Polus — Annual Report 2020

Feb 26, 2021

PJSC “Polyus” Consolidated financial statements for the year ended 31 December 2020

PJSC “POLYUS” CONSOLIDATED STATEMENT OF PROFIT OR LOSS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

	Year ended 31 December	Notes	2020	2019
Gold sales		5	4,956	3,965
Other sales			42	40
Total revenue			4,998	4,005
Cost of gold sales		6	(1,389)	(1,405)
Cost of other sales			(34)	(33)
Gross profit			3,575	2,567
Selling, general and administrative expenses		7	(336)	(295)
Other expenses, net		8	(173)	(55)
Operating profit			3,066	2,217
Finance costs, net		9	(232)	(254)
Interest income			22	48
(Loss) / gain on revaluation of derivative financial instruments, net		10	(544)	93
Foreign exchange (loss) / gain, net			(250)	273
Profit before income tax			2,062	2,377
Income tax expense		11	(416)	(433)
Profit for the year			1,646	1,944
Profit for the year attributable to:
Shareholders of the Company			1,598	1,931
Non-controlling interests			48	13
			1,646	1,944
Weighted average number of ordinary shares ’000
- for basic earnings per share		20	134,360	133,017
- for dilutive earnings per share		20	134,894	133,317
Earnings per share (US Dollar per share)
- basic			11.89	14.52
- dilutive			11.85	14.48

PJSC “POLYUS” CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

	Year ended 31 December	2020	2019
Profit for the year		1,646	1,944
Other comprehensive (loss) / income for the year
Items that may be subsequently reclassified to profit or loss:
Effect of translation to presentation currency		(321)	105
Other comprehensive (loss) / income for the year		(321)	105
Total comprehensive income for the year		1,325	2,049
Total comprehensive income for the year attributable to:
Shareholders of the Company		1,296	2,025
Non-controlling interests		29	24
		1,325	2,049

PJSC “POLYUS” CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2020 (in millions of US Dollars)

	31 December	Notes	2020	2019
Assets
Non-current assets
Intangible assets		12	132	123
Property, plant and equipment		13	4,121	4,680
Inventories		15	519	431
Deferred tax assets		25	109	134
Derivative financial instruments		16	17	98
Other receivables		25	30
Other non-current assets			3	6
			4,926	5,502
Current assets
Inventories		15	595	659
Deferred expenditure		17	17
Derivative financial instruments		16	-	1
Advances paid to suppliers and prepaid expenses			29	26
Trade and other receivables		17	133	197
Taxes receivable		18	120	111
Income tax prepaid		30	13
Cash and cash equivalents		19	1,445	1,801
			2,369	2,825
Total assets			7,295	8,327
Equity and liabilities
Capital and reserves
Share capital		20	5	5
Additional paid-in capital		20	2,410	2,049
Treasury shares		20	(288)	(103)
Translation reserve			(3,044)	(2,727)
Retained earnings			3,272	2,586
Equity attributable to shareholders of the Company			2,355	1,810
Non-controlling interests			91	103
Total equity			2,446	1,913
Non-current liabilities
Borrowings		21	3,329	4,382
Derivative financial instruments		16	330	130
Deferred tax liabilities		25	259	308
Site restoration, decommissioning and environmental obligations			63	64
Other non-current liabilities			57	32
Deferred revenue		22	-	126
Deferred consideration		23	-	119
			4,038	5,161
Current liabilities
Borrowings		21	225	704
Derivative financial instruments		16	42	7
Trade and other payables		24	399	355
Taxes payable		26	101	81
Income tax payable			44	49
Deferred consideration		23	-	57
			811	1,253
Total liabilities			4,849	6,414
Total equity and liabilities			7,295	8,327

PJSC “POLYUS” CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

	Equity attributable to shareholders of the Company	Notes	Number of outstanding shares ’000	Share capital	Additional paid-in capital	Treasury shares	Translation reserve	Retained earnings	Total	Non-controlling interests	Total
Balance at 31 December 2018			132,339	5	1,949	(67)	(2,824)	1,300	363	87	450
Profit for the year			-	-	-	-	-	1,931	1,931	13	1,944
Other comprehensive income			-	-	-	-	94	-	94	11	105
Total comprehensive income			-	-	-	-	94	1,931	2,025	24	2,049
Equity-settled share-based compensation (LTIP), net of tax			-	-	29	-	-	-	29	-	29
Shares awarded under LTIP			487	-	(18)	27	(12)	(3)	-	-	(3)
Issue and buy-back of treasury shares			-	-	83	(83)	-	-	-	-	-
Purchase of additional ownership in SL Gold (payable in treasury shares)			370	-	6	20	3	-	29	-	29
Dividends declared to shareholders of non-controlling interests			-	-	-	-	-	-	-	(8)	(8)
Dividends declared to shareholders of the Company			-	-	-	-	-	(633)	(633)	-	(633)
Balance at 31 December 2019			133,196	5	2,049	(103)	(2,727)	2,586	1,810	103	1,913
Profit for the year			-	-	-	-	-	1,598	1,598	48	1,646
Other comprehensive loss			-	-	-	-	(302)	-	(302)	(19)	(321)
Total comprehensive income / (loss)			-	-	-	-	(302)	1,598	1,296	29	1,325
Equity-settled share-based compensation (LTIP), net of tax		20	-	-	45	-	-	-	45	-	45
Shares awarded under LTIP		20	370	-	(13)	36	(5)	(24)	(6)	-	(6)
Execution of conversion option by bondholders		21	449	-	317	43	(3)	-	357	-	357
Issue of treasury shares to a subsidiary		20	-	-	436	(436)	-	-	-	-	-
Settlement of share loan		20	1,808	-	(429)	436	(7)	-	-	-	-
Purchase of additional ownership in SL Gold		23	246	-	5	24	-	6	35	(6)	29
Increase of ownership in subsidiaries		32	5	-	-	1	(13)	(12)	(24)	(36)	(36)
Share buyback		20	(1,361)	-	-	(287)	-	(14)	(301)	-	(301)
Dividends declared to shareholders of non-controlling interests			-	-	-	-	-	-	-	(11)	(11)
Dividends declared to shareholders of the Company		20	-	-	-	-	-	(860)	(860)	-	(860)
Other			(8)	-	(2)	-	(7)	(9)	-	-	(9)
Balance at 31 December 2020			134,705	5	2,410	(288)	(3,044)	3,272	2,355	91	2,446

PJSC “POLYUS” CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

	Year ended 31 December	Notes	2020	2019
Operating activities
Profit before income tax			2,062	2,377
Adjustments for:
Finance costs, net		9	232	254
Interest income			(22)	(48)
Loss / (gain) on revaluation of derivative financial instruments, net		10	544	(93)
Depreciation and amortisation		349	367
Foreign exchange loss / (gain), net		250	(273)
Other		93	76
			3,508	2,660
Movements in working capital
Inventories		(122)	(151)
Deferred expenditure		(4)	(1)
Trade and other receivables		7	(82)
Advances paid to suppliers and prepaid expenses		(11)	4
Taxes receivable		(29)	(9)
Trade and other payables and accrued expenses		43	4
Taxes payable		69	2
Cash flows from operations			3,461	2,424
Income tax paid		(415)	(250)
Net cash generated from operating activities			3,046	2,174
Investing activities
Purchase of property, plant and equipment (excluding purchase of additional ownership in LLC SL Gold and construction of the Omchak high-voltage power grid)		(776)	(769)
Purchase of additional ownership in LLC SL Gold		23	(156)	(28)
Payments for the
Refund of unutilised part of government grant 22 (14)
Interest received 23 48
Other 29 27

Net cash utilised in investing activities (918) (748)

Financing activities
Proceeds from borrowings 112 1,300
Repayment of borrowings (1,144) (405)
Interest paid (237) (272)
Commissions on borrowings paid (4) (6)
Payments on initial exchange of principal amounts under cross currency swaps - (28)
Payments on expiration of cross-currency swaps - (472)
Repayments of lease liability (15) (15)
Net proceeds on exchange of interest payments under cross currency swaps 9 30 42
Net proceeds on exchange of interest payments under interest rate swaps 9 (2) 2
Payments for close out of revenue stabilizer programme 16 (32) (30)
Increase of ownership in subsidiaries 32 (12) -
Payment for share buyback 20 (268) -
Dividends paid to shareholders of the Company 20 (844) (638)
Dividends paid to shareholders of non-controlling interests (11) (9)
Other (9) -

Net cash utilised in financing activities (2,436) (531)

Net (decrease) / increase in cash and cash equivalents (308) 895
Cash and cash equivalents at the beginning of the year 19 1,801 896
Effect of foreign exchange rate changes on cash and cash equivalents (48) 10
Cash and cash equivalents at the end of the year 19 1,445 1,801

Significant non-cash transactions relating to investing (right-of-use assets recognition, LTIP and deferred consideration payments in treasury shares) and financing activities (lease liabilities recognition) are disclosed in the notes 14, 20 and 23 to these consolidated / condensed consolidated interim statement financial statements, respectively.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

(in millions of US Dollars)

7 1. GENERAL

Public Joint Stock Company Polyus (the “Company” or “Polyus”) was incorporated in Moscow, Russian Federation, on 17 March 2006. The principal activities of the Company and its controlled entities (the “group”) are the extraction, refining and sale of gold. The mining and processing facilities of the group are located in the Krasnoyarsk, Irkutsk, Magadan regions and the Sakha Republic of the Russian Federation. The group also performs research and exploration works. Further details regarding the nature of the business of the significant subsidiaries of the group are presented in note 32.

The shares of the Company are “level one” listed on the Moscow Exchange. Global depository shares (“GDSs”) each representing interest in ½ of ordinary share in the Company are traded on the main market for listed securities of the London Stock Exchange plc (“LSE”).

The controlling shareholder of the Company is Polyus Gold International Limited (“PGIL”), a company registered in Jersey. The most senior parent of the Company is Wandle Holdings Limited, а company registered in Cyprus. As of 31 December 2020 and 2019, the ultimate controlling party of the Company was Mr. Said Kerimov.

2. BASIS OF PREPARATION AND PRESENTATION

2.1. Going concern

In assessing the appropriateness of the going concern assumption, the Directors have taken account of the group’s financial position, expected future trading performance, its borrowings, available credit facilities and its capital expenditure commitments, expectations of the future gold price, currency exchange rates and other risks facing the group. After making appropriate enquiries, the Directors consider that the group has adequate resources to continue in operational existence for at least the next 12 months from the date of signing these consolidated financial statements and that it is appropriate to adopt the going concern basis in preparing these consolidated financial statements.

2.2. Compliance with the International Financial Reporting Standards

The consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS include the standards and interpretations approved by the IASB including IFRS, International Accounting Standards (“IAS”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”).

2.3. Basis of presentation

The entities of the group maintain their accounting records in accordance with the laws, accounting and reporting regulations of the jurisdiction in which they are incorporated and registered. The accounting principles and financial reporting procedures in these jurisdictions may differ substantially from those generally accepted under IFRS. Accordingly, such financial information has been adjusted to ensure that the consolidated financial statements are presented in accordance with IFRS.

The consolidated financial statements of the group are prepared on the historical cost basis, except for derivative financial instruments and certain trade receivables, which are accounted for at fair value, as explained in the accounting policies below.

2.4. IFRS standards first time applied in 2020

The following is a list of new or amended IFRS standards and interpretations that have been applied by the group in these consolidated financial statements:

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

(in millions of US Dollars)

Title	Subject	Effective for annual periods beginning on or after	Effect on the consolidated financial statements
Amendment IFRS 3	Business combinations	1 January 2020	No effect
Amendments IAS 1 and IAS 8	Definition of material	1 January 2020	No effect
Amendments to References to the Conceptual Framework in IFRS Standards	Updates of references to or from the Conceptual Frameworks to the IFRS standards	1 January 2020	No effect
Interest Rate Benchmark Reform phase 1 (Amendments to IFRS 9, IAS 39 and IFRS 7)	Identification of interest rate in hedge accounting	1 January 2020	No effect
Amendment to IFRS 16	Covid-19-related rent concessions	1 June 2020	No effect

2.5. IFRS standards to be applied after 2020

The following standards and interpretations, which have not been applied in these consolidated financial statements, were in issue but not yet effective:

Title	Subject	Effective for annual periods beginning on or after	Expected effect on the consolidated financial statements
Interest Rate Benchmark Reform phase 2 (Amendments to IFRS 9, IAS 39 and IFRS 7)	Replacement of LIBOR with alternative Risk-free Rates	1 January 2021	No effect
Amendment IFRS 3	Updates of references to or from the Conceptual Frameworks to the IFRS standards	1 January 2022	Under review
Amendment IAS 16	Proceeds before Intended Use	1 January 2022	Under review
Amendment IFRS 1	Subsidiary as a first-time adopter	1 January 2022	No effect
Amendment IAS 41	Taxation in fair value measurements	1 January 2022	No effect
Amendment IAS 37	Onerous Contracts—Cost of Fulfilling a Contract	1 January 2022	No effect
Amendment IFRS 9	Fees in the ‘10 per cent’ test for derecognition of financial liabilities	1 January 2022	No effect
IFRS 17	Insurance contracts	1 January 2023	No effect
Amendments to IFRS 17	Insurance contracts	1 January 2023	No effect
Amendment IAS 1	Classification of Liabilities as Current or Non-Current	1 January 2023	No effect

3. SIGNIFICANT ACCOUNTING POLICIES

3.1. Basis of consolidation

Subsidiaries

The consolidated financial statements of the group incorporate the financial statements of the Company and all its subsidiaries, from the date that control effectively commenced until the date that control effectively ceased. Control is achieved where the Company has the power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control defined above. Subsidiaries are included in the consolidated financial results of the Company from the effective date of acquisition up to the effective date of loss of control.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020

(in millions of US Dollars)

For non-wholly owned, controlled subsidiaries, the net assets attributable to outside equity shareholders are presented as non-controlling interests in the equity section of the consolidated statement of financial position. The non-controlling interest may initially be measured either at fair value or at the non-controlling interest’s proportionate share of the fair value of the subsidiary’s identifiable net assets. The choice of measurement basis is made on an acquisition-by-acquisition basis. All intra-group balances, transactions and any unrealised profits or losses arising from intra-group transactions are eliminated on consolidation.

Functional currency

The functional currency of the Company and all the subsidiaries of the group is the Russian Rouble (“RUB”).

3.2. Presentation currency

The group presents its consolidated financial statements in the US Dollar (“USD”), as management believes it is a more convenient presentation currency for international users of the consolidated financial statements of the group as it is a common presentation currency in the mining industry.# PJSC “POLYUS” NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

3.3. Foreign currencies

The translation of the financial statements of the group entities from their functional currencies to the presentation currency is performed as follows:
● All assets and liabilities are translated at closing exchange rates at each reporting date;
● All income and expenses are translated at the monthly average exchange rates, except for revenue and significant transactions that are translated at rates on the date of such transactions;
● Resulting exchange differences are included in the Translation reserve in equity (on disposal of such entities this Translation reserve is reclassified into the consolidated statement of profit or loss); and
● In the consolidated statement of cash flows, cash balances at the beginning and end of each reporting period presented are translated at exchange rates at the respective dates. All cash flows are translated at the monthly average exchange rates, except for significant transactions that are translated at rates on the date of such transactions.

As of 31 December 2020, year-end RUB/ US Dollar exchange rate used in the preparation of the consolidated financial statements was 73.88 (31 December 2019: 61.91).

Transactions not denominated in RUB (functional currency of the Company and all the subsidiaries of the group) are recorded at the exchange rate prevailing on the date of the transactions. All monetary assets and liabilities not denominated in RUB are translated at the exchange rates prevailing at the reporting date. Non-monetary items carried at historical cost are translated at the exchange rate prevailing on the date of the transaction.

3.4. Revenue

The group entity recognises revenue when or as a performance obligation is satisfied, i.e. when control of the goods or services underlying the particular performance obligation is transferred to the customer.

Refined gold sales

The group recognises revenue from refined gold sales upon physical shipment of gold from refinery plant to customers, which are major Russian banks. Gold price is based on prevailing spot market metal prices. Cash payments are received in advance or within several days after sale.

Gold-antimony and gold flotation concentrates sales

The group has a number of sales contracts for gold flotation concentrates, which contain provisional pricing terms depending on quantity and price. Revenue from sales of gold flotation concentrates is recognised upon shipments from the railroad stations, seaports or group’s warehouses depending on the date of passing the title as per contracts with customers. Revenue from sales of gold within gold flotation concentrates is recognised in Gold in flotation concentrate sales within Gold sales. The net income from sale of antimony contained in the gold- antimony flotation concentrate is treated as by-product sales and recognised as a decrease to cost of gold sales. Cash payments are received within several months after the shipment when customers have processed the concentrates and extracted gold and antimony. The adjustment to the quantity of gold in gold flotation concentrates delivered is treated as a variable consideration, thus completely recognised in Gold in flotation concentrate sales within Gold sales. The adjustment to the gold price depends on gold market prices, therefore represents a sales contract with an embedded derivative. The embedded derivative relates to the trade receivables and fails the “solely payments of principal and interest” test under IFRS 9, thus such trade receivables are recognised and measured at fair value through profit or loss (FVTPL). The revaluation result is presented within (Loss) / gain on revaluation of derivative financial instruments, net.

Other revenue

Other revenue comprises mainly sales of electricity and materials and supplies. Revenue from sales is recognised when a contract exists, delivery has taken place, a quantifiable price has been established or can be determined and the receivables are likely to be recovered. Delivery takes place when the risks and benefits associated with ownership are transferred to the buyer.

3.5. Income tax

The income tax expense or benefit for the period consists of two components: current and deferred. Income tax expense is recognised in the consolidated statement of profit or loss except to the extent it relates to a business combination or items recognised directly in the consolidated statement of changes in equity (the group does not have any significant amounts of income tax recognised directly in the consolidated statement of changes in equity).

Current tax

Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the group operates and generates taxable income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements of the separate legal entities and the corresponding tax bases used in the computation of taxable profit and are accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are not recognised for taxable temporary differences associated with investments in subsidiaries because the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set-off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the group intends to settle its current tax assets and liabilities on a net basis.

3.6. Dividends

Dividends and related taxation thereon are recognised as a liability in the period in which they have been declared and become legally payable. Retained earnings legally distributable by the Company are based on the amounts available for distribution in accordance with the applicable legislation and as reflected in the statutory financial statements of the individual subsidiaries of the group. These amounts may differ significantly from the amounts calculated on the basis of IFRS.

3.7. Intangible assets

Intangible assets are carried at cost less accumulated amortisation and impairment losses. Intangible assets with a finite useful life are amortised on a straight-line basis over the estimated economic useful life of the asset. The amortisation of such intangible assets is included in Cost of sales or Selling, general and administrative expenses based on whether intangible asset is used in operating activities or not. Intangible assets with an infinite useful life are not amortised. The remaining useful lives of the group’s intangible assets are from 1 to 15 years. The group applies IAS 36 Impairment of Assets to determine whether an intangible asset is impaired and accounts for any identified impairment loss when incurred.

3.8. Property, plant and equipment

Fixed assets

Fixed assets are recorded at cost less accumulated depreciation. Fixed assets include the cost of acquiring and developing mining properties, pre-production expenditure and mine infrastructure, processing plant, mineral rights and mining and exploration licences and the present value of future mine closure, rehabilitation and decommissioning costs. Fixed assets are amortised on a straight-line basis over the estimated economic useful life of the asset, or the remaining life-of-mine in accordance with the mine operating plans (MOPs), whichever is shorter. Depreciation is charged from the date a new mine reaches commercial production quantities and is included in the Cost of sales, Selling, general and administrative expenses or Stripping activity assets accordingly.The estimated remaining useful lives of the group’s significant mines and processing facilities based on the MOPs are as follows: PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 12

Mine	Years
Olimpiada	10
Blagodatnoye	15
Verninskoye	17
Kuranakh	17
Natalka	22

Stripping activity asset

The group incurs stripping costs during the production phases of its surface mining operations. The group identifies separate components towards which the stripping costs are incurred for the ore bodies in each of its mines. An identifiable component is a specific volume of the ore body that is made more accessible by the stripping activity. For the purposes of identification of separate components the group uses MOPs. Each discrete stage of mining identified in a MOP is considered as a unit of account. If the MOP identifies several discrete stages which are scheduled to be mined consecutively (one after the another) or located in the different parts of the mine, these stages are identified as components. The group uses an allocation basis that compares volume of waste extracted with expected volume, for a given volume of ore production in the period for the identified component of the ore body to determine if stripping costs are to be allocated to stripping activity asset or the cost of inventory. The stripping activity asset is initially measured at cost, which is the accumulation of costs directly incurred to perform the stripping activity that improves access to the identified component of the ore body, plus an allocation of directly attributable overhead costs. After initial recognition the stripping activity asset is carried at cost less depreciation using unit-of production method based on ore extracted and any impairment losses.

Capital construction in progress

Assets under construction at operating mines are accounted for as capital construction in progress. When the capital construction in progress is completed and in a condition necessary to be capable of operating in the manner intended by management, the objects are reclassified to fixed assets. Capital construction in progress is not depreciated.

Exploration and evaluation assets

Exploration and evaluation expenditure is capitalised when the exploration and evaluation activities have not reached a stage that permits a reasonable assessment of the existence of commercially recoverable gold resources. When the technical feasibility and commercial viability of extracting a gold resource are demonstrable and a decision has been made to develop the mine, capitalised exploration and evaluation assets are reclassified to Mine under development or Fixed assets.

3.9. Impairment of long-lived tangible assets

Long-lived tangible assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets, which is generally at the individual mine level. An impairment review of long-lived tangible assets is carried out when there is an indication that those assets have suffered an impairment loss. There were no such indicators during 2020 and 2019.

Exploration and evaluation assets are assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. The following facts and circumstances, among others, indicate that exploration and evaluation assets must be tested for impairment:

• The term of the exploration licence in the specific area has expired during the reporting period or will expire in the near future, and is not expected to be renewed;
• Substantive expenditure on further exploration for and evaluation of gold resources in the specific area is neither budgeted nor planned;
• Exploration for and evaluation of gold resources in the specific area have not led to the discovery of commercially viable quantities of gold resources and the decision was made to discontinue such activities in the specific area; and
• Sufficient data exists to indicate that, although a development in the specific area is likely to occur, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 13

3.10. Leases

The group assesses all contracts whether they contain leases and recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee except for short-term leases and leases of low value assets. The lease liability is initially measured at the present value of the lease payments discounted by using the rate implicit in the lease or incremental borrowing rate. The lease liability is subsequently measured at amortised cost using the effective interest method and presented within Borrowings in the consolidated statement of financial position.

The group excludes the following lease agreements from the measurement of lease liabilities and accounts lease payments associated with those leases as an expense:

• With variable lease payments that do not depend on index or a rate; and
• Those to explore for or use minerals and similar non - regenerative resources.

The right-of-use assets comprise the initial measurement of the corresponding lease liability. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right-of-use assets are depreciated on a straight-line basis over the shorter period of lease term and useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The right-of-use assets are presented within Property, Plant and Equipment in the consolidated statement of financial position. The group applies IAS 36 to determine whether a right-of-use asset is impaired and accounts for any identified impairment loss when incurred.

3.11. Financial instruments

Financial assets and financial liabilities are initially recognised at fair value when the group becomes a party to the contractual provisions of the instruments. The group subsequently measures its financial instruments as follows:

• Trade receivables for gold flotation concentrates, derivatives – at FVTPL with effect of fair value change presented within note 10;
• Borrowings, cash and cash equivalents, trade and receivables (except for those at FVTPL), deferred consideration, trade and other payables – at amortised cost using the effective interest method.

The group neither applies hedge accounting nor has any financial instruments measured at fair value through other comprehensive income.

Trade receivables for gold flotation concentrates

Accounting of trade receivables for gold flotation concentrates is disclosed in 3.4 Revenue.

Derivatives

The group enters into a variety of derivative financial instruments to manage its exposure to interest rate, foreign exchange rate risk and risk of volatility in the gold price.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 14

Derivatives are carried at fair value through profit or loss. Changes in the fair value of the derivative financial instruments are recognised within (Loss) / gain on revaluation of derivative financial instruments, net of the consolidated statement of profit or loss. Gain or loss on the exchange of interest payments under cross-currency and interest rate swaps are recognised within Finance cost, net.

Convertible bonds contained both a derivative ( conversion option on convertible bonds ) and a non- derivative ( convertible bond ) component. As the economic characteristics and risks of the embedded derivative were not closely related to those of the host contract, the hybrid contract itself was not carried at FVTPL. The Convertible bonds were accounted at amortised cost using the effective interest method, while the Conversion option on convertible bonds was accounted at FVTPL.

Borrowings

Borrowings (consisting of bonds issued, bank loans and lease liabilities) are initially recognised at fair value adjusted for directly attributable transaction costs and are subsequently accounted at amortised cost using the effective interest method. Amortisation under the effective interest method (interest expense) and gains or losses on de- recognition or debt modification are recognised as profit or loss in the consolidated statement of income within Finance costs, net.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, cash deposits and highly liquid investments which are:

• Readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value; or
• With original maturities of three months or less.

Impairment of financial assets

Cash and cash equivalents and non-current receivables that are determined to have a low credit risk at the reporting date and for which credit risk has not increased significantly since initial recognition, are measured based on 12-month expected credit loss (ECL). Lifetime ECL’s are recognised in respect of current receivables. The expected credit losses on these financial assets are estimated at each reporting date based on the group’s historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate.Fair value Accounting standards require that the fair value of financial instruments reflects their credit quality, and also changes in credit quality where there is evidence that this has occurred. The credit risk associated with the group’s derivative financial instruments is reflected in its derivative valuations. This credit factor is adjusted over time to reflect the reducing tenor of the instrument and is updated where the credit risk associated with the derivative has clearly changed based on market transactions and prices.

PJSC “POLYUS”
NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

15

3.12. Inventories

Refined gold, ore stockpiles and gold-in-process
Stockpiles are valued at a lower of the average production costs per unit of ore mined and net realisable value. Gold-in-process, refined gold and gold in flotation concentrate are valued at a lower of the average production costs per recoverable gold and net realisable value. Costs are assigned to individual items of inventory on a weighted average cost basis. Net realisable value of long-term stockpiles is estimated in real terms by calculating the selling price less all costs still to be incurred in converting the relevant inventory to saleable product, and delivering it to the customer, subject to an applicable discount factor. The selling price is estimated on long-term consensus gold price forecasts, multiplied on long-term consensus exchange-rate forecasts, gold content determined under group’s production reports and recovery coefficients expected for a given ore type. Costs still to be incurred in converting the stockpile to refined gold are determined based on historical processing costs. Timing for discounting is determined based on management plans to process each type of ore or the life of the mine.

Materials and supplies
Materials and supplies consist of consumable materials and are stated at the lower of cost or net realisable value. Costs of materials and supplies are determined on a weighted average cost basis.

Silver and antimony in gold-antimony flotation concentrate
Silver and a gold-antimony flotation concentrate are by-products of the group’s gold production, which are valued at their net realisable value.

3.13. Deferred expenditure

Deferred expenditure relates to the preparation for the seasonal alluvial mining activities comprised of excavation costs, general production and specific production overhead costs and releases in the statement of profit or loss when the gold is extracted during the mining season.

3.14. Government grants

Government grants are not recognised until there is reasonable assurance that the grants will be received and the group will comply with the conditions attached to them. Government grants whose primary condition is that the group should purchase, construct or otherwise acquire property, plant and equipment are recognised as deferred revenue in the consolidated statement of financial position and amortised to profit or loss on a systematic and rational basis over the useful lives of property, plant and equipment to which it relates. Amortisation of deferred revenue starts at the moment when items of property, plant and equipment are put into operation and is presented as a deduction of depreciation and amortisation charge in the statement of profit or loss.

3.15. Share-based payments

Equity-settled share-based payments to employees and others providing similar services are measured at the fair value of the equity instruments at the grant date and subsequently expensed on a straight-line basis over the vesting period, with a corresponding increase in equity. At the end of each reporting period, the group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the equity.

PJSC “POLYUS”
NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

16

4. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

Preparation of the consolidated financial statements in accordance with IFRS requires the group’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. The determination of estimates requires judgements which are based on historical experience, current and expected economic conditions, and all other available information. Actual results could differ from those estimates.

4.1. Critical judgements in applying accounting policies

The following critical judgements have been applied when selecting the appropriate accounting policies:

4.1.1. Determination of functional currency

The functional currency of each of the group’s consolidated entities is the currency of the primary economic environment in which the entity operates. In accordance with IAS 21 the group has analysed several factors that influence the choice of functional currency and, based on this analysis, has determined that the functional currency for each consolidated entity of the group is Russian Rouble.

4.2. Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

• Mine operating plans;
• Recoverability of the exploration and evaluation assets;
• Impairment of long-lived assets;
• Net realisable value of long-term stockpiles;
• Derivative financial instruments valuation; and
• Interpretation of tax legislation and recoverability of deferred tax assets.

4.2.1. Mine operating plans

The group estimates ore, stripping volumes and grades for MOPs based on the data that accounts for Joint Ore Reserves Committee Code (JORC) principles, where applicable, and considering national regulations. The MOPs are prepared based on geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, commodity prices and exchange rates. This process requires complex and difficult geological judgements and analysis to interpret the data. The MOPs are usually updated annually to account for the newly obtained information including, but not limited to, resource definition drilling. MOPs are the best estimates of the group about the expected volume and timing of extraction and processing of the reserves and resources from the group’s mines. MOPs are used for the planning and actual extraction of ore from the mines and affect the following amounts in the financial statements:

• Depreciation and amortisation expense, when an asset is amortised based on the units-of-production or straight-line basis (if life-of-mine is shorter than the useful economic life of the asset);
• Allocation of overburden removal (stripping) costs either to stripping activity asset or the cost of inventory, depending on proportion of ore and waste as per MOPs and actual performance in the reporting period;
• Asset retirement obligations due to expectations about the timing or cost of these activities; and
• Carrying value of deferred tax assets which depends on ability of the group to realise the related tax benefits and is impacted by the expected results of mine operation and their timing.

PJSC “POLYUS”
NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT
FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

17

4.2.2. Recoverability of exploration and evaluation assets

Management’s judgement is involved in the determination of whether the expenditures which are capitalised as exploration and evaluation assets may be recouped by future exploitation or sale or should be impaired. Determining this, management estimates the possibility of finding recoverable ore reserves related to a particular area of interest. However, these estimates are subject to significant uncertainties. The group is involved in exploration and evaluation activities and some of its licensed properties contain gold resources. Management assumes that all licences will be renewed. Many of the factors, assumptions and variables involved in estimating resources are beyond the group’s control and may prove to be incorrect over time. Subsequent changes in gold resources estimates could impact the carrying value of exploration and evaluation assets.

4.2.3. Impairment of long-lived assets

The group reviews the carrying amounts of its long-lived assets to determine whether there is any indication that those assets are impaired. In making the assessment for impairment indicators, assets that do not generate independent cash flows are allocated to an appropriate cash-generating unit. Management necessarily applies its judgement in allocating assets that do not generate independent cash flows to appropriate cash-generating units and also in estimating the timing and value of underlying cash flows within the value-in-use calculation. The value-in-use calculations for operating mines are based on the best available reserve estimates at the time of the analysis such as JORC. Factors which could impact the underlying cash flows include:

• Commodity prices and exchange rates;
• Timelines of granting of licences and permits;
• Capital and operating expenditure; and
• Available reserves and resources and future production profile.Subsequent changes to the cash-generating unit allocation or to the timing of cash flows could impact the carrying value of the respective assets.

4.2.4. Net realisable value of long-term stockpiles

The measurement of long-term stockpiles includes the determination of its net realisable value, which involves significant estimates in future gold prices, Russian Rouble exchange rates, gold recoveries, future energy, material and other processing costs, timing of refined gold sales and processing and determination of discount rates. Judgment also exists in estimating the number of contained ounces in ore stockpiles. These amounts are measured by estimating the number of gold ounces added (based on assay data) and removed (based on processing data) from the stockpile. Although the quantities of recoverable gold placed on the stockpiles are reconciled to the quantities of gold actually recovered (metallurgical balancing), the nature of the process inherently limits the ability to precisely monitor recoverability levels.

4.2.5. Derivative financial instruments valuation

Derivative instruments are carried at fair value and the group evaluates the quality and reliability of the assumptions and data used to measure fair value. Fair values of Derivative financial instruments are determined using valuation models based on inputs which are observable in the market (Level 2). The models incorporate various inputs including the credit quality of the group and counterparties. Changes in inputs are not controllable by the group and may change in future.

PJSC “POLYUS”
NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

18

4.2.6. Interpretation of tax legislation and recoverability of deferred tax assets

The group is subject to income taxes in a number of jurisdictions. Significant judgement is required in determining the group’s provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain. The group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences may impact the income tax and deferred tax provisions in the period in which such determination is made. Deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. The estimation of that probability includes judgements based on expected performance. Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward and tax planning strategies. If actual results differ from the estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. See note 11 for further details.

5. SEGMENT INFORMATION

For management purposes the group is organised by separate business segments identified on a combination of operating activities and geographical area bases with separate financial information available and reported regularly to the chief operating decision maker (“CODM”). The following is a description of operations of the group’s identified reportable segments and those that do not meet the quantitative reporting threshold:

• Olimpiada business unit (Krasnoyarsk region of the Russian Federation) – mining (including initial processing) and sale of gold from the Olimpiada mine, as well as research, exploration and development work at the Olimpiada deposit.
• Blagodatnoye business unit (Krasnoyarsk region of the Russian Federation) – mining (including initial processing) and sale of gold from the Blagodatnoye mine, as well as research, exploration and development work at the Blagodatnoye deposit.
• Natalka business unit (Magadan region of the Russian Federation) – mining (including initial processing) and sale of gold from the Natalka mine, as well as research, exploration and development work at the Natalka deposit. Construction of the Omchak high-voltage power grid is not included within this segment, as it was funded by a government grant (note 22).
• Verninskoye business unit (Irkutsk region of the Russian Federation) – mining (including initial processing) and sale of gold from the Verninskoye mine, research, exploration and development works at the Smezhny and Medvezhy Zapadny deposits.
• Kuranakh business unit (Sakha Republic of the Russian Federation) – mining (including initial processing) and sale of gold from the Kuranakh mines.
• Alluvials business unit (Irkutsk region of the Russian Federation) – mining (including initial processing) and sale of gold from several alluvial deposits.
• Exploration business unit (Krasnoyarsk, Irkutsk, Amur and other regions of the Russian Federation) – exploration and evaluation works in several regions of the Russian Federation other than those related to Sukhoi Log deposit.
• Sukhoi Log business unit (Irkutsk region of the Russian Federation) – exploration and evaluation works at the Sukhoi Log deposit.
• Unallocated – the group does not allocate segment results of companies that perform management, investing activities and certain other functions. Neither standalone results nor the aggregated results of these companies are significant enough to be disclosed as operating segments because quantitative thresholds are not met.

PJSC “POLYUS”
NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

19

The reportable gold production segments derive their revenue primarily from gold sales. The CODM performs an analysis of the operating results based on these separate business units and evaluates the reporting segment’s results, for purposes of resource allocation, based on the measurements of:

• Gold sales;
• Ounces of gold sold, in thousands;
• Adjusted earnings before interest, tax, depreciation and amortisation and other items (Adjusted EBITDA);
• Total cash cost (TCC);
• Total cash cost per ounce of gold sold (TCC per ounce ); and
• Capital expenditure.

Business segment assets and liabilities are not reviewed by the CODM and therefore are not disclosed in these consolidated financial statements. The group’s non-current assets are located in the Russian Federation.

Business units	Gold sales	Ounces of gold sold in thousands 2	Adjusted EBITDA	TCC 2	TCC per ounce (US dollar) 2	Capital expenditure
For the year ended 31 December 2020
Olimpiada	2,155	1,250	1,665	389	312	183
Blagodatnoye	810	456	620	158	347	71
Natalka	814	455	594	162	355	123
Verninskoye	484	274	370	89	327	76
Kuranakh	426	239	279	124	518	47
Alluvials	267	143	129	121	847	23
Exploration	-	-	-	-	-	12
Sukhoi Log	-	-	-	-	-	29
Unallocated	-	-	33	(23)	-	89
Total	4,956	2,817	3,690	1,020	362	653
For the year ended 31 December 2019
Olimpiada	1,906	1,416	1,381	415	293	165
Blagodatnoye	602	430	415	170	398	37
Natalka	571	405	361	160	396	155
Verninskoye	357	256	237	93	363	57
Kuranakh	317	225	174	117	523	39
Alluvials	212	146	74	119	821	21
Exploration	-	-	-	-	-	12
Sukhoi Log	-	-	-	-	-	28
Unallocated	-	-	38	(24)	-	116
Total	3,965	2,878	2,680	1,050	365	630

2 Unaudited and not reviewed

PJSC “POLYUS”
NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT
FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

20

Adjusted EBITDA reconciles to the IFRS reported figures on a consolidated basis as follows:

	Year ended 31 December 2020	2019
Profit before income tax	2,062	2,377
Finance costs, net (note 9)	232	254
Interest income	(22)	(48)
Depreciation and amortisation	349	367
Foreign exchange loss / (gain), net	250	(273)
Loss / (gain) on revaluation of derivative financial instruments, net (note 10)	544	(93)
Equity-settled share-based plans (LTIP) (note 20)	77	40
Expenses related to COVID-19 (note 29)	106	-
Special charitable contributions	35	43
Impairment of property, plant and equipment	10	9
Loss on transfer of Omchak high voltage power grid (note 8, 22)	45	-
Loss on disposal of other property, plant and equipment and intangible assets	2	4
Adjusted EBITDA	3,690	2,680

The measurement of TCC per ounce of gold sold reconciles to the IFRS reported figures on a consolidated basis as follows:

	Year ended 31 December 2020	2019
Cost of gold sales before by-product	1,413	1,435
Antimony by-product sales	(24)	(30)
Cost of gold sales (note 6)	1,389	1,405
Adjusted for:
Depreciation and amortisation (note 6)	(406)	(349)
Effect of depreciation, amortisation, accrual and provisions in inventory change	87	(6)
Expenses related to COVID-19 in cost of gold sales	(50)	-
TCC 3	1,020	1,050
Ounces of gold sold, in thousands 3	2,817	2,878
TCC per ounce of gold sold, USD per ounce 3	362	365

Gold sales

	Year ended 31 December 2020	2019
Refined gold	4,586	3,575
Gold in flotation concentrate	370	390
Total	4,956	3,965

Gold sales reported above represent revenue generated from external customers. There were no inter-segment gold sales during the years ended 31 December 2020 and 2019.# PJSC “POLYUS” NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

Geographical segments of gold sales

Year ended 31 December	2020	2019
Russian Federation	4,618	3,706
Outside of Russian Federation	338	259
Total	4,956	3,965

Reconciliation of capital expenditure to the property plant and equipment additions (note 13) is presented below:

3 Unaudited and not reviewed

Reconciliation of capital expenditure to the property plant and equipment additions (note 13)

Year ended 31 December	2020	2019
Capital expenditure	653	630
Construction of the Omchak high-voltage power grid	24	26
Stripping activity assets additions (note 13)	203	243
Less: intangible and other non-current assets additions	(43)	(51)
Property plant and equipment additions (note 13)	837	848

6. COST OF GOLD SALES

Year ended 31 December	2020	2019
Depreciation and amortisation	406	349
Employee compensation	381	337
Consumables and spares	304	325
Tax on mining	238	192
Fuel	120	129
Power	61	59
Other	126	93
Total cost of production	1,636	1,484
Increase in stockpiles, gold-in-process and refined gold inventories	(247)	(79)
Total	1,389	1,405

7. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

Year ended 31 December	2020	2019
Employee compensation	236	188
Depreciation and amortisation	23	21
Taxes other than mining and income taxes	19	20
Professional services	15	12
Distribution expenses related to gold flotation concentrate	18	25
Other	25	29
Total	336	295

8. OTHER EXPENSES, NET

Year ended 31 December	2020	2019
Expenses related to COVID-19 (note 29)	56	-
Loss on transfer of Omchak high voltage power grid (note 22)	45	-
Special charitable contributions	35	43
Property, plant and equipment impairment	10	9
Other	27	3
Total	173	55

PJSC “POLYUS” NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

9. FINANCE COSTS, NET

Year ended 31 December	2020	2019
Interest on borrowings	229	294
Interest on lease liabilities	4	5
Gain on exchange of interest payments under cross currency swaps	(30)	(42)
Loss / (gain) on exchange of interest payments under interest rate swaps	2	(2)
Unwinding of discounts	10	13
Bank commission and write-off of unamortised debt cost due to early extinguishment	12	3
Loss on early redemption of deferred consideration (note 23)	5	-
Gain on debt modification	-	(17)
Total	232	254

10. (LOSS) / GAIN ON REVALUATION OF DERIVATIVE FINANCIAL INSTRUMENTS, NET

Year ended 31 December	2020	2019
Revaluation (loss) / gain on cross currency swaps	(403)	169
Revaluation loss on revenue stabiliser (note 16)	(29)	(10)
Revaluation loss on interest rate swaps	(7)	(8)
Revaluation loss on conversion option (note 21)	(105)	(58)
Total	(544)	93

PJSC “POLYUS” NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

11. INCOME TAX EXPENSE

Year ended 31 December	2020	2019
Current tax expense	417	360
Deferred tax (income) / expense	(1)	73
Total income tax expense	416	433

The corporate income tax rate in the Russian Federation is 20% (17% regional and 3% federal). The taxpayers in Russia have a right to apply reduced rates on tax on mining and income tax if they implement a regional investment program in certain regions and meeting certain criteria (thereafter "RInvP"). Amount of tax savings on tax on mining should not exceed the amount of investments in RinvP. The Tax Code provides for a right of each specified region of the Russian Federation to reduce the regional component of the income tax rate to as low as zero percent.

JSC Polyus Verninskoye RInvP (Verninskoye business unit)

JSC Polyus Verninskoye, a 100% subsidiary of JSC Polyus Krasnoyarsk operating in the Irkutsk region of the Russian Federation, currently has a right to apply the following RInvP rates:
* Tax on mining: 0% for 2017 - 2018, 1.2% for 2019 - 2020, 2.4% for 2021 4 ;
* Corporate income tax: 17% for 2017 - 2021 4 .

JSC Polyus Magadan RInvP (Natalka business unit)

JSC Polyus Magadan, a 100% subsidiary of JSC Polyus Krasnoyarsk operating in the Magadan region of the Russian Federation, applies the following RInvP rates:
* Tax on mining: 0% for 2018 - 2020 increasing by 1.2% every two years thereafter to 6% by 2029;
* Corporate income tax: 0% for 2019 - 2023; 10% for 2024 - 2028; and the standard 20% rate thereafter.

A reconciliation of Russian Federation statutory income tax, the location of the group’s major production entities and operations, to the income tax expense recorded in the consolidated statement of profit or loss is as follows:

Year ended 31 December	2020	2019
Profit before income tax	2,062	2,377
Income tax at statutory rate applicable to principal entities (20%)	414	475
Effect of the RinvP due to different tax rates (JSC Polyus Magadan and JSC Polyus Verninskoye)	(80)	(48)
Unrecognised deductible temporary differences on revaluation of derivative financial instruments	38	(10)
Tax effect of non-deductible expenses and other permanent differences	44	16
Income tax expense	416	433

4 The group expects that during 2021 the amount of mining tax savings is likely to exceed the amount of investments in RInvP, in which case JSC Polyus Verninskoye would no longer be able to benefit from the reduced mining tax and income tax rates.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

12. INTANGIBLE ASSETS

	Internally- generated software	Purchased software	Internally- generated other	Total
Cost	47	16	19	82
Accumulated amortisation and impairment	(4)	(4)	(1)	(9)
Net book value at 31 December 2018	43	12	18	73
Additions	31	11	9	51
Disposals	-	-	(1)	(1)
Amortisation charge	(4)	(5)	(2)	(11)
Effect of translation to presentation currency	6	2	3	11
Cost	85	28	28	141
Accumulated amortisation and impairment	(9)	(8)	(1)	(18)
Net book value at 31 December 2019	76	20	27	123
Additions	25	8	8	41
Reclassification	-	1	-	1
Amortisation charge	(4)	(6)	(2)	(12)
Effect of translation to presentation currency	(14)	(3)	(4)	(21)
Cost	95	28	34	157
Accumulated amortisation and impairment	(12)	(8)	(5)	(25)
Net book value at 31 December 2020	83	20	29	132

13. PROPERTY, PLANT AND EQUIPMENT

	Fixed assets	Stripping activity assets	Capital construction in progress	Exploration and evaluation assets	Total
Cost	3,531	611	600	532	5,274
Accumulated depreciation and impairment	(1,192)	(222)	(49)	(27)	(1,490)
Net book value at 1 January 2019	2,339	389	551	505	3,784
Additions	-	243	541	64	848
Transfers	507	-	(494)	(13)	-
Disposals	(5)	-	(5)	-	(10)
Depreciation charge	(371)	(71)	-	-	(442)
Impairment	-	-	(9)	-	(9)
Effect of translation to presentation currency	290	56	70	64	480
Other	38	-	-	(9)	29
Cost	4,484	918	717	641	6,760
Accumulated depreciation and impairment	(1,686)	(301)	(63)	(30)	(2,080)
Net book value at 31 December 2019	2,798	617	654	611	4,680
Additions	-	203	571	63	837
Transfers	539	-	(530)	(9)	-
Disposals	(5)	-	(4)	-	(9)
Omchak high-voltage power grid disposal (note 22)	(132)	-	(1)	-	(133)
Depreciation charge	(403)	(94)	-	-	(497)
Impairment	-	-	(8)	(2)	(10)
Effect of translation to presentation currency	(442)	(101)	(116)	(99)	(758)
Other	8	-	2	1	11
Cost	4,130	971	629	590	6,320
Accumulated depreciation and impairment	(1,767)	(346)	(61)	(25)	(2,199)
Net book value at 31 December 2020	2,363	625	568	565	4,121

Carrying value of rights-of-use assets included in fixed assets is disclosed in note 14.

Mineral rights

The carrying values of mineral rights included in fixed assets and exploration and evaluation assets were as follows:

31 December 2020	2019
Mineral rights presented within:
- fixed assets	57
- exploration and evaluation assets	346
Total	403

Exploration and evaluation assets

The carrying values of exploration and evaluation assets were as follows:

31 December 2020	2019
Sukhoi Log	409
Chertovo Koryto	31
Razdolinskoye	29
Olimpiada	27
Burgakhchan area	17
Panimba	17
Bamsky	15
Natalka	7
Blagodatnoye	6
Other	7
Total	565

Depreciation and amortisation charges are allocated as follows:

Year ended 31 December	2020	2019
Depreciation in change in inventory	91	9
Capitalised within property, plant and equipment	72	79
Less: amortisation of intangible and other non-current assets	(15)	(13)
Total depreciation capitalised as part of other assets	148	75
Depreciation and amortisation within cost of production (note 6)	406	349
Less: depreciation in change in inventory	(91)	(9)
Selling, general and administrative expenses (note 7)	23	21
Cost of other sales	11	6
Total depreciation in profit or loss	349	367
Total depreciation of property, plant and equipment	497	442

14. LEASES

The most significant leases of the group are office leases.# PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020
(in millions of US Dollars)

Movements of the right-of-use assets presented within Property, Plant and Equipment (note 13) were as follows:

	Year ended 31 December 2020	Year ended 31 December 2019
	Related party transactions	Non-related party transactions
Carrying value as of the beginning of the year	58	22
Changes in right-of-use assets due to lease indexation and modification	2	(2)
Depreciation charge	(4)	(6)
Effect of translation to presentation currency	(10)	(3)
Carrying value as of the end of the year	46	11

Movements of the lease liabilities presented within Borrowings (note 21) were as follows:

	Year ended 31 December 2020	Year ended 31 December 2019
	Related party transactions	Non-related party transactions
Carrying value as of the beginning of the year	53	27
Changes in lease liabilities due to lease indexation and modification	2	(2)
Foreign exchange loss / (gain), net	10	5
Interest on lease liabilities	3	1
Repayments of lease liability	(7)	(8)
Effect of translation to presentation currency	(10)	(4)
Carrying value as of the end of the year	51	19

15. INVENTORIES

	31 December 2020	2019
Stockpiles	505	416
Gold-in-process	14	15
Inventories expected to be used after 12 months	519	431
Stockpiles	150	119
Gold-in-process	101	82
Antimony in gold-antimony flotation concentrate and silver	4	11
Refined gold and gold in flotation concentrate	4	4
Materials and supplies	365	474
Less: obsolescence provision for materials and supplies	(29)	(31)
Inventories expected to be used in the next 12 months	595	659
Total	1,114	1,090

16. DERIVATIVE FINANCIAL INSTRUMENTS

	31 December 2020	31 December 2019
	Non-Current	Current
Cross currency swaps	17	-
Interest rate swaps	-	-
Total derivative financial assets	17	-
Cross currency swaps	321	42
Revenue stabiliser	-	-
Conversion option on convertible bonds (note 21)	-	-
Interest rate swaps	9	-
Total derivative financial liabilities	330	42

Revenue stabiliser

During the year ended 31 December 2020, the group effectively closed out the revenue stabiliser programme, with a total premium of USD 32 million paid.

Cross currency swaps

The following terms were in place as of 31 December 2020:

Nominal (USD million)	Expiration date	Group pays (USD million)	Group receives (RUB million)	Frequency	Interest payments Group pays (in USD)	Interest payments Group receives (in RUB)
173	July 2021		10,000	semi-annually	LIBOR + 4.45%	12.1%
82	July 2021		5,300	semi-annually	5.9%	12.1%
125	March 2024		8,225	quarterly	5.09%	MosPrime 3m + 0.2%
965	April 2024		64,801	quarterly	5.00%	MosPrime 3m - 0.45%
310	October 2024		20,000	semi-annually	3.23%	7.4%
125	March 2025		8,169	quarterly	2.8%	MosPrime 3m + 0.27%

Interest rate swaps

The following terms were in place as of 31 December 2020:

Nominal (USD million)	Expiration date	Frequency	Group pays	Group receives
150	February 2024	monthly	2.425%-2.44%	LIBOR

17. TRADE AND OTHER RECEIVABLES

	31 December 2020	2019
Trade receivables for gold-bearing products	115	140
Other receivables	32	67
Less: allowance for other receivables	(14)	(10)
Total	133	197

18. TAXES RECEIVABLE

	31 December 2020	2019
Reimbursable value added tax	118	107
Other prepaid taxes	2	4
Total	120	111

19. CASH AND CASH EQUIVALENTS

	31 December 2020	2019
Current USD bank accounts	1,115	192
Current RUB bank accounts	69	18
Bank deposits denominated in USD	178	1,467
Bank deposits denominated in RUB	83	97
Cash in the Federal Treasury	-	27
Total	1,445	1,801

Bank deposits within cash and cash equivalents include deposits with original maturity less than three months or repayable on demand without loss on principal and accrued interest denominated in RUB and USD and accrue interest at the following rates:

Interest rates:
- Bank deposits denominated in USD: 0.5-0.9% (2019: 0.7-4.3%)
- Bank deposits denominated in RUB: 4.0-4.7% (2019: 3.4-6.1%)

20. SHARE CAPITAL

Authorised share capital of the Company as of 31 December 2020 comprised issued and fully paid 136,069 thousand ordinary shares at par value of RUB 1 each, of which 1,364 thousand was included within treasury shares.

Treasury shares

On 30 September 2020, the Company issued 1,808 thousand shares at RUR 18,353 (USD 241) per share, all of which were acquired by JSC Polyus Krasnoyarsk, a wholly owned subsidiary, and were recorded as treasury shares. In October 2020, these new shares were transferred to PGIL in settlement of a share loan taken earlier in 2020 for the redemption of convertible bonds (note 21). In connection with the share loan, a payment of USD 8 million was accrued (included within Other in the consolidated statement of changes in equity).

Equity-settled share-based compensation (long-term incentive plan)

PJSC Polyus grants long-term incentive awards according to which the members of management of the group are entitled to a conditional award in the form of PJSC Polyus’ ordinary shares, which vest upon achievement of financial and non-financial performance targets on expiry of performance periods. Expenses arising from the LTIP are recognised in the consolidated statement of profit or loss within Employee compensation included within Selling, general and administrative expenses.

Dividends

On 18 August 2020, Shareholders of the Company declared dividends of 244.75 RUR per share, equivalent to USD 450 million (at the CBR currency exchange rate as of 18 August 2020) in respect of the second half of financial year 2019.

On 30 September 2020, Shareholders of the Company declared dividends of 240.18 RUR per share, equivalent to USD 405 million (at the CBR currency exchange rate as of 30 September 2020) in respect of the first half of financial year 2020 (excluding dividends on treasury shares).

Following the transfer of the new 1,808 thousand treasury shares to PGIL in October 2020, dividends for the first half of 2020 were accrued on those shares (being treasury shares as of September 2020) at 240.18 RUR per share in the total amount of USD 5 million. Thus, during the year ended 31 December 2020 the total amount of dividends declared to the shareholders was USD 860 million (USD 844 million paid in cash at the CBR currency exchange rate ruling at the dates of payments).

Share buyback

In December 2020, the group made an offer to purchase up to an aggregate of 1,429 thousand of ordinary shares of the Company from its shareholders. As of 31 December 2020, 1,361 thousand shares were acquired and orders for the buyback of additional 68 thousand shares were submitted to the group.

	USD million	Quantity of shares (‘000)
Buyback transactions as of 31 December 2020
Shares acquired from PGIL	233	1,111
Shares acquired from shareholders other than PGIL	31	144
Advances paid for shares to be delivered from shareholders other than PGIL	4	22
Total paid	268	1,277
Payables to shareholders other than PGIL for delivered shares	22	106
Accrued payables to shareholders other than PGIL for shares to be delivered	10	46
Expenses directly attributable to buyback	1	-
Total payables (note 24)	33	152
Total buyback transactions	301	1,429

Weighted average number of ordinary shares

The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share (“EPS”) is as follows (in thousands of shares):

	Year ended 31 December 2020	2019
Ordinary shares in issue at the beginning of the year	133,196	132,339
Conversion of convertible bond	449	-
Shares awarded under LTIP	370	487
Purchase of additional ownership in SL Gold (payable in treasury shares)	246	370
Settlement of share loan	1,808	-
Increase of ownership in subsidiaries	5	-
Share buyback	(1,361)	-
Other	(8)	-
Ordinary shares in issue at the end of the year	134,705	133,196
Weighted average number of ordinary shares – basic EPS	134,360	133,017
Dilutive effect of potentially issuable shares under LTIP	534	300
Weighted average number of ordinary shares – dilutive EPS	134,894	133,317
Profit after tax attributable to the shareholders of the Company (million USD)	1,600	1,931
Profit after tax attributable to the shareholders of the Company for diluted EPS calculation (million USD)	1,600	1,931

21.# BORROWINGS

Nominal rate %	2020	2019
Eurobonds with fixed interest rate due in 2022	4.699%	481
Eurobonds with fixed interest rate due in 2023	5.250%	785
Eurobonds with fixed interest rate due in 2024	4.7%	468
Notes due in 2029 (Rusbonds) with noteholders’ early repayment option in 2024	7.4%	270
Notes due in 2025 (Rusbonds) with noteholders’ early repayment option in 2021	12.1%	203
Credit facilities with financial institutions nominated in RUR with variable interest rates	Central bank rate + 2.3% / MosPrime + 0.2% / - 0.45%	1,128
Credit facilities with financial institutions nominated in USD with variable interest rates	USD LIBOR + 1.65%	149
Lease liabilities nominated in USD and RUR	5.15%	70
Credit facilities with financial institutions nominated in USD with fixed interest rates	3.5%-5.0%	-
Eurobonds with fixed interest rate due in 2020	5.625%	-
Convertible bonds with fixed interest rate due in 2021	1%	-
Credit facilities with financial institutions nominated in RUR with fixed interest rates	9.35%	-
Sub-total		3,554
Less: current portion of long-term borrowings due within 12 months		(225)
Long-term borrowings		3,329

Convertible bonds with fixed interest rate due in 2021

In May 2020, the group completed early redemption of all convertible bonds due 2021 together with accrued interest exercising an option, which became available to the group earlier in the year as the value of the GDSs deliverable on conversion exceeded 130% of the principal amount of the bonds. During the year ended 31 December 2020, 4,514 thousand GDSs were transferred to the converting bondholders, of which 3,616 thousand GDSs (in the form of shares) were borrowed from PGIL (note 20) and remaining balance was redeemed with Treasury shares, resulted in an increase of Additional paid-in capital in the amount of USD 289 million and USD 28 million respectively.

Eurobonds with fixed interest rate due in 2020

In April 2020, the group redeemed Eurobonds in the amount of USD 677 million due to their maturity.

Credit facilities with financial institutions nominated in RUR with variable interest rate

In March 2020, the group entered into a credit facility agreement in the amount of RUR 8,169 million (USD 112 million translated at the exchange rate at the date of transaction) with a variable interest rate (Mosprime3m + 0.27% per annum) due in 2025. Proceeds from this credit agreement were used to extinguish in advance of maturity an existing credit facility nominated in RUB with fixed interest rate from another borrower.

Credit facilities with financial institutions nominated in USD with fixed interest rate

During the year ended 31 December 2020, the group repaid in advance of maturity credit facilities nominated in USD with a fixed interest rate in the amount of USD 340 million.

Unused credit facilities

As of 31 December 2020, the group has unused credit facilities in the total amount of USD 1,243 million (31 December 2019: USD 1,433 million) and a facility to borrow any amount of unpledged Company’s shares from PGIL.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

31

Pledge

As of 31 December 2020 and 2019, all shares of JSC TaigaEnergoStroy belonging to the group were pledged to secure a credit line. Additionally, the group pledged proceeds from certain gold sale agreements as a security for another credit facility.

Other matters

There were a number of financial covenants under several loan agreements in effect as of 31 December 2020 according to which the respective subsidiaries of the Company and the Company itself are limited in its level of leverage and other financial and non-financial parameters. The group tests covenants quarterly and was in compliance with the covenants as of 31 December 2020.

Reconciliation of liabilities arising from financing activities

For the year ended 31 December 2020	For the year ended 31 December 2019
Borrowings	Lease
Carrying value as of the beginning of the year	5,006
Net cash flows	(1,032)
Non-cash changes, including:
Redemption of convertible bonds	(200)
Recognition of lease liabilities	-
Foreign exchange (gain) / loss, net	492
Debt modification	-
Commissions on borrowings and amortisation at effective interest rate	21
Gain on exchange of interest payments under cross currency and interest rate swaps	-
Loss / (gain) on revaluation of derivative financial instruments, net	-
Effect of currency translation	(803)
Carrying value as of the end of the year	3,484

22. DEFERRED REVENUE

JSC Polyus Magadan, was a party to an agreement with the Ministry for the Development of the Russian Far East (“Minvostokrazvitiya”) under which Minvostokrazvitiya provided to JSC Polyus Magadan a government grant in the total amount RUB 8,797 million (USD 137 million, including VAT). Under the agreement, the grant was used for the construction of an electricity transmission line, a distribution point and an electric power substation (Omchak high-voltage power grid). JSC Polyus Krasnoyarsk was a guarantor under the agreement. In the fourth quarter of 2020, the group completed construction of the Omchak high-voltage power grid and transferred it for zero consideration to a power-distribution grid company, resulting in a loss of USD 45 million (note 8). The movement in the carrying value of deferred revenue, associated with government grant was as follows:

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

32

	Year ended 31 December 2020	2019
Carrying value as of the beginning of the year	126	117
Received cash	-	3
VAT attributable to construction of power grid	(3)	(8)
Unused grant refunded to Minvostokrazvitiya	(14)	-
Effect of translation to presentation currency	(21)	14
Offset of the subsidy against the carrying value of Omchak high-voltage power grid on disposal	(88)	-
Carrying value as of the end of the year	-	126

23. DEFERRED CONSIDERATION

In March 2020, the group exercised the scheduled tranche of options in LLC SL Gold and increased its participation interest from 68.2% to 78.0%. The group paid approximately USD 28 million and transferred 246 thousand PJSC Polyus treasury shares (note 20) totalling USD 29 million. In September 2020, the group and LLC “RT Business Development” (“RT”) amended the terms of a number of options relating to RT’s participation interest in LLC SL Gold that were entered into in July 2017, to allow the group to purchase an 11.3% interest in LLC SL Gold from RT at the initially agreed valuation of USD 65.7 million for cash consideration instead of Polyus’ shares and agreed to accelerate the exercise of all outstanding call options relating to RT’s interest in LLC SL Gold. Following the amendment of the agreement the group completed the acquisition of RT’s entire remaining stake of 22% in LLC SL Gold for USD 128 million, all paid in cash. The movement in the carrying value of share option liabilities was as follows:

	Year ended 31 December 2020	2019
Carrying value as of the beginning of the year	176	225
Settled in shares	(29)	(29)
Settled in cash	(156)	(28)
Unwinding of interest on deferred consideration	4	8
Loss on early redemption of deferred consideration (note 9)	5	-
Foreign exchange loss / (gain), net	31	(24)
Effect of translation to presentation currency	(31)	24
Total carrying value as of the end of the year	-	176
Less: short-term part of the option liabilities	-	(57)
Long-term part of the option liabilities as of the end of the year	-	119

24. TRADE AND OTHER PAYABLES

	31 December 2020	2019
Employee compensation payable	94	95
Interest payable	57	77
Trade payables	49	49
Accrued annual leave	33	27
Share buyback (note 20)	33	-
Payables for shares of PJSC Lenzoloto (note 32)	24	-
Dividends payable	2	2
Other accounts payable and accrued expenses	107	105
Total	399	355

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

33

25. DEFERRED TAX ASSETS AND LIABILITIES

The movement in the group’s deferred taxation position was as follows (tax assets are presented as negative amounts, tax liabilities – as positive):

	Year ended 31 December 2020	2019
Net deferred tax liability at the beginning of the year	174	87
Recognised in the consolidated statement of profit or loss	(1)	73
Effect of translation to presentation currency	(23)	14
Net deferred tax liability at the end of the year	150	174

Deferred taxation is attributable to tax losses carried-forward and the temporary differences that exist between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes and was as follows:

	31 December 2019	Recognised in profit or loss	Effect of translation to presentation currency	31 December 2020
Property, plant and equipment	395	34	(64)	365
Inventory	90	34	(14)	110
Borrowings	(5)	(6)	2	(9)
Deferred expenditure	3	1	(1)	3
Tax losses carried-forward	(294)	(2)	48	(248)
Trade and other payables	(36)	6	7	(23)
Intangible assets	3	(1)	-	2
Derivatives	18	(66)	(2)	(50)
Other	-	(1)	1	-
Net deferred tax liability	174	(1)	(23)	150

Certain deferred tax assets and liabilities have been offset.The following is the analysis of the deferred tax balances (after offset) as they are presented in the consolidated statement of financial position:

	31 December 2020	2019
Deferred tax assets	(109)	(134)
Deferred tax liabilities	259	308
Net deferred tax liability	150	174

Unrecognised deferred tax asset

	31 December 2020	2019
Unrecognised deferred tax assets resulting from losses on derivative financial instruments	195	141
Unrecognised deferred tax assets resulted from impairments	5	6
Unrecognised deferred tax assets in respect of tax losses carried forward available for offset against future taxable profit	6	8
Total	206	155

Unrecognised deferred tax liability

	31 December 2020	2019
Taxable temporary difference associated with investments in subsidiaries	173	178

Deferred tax liability for the taxable temporary difference associated with investments in subsidiaries is not recognised because the group is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 34

The group does not recognise deferred tax assets for some of its tax losses if it is more likely than not that the future taxable profits will not be available to offset them in certain group entities.

26. TAXES PAYABLE

	31 December 2020	2019
Value added tax	33	21
Tax on mining	24	18
Social taxes	24	20
Property tax	5	5
Other taxes	15	17
Total	101	81

27. RELATED PARTIES

There were no transactions with related parties throughout year ended 31 December 2020, except for those presented within notes 14 and 20 and compensation of the key management personnel as detailed below.

Key management personnel

	Year ended 31 December 2020	2019
Short-term compensation to key management personnel accrued	23	23
Equity-settled share-based compensation (LTIP)	71	37
Total	94	60

28. COMMITMENTS

Commitments for future lease payments due under non-cancellable lease agreements excluded from the scope of IFRS 16

The Land in the Russian Federation on which the group’s production facilities are located is owned by the state. The group leases this land through operating lease agreements, which expire in various years through to 2065. Future lease payments due under non-cancellable operating lease agreements excluded from IFRS 16 scope (note 14) were as follows:

	31 December 2020	2019
Due within one year	8	7
From one to five years	24	24
Thereafter	49	54
Total	81	85

Capital commitments

The group’s contracted capital expenditure commitments are as follows:

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 35

	31 December 2020	2019
Projects in Krasnoyarsk	97	49
Project Natalka	73	65
Other capital commitments	26	3
Project Omchak high-voltage power grid	-	12
Total	196	129

29. OPERATING ENVIRONMENT - IMPACT OF COVID-19 PANDEMIC

On March 11, 2020, the World Health Organization declared the novel strain of coronavirus (COVID-19) a global pandemic and recommended containment and mitigation measures worldwide. Since March 30, in Russia, as in many countries where an outbreak of the virus was detected, a lockdown started; most businesses closed, but have been gradually reopening. Responses put in place by many countries to contain the spread of COVID-19 are resulting in significant operational disruption for many companies and have major impacts on global financial markets. As the situation is rapidly evolving it may have a significant effect on business of many companies across a wide range of sectors, including, but not limited to such impacts as disruption of business operations as a result of interruption of production or closure of facilities, supply chain disruptions, quarantines of personnel, reduced demand and difficulties in raising financing. In addition, the group may face the increasingly broad effects of COVID-19 because of its negative impact on the global economy and major financial markets. The significance of the effect of COVID-19 on the group’s business largely depends on the duration and the incidence of the pandemic effects on the world and Russian economy. The health and safety of employees remains the group’s utmost focus. Polyus conducts a broad- based testing of its employees and contractors for COVID-19. The group continues to monitor the COVID-19 threat level and assess the potential health risks for its employees, with all monitoring systems in place. The group cannot reasonably estimate the length or severity of this pandemic and its impact on economy, including the gold market, however, at the date of approval of these consolidated financial statements, the impact on the group’s operations was principally limited to provision of temporary accommodation and treatment facilities at the group’s production sites for the affected employees, implementation of additional sanitary measures, and charitable contributions to hospitals and other institutions in group’s operating regions. In order to provide adequate quarantine and medical treatment conditions for the group employees affected by the COVID-19 outbreak at Olimpiada, temporary accommodation facilities and field hospital were organised by the company with the help of the Ministry of Defence and Krasnoyarsk regional administration. During the year ended 31 December 2020, operations at the group’s assets have not been interrupted. Costs directly attributable to dealing with the COVID-19 pandemic comprise additional compensation paid to employees, donations to regional administrations, hospitals and other institutions as well as additional health and safety expenses. The group’s direct and incremental costs related to COVID-19 were included in the following captions of the consolidated financial statements as follows:

	Year ended 31 December 2020	2019
Cost of gold sales (Employee compensation)	50	-
Other expenses, net	56	-
Total expenses related to COVID-19 recognised in profit or loss	106	-
Increase in stockpiles, gold-in-process and refined gold inventories	23	-
Property plant and equipment additions (infrastructure facilities and stripping activity asset)	26	-
Total costs related to COVID-19	155	-

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 36

30. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents, current trade and other receivables and accounts payable approximate their fair value given the short-term nature of these instruments. Non-current other receivables are discounted at discount rates derived from observable market input data. Trade receivables for gold-bearing products are carried at fair value through profit or loss (Level 2 of the fair value hierarchy in accordance with IFRS 13).

Determination of fair value of derivative financial instruments

Fair value inputs	Derivative financial instrument	Valuation technique	Inputs to valuation techniques used to measure fair value	Fair value hierarchy of inputs in accordance with IFRS 13
	Revenue stabiliser	Monte Carlo simulation model	Spot gold prices and gold price volatility	Level 2
	Cross-currency swaps	Discounted cash flow valuation technique	Spot currency exchange rates, USD LIBOR and RUB interest rates	Level 2
	Interest rate swaps	Discounted cash flow valuation technique	Forward USD LIBOR rates	Level 2
	Conversion option on convertible bonds	Discounted cash flow valuation technique	Risk-free interest rate and share price volatility	Level 2

The fair value of derivative financial instruments includes an adjustment for credit risk in accordance with IFRS 13. The adjustment is calculated based on the expected exposure. For positive expected exposures, credit risk is based on the observed credit default swap spreads for each particular counterparty or, if they are unavailable, for equivalent peers of the counterparty. For negative expected exposures, the credit risk is based on the observed credit default swap spread of the group’s peer. Borrowings and deferred consideration are carried at amortised cost. The fair value of the group’s borrowings excluding lease liabilities is estimated as follows:

	31 December 2020		31 December 2019
	Carrying amount	Fair value	Carrying amount	Fair value
Eurobonds (Level 1)	1,734	1,852	2,408	2,535
Borrowings (Level 2)	1,277	1,278	1,838	1,894
Rusbonds (Level 1)	473	497	566	592
Convertible bonds (Level 2)	-	-	194	258
Total	3,484	3,627	5,006	5,279

The fair value of all of the group’s borrowings except for the Eurobonds and Rusbonds is within Level 2 of the fair value hierarchy in accordance with IFRS 13. The fair value of the Eurobonds and Rusbonds is within Level 1 of the fair value hierarchy in accordance with IFRS 13, because the Eurobonds and Rusbonds are publicly traded in an active market. The fair value of borrowings and bonds is determined using a discounted cash flow valuation technique with reference to observable market inputs: spot currency exchange rates, forward USD LIBOR and RUB interest rates, the company’s own credit risk and quoted price of the convertible bonds. The fair value of deferred consideration on the date of initial recognition is based on inputs (spot currency exchange rates and discount rates), which are observable in the market and are classified as Level 2 of the fair value hierarchy in accordance with IFRS 13. As of 31 December 2020, the fair value of the deferred consideration equals nil due to its redemption (note 21) (31 December 2019:180 million).

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 37

31.# FINANCIAL INSTRUMENTS RISK MANAGEMENT ACTIVITIES

Capital risk management

The primary objective of managing the group’s capital is to ensure that there is sufficient capital available to support the funding requirements of the group, including capital expenditure, in a way that optimises the cost of capital, maximises shareholders’ returns and ensures that the group remains in a sound financial position. The group manages and makes adjustments to the capital structure as opportunities arise in the market place, as and when borrowings mature, or as and when funding is required. This may take the form of raising equity, market or bank debt or hybrids thereof. The level of dividends is monitored by the Board of Directors of the group in accordance with the Dividend policy of the group. In the capital management process the group utilizes various financial metrics including the ratio of group Net Indebtedness to Adjusted EBITDA (“group Leverage Ratio”). The group takes into account that group Leverage Ratio should not exceed 3.5 times as per the Terms and Conditions of the Notes (Eurobonds). “Group Net Indebtedness” is defined in the Terms and Conditions of the Notes (Eurobonds) as all consolidated Indebtedness less cash and cash equivalents, as shown on the Consolidated Financial Statements of the group. Indebtedness is defined as the sum of any moneys borrowed, any principal amount raised by acceptance under any acceptance credit facility, any principal amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument, any principal amount raised under any other transaction having the economic or commercial effect of a borrowing and the amount of any liability in respect of the guarantee or indemnity. There were no changes in the group’s approach to capital management during the year.

Major categories of financial instruments

The group’s principal financial liabilities comprise borrowings, derivative financial instruments, deferred consideration and account payables. The main purpose of these financial instruments is to finance the group’s operations. The group has various financial assets such as cash and cash equivalents, trade and other receivables, derivative financial instruments and loans receivable.

	31 December 2020	2019
Financial assets measured at fair value through profit or loss (FVPL)
Derivative financial instruments (Level 2)	17	99
Trade receivables (Level 2)	115	140
Financial assets measured at measured at amortised cost
Trade and other receivables	43	87
Cash and cash equivalents	1,445	1,801
Total financial assets	1,620	2,127
Financial liabilities measured at fair value through profit or loss (FVPL)
Derivative financial instruments (Level 2)	372	137
Financial liabilities measured at measured at amortised cost
Borrowings	3,554	5,086
Accounts payable	378	345
Deferred consideration	-	176
Total financial liabilities	4,304	5,744

The fair value of the group’s financial instruments and levels of fair value hierarchy are disclosed in note 30. The main risks arising from the group’s financial instruments are gold price, interest rate, foreign currency exchange rates, credit and liquidity risks.

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 38

Gold price risk

The group is exposed to changes in the gold price due to its significant volatility. During 2014 and 2016, the group entered into a number of derivative transactions (revenue stabiliser and gold forward agreements) under a Strategic Price Protection Programme to limit its exposure to future possible fluctuations of gold price (as detailed further in note 16). Under the terms of the revenue stabiliser the group ensured a minimum selling gold price in the case of declines in the gold price and at the same time might benefit from increases in the gold price until certain barrier prices are reached on the call options, at which point the sale price was capped. In March 2020 the group effectively closed out the revenue stabiliser programme (note 16). If the gold price was 10% higher / lower during the year ended 31 December 2020 gold sales for the year would have increased / decreased by USD 460 million / USD 460 million, respectively (2019: USD 357 million / USD 355 million).

Interest rate risk

Interest expenses on borrowings issued at variable interest rates are in its majority effectively converted into fixed-rate interest payments using cross-currency and interest rate swaps (note 16); the group is not materially exposed to interest rate risk.

Foreign currency exchange rate risk

Currency risk is the risk that the financial results of the group will be adversely affected by changes in exchange rates to which the group is exposed. The group undertakes certain transactions denominated in foreign currencies. Prices for gold are quoted in USD based on international quoted market prices. The majority of the group’s expenditure are denominated in RUB, accordingly, operating profits are adversely impacted by appreciation of the RUB against the USD. In assessing this risk, management takes into consideration changes in the gold price. The carrying amounts of monetary assets and liabilities denominated in foreign currencies other than the functional currencies of the individual group entities were as follows:

	31 December 2020	2019
Assets
USD	1,421	1,821
EURO (presented in USD at closing exchange rate)	3	1
Total	1,424	1,822
Liabilities
USD	2,402	3,532
EURO (presented in USD at closing exchange rate)	4	8
Total	2,406	3,540

Currency risk is monitored regularly by performing a sensitivity analysis of foreign currency positions in order to verify that potential effects are within planned parameters. The table below details the group’s sensitivity to changes in exchange rates by 25% which is the sensitivity rate used by the group for internal analysis. The analysis was applied to monetary items at the reporting dates denominated in the respective currencies. If the USD or EURO exchange rate had increased by 25% for the year ended 31 December 2020 and 2019 compared to RUB as of the end of respective year, the group would have incurred the following losses:

	Year ended 31 December 2020	2019
Loss (USD exchange rate increased by 25% compared to RUB)	604	793
Loss (EURO exchange rate increased by 25% compared to RUB)	-	2

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM STATEMENT FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 39

Credit risk

Credit risk is the risk that a customer may default or not meet its obligations to the group on a timely basis, leading to financial losses to the group. Credit risk arises from cash, cash equivalents and deposits kept with banks, derivative agreements, loans issued, advances paid and other receivables. In order to mitigate credit risk, the group conducts its business with creditworthy and reliable counterparties, and minimises advance payments, actively uses guarantees, letters of credit and other instruments for trade finance to decrease risks of non-payment. The group employs a methodology for in-house financial analysis of banks and non-banking counterparties, which is used during new agreements with counterparties. The group’s credit risk profile is regularly monitored by management in order to avoid undesirable increases in risk, to limit concentration of credit and to ensure compliance with the above mentioned policies and procedures. Deposits, current bank accounts and derivative financial instruments are held with major Russian and international banks, with reasonable and appropriate diversification, which decreases concentration risk by spreading the credit risk exposure across several top rated banks. Although the group sells more than 90% of the total gold sales to several major customers, the group is not economically dependent on these customers because of the high level of liquidity in the gold commodity market. A substantial portion of gold sales are made to banks on advance payment or immediate payment terms, therefore the credit risk related to trade receivables is minimal. As of 31 December 2020, trade receivables for gold bearing products sales were USD 115 million (31 December 2019: USD 140 million). Gold sales to the group’s major customers are presented as follows:

	Year ended 31 December 2020	2019
Otkritie Bank	2,889	1,994
Sovkombank	1,262	511
VTB Bank	283	721
Other	522	739
Total	4,956	3,965

Liquidity risk

Liquidity risk is the risk that the group will not be able to settle all liabilities as they are due. The group’s liquidity position is carefully monitored and managed. The group manages liquidity risk by maintaining detailed budgeting and cash forecasting processes and matching the maturity profiles of financial assets and liabilities to help ensure that it has adequate cash available to meet its payment obligations. For assessing own credit risk, a proxy credit default swaps for the industry is used since Polyus does not have quoted credit default swaps. The group’s cash management procedures include medium-term forecasting (a budget approved each financial year and updated on a quarterly basis) and short-term forecasting (monthly cash-flow budgets are established for each business unit and a review of each entity’s daily cash position is performed using a two-week rolling basis).# PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars)

Presented below is the maturity profile of the group’s financial liabilities as of 31 December 2020 based on undiscounted contractual cash payments, including interest payments and derivatives:

Borrowings and derivatives	Accounts Principal	Interest payable	Leasing	Total
Due in the first year	265	176	378	12
Due in the second year	497	151	-	12
Due in the third year	911	116	-	9
Due in the fourth year	2,001	51	-	9
Due in the fifth year	31	-	-	8
Due in the period between sixth to eight years	-	-	-	35
Total	3,705	494	378	85

Presented below is the maturity profile of the group’s financial liabilities as of 31 December 2019 based on undiscounted contractual payments, including interest payments and derivatives:

Borrowings and derivatives Accounts payable and deferred	Principal	Interest consideration	Leasing	Total
Due in the first year	677	217	373	14
Due in the second year	467	196	28	14
Due in the third year	500	167	34	13
Due in the fourth year	1,241	128	-	10
Due in the fifth year	2,045	51	-	10
Due in the period between sixth to eight years	-	-	-	45
Total	4,930	759	435	106

Maturity of the derivative financial instruments and deferred consideration is presented within notes 16 and 23.

32. INVESTMENTS IN SIGNIFICANT SUBSIDIARIES

The basis of distribution of accumulated retained earnings for companies operating in the Russian Federation is defined by legislation as the current year net profit of the company, as calculated in accordance with Russian accounting standards. However, the legislation and other statutory laws and regulations dealing with profit distribution are open to legal interpretation and accordingly management believes at present it would not be appropriate to disclose an amount for distributable profits and reserves in these consolidated financial statements.

Information about significant subsidiaries of the group

Subsidiaries	Nature of business	Effective % held at 31 December 2020	Effective % held at 31 December 2019	Incorporated in Russian Federation
JSC Polyus Krasnoyarsk	Mining (open pit)	100	100	Yes
JSC Polyus Aldan	Mining (open pit)	100	100	Yes
JSC Polyus Verninskoye	Mining (open pit)	100	100	Yes
PJSC Lenzoloto	Holding company of Alluvials business unit until 22 September 2020	74	64	Yes
JSC GMC Lenzoloto	Holding company of Alluvials business unit from 22 September 2020	100	66	Yes
JSC Polyus Magadan	Mining	100	100	Yes
LLC Polyus Stroy	Construction	100	100	Yes
LLC SL Gold (note 23)	Exploration and evaluation of the Sukhoi Log deposit	100	68	Yes

Change of ownership in subsidiaries

In September 2020, following the approval by the extraordinary general shareholders’ meeting of PJSC Lenzoloto, JSC Polyus Krasnoyarsk acquired 94.4% of shares in JSC GMC Lenzoloto and 5

PJSC “POLYUS” NOTES TO THE CONSOLIDATED / CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2020 (in millions of US Dollars) 41

paid cash consideration of approximately RUR 19,900 million to PJSC Lenzoloto (equivalent of USD 262 million at the CBR currency exchange rate as of 22 September 2020). JSC GMC Lenzoloto holds all production assets and mining licenses of the Alluvial business unit of the group. During 2020, the group acquired 126,345 of ordinary and 15,498 of preferred shares of PJSC Lenzoloto from its shareholders for a total cash consideration of USD 33 million and 5 thousand ordinary shares of PJSC Polyus.

Summarised financial information of each of the group’s subsidiaries that have a material non-controlling interest

PJSC Lenzoloto
| | 31 December 2020 | 31 December 2019 |
|---|---|---|
| Summarised statements of financial position | | |
| Current assets | 315 | 258 |
| Non-current assets | 2,104 | 221 |
| Current liabilities | 270 | 25 |
| Non-current liabilities | 3 | 41 |
| Equity attributable to the shareholders of the subsidiary | 233 | 231 |
| Non-controlling interests | 84 | 65 |
| Summarised statements of profit or loss | | |
| Revenue | 187 | 216 |
| Profit / (loss) for the year | 334 | 23 |
| Profit attributable to non-controlling interests | 105 | 10 |
| Summarised statements of cash flows | | |
| Net cash inflow from operating activities | 70 | 46 |
| Net cash outflow from investing activities | 50 | (15) |
| Net cash (outflow) / inflow from financing activities | (7) | (2) |
| Dividends paid to non-controlling interests | 1 | 8 |

LLC SL Gold
| | 31 December 2020 | 31 December 2019 |
|---|---|---|
| Summarised statements of financial position | | |
| Current assets | 67 | 101 |
| Non-current assets | 229 | 229 |
| Current liabilities | 258 | 270 |
| Non-current liabilities | 75 | 3 |
| Equity attributable to the shareholders of the subsidiary | 15 | (2) |
| Non-controlling interests | - | (1) |
| Summarised statements of profit or loss | | |
| Revenue | - | - |
| Profit / (loss) for the year | 20 | (5) |
| Profit attributable to non-controlling interests | 7 | (2) |
| Summarised statements of cash flows | | |
| Net cash inflow from operating activities | - | - |
| Net cash outflow from investing activities | (34) | (26) |
| Net cash (outflow) / inflow from financing activities | (4) | 87 |
| Dividends paid to non-controlling interests | - | 3 |

6 Includes results of PJSC Lenzoloto and its subsidiaries until 22 September 2020 and only standalone PJSC Lenzoloto result and balances after.
7 During 2020 the group increased effective ownership in LLC SL Gold to 100%.

33. EVENTS AFTER THE REPORTING DATE

There were no events subsequent to the reporting date that should adjust amounts of assets, liabilities, income or expenses or that should be disclosed in these consolidated financial statements.