Polymetal International plc (POLY) Polymetal: Half-year report
for the six month ended 30 June 2022 22-Sep-2022 / 09:00 MSK
Dissemination of a Regulatory Announcement, transmitted by EQS
Group. The issuer is solely responsible for the content of this
announcement.
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Release time IMMEDIATE LSE, MOEX, AIX: POLY
ADR: AUCOY
Date 22 September 2022
Polymetal International plc
Half-year report for the six month ended 30 June 2022
"Polymetal continued to maintain operational stability in 1H
2022 despite operating in a persistently challenging external
environment. Significant disruption in traditional supply chains
and sales channels constrained cash flow generation and led to an
increase in net debt. The management team continues to focus on
ensuring long-term business viability and value creation", said
Vitaly Nesis, Group CEO, commenting on the results.
FINANCIAL HIGHLIGHTS
-- In 1H 2022, revenue decreased by 18%, totalling USUSD 1,048
million (1H 2021: USUSD 1,274 million), of whichUSUSD 443 million
(42%) was generated from operations in Kazakhstan and USUSD 605
million (58%) from operations in theRussian Federation. Average
realised gold and silver prices tracked market dynamics: gold price
increased by 4%while silver price decreased by 14%. Gold equivalent
("GE") production was 697 Koz, a 7% decrease year-on-year.Gold
sales decreased by 23% year-on-year to 456 Koz, while silver sales
increased by 9% to 8.7 Moz. Gold saleslagged production due to the
bullion inventory accumulated across the Group's mines located in
the RussianFederation. This gap between sales and production is
expected to start closing during Q3 as the Company ramps upexport
sales to various Asian markets.
-- Group Total Cash Costs ("TCC")[1] for 1H 2022 were USUSD
853/GE oz, at the lower end of the Group'sfull-year guidance of
USUSD 850-950/GE oz, while being up 20% year-on-year, predominantly
due to the sharp increasein domestic inflation and escalation of
logistical costs, combined with the planned grades decline in ore
processedat Albazino and Kyzyl. Cost performance was significantly
affected by the Rouble/USD exchange rate fluctuations,with average
rate of 76.2 RUB/USD versus the current level of 60 RUB/USD.
Exchange rate dynamics will drive costperformance for H2 2022, as
inflationary pressures in the Russian Federation cool down.
-- All-in Sustaining Cash Costs ("AISC")1 amounted to USUSD
1,371/GE oz, up 34% year-on-year, 6% above theupper end of the
full-year guidance range of USUSD 1,200-1,300/GE. The increase
above TCC dynamics reflected theGroup's need to shift to suboptimal
equipment supply sources, coupled with inflationary pressures and
acceleratedprocurement of equipment and critical spare parts.
Year-on-year dynamic was also impacted by capitalised strippingat
the newly launched Nezhda mine, as well as accelerated stripping at
Omolon (Burgali deposit) and Albazino (Kutyndevelopment).
-- Adjusted EBITDA1 was USUSD 426 million, a decrease of 35%,
against a backdrop of higher costs and lowersales volumes. Of this,
USUSD 270 million (63%) was earned from operations in Kazakhstan
and USUSD 156 million (37%)earned from operations in the Russian
Federation.The Adjusted EBITDA margin decreased by 11 percentage
points to41% (1H 2021: 52%).
-- Underlying net earnings[2] were USUSD 203 million (1H 2021:
USUSD 422 million). As a result of lower EBITDAand non-cash
impairment charges (the post-tax amount of USUSD 564 million), the
Group recorded a net loss for theperiod of USUSD 321 million in 1H
2022, compared to a USUSD 419 million profit in 1H 2021.
-- Capital expenditure was USUSD 373 million[3], marginally
lower compared with USUSD 375 million in 1H 2021 butabove original
expectations, reflecting accelerated purchases and contractor
advances for ongoing projects (mostnotably, POX-2), combined with
inflationary and logistical pressures on the sustaining capex
(USUSD 178 million in 1H2022 compared with USUSD 127 million in 1H
2021). This was partially offset by the shrinking investment
scope,suspension of Pacific POX project and revision of execution
timeline for Veduga. The Company currently expects itsFY2022 capex
to be in the range of USUSD 725-775 million.
-- Net operating cash outflow was USUSD 405 million (1H 2021:
USUSD 358 inflow), on the back of working capitalbuild-up of USUSD
624 million. This includes positive cash flow of USUSD 140 million
from operations in Kazakhstan andnegative cash flow of USUSD 545
million from operations in the Russian Federation. The Group
reported negative freecash flow1 of USUSD 630 million (1H 2021:
USUSD 27 million).
-- Net debt1 increased to USUSD 2,800 million during the period
(31 December 2021: USUSD 1,647 million),representing 2.27x of the
LTM Adjusted EBITDA (1H 2021: 1.05x). The increase in net debt was
driven by unsold metalinventory accumulation, accelerated purchases
of equipment and spares, funding of the critically
importantcontractors and suppliers, and upward USUSD re-valuation
of Rouble-denominated debt.
-- Polymetal continues to target its original 2022 production
guidance of 1.7 Moz of gold equivalent. Thekey risk to production
guidance is represented by COVID-related lockdowns and logistical
constraints in China. Onthe back of the significant change in
exchange rate assumptions (from 70 RUB/USD to 60 RUB/USD for the
rest of theyear), the Company updates its FY 2022 cost guidance
range to USUSD 900-1,000/GE oz and USUSD 1,300-1,400/GE oz for
TCCand AISC, respectively.
DIVIDENDS AND PROPOSED EXCHANGE OFFER
The Board has carefully evaluated the liquidity and solvency of
the business in light of multiple external uncertainties. Taking
into account significant decline in operating cash flows,
challenges in establishing new sales channels and the short-term
liquidity headwinds, the Board decided to permanently cancel
full-year 2021 dividend. Given the continuing impact of these
external uncertainties, the Board does not propose any interim 2022
dividends to allow the Group to strengthen its cash position and
enhance its resilience in a highly volatile environment.
Payment of dividends in the future will also depend on the
ability to unblock shares which are currently held through the
National Settlement Depositary (NSD), which the Company estimates
to be, in aggregate, approximately 22% of the Company's issued
share capital. Until a solution is found, the Board is not minded
to propose any corporate action or dividend in which such a
sizeable proportion of the Company's shareholder base cannot
participate.
Polymetal has today announced its intention to conduct an
exchange offer. The exchange offer invites shareholders whose
rights have been affected by the sanctions imposed on NSD, subject
to fulfilling eligibility criteria, to tender such shares for
exchange, in consideration for the issuance of a certificated
share, on a one-for-one basis.
The exchange offer is subject to shareholder approval at a
General Meeting which will be held at 10am (BST) on Wednesday 12
October 2022 at etc.venues Fenchurch Street, 8 Fenchurch Place,
London.
Further details of the exchange offer can be found in the
Company's announcement in connection with the exchange offer, as
well as the shareholder circular and notice of General Meeting,
which has been published today.
UPDATE ON THE POTENTIAL MODIFICATION OF ASSET HOLDING
STRUCTURE
As previously announced, the Company has been considering a
potential modification of its asset holding structure which would
ensure distinct ownership in the various jurisdictions in which the
Company operates.
On 19 July 2022, the Company announced that it was evaluating
the potential disposal of the Company's assets located in the
Russian Federation (the Potential Transaction), with the primary
objective of restoring shareholder value by seeking to allow the
market to appropriately value the Company's Kazakhstani assets and
de-risk its ongoing operations.
On 5 August 2022, a Decree of the President of the Russian
Federation #520 (the Decree) was issued. The Decree imposes a
prohibition, unless explicit presidential authorisation is
obtained, on the sale of certain Russian assets, including all gold
mining companies, if such assets are owned or controlled by
residents of countries which the Russian Federation considers
"unfriendly". The jurisdiction of Jersey, where Polymetal
International plc is incorporated, is currently included in the
list of jurisdictions deemed to be "unfriendly" by the Russian
Federation.
The Company has taken steps to analyse the impact, including any
legal implications, that the Decree may have on the Company's
ability to proceed with the Potential Transaction. Following
initial discussions with its legal advisers, management believes
that the Decree has added significant restrictions on its ability
to execute such a transaction.
The Company continues to evaluate all available options to
modify its asset holding structure in order to maximise shareholder
value. Potential transaction structure include, among others, a
potential re-domiciliation of the parent company, Polymetal
International plc, to a "friendly" jurisdiction, a move which could
unblock the ability to execute further corporate actions. No
decision has been made in relation to the various options available
to the Company.
The Company confirms that any actions will be compliant with all
applicable international sanctions, counter-sanctions and
regulatory requirements.
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