Ñîîáùåíèå î ñóùåñòâåííîì ôàêòå
«Preliminary results for the year ended 31 December 2022»
1. Îáùèå ñâåäåíèÿ
1.1. Ïîëíîå ôèðìåííîå íàèìåíîâàíèå ýìèòåíòà (äëÿ íåêîììåð÷åñêîé îðãàíèçàöèè – íàèìåíîâàíèå) Polymetal International plc
1.2. Ñîêðàùåííîå ôèðìåííîå íàèìåíîâàíèå ýìèòåíòà Polymetal International plc
1.3. Ìåñòî íàõîæäåíèÿ ýìèòåíòà Parthenonos 6, 3rd floor. 3031, Limassol, Cyprus
1.4. ÎÃÐÍ ýìèòåíòà Íå ïðèìåíèìî
1.5. ÈÍÍ ýìèòåíòà Íå ïðèìåíèìî
1.6. Óíèêàëüíûé êîä ýìèòåíòà, ïðèñâîåííûé ðåãèñòðèðóþùèì îðãàíîì ISIN JE00B6T5S470
1.7. Àäðåñ ñòðàíèöû â ñåòè Èíòåðíåò, èñïîëüçóåìîé ýìèòåíòîì äëÿ ðàñêðûòèÿ èíôîðìàöèè http://www.polymetalinternational.com/
http://www.e-disclosure.ru/portal/company.aspx?id=33331
1.8. Äàòà íàñòóïëåíèÿ ñîáûòèÿ (ñóùåñòâåííîãî ôàêòà), î êîòîðîì ñîñòàâëåíî ñîîáùåíèå (åñëè ïðèìåíèìî) Íå ïðèìåíèìî
2. Ñîäåðæàíèå ñîîáùåíèÿ
Polymetal International plc (“Polymetal” or the “Company”) announces the Group's preliminary results for the year ended 31 December 2022.
“In 2022, the Company was subject to extraordinary and unprecedented external challenges. Despite these adverse circumstances, Polymetal managed to maintain operational stability and achieve excellent safety performance. Nonetheless, international sanctions against Russia have had a huge impact on domestic inflation, supply chains and sales channels. As a result, costs have risen and working capital requirements ballooned with cash flow plummeting. We start 2023 from a position of relative strength and expect the resumption of free cash flows and a reduction in net debt over the course of the coming year”, said Vitaly Nesis, Group CEO, commenting on the results.
FINANCIAL HIGHLIGHTS
• In 2022, revenue decreased by 3%, totalling US$ 2,801 million (2021: US$ 2,890 million), of which US$ 933 million (33%) was generated from operations in Kazakhstan and US$ 1,868 million (67%) from operations in the Russian Federation. Average realised gold price decreased by 2% while silver price decreased by 12%, both almost tracking market dynamics. Gold equivalent (GE) production was 1,712 Koz, a 2% increase year-on-year (y-o-y). Gold sales decreased by 1% y-o-y to 1,376 Koz, while silver sales increased by 6% to 18.5 Moz. Disruption in sales channels resulted in a huge gap between production and sales in Q2-Q3 2022, but was largely eliminated in Q4 2022. The remaining gap is expected to close during the course of 1H 2023.
• Group Total Cash Costs (TCC) for 2022 were US$ 942/GE oz and within the Group’s guidance of US$ 900-1,000/GE oz, although representing an increase of 29% y-o-y, which was predominantly due to double-digit domestic inflation and the appreciation of Rouble/USD exchange rate. Escalation of logistical costs and sharp increases in the price of consumables caused by the imposition of sanctions (explosives, equipment spares, cyanide) also impacted the Group’s TCC.
• All-in Sustaining Cash Costs (AISC)1 amounted to US$ 1,344/GE oz, up 31% y-o-y, which was within the Group’s guidance of US$ 1,300-1,400/GE and also driven by the same factors as above.
• Adjusted EBITDA1 was US$ 1,017 million, 31% lower than in 2021, as costs rose and metals prices declined. US$ 478 million (47%) of Group EBITDA originated in Kazakhstan and US$ 539 million (53%) in the Russian Federation. The Adjusted EBITDA margin decreased by 15 percentage points to 36% (2021: 51%).
• Underlying net earnings were US$ 440 million (2021: US$ 913 million). As a result of a lower Group EBITDA and non-cash impairment charges (a post-tax amount of US$ 653 million), the Group recorded a net loss for the period of US$ 288 million in 2022, compared to profits of US$ 904 million in 2021.
• Capital expenditure was US$ 794 million , up 5% compared with US$ 759 million in 2021 and 2% above the guidance range of US$ 725-775 million, reflecting accelerated purchases and contractor advances for ongoing projects (most notably, Amursk POX-2), combined with inflationary and logistical pressures on imported equipment, materials and services.
• Net operating cash inflow was US$ 206 million (2021: US$ 1,195 million), on the back of inventories build-up of US$ 473 million. This includes positive cash flow of US$ 337 million from operations in Kazakhstan and negative cash flow of US$ 131 million from operations in the Russian Federation. The Group reported negative free cash flow1 of US$ 445 million in 2022 (2021: positive US$ 418 million).
• Net debt1 increased to US$ 2,393 million during the period (31 December 2021: US$ 1,647 million), representing 2.35x of the Adjusted EBITDA (2021: 1.13x). The increase in net debt was driven by the decline in profitability, the persistently high capital intensity of the business and a very significant expansion in working capital.
DIVIDENDS
• The Board has carefully evaluated the liquidity and solvency of the business in light of multiple external uncertainties. Taking into account the Group’s leverage (2.35x Net debt/EBITDA, materially above the level of 1.5x target leverage ratio and the significant level of uncertainty regarding external factors, the Board has decided not to propose any dividend for 2022 in order to allow the Group to maintain strategic and operating flexibility in a highly volatile and uncertain external environment.
FINANCIAL HIGHLIGHTS 2022 2021 Change
Revenue, US$m 2,801 2,890 -3%
Total cash cost , US$ /GE oz 942 730 +29%
All-in sustaining cash cost2, US$ /GE oz 1,344 1,030 +31%
Adjusted EBITDA2, US$m 1,017 1,464 -31%
Average realised gold price , US$ /oz 1,764 1,792 -2%
Average realised silver price3, US$ /oz 21.9 24.8 -12%
Net (loss)/earnings, US$m (288) 904 n/a
Underlying net earnings2, US$m 440 913 -52%
Return on assets (underlying)2, % 9% 26% -65%
Return on equity (underlying)2, % 11% 23% -52%
Basic (loss)/earnings per share, US$ (0.61) 1.91 n/a
Underlying EPS2, US$ 0.93 1.93 -52%
Dividend declared during the period , US$ /share - 1.34 -100%
Dividend proposed for the period , US$ /share - 0.97 -100%
Net debt2, US$m 2,393 1,647 +45%
Net debt/Adjusted EBITDA 2.35 1.13 +109%
Net operating cash flow, US$m 206 1,195 -83%
Capital expenditure, US$m 794 759 +5%
Free cash flow before acquisitions/ disposals2, US$m (445) 418 n/a
Free cash flow post-M&A, US$m (473) 407 n/a
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OPERATING HIGHLIGHTS
• No fatal accidents among the Group’s employees and contractors occurred in 2022. Lost time injury frequency rate (LTIFR) among the Company’s workforce for the full year decreased by 17% y-o-y to 0.10. Days lost due to work-related injuries (DIS) fell by 42% y-o-y to 877.
• The Company’s FY 2022 GE production amounted to 1,712 Koz, a y-o-y increase of 2% and in line with the original production guidance of 1.7 Moz. The first full year of operations at Nezhda and initial production at Kutyn (Albazino hub) compensated for declining grades at mature assets.
• Amursk POX-2 and other development projects progressed in line with schedules revised after the introduction of international sanctions against Russia in Q1 and Q2 2022.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) HIGHLIGHTS
• Varvara Mine in Kazakhstan was certified for full compliance under the International Cyanide Management Code by the International Cyanide Management Institute (ICMI).
• In 2022, Polymetal continued to receive external recognition of its ESG efforts with high ratings and scores by Sustainalytics, Vigeo Eiris and ISS ESG Corporate Rating.
• In January 2023, the Group published its second green loan allocation report under the corporate green financing framework, which confirmed spending of US$ 125 million loan given by Societe Generale for environmentally friendly projects at the Company’s sites. Our total green and sustainability-linked loan portfolio is now US$ 592 million, amounting to 20% of the total outstanding debt of the Group.
• Greenhouse gas emissions intensity (scopes 1 and 2) was 15% lower in 2022 compared to 2019 (Scope 1 and 2), attributed to increasing our renewable electricity consumption (30% of total), as well as energy efficiency initiatives, such as improving heat utilization systems and the implementation of solar power generation.
• In 2022, the share of water reused and recycled amounted to 91% of the total water consumption at our sites (compared to 90% in 2021). In 2022, fresh water intensity for ore processing decreased by 49% (as compared to the 2019 baseline), to 138 m3/1000 t of ore processed.
• We continue to promote equal-opportunity culture through training and communications, empowering more women to take leadership roles: in 2022, the share of female participants of our Talent Pool development program increased to 35% (compared to 30% in 2021).
2023 OUTLOOK
• The Group reiterates its current production guidance of 1.7 Moz of GE for FY 2023. Production will be weighted towards 2H 2023 due to traditional seasonality at several production sites.
• Polymetal expects its costs to be in the ranges of US$ 950-1,000/GE oz for TCC and US$ 1,300-1,400/GE oz for AISC . A minor y-o-y increase is mostly due to expected domestic inflation and royalty increase in Kazakhstan.
• Capital expenditures are expected to be in the range of US$ 700-750 million. Major investment projects include Amursk POX-2, Albazino power line, Voro flotation (completion expected Q2), Prognoz (completion expected Q4), and Mayskoye backfill plant.
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PRESERVING SHAREHOLDER VALUE
• The Group continues to evaluate all available options to modify the Group’s asset-holding structure in order to maximise shareholder value.
• The Group’s preferred option is the potential re-domiciliation of the parent company, Polymetal International plc, into the Astana International Financial Centre (AIFC), a financial hub in Astana, Kazakhstan, taking into account the Group’s significant operations and presence in the region, the AIFC legal system, tax regime and the ability to execute such a re-domiciliation.
• The key objective of any re-domiciliation will be to preserve shareholder value, restore our ability to pay dividends and increase the strategic flexibility to conduct our operations, as well enabling us to pursue different strategic developments for the Russian and Kazakhstan businesses.
• No decision has been made and there can therefore be no certainty that the Company will proceed with, or ultimately complete a re-domiciliation.
• The Company has attempted to secure the services of a depository interest provider in order to continue trading on the London Stock Exchange, should the re-domiciliation proceed. However, as at the date of this announcement, the Company has not yet been able to secure such services due to the depository interest providers approached by the Company being unable or unwilling to provide such arrangements, while Euroclear, as the CREST system operator, has not confirmed the availability of this kind of services for the AIFC jurisdiction. The Company is continuing its efforts to secure such services.
• The Company confirms that any actions will be compliant with all applicable international sanctions, counter-sanctions and regulatory requirements and the Company will continue to take into consideration the interests of its stakeholders prior to making a decision.
• Further announcements in relation to the Group’s efforts to restore shareholder value and modify the Group’s asset-holding structure will be made when appropriate.
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CONFERENCE CALL AND WEBCAST
The Company will hold a conference call and webcast on Thursday, 16 March 2023 at 12:00 London time (15:00 Moscow time).
Please complete the registration form using the link to participate in the call. Dial-in details will be sent to you via email after registration. Participants from Russia may use the webcast link below or a dial-out option which will be provided after registration.
To participate in the webcast follow the link: https://edge.media-server.com/mmc/p/ez66tpiw.
Enquiries
Investor Relations
Polymetal ir@polymetalinternational.com
Evgeny Monakhov +44 20 7887 1475 (UK)
Kirill Kuznetsov +7 812 334 3666 (Russia)
+7 717 261 0222 (Kazakhstan)
FORWARD-LOOKING STATEMENTS
This release may include statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements speak only as at the date of this release. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or “should” or similar expressions or, in each case their negative or other variations or by discussion of strategies, plans, objectives, goals, future events or intentions. These forward-looking statements all include matters that are not historical facts. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the company’s control that could cause the actual results, performance or achievements of the company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the company’s present and future business strategies and the environment in which the company will operate in the future. Forward-looking statements are not guarantees of future performance. There are many factors that could cause the company’s actual results, performance or achievements to differ materially from those expressed in such forward-looking statements. The company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.
TABLE OF CONTENTS
SINED’s statement ........................................................................................................................................7
Group CEO statement 9
Operating review 11
Financial review 18
Principal risks and uncertainties 33
Going concern 34
Directors’ responsibility statement 35
Financial statements 36
Alternative Performance Measures..............................................................................................................68
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SINED’S STATEMENT
2022 was a year that can only be described as unparalleled in the challenges that it brought for the Company and its operating environment. The Russia-Ukraine conflict created geopolitical instability and disruptions in supply chains with the reverberations felt around the globe. Taken together, these factors piled pressure on capital markets and significantly increased volatility and uncertainty for business and financial markets worldwide, but was particularly felt by the metals and mining sector. In the light of these unprecedented challenges, I am pleased to report that Polymetal was able to continue its operations and sales without interruption. The Board and management remain vigilant to addressing any new issues should they emerge.
Strictest compliance
Last year was also unprecedented in terms of the number and range of sanctions that were imposed by various jurisdictions against the Russian Federation and counter-sanctions imposed by the Russian Federation in return. The Company’s approach to these impositions have not been taken lightly and has prompted the introduction of additional compliance controls and procedures. The Group complies rigorously with all relevant legislation and has implemented comprehensive measures to observe all applicable sanctions. Notwithstanding the Group’s ongoing compliance, the restraints that the sanctions and counter-sanctions measures have placed on the day-to-day functioning of the Group, not only on its interaction with commercial and financing partners but also among its Shareholders and its own subsidiaries, have been, and continue to be, increasingly challenging. The effects of these external measures are to the detriment of the Group’s ability to grow, develop and therefore, represent shareholder value. The continuing geopolitical situation and ensuing economic pressure are undoubtedly beyond the Company’s control but we are totally committed to meeting all international regulatory requirements and continued compliance with all applicable sanctions and counter-sanctions.
Preserving shareholder value
Against this backdrop, our ultimate goal is still to retain the trust of all our stakeholders by preserving the fundamental value of the business. This intention, however, may not currently seem to be reflected in the Polymetal share price, which remains severely depressed and only a small fraction of where it stood before the start of the conflict.
We continue to evaluate all available options to modify the Group’s asset-holding structure in order to maximise shareholder value. As previously announced, this includes, as the preferred option, the potential re-domiciliation of the parent company, Polymetal International plc, into the Astana International Financial Centre (AIFC), a financial hub in Astana, Kazakhstan, taking into account the Group’s significant operations and presence in the region, the AIFC legal system, tax regime and the ability to execute such a re-domiciliation. The key objective of any re-domiciliation will be to preserve shareholder value, restore our ability to pay dividends and increase the strategic flexibility to conduct our operations, as well as enabling us to pursue different strategic developments for the Russian and Kazakhstan businesses.
The evaluation process is ongoing and management continue to make progress on preparing for such a corporate action. The evaluation of the re-domiciliation process continues and will, in any event, be subject to a number of conditions. No decision has been made and there can therefore be no certainty that the Company will proceed with, or ultimately complete a re-domiciliation.The Company confirms that any actions will be compliant with all applicable international sanctions, counter-sanctions and regulatory requirements and the Company will continue to take into consideration the interests of its stakeholders prior to making a decision.
Further announcements in relation to the Group’s efforts to restore shareholder value and modify the Group’s asset-holding structure will be made when appropriate.
Decision on dividend
The Board has carefully evaluated the liquidity and solvency of the business in light of multiple external uncertainties. Net debt increased to $2,393 million during the year (31 December 2021: $1,647 million), representing a Net debt/Adjusted EBITDA ratio of 2.35x (2021: 1.13x), significantly above the Group’s target leverage ratio of 1.5x. Free cash flow was negative at $445 million.
Taking into account the significant decline in operating cash flows, material limitations on access to capital and the current liquidity and operational challenges facing the business, the Board has decided not to propose 2022 full-year dividend. This will allow the Group to strengthen its balance sheet position and enhance its resilience in a highly uncertain and challenging environment. The Board understands the importance of dividend payments to shareholders and hope that deleveraging and a return to positive free cash flow generation in 2023 will put us in a position to consider resuming dividend payments.
Board composition
Polymetal successfully replaced those members who left the Board during 2022. The Board now consists of eight members, six of whom are Independent Non-Executive Directors. We believe that the Board and its Committees have the appropriate balance of skills, experience, independence and knowledge of the business to make a valuable contribution to the Company’s development and corporate governance. We are also pleased to have retained a high level of diversity within the Board.
Considering the ongoing evaluation of the available options to modify the Group’s asset-holding structure in order to maximise shareholder value, the Board will look to appoint a new chair once the ongoing work and execution of restoring shareholder value is finalised. This will ensure the forward looking focus of such an appointment will enable us to pursue different strategic developments for the Russian and Kazakhstan businesses.
Wellbeing of our employees and local communities
We are committed to protecting the health and well-being of our employees and local communities.
We believe that it is important, whatever activities we undertake, that we mine responsibly, minimise the inevitable environmental footprint and make a positive contribution to employees, local communities, national and regional governments, and supply chains in the areas where we operate.
I would like to take this opportunity to formally say thank you to all our employees for their resilience and hard work, to local communities for their goodwill, to investors for their continued backing and to my Board colleagues for their unwavering support. 2022 has been a difficult and challenging year for everyone and I look forward to the year ahead with the hope of more settled and certain times.
Senior Independent Non-Executive Director
Evgueni Konovalenko
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GROUP CEO STATEMENT
2022 unexpectedly placed extraordinary and unprecedented external challenges on Polymetal’s operations. In the conditions of unrelenting stress and dramatic volatility, the team demonstrated the resilience of our business by meeting our original production guidance, pushing on with the majority of development projects, and maintaining a solid safety performance.
Operational resilience
The Russia-Ukraine conflict uprooted traditional relationships and ways of doing business for Polymetal, yet we managed to adapt to the new reality.
Many industry participants, suppliers and contractors withdrew from the Russian market. In response, we sourced sufficient inventories and secured both operational consumables and equipment from alternative supply routes, largely in Asia. We also completely reshaped the sales channels for our Russian assets, while ensuring full compliance and delivering near-full reduction in accumulated product stockpiles by the year end.
So far, we have addressed all issues of critical importance for our operations and development projects. Unless there is further substantial tightening of the sanctions regime, supply chain issues are unlikely to affect our production guidance.
Our performance against a challenging backdrop
The Company’s gold equivalent production amounted to 1,712 Koz, a y-o-y increase of 2%, and above our pre-conflict production guidance of 1.7 Moz. The first full-year of operations at Nezhda and initial production at Kutyn compensated for declining grades at our mature assets.
Revenue decreased by 3%, mostly due to lower metal prices. Despite the initial gap between production and sales mid-year, caused by the disruption in sales channels, we almost completely closed this gap in Q4 by establishing commercial relationships with new non-sanctioned counterparties. We expect to eliminate any remaining difference during the first half of 2023.
Given accelerated inflationary pressures in the global economy, we are satisfied that the total cash costs at $942/GE oz were within the cost guidance of $900-1,000/GE oz. The (y-o-y) increase of 29% has obviously left a negative impact on our profitability for 2022. All-in sustaining costs (AISC) were $1,344/GE oz, also within the guidance range of $1,300-1,400/GE oz.
Capital expenditure experienced even greater pressure from the disruptions in the global supply chains and, as a result, total spend for the full year was $794 million, just 2% above the upper end of the guidance range ($725-775 million). Our net debt stood at $2.4 billion, driven mainly by working capital requirements in a difficult sales and procurement environment and inflationary pressures, both in operational and capital expenditure. The net debt/Adjusted EBITDA ratio by the end of the year was 2.35x. We have accrued a very strong cash position of $633 million, which more than covers our short-term refinancing needs.
Despite the challenging backdrop, underlying net earnings were $440 million (2021: $913 million). As a result of a lower Group EBITDA and the increase in real discount rate increase for Russian assets from 8% in 2021 to 14.1% in 2022 driven by increased country risk premium, a total pre-tax impairment charge of $801 million (equivalent to a post-tax amount of $653 million), the Group recorded a net loss for the period of $288 million in 2022, compared to profits of $904 million in 2021.
Safety is our No. 1 priority at all times
We are responsible for the safety at work of more than 14,000 employees and expect the same approach and standards to be upheld by our contractors. Importantly, for the third year in a row, we had no fatalities among Group employees; in 2022, there were also no fatalities among contractors (2021: 1 fatality). The attention and resources that the Polymetal team has committed to industrial safety is also demonstrated in the improvement in work-related injuries: in 2022, LTIFR decreased by 17% from 0.12 to 0.10, as reported in 2021.
Progress with development projects
Amursk POX-2, currently the key project in our pipeline, saw significant negative impact from sectoral sanctions on imports of specific equipment and materials. Nevertheless, we progressed construction while delaying the target start-up date by six months to Q2 2024. As of 1 January 2023, the overall project completion rate is 83%, engineering and contracting has been completed and the vast majority of equipment is already on site.
The Amursk POX-2 facility will enable us to both confirm our global leadership in pressure-oxidation technology and enable us to treat more than 90% of our refractory flotation material in-house. The resulting decline in operating costs and reduction in working capital requirements are expected to result in significant cash flow tailwinds in both 2024 and 2025.
The POX-3 project, in the feasibility study stage, was mostly targeted at providing adequate capacity to process material from Veduga and to treat refractory concentrates from third parties. Given the reality of sanctions, the Company made the decision to re-site the project to Kazakhstan to cater mostly for concentrate produced at Kyzyl. A prefeasibility study for the facility at the new location will be completed in Q2 2024. Veduga was also delayed with first production now expected in the first half of 2027.
In Q3 2022, 24 months after the Board approved the project and six months ahead of the initial plan, we successfully completed construction and commissioning activities at the Kutyn heap leach facility. Total production by the year end amounted to 52 Koz of gold.
In 2023, we plan to commission and start production at the Voro flotation plant in Q2 and to produce first ore at Prognoz in Q4.
Creating value for stakeholders and contributing to a safer environment remain key priorities. We reduced our GHG emissions intensity by 15% during 2022, compared with our 2019 baseline, and remain on track to achieve our goal of a 30% reduction in GHG emissions intensity by 2030.
Belief in our capabilities
We are living in the world where changes are more rapid than ever and uncertainty is unprecedented. In 2022, once again, the Polymetal team has shown that by working together we are capable of overcoming novel challenges. I want to assure all people who have ties with our company that we will make every effort to continue delivering on our plans and aspirations.
Group Chief Executive Officer
Vitaly Nesis
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OPERATING REVIEW
Solid performance despite severe external pressures
In 2022, despite significant logistical and supply chain challenges, operations continued undisrupted. The Company’s gold equivalent (GE) production for the year amounted to 1,712 Koz, an increase of 2% over 2021 and in line with the original production guidance of 1.7 Moz. Kazakhstan’s GE production declined by 3%, driven by a planned grade decline at Kyzyl. Russian GE production grew by 5%, on the back of the first full year of operations at Nezhda and initial production at Kutyn, compensating for declining grades at mature assets.
Amursk POX-2 and other development projects progressed in line with revised schedules. 2023 will be marked by the launch of Voro flotation plant, the start of mining at Prognoz and the commissioning of the active cyanidation section at Amursk POX-2.
Gold production for the full year was up 2%, while silver output increased by 3%. Gold sales of 1,376 Koz were stable y-o-y, while silver sales were up 6% at 18.5 Moz. The bulk of the accumulated bullion stockpile was successfully sold down in the Middle East and China. Revenue for Q4 2022 was up by 30% y-o-y, the highest quarterly revenue since the Company started. The Company hit the $1 billion mark as Polymetal sold down the metal and concentrate inventory accumulated in the previous quarters. We expect to close the remaining gap between production and sales during the first half of 2023.
No fatal accidents occurred among the Group’s employees and contractors in 2022 (2021: Group 0; contractors 1). LTIFR among the Group’s employees decreased by 17% y-o-y to 0.10. DIS fell by 42% y-o-y to 877. Wherever possible, Polymetal applies digital technologies to improve the safety of workplaces.
2022 2021 Change
Waste moved, Mt 211.1 205.9 +3%
Underground development, km 98.0 95.5 +3%
Ore mined, Mt 19.5 15.6 +24%
Open-pit 15.4 11.7 +32%
Underground 4.1 4.0 +2%
Ore processed, Mt 18.3 15.8 +16%
Average grade processed, GE g/t 3.6 3.8 -4%
Production
Gold, Koz 1,450 1,422 +2%
Silver, Moz 21.0 20.4 +3%
Gold equivalent, Koz 1,712 1,677 +2%
Sales
Gold, Koz 1,376 1,386 -1%
Silver, Moz 18.5 17.5 +6%
Gold equivalent, Koz 1,622 1,640 -1%
Health and safety
LTIFR 0.10 0.12 -17%
DIS 877 1,516 -42%
Fatalities
Employees - - n/a
Contractors - 1 n/a
Analysis of production results
Mining
Stripping volumes in 2022 grew by 3% to 211.1 Mt of rock moved, driven mostly by stripping at Albazino and accelerated stripping activities at Omolon. At Albazino, the waste increase was driven by the Farida pit and Kutyn development. At Omolon, waste jumped due to stripping at Burgali open-pit. Open-pit mining commenced at River pit (Varvara). At Mayskoye, open-pit mining has been completed.
Underground development increased by 3% to 98 km (2021: 96 km), mainly due to ramping-up the Ekaterina and Anfisa underground mines at Albazino, as well as underground development at Primorskoye (Dukat hub). Underground mining at Burgali commenced and will replace ore tonnage from the Burgali open-pit.
Total ore mined increased by 24% y-o-y to 19.5 Mt (2021: 15.6 Mt), mainly on the back of ramp up at Nezhda, supported by the Kutyn and Farida development at Albazino, as well as the ongoing Emmy pit development at Svetloye.
Processing
The Group’s volume of ore processed increased by 16%, compared with the previous year, to 18.3 Mt (2021: 15.8 Mt), driven mostly by the newly launched Nezhda and Kutyn. Other mines operated at a stable pace.
The average GE grade in ore processed decreased by 4% y-o-y to 3.6 GE g/t (2021: 3.8 GE g/t), mostly attributable to the planned grade decline towards a reserve average at Kyzyl (GE decreased from 6.2 g/t to 5.5 g/t, but recoveries remained stable despite this), at Dukat (silver grade decrease in ore processed at both flotation and Merrill-Crow circuits) and at Albazino (gold grade in ore processed decreased as the high-grade Anfisa open-pit was fully depleted).
Production and sales
In 2022, Polymetal continued to deliver a solid set of operating results. Production grew by 2% y-o-y to 1,712 Koz GE, in line with the original production guidance of 1.7 Moz.
Kyzyl continues as the largest individual contributor to the Group’s overall output: full-year gold production was 330 Koz, an 8% decrease y-o-y on the back of the planned grade decline towards a reserve average. Varvara GE output grew by 7% to reach 211 Koz, driven by higher Komar ore grade and better recoveries. In total, Kazakh operations delivered 541 GE koz (32% of the Group’s production).
GE production at Dukat remained unchanged at 292 Koz, positively impacted by direct high-grade ore shipments from Primorskoye, compensating for grade declines at other mining areas. At Albazino, the total GE output was down 8% y-o-y to 230 Koz due to the planned depletion of Anfisa open-pit and negative recovery rate dynamics attributable to the increase of share of oxidised ore from Ekaterina mine. This was partially compensated by the contribution from the recently launched Kutyn heap leach, which delivered 52 Koz of gold. At Omolon, GE production was down 8% y-o-y to 199 Koz on the back of a planned grade decline; the Merrill-Crowe circuit at the Kubaka mill remains idle. Gold production at Mayskoye was 14% lower y-o-y at 120 Koz, due to a decrease in grade and recovery stemming from low-grade and highly carbonaceous open-pit ore. In the first full year of operation, Nezhda reached its nameplate capacity and recovery, and delivered total annual production of 133 GE Koz. GE production at Svetloye decreased by 5% to 104 Koz, mostly due to the negative grade dynamics but partially compensated by Emmy pit development, which drove increases in ore mined and grade processed. Voro GE production was stable at 93 Koz on the back of processing high-grade third-party and Pesherny feedstocks.
Metal sales in 2022 were at 1,622 Koz of GE, a decrease of 1% compared with 2021. The remaining gap between production and sales is expected to close during the first half of 2023. While most of the sales comprised refined metals, we continued to sell concentrates from Dukat (gold/silver), Varvara (gold/copper), Mayskoye (refractory gold), Kyzyl (double refractory gold), Albazino (gold) and Nezhda (gold/silver) to offtakers. Offtake is one of our core competencies: it allows us to maximise our margins and achieve an optimal combination of transportation costs and treatment charges/recoveries.
2022 2021 Change
GOLD EQ. PRODUCTION (KOZ)1
Kazakhstan 541 558 -3%
Kyzyl 330 360 -8%
Varvara 211 198 +7%
Russia 1,170 1,120 +5%
Dukat 292 291 +0%
Albazino 230 249 -8%
Omolon 199 217 -8%
Nezhda 133 21 +518%
Mayskoye 120 139 -14%
Svetloye 104 109 -5%
Voro 93 93 +0%
TOTAL 1,712 1,677 +2%
Reserves and resources
In 2022, Group Ore Reserves (“OR”) decreased by 9% y-o-y to 27.3 Moz of gold equivalent (GE) mostly due to mining depletion. This was partially offset by the successful exploration results at Omolon hub (Burgali and Nevenrekan) and initial reserve estimates at Galka and Tamunier (Voro hub). The average grade in OR increased by 5% y-o-y and stood at 3.6 g/t of GE. The average life-of-mine stands at 13 years.
Share of ore reserves for open-pit mining remained unchanged compared to the previous year at 52%. The share of refractory reserves grew by 3 p.p. y-o-y to 74%.
Mineral Resources (additional to Ore Reserves) grew by 5% y-o-y to 25.8 Moz of GE due to positive revaluation at Kyzyl, Omolon, and Nezhda, as well as initial resource estimates at Kegali and Tumanin (Omolon hub). The average GE grade in Mineral Resources was up 10% y-o-y to 4.5 g/t.
In 2023, Polymetal will continue to invest in both near-mine and greenfield exploration projects. The key objectives are:
• Re-evaluate Ore Reserves at Kyzyl;
• Prepare an initial Ore Reserve estimate at Talgiy (Albazino);
• Prepare an initial Ore Reserve estimate at Pavlov (Voro hub).
Ore Reserves and Mineral Resources summary
1 January 2023 1 January 2022 Change
Ore Reserves (Proved+Probable), GE Moz 27.3 29.9 -9%
Gold, Moz 24.7 27.1 -9%
Silver, Moz 211.3 240.2 -12%
Average reserve grade, g/t 3.6 3.5 +5%
Ore Reserves per share, GE oz/per share 0.058 0.063 -9%
Mineral Resources
(Measured+Indicated+Inferred), GE Moz 25.8 24.6 +5%
Gold, Moz 23.1 22.3 +4%
Silver, Moz 212.9 195.7 +9%
Average resource grade, g/t 4.5 4.1 +10%
Ore Reserves reconciliation, GE Moz
Ore Reserves, as at 1 January 2022 Depletion Revaluation Initial Ore Reserves estimate Change of GE conversion ratio Ore Reserves, as at 1 January 2023
29.9 -2.1 -0.8 +0.2 +0.2 27.3
In 2022, 314.2 km (including joint ventures) of exploration drilling were completed. As a result of the sanctions imposed on Russia, import of drilling spare parts and materials was restricted, leading to a substantial decrease in drilling activities. Furthermore, as a part of budget optimisation, joint-venture grassroots exploration in Russia was reduced, contributing to an overall drop in drilling volumes.
Health and safety
There were no fatal accidents in 2022. However, lost-time incidents still took place among Polymetal’s workforce and contractors. Most were the result of slipping or tripping while walking or being jammed by a rotating mechanism. In 2022, 13 lost-time incidents were recorded among employees and 12 among contractors. LTIFR for 2022 stood at 0.10 for employees (0.12 in 2021) and 0.21 for contractors (0.09 in 2021). Days lost due to work-related injuries for the full year decreased by 43% y-o-y to 877 (2021: 1,545 ).
While all of the incidents that took place during the year were classified as minor, Polymetal still took responsive measures for each by updating risk maps for relevant facilities, providing additional instructions to employees and encouraging contractors to carry out the investigation if the accident involved a contractor’s worker.
2022 2021 Change
Polymetal
Injuries, including: 13 15 -13%
Fatalities 0 0 n/a
Severe injuries 0 2 -100%
LTIFR (per 200,000 hours worked) 0.10 0.12 -15%
Days off work following accidents1 877 1,545 -43%
Contractors
Injuries, including: 12 6 +100%
Fatalities 0 1 -100%
Severe injuries 0 0 n/a
LTIFR (per 200,000 hours worked) 0.21 0.09 +133%
Employees
Our average headcount in 2022 increased by 10% y-o-y to 14,694 employees, with approximately half working on a fly-in/fly-out basis at remote sites. Our voluntary turnover rate slightly increased to 8.4% in 2022, compared to 8.2% in 2021. The voluntary turnover within assets in Russia is 9.4% while in Kazakhstan it accounts for 4.6%. The increased turnover in Russia is mainly driven by that of development projects like Veduga and Kutyn, as the teams are often unstable at early stages of a project.
We continue to observe higher labour market competition and increased demand for mining experts, however Polymetal continues to offer employees competitive salaries and a range of opportunities for professional development, such as succession planning, mentorship and a Talent Pool programme. In 2022, our Talent Pool consisted of 573 employees prepared to take up leadership positions in the future, 108 of which gained promotion during the year.
The share of women in Polymetal’s workforce remained stable at 21% in 2022. We continue to promote a culture of equal opportunity through training and communications. In order to eliminate workplace bias, empower diverse teams and attract and retain people with different backgrounds, we have adopted a five-year Diversity and Inclusion Programme, which includes training and engagement activities, diversity metrics and targets, collaboration with educational institutions and ongoing internal communications. Besides managing gender diversity issues, we aim to eliminate discrimination based on age or disability. For example, in 2022 we developed an interactive online course on inclusion practices that informs employees on the risks of possible bias at work and provides advice on efficient communication in diverse teams.
2022 2021 Change
Average headcount 14,694 13,392 +10%
Share of female employees 21% 21% 0%
Share of female managers 22% 22% 0%
Share of female participants of the
Talent Pool programme 35% 30% +17%
Voluntary turnover 8.4% 8.2% +2%
For female employees 7.1% 8.2% -13%
For male employees 8.7% 8.2% +6%
Climate Change
Embracing the need to take urgent action to mitigate human-made impacts on climate, we are committed to reducing our own impact and developing an approach to achieving carbon neutrality. When setting carbon reduction goals, we focus on developing a detailed action plan that would allow us to decarbonise our activities while executing our business strategy. We are focused on those projects that comprehensively reduce our GHG emissions and also the net adverse impact on water resources and biodiversity.
In 2022, we continued to pursue our goal for a 30% decrease in our GHG emission intensity and a 35% decrease in absolute GHG emissions by 2030 (2019 baseline). In 2022, we reduced our emission intensity by 15% compared to 2019, achieved by increasing our renewable generation (mostly due to our new solar power plant at Omolon), a shift to green grid energy, and implementing energy efficiency initiatives, such as improvements made to heat utilization systems (including new heat recovery system at Kutyn).
Our 2022 Scope 1 absolute emissions increased compared to 2021 mainly due to the full ramp-up of Nezhda and commissioning of the first elements of Amursk POX-2 project, while Scope 2 absolute emissions decreased as the share of green energy consumption grew after we switched to renewable energy suppliers. We continuously improve the accuracy and transparency of our climate data, and in 2022 continue reporting under the TCFD recommendations and submit our energy and GHG profile to CDP (which is available now at the CDP platform for all subscribers).
To build resilience over the 2030–2050 time horizon, we are developing a corporate strategy for carbon neutrality. We had planned to complete this work by the beginning of 2023; however, in 2022, significant changes in economic and political conditions had to be taken into account in our decarbonisation strategy. The Board of Directors therefore decided to postpone the goal for developing a net-zero approach. We now plan to finalise our approach to net zero and publish our long-term climate target in 2023.
We continue to reforest territories equal to those that had been disturbed in the last three years. In 2022, we planted 1.8 million saplings of pine, larch and cedar on almost 900 hectares of land in five regions of Russia. We adjusted our corporate reforestation program and expanded it to Kazakhstan: by 2025, we expect to plant at least 2,000 ha of new forests in the Far East of Russia and 750 ha in Kazakhstan with potential absorption capacity up to 25,000 t CO2 per year.
In 2022, we also started designing new solar power plants with a total capacity of up to 40 MW in Kazakhstan. This project, as a part of our Climate Action Plan, will be the next step towards carbon neutrality and will reduce our carbon emissions in Kazakhstan by 20%.
2022 2021 Change
Energy
Total energy consumed (GJ) 10,756,881 9,953,476 +8%
Energy intensity (GJ per Koz of GE produced) 6,283 5,934 +6%
Greenhouse gas (GHG) emissions
Scope 1 GHG emissions, CO2 eq. Kt 751 683 +10%
Scope 2 GHG emissions, CO2 eq. Kt 331 453 -27%
Scope 1 + Scope 2, CO2 eq. Kt 1,082 1,135 -5%
GHG intensity of Scope 1 and Scope 2 emissions
(kg of CO2e per oz of GE) 632 677 -7%
Environment
Our Environmental Management System (EMS) is the cornerstone of our approach and most of production sites are certified to the ISO 14001 global standard. Our EMS is supported by specific systems for cyanide and tailings management, as well as internal and external auditing.
Approximately half of our operating assets are located in areas with water stress classified as low or low-to-medium, while the others are located in high and medium-to-high areas . To minimise the impact of water stress on our business, as well as our impact on local ecosystems, we reduce fresh water withdrawals by using water in a closed cycle at flotation plants and capturing waste water that has naturally seeped into our mines and rainwater. Overall, 91% of our on-site water consumption is via a closed cycle of treated waste water (compared to 90% in 2021). Our water programme is underpinned by an ambitious target to reduce fresh water use for processing per unit of production by 55% by 2030, compared with the 2019 . In 2022, we decreased our fresh water intensity for ore processing by 49%, compared with 2019, to 138 m3/1,000 t.
We operate eight tailings dams and four dry stacking facilities in Russia and Kazakhstan. To further improve tailings safety and minimise the risk of the possibility of dam failure, we are shifting towards dry stack storage methods. In 2022, we completed the transition from wet tailings disposal to dry stacking at Omolon that began in 2021. Dry stacking is also in place at Amursk POX, Voro and Nezhda – overall, 28% of our tailings waste is dry-stacked. Our target is for 50% of all our tailings to be stored in this way by 2030.
Polymetal is a signatory of the International Cyanide Management Code. In 2022, our Varvara mine in Kazakhstan was certified for full compliance under the Code by the International Cyanide Management Institute.
2022 2021 Change
Water
Fresh water withdrawn, th. m3 3,344 3,480 -4%
Water reused and recycled, th. m3 34,442 31,636 +9%
Total water consumed, th. m3 37,786 35,116 +8%
Share of water recycled and reused 91% 90% +1%
Fresh water use for processing intensity,
m3/ Kt of processed ore* 138 155 -11%
Waste
Share of waste recycled (including overburden) 23% 23% 0%
Share of dry stacking in tailings disposal* 28% 14% +100%
Communities
We aim to maintain open dialogue with neighboring communities, ensuring transparent feedback mechanisms in all regions where we operate. In 2022, we responded to all of the 839 enquiries received from locals, surveyed 1,200 community representatives and held 80 stakeholder engagement events. We started measuring female participation in our community events and surveys (where gender data is available), and revealed that in 2022 women represented 63% of community event attendees and survey participants. The outcomes of such engagement inform our social investment programmes. Polymetal’s social investments amounted to US$ 23.2 million in 2022 (compared to US$ 20 million in 2021) and were targeted to projects in education, local infrastructure, sports, culture and Indigenous Minorities of the North. No cases of human rights violations connected to Polymetal’s employees or contractors were reported in 2022.
2022 2021 Change
Total community investment (US$ million) 23.2 20.0 +16%
Enquiries from communities received and responded to 839 613 +37%
Stakeholder meetings and events 80 59 +36%
Number of respondents to community polls 1,200 1,304 -8%
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Outlook for 2023
Safety remains a top priority for Polymetal. We will continue to focus on further improvements in health and safety metrics and maintaining zero fatalities across our operations and among off-site contractors conducting business on behalf of the Group.
In 2023, we expect a stable operating performance. The Company reiterates its current production guidance of 1.7 Moz of GE in 2023. Production will be traditionally skewed towards the second half of the year due to seasonality.
We expect a strong contribution from Kutyn, Nezhda and the Voro flotation plant, compensating for grade-driven decrease in production at Dukat, Albazino and Varvara. We also expect the planned grade decline towards a reserve average at Kyzyl and sustained contributions from other mines.
At the same time, we will focus on advancing our long-term project pipeline. At Amursk POX-2, we plan to commission the intensive cyanidation section, complete the infrastructure, start the cryogenic oxygen plant, complete the installation of processing equipment and pipelines and begin commissioning activities. The project remains on track to be fully commissioned in Q2 2024. Voro flotation plant is nearing completion (above 90% completion rate). Start-up is scheduled for Q2 2023. At Prognoz, conventional open-pit mining will commence with the first ore mined in Q4 2023.
We plan to complete several investment projects at existing operations in 2023, which will help drive cost levels down in 2024. At Mayskoye, the backfill plant construction project will enter full-scale construction in 2023. Commissioning, which will help reduce dilution and thus optimise costs, is scheduled for 2024. Optimisation projects also include implementation of measures aimed at increasing plant capacity at Kyzyl from 2.2 Mtpa to 2.4 Mtpa (water pumps upgrade, automated dispatching system), as well as Hot Cure circuit expansion at Amursk POX for further increase in recovery.
FINANCIAL REVIEW
MARKET SUMMARY
Precious metals
Throughout 2022, a combination of geopolitical tensions, inflationary fears and the zero Covid policy in China contributed towards substantial market volatility.
In the first half of 2022, the conflict escalation in Ukraine upended markets. Gold reached an annual high of $2,039/oz, while the silver price hit $26.2/oz. Subsequent sanctions and counter-sanctions caused fuel market disruptions, partially contributing to inflationary pressures. In the second half of the year, various central banks’ aggressive monetary tightening pushed back the prices for metals. Gold slumped to US$ 1,618/oz, as silver reached the bottom at $17.8/oz. The average LBMA gold price for the year was US$ 1,802/oz, a marginal increase compared to prior year.
Nevertheless, the demand for gold was the strongest in over a decade. Accumulation by central banks and strong investment demand resulted in an 18% y-o-y increase to 4,741 tonnes . An additional 686 tonnes were added to national vaults, while over 26 tonnes were purchased by investors in the form of bars and coins. ETF holdings fell by a smaller amount, down 110 tonnes, compared to 189 tonnes in 2021.
China’s Covid restrictions resulted in constrained demand for gold jewellery. Infection spikes and lockdowns drove jewellery demand down by 3% y-o-y. Deteriorated economic conditions, combined with supply chain disruptions, slashed 22 tonnes from gold demand across the technology sector in comparison with 2021.
Gold demand was met with a conservative 2% y-o-y supply increase to 4,754 tonnes, with net mine production exceeding the previous year by 43 tonnes at 3,612 tonnes.
Although 2022 was a turbulent year for silver, advances in technology, green infrastructure and geopolitical tensions kept demand intact. Moreover, support came from investor fears of high inflation, recessionary concerns, and buying on price dips. Nevertheless, the average LBMA price decreased by 16% from US$ 25.2/oz for 2021 to US$ 21.8/oz for 2022. The average gold/silver price ratio increased from 1/72 in 2021 to 1/83 in 2022.
Foreign exchange
The Group’s revenue and over 64% of borrowings are denoted in US Dollars, while the majority of the Group’s operational costs are denoted in Russian Rouble and Kazakh Tenge. As a result, changes in exchange rates affected the Company’s financial results and performance.
The global economy continued post-pandemic recovery, while a restart of the worldwide supply chain saw soaring demand for commodities, and consumer and industrial goods. In addition to demand-pull factors, ongoing geopolitical tension and sanctions on Russian fuel contributed to elevated energy prices.
Although economic sanctions were implemented against Russia, the average annual Rouble rate stood firm at 68.6 RUB/$ (2021: 73.7 RUB/$) due to contracted demand for the hard currency, with a slight fall to 70.3 RUB/$ at the end of the year. This had a negative impact on the mining sector, resulting in a higher Dollar value for Rouble-denominated operating costs.
Consistent geopolitical tension within the CIS region, the strengthening of the Dollar, and a decline in Kazakhstani oil production contributed to a weak average tenge of 461 KZT/$ (2021: 426 KZT/$), closing the year at 463 KZT/$.
Inflation peaked at 12% in Russia and a record 20% in Kazakhstan, intensifying pressure on costs.
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REVENUE
SALES VOLUMES 2022 2021 Change
Gold, Koz 1,376 1,386 -1%
Silver, Moz 18.5 17.5 +6%
Gold equivalent sold , Koz 1,622 1,640 -1%
Sales by metal
(US$m unless otherwise stated) 2022 2021 Change Volume variance, US$m Price variance, US$m
Gold 2,392 2,450 -2% (17) (41)
Average realised price US$ /oz 1,764 1,792 -2%
Average LBMA price US$ /oz 1,802 1,799 +0%
Share of revenues 85% 85%
Silver 383 419 -9% 25 (61)
Average realised price US$ /oz 21.9 24.8 -12%
Average LBMA price US$ /oz 21.8 25.0 -13%
Share of revenues 14% 14%
Other metals 26 21 +24%
Share of revenues 1% 1%
Total revenue 2,801 2,890 -3% (41) (48)
In 2022, revenue was 3% lower y-o-y at US$ 2,801 million on the back of lower average gold and silver prices. GE sales volume remained almost flat y-o-y, in the face of significant challenges and comprehensive sales restructuring. Gold sales decreased marginally by 1% y-o-y. Silver sales increased by 6% due to the contribution of direct high-grade ore shipments from Primorskoye.
Despite the initial gap between production and sales in Q2-Q3 2022 caused by disruption in sales channels, the Group almost completely sold down accumulated metal inventory in Q4 to a new set of counterparties. The remaining gap is expected to close in 1H 2023.
The Group’s average realised gold price was US$ 1,764/oz in 2022, down 2% from US$ 1,792/oz in 2021, and 2% below the average market price of US$ 1,802/oz, as sales were skewed towards 2H 2022 with weaker average prices. The Group’s average realised silver price was US$ 21.9/oz, lower by 12% y-o-y, in line with the market price of US$ 21.8/oz.
The share of gold sales as a percentage of total revenue remained stable at 85%.
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Analysis by segment/operation Revenue,
US$m Gold equivalent sold, Koz
(silver equivalent for Dukat, Moz)
SEGMENT OPERATION 2022 2021 Ñhange 2022 2021 Ñhange
Kazakhstan KAZAKHSTAN 933 984 -5% 533 561 -5%
Kyzyl 554 608 -9% 322 350 -8%
Varvara 379 376 +1% 212 210 +1%
RUSSIA 1,868 1,906 -2% 1,089 1,079 +1%
Magadan Magadan 996 1,103 -10% 584 632 -8%
Dukat 465 476 -2% 22.1 19.7 +12%
Omolon 340 388 -12% 194 216 -10%
Mayskoye 191 239 -20% 118 141 -16%
Khabarovsk Khabarovsk 564 640 -12% 322 356 -9%
Albazino/Amursk 395 447 -12% 223 248 -10%
Svetloye 170 194 -12% 99 108 -8%
Yakutia Nezhda 130 - n/a 80 - n/a
Urals Voro 177 163 +9% 102 91 +12%
Total revenue 2,801 2,890 -3% 1,622 1,640 -1%
The decrease in sales volumes during the period had a negative impact on revenues at all operating mines, except Varvara and Voro. At Dukat, lower silver prices offset higher sales.
Nezhda contributed 80 GE Koz to the total sales, compensating for the decrease at Russian mature mines Omolon, Mayskoye and Amursk.
COST OF SALES
2022
US$m 2021
US$m Change
Cash operating costs 1,513 1,181 +28%
On-mine costs 741 516 +44%
Smelting costs 567 383 +48%
Purchase of ore and concentrates from third parties 69 130 -47%
Mining tax 136 152 -11%
Costs of production 1,836 1,412 +30%
Depreciation and depletion of operating assets 324 229 +41%
Rehabilitation expenses (1) 2 n/a
Total change in metal inventories (152) (108) +41%
Increase in metal inventories (216) (132) +64%
Write-down of metal inventories to net realisable value 65 25 +160%
(Reversal)/Write-down of non-metal inventories to net realisable value - (1) -100%
Idle capacities and abnormal production costs 6 3 +100%
Total cost of sales 1,690 1,307 +29%
CASH OPERATING COST STRUCTURE 2022
US$m 2022
Share 2021
US$m 2021
Share
Services 576 38% 399 34%
Consumables and spare parts 438 29% 290 25%
Labour 285 19% 202 17%
Mining tax 136 9% 152 13%
Purchase of ore and concentrates from third parties 69 5% 130 11%
Other expenses 9 1% 8 1%
Total cash operating cost 1,513 100% 1,181 100%
The total cost of sales increased by 29% in 2022 to US$ 1,690 million, reflecting a combination of factors throughout the year:
– domestic inflation (12% and 20% y-o-y in Russia and Kazakstan, respectively);
– significant growth of domestic diesel prices;
– higher cost of services;
– planned decrease of average grade processed;
– increase in depreciation charges at all operating mines, except Varvara and Kyzyl;
– 7% Rouble appreciation impacting Dollar value of Rouble-denominated operating costs.
The cost of services was up 44% y-o-y, caused mostly by higher volume of transportation and drilling and blasting services at Nezhda, Kutyn and Primorskoye, as well as inflation in the sector.
The cost of consumables and spare parts was up 51% compared to 2021, impacted by changes in procurement to maintain supplies of critically important consumables and spares levels as well as significant inflationary pressures, combined with a stronger Rouble.
The cost of labour within cash operating costs was up 41% y-o-y, driven by a 10% increase in average headcount combined with annual salary increases (tracking domestic CPI inflation).
Mining tax decreased by 11% y-o-y to US$ 136 million, mainly impacted by lower silver prices and planned grade decline towards a reserve average at Kyzyl, Albazino and Dukat.
The decrease in purchases of third-party ore and concentrates by 47% was mostly driven by a shift to processing Saum and Peshernoye ore at Voro hub instead of treating third-party material as in 2021.
Depreciation and depletion was US$ 324 million, up 41% y-o-y, with a specific increase attributable to Dukat (expansion of mining at Primorskoye), Nezhda (ramp-up) and Albazino (start of mining at Kutyn). Depreciation costs of US$ 52 million of depreciation cost are included within the total increase in metal inventories (2021: US$ 23 million).
In 2022, a net metal inventory increase of US$ 216 million (2021: US$ 132 million) was recorded (excluding write-downs to net realisable value). The increase was mainly represented by concentrate build-up at Nezhda, Mayskoye, Albazino and Dukat, as well as ore stockpiled at Primorskoye (Dukat), where last shipments of ore in 2022 were canceled due to abnormally cold weather. The Company expects the bulk of this increase to be reversed during the course of 1H 2023.
The Group recognised a US$ 65 million write-down (2021: US$ 25 million) to the net realisable value of heap leach work-in-progress at Omolon, low-grade ore at Albazino and Mayskoye, concentrate and ore at Nezhda (see Note 14 of the condensed financial statements).
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
2022
US$m 2021
US$m Ñhange
Labour 242 171 +42%
Services 15 10 +50%
Share based compensation 13 16 -19%
Depreciation 10 8 +25%
Other 30 21 +43%
Total general, administrative and selling expenses 311 226 +38%
General, administrative and selling expenses (SGA) increased by 38% y-o-y to US$ 311 million in 2022 (2021: US$ 226 million), mainly due to higher labour costs driven by domestic inflation, Rouble appreciation, and intense competition for qualified personnel, as well as increased headcount at the newly launched Nezhda and Kutyn sites and for Amursk POX-2 and Prognoz development projects.
OTHER OPERATING EXPENSES
2022
US$m 2021
US$m Change
Exploration expenses 62 72 -14%
Social payments 44 28 +57%
Provision for investment in Special Economic Zones 14 20 -30%
Taxes, other than income tax 15 11 +36%
Additional tax charges/fines/penalties 2 (1) n/a
Change in estimate of environmental obligations (2) 2 n/a
Other expenses 7 17 -58%
Total other operating expenses 142 149 -5%
Other operating expenses decreased to US$ 142 million in 2022 (2021: US$ 149 million) mainly due to the reduction in exploration costs and decrease in provision for investment in Special Economic Zones, partially offset by the increase in social payments, notably to Kazakhstan fund “Qazaqstan halkyna” to address health, education and assistance for socially vulnerable groups.
TOTAL CASH COSTS
In 2022, TCC were US$ 942/GE oz, up 29% y-o-y. A sharp increase in domestic inflation and escalation of logistical costs, combined with the planned grades decline in ore processed at Albazino and Kyzyl, and appreciation in the Rouble/Dollar exchange rate, had an overall negative impact on cost levels.
The table below summarises major factors that have affected the Group’s TCC and AISC dynamics y-o-y:
RECONCILIATION OF TCC AND AISC MOVEMENTS TCC, US$/oz Change AISC, US$/oz Change
Cost per GE oz 2021 730 1,030
Domestic inflation 79 +11% 107 +10%
Change in average grade processed 56 +8% 75 +7%
Sales volume decrease 25 +3% 58 +6%
RUB and KZT rate change 19 +3% 32 +3%
Au/Ag ratio change 16 +2% 24 +2%
Capitalised stripping increase - n/a 12 +1%
Other 16 +2% 8 +1%
Cost per GE oz 2022 942 +29% 1,344 +31%
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Total cash cost by segment/operation, US$/GE oz
Cash cost per GE ounce, US$ /oz Gold equivalent sold, Koz
(silver for Dukat, Moz)
SEGMENT OPERATION 2022 2021 Change 2022 2021 Change
Kazakhstan KAZAKHSTAN 728 643 +13% 533 561 -5%
Kyzyl 602 477 +26% 322 350 -8%
Varvara 920 920 +0% 212 210 +1%
RUSSIA 1,046 776 +35% 1,089 1,079 +1%
Magadan Magadan 1,070 819 +31% 584 632 -8%
Dukat (SE oz) 12.7 10.6 +20% 22.1 19.7 +12%
Omolon 960 798 +20% 194 216 -10%
Mayskoye 1,343 969 +38% 118 141 -16%
Khabarovsk Khabarovsk 1,022 707 +45% 322 356 -9%
Svetloye 893 481 +86% 99 108 -8%
Albazino/Amursk 1,079 804 +34% 223 248 -10%
Urals Voro 918 747 +23% 102 91 +12%
Yakutia Nezhda 1,138 n/a n/a 80 n/a n/a
Total Group TCC 942 730 +29% 1,622 1,640 -1%
Total cash cost by operation:
Kazakhstan
• Kyzyl’s total cash costs were at US$ 602/GE oz, significantly below the Group’s average level, albeit up 26% y-o-y, because of a planned gradual grade decline towards the open-pit reserve average (12% decrease in 2022) and an 8% decrease in sales volumes.
• At Varvara, TCC were stable y-o-y at US$ 920/GE oz, on the back of the prevailing share of better quality third-party ore processed at the flotation circuit, while gold recovery at the leaching circuit grew following flowsheet improvements. Inflationary pressures were offset by Kazakhstani Tenge depreciation.
Russia
• Dukat’s total cash costs per silver equivalent ounce sold (SE oz) increased by 20% y-o-y to US$ 12.7/SE oz1. The cost increase is attributable to the planned decrease in silver grade in ore processed, combined with domestic inflation.
• At Omolon, TCC amounted to US$ 960/GE oz, an increase of 20% y-o-y, on the back of lower sales (10% decrease y-o-y), also impacted by a planned grade decline at the Kubaka mill. At the heap leach facility, stacking volumes decreased due to rehandling of the previously stacked ore, while grade was lower in line with the mine plan due to the depletion of the Birkachan heap leach ore reserves.
• At Mayskoye, TCC were US$ 1,343/GE oz, a 38% increase y-o-y, on the back of moderate decline of gold grade in ore processed, combined with lower sales. Costs were additionally affected by a significantly stronger Rouble/Dollar exchange rate during the sales period (August-November 2022), with an average rate of 60.5 RUB/USD compared with the FY 2022 level of 68.6 RUB/USD and FY 2021 level of 73.6 RUB/USD.
• At Svetloye, TCC amounted to US$ 893/GE oz, up 86% y-o-y, mostly driven by the end of tax incentives period for mineral extraction tax, combined with the effect of inflationary pressures and stronger Rouble, as the vast majority of sales took place from July to November 2022 (average rate of 60 RUB/USD).
• At Albazino, TCC amounted to US$ 1,079/GE oz, up 34% y-o-y. Mining at the largest high-grade Anfisa open-pit has been completed, which resulted in a planned 29% decline in gold grade processed.
• At Voro, TCC was US$ 918/GE oz, up 23% y-o-y, mainly due to the treatment of high cost Peshernoye ore and higher cost of processing the historical pile at the heap leach facility.
• TCC at the newly launched Nezhda mine were US$ 1,138/GE oz. The Company expects the output to increase and costs to optimise as soon as the gravity concentrate is processed at the intensive cyanidation section of Amursk POX-2 (launch planned for Q2 2023) and flotation concentrate is processed at Amursk POX-2 after its launch in 1H 2024. Currently low-carbon concentrate is processed at Amursk POX, while high-carbon is mostly stockpiled.
Analysis of 2H 2022 versus 1H 2022 performance:
Total cash costs per GE oz
Cash cost per GE oz, US$ /oz Gold equivalent sold, Koz
(silver for Dukat, Moz)
Segment Operation 2H 2022 1H 2022 Change 2H 2022 1H 2022 Change
Kazakhstan KAZAKHSTAN 742 712 +4% 291 242 +20%
Kyzyl 623 575 +8% 184 138 +33%
Varvara 945 894 +6% 107 104 +3%
Magadan RUSSIA 1,086 956 +14% 758 330 +130%
Magadan 1,117 950 +18% 421 163 +157%
Dukat (SE oz) 14.4 10.8 +33% 11.6 10.5 +10%
Omolon 952 1,002 -5% 162 32 +402%
Mayskoye 1,285 n/a n/a 116 2 n/a
Khabarovsk Khabarovsk 1,056 955 +11% 215 107 +100%
Albazino/Amursk 1,145 986 +16% 130 93 +41%
Svetloye 917 757 +21% 85 15 +479%
Yakutia Nezhda 1,158 1,072 +8% 61 19 +225%
Urals Voro 912 927 -2% 60 41 +46%
Total Group TCC 991 853 +16% 1,050 573 +83%
In 2H 2022, TCC were 16% higher compared to 1H 2022 at US$ 991/GE oz, on the back of 20% Rouble appreciation, with an average rate of 60.9 RUB/USD in 2H 2022 compared to 76.2 RUB/USD in 1H 2022, partially offset by the increase in sales volumes.
Total cash cost by operation:
• At Kyzyl, Varvara, Omolon, Nezhda and Voro TCC changed marginally half-on-half.
• At Dukat, TCC increased by 33% half-on-half to US$ 14.4/SE oz on the back of the effect of accelerated inflation and exchange rate fluctuations.
• At Albazino, cash costs increased by 16% compared to 1H 2022 to US$ 1,145/GE oz as material work-in-progress
• was accumulated at Kutyn in 2H 2022 to be released in 2023.
• At Svetloye, total cash costs in 2H 2022 were at US$ 917/GE oz, up 21% half-on-half, mostly due to the significant Rouble appreciation in the second half of the year.
• At Mayskoye, there were no meaningful sales during 1H 2022, hence the TCC for this period are considered unrepresentative.
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ALL-IN SUSTAINING AND ALL-IN CASH COSTS
All-in sustaining cash costs amounted to US$ 1,344/GE oz, up 31% y-o-y, broadly in line with TCC dynamics, coupled with inflationary pressure and accelerated procurement of equipment and critical spare parts to build up safety stocks.
AISC by operations were as follows:
All-in sustaining cash costs by segment/operation, US$/GE oz
SEGMENT OPERATION 2022 2021 Change
Kazakhstan KAZAKHSTAN 968 817 +19%
Kyzyl 852 640 +33%
Varvara 1,144 1,110 +3%
RUSSIA 1,387 1,024 +35%
Magadan Magadan 1,376 1,073 +28%
Dukat (SE oz) 15.8 13.6 +16%
Omolon 1,279 1,053 +21%
Mayskoye 1,743 1,287 +35%
Khabarovsk Khabarovsk 1,347 963 +40%
Svetloye 1,091 656 +66%
Albazino/Amursk 1,461 1,097 +33%
Urals Voro 1,282 925 +39%
Yakutia Nezhda 1,758 n/a n/a
Total Group AISC 1,344 1,030 +31%
All-in sustaining cash costs by operation:
• AISC at all operating mines generally followed TCC dynamics, and were additionally affected by the acceleration of capital allocation for sustaining capital expenditure.
• At Voro, AISC were US$ 1,282/GE oz, up 39% y-o-y, on the back of scheduled initial costs of the flotation circuit.
• At Nezhda, AISC were elevated due to high levels of sustaining capital expenditure in the first year of operation, including increased capital stripping and completion of several infrastructural projects in 2022, including successful commissioning of the 110-kV line linking Nezhda mine to the regional grid, powered by a combination of hydro and gas.
Total, US$m US$ /GE oz
RECONCILIATION OF
ALL-IN COSTS 2022 2021 Change 2022 2021 Change
Cost of sales, excluding depreciation, depletion and write-down of inventory to net realisable value (Note 6 of condensed financial statements) 1,357 1,077 +26% 837 657 +27%
adjusted for:
Idle capacities (6) (3) +125% (4) (2) +100%
Treatment charges deductions reclassification to cost of sales 60 48 +25% 37 29 +28%
SGA expenses, excluding depreciation, amortization and share based compensation (Note 6 of condensed financial statements) 133 92 +45% 82 56 +46%
adjusted for:
SGA expenses of development projects (16) (15) +9% (10) (9) +11%
Total cash costs 1,528 1,198 +28% 942 730 +29%
SGA expenses for Corporate and other segment and other operating expenses 271 217 +25% 167 132 +27%
Capital expenditure excluding development projects 275 188 +46% 170 115 +48%
Exploration expenditure (capitalised) 15 10 +50% 9 6 +50%
Capitalised stripping 92 74 +24% 57 45 +27%
All-in sustaining cash costs 2,181 1,688 +29% 1,344 1,030 +30%
Finance costs (net) 111 59 +88% 68 36 +89%
Capitalised interest 35 13 +181% 22 8 +175%
Income tax (benefit)/expense (44) 257 n/a (27) 157 n/a
After-tax all-in cash costs 2,284 2,016 +13% 1,409 1,229 +15%
Capital expenditure for development projects 422 556 -24% 261 339 -23%
SGA and other expenses for development assets 40 42 -5% 25 26 -4%
All-in costs 2,746 2,615 +5% 1,694 1,595 +6%
IMPAIRMENT CHARGES
In accordance with IAS 36 requirements, Polymetal conducts impairment tests for its goodwill, property, plant and equipment, other non-current assets and inventories at each reporting date. Following a real discount rate increase for Russian assets from 8% in 2021 to 14.1% in 2022 driven by increased country risk premium, a total pre-tax impairment charge of US$ 801 million (equivalent to a post-tax amount of US$ 653 million) has been recorded in the consolidated financial statements at 31 December 2022 as a result of these impairment tests in respect of Nezhda-Prognoz, Veduga and Kutyn, the newest assets in the portfolio with highest carrying values. Investment in associate Tomtor of US$ 24 million was also provided for, as the project was suspended indefinitely. See Note 14 of the condensed financial statements. The other assets in the portfolio have sufficient headroom of their fair values over carrying values and were not impaired.
Nezhda-Prognoz
US$m Veduga
US$m Kutyn
US$m Total
US$m
Impairment charge 694 95 12 801
Residual value of the asset 650 106 237 993
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ADJUSTED EBITDA AND EBITDA MARGIN
2022
US$m 2021
US$m Change
(Loss)/profit for the year (288) 904 n/a
Finance cost (net) 111 59 +88%
Income tax (benefit)/expense (44) 257 n/a
Depreciation and depletion 282 214 +32%
EBITDA 61 1,434 -96%
Net foreign exchange loss/(gain) 32 (5) n/a
Impairment of non-current assets 801 - n/a
Impairment of investment in associate 24 - n/a
Loss/(gain) on disposal of subsidiaries, net 2 (3) n/a
Share based compensation 13 16 -19%
Change in fair value of contingent consideration liability 20 (4) n/a
Write-down of metal inventories to net realisable value 65 26 +139%
Adjusted EBITDA 1,017 1,464 -31%
Adjusted EBITDA margin 36% 51% -15%
Adjusted EBITDA per GE oz 628 893 -30%
Adjusted EBITDA by segment/operation
(US$m)
SEGMENT OPERATION 2022
US$m 2021
US$m Change
Kazakhstan KAZAKHSTAN 539 630 -14%
Kyzyl 361 452 -20%
Varvara 177 178 -0%
RUSSIA 664 983 -32%
Magadan Magadan 353 558 -37%
Dukat 174 253 -31%
Omolon 138 196 -30%
Mayskoye 41 109 -63%
Khabarovsk Khabarovsk 197 339 -42%
Albazino/Amursk 122 202 -40%
Svetloye 76 137 -45%
Urals Voro 75 86 -13%
Yakutia Nezhda 38 - n/a
Corporate and other and intersegment operations (186) (149) +25%
Total Group Adjusted EBITDA 1,017 1,464 -31%
In 2022, Adjusted EBITDA decreased by 31% y-o-y to US$ 1,017 million, with an Adjusted EBITDA margin of 36% (2021: 51%), driven by the cost dynamics described above combined with revenue decrease due to lower sales volumes.
OTHER INCOME STATEMENT ITEMS
Polymetal recorded a net foreign exchange loss in 2022 of US$ 32 million compared to an exchange gain of US$ 5 million in 2021, mostly attributable to the revaluation of the US Dollar-denominated borrowings of Russian operating companies, the functional currency of which is the Russian Rouble. This was partially offset by a foreign exchange loss on intercompany loans with different functional currencies in lending and borrowing subsidiaries.
The Group does not use any hedging instruments for managing foreign exchange risk, other than a natural hedge arising from the fact that the majority of the Group’s revenue is denominated or calculated in US Dollars.
Income tax benefit for 2022 was US$ 44 million compared to US$ 257 million expense in 2021, reflecting the increase in deferred income tax credit resulting from a deferred tax benefit of US$ 149 million for the property, plant and equipment impairment. For details refer to Note 13 of the condensed consolidated financial statements.
NET EARNINGS, EARNINGS PER SHARE AND DIVIDENDS
The Group recorded a net loss of US$ 288 million in 2022, compared to income of US$ 904 million in 2021, mainly due to the significant impairment recorded in 2022. The underlying net earnings attributable to shareholders of the parent company were US$ 440 million, compared to US$ 913 million in 2021:
Reconciliation of underlying net earnings
2022
US$m 2021
US$m Change
(Loss)/profit for the financial period attributable to shareholders of the parent company (288) 904 n/a
Write-down of inventory to net realisable value 65 25 +161%
Foreign exchange loss/(gain) 32 (5) n/a
Change in fair value of contingent consideration liability 20 (4) n/a
Loss on disposal of subsidiaries, net 2 (3) n/a
Impairment of non-current assets 801 - n/a
Impairment of investment in associate 24 - n/a
Tax effect (216) (4) n/a
Underlying net earnings 440 913 -52%
Basic loss per share was US$ 0.61 compared to US$ 1.91 earnings per share in 2021. Underlying basic EPS was US$ 0.93, compared to US$ 1.93 in 2021.
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CAPITAL EXPENDITURE
Sustaining
US$m Development
US$m Capital stripping and underground development
US$m Exploration
US$m Total
2022
US$m Total
2021
US$m
Development projects - 319 12 2 334 283
Amursk POX-2 (incl. POX-3) - 207 - - 207 177
Prognoz - 55 - - 55 11
Voro flotation - 42 - - 42 52
Veduga - 14 12 2 28 43
Operating assets 343 - 103 15 461 475
Kutyn 67 - 11 - 78 83
Kyzyl 28 - 34 - 62 50
Nezhda 38 - 13 - 51 129
Albazino/Amursk 35 - 2 4 41 51
Omolon 21 - 18 1 41 28
Voro 22 - 17 2 41 10
Dukat 42 - (1) - 41 38
Mayskoye 41 - - - 41 36
Varvara 36 - 3 - 39 35
Svetloye 11 - 5 - 16 13
Corporate and other 2 - - 7 9 2
Total capital expenditure 343 319 115 17 794 759
In 2022, total capital expenditure was US$ 794 million , up 5% y-o-y, and 2% above the guidance range of US$ 725-775 million, reflecting accelerated purchases and contractor advances for ongoing projects (most notably, Amursk POX-2) in order to secure the project completion, combined with inflationary and logistical pressures on the sustaining capital expenditure. This was partially offset by the shrinking investment scope and revision of the execution timeline for Veduga, as well as a number of other smaller scale projects. Capital expenditure excluding capitalised stripping costs was US$ 679 million in 2022 (2021: US$ 619 million).
The major capital expenditure items in 2022 were as follows:
Development projects
• Capital expenditure at the Amursk POX-2 development project was US$ 207 million. This mainly covered costs of completion of concentrates pulp blending vessels, intensive cyanidation reactor, slurry cooling section, CIL thermal circuit and steam conditioning section. Significant prepayments were made to equipment suppliers and key contractors to ensure project completion according to plan. The plant start-up is expected in Q2 2024 according to the revised schedule.
• Capital expenditure at Prognoz of US$ 55 million was mainly related to mining fleet purchases, spare parts and consumables purchases as well as a significant infrastructure upgrade. Conventional open-pit mining will commence with the first ore mined in Q4 2023.
• The Voro flotation plant construction (capital expenditure of US$ 42 million) is above 90% complete. Start-up is targeted for Q2 2023.
Sustaining capital expenditure at operating assets
• Kutyn heap leach project (US$ 67 million invested in 2022) successfully started production six months ahead of the initial plan.
• At Dukat, capital expenditure of US$ 42 million mainly related to the mining fleet upgrade, engineering and procurement for the transition of the Omsukchan concentrator to dry-stack tailings as well as full renovation of wastewater treatment facilities at Dukat and Lunnoye mines.
• Capital expenditure at Mayskoye of US$ 41 million, mainly related to construction of infrastructure, needed to commission the ore transportation conveyor and backfill plant. The conveyor has been fully ramped up.
• An investment of $38 million was made at Nezhda, which includes the construction of boiler house and water collection facilities. The 110-kV line linking Nezhda mine to the regional grid, powered by a combination of hydro and gas, has been successfully commissioned.
• At Varvara, capital expenditure of US$ 36 million mainly related to the second stage of tailings storage facility and the pilot railveyor project to transport incoming ore from the railway spur to the crusher, reducing greenhouse gas emissions and ore transportation costs, as well as two electric excavators at Komar mine.
• Capital expenditure at Albazino of US$ 35 million mostly related to mining fleet replacement, decarbonisation of the heat supply and construction of roads to satellite deposits. Construction of the power line linking Albazino to the grid commenced and commissioning is expected in Q2 2025.
• At Kyzyl, capital expenditure in 2022 comprised US$ 28 million, mainly related to fleet renewal, improvements in the flowsheet and renovation and expansion of tailings storage facility. Additional conditioning slurry tanks were implemented into the flowsheet. The recently launched cleaner flotation circuit allowed for a twofold decrease in gold losses to carbon tailings.
• At Voro and Omolon, capital expenditure of US$ 22 million and US$ 21 million respectively, mainly related to mining fleet purchases and the construction of wastewater treatment facilities.
Exploration and stripping
• The Group continues to invest in standalone exploration projects. Capital expenditure for exploration in 2022 was US$ 17 million (2021: US$ 12 million).
• Capitalised stripping and underground development costs totalled US$ 115 million in 2022 (2021: US$ 140 million). These are attributable to operations where 2022 stripping ratios exceeded their life-of-mine averages during the period, in particular: Kyzyl (US$ 34 million), Omolon (US$ 18 million), Voro (US$ 17 million), Nezhda (US$ 13 million), Veduga (US$ 12 million) and Kutyn (US$ 11 million).