Polymetal: Half-year report for the six month ended 30 June 2023

Polymetal International plc

Half-year report for the six month ended 30 June 2023

“Despite external pressures, we made good progress in the first half of the year while adapting to the logistics constraints. High commodity prices against a weakening Rouble, combined with steady operating performance, drove a healthy growth in the Group’s earnings, adjusted EBITDA and free cash flow. We expect stronger production, stable cash costs within the original guidance, and significant free cash flow generation for the second half of the year, while remaining focused on progressing our development projects on schedule”, said Vitaly Nesis, Group CEO of Polymetal International plc, commenting on the results.

FINANCIAL HIGHLIGHTS

• In 1H 2023, revenue increased by 25% year-on-year (y-o-y), totalling US$ 1,315 million (1H 2022: US$ 1,048 million), of which US$ 393 million (30%) was generated from operations in Kazakhstan and US$ 922 million (70%) from operations in the Russia. Average realised gold and silver prices tracked market dynamics: gold price increased by 3% while silver price remained flat y-o-y. Gold equivalent (“GE”) production was 764 Koz, a 3% increase y-o-y. Gold sales increased by 25% y-o-y to 570 Koz, while silver sales increased by 19% to 10.4 Moz. The Company recorded a sales-production gap, notably for Kyzyl, as a result of persistent railway issues at the eastward direction. This gap is expected to be closed by the year end as the Company is gradually adjusting its transportation routes.
• Group Total Cash Costs (“TCC”)[1] for 1H 2023 were US$ 944/GE oz, below the lower end of the Group’s full-year guidance of US$ 950-1,000/GE oz, while being up 11% y-o-y, mostly due to a planned grade decline combined with domestic inflation, which was partially offset by weaker currency as well as increase in sales volumes resulting in spread of fixed costs over a larger amount of ounces sold.
• All-in Sustaining Cash Costs (“AISC”)1 remained broadly unchanged at US$ 1,386/GE oz, up 1% y-o-y, and within the full-year guidance range of US$ 1,300-1,400/GE, reflecting the decrease in capitalised stripping on the back of completed stripping campaigns.
• Adjusted EBITDA1 was US$ 559 million, an increase of 31% y-o-y, driven by higher sales volumes. Of this, US$ 200 million (36%) was earned from operations in Kazakhstan, achieving a margin of 51%, and US$ 359 million (64%), or a margin of 39%, earned from operations in the Russian Federation.The Adjusted EBITDA margin increased by 2 percentage points to 43% (1H 2022: 41%).
• Underlying net earnings[2] increased by 28% to US$ 261 million (1H 2022: US$ 203 million). Net earnings[3] were US$ 190 million (1H 2022: US$ 321 million loss due to one-off impairment charges).
• Capital expenditures were US$ 375 million[4], largely unchanged compared with US$ 373 million in 1H 2022. The Company currently expects its FY2023 capex to be in the original guidance range of US$ 700-750 million.
• Net operating cash inflow was US$ 35 million (1H 2022: US$ 405 million outflow). This includes positive cash flow of US$ 140 million from operations in Kazakhstan and negative cash flow of US$ 105 million from operations in the Russian Federation. The Group reported negative free cash flow1 of US$ 341 million, which is still a significant improvement over 1H 2022 negative FCF of US$ 630 million, that is made up of US$ 55 million inflow coming from Kazakhstan and US$ 396 million outflow attributable to Russian assets. As usual, free cash flow is expected to be stronger in the second half of the year due to seasonally higher production and working capital release.
• Net debt1 increased to US$ 2,590 million during the period (31 December 2022: US$ 2,393 million), representing 2.25x of the LTM Adjusted EBITDA (2022: 2.35x). The increase in net debt was mainly driven by the working capital build-up.
• Polymetal is on track to meet its original 2023 production guidance of 1.7 Moz of gold equivalent. The company maintains its 2023 guidance range of US$ 950-1,000/GE oz and US$ 1,300-1,400/GE oz for TCC and AISC, respectively. This guidance remains contingent on the RUB/USD and KZT/USD exchange rates which have a significant effect on the Group’s local currency denominated operating costs.

OPERATING HIGHLIGHTS

• No fatal accidents occurred among the Group’s workforce and contractors in H1 2023 (consistent with H1 2022). Lost time injury frequency rate (LTIFR) among the Group’s employees stood at 0.11 (0.08 in H1 2022), as there were seven lost-time accidents, mostly related to falling or being hit by an object. None of the accidents were within Kazakhstan operations.
• GE output for H1 was up by 3% y-o-y to 764 Koz, including 213 Koz in Kazakhstan and 551 Koz in Russia. The Company reiterates its full-year production guidance of 1.7 Moz of GE (1.2 Moz in Russia and 500 Koz in Kazakhstan).