“Despite external pressures, we made good progress in the first half of the year while adapting to the logistics constraints. High commodity prices against a weakening Rouble, combined with steady operating performance, drove a healthy growth in the Group’s earnings, adjusted EBITDA and free cash flow. We expect stronger production, stable cash costs within the original guidance, and significant free cash flow generation for the second half of the year, while remaining focused on progressing our development projects on schedule”, said Vitaly Nesis, Group CEO of Polymetal International plc, commenting on the results.
FINANCIAL HIGHLIGHTS
• In 1H 2023, revenue increased by 25% year-on-year (y-o-y), totalling US$ 1,315 million (1H 2022: US$ 1,048 million), of which US$ 393 million (30%) was generated from operations in Kazakhstan and US$ 922 million (70%) from operations in the Russia. Average realised gold and silver prices tracked market dynamics: gold price increased by 3% while silver price remained flat y-o-y. Gold equivalent (“GE”) production was 764 Koz, a 3% increase y-o-y. Gold sales increased by 25% y-o-y to 570 Koz, while silver sales increased by 19% to 10.4 Moz. The Company recorded a sales-production gap, notably for Kyzyl, as a result of persistent railway issues at the eastward direction. This gap is expected to be closed by the year end as the Company is gradually adjusting its transportation routes.
• Group Total Cash Costs (“TCC”) for 1H 2023 were US$ 944/GE oz, below the lower end of the Group’s full-year guidance of US$ 950-1,000/GE oz, while being up 11% y-o-y, mostly due to a planned grade decline combined with domestic inflation, which was partially offset by weaker currency as well as increase in sales volumes resulting in spread of fixed costs over a larger amount of ounces sold.
• All-in Sustaining Cash Costs (“AISC”)1 remained broadly unchanged at US$ 1,386/GE oz, up 1% y-o-y, and within the full-year guidance range of US$ 1,300-1,400/GE, reflecting the decrease in capitalised stripping on the back of completed stripping campaigns.
• Adjusted EBITDA1 was US$ 559 million, an increase of 31% y-o-y, driven by higher sales volumes. Of this, US$ 200 million (36%) was earned from operations in Kazakhstan, achieving a margin of 51%, and US$ 359 million (64%), or a margin of 39%, earned from operations in the Russian Federation.The Adjusted EBITDA margin increased by 2 percentage points to 43% (1H 2022: 41%).
• Underlying net earnings increased by 28% to US$ 261 million (1H 2022: US$ 203 million). Net earnings were US$ 190 million (1H 2022: US$ 321 million loss due to one-off impairment charges).
• Capital expenditures were US$ 375 million , largely unchanged compared with US$ 373 million in 1H 2022. The Company currently expects its FY2023 capex to be in the original guidance range of US$ 700-750 million.
• Net operating cash inflow was US$ 35 million (1H 2022: US$ 405 million outflow). This includes positive cash flow of US$ 140 million from operations in Kazakhstan and negative cash flow of US$ 105 million from operations in the Russian Federation. The Group reported negative free cash flow1 of US$ 341 million, which is still a significant improvement over 1H 2022 negative FCF of US$ 630 million, that is made up of US$ 55 million inflow coming from Kazakhstan and US$ 396 million outflow attributable to Russian assets. As usual, free cash flow is expected to be stronger in the second half of the year due to seasonally higher production and working capital release.
• Net debt1 increased to US$ 2,590 million during the period (31 December 2022: US$ 2,393 million), representing 2.25x of the LTM Adjusted EBITDA (2022: 2.35x). The increase in net debt was mainly driven by the working capital build-up.
• Polymetal is on track to meet its original 2023 production guidance of 1.7 Moz of gold equivalent. The company maintains its 2023 guidance range of US$ 950-1,000/GE oz and US$ 1,300-1,400/GE oz for TCC and AISC, respectively. This guidance remains contingent on the RUB/USD and KZT/USD exchange rates which have a significant effect on the Group’s local currency denominated operating costs.
FINANCIAL HIGHLIGHTS 1H 2023 1H 2022 Change
Revenue, US$m 1,315 1,048 +25%
Total cash cost , US$ /GE oz 944 853 +11%
All-in sustaining cash cost2, US$ /GE oz 1,386 1,371 +1%
Adjusted EBITDA2, US$m 559 426 +31%
Average realised gold price , US$ /oz 1,926 1,864 +3%
Average realised silver price3, US$ /oz 22.9 22.9 0%
Net earnings/(loss), US$m 190 (321) n/a
Underlying net earnings2, US$m 261 203 +28%
Return on Assets2, % 10% 7% +3%
Return on Equity (underlying)2, % 13% 10% +3%
Basic earnings/(loss) per share, US$ 0.40 (0.68) n/a
Underlying EPS2, US$ 0.55 0.43 +28%
Net debt2, US$m 2,590 2,393 +8%
Net debt/Adjusted EBITDA 2.25 2.355 -4%
Net operating cash flow, US$m 35 (405) n/a
Capital expenditure, US$m 375 373 0%
Free cash flow2, US$m (341) (630) +46%
Free cash flow post-M&A2, US$m (344) (658) +48%
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OPERATING HIGHLIGHTS
• No fatal accidents occurred among the Group’s workforce and contractors in H1 2023 (consistent with H1 2022). Lost time injury frequency rate (LTIFR) among the Group’s employees stood at 0.11 (0.08 in H1 2022), as there were seven lost-time accidents, mostly related to falling or being hit by an object. None of the accidents were within Kazakhstan operations.
• GE output for H1 was up by 3% y-o-y to 764 Koz, including 213 Koz in Kazakhstan and 551 Koz in Russia. The Company reiterates its full-year production guidance of 1.7 Moz of GE (1.2 Moz in Russia and 500 Koz in Kazakhstan).
1H 2023 1H 2022 Change
PRODUCTION (Koz of GE1)
Kazakhstan 213 244 -13%
Kyzyl 128 135 -5%
Varvara 86 109 -22%
Russia 551 500 +10%
TOTAL 764 744 +3%
REVENUE (US$m)
Kazakhstan 393 443 -11%
Russia 922 605 +52%
TOTAL 1,315 1,048 +25%
NET DEBT2 (US$m)
Kazakhstan 201 277 -27%
Russia 2,389 2,117 +13%
Total 2,590 2,393 +8%
SAFETY
LTIFR3 (Employees) 0.11 0.08 +36%
Fatalities 0 0 n/a
Notes:
(1) Based on 80:1 Au/Ag conversion ratio and excluding base metals. Discrepancies in calculations are due to rounding.
(2) Comparative information is presented for 31 December 2022.
(3) LTIFR = lost time injury frequency rate per 200,000 hours worked. Company employees only are taken into account.?
UPDATE ON THE RE-DOMICILATION AND LISTING
On 7 August 2023, the Company successfully completed its re-domiciliation to the AIFC (Kazakhstan). On 10 August, trading resumed on Astana International Exchange, which is now the primary listing venue for Polymetal. Cancellation of the Company’s listing from the London Stock Exchange completed on 29 August 2023. On 19 September 2023, trading in Polymetal shares also resumed on the Moscow Exchange.
CONFERENCE CALL AND WEBCAST
The Company will hold a webcast on Monday, 25 September 2023, at 9:00 London time (14:00 Astana time).
To participate in the webcast, please register using the following link: https://event.on24.com/wcc/r/4340529/E960C65B2522657D1D7187BD73EFDBF4.
Webcast details will be sent to you via email after registration.
Enquiries
Investor Relations
Polymetal International plc ir@polymetalinternational.com
Evgeny Monakhov +44 20 7887 1475 (UK)
Kirill Kuznetsov +7 7172 476 655 (Kazakhstan)
Media
Polymetal International plc media@polymetal.kz
Ainur Baigozha +7 7172 476 655 (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
Financial review 6
Principal risks and uncertainties 17
Going concern 18
Directors’ responsibility statement 19
Independent Review Report to Polymetal International plc 20
Condensed Consolidated Income Statement 21
Condensed Consolidated Statement of Comprehensive Income 22
Condensed Consolidated Statement of Financial Position 23
Condensed Consolidated Statement of Cash Flows 24
Condensed Consolidated Statement of Changes in Equity 25
Notes to the consolidated financial statements 26
Alternative Performance Measures 41
FINANCIAL REVIEW
MARKET SUMMARY
Precious metals
In Q1 2023, banking sector turmoil, unsettling geopolitical anxiety and an unstable economic environment worldwide continued to drive demand for gold as a safe-haven asset. In Q2 2023, gold continued its upward trend, peaking at US$ 2,048/oz in April, before reversing direction, following an agreement to raise the US debt ceiling in May. Finally, as at 30 June 2023, the LBMA gold price was trading at US$ 1,912/oz, a 5% year-to-date increase. The average LBMA gold price for 1H was US$ 1,933/oz, up 3% y-o-y.
Gold demand (excluding OTC) for 1H 2023 was down by 6% y-o-y to 2,062 tonnes. The negative dynamics stemmed from modest net outflows of 50 tonnes from exchange-traded funds (ETFs), compared with net 127 tonnes of inflows in 1H 2022. Factors driving outflows from ETFs included robust performance from key equity markets and gold price decline in Q2, driven by gradual hikes in interest rates by the global central banks.
Bar and coin investment and jewellery demand has been solid, following the end of COVID prevention restrictions in China as well as soaring inflation and weak monetary policy in Turkey. Jewellery demand increased to 951 tonnes (+2% year-on-year). Bar and coin investment also rose by 9% to 571 tonnes with demand in the Middle East reaching a 10-year high. Central banks continued to accumulate gold throughout 1H 2023 and added 387 tonnes to reserves, reaching the highest first-half demand since 2000. With inflation severely impacting supply chains within the electronics sector, technology demand was weak at 140 tonnes. Total 1H 2023 gold supply increased by 5% to 2,460 tonnes on the back of 3% growth in mine production to a record 1H level.
Silver price dynamics generally followed gold, peaking in April at US$ 26.0/oz followed by gradual decline thorough the rest of Q2 2023 to US$ 22.5/oz as at 30 June 2023. The average LBMA price in 1H 2023 stood at US$ 23.3/oz, almost flat compared to 1H 2022.
Foreign exchange
The Group’s revenues are denominated in US Dollars, while about a third of its borrowings and the majority of the Group’s operating costs are denominated in local currencies (Russian Rouble and Kazakhstan Tenge). As a result, changes in exchange rates affected our financial results and performance.
In 1H 2023, the Kazakhstani Tenge stood at 452 KZT/USD on average and 454 KZT/USD at the end of the period, which was predominantly stable relative to 2022 values. As already seen in 2022, the currency did not follow the pattern of the Russian Rouble dynamics, which saw significant volatility (see below). The annual inflation rate in the country remained high, although decreased relative to a historical maximum of 2022 of 20.3% to 14.6% by June 2023.
The Russian Rouble started to depreciate relative to the 2022 year-end level since February on the back of capital outflow, weaker trade balance and geopolitical escalation. As a result, the Rouble rate recorded a 24% year-to-date decline to 87 RUB/USD. The average rate however was relatively unchanged versus 1H 2022 at 77 RUB/USD. Inflation in Russia significantly moderated after reaching multi-year highs in 2022, with the annualised inflation rate in June 2023 amounting to 3.25%.?
REVENUE
SALES VOLUMES 1H 2023 1H 2022 Ñhange
Gold, Koz 570 456 +25%
Silver, Moz 10.4 8.7 +19%
Gold equivalent sold , Koz 700 573 +22%
Sales by metal
(US$m unless otherwise stated) 1H 2023 1H 2022 Ñhange Volume variance, US$m Price variance, US$m
Gold 1,076 841 +28% 209 26
Average realised price US$ /oz 1,926 1,864 +3%
Average LBMA price US$ /oz 1,933 1,875 +3%
Share of revenues % 82% 80%
Silver 227 191 +19% 36 0
Average realised price US$ /oz 22.9 22.9 0%
Average LBMA price US$ /oz 23.4 23.3 0%
Share of revenues % 17% 18%
Other metals 12 16 -25%
Share of revenues % 1% 2%
Total revenue 1,315 1,048 +25% 235 32
In 1H 2023, revenue grew by 25% y-o-y, driven by the growth of gold and silver sales compared to 1H 2022 when the Company experienced significant delays due to re-routing of sales channels. Gold sales increased by 28%, while gold production moved higher by 13%. Silver sales increased by 19% due to the contribution of Nezhda concentrate.
The Group’s average realised price for gold was US$ 1,926/oz in 1H 2023, up 3% from US$ 1,864/oz in 1H 2022, and in line with the average market price of US$ 1,933/oz. The Group’s average realised silver price was US$ 22.9/oz, flat y-o-y and 2% below market price of US$ 23.4/oz.
The share of gold sales as a percentage of total revenue increased from 80% in 1H 2022 to 82% in 1H 2023, driven by a corresponding shift in production and sales volume by metal.
Revenue, US$m Gold equivalent sold, Koz
OPERATION 1H 2023 1H 2022 Ñhange 1H 2023 1H 2022 Ñhange
Kazakhstan 393 443 -11% 206 242 -15%
Kyzyl 214 250 -14% 113 138 -18%
Varvara 179 193 -7% 93 104 -10%
Russia 922 605 +52% 494 331 +49%
Total revenue 1,315 1,048 +25% 700 573 +22%
The increase in sales volumes during the period had a positive impact on revenues at operating mines in Russia, while revenue in Kazakhstan was down 11% year-on-year as a result of the decrease in GE volume sold, driven by railway transportation constraints for Kyzyl concentrate. Eastward transportation routes are being readjusted to eliminate the production/sales gap, and a meaningful decline in unsold concentrate volumes is expected in Q3 2023.
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COST OF SALES
(US$m) 1H 2023 1H 2022 Ñhange
Cash operating costs 711 656 +8%
On-mine costs 322 317 +2%
Smelting costs 276 233 +18%
Purchase of ore and concentrates from third parties 34 40 -15%
Mining tax 79 66 +20%
Costs of production 851 794 +7%
Depreciation and depletion of operating assets 140 134 +4%
Rehabilitation expenses - 4 -100%
Total change in metal inventories (155) (277) -44%
Increase in metal inventories (165) (296) -44%
Write-down of metal inventories to net realisable value 10 20 -50%
(Reversal) of non-metal inventories to net realisable value - (1) -100%
Idle capacities and abnormal production costs 5 3 +67%
Total cost of sales 701 520 +35%
CASH OPERATING COST STRUCTURE 1Í 2023 1Í 2022
US$m Share US$m Share
Services 247 35% 237 36%
Consumables and spare parts 213 30% 183 28%
Labour 134 19% 127 19%
Mining tax 79 11% 66 10%
Purchase of ore and concentrates from third parties 34 5% 40 6%
Other expenses 4 1% 3 0%
Total cash operating cost 711 100% 656 100%
The total cost of sales increased by 35% in 1H 2023 to US$ 701 million, reflecting a volume-based increase in sales (+22% in gold equivalent terms) combined with domestic inflation (15% y-o-y in Kazakhstan and 3% y-o-y in Russia) and an increase in mining tax.
The cost of services was up 4% y-o-y, caused mostly by higher volume of transportation services (notably at Nezhda and Kyzyl).
The cost of consumables and spare parts was up 16% compared to 1H 2022, impacted by changes in procurement to maintain supplies of critically important consumables and spares levels.
The cost of labour within cash operating costs was up 6% y-o-y, mainly stemming from annual salary increases (tracking domestic CPI inflation).
The decrease in purchases of third-party ore and concentrates by 15% was mostly driven by a shift to processing Peshernoye ore at Voro hub, compared to the treatment of third-party material in 1H 2022.
Mining tax increased by 20% y-o-y to US$ 79 million, mainly driven by an increase in production volume combined with an increase in average realised prices, as well as an increase in gold mining tax rates in Kazakhstan from 5% to 7.5%.
Depreciation and depletion was US$ 140 million, up 4% y-o-y. US$ 20 million of depreciation cost is included within the increase in metal inventories (1H 2022: US$ 54 million).
In 1H 2023, a net metal inventory increase of US$ 165 million (1H 2022: US$ 296 million) was recorded. The increase was mainly represented by the traditional seasonal concentrate build-up across the Group’s Russian mines. The Company expects the bulk of this increase to be reversed by the end of 2023.
The Group recognised a US$ 10 million write-down (1H 2022: US$ 20 million) to the net realisable value of heap leach work-in-progress and low-grade ore at Russian mines (see Note 14 of the condensed financial statements).
GENERAL, ADMINISTRATIVE AND SELLING EXPENSES
(US$m) 1H 2023 1H 2022 Change
Labour 121 123 -2%
Share based compensation 6 8 -25%
Services 7 4 +75%
Depreciation 5 4 +25%
Other 9 11 -18%
Total general, administrative and selling expenses 148 150 -1%
General, administrative and selling expenses (“SGA”) decreased by 1% y-o-y from US$ 150 million in 1H 2022 to US$ 148 million in 1H 2023, reflecting a decrease in staff costs in USD terms.
OTHER OPERATING EXPENSES
(US$m) 1H 2023 1H 2022 Change
Exploration expenses 15 29 -48%
Social payments 12 17 -29%
Provision for investment in Special economic zone 7 7 0%
Taxes, other than income tax 7 7 0%
Change in estimate of environmental obligations (2) 2 n/a
Additional tax charges/fines/penalties - 3 -100%
Other expenses 9 4 +118%
Total other operating expenses 48 69 -31%
Other operating expenses decreased to US$ 48 million in 1H 2023 compared to US$ 69 million in 1H 2022 mainly due to a scheduled decrease in social payments in accordance with existing partnership agreements and write-off of exploration expenses of US$ 12 million at Viksha.
TOTAL CASH COSTS
In 1H 2023, total cash costs per gold equivalent ounce sold (“TCC”) were US$ 944/GE oz, up 11% y-o-y and 5% lower compared to 2H 2022. Planned grade decline across the Group’s mines, combined with domestic inflation, had an overall negative impact on cost levels, which was partially offset by increase in sales volumes resulting in spread of mostly fixed SGA and other expenses over a larger amount of ounces sold.
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 AuEq ounce 1H 2022 853 1,371
Change in average grade processed 90 +11% 116 +8%
Domestic inflation 55 +6% 79 +6%
SGA and other expenses decrease (17) -2% (56) -4%
Capitalised stripping decrease - n/a (58) -4%
RUB and KZT rate change (6) -1% (9) -1%
Other (32) -2% (57) -2%
Cost per AuEq ounce 1H 2023 944 +11% 1,386 +1%
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Total cash cost by segment/operation, US$/GE oz
OPERATION 1H 2023 1H 2022 Change 2H 2022 Change
Kazakhstan 871 712 +22% 742 +17%
Kyzyl 649 575 +13% 623 +4%
Varvara 1,138 894 +27% 945 +20%
Russia 975 956 +2% 1,086 -10%
Total Group TCC 944 853 +11% 991 -5%
Kazakhstan
• Kyzyl’s total cash costs were at US$ 649/GE oz, significantly below the Group’s average level, albeit up 13% y-o-y and 4% half-on-half, because of an 18% decrease in sales volumes partially offset by 6% grade increase in 1H 2023. Eastward transportation routes are being readjusted, and a notable decline in unsold concentrate volumes is expected in 2H 2023.
• At Varvara, TCC were up 27% y-o-y and up 20% half-on-half at US$ 1,138/GE oz on the back of a planned grade decline by 16%, combined with a 10% decrease in sales volumes and inflationary headwinds.
Russia
• Across the Group’s Russian mines, TCC were at US$ 975/GE oz, up by 2% year-on-year and down by 10% half-on-half, mostly driven by 49% increase in sales volumes offsetting planned declines in gold grade processed.
ALL-IN SUSTAINING AND ALL-IN CASH COSTS
All-in sustaining cash costs amounted to US$ 1,386/GE oz, up 1% y-o-y and significantly below inflation, reflecting the decrease in capitalised stripping on the back of completed stripping campaigns.
AISC by operations were as follows:
All-in sustaining cash cost by segment/operation, US$/GE oz
OPERATION 1H 2023 1H 2022 Change
Kazakhstan 1,314 922 +43%
Kyzyl 883 800 +10%
Varvara 1,629 1,083 +50%
Russia 1,416 1,463 -3%
Total Group AISC 1,386 1,371 +1%
AISC at all operating mines generally followed TCC dynamics.
In Kazakhstan, AISC were elevated by 43% to US$ 1,314/oz, which was mostly driven by decrease in sales volume, resulting in the spread of sizeable sustaining capex (including investments in new TSF at Varvara) over a limited amount of ounces sold.
In Russia, AISC decreased by 3% to US$ 1,416/oz, on the back of sales increase coupled with lower stripping volumes after completion of large stripping campaigns in 2022.
Total, US$m US$ /GE oz
RECONCILIATION OF
ALL-IN COSTS 1H 2023 1H 2022 Change 1H 2023 1H 2022 Change
Cost of sales, excluding depreciation, depletion and write-down of inventory to net realisable value (Note 2 of condensed financial statements) 576 417 +38% 822 728 +13%
adjusted for:
Idle capacities (5) (3) +66% (7) (5) +40%
Treatment charges deductions reclassification to cost of sales 33 21 +63% 47 36 +31%
SGA expenses, excluding depreciation, amortization and share based compensation (Note 2 of condensed financial statements) 62 61 +1% 88 107 -18%
adjusted for:
SGA expenses of development projects (5) (8) -33% (7) (13) -46%
Total cash costs 661 488 +35% 944 853 +11%
SGA expenses for Corporate and other segment and other operating expenses 111 119 -6% 159 208 -24%
Capital expenditure excluding development projects 167 115 +45% 238 201 +18%
Exploration expenditure (capitalised) 2 4 -57% 3 7 -57%
Capitalised stripping 29 58 -51% 41 102 -60%
All-in sustaining cash costs 970 785 +24% 1,386 1,371 +1%
Finance costs (net) 61 38 +61% 86 67 +28%
Capitalised interest 21 13 +66% 31 23 +35%
Income tax expense/(benefit) 45 (27) n/a 63 (47) n/a
After-tax all-in cash costs 1,097 809 +36% 1,566 1,413 +11%
Capital expenditure for development projects 145 207 -30% 206 362 -43%
SGA and other expenses for development assets 22 18 +22% 31 31 0%
All-in costs 1,264 1,034 +22% 1,804 1,806 +0%
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ADJUSTED EBITDA AND EBITDA MARGIN
(US$m)
1H 2023 1H 2022 Change
Profit/(loss) for the period 190 (321) n/a
Finance cost (net) 61 38 +61%
Income tax expense/(benefit) 45 (27) n/a
Depreciation and depletion 122 85 +45%
EBITDA 418 (225) n/a
Net foreign exchange loss/(gain) 105 (92) n/a
Impairment of non-current assets 12 689 -98%
Share based compensation 5 8 -38%
Change in fair value of contingent consideration liability 5 22 -77%
Other non-cash items 14 26 -47%
Adjusted EBITDA 559 426 +31%
Adjusted EBITDA margin 43% 41% +2%
Adjusted EBITDA per gold equivalent oz 798 745 +7%
Adjusted EBITDA by segment/operation
(US$m)
OPERATION 1H 2023 1H 2022 Change
Kazakhstan 200 261 -23%
Varvara 70 96 -27%
Kyzyl 143 174 -18%
Attributable corporate and other (13) (9) -44%
Russia 359 165 +118%
Total Group Adjusted EBITDA 559 426 +31%
In 1H 2023, Adjusted EBITDA was US$ 559 million, 31% higher year-on-year, with an Adjusted EBITDA margin of 43%, reflecting a 22% increase in gold equivalent sold, combined with 3% increase in gold average realised price against the cost dynamics described above. In 1H 2023, Kyzyl contributed more than a quarter of total Group Adjusted EBITDA.
OTHER INCOME STATEMENT ITEMS
Polymetal recorded a net foreign exchange loss in 1H 2023 of US$ 105 million compared to an exchange gain of US$ 92 million in 1H 2022, mostly attributable to the revaluation of the US Dollar-denominated borrowings of Russian operating companies — the functional currency of which is the Russian Rouble — which was partially offset by forex gain on intercompany loans with different functional currencies in the 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 expense for 1H 2023 was US$ 45 million compared to US$ 27 million benefit in 1H 2022, charged at an effective tax rate of 19% (1H 2022: 8%), The increase was mainly attributable to the increased profit before foreign exchange and tax. For details refer to Note 11 of the condensed consolidated financial statements.
NET EARNINGS, EARNINGS PER SHARE AND DIVIDENDS
The Group recorded net profit of US$ 190 million in 1H 2023 versus US$ 321 million loss in 1H 2022 which was largely driven by impairment charges. The underlying net earnings attributable to the shareholders of the parent were US$ 261 million, compared to US$ 203 million in 1H 2022:
Reconciliation of underlying net earnings
(US$m)
1H 2023 1H 2022 Change
Profit/(loss) for the financial period attributable to the shareholders of the Parent 190 (321) n/a
Write-down of inventory to net realisable value 10 19 -47%
Foreign exchange loss/(gain) 105 (92) n/a
Change in fair value of contingent consideration liability 5 22 -77%
Impairment of non-current assets 12 689 -98%
Tax effect (61) (115) -48%
Underlying net earnings 261 203 +28%
Basic earnings per share was US$ 0.40 compared to US$ 0.68 loss per share in 1H 2022. Underlying basic EPS was US$ 0.55, compared to US$ 0.43 in 1H 2022.
CAPITAL EXPENDITURE
(US$m) Sustaining Development Capital stripping and underground development Exploration Total
1H 2023 Total
1H 2022
Development projects - 163 - 1 164 138
Kazakhstan - 18 - 1 19 -
Ertis POX - 18 - - 18 -
Other - - - 1 1 -
Russia - 145 - - 145 138
Operating assets 179 - 31 2 212 235
Kazakhstan 48 - 19 - 66 39
Varvara 36 - 6 - 42 14
Kyzyl 12 - 13 - 25 25
Russia 131 - 12 2 146 196
Total capital expenditure 179 163 31 3 375 373
Total capital expenditure marginally changed y-o-y and stood at US$ 375 million in 1H 2023. Capital expenditure excluding capitalised stripping costs was US$ 344 million in 1H 2023 (1H 2022: US$ 299 million).
The major capital expenditure items in 1H 2023 were as follows:
Development projects
• In Kazakhstan, capital expenditure of US$ 18 million was related to initial investments into the Ertis POX facility to fully sever the link between the company's subsidiaries in Kazakhstan and its blocked subsidiaries in the Russian Federation.
• Capital expenditure at development projects of US$ 145 million in Russia mainly covered Amursk POX-2 to ensure project completion according to plan in 2H 2024, as well as mining fleet purchases, spare parts and consumables purchases at Veduga.
Stay-in-business capex at operating assets
• At Varvara, capital expenditure of US$ 36 million was mainly related to the construction of a tailings storage facility and upgrading the mining fleet.
• At Kyzyl, capital expenditure in 1H 2023 comprised US$ 12 million, mainly represented by scheduled technical upgrades.
• Across the Group’s Russian mines, capital expenditure of US$ 131 million was mostly related to infrastructure upgrades, regular mining fleet replacements and maintenance capital expenditure at processing facilities.
Exploration and stripping
• The Group continues to invest in standalone exploration projects. Capital expenditure for exploration in 1H 2023 was US$ 3 million (1H 2022: US$ 4 million).
• Capitalised stripping and underground development costs totalled US$ 31 million in 1H 2023 (1H 2022: US$ 74 million) and are attributable to operations, with 1H 2023 stripping ratios exceeding their life-of-mine averages during the period, particularly Kyzyl (US$ 13 million), Varvara (US$ 6 million) and Russian mines (US$ 12 million).
CASH FLOWS
(US$m) 1H 2023 1H 2022 Ñhange
Operating cash flows before changes in working capital 381 219 +74%
Changes in working capital (346) (624) -45%
Total operating cash flows 35 (405) n/a
Capital expenditure (375) (373) 0%
Net cash flow on acquisitions - 123 -100%
Investments in associates (3) - n/a
Other (1) (3) -67%
Investing cash flows (379) (253) +50%
Financing cash flows
Net changes in borrowings 127 859 -85%
Acquisition of non-controlling interest - (23) -100%
Repayments of principal under lease liabilities (12) (2) +500%
Contingent consideration paid - (13) -100%
Total financing cash flows 115 821 -86%
Net (decrease)/increase in cash and cash equivalents (229) 163 n/a
Cash and cash equivalents at the beginning of the period 633 417 +52%
Effect of foreign exchange rate changes on cash and cash equivalents (20) (39) -51%
Cash and cash equivalents at the end of the period 384 541 -29%
Total operating cash flows in 1H 2023 strengthened y-o-y. Operating cash flows before changes in working capital grew by 74% year-on-year to US$ 381 million, as a result of an increase in sales volumes and adjusted EBITDA. Net operating cash flows were US$ 35 million, compared to US$ 405 million outflow in 1H 2022, affected by a seasonal increase in working capital in 1H 2023 of US$ 346 million (1H 2022: US$ 624 million).
Total cash and cash equivalents decreased by 29% compared to 1H 2022 and comprised US$ 384 million, with the following items affecting the cash position of the Group:
• Operating cash flows of US$ 35 million;
• Investment cash outflows totaling US$ 379 million, up 50% year-on-year, mainly represented by capital expenditure (stable y-o-y at US$ 375 million) and investment in associates (US$ 3 million);
• The gross borrowings increase of US$ 127 million;
• Repayments of principal under lease liabilities of US$ 12 million.
The Group reported negative free cash flow1 of US$ 341 million (which is still a significant improvement over 1H 2022 negative FCF of US$ 630 million); that is made up of US$ 55 million inflow coming from Kazakhstan and US$ 396 million outflow attributable to Russian assets.
(US$m) 1H 2023 1H 2022 Ñhange
Free cash flow (341) (630) +46%
Kazakhstan 55 101 -45%
Russia (396) (731) +46%
Free cash flow attributable to Kazakhstan assets decreased by US$ 45 million, mainly affected by working capital build-up on the back of inventory accumulation which is gradually drawing down starting from July.
Free cash flow related to Russian assets is seasonally negative as usual, but lower than in 1H 2022, mostly driven by increase in operating cash flow as the sales channels have been re-adjusted.
BALANCE SHEET, LIQUIDITY AND FUNDING
NET DEBT 30-Jun-23 31-Dec-22 Change
Short-term debt and current portion of long-term debt 1,024 514 +99%
Long-term debt 1,950 2,512 -22%
Gross debt 2,974 3,026 -2%
Less: cash and cash equivalents 384 633 -39%
Net debt 2,590 2,393 +8%
Net debt / Adjusted EBITDA 2.25x 2.35x -3%
The Group’s net debt increased to US$ 2,590 million as of 30 June 2023, representing a Net debt/Adjusted EBITDA (over the last 12 months) ratio of 2.25x. The increase in net debt was driven by a seasonal and logistics-driven increase in working capital.
The proportion of long-term borrowings to total borrowings was 66% as at 30 June 2023 (83% as at 31 December 2022). As at 30 June 2023, the Group had US$ 0.5 billion (31 December 2022: US$ 0.35 billion) of available undrawn facilities, from a wide range of lenders that allows the Group to maintain its operational flexibility in the current environment. The Group has recently secured an additional US$ 0.3 billion in a new revolving credit line.
Gross debt remained largely unchanged at US$ 3 billion, of which 73% is denominated in hard currency. Cyprus and Kazakhstan represent 20% of the total debt outstanding, while Russia represents the remaining 80% of the debt.
The average cost of debt remained relatively low at 5.2% in 1H 2023 (1H 2022: 6.1%) supported by the Company’s ability to negotiate competitive margins given the Group’s excellent credit history. The Group is confident in its ability to repay its existing borrowings as they fall due.
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INVENTORY
Inventory levels marginally increased by US$ 10 million to US$ 1,199 million for the 1H 2023, following US$ 489 million drawn down in the 2H 2022 after US$ 802 million seasonal accumulation in 1H 2022 on the back of sales channels restructuring in Russia.
US$ 267 million of inventory balance relates to Kazakhstan, and US$ 933 million of inventory comes from Russia.
While Kyzyl was impacted by logistical disruptions in 1H 2023, shipping delays have since been addressed, shipments were resumed in July, and gold produced in Kazakhstan is being shipped and sold on a regular basis. The build-up from 1H 2023 is expected to unwind by the end of the year.
(US$m) 30 June 2023 Change 1H 2023 31 Dec 2022 Change 2H 2022 30 June 2022 Change
1H 2022 31 Dec 2021
Kazakhstan 267 +76 191 -13 204 +31 173
Ñopper, gold and silver concentrate 59 +20 39 -3 42 +14 28
Ore stock piles 86 +14 71 +6 66 +3 63
Dore, work in-process, metal for refining and refined metals 54 +26 29 -18 47 +6 41
Non-metal inventories 68 +16 51 +2 49 +8 41
Russia 933 -66 999 -476 1,475 +770 704
Ñopper, gold and silver concentrate 252 -6 258 -125 383 +229 154
Ore stock piles 192 -55 247 -128 375 +146 229
Dore, work in-process, metal for refining and refined metals 167 +7 160 -146 306 +197 109
Non-metal inventories 323 -12 335 -77 412 +199 213
Total inventory 1,199 +10 1,189 -489 1,679 +802 877
Payable metals in inventory accumulated at 30 June 2023 were as follows:
(GE Koz) Kazakhstan Russia Total Group
Concentrate and precipitate 81 297 377
Bullions - 165 165
Dore 10 23 32
Total payable metals 90 484 574
2023 YEAR-END OUTLOOK
Polymetal maintains a positive outlook for the second half of the year, both in terms of earnings and free cash flow, with the following factors expected to drive the operating and financial performance towards the year-end:
• The Company remains on track to meet its FY2023 production guidance of 1.7 Moz of gold equivalent at TCC of US$ 950-1,000/GE oz and AISC of US$ 1,300-1,400/GE oz.
• The cost guidance remains contingent on the RUB/USD and KZT/USD exchange rates that have a significant effect on the Group’s local currency-denominated operating costs.
• Free cash flow generation will be significantly stronger in the second half of the year, driven by higher production and working capital drawdown.
PRINCIPAL RISKS AND UNCERTAINTIES
There are a number of potential risks and uncertainties which could have a material impact on the Group’s performance and could cause actual results to differ materially from expected and historical results.
The principal risks and uncertainties facing the Group are categorised as follows:
• Operational risks:
– Production risk
– Construction and development risk
– Supply chain risk
– Exploration risk
• Sustainability risks:
– Health and safety risk
– Environmental risk
– Human capital risk
• Political and social risks:
– Legal and compliance risk
– Political risk
– Taxation risk
• Financial risks:
– Market risk
– Currency risk
– Liquidity risk
A detailed explanation of these risks and uncertainties can be found on pages 100 to 109 of the 2022 annual report which is available at www.polymetalinternational.com.
The directors consider that these principal risks and uncertainties have not changed materially since the publication of the annual report for the year ended 31 December 2022 and continue to apply to the Group for the remaining six months of the financial year.
Further updates will be presented in the full annual financial report for 2023.
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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 the 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 the 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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DIRECTORS’ RESPONSIBILITY STATEMENT
Directors are responsible for the preparation of the condensed consolidated financial statements of Polymetal International plc (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 30 June 2023, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the six months ended 30 June 2023, in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting.
In preparing the condensed consolidated financial statements, directors are responsible for:
• properly selecting and applying accounting policies;
• presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group’s consolidated financial position and financial performance; and
• making an assessment of the Group’s ability to continue as a going concern.
Directors also are responsible for:
• designing, implementing and maintaining an effective and sound system of internal controls throughout the Group;
• maintaining adequate accounting records that are sufficient to show and explain the Group’s transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the condensed consolidated financial statements of the Group comply with IAS 34;
• taking such steps as are reasonably available to them to safeguard the assets of the Group; and
• preventing and detecting fraud and other irregularities.
These condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 22 September 2023 and signed on its behalf by
Evgueni Konovalenko
Senior Independent Non-Executive Director
Vitaly Nesis
Group Chief Executive Officer
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REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders and the Board of Directors of Polymetal International plc:
Introduction
We have reviewed the accompanying condensed consolidated statement of financial position of Polymetal International plc and its subsidiaries (the “Group”) as of 30 June 2023 and the related condensed consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the six months then ended, and selected explanatory notes. Management is responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting.
Natalia Golovkina
Audit partner
AO “Business Solutions and Technologies”
(ORNZ ¹ 12006020384)
22 September 2023
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CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended Six months ended
Note 30 June 2023 30 June 2022
(unaudited) (unaudited)
US$m US$m
Revenue 3 1,315 1,048
Cost of sales 4 (701) (520)
Gross profit 614 528
General, administrative and selling expenses 8 (148) (150)
Other operating expenses, net 9 (48) (69)
Impairment of non-current assets (12) (689)
Operating profit/(loss) 406 (380)
Foreign exchange (loss)/gain, net (105) 92
Change in fair value of financial instruments 17 (5) (22)
Finance expenses 10 (69) (41)
Finance income 8 3
Profit/(loss) before income tax 235 (348)
Income tax 11 (45) 27
Profit/(loss) for the period 190 (321)
Profit/(loss) for the financial period attributable to:
Equity shareholders of the Parent 190 (321)
190 (321)
Earnings/(loss) per share (US$)
Basic 12 0.40 (0.68)
Diluted 12 0.40 (0.68)
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CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Six months ended
Note 30 June 2023
(unaudited) 30 June 2022
(unaudited)
US$m US$m
Profit/(loss) for the period 190 (321)
Other comprehensive (loss)/income, net of income tax (499) 1,404
Items that may be reclassified to profit or loss
Fair value (loss)/gain arising on hedging instruments 17 (4) 12
Exchange differences on translating foreign operations (545) 1,540
Currency exchange differences on intercompany loans forming net investment in foreign operations 50 (148)
Total comprehensive (loss)/income for the period (309) 1,083
Total comprehensive (loss)/gain for the period attributable to:
Equity shareholders of the Parent (309) 1,083
(309) 1,083