CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note 30 June 2023 31 December 2022
(unaudited) (audited)
Assets US$m US$m
Property, plant and equipment 13 3,104 3,392
Right-of-use assets 88 131
Goodwill 12 14
Investments in associates and joint ventures 16 13
Non-current accounts receivable 34 31
Other non-current financial assets 13 24
Deferred tax asset 182 142
Non-current inventories 14 128 133
Total non-current assets 3,577 3,880
Current inventories 14 1,071 1,057
Prepayments to suppliers 164 185
Income tax prepaid 30 64
VAT receivable 128 148
Trade and other receivables 231 103
Other financial assets at FVTPL 7 10
Cash and cash equivalents 19 384 633
Total current assets 2,015 2,200
Total assets 5,592 6,080
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (205) (270)
Current borrowings 15 (1,024) (514)
Income tax payable (15) (11)
Other taxes payable (67) (68)
Current portion of contingent consideration liability 19 (11) (9)
Current lease liabilities 19 (19) (25)
Total current liabilities (1,341) (897)
Non-current borrowings 15 (1,950) (2,512)
Contingent and deferred consideration liabilities 19 (115) (112)
Deferred tax liability (89) (107)
Environmental obligations (63) (76)
Non-current lease liabilities 19 (65) (106)
Other non-current liabilities (30) (28)
Total non-current liabilities (2,312) (2,941)
Total liabilities (3,653) (3,838)
NET ASSETS 1,939 2,242
Stated capital account 12 2,450 2,450
Share-based compensation reserve 28 35
Cash flow hedging reserve 12 16
Translation reserve (2,038) (1,543)
Retained earnings 1,487 1,284
Total equity 1,939 2,242
Total liabilities and shareholders’ equity (5,592) (6,080)
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Six months ended
30 June 2023 30 June 2022
(unaudited) (unaudited)
Note US$m US$m
Net cash generated by/(used in) operating activities 19 35 (405)
Cash flows from investing activities
Purchases of property, plant and equipment (375) (373)
Net cash inflow on asset acquisitions - 123
Investments in associates (3) -
Loans advanced (14) (8)
Repayment of loans provided 8 2
Contingent consideration received 5 3
Net cash used in investing activities (379) (253)
Cash flows from financing activities
Borrowings obtained 19 582 2,711
Repayments of borrowings 19 (455) (1,850)
Repayments of principal under lease liabilities (12) (2)
Acquisition of non-controlling interest - (23)
Contingent consideration paid - (15)
Net cash from financing activities 115 821
Net (decrease)/increase in cash and cash equivalents (229) 163
Cash and cash equivalents at the beginning of the period 633 417
Effect of foreign exchange rate changes on cash and cash equivalents (20) (39)
Cash and cash equivalents at the end of the period 384 541
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Note Stated capital account Share-based compensation reserve Cash flow hedging reserve Translation reserve Retained earnings Total equity
US$m US$m US$m US$m US$m US$m
Balance at 1 January 2022 (audited) 2,450 31 - (1,865) 1,587 2,203
Loss for the period - - - - (321) (321)
Other comprehensive income, net of income tax - - 12 1,392 - 1,404
Total comprehensive income/(loss) - - 12 1,392 (321) 1,083
Share-based compensation 8 - 8 - - 8
Acquisition of non-controlling interest - - - - (23) (23)
Transfer to retained earnings 12 - (9) - - 9 -
Balance at 30 June 2022 (unaudited) 2,450 30 12 (473) 1,252 3,271
Balance at 1 January 2023 (audited) 2,450 35 16 (1,543) 1,284 2,242
Profit for the period - - - - 190 190
Other comprehensive loss, net of income tax - - (4) (495) - (499)
Total comprehensive (loss)/income - - (4) (495) 190 (309)
Share-based compensation 8 - 6 - - - 6
Transfer to retained earnings 12 - (13) - - 13 -
Balance at 30 June 2023 (unaudited) 2,450 28 12 (2,038) 1,487 1,939
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
Polymetal Group is a leading gold and silver mining group, operating in Russia and Kazakhstan.
Polymetal International plc (the “Company”) is the ultimate parent entity of Polymetal Group. The Company was incorporated on 29 July 2010 as a public limited company under Companies (Jersey) Law 1991 and as of reporting date has its place of business in Cyprus. As of 30 June 2023 its ordinary shares were traded on the London and, Moscow stock exchanges and Astana International Exchange (AIX).
On 7 August 2023, the Group completed the re-domiciliation of the Company from Jersey to the Astana International Financial Centre ("AIFC") in Kazakhstan. The Company remains listed on the AIX, which has become the Company’s primary stock exchange, while its listing on London stock exchange was cancelled on 29 August 2023.
On 19 May 2023, JSC Polymetal, the holding company for the Group’s assets located in the Russian Federation, and its subsidiaries were designated by the U.S. Department of State pursuant to Executive Order 14024 for operating in the metals and mining sector of the Russian economy. Following the designation the Board of Directors of the Company (the “Board”) set up a special committee of independent non-executive directors (the “Special Committee”) to ensure full and comprehensive compliance with U.S. sanctions.
In the light of these developments, and in the interests of preserving shareholder value, the Board and the Special Committee have decided to consider all possible options available for divestment of JSC Polymetal and its subsidiaries. Any potential transaction will be subject to receipt of any required corporate, governmental, and regulatory approvals, in all applicable jurisdictions, as necessary. Based on circumstances existing as of 30 June 2023, the Group has determined that JSC Polymetal and its subsidiaries did not meet the definition of the disposal group in accordance IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Basis of presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board. They should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2022 Annual Report of Polymetal International plc and its subsidiaries (“2022 Annual Report”) available at www.polymetalinternational.com.
Accounting policies
These condensed consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments measured at fair value.
The accounting policies and methods of computation applied are consistent with those adopted and disclosed in the Group’s consolidated financial statements for the year ended 31 December 2022, except as described below.
New accounting standards issued but not yet effective
The following amendments to the accounting standards were in issue but not yet effective as of date of authorisation of these condensed consolidated financial statements:
• Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures regarding the sale or contribution of assets between an investor and its associate or joint venture, the effective date of the amendments has yet to be set. However, earlier application of the amendments is permitted;
• Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures regarding supplier finance arrangements, effective for annual period beginning on or after
1 January 2024 with earlier application permitted;
• Amendments to IAS 1 Presentation of Financial Statements regarding the classification
of liabilities as current and non-current, effective for annual periods beginning on or after
1 January 2024; and
• Amendments to IFRS 16 Leases regarding lease liabilities in sale and leaseback transactions, effective for annual period beginning on or after 1 January 2024 with earlier application permitted.
Management has determined that these standards and interpretations are unlikely to have a material impact on the condensed consolidated financial statements or are not applicable to the Group.
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New standards adopted by the Group
The following amendments to accounting standards become applicable for annual reporting periods commencing on or after 1 January 2023. The Group has determined these standards and interpretations are unlikely to have a significant impact on its condensed consolidated financial statements.
• Amendments to IAS 1 Presentation of Financial Statements regarding the classification
of liabilities as current and non-current, effective for annual periods beginning on or after
1 January 2024;
• Amendments to IAS 12 regarding international tax reform (Pillar Two model rules) effective for annual period beginning on or after January 2023;
• IFRS 17 Insurance Contracts, effective for annual period beginning on or after 1 January 2023 with earlier application permitted;
• Amendments to IAS 1 and IFRS Practice Statement 2 requiring that an entity discloses its material accounting policies, instead of its significant accounting policies, effective for annual period beginning on or after 1 January 2023 with earlier application permitted;
• Amendments to IAS 8 replacing the definition of a change in accounting estimates with a definition of accounting estimates, effective for annual period beginning on or after 1 January 2023 with earlier application permitted; and
• Amendments to IAS 12 clarifying that the initial recognition exemption does not apply to transactions in which equal amounts of deductible and taxable temporary differences arise on initial recognition, effective for annual period beginning on or after 1 January 2023 with earlier application permitted.
Going concern
In assessing its going concern status, the Group has taken account of its principal risks and uncertainties, financial position, sources of cash generation, anticipated future trading performance, its borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings, and its capital expenditure commitments and plans.
In the going concern assessment, the Group also considered the implications of sanctions imposed by U.S. Department of State on JSC Polymetal, the Company’s subsidiary in the Russian Federation. The Group determined that these implications would not have any material effect on the Group’s liquidity position and its ability to finance its obligations.
To assess the resilience of the Group’s going concern assessment in light of the macroeconomic volatility and sanctions imposed on Russia, management performed a stress downside scenario that is considered plausible over the next 12 months from the date of approval of the financial statements. As such these do not represent the Group’s ‘best estimate’ forecast, but were considered in the Group’s assessment of going concern, reflecting the current evolving circumstances and the most significant severe but plausible changes in macro assumptions identified at the date of approving the press-release.
The Group has already taken precautionary measures to manage liquidity and provide flexibility for the future. In addition, it has been assumed that the Group has adapted its sales routes and supply chain and the net cash flows generated will be available for use within the Group. Under the stress scenario, the Group’s income and profits are affected by simultaneous gold and silver price decrease combined with strengthening of Russian Rouble and Kazakh Tenge, combined with sales delays related to restructuring of sales channels.
At the reporting date, the Group holds US$ 0.4 bn of cash and US$ 0.5 bn of undrawn credit facilities, which when combined with the forecast net cashflows under the stress scenario above, is considered to be adequate to meet the Group’s financial obligations as they fall due over the next 12 months. No borrowing covenant requirements are forecast to be breached in the stress scenario. The Group expects to settle obligations as they fall due but also has mitigating actions available such as reducing production volumes and variable mining costs where possible, reducing and deferring non-essential and non-committed capital expenditure.
The Board is therefore satisfied that the Group’s forecasts and projections, including the stress scenario above, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report and that it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 June 2023.
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Exchange rates
Exchange rates used in the preparation of the condensed consolidated financial statements were as follows:
Russian Rouble/US Dollar Kazakh Tenge/US Dollar
As at 30 June 2023 87.03 454.13
As at 31 December 2022 70.34 462.65
January 69.23 462.49
February 73.03 451.49
March 76.09 450.51
April 80.89 451.42
May 78.95 446.66
June 83.16 448.43
2. SEGMENT INFORMATION
The Group’s operating segments are aligned to those businesses that are evaluated regularly by the chief operating decision maker (the CODM) in deciding how to allocate resources and in assessing performance. Operating segments with similar economic characteristics are aggregated into reportable segments.
In May 2023, following the designation of JSC Polymetal by the U.S. Department of State pursuant to Executive Order 14024, the governance and management structure of the Group was changed. As a part of ring-fencing the Group’s Russian subsidiaries to ensure sanctions compliance, the management of the Russian operations has been delegated to the executives of JSC Polymetal, while the Company’s Board and management focused on the operations of the Group’s assets located in Kazakhstan, as well as separation of the Group’s assets by jurisdiction, as described in Note 1.
As a result of these changes management of the Company has re-assessed the presentation of financial information required to assess performance and allocate resources. It was concluded that a jurisdiction-based reporting format is more meaningful from management and forecasting perspective, as well as better aligned to the new management structure, internal reporting and processes.
As at 30 June 2023 he Group has identified two reportable segments:
• Kazakhstan (Varvarinskoye JSC, Komarovskoye Mining Company LLC, Bakyrchik Mining Venture LLC); and
• Russian Federation (aggregating Khabarovsk, Magadan, Ural and Yakutia operating segments).
The measure which management and the CODM use to evaluate the performance of the Group is a segment Adjusted EBITDA, which is an Alternative Performance Measure (APM). For more information on the APMs used by the Group, including definitions, please refer to page 41.
The accounting policies of the reportable segments are consistent with those of the Group’s accounting policies under IFRS. Revenue and cost of sales of the production entities are reported net of any intersegmental revenue and cost of sales, related to the intercompany sales of ore and concentrates.
Business segment current assets and liabilities, other than current inventory, are not reviewed by the CODM and therefore are not disclosed in these condensed consolidated financial statements. Additionally, net debt is included in performance measures, reviewed by CODM. The segment adjusted EBITDA reconciles to the profit before income tax as follows:
2. Segment information (continued)
Period ended 30 June 2023 (US$m) Period ended 30 June 2022 (US$m)
KAZAKHSTAN RUSSIA Total reportable segments KAZAKHSTAN RUSSIA Total reportable segments
Revenue from external customers 393 922 1,315 443 605 1,048
Cost of sales, excluding depreciation, depletion and write-down of inventory to net realisable value 160 413 573 151 266 417
Cost of sales 186 515 701 185 335 520
Depreciation included in Cost of sales (26) (92) (118) (34) (46) (80)
Write-down of metal inventory to net realisable value - (8) (8) - (20) (20)
Write-down of non-metal inventory to net realisable value - (2) (2) - 1 1
Rehabilitation expenses - - - - (4) (4)
General, administrative and selling expenses, excluding depreciation, amortization and share-based compensation 26 113 139 17 121 138
General, administrative and selling expenses 32 116 148 26 124 150
Depreciation included in SGA (1) (3) (4) (1) (3) (4)
Share-based compensation (5) - (5) (8) - (8)
Other operating expenses excluding additional tax charges 7 38 45 14 53 67
Other operating expenses, net 7 41 48 16 53 69
Bad debt and expected credit loss allowance - (3) (3) - 1 1
Additional tax charges/fines/penalties - - - (2) (1) (3)
Share of loss of associates and joint ventures - - - - - -
Adjusted EBITDA 200 358 558 261 165 426
Depreciation expense 27 95 122 35 49 84
Rehabilitation expenses - - - - 4 4
Write-down of non-metal inventory to net realisable value - 2 2 - (1) (1)
Write-down of metal inventory to net realisable value - 8 8 - 20 20
Impairment of non-current assets - 12 12 - 689 689
Impairment of investment in associate - - - - - -
Share-based compensation 5 - 5 8 - 8
Bad debt and expected credit loss allowance - 3 3 - (1) (1)
Additional tax charges/fines/penalties - - - 2 1 3
Operating profit 168 238 406 216 (596) (380)
Foreign exchange gain/(loss), net (105) 92
Change in fair value of contingent consideration liability (5) (22)
Finance expenses (69) (41)
Finance income 8 3
Profit before tax 235 (348)
Income tax expense (45) 27
Profit for the financial period 190 (321)
Current metal inventories 172 546 718 132 980 1,112
Current non-metal inventories 60 293 353 44 378 422
Non-current segment assets:
Property, plant and equipment, net 777 2,327 3,104 691 3,551 4,242
Goodwill - 12 12 - 20 20
Non-current inventory 34 94 128 28 117 145
Investments in associates 11 5 16 3 28 31
Total segment assets 1,054 3,277 4,331 898 5,074 5,972
Additions to property, plant and equipment:
Capital expenditure 88 320 408 43 361 404
Acquistion of subsidiaries - - - - 48 48
Total segment liabilities
Net debt (201) (2,389) (2,590) (2,016) (784) (2,800)
3. REVENUE
Six months ended 30 June 2023 (unaudited) Six months ended 30 June 2022 (unaudited)
Thousand ounces/ tonnes shipped Thousand ounces/ tonnes payable Average price (US Dollar per troy ounce/tonne payable) US$m Thousand ounces/ tonnes shipped Thousand ounces/ tonnes payable Average price (US Dollar per troy ounce/tonne payable) US$m
Gold (Koz) 582 570 1,889 1,076 465 456 1,843 841
Silver (Koz) 10,877 10,393 21.8 227 8,965 8,745 21.8 191
Copper (t) 1,526 1,431 8,389 12 2,138 1,871 8,553 16
Total 1,315 1,048
Revenue analysed by geographical regions of customers is presented below:
Six months ended
30 June 2023 30 June 2022
US$m US$m
Sales within and to Kazakhstan 486 649
Sales within the Russian Federation 455 235
Sales to Asia 374 157
Sales to Europe - 7
Total 1,315 1,048
Included in revenue for the six months ended 30 June 2023 is revenue from customers with a share of total revenue greater than 10%. These were US$ 265 million, US$ 221 million and US$ 193, respectively (period ended 30 June 2022: US$ 408 million, US$ 242 million and US$ 153 million, respectively).
Presented below is an analysis by revenue streams:
Six months ended
30 June 2023 30 June 2022
US$m US$m
Bullions 605 252
Concentrate 414 376
Dore 265 408
Ore 31 12
Total 1,315 1,048
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4. COST OF SALES
Six months ended
30 June 2023 30 June 2022
US$m US$m
Cash operating costs
On-mine costs (Note 5) 322 317
Smelting costs (Note 5) 276 233
Purchase of ore and concentrates from third parties 34 40
Mining tax 79 66
Total cash operating costs 711 656
Depreciation and depletion of operating assets (Note 7) 140 134
Rehabilitation expenses - 4
Total costs of production 851 794
Increase in metal inventories (165) (296)
Write-down of inventories to net realisable value (Note 14) 10 19
Idle capacities and abnormal production costs 5 3
701 520
5. ON-MINE COSTS
Six months ended
30 June 2023 30 June 2022
US$m US$m
Services 141 156
Labour 80 79
Consumables and spare parts 98 80
Other expenses 3 2
Total (Note 4) 322 317
6. SMELTING COSTS
Six months ended
30 June 2023 30 June 2022
US$m US$m
Consumables and spare parts 115 103
Services 106 81
Labour 54 48
Other expenses 1 1
Total (Note 4) 276 233
7. DEPLETION AND DEPRECIATION OF OPERATING ASSETS
Six months ended
30 June 2023 30 June 2022
US$m US$m
On-mine 90 94
Smelting 50 40
Total in cost of production (Note 4) 140 134
Less: absorbed into metal inventories (22) (54)
Depreciation included in cost of sales 118 80
Depletion and depreciation of operating assets excludes depreciation relating to non-operating assets (included in general, administrative and selling expenses) and depreciation related to assets employed in development projects where the charge is capitalised. Depreciation expense, which is excluded in the Group’s calculation of Adjusted EBITDA (see Note 2), also excludes amounts absorbed into unsold metal inventory balances.
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8. GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
Six months ended
30 June 2023 30 June 2022
US$m US$m
Labour 121 123
Share-based compensation 6 8
Depreciation 5 4
Services 7 4
Other 9 11
Total 148 150
9. OTHER OPERATING EXPENSES, NET
Six months ended
30 June 2023 30 June 2022
US$m US$m
Exploration expenses 15 29
Social payments 12 17
Provision for investment in Special Economic Zone 7 7
Taxes, other than income tax 7 7
Change in estimate of environmental obligations (2) 2
Other expenses, net 9 7
Total 48 69
10. FINANCE COSTS
Six months ended
30 June 2023 30 June 2022
US$m US$m
Interest expense on borrowings 57 32
Unwinding of discount on lease liabilities (Note 19) 4 2
Unwinding of discount on environmental obligations 4 3
Unwinding of discount on contingent consideration liability (Note 19) 4 4
Total 69 41
Interest expense on borrowings excludes borrowing costs capitalised in the cost of qualifying assets of US$ 21 million and US$ 12 million during the six months ended 30 June 2023 and 30 June 2022, respectively. These amounts were calculated based on the Group’s general borrowing pool and by applying an effective annualised interest rates of 4.86% and 3.8%, respectively, to cumulative expenditure on such assets.
11. INCOME TAX
Six months ended
30 June 2023 30 June 2022
US$m US$m
Current income taxes 125 107
Deferred income taxes (80) (134)
Total 45 (27)
As the Group has a number of tax concessions, the effective tax rate is determined for each separate entity, varying from 0% to 20%.
30 June 2023 31 December 2022
Deferred tax asset 182 142
Deferred tax liability (89) (107)
93 35
Increase in deferred tax asset, recognised during the reporting period, mainly resulted from deferred tax benefit of US$ 85 million related, is related to the foreign exchange differences arising on the outstanding balances, which will be deductible for tax purposes on repayment of the principal amount (for six months ended 30 June 2022: increased deferred tax asset mainly resulted from US$ 125 million of tax benefit recognised on impairment of property, plant and equipment).
The Group has applied the mandatory temporary exception under IAS 12 in relation to the accounting for deferred taxes arising from the implementation of the Pillar 2 rules.
Òax exposures
During the six months ended 30 June 2023 and 2022 no new individual significant exposures were identified as probable and therefore not provided for. Management has estimated possible tax exposure, representing contingent liabilities (Note 16) (covering taxes and related interest and penalties), of approximately US$ 102 million (31 December 2022: US$ 122 million) being uncertain tax positions, which relate to income tax. Change in the amount is mainly attributable to the Russian Rouble appreciation against US Dollar. This is connected largely to more assertive position of the Russian tax authorities in their interpretation of tax legislation in several recent court cases for other third party taxpayers. Fiscal periods remain open to review by the tax authorities in respect of taxes for the three and five calendar years preceding the year of tax review for Russia and Kazakhstan respectively. While the Group believes it has provided adequately for all tax liabilities based on its understanding of the tax legislation, the above facts may create additional financial risks for the Group.
12. DIVIDENDS AND EARNINGS PER SHARE
As of 30 June 2023 total number of voting rights in the Company amount to 473,626,239 ordinary shares of no par value, each carrying one vote (31 December 2022: 473,626,239). As of 30 June 2023 the Company held 39,070,838 shares in treasury and such shares did not enjoy any voting or economic rights (31 December 2022: 39,070,838 ordinary shares).
The ordinary shares reflect 100% of the total issued share capital of the Company.
The calculation of the basic and diluted earnings per share is based on the following data:
Weighted average number of shares: Diluted earnings per share
Both basic and diluted earnings per share were calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of outstanding common shares before/after dilution respectively. The calculation of the weighted average number of outstanding common shares after dilution is as follows:
Six months ended
30 June 2023 30 June 2022
Weighted average number of outstanding common shares 473,626,239 473,626,239
Weighted average number of outstanding common shares after dilution 473,626,239 473,626,239
There were no adjustments required to earnings for the purposes of calculating the diluted earnings per share in the current period (period ended 30 June 2022: nil).
There were no adjustments to weighted average number of shares for the purposes of calculating the diluted earnings per share in the current period (period ended 30 June 2022: none), as no outstanding Long-Term Incentive Plan (LTIP) awards issued under 2020-2021 tranches represent dilutive potential ordinary shares with respect to earnings per share from continuing operations, as these are out of money as of the reporting date (30 June 2022: no dilutive potential ordinary shares).
The LTIP tranche, granted in 2019 lapsed during first half 2023 and accordingly, the related balance of US$ 13 million in the share-based payment reserve was transferred into retained earnings (2022: US$ 9 million was transferred into retained earnings in relation to 2018 LTIP tranche).
13. PROPERTY, PLANT AND EQUIPMENT
Development assets Exploration assets Mining assets Non-mining assets Capital construction in-progress Total
Cost US$m US$m US$m US$m US$m US$m
Balance at 31 December 2022 (audited) 500 85 3,743 93 1,147 5,568
Additions 28 5 119 3 253 408
Transfers (275) (3) 343 2 (67) -
Change in environmental obligations - - (1) - (1) (2)
Disposals and write-offs including fully depleted mines - - (18) (1) (4) (23)
Translation to presentation currency (77) (13) (525) (17) (231) (863)
Balance at 30 June 2023 176 74 3,661 80 1,097 5,088
Development assets Exploration assets Mining assets Non-mining assets Capital construction in-progress Total
Accumulated depreciation, amortisation US$m US$m US$m US$m US$m US$m
Balance at 31 December 2022 (audited) (252) (2) (1,834) (53) (35) (2,176)
Charge for the period - - (148) (4) - (152)
Transfers 202 - (211) - 9 -
Impairment recognised during period - (12) - - - (12)
Disposals and write-offs including fully depleted mines - - 16 1 - 17
Translation to presentation currency 34 1 290 8 6 339
Balance at 30 June 2023 (16) (13) (1,887) (48) (20) (1,984)
Net book value
31 December 2022 248 83 1,909 40 1,112 3,392
30 June 2023 160 61 1,774 32 1,077 3,104
14. INVENTORIES
30 June 2023 31 December 2022
US$m US$m
Inventories expected to be recovered after twelve months
Ore stock piles 82 89
Ñopper, gold and silver concentrate 8 10
Consumables and spare parts 38 34
Total non-current inventories 128 133
Inventories expected to be recovered in the next twelve months
Ñopper, gold and silver concentrate 303 287
Ore stock piles 194 229
Work in-process 107 111
Dore 74 55
Metal for refining 25 20
Refined metals 15 3
Total current metal inventories 718 705
Consumables and spare parts 353 352
Total current inventories 1,071 1,057
15. BORROWINGS
The Group has a number of borrowing arrangements with various lenders. These borrowings consist of unsecured and secured loans and credit facilities denominated in US Dollars, Euros, Yuans and Russian Roubles.
Actual interest rate at 30 June 2023 31 December 2022
Type of rate 30 June 2023 31 Dec 2022 Current Non-current Total Current Non-current Total
US$m US$m US$m US$m US$m US$m
Secured loans from third parties
US Dollar denominated fixed 2.73% 2.68% 33 142 175 33 158 191
Total secured loans from third parties 33 142 175 33 158 191
Unsecured loans from third parties
US Dollar denominated floating 6.52% 5.69% 240 119 359 149 339 488
US Dollar denominated fixed 3.74% 3.75% 426 824 1,250 43 1,206 1,249
Euro denominated floating 3.39% 0.98% 2 18 20 2 19 21
RUB denominated floating 9.45% 9.35% 29 619 648 132 518 650
RUB denominated fixed 8.03% 8.03% 7 159 166 3 202 205
CNY denominated fixed 3.92% 5.99% 287 69 356 83 - 83
CNY denominated floating n/a 3.50% - - - 69 70 139
Total unsecured loans from third parties 991 1,808 2,799 481 2,354 2,835
Total 1,024 1,950 2,974 514 2,512 3,026
Movements in borrowings are presented in Note 19 below.
The table below summarises maturities of borrowings:
Period ended
30 June 2023 31 December 2022
US$m US$m
Less than 1 year 1,024 514
1-5 years 1,524 1,709
More than 5 years 426 803
Total 2,974 3,026
16. COMMITMENTS AND CONTINGENCIES
Capital commitments
The Group’s budgeted capital expenditure commitments as at 30 June 2023 amounted to US$ 264 million (31 December 2022: US$ 279 million).
Lease commitments
The Group’s lease commitments, representing variable lease payments related to the Nezhda grid power line and substation, are estimated at US$ 26 million (undiscounted), which will be expensed as incurred.
Taxation
Russian and Kazakh tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activities of the companies of the Group may be challenged by the relevant regional and federal authorities and as a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three and five calendar years preceding the year of review in the Russian Federation in Kazakhstan, respectfully. Under certain circumstances reviews may cover longer periods.
Management has identified a total exposure (covering taxes and related interest and penalties) of approximately US$ 105 million in respect of contingent liabilities (31 December 2022: US$ 125 million), mainly related to income tax as described in Note 11.
17. FAIR VALUE ACCOUNTING
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable as follows:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
At 30 June 2023 and 31 December 2022, the Group held the following financial instruments at fair value through profit or loss (FVTPL):
30 June 2023
Level 1 Level 2 Level 3 Total
US$m US$m US$m US$m
Receivables from provisional copper, gold and silver concentrate sales - 180 - 180
Contingent consideration receivable - - 7 7
Shares held at FVTPL 1 - - 1
Royalty liabilities payable (24) (24)
Contingent consideration liability (Note 17) - - (38) (38)
Total 1 180 (55) 126
31 December 2022
Level 1 Level 2 Level 3 Total
US$m US$m US$m US$m
Receivables from provisional copper, gold and silver concentrate sales - 54 - 54
Contingent consideration receivable - - 17 17
Shares held at FVTPL 1 - - 1
Royalty liabilities payable (24) (24)
Contingent consideration liability (Note 17) - - (36) (36)
Total 1 54 (43) 12
During both reporting periods presented, there were no transfers between levels of fair value hierarchy.
Additionally, as of 30 June 2023 the Group held several interest rate swap contracts, recognised within non-current accounts receivables and other financial instruments in the amount of US$ 12 million (31 December 2022: US$ 16 million). All interest rate swap contracts exchanging floating rate interest amounts for rate interest amounts are designated as cash flow hedges to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. As the critical terms of the interest rate swap contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the interest rate swap contracts and the value of the corresponding hedged items will systematically change in opposite direction in response to movements in the underlying interest rates. As of 30 June 2023 and 30 June 2022 it was determined that there is no hedge ineffectiveness identified and therefore change of fair value was recognised within other comprehensive income.
The Group recognised the following gains and loss from revaluation of its Level 3 financial instruments at FVTPL:
Six months ended
30 June 2023 30 June 2022
US$m US$m
Gain/(loss) on contingent consideration receivable revaluation 4 (16)
Gain on contingent consideration payable revaluation 1 1
Change in fair value of shares held at FVTPL - (4)
Loss on royalty payable revaluation - (3)
Total change in fair value of financial instruments 5 (22)
The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables and short-term debt recorded at amortised cost approximate to their fair values because of the short maturities of these instruments.
The estimated fair value of the Group’s debt, calculated using the market interest rate available to the Group as at 30 June 2023 is US$ 2,643 million (31 December 2022: US$ 2,615 million), and the carrying value as at 30 June 2023 is US$ 2,974 million (31 December 2022: US$ 3,026 million).
The fair value of receivables arising from copper, gold and silver concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal. As such, these receivables are classified within Level 2 of the fair value hierarchy.
Valuation methodologies used in the measurement of fair value for Level 3 financial assets and financial liabilities
The main level 3 inputs used by the Group in measuring the fair value of contingent consideration assets and liabilities, represented by various royalties and net smelter returns (NSR), are derived and evaluated as follows:
• The relevant valuation model simulates expected production of metals at respective mines and are based on life of mine models prepared using applicable ore reserves and mineral resource estimations;
• Commodity prices - Commodity prices are based on latest internal forecasts, benchmarked against external sources of information. The Group used flat real long-term gold and silver prices of US$ 1,900 per ounce for 2024 and US$ 1,800 per ounce from 2024 (2022: US$ 1,800) and US$ 22 per ounce (2022: US$ 22 per ounce), respectively.
• Discount rates – The Group used a post-tax real discount rate of 16.2% (31 December 2022: 14.1%). For the Monte-Carlo modelling, where inflation is incorporated into volatility estimation, a nominal discount rate of 18.6% (31 December 2022: 16.0%) is applied.
• Where the percentage of net NSR or royalty receivable or payable depends on commodity prices or foreign exchange rates reaching certain levels, the Group applies the Monte-Carlo modelling to incorporate the volatility measure into the valuation, which is applied to the prevailing market prices/rates as of the valuation date. The Monte-Carlo modelling is applied to Prognoz (NSR) contingent considerations payable and all contingent considerations receivable.
The key assumptions used in the Monte-Carlo calculations are set out below:
Metal Price as of valuation date per ounce/tonne Volatility, %% Constant correlation to gold, %%
Gold 1,912 13,95%-14,25% n/a
Silver 22.47-24.1 29.70%-31.25% 87.78%
Copper 8,210 25.27% (72.37)%
Zinc 2,363 34.86% (44.05)%
RUB rate 87.0341 20.73% 51.17%
The Directors consider that a reasonably possible change in a valuation assumption would not have a material impact on the condensed consolidated financial statements for contingent considerations receivable and payable.
18. RELATED PARTIES
Related parties are considered to include shareholders, associates, joint ventures and entities under common ownership and control with the Group and members of key management personnel.
During the period ended 30 June 2023 transactions with the related parties are represented by miscellaneous purchases of US$ 1.1 million (period ended 30 June 2022: US$ 0.6) and various sales to the related parties of US$ 0.3 million (period ended 30 June 2022: 0.3 million).
Outstanding balances with related parties as of 30 June 2023 are represented by accounts receivable of US 1 million (31 December 2022: US$ 1.2 million).
19. SUPPLEMENTARY CASH FLOW INFORMATION
Six months ended Six months ended
Notes 30 June 2023 (unaidited) 30 June 2022 (unaudited)
US$m US$m
Profit before tax 235 (348)
Adjustments for:
Depreciation and depletion expense 2 123 85
Impairment of non-current assets 12 689
Write-down of inventories to net realisable value 10 19
Share-based compensation 8 6 8
Finance expenses 69 41
Finance income (8) (3)
Change in fair value of financial instruments 17 5 22
Foreign exchange gain/ (loss), net 105 (92)
Other non-cash items (2) 8
555 429
Movements in working capital
Change in inventories (205) (315)
Change in VAT and other taxes 26 (7)
Change in trade and other receivables (130) (42)
Change in prepayments to suppliers (7) (68)
Change in trade and other payables (31) (58)
Change in prepayments received - (134)
Cash generated from operations 208 (195)
Interest paid (79) (43)
Interest received 7 3
Income tax paid (101) (170)
Net cash generated by/(used in) operating activities 35 (405)
Increase in trade and other receivables is related to growth of receivables from provisional copper, gold and silver concentrate sales balance, which expected to be recovered in the second half 2023.
During the period ended 30 June 2023, the capital expenditure related to the new projects, increasing the operating capacity amounts to US$ 89 million (period ended 30 June 2022: US$ 209 million).
At the reporting date the cash balances include US$ 30 million of cash and cash equivalents held in Russia (31 December 2022: US$ 118 million), that are subject to certain legal restrictions and are therefore not available for general use of the Company (but fully available for use by its Russian subsidiaries). The Group determined that these restrictions would not have any material effect on the Group’s liquidity position and its ability to finance its obligations.
Changes in liabilities arising from financing activities
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's condensed consolidated cash flow statements as cash flows from financing activities.
Lease modification presented in the table below relates to the updated lease contract the of overhead power line, supplying electricity to the Nezhda production site, which commenced in July 2022. The corresponding decrease was recognised in right-of-use assets.
Period ended 30 June 2023
Borrowings Contingent consideration payable at fair value Deferred consideration payable at amortised cost Royalty payable Lease liabilities
1 January 2023 3,027 36 85 24 131
Cash inflow 582 - - - -
Cash outflow (455) - - - (12)
Changes from financing cash flows 127 - - - (12)
Unwind of discount - 2 3 - 4
Lease modification - - - - (14)
Lease termination - - - - (2)
Net foreign exchange losses 293 4 - 6 -
Exchange differences on translating foreign operations (473) (4) - (6) (23)
Other changes (180) 2 3 - (35)
30 June 2023 2,974 38 88 24 84
Less current portion (1,024) (9) - (5) (19)
Total non-current liabilities at 30 June 1,950 29 88 19 65
Period ended 30 June 2022
Borrowings Contingent consideration payable at fair value Deferred consideration payable at amortised cost Royalty payable Lease liabilities
1 January 2022 2,064 63 79 21 36
Cash inflow 2,711 - - - -
Cash outflow (1,850) (15) - - (4)
Changes from financing cash flows 861 (15) - - (4)
Additions as a result of acquisitions 161 - - - -
Change in fair value, included in profit or loss - (1) - 3 -
Unwind of discount - 1 3 - 2
Arrangement fee amortisation 1 - - - -
New leases - - - - 2
Net foreign exchange gains (417) - - - -
Exchange differences on translating foreign operations 671 - - - 15
Other changes 416 - 3 3 19
30 June 2022 3,341 48 82 24 51
Less current portion (1,189) (17) - - -
Total non-current liabilities at 30 June 2,152 31 82 24 51
20. SUBSEQUENT EVENTS
In July 2023, the Group increased its effective interest in the Baksy project to 75%, by consolidating 100% of Batys-Baiken LLC, an owner of 75% in Nur-Bayken LLC, which holds the license of Baksy copper-gold deposit for total cash consideration of US$ 14 million. State-owned JSC Kazgeology owns the remaining 25%.
On 7 August 2023 the Group completed the re-domiciliation of the Company from Jersey to the Astana International Financial Centre ("AIFC") in Kazakhstan. The Company remains listed on the AIX, which has become the Company’s primary stock exchange, while its listing on London Stock Exchange was cancelled on 29 August 2023.
On 4 August 2023, a windfall tax was introduced in the Russian Federation for a number of companies whose average income tax base for the years ended 31 December 2022 and 2021 exceeded RUB 1 billion. The Group’s management estimates the windfall tax to be accrued in the amount of RUB 600 million (approximating to US$ 7 million), which will be recognised and presented within current income tax for the financial year ending 31 December 2023.
In September 2023, the Group has agreed to cancel its historic call and put options and a shareholder agreement over 40.6% share in GRK Amikan LLC (“Amikan”) with the previous joint venture (JV) partner (please refer to the transaction disclosure in the consolidated financial statements for the year ended 31 December 2020). This allowed to form a new joint venture over Amikan. The 40.6% stake was acquired from the previous JV partner by a new third party. Subsequently, JSC Polymetal disposed of its 9.5% stake in Amikan to the same third party for a ñash consideration of US$ 21 million. As a result, the Group now owns 49.9% interest of Amikan. Simultaneously, JSC Polymetal entered into a number of corporate arrangements with the new shareholder regarding Amikan project financing, governance and operations. The accounting treatment of this transaction will be determined in second half of 2023.
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ALTERNATIVE PERFORMANCE MEASURES
Introduction
The financial performance reported by the Group contains certain Alternative Performance Measures (APMs), disclosed to complement measures that are defined or specified under International Financial Reporting Standards (IFRS). APMs should be considered in addition to, and not as a substitute for, measures of financial performance, financial position or cash flows reported in accordance with IFRS.
The Group believes that these measures, together with measures determined in accordance with IFRS, provide the readers with valuable information and an improved understanding of the underlying performance of the business.
APMs are not uniformly defined by all companies, including those within the Group’s industry. Therefore, the APMs used by the Group may not be comparable to similar measures and disclosures made by other companies.
Purpose
APMs used by the Group represent financial KPIs for clarifying the financial performance of the Group and measuring it against strategic objectives, given the following background:
- Widely used by the investor and analyst community in the mining sector and, together with IFRS measures, provide a holistic view of the Group;
- Applied by investors to assess earnings quality, facilitate period to period trend analysis and forecasting of future earnings, and understand performance through eyes of management;
- Highlight key value drivers within the business that may not be obvious in the financial statements;
- Ensure comparability of information between reporting periods and operating segments by adjusting for uncontrollable or one-off factors which impact upon IFRS measures;
- Used internally by management to assess the financial performance of the Group and its operating segments;
- Used in the Group’s dividend policy; and
- Certain APMs are used in setting directors’ and management’s remuneration.
APMs and justification for their use
Group APM Closest equivalent IFRS measure Adjustments made to IFRS measure Rationale for adjustments
Underlying net earnings • Profit/(loss) for the financial period attributable to equity shareholders of the Group • Write-down of metal inventory to net realisable value (post-tax)
• Impairment/reversal of previously recognised impairment of non-current assets (post-tax)
• Foreign exchange (gain)/loss (post-tax)
• Change in fair value of contingent consideration liability (post-tax)
• Gains/losses on acquisition, revaluation and disposals of interests in subsidiaries, associates and joint ventures (post-tax)
• Excludes the impact of key significant one-off non-recurring items and significant non-cash items (other than depreciation) that can mask underlying changes in core performance.
Underlying earnings per share • Earnings per share • Underlying net earnings (as defined above)
• Weighted average number of outstanding common shares • Excludes the impact of key significant one-off non-recurring items and significant non-cash items (other than depreciation) that can mask underlying changes in core performance.
Underlying return on equity • No equivalent • Underlying net earnings (as defined above)
• Average equity at the beginning and the end of reporting year, adjusted for translation reserve • The most important metric for evaluating a company’s profitability
• Measures the efficiency with which a company generates income using the funds that shareholders have invested.
Return on assets • No equivalent • Underlying net earnings (as defined above)1 before interest and tax
• Average total assets at the beginning and the end of reporting year • A financial ratio that shows the percentage of profit a company earns in relation to its overall resources.
Adjusted EBITDA • Profit/(loss) before income tax • Finance cost (net)
• Depreciation and depletion
• Write-down of metal and non-metal inventory to net realisable value
• Impairment/reversal of previously recognised impairment of non-current assets
• Share based compensation
• Bad debt allowance
• Net foreign exchange gain/losses
• Change in fair value of contingent consideration liability
• Rehabilitation costs
• Additional mining taxes, VAT, penalties and accrued interest
• Gains/losses on acquisition, revaluation and disposals of interests in subsidiaries, associates and joint ventures • Excludes the impact of certain non-cash element, either recurring or non-recurring, that can mask underlying changes in core operating performance, to be a proxy for operating cash flow generation.
Net debt • Net total of current and non-current borrowings
• Cash and cash equivalents • Not applicable • Measures the Group’s net indebtedness that provides an indicator of the overall balance sheet strength.
• Used by creditors in bank covenants.
Net debt/EBITDA ratio • No equivalent • Not applicable • Used by creditors, credit rating agencies and other stakeholders.
Free cash flow • Cash flows from operating activity less cash flow from investing activities • Excluding acquisition costs in business combinations and investments in associates and joint ventures
• Excluding loans forming part of net investment in joint ventures
• Excluding proceeds from disposal of subsidiaries • Reflects cash generating from operations after meeting existing capital expenditure commitments.
• Measures the success of the company in turning profit into cash through the strong management of working capital and capital expenditure.
Free cash flow post M&A • Cash flows from operating activity less cash flow from investing activities • Not applicable • Free cash flow including cash used in/received from acquisition/disposal of assets and joint ventures.
• Reflects cash generation to finance returns to shareholders after meeting existing capital expenditure commitments and financing growth opportunities.
Total cash costs (TCC) • Total cash operating costs
• General, administrative & selling expenses • Depreciation expense
• Rehabilitation expenses
• Write-down of inventory to net realisable value
• Intersegment unrealised profit elimination
• Idle capacities and abnormal production costs
• Exclude Corporate and Other segment and development assets
• Treatment charges deductions reclassification to cost of sales • Calculated according to common mining industry practice using the provisions of Gold Institute Production Cost Standard.
• Gives a picture of the company’s current ability to extract its resources at a reasonable cost and generate earnings and cash flows for use in investing and other activities.
All-in sustaining cash costs (AISC) • Total cash operating costs
• General, administrative & selling expenses • AISC is based on total cash costs, and adds items relevant to sustaining production such as other operating expenses, corporate level SG&A, and capital expenditures and exploration at existing operations (excluding growth capital). After tax all-in cash costs includes additional adjustments for net finance cost, capitalised interest and income tax expense. All-in costs include additional adjustments on that for development capital. • Includes the components identified in World Gold Council’s Guidance Note on Non?GAAP Metrics – All?In Sustaining Costs and All?In Costs (June 2013), which is a non?IFRS financial measure.
• Provides investors with better visibility into the true cost of production.