pokrovskiy, Pioneer, Malomir and Albyn hard-rock gold mines which are engaged in gold and silver production as well as field exploration and mine development.
Corporate and Other segment amalgamates corporate administration, in-house geological exploration and construction and engineering expertise, engineering and scientific operations and other supporting in-house functions as well as various gold projects and other activities that do not meet the reportable segment criteria.
Reportable operating segments are based on the internal reports provided to the Chief Operating Decision Maker ('CODM') to evaluate segment performance, decide how to allocate resources and make other operating decisions and reflect the way the Group's businesses are managed and reported.
The financial performance of the segments is principally evaluated with reference to operating profit less foreign exchange impacts.
Six months ended 30 June Corporate
2017 Pioneer Pokrovskiy Malomir Albyn and other Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Revenue
Gold (a) (,) (b) 118,956 19,350 35,937 116,603 - 290,846
Silver 548 89 35 134 - 806
Other external revenue - - - - 12,397 12,397
Inter-segment revenue - - 783 172 70,843 71,798
Intra-group eliminations - - (783) (172) (70,843) (71,798)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Total Group revenue from
external customers 119,504 19,439 35,972 116,737 12,397 304,049
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating expenses and
income
Operating cash costs (66,632) (19,897) (32,762) (37,897) (11,780) (168,968)
Depreciation (14,933) (3,394) (7,450) (22,158) (32) (47,967)
Central administration
expenses - - - - (23,095) (23,095)
Reversal of impairment/
(impairment) of ore stockpiles 3,069 (63) (275) 3,616 - 6,347
Impairment of gold in
circuit - (807) (633) - - (1,440)
Impairment of non-trading
loans - - - - (538) (538)
Total operating expenses
(c) (78,496) (24,161) (41,120) (56,439) (35,445) (235,661)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Share of results of associates - - - - (2,965) (2,965)
Segment result 41,008 (4,722) (5,148) 60,298 (26,013) 65,423
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Foreign exchange losses (504)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating profit 64,919
Investment income 386
Interest expense (14,448)
Other finance gains 2,045
Other finance losses (6,138)
Taxation (22,305) ---------------------------------- ---------- ------------- ---------- --------- ----------- --------------- Profit for the period 24,459 ---------------------------------- ---------- ------------- ---------- --------- ----------- --------------- Segment assets 457,427 18,961 410,625 406,028 116,636 1,409,677 Unallocated cash 9,003 Loans given 75 Consolidated total assets 1,418,755 ---------------------------------- ---------- ------------- ---------- --------- ----------- --------------- (a) Including US$2.8 million contribution from the cash flow hedge.
(b) Heap leach operations at Pioneer and Pokrovskiy are seasonal with production skewed towards the second half of the year.
(c) Operating expenses less foreign exchange losses (note 5).
Six months ended 30 June Corporate
2016 Pioneer Pokrovskiy Malomir Albyn and other Consolidated
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Revenue
Gold (d) (,) (e) 84,836 20,506 29,616 98,466 - 233,424
Silver 459 105 56 124 - 744
Other external revenue - - - - 19,785 19,785
Inter-segment revenue - - 572 181 44,788 45,541
Intra-group eliminations - - (572) (181) (44,788) (45,541)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Total Group revenue from
external customers 85,295 20,611 29,672 98,590 19,785 253,953
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating expenses and
income
Operating cash costs (41,809) (14,038) (22,687) (51,860) (18,968) (149,362)
Depreciation (21,899) (3,136) (8,414) (25,599) (241) (59,289)
Central administration
expenses - - - - (13,096) (13,096)
Reversal of impairment
of ore stockpiles 4,730 631 5,903 1,003 - 12,267
Loss on disposal of subsidiaries - - - - (791) (791)
Total operating expenses
(f) (58,978) (16,543) (25,198) (76,456) (33,096) (210,271)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Share of results of associates - - - - (3,563) (3,563)
Segment result 26,317 4,068 4,474 22,134 (16,874) 40,119
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Foreign exchange losses (5,883)
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Operating profit 34,236
Investment income 200
Interest expense (30,479)
Other finance gains 2,334
Other finance losses (1,506)
Taxation 4,438
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Profit for the period 9,223
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
Segment assets 435,925 45,600 386,592 409,662 122,128 1,399,907
Unallocated cash 7,980
Loans given 564
Consolidated total assets 1,408,451
---------------------------------- ---------- ------------- ---------- --------- ----------- ---------------
(d) Including US$(5.5) million net cash settlement paid by the Group under the cash flow hedge.
(e) Heap leach operations at Pioneer and Pokrovskiy are seasonal with production skewed towards the second half of the year.
(f) Operating expenses less foreign exchange losses (note 5).
Year ended 31 December Pioneer Pokrovskiy Malomir Albyn Corporate Consolidated
2016 and other
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Revenue
Gold (g) 163,514 46,692 67,107 211,155 - 488,468
Silver 958 275 101 207 - 1,541
Other external revenue - - - - 50,675 50,675
Inter-segment revenue - - 1,233 390 101,032 102,655
Intra-group
eliminations - - (1,233) (390) (101,032) (102,655)
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Total Group revenue
from
external customers 164,472 46,967 67,208 211,362 50,675 540,684
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Operating expenses and
income
Operating cash costs (85,273) (33,777) (45,243) (100,979) (48,995) (314,267)
Depreciation (38,776) (6,586) (13,632) (45,729) (529) (105,252)
Central administration
expenses - - - - (32,623) (32,623)
Impairment of
exploration
and evaluation assets - - - (9,155) - (9,155)
(Impairment)/reversal
of impairment of ore
stockpiles (6,110) (1,002) 5,826 123 - (1,163)
Gain on disposal of
non-trading
loans - - - - 6,724 6,724
Gain on disposal of
subsidiaries - - - - 791 791
Total operating
expenses
(h) (130,159) (41,365) (53,049) (155,740) (74,632) (454,945)
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Share of results of
associates - - - - (3,581) (3,581)
Segment result 34,313 5,602 14,159 55,622 (27,538) 82,158
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Foreign exchange
losses (5,158)
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Operating profit 77,000
Investment income 556
Interest expense (60,976)
Other finance gains 11,976
Other finance losses (1,548)
Taxation 4,698
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Profit for the period 31,706
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
Segment assets 444,611 19,724 402,878 390,646 133,894 1,391,753
Unallocated cash 4,843
Loans given 598
Consolidated total
assets 1,397,194
----------------------- ---------------------- ------------------- ------------------- -------------------- ---------------------- --------------------
(g) Including US$(8.5) million net cash settlement paid by the Group under the cash flow hedge.
(h) Operating expenses less foreign exchange losses (note 5).
- 5. Operating expenses and income
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
------------------------------------------ -------------- -------------- --------------
Net operating expenses (a) 216,935 208,651 419,519
Impairment of exploration and evaluation
assets - - 9,155
(Reversal of impairment)/ impairment
of ore stockpiles (a) (6,347) (12,267) 1,163
Impairment of gold in circuit 1,440 - -
Central administration expenses
(a) 23,095 13,096 32,623
Foreign exchange losses 504 5,883 5,158
Impairment of non-trading loans 538 - -
Gain on disposal of non-trading
loans - - (6,724)
Loss/(gain) on disposal of subsidiaries - 791 (791)
236,165 216,154 460,103
------------------------------------------ -------------- -------------- --------------
(a) As set out below.
Net operating expenses
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
Depreciation 47,967 59,289 105,252
Staff costs 38,196 29,009 63,022
Materials 50,984 44,424 100,638
Fuel 20,950 19,224 40,621
External services 17,571 13,516 25,619
Mining tax - 14,226 14,713
Electricity 14,958 10,651 23,305
Smelting and transportation costs 434 332 699
Movement in ore stockpiles, deferred
stripping, work in progress and
bullion in process attributable
to gold production 3,098 (10,808) (22,475)
Taxes other than on income 3,156 3,187 6,352
Insurance 4,309 2,937 6,409
Professional fees 855 456 877
Office costs 142 139 324
Operating lease rentals 1,933 477 3,173
Business travel expenses 540 617 1,434
Provision for impairment of trade
and other receivables 348 141 282
Bank charges 122 87 205
Goods for resale 4,303 8,980 24,186
Other operating expenses 10,210 11,343 25,231
Other (income)/ expenses (3,141) 424 (348)
-------------------------------------- -------------- -------------- --------------
216,935 208,651 419,519
-------------------------------------- -------------- -------------- --------------
Central administration expenses
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
Staff costs 13,946 8,744 17,067
Professional fees 4,674 616 8,214
Insurance 393 412 789
Operating lease rentals 965 926 1,893
Business travel expenses 605 419 881
Office costs 268 246 489
Other 2,244 1,733 3,290
23,095 13,096 32,623
-------------------------- -------------- -------------- --------------
- Impairment charges
Impairment of mining assets
The Group undertook an impairment review of the tangible assets attributable to the gold mining projects and the supporting in-house service companies and concluded no impairment was required as at 30 June 2017.
The forecast future cash flows are based on the Group's mining plan that assumes POX Hub completion in the year 2018. The other key assumptions which formed the basis of forecasting future cash flows and the value in use calculation are set out below:
Six months Year ended
ended 31 December 2016
30 June 2017
----------------------- -------------- ------------------
Long-term gold price US$1,265/oz US$1,200/oz
Discount rate (a) 8% 8%
RUB/US$ exchange rate RUB60.0/US$ RUB60.0/US$
----------------------- -------------- ------------------
(a) Being the post-tax real weighted average cost of capital
Impairment of ore stockpiles
The Group assessed the recoverability of the carrying value of ore stockpiles and recorded reversals of impairment/ impairment charges as set out below:
Six months ended 30 June
Six months ended 30 June 2017 2016
----------------------------------------------- -------------------------------------------
Pre-tax Post-tax
(reversal (reversal
of impairment)/ of impairment)/ Pre-tax Post-tax
impairment impairment reversal reversal
charge Taxation charge of impairment Taxation of impairment
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------ ----------------- --------- ----------------- --------------- --------- ---------------
Pokrovskiy 63 (13) 50 (631) 126 (505)
Pioneer (3,069) 613 (2,456) (4,730) 945 (3,785)
Malomir 275 (55) 220 (5,903) 1,181 (4,722)
Albyn (3,616) 723 (2,893) (1,003) 201 (802)
------------ ----------------- --------- ----------------- --------------- --------- ---------------
(6,347) 1,268 (5,079) (12,267) 2,453 (9,814)
------------ ----------------- --------- ----------------- --------------- --------- ---------------
- 6. Financial income and expenses
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016
US$'000 2016 US$'000
US$'000
----------------------------------------- -------------- ----------- --------------
Investment income
Interest income 386 200 556
----------------------------------------- -------------- ----------- --------------
386 200 556
----------------------------------------- -------------- ----------- --------------
Interest expense
Interest on bank loans (24,338) (24,527) (48,934)
Interest on convertible bonds (6,015) (5,865) (11,867)
----------------------------------------- -------------- ----------- --------------
(30,353) (30,392) (60,801)
Interest capitalised 16,037 - -
Unwinding of discount on environmental
obligation (132) (87) (175)
(14,448) (30,479) (60,976)
----------------------------------------- -------------- ----------- --------------
Other finance gains
Fair value gain on derivative financial
instruments (a) - - 7,434
Financial guarantee fee (b) 2,045 2,334 4,542
----------------------------------------- -------------- ----------- --------------
2,045 2,334 11,976
Other finance losses
Loss on bank debt refinancing (388) - (1,548)
Fair value loss on derivative financial
instruments (a) (5,750) (1,506) -
(6,138) (1,506) (1,548)
----------------------------------------- -------------- ----------- --------------
(a) Result from re-measurement of the conversion option of the Convertible Bonds to fair value (note 17).
(b) Note 20.
- 7. Taxation
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
---------------------------------------------- -------------- -------------- --------------------------
Current tax
Russian current tax 19,918 15,021 29,788
19,918 15,021 29,788
---------------------------------------------- -------------- -------------- --------------------------
Deferred tax
Origination/(reversal) of timing differences
(a) 2,387 (19,459) (34,486)
---------------------------------------------- -------------- -------------- --------------------------
Total tax charge/(credit) 22,305 (4,438) (4,698)
---------------------------------------------- -------------- -------------- --------------------------
(a) Including effect of foreign exchange movements in respect of deductible temporary differences of US$(4.5) million (six months ended 30 June 2016: US$(17.6) million, year ended 31 December 2016: US$(26.0) million) which primarily arises as the tax base for a significant portion of the future taxable deductions in relation to the Group's property, plant and equipment are denominated in Russian Rouble whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value and reflects the movements in the Russian Rouble to the US Dollar exchange rate.
- 8. Earnings per share
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
--------------------------------------------- -------------- -------------- ---------------
Profit for the period attributable to
equity holders of Petropavlovsk PLC 23,332 9,203 33,719
--------------------------------------------- -------------- -------------- ---------------
Interest expense on convertible bonds 6,015 -(a) -(a)
--------------------------------------------- -------------- -------------- ---------------
Profit used to determine diluted earnings
per share 29,347 9,203 33,719
--------------------------------------------- -------------- -------------- ---------------
No of shares No of shares No of shares
Weighted average number of Ordinary Shares 3,303,768,532 3,300,501,688 3,302,148,536
Adjustments for dilutive potential Ordinary
Shares 798,005,000 -(a) -(a)
Weighted average number of Ordinary Shares
for diluted earnings per share 4,101,773,532 3,300,501,688 3,302,148,536
--------------------------------------------- -------------- -------------- ---------------
US$ US$ US$
--------------------------------------------- -------------- -------------- ---------------
Basic profit per share 0.01 0.00 0.01
--------------------------------------------- -------------- -------------- ---------------
Diluted profit per share 0.01 0.00 0.01
--------------------------------------------- -------------- -------------- ---------------
(a) Convertible bonds which could potentially dilute basic profit per ordinary share in the future are not included in the calculation of diluted profit per share because they were anti-dilutive for the six months ended 30 June 2016 and the year ended 31 December 2016.
- 9. Exploration and evaluation assets
Flanks Flanks
of Pokrovskiy of Malomir Total
Albyn
US$'000 US$'000 US$'000 US$'000
------------------- --------------- -------- ---------- --------
At 1 January 2017 3,173 33,949 12,148 49,270
Additions 3,196 388 35 3,619
At 30 June 2017 6,369 34,337 12,183 52,889
-------------------- --------------- -------- ---------- --------
- 10. Property, plant and equipment
Capital
construction
Mining Non-mining in progress
assets assets (a) Total
US$'000 US$'000 US$'000 US$'000
------------------------------------- ---------- ----------- -------------- ----------
Cost
At 1 January 2017 1,875,341 193,554 332,962 2,401,857
Additions 18,972 750 10,436 30,158
Interest capitalised - - 16,037 16,037
Close down and restoration cost
capitalised 143 - - 143
Transfers from capital construction
in progress 15,425 345 (15,770) -
Disposals (3,641) (1,854) (39) (5,534)
Reallocation and other transfers 1,685 (2,251) 566 -
Foreign exchange differences - 616 - 616
---------- ----------- -------------- ----------
At 30 June 2017 1,907,925 191,160 344,192 2,443,277
---------- ----------- -------------- ----------
Accumulated depreciation and
impairment
At 1 January 2017 1,267,822 173,757 6,484 1,448,063
Charge for the year 46,582 1,751 - 48,333
Disposals (3,401) (2,356) (2) (5,759)
Reallocation and other transfers 150 (150) - -
Foreign exchange differences - 507 - 507
--------------------------------------
At 30 June 2017 1,311,153 173,509 6,482 1,491,144
-------------------------------------- ---------- ----------- -------------- ----------
Net book value
At 1 January 2017 (b) 607,519 19,797 326,478 953,794
-------------------------------------- ---------- ----------- -------------- ----------
At 30 June 2017 (b) 596,772 17,651 337,710 952,133
-------------------------------------- ---------- ----------- -------------- ----------
(a) Including US$241.3 million costs associated with the POX Hub project (31 December 2016: US$224.1 million).
(b) Property, plant and equipment with a net book value of US$103.5 million (30 June 2016: US$117.2 million, 31 December 2016: US$110.0 million) have been pledged to secure borrowings of the Group.
- 11. Investments in associates
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
--------------------- -------------- -------------- --------------
IRC Limited ('IRC') 33,285 35,600 36,140
33,285 35,600 36,140
--------------------- -------------- -------------- --------------
Summarised financial information for those associates that are material to the Group is set out below.
IRC IRC IRC
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
------------------------------------- -------------- -------------- --------------
Non-current assets
Exploration and evaluation assets 7,130 6,811 6,966
Property, plant and equipment 245,229 215,979 246,191
Prepayments for property, plant and
equipment 87,879 88,377 87,499
Other non-current assets 4,872 2,117 4,773
345,110 313,284 345,429
------------------------------------- -------------- -------------- --------------
Current assets
Cash and cash equivalents 15,612 24,578 31,342
Other current assets 41,864 35,631 44,184
57,476 60,209 75,526
------------------------------------- -------------- -------------- --------------
Current liabilities
Borrowings (a) 31,689 42,790 66,147
Other current liabilities 32,163 18,211 21,414
63,852 61,001 87,561
------------------------------------- -------------- -------------- --------------
Non-current liabilities
Borrowings (a) 191,496 196,434 177,239
Other non-current liabilities 31,854 13,098 34,431
223,350 209,532 211,670
------------------------------------- -------------- -------------- --------------
Net assets 115,384 102,960 121,724
------------------------------------- -------------- -------------- --------------
(a) On 6 December 2010, KS GOK LLC ('K&S'), a subsidiary of IRC, entered into a US$400 million Engineering Procurement and Construction Contract with China National Electric Engineering Corporation for the construction of the Group's mining operations at K&S. On 13 December 2010, K&S entered into a project finance facility agreement with the Industrial and Commercial Bank of China Limited ('ICBC') (the 'ICBC Facility Agreement') pursuant to which ICBC would lend US$340 million to K&S to be used to fund the construction of the Group's mining operations at K&S in time for the start of major construction works in early 2011. Interest under the facility was charged at 2.80% above London Interbank Offering rate ('LIBOR') per annum. The facility is guaranteed by the Company (notes 20) and is repayable semi-annually in 16 instalments US$21.25 thousand each, starting from December 2014 and is fully repayable by June 2022. ICBC has agreed to restructure two repayment instalments originally due for payment on 20 June 2017 and 20 December 2017 in an aggregate amount of US$42.5 million evenly into five subsequent semi-annual repayment instalments as such each of the repayment instalment due on 20 June 2018, 20 December 2018, 20 June 2019, 20 December 2019 and 20 June 2020 is increased by US$8.5 million to an amount equal to US$42.5 million. The outstanding loan principal was US$233.75 million as at 30 June 2017 (30 June 2016: US$255 million and 31 December 2016: US$233.75 million). The loan is carried at amortised cost with effective interest rate at 6.3% per annum. In January 2016, IRC placed US$28.3 million in order to replenish the DSRA level pursuant to the security deposit agreement. In accordance with the waiver and consent letter dated 19 April 2016, which conditions precedent were satisfied on 21 June 2016, ICBC waived the restriction on withdrawing from the DSRA for the repayment of the ICBC loan and related interest and the requirement of IRC to maintain the DSRA until 30 June 2018. Accordingly, balance of US$1.98 million remained in the DSRA as at 30 June 2017 without replenishment. ICBC Facility Agreement contains certain financial covenants to which ICBC has agreed to grant a waiver until 31 December 2017, inclusive. As at 30 June 2017 and 31 December 2016, the Group's entire 31.1% ownership in the issued capital of IRC was pledged to ICBC as security for the obligations of the Company as guarantor and in consideration for the waiver of financial covenants under the ICBC facility.
IRC IRC IRC
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
----------------------------------- ------------- ------------- -----------------------------
Revenue 51,253 16,147 16,467
Net operating expenses (51,048) (26,734) (34,503)
----------------------------------- ------------- ------------- -----------------------------
including
Depreciation (4,017) (433) (1,155)
Impairment of mining assets (243) - -
Impairment of ore stockpiles - - (841)
Impairment of investments in joint
ventures (4) (147) (47)
Foreign exchange losses (306) (2,300) (3,440)
----------------------------------- ------------- ------------- -----------------------------
Investment income 65 276 413
Interest expense (9,739) (635) (1,189)
Taxation (64) 1,002 (315)
----------------------------------- ------------- ------------- -----------------------------
Loss for the period (9,533) (9,944) (19,127)
----------------------------------- ------------- ------------- -----------------------------
Other comprehensive profit 355 1,254 1,555
Total comprehensive loss (9,178) (8,690) (17,572)
----------------------------------- ------------- ------------- -----------------------------
- 12. Inventories
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
--------------------------------- -------- -------- ------------
Current
Construction materials 6,031 5,923 5,072
Stores and spares 59,303 51,984 57,699
Ore in stockpiles (a), (c) 33,175 22,475 17,104
Gold in circuit 40,887 66,583 70,996
Deferred stripping costs 34,250 24,177 26,187
Bullion in process 1,861 1,530 1,189
Other 5,262 14,287 5,019
--------------------------------- -------- -------- ------------
180,769 186,959 183,266
--------------------------------- -------- -------- ------------
Non-current
Ore in stockpiles (a), (b), (c) 51,857 54,459 51,686
Deferred stripping costs 16,632 - -
68,489 54,459 51,686
--------------------------------- -------- -------- ------------
(a) Note 5.
(b) Ore in stockpiles that is not planned to be processed within twelve months after the reporting period.
(c) As at 30 June 2017, ore in stockpiles include balances in the aggregate of US$17.8 million carried at net realisable value (31 December 2016: US$45.5 million, 30 June 2016: US$16.0 million).
- 13. Trade and other receivables
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
----------------------- -------- -------- ------------
VAT recoverable 32,596 30,812 30,265
Advances to suppliers 14,478 8,959 11,394
Trade receivables 5,109 5,942 6,160
Other debtors 22,946 17,091 41,917
----------------------- -------- -------- ------------
75,129 62,804 89,736
----------------------- -------- -------- ------------
- 14. Cash and cash equivalents
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
-------------------------- -------- -------- ------------
Cash at bank and in hand 32,512 18,155 10,284
Short-term bank deposits 159 156 2,358
32,671 18,311 12,642
-------------------------- -------- -------- ------------
- 15. Derivative financial instruments
30 June 2017 30 June 2016 31 December 2016
-------------------- -------------------- --------------------
Assets Liabilities Assets Liabilities Assets Liabilities
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Forward gold contracts - cash flow hedge (a),
(b), (c) 661 (7,873) - (6,885) 7,478 -
Call Option over the Company's shares (d) - (2,965) - - - (3,064)
Conversion option (e), (f) - (13,100) - (16,190) - (7,250)
661 (23,938) - (23,075) 7,478 (10,314)
(a) Forward contracts to sell an aggregate of 500,002 ounces of gold at an average price of US$1,252 per ounce are outstanding as at 30 June 2017 (30 June 2016: 118,723 ounces at an average price of US$1,269 per ounce, 31 December 2016: 50,006 ounces of gold at an average price of US$1,303 per ounce).
(b) Measured at fair value and considered as Level 2 of the fair value hierarchy which valuation incorporates the following inputs:
- gold forward curves observable at quoted intervals; and - observable credit spreads.
(c) The hedged forecast transactions are expected to occur at various dates during the period to December 2019.
Gain and losses recognised in the hedging reserve in equity as at the reporting date will be recognised in the income statement in the periods during which the hedged gold sale transactions affect the income statement.
There was no ineffectiveness to be recorded from the cash flow hedge during the six months ended 30 June 2017 and 2016 and the year ended 31 December 2016.
(d) Cash settled call option issued in relation to 3.6 per cent. of the outstanding aggregate ordinary share capital in the Company exercisable between December 2019 and March 2023 at strike price of GBP0.068.
(e) Note 17.
(f) Measured at fair value and considered as Level 2 of the fair value hierarchy which valuation incorporates the following inputs:
- the Group's credit risk;
- historic share price volatility;
- the conversion price;
- time to maturity; and
- risk free rate.
- 16. Trade and other payables
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
Trade payables 22,656 36,014 25,068
Advances from customers 511 1,847 2,148
Advances received on resale and commission
contracts (a) 2,363 9,715 1,847
Accruals and other payables 33,240 27,924 26,575
58,770 75,500 55,638
(a) Amounts included in advances received on resale and commission contracts at 30 June 2017, 30 June 2016 and 31 December 2016 relate to services performed by the Group's subsidiary, Irgiredmet, in its activity to procure materials such as reagents, consumables and equipment for third parties.
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
- 17. Borrowings
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
Borrowings at amortised cost
Convertible Bonds (a), (b) 89,885 86,867 88,369
Bank loans (c) 512,900 529,075 522,843
602,785 615,942 611,212
85,306
Amount due for settlement within 12 months 53,713 344,159 (c)
Amount due for settlement after 12 months 549,072 271,783 525,906
602,785 615,942 611,212
(a) Liability component of the US$100 million Convertible Bonds due on 18 March 2020, measured at amortised cost. The interest charged was calculated by applying an effective interest rate of 13.89% to the liability component.
The conversion option of the US$100 million Convertible Bonds represents the fair value of the embedded option for the bondholders to convert into the equity of the Company ("the Conversion Right"). As the Company can elect to pay the cash value in lieu of delivering the Ordinary Shares following the exercise of the Conversion Right, the conversion option is a derivative liability. Accordingly, the conversion option is measured at fair value and is presented separately within derivative financial liabilities. [If the Company's share price exceeds 150% of the strike price then the Company will have the right to repay the Convertible Bonds early, therefore the fair value of the conversion option is capped.]
(b) As at 30 June 2017, the fair value of debt component of the convertible bonds, considered as Level 2 of the fair value hierarchy, amounted to US$100.4 million (30 June 2016: US$95.2 million, 31 December 2016: US$97.3 million). Valuation incorporates the following inputs: the Group's credit risk, time to maturity and risk free rate.
As at 30 June 2017, the fair value of the Convertible Bonds, considered as Level 1 of the fair value hierarchy and calculated by applying the market traded price to the convertible bonds outstanding, amounted to US$113.5 million (30 June 2016: US$110.0 million, 31 December 2016: US$103.9 million).
(c) The carrying value of the bank loans approximated their fair value at each period end.
- 18. Share capital
30 June 2017 30 June 2016 31 December 2016
No of shares US$'000 No of shares US$'000 No of shares US$'000
Allotted, called up
and fully paid
At the beginning of
the period 3,303,768,532 48,920 3,300,561,697 48,874 3,300,561,697 48,874
Issued during the period - - 3,206,835 46 3,206,835 46
At the end of the period 3,303,768,532 48,920 3,303,768,532 48,920 3,303,768,532 48,920
The Company has one class of ordinary shares which carry no right to fixed income.
- 19. Notes to the cash flow statement
Reconciliation of profit before tax to operating cash flow
Six months Six months Year ended
ended 30 ended 30 31 December
June 2017 June 2016 2016
US$'000 US$'000 US$'000
----------- ----------- -------------
Profit before tax 46,764 4,785 27,008
Adjustments for:
Share of results of associates 2,965 3,563 3,581
Investment income (386) (200) (556)
Interest expense 14,448 30,479 60,976
Other finance gains (2,045) (2,334) (11,976)
Other finance losses 6,138 1,506 1,548
Share based payments - 140 140
Depreciation 47,967 59,289 105,252
Impairment of exploration and evaluation
assets - - 9,155
(Reversal of impairment)/ impairment of
ore stockpiles (6,347) (12,267) 1,163
Impairment of gold in circuit 1,440 - -
Effect of processing previously impaired
stockpiles (9,900) (7,536) (7,536)
Provision for impairment of trade and
other receivables 348 141 282
(Gain)/loss on disposals of property,
plant and equipment (380) 2,148 2,431
Loss/(gain) on disposal of subsidiaries - 791 (791)
Foreign exchange losses 504 5,883 5,158
Impairment of non-trading loans 538 - -
Gain on disposal of non-trading loans - - (6,724)
Other non-cash items 246 (1,223) 177
Changes in working capital:
Decrease/(increase) in trade and other
receivables 11,493 (2,066) (25,828)
Decrease in inventories 415 7,922 298
Increase/(decrease) in trade and other
payables 1,585 (16,671) (37,745)
----------- -------------
Net cash generated from operations 115,793 74,350 126,013
----------- -------------
Non-cash transactions
There were no significant non-cash transactions during the six months ended 30 June 2017 and 30 June 2016 and the year ended 31 December 2016.
- 20. Related parties
Related parties the Group entered into transactions with during the reporting period
PJSC Asian-Pacific Bank ('Asian-Pacific Bank'), LLC Insurance Company Helios Reserve ('Helios') and Peter Hambro Limited are considered to be related parties as members of key management have an interest in and collectively exercise significant influence over these entities until 22 June 2017 when the Group lost significant influence over these companies.
The Petropavlovsk Foundation for Social Investment (the 'Petropavlovsk Foundation') is considered to be a related party due to the participation of the key management of the Group in the governing board of the Petropavlovsk Foundation and their presence in its board of guardians.
IRC Limited and its subsidiaries are associates to the Group and hence are related parties since 7 August 2015.
Transactions with related parties the Group entered into during the six months ended 30 June 2017 and 30 June 2016 and the year ended 31 December 2016 are set out below.
Trading Transactions
Related party transactions the Group entered into that relate to the day-to-day operation of the business are set out below.
Sales to related parties Purchases from related
parties
Six Six months
Six months months Year Six months ended
ended ended ended ended 30 June Year ended
30 June 30 June 31 December 30 June 2016 31 December
2017 2016 2016 2017 US$'000 2016
US$'000 US$'000 US$'000 US$'000 US$'000
Asian-Pacific Bank
Other 3 12 22 35 39 102
3 12 22 35 39 102
Trading transactions with other
related parties
Insurance arrangements with
Helios, rent and other
transactions
with other entities in which
key management have interest
and exercises a significant
influence or control - 98 66 836 1,786 3,514
Associates
IRC Limited and its subsidiaries 43 24 69 1,559 950 1,996
43 122 135 2,395 2,736 5,510
During the six months ended 30 June 2017, the Group made US$0.1 million charitable donations to the Petropavlovsk Foundation (six months ended 30 June 2016: US$0.1 million and year ended 31 December 2016: US$0.2 million).
The outstanding balances with related parties at 30 June 2017, 30 June 2016 and 31 December 2016 are set out below.
Amounts owed by related Amounts owed to related
parties parties
30 June 30 June 31 December 30 June 30 June 31 December
2017 2016 2016 2017 2016 2016
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Helios and other entities
in which key management have
interest and exercises a significant
influence or control (b) 233 1,318 1,383 - - 1
Asian-Pacific Bank (b) - - 1 - - -
IRC Limited and its subsidiaries 2,072 2,073 14,502(a) 1,626 1,320 1,704
2,305 3,391 15,886 1,626 1,320 1,705
(a) Including US$12.5 million advanced to IRC in December 2016. This balance was fully repaid in January 2017.
(b) PJSC Asian-Pacific Bank ("Asian-Pacific Bank"), LLC Insurance Company Helios Reserve ("Helios") and Peter Hambro Limited ceased being related parties to the Group from 22 June 2017.
Banking arrangements
The Group has current and deposit bank accounts with Asian-Pacific Bank.
The bank balances at 30 June 2017, 30 June 2016 and 31 December 2016 are set out below.
30 June 30 June 31 December
2017 2016 2016
US$'000 US$'000 US$'000
Asian-Pacific Bank -(c) 2,739 629
(c) PJSC Asian-Pacific Bank ("Asian-Pacific Bank") ceased being related party to the Group from 22 June 2017.
Financing transactions
The Group has charged a fee for the provision of the guarantee to IRC (note 11), equal to 1.75% on the outstanding loan amount under the ICBC Facility Agreement and which amounted to US$2.0 million during the six months ended 30 June 2017 (six months ended 30 June 2016: US$2.3 million; year ended 31 December 2016: US$4.5 million). The Guarantee fee outstanding amounted to US$5.5 million (31 December 2016: US$3.4 million).
Key management compensation
Key management personnel, comprising a group of 14 (30 June 2016: 15 and 31 December 2016: 15) individuals, including Executive and Non-Executive Directors of the Company and members of senior management, are those having authority and responsibility for planning, directing and controlling the activities of the Group.
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
Wages and salaries 4,872 2,744 6,103
Pension costs 86 96 182
Share-based compensation - 140 610
4,958 2,980 6,895
- 21. Analysis of net debt
At 1 January Net cash Exchange Non-cash At 30 June
2017 movement movement changes 2017
US$'000 US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents 12,642 20,004 25 - 32,671
Borrowings (611,212) 38,607 - (30,180) (602,785)
(30,180)
Net debt (598,570) 58,611 25 (a) (570,114)
(a) Being amortisation of borrowings and the effect of the bank debt refinancing (note 17).
At 1 January Disposal Net cash Exchange Non-cash At 31 December
2016 of subsidiaries Movement movement changes 2016
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
---------- ---------
28,239
Cash and cash equivalents (a) (99) (18,329) 2,831 - 12,642
Borrowings (638,278) - 84,710 173 (57,817) (611,212)
(57,817)
Net debt (610,039) (99) 66,381 3,004 (b) (598,570)
---------- --------- ---------------
(a) Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development (note 22).
(b) Being amortisation of borrowings and the effect of the bank debt refinancing (note 17).
- 22. Capital commitments
At 30 June 2017, the Group had entered into contractual commitments for the acquisition of property, plant and equipment and mine development costs in relation to POX Hub project amounting to US$12.7 million (30 June 2016: US$1.0 million, 31 December 2016: US$3.8 million).
Investment agreement with the Russian Ministry of Far East Development
On 14 December 2015, the Group entered into an investment agreement with the Russian Ministry of Far East Development (the 'Investment Agreement'). The Investment Agreement involves provision of RUB5.5 billion (an equivalent to c.US$91 million as at 31 December 2016) funding towards the construction of the electricity power line in the North-East of the Amur Region of Russia, where the Group's Albyn and Malomir mines and adjacent licence areas are operated, during the period 2015 - 2019. The funds are advanced to the Group and then should be transferred to the joint-stock company Far East Grid Distribution Company ('DRSK'), who is to engage a contractor to build the relevant power supply infrastructure. The Group's responsibility under the Investment Agreement will be to monitor the progress and to report to the Russian Ministry of Far East Development. The Group will be taking ultimate responsibility for the construction of the power line. Upon completion, the Group will get access to the enhanced capacity of the power supply infrastructure in the region. Under the terms of the Investment Agreement, the Group has certain capital commitments, including further development of Albyn and Malomir mines.
As at 31 December 2015, the Group received RUB1.1 billion (an equivalent to US$15.1 million) funds under the Investment Agreement. During 2016, the Group received further RUB2.0 billion (an equivalent to US$30.8 million) under the Investment Agreement and transferred an aggregate RUB3.1 billion (an equivalent to US$47.7 million) to DRSK. During the six months ended 30 June 2017 the Group did not receive and made no transfers of funds under the Investment Agreement.
23. Contingent liabilities
The Group applies a two years mining tax concession since 1 July 2016 in its capacity of a participant to the Regional investment project in accordance with the Russian Federal Law 144-FZ dated 25 May 2016. The position of the Russian tax authorities is that the effective date for the aforementioned concession should be 1 January 2017 and, accordingly, the Group should be liable for the mining tax of approximately RUB1 billion (an equivalent of approximately US$16.9 million as at 30 June 2017) for the six month period to 31 December 2016. The matter is currently being considered by the courts. To date decisions made by the Tribunal which took place in May 2017 and the Court of Appeal which took place in August 2017 have not been in favour of the Group. The Group continues to consider its interpretation of relevant tax legislation and tax filing position are appropriate and has filed an appeal to the Cassation Court accordingly.
- 24. Reconciliation of non-GAAP measures (unaudited)
Six months Six months Year ended
ended ended 31 December
30 June 2017 30 June 2016 2016
US$'000 US$'000 US$'000
-------------- -------------
Profit for the period 24,459 9,223 31,706
Add/(less):
Investment income (386) (200) (556)
Interest expense 14,448 30,479 60,976
Other finance gains (2,045) (2,334) (11,976)
Other finance losses 6,138 1,506 1,548
Foreign exchange losses 504 5,883 5,158
Taxation 22,305 (4,438) (4,698)
Depreciation 47,967 59,289 105,252
Impairment of exploration and evaluation
assets - - 9,155
(Reversal of impairment)/ impairment
of ore stockpiles (6,347) (12,267) 1,163
Impairment of gold in circuit 1,440 - -
Impairment of non-trading loans 538 - -
Share in results of associates (a) 5,096 894 2,356
Underlying EBITDA 114,117 88,035 200,084
-------------- -------------
(a) Group's share of interest expense, investment income, other finance gains and losses, foreign exchange losses, taxation, depreciation and impairment recognised by an associate (note 11).
Note: figures in this release may not add up due to rounding
The Use and Application of Alternative Performance Measures (APMs)
Throughout this release, when discussing the Group's financial performance, reference is made to APMs.
Each of the APMs is defined and calculated by the Group and as such they are non-IFRS measures because they may include or exclude certain items that an IFRS measure ordinarily would or would not take into account. APMs should not be regarded as an alternative or substitute for the equivalent measures calculated and presented in accordance with IFRS but instead should be seen as additional information provided to investors to enable the comparison of information between different reporting periods of the Group.
Although the APMs used by the Group may be calculated in a different manner and defined differently by other peers in the precious metals mining sector (despite being similar in title), they are nonetheless relevant and commonly used measures for the industry in which Petropavlovsk operates. These and similar measures are used widely by certain investors, analysts and other interested parties as supplemental measures of financial performance.
Some of the APMs form part of the Group's Key Performance Indicators (KPIs), which are used to monitor progress and performance against strategic objectives and to benchmark the performance of the business each year.
A discussion of the relevance of each APM as well as a description of how they are calculated is set out below, with reconciliation to IFRS equivalents from the consolidated IFRS financial statements (Consolidated Income Statement (IS), Consolidated Balance Sheet (BS), Consolidated Cash Flows Statement (CF) and the notes to the consolidated IFRS financial statements).
Total Cash Costs (TCC)
Definition
The total cash cost per ounce is the cost of producing and selling an ounce of gold from the Group's four hard-rock operations.
Calculation
TCC are calculated by the Group as operating cash costs less co-product revenue. TCC per oz are calculated as total cash costs divided by the ounces of gold sold. TCC per oz are presented on a segment basis.
Operating cash costs are defined by the Group as operating cash expenses plus refinery and transportation costs, other taxes, mining tax and the amortisation of deferred stripping costs. This also equates to the Group's segment result as reported under IFRS plus each segment's share of results of associates, loss/gain on disposal of subsidiaries, impairment of ore stockpiles and gold in circuit, impairment of exploration and evaluation assets, impairment of mining assets, impairment of non-trading loans, central administration expenses and depreciation, minus each segment's revenue from external customers. Operating cash costs are presented on a segment basis.
Operating cash expenses are defined by the Group as the total of staff costs, materials, fuel, electricity, other external services, other operating expenses, and the movement in ore stockpiles, work in progress and bullion in process attributable to gold production (excluding deferred stripping costs). The main cost drivers affecting operating cash expenses are stripping ratios, production volumes of ore mined / processed, recovery rates, cost inflation and fluctuations in the rouble to US dollar exchange rate.
Other companies may calculate this measure differently.
Relevance
The Group closely monitors its current and projected costs to track and benchmark the ongoing efficiency and effectiveness of its operations. This monitoring includes analysing fluctuations in the components that operating cash costs and cost per tonne mined and processed to identify where and how efficiencies may be made.
Reconciliation
The tables below provide a reconciliation between operating expenses and total cash costs to calculate the cash cost per ounce sold for relevant periods.
H1 2017 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- ---------
Operating expenses IS 236,165
Deduct:
Foreign exchange note
losses 5 (504)
note
Depreciation 5 (47,967)
Reversal of impairment note
of ore stockpiles 5 6,347
Impairment of gold note
in circuit 5 (1,440)
Impairment of non-trading note
loans 5 (538)
Central administration note
expenses 5 (23,095)
---------- ------------- ---------- -------- ----------- ---------
note
Operating cash costs 4 66,632 19,897 32,762 37,897 11,780 168,968
Deduct:
Corporate and other note
segment 4 - - - - (11,780) (11,780)
note
Deduct: silver revenue 4 (548) (89) (35) (134) - (806)
---------- ------------- ---------- -------- ----------- ---------
Total cash costs 66,084 19,808 32,727 37,763 - 156,382
---------- ------------- ---------- -------- ----------- ---------
Total ounces sold oz 94,690 15,402 28,700 92,967 231,760
Total cash cost per
ounce sold US$/oz 698 1,286 1,140 406 675
H1 2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- ---------
Operating expenses IS 216,154
Deduct:
Foreign exchange note
losses 5 (5,883)
note
Depreciation 5 (59,289)
Reversal of impairment note
of ore stockpiles 5 12,267
Loss on disposal note
of subsidiaries 5 (791)
Central administration note
expenses 5 (13,096)
---------- ------------- ---------- -------- ----------- ---------
note
Operating cash costs 4 41,809 14,038 22,687 51,860 18,968 149,362
Deduct:
Corporate and other note
segment 4 - - - - (18,968) (18,968)
note
Deduct: silver revenue 4 (459) (105) (56) (124) - (744)
---------- ------------- ---------- -------- ----------- ---------
Total cash costs 41,350 13,933 22,631 51,736 - 129,650
---------- ------------- ---------- -------- ----------- ---------
Total ounces sold oz 71,095 17,200 24,693 82,447 195,434
Total cash cost per
ounce sold US$/oz 582 810 917 628 663
FY2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- ----------
Operating expenses IS 460,103
Deduct:
Foreign exchange note
losses 5 (5,158)
note
Depreciation 5 (105,252)
Impairment of ore note
stockpiles 5 (1,163)
Impairment of exploration note
and evaluation assets 5 (9,155)
Gain on disposal note
of non-trading loans 5 6,724
Gain on disposal note
of subsidiaries 5 791
Central administration note
expenses 5 (32,623)
---------- ------------- ---------- -------- ----------- ----------
note
Operating cash costs 4 85,273 33,777 45,243 100,979 48,995 314,267
Deduct:
Corporate and other note
segment 4 - - - - (48,995) (48,995)
note
Deduct: silver revenue 4 (958) (275) (101) (207) - (1,541)
---------- ------------- ---------- -------- ----------- ----------
Total cash costs 84,315 33,502 45,142 100,772 - 263,731
---------- ------------- ---------- -------- ----------- ----------
Total ounces sold oz 133,605 38,151 54,760 173,342 399,858
Total cash cost per
ounce sold US$/oz 631 878 824 581 660
All in Sustaining Costs (AISC)
Definition
AISC includes both operating and capital costs required to sustain gold production on an ongoing basis, over and above the direct mining and selling costs shown by TCC.
Calculation
AISC are calculated by the Group as TCC plus/(minus) impairment/(reversal of impairment) of ore stockpiles and gold in circuit, central administration expenses, plus capitalised stripping at end of the period, less capitalised stripping at beginning of the period, plus close-down and site restoration and sustaining capital and exploration expenditure. This is then divided by the ounces of gold sold. AISC are presented on a segment basis.
AISC are calculated in accordance with guidelines for reporting AISC as published by the World Gold Council in June 2013. Other companies may calculate this measure differently.
Relevance
AISC allows for a better understanding of the true cost of producing gold once key components such as central admin costs and the cost of sustaining capital and exploration expenditure are taken into account. Management uses this measure to monitor the performance of our assets and their ability to generate positive cash flows.
Reconciliation
The tables below provide a reconciliation between total cash costs and all-in sustaining costs to calculate all-in sustaining cost per ounce sold for relevant periods.
H1 2017 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
Total cash costs 66,084 19,808 32,727 37,763 - 156,382
Add:
(Reversal of impairment)/
impairment of ore note
stockpiles 5 (828) 63 275 (3,616) - (4,106)
Impairment of gold note
in circuit 5 - 807 633 - - 1,440
Central administration note
expenses 5 9,436 1,535 2,860 9,264 - 23,095
note
Net capitalised stripping 12 - - 3,185 21,510 - 24,695
Site restoration
costs 50 101 163 432 - 746
Sustaining exploration
expenditures 1,874 - 2,427 2,947 - 7,248
Sustaining capital
expenditures 10,019 89 1,442 2,568 - 14,118
All-in sustaining
costs 86,635 22,403 43,712 70,868 - 223,618
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 94,690 15,402 28,700 92,967 231,760
All-in sustaining
costs per ounce sold US$/oz 915 1,454 1,523 762 965
H1 2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
Total cash costs 41,350 13,933 22,631 51,736 - 129,650
Add:
Reversal of impairment note
of ore stockpiles 5 (2,298) (631) (106) (1,003) - (4,038)
Central administration note
expenses 5 4,764 1,153 1,655 5,524 - 13,096
note
Net capitalised stripping 12 5,161 - 1,199 (164) - 6,196
Site restoration
costs 27 9 24 27 - 87
Sustaining capital
expenditures 1,234 32 645 2,011 - 3,922
All-in sustaining
costs 50,238 14,496 26,048 58,131 - 148,913
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 71,095 17,200 24,693 82,447 195,434
All-in sustaining
costs per ounce sold US$/oz 707 843 1,055 705 762
FY2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
Total cash costs 84,315 33,502 45,142 100,772 - 263,731
Add:
Impairment/ (reversal
of impairment) of note
ore stockpiles 5 6,301 1,002 (30) (123) - 7,150
Central administration note
expenses 5 10,900 3,113 4,468 14,142 - 32,623
note
Net capitalised stripping 12 - - 3,610 4,596 - 8,206
Site restoration
costs 54 19 48 54 - 175
Sustaining capital
expenditures 3,902 61 1,724 5,209 - 10,896
All-in sustaining
costs 105,472 37,697 54,962 124,650 - 322,781
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 133,605 38,151 54,760 173,342 399,858
All-in sustaining
costs per ounce sold US$/oz 789 988 1,004 719 807
All in Costs (AIC)
Definition
AIC comprises of AISC as well as capital expenditures for major growth projects or enhancement capital for significant improvements at existing operations.
Calculation
AIC are calculated by the Group as AISC plus non-sustaining exploration and capital expenditure and (reversal of impairment)/impairment of refractory ore stockpiles. This is then divided by the ounces of gold sold. AIC are presented on a segment basis.
AIC is calculated in accordance with guidelines for reporting AIC as published by the World Gold Council in June 2013. Other companies may calculate this measure differently.
Relevance
AIC reflect the costs of producing gold over the life-cycle of a mine.
Reconciliation
The tables below provide a reconciliation between all-in sustaining costs and all-in costs to calculate all-in cost per ounce sold for relevant periods.
H1 2017 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in sustaining
costs 86,635 22,403 43,712 70,868 - 223,618
Add:
Reversal of impairment note
of ore stockpiles 5 (2,241) - - - - (2,241)
Exploration expenditure 3,196 - 35 388 - 3,619
Capital expenditure 8,535 - 8,312 - - 16,847
All-in costs 96,125 22,403 52,059 71,256 - 241,843
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 94,690 15,402 28,700 92,967 231,760
All-in costs per
ounce sold US$/oz 1,015 1,454 1,814 766 1,044
H1 2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in sustaining
costs 50,238 14,496 26,048 58,131 - 148,913
Add:
Reversal of impairment note
of ore stockpiles 5 (2,432) - (5,797) - - (8,229)
Exploration expenditure 3,292 31 1,201 3,032 - 7,556
Capital expenditure 226 - 182 1 - 409
All-in costs 51,324 14,527 21,634 61,164 - 148,649
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 71,095 17,200 24,693 82,447 195,434
All-in costs per
ounce sold US$/oz 722 845 876 742 761
FY2016 Ref Corporate
Pioneer Pokrovskiy Malomir Albyn and other Total
US$'000 US$'000 US$'000 US$'000 US$' 000 US$'000
---------- ------------- ---------- -------- ----------- --------
All-in sustaining
costs 105,472 37,697 54,962 124,650 - 322,781
Add:
Reversal of impairment note
of ore stockpiles 5 (191) - (5,796) - - (5,987)
Exploration expenditure 8,455 76 1,887 6,172 - 16,590
Capital expenditure 1,037 - 836 1 - 1,874
All-in costs 114,773 37,773 51,889 130,823 - 335,258
---------- ------------- ---------- -------- ----------- --------
Total ounces sold oz 133,605 38,151 54,760 173,342 399,858
All-in costs per
ounce sold US$/oz 859 990 948 755 838
Average Realised Gold Sales Price
Definition
The average realised gold sales price is the mean price at which the Group sold its gold production output throughout the reporting period, including the realised effect of cash flow hedge contracts during the period.
Calculation
The average realised gold sales price is calculated by dividing total revenue received from gold sales (including the realised effect of any hedging contracts) by the total quantity of gold sold during the period. Other companies may calculate this measure differently.
Relevance
As gold is the key commodity produced and sold by the Group, the average realised gold sales price is a key driver behind the Group's revenues and profitability.
Reconciliation
The average realised gold price has been calculated as set out in the table below.
Ref H1 2017 H1 2016 FY2016
-------- -------- --------
note
Gold revenue 4 US$' 000 290,846 233,424 488,468
Gold sold ounces 231,760 195,434 399,858
-------- --------
Average realised gold
price US$/oz 1,255 1,194 1,222
-------- --------
Capital Expenditure (CAPEX)
Definition
CAPEX is the investment required by the Group to explore and develop its gold assets and keep current plants and other equipment at its gold mines in good working order.
Calculation
CAPEX represents cash flows used in investing activities, namely Purchases of property, plant and equipment and Exploration expenditure.
Relevance
Capital expenditure is necessary in order not only to maintain but also to develop and grow the business. Capex requirements need to be balanced in line with the Group's strategy and provide an optimal allocation of the Group's funds.
Reconciliation
The table below provides a reconciliation between capital expenditure and cash flows used in investing activities.
Ref H1 2017 H1 2016 FY2016
US$' 000 US$' 000 US$' 000
---------- ---------- -----------
Purchase of property,
plant and equipment CF 30,965 4,331 12,770
Exploration expenditure CF 10,867 7,556 16,590
---------- -----------
Total capital expenditure 41,832 11,887 29,360
---------- -----------
Net Debt
Definition
Net Debt shows how indebted a company is after total debt and any cash (or its equivalent) are netted off against each other.
Calculation
Net Debt is calculated as the sum of current borrowings and non-current borrowings less cash and cash equivalents. Other companies may calculate this measure differently.
Relevance
Management considers Net Debt a key measure of the Company's leverage and its ability to repay debt as well showing what progress is being made in strengthening the balance sheet. The measure is also used by investors and the Group's lenders in calculating financial covenants, including Net Debt / EBITDA.
Reconciliation
The table below provides calculation of net debt at relevant reporting dates.
Ref 30 June 2017 31 December
US$' 000 2016
US$' 000
----- ------------- -------------
Cash and cash equivalents BS 32,671 12,642
Borrowings BS (602,785) (611,212)
----- -------------
Net debt (570,114) (598,570)
-------------
Underlying EBITDA
Definition
EBITDA is a common measure used to assess profitability without the impact of different financing methods, tax, asset depreciation and amortisation of intangibles and items of an exceptional / non-recurring nature, or those that could make comparison of results from prior periods less meaningful.
Calculation
Underlying EBITDA is calculated as profit/(loss) for the period before financial income, financial expenses, foreign exchange gains and losses, fair value changes, taxation, depreciation and impairment charges. Other companies may calculate this measure differently.
Relevance
Underlying EBITDA is an indicator of the Group's ability to generate operating cash flows, which are the source of funding for the Group's working capital requirements, capital expenditure and debt service obligations. The measure is also used by investors and the Group's lenders in calculating financial covenants, including Net Debt / EBITDA and EBITDA / Finance Costs.
Reconciliation
The tables below provide reconciliations between net profit and Underlying EBITDA as well as reconciliation between operating profit and Underlying EBITDA for relevant periods.
Ref H1 2017 H1 2016 FY2016
US$'000 US$'000 US$'000
--------- ---------
Profit for the period IS 24,459 9,223 31,706
Add/(less):
Investment income IS (386) (200) (556)
Interest expense IS 14,448 30,479 60,976
Other finance gains IS (2,045) (2,334) (11,976)
Other finance losses IS 6,138 1,506 1,548
Foreign exchange losses note 5 504 5,883 5,158
Taxation IS 22,305 (4,438) (4,698)
Depreciation note 5 47,967 59,289 105,252
Impairment of exploration
and evaluation assets note 5 - - 9,155
(Reversal of impairment)/
impairment of ore stockpiles note 5 (6,347) (12,267) 1,163
Impairment of gold in circuit note 5 1,440 - -
Impairment of non-trading note 5
loans 538 - -
Share in results of associates
(a) note 11 5,096 894 2,356
Underlying EBITDA 114,117 88,035 200,084
--------- ---------
Corporate Consolidated
H1 2017 Pioneer Pokrovskiy Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- ---------- ------------- ---------- -------- ----------- -------------
Operating profit IS 64,919
Foreign exchange
losses note 5 504
Segment result note 4 41,008 (4,722) (5,148) 60,298 (26,013) 65,423
Add/ (less):
notes
Depreciation 4,5 14,933 3,394 7,450 22,158 32 47,967
(Reversal of impairment)
/
impairment of ore notes
stockpiles 4,5 (3,069) 63 275 (3,616) - (6,347)
Impairment of gold notes
in circuit 4,5 - 807 633 - - 1,440
Impairment of non-trading notes
loans 4,5 - - - - 538 538
Share in results
of associates (a) note 11 5,096 5,096
--------- ---------- ------------- ---------- -------- ----------- -------------
Underlying EBITDA 52,872 (458) 3,210 78,840 (20,347) 114,117
---------- ------------- ---------- -------- ----------- -------------
Corporate Consolidated
H1 2016 Pioneer Pokrovskiy Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- ---------- ------------- ---------- -------- ----------- -------------
Operating profit IS 34,236
Foreign exchange
losses note 5 5,883
Segment result note 4 26,317 4,068 4,474 22,134 (16,874) 40,119
Add/ (less):
notes
Depreciation 4,5 21,899 3,136 8,414 25,599 241 59,289
Reversal of impairment notes
of ore stockpiles 4,5 (4,730) (631) (5,903) (1,003) - (12,267)
Share in results
of associates (a) note 11 894 894
--------- ---------- ------------- ---------- -------- ----------- -------------
Underlying EBITDA 43,486 6,573 6,985 46,730 (15,739) 88,035
---------- ------------- ---------- -------- ----------- -------------
Corporate Consolidated
FY2016 Pioneer Pokrovskiy Malomir Albyn and other
Ref US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------- ----------------- ----------------- --------------------- --------------------- ---------------------- -----------------
Operating
profit IS 77,000
Foreign
exchange
losses note 5 5,158
Segment
result note 4 34,313 5,602 14,159 55,622 (27,538) 82,158
Add/ (less):
notes
Depreciation 4,5 38,776 6,586 13,632 45,729 529 105,252
Impairment of
exploration
and
evaluation notes
assets 4,5 - - - 9,155 - 9,155
Impairment/
(reversal
of
impairment)
of ore notes
stockpiles 4,5 6,110 1,002 (5,826) (123) - 1,163
Share in
results
of
associates note
(a) 11 2,356 2,356
------- ----------------- ----------------- --------------------- --------------------- ---------------------- -----------------
Underlying EBITDA 79,199 13,190 21,965 110,383 (24,653) 200,084
----------------- ----------------- --------------------- --------------------- ---------------------- -----------------
(a) Group's share of interest expense, investment income, other finance gains and losses, foreign exchange losses, taxation, depreciation and impairment recognised by an associate
-------------------------------------------------------------------------------------------------------------------------------------------------------
This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.
Cautionary note on forward-looking statements
This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward- looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the future price of gold, the Group's results of operations, financial position, liquidity, prospects, growth, estimation of mineral reserves and resources and strategies, and exchange rates and the expectations of the industry.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances [outside the control of the Group. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward- looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause results and/or developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, demand, supply and prices for gold and other long-term commodity price assumptions (and their effect on the timing and feasibility of future projects and developments), trends in the gold mining industry and conditions of the international gold markets, competition, actions and activities of governmental authorities (including changes in laws, regulations or taxation), currency fluctuations (including as between the US Dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, any litigation, and political and economic uncertainty. Except as required by applicable law, rule or regulation (including the Listing and Disclosure Guidance and Transparency Rules), the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Past performance cannot be relied on as a guide to future performance.
The content of websites referred to in this announcement does not form part of this announcement.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SFASIEFWSEEU
(END) Dow Jones Newswires
September 12, 2017 02:14 ET (06:14 GMT)
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