Polus — Earnings Release 2020

Jul 16, 2020

National Storage Mechanism | Additional information

RNS Number : 1482T

PJSC Polyus

16 July 2020

Press Release                                                                                          16 July 2020

PJSC Polyus

Trading update for the second quarter of 2020

2Q 2020 Highlights

·    Total gold output increased 16% to 690 thousand ounces compared to the previous quarter. Volumes of doré gold and total gold output remained largely flat year on year.

·    Volumes of ore mined amounted to 17,364 thousand tonnes, a 5% decrease on the previous quarter. On a year on year basis, volumes of ore mined rose by 11%.

·    Volumes of ore processed totalled 11,753 thousand tonnes, up 10% on the previous quarter. Year on year, volumes of ore processed rose by 8%.

·    Recovery rate stood at 83.4%, compared to 83.6% in the previous quarter.

·   Estimated gold sales amounted to $1,148 million, up 33% compared to the previous quarter, with an estimated weighted-average gold selling price of $1,723/oz.

·    As at 30 June 2020, the estimated net debt stood at $2,506 million, compared to $3,056 million as at the end of the previous quarter. These amounts include liabilities under cross currency and interest rate swaps related to RUB-denominated bank credit facilities and rouble bonds.

1H 2020 Highlights

·    Total gold output amounted to 1,285 thousand ounces, remaining flat year on year. Doré volumes totalled 1,373 thousand ounces, up 1% compared to the same period of the previous year.

·    Volumes of ore processed rose 6% year-on-year to 22,451 thousand tonnes, reflecting the performance of the Natalka Mill and the implementation of expansion projects across core assets.

·    Recovery rate stood at 83.5%, up 1.7 ppts from the prior-year period.

·    Estimated gold sales increased 23% year-on-year to $2,009 million, with an estimated weighted-average gold selling price of $1,664/oz.

Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:

Polyus delivered another set of solid operational results amidst a challenging environment with the COVID-19 pandemic, with total gold output increasing 16% quarter-on-quarter to 690 thousand ounces.

In response to the health risks resulting from the COVID-19 pandemic, Polyus has introduced an extensive list of health and safety protocols to protect our employees. Polyus continues to assess all potential risks on a daily basis, as the health and wellbeing of our employees and their families remain the Company's top priority.

The virus outbreak at our Krasnoyarsk operations has been successfully contained. As Polyus conducted a thorough analysis of an updated mining schedule at Olimpiada, we reiterate initial production guidance for 2020, and expect to achieve production of approximately 2.8 million ounces of gold for the full year.

Operationally, we remain well on track with the implementation of debottlenecking projects at Olimpiada and Verninskoye as well as further operational improvement initiatives at Natalka.

In addition, Polyus intends to provide the key findings of the Pre-Feasibility study along with the maiden estimate of Sukhoi Log P&P reserves over the course of the next few months. 

ESG update: 2Q 2020

Highlights:

·    Coronavirus: outbreak at Olimpiada contained. All production assets operated without interruption during 2Q 2020.

·    LTIFR[1] at 0.06 (1Q 2020 and 6M 2019 - 0.07)

·    No significant environmental incidents during 2Q 2020

COVID-19 update:

·    COVID-19 prevention measures remain in place at all company operations and offices, including regular testing of all staff, mandatory wearing of masks and gloves, regular disinfection of premises and temperature checks.

·    Almost all external medical staff has left Olimpiada, only a small number remains there to help keep the situation under control.

·    Polyus continues its cooperation with local authorities in regions of presence to help fight the pandemic.

o  Since the beginning of the pandemic, Polyus has purchased and provided to regional hospitals and to Polyus medical staff and employees:

§ almost 4 million masks and other individual protective devices

§ more than 1 million individual sanitizers

§ 210 thousand tests kits

§ 1.2 thousand units of medical equipment

§ 69 lung ventilators.

o  Polyus has provided advanced medical equipment to four major regional diagnostic laboratories.

Health and safety:

·    Enhancement of H&S management system:

o  SAP BW pilot operation launched, including analytical dashboards, historical health, safety and environment reports at pilot business units (Verninskoye, Polyus Logistics)

o  SAP EHSM pilot programme completed at Verninskoye and Polyus Logistics; the system has now been rolled out.

·    Training and education developments:

o  Safety culture and injury prevention training program in preparation

o  Work at Height Safety tutorial programme developed for contractor staff 

o  Risk of Tipping Over campaign focused on road safety completed

·    Audits:

o  Polyus business units successfully passed three unscheduled state HSE audits during 2Q.

o  In June, Polyus ran an unscheduled company-wide risk analysis for fuel and acids tanks following a widely covered diesel fuel spill disaster at a major mining company in northern Russia.

·    Plan templates on flood prevention measures for the snow thaw period and for wildfire season were prepared and circulated across the business units.

Environment:

·    Polyus is progressing with the development of its Climate Strategy, and the subcontractor has conducted interviews within the company.

·    Scheduled internal audits of the tailings storage facilities at Kuranakh, Verninskoye and Natalka were conducted remotely.

Social projects:

·    Winners of the 5th regional theatre competition "Polyus. Golden Season 2020" were awarded grants amouting to 6 million roubles in total.

·    Social and charity investments are proceeding as initially planned, despite isolation measures in place in a number of regions due to COVID-19.

New documents available at www.polyus.com:

·    2019 Sustainability Report

·    Updated Human Rights Policy

ESG Ratings:

·    MSCI ESG - A (up from BBB in 2019)

·    SAM - 45 (update planned for second half of 2020)

·    Sustainalytics ESG Risk Rating - 29.4 (improvement of 3 points vs 2019)

·    CDP - Water Security: D; Climate Change: D

Consolidated operating results

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Olimpiada	264.0	215.0	23%	300.8	239.9	282.7	-7%	479.0	531.0	-10%
Blagodatnoye	116.3	103.4	13%	126.2	96.5	104.1	12%	219.7	198.1	11%
Verninskoye	68.3	69.1	-1%	63.9	63.3	61.7	11%	137.4	128.7	7%
Alluvials	29.8	-	n.a.	34.6	81.4	29.6	1%	29.8	29.6	1%
Kuranakh	57.5	50.5	14%	62.9	68.2	50.0	15%	108.0	93.6	15%
Natalka	110.4	95.0	16%	132.3	100.4	87.2	27%	205.4	172.3	19%
Refined gold, koz	646.3	533.0	21%	720.7	649.7	615.3	5%	1,179.3	1,153.3	2%
Flotation concentrate production, t	30,023	26,185	15%	33,756	38,732	22,725	32%	56,208	48,874	15%
Antimony in flotation concentrate, t	2,432	2,739	-11%	4,936	4,978	3,732	-35%	5,171	4,859	6%
Gold in flotation concentrate, koz	44.1	61.9	-29%	83.3	103.0	68.5	-36%	106.0	131.2	-19%
Gold payable in concentrate, koz	32.4	48.5	-33%	61.8	76.4	50.8	-36%	80.9	97.3	-17%
Total gold output, koz	690.4	594.9	16%	804.0	752.7	683.8	1%	1,285.3	1,284.5	0%
Rock moved, kt	73,836	83,352	-11%	83,591	86,868	80,738	-9%	157,188	158,404	-1%
Stripping ratio, t/t	3.3	3.6	-8%	3.4	4.0	4.2	-21%	3.4	4.4	-23%
Ore mined, kt	17,364	18,226	-5%	19,011	17,477	15,661	11%	35,590	29,607	20%
Ore processed, kt	11,753	10,698	10%	11,527	11,366	10,901	8%	22,451	21,185	6%
Recovery rate, %	83.4%	83.6%	-0.2ppts	83.2%	82.1%	82.2%	1.2ppts	83.5%	81.8%	1.7ppts
Total doré & slime gold output, koz	712.4	660.2	8%	714.3	770.2	705.9	1%	1,372.6	1,362.1	1%

2Q 2020 Highlights

·    Total gold output amounted to 690 thousand ounces, compared to 595 thousand ounces in the first quarter of 2020. This increase was driven by higher production volumes of refined gold at Olimpiada, Natalka and Blagodatnoye, as well as the start of the washing season at Alluvials and the recommencement of heap leaching operations at Kuranakh.

·    Volumes of ore mined amounted to 17,364 thousand tonnes, down 5% on the previous quarter, driven by lower ore volumes mined at Blagodatnoye.

·    Volumes of ore processed increased 10% quarter-on-quarter to 11,753 thousand tonnes, primarily due to the start of heap leaching operations at Kuranakh and higher processing volumes at Natalka.

·    Flotation concentrate output amounted to 30 thousand tonnes, up 15% on the first quarter of 2020.

·    Volumes of antimony in flotation concentrate decreased to 2.4 thousand tonnes, down from 2.7 thousand tonnes in the previous quarter.

·    Volumes of gold in flotation concentrate decreased 29% quarter-on-quarter to 44.1 thousand ounces.

1H 2020 Highlights

·    Total gold output was 1,285 thousand ounces, remaining flat compared to the first half of 2019. Doré volumes totalled 1,373 thousand ounces, up 1% year-on-year.

·    Volumes of ore processed increased 6% to 22,451 thousand tonnes, reflecting the performance of the Natalka Mill and the implementation of expansion projects across core assets.

·    Recovery rate stood at 83.5%, up 1.7 ppts from the prior-year period, primarily driven by an increase in recoveries at Olimpiada.

·    The Company produced 56 thousand tonnes of flotation concentrate, up 15% on the prior-year period.

Olimpiada

2Q 2020 Highlights

Ø Recovery rate rose to 85.4%, from 84.8% in the previous quarter.

Ø Total gold output amounted to 308 thousand ounces.

Gold output

Doré gold output in the second quarter of 2020 stood at 305 thousand ounces, down 6% compared to the previous quarter, reflecting changes in volumes of unfinished products. Total gold output (refined and concentrate) rose by 11% compared to the previous quarter, to 308 thousand ounces, reflecting changes in gold in inventory at the refinery. On a year on year basis, doré gold output declined by 9%, while total gold production was down 12%.

Mining works

Volumes of rock moved totalled 25,021 thousand tones, a 26% decline on the first quarter of 2020. This decrease reflects the decision to temporary downscale stripping activities due to lower workforce availability during the outbreak of coronavirus at Olimpiada in May and early June 2020. Polyus expects to accelerate stripping activities in the second half of 2020. At the same time, volumes of ore mined increased 2% to 4,225 thousand tonnes. Polyus intensified mining activities at higher-grade zones of the Vostochny pit, which resulted in a 20% increase in average grades to 3.52 g/t, compared to 2.93 g/t in the previous quarter. During the second quarter of 2020, Polyus delivered four Komatsu bulldozers and one Komatsu wheel loader to the site.

Ore processing

Volumes of ore processed totalled 3,539 thousand tonnes, up 1% compared to the previous quarter. Following an increase in average grades in ore mined, average grades in ore processed rose by 8% to 3.47 g/t, compared to 3.20 g/t in the previous quarter. Recovery rate rose to 85.4%, up 0.6 ppts compared to the first quarter of 2020. This increase is mainly attributable to the higher average grades in ore processed and the performance of Jameson Cell flotation units, which had been fully ramped up in the previous quarter. The Company is continuing to implement throughput capacity expansion project at Olimpiada, which is aimed at stabilising throughput capacity at 13.4 million tonnes per annum. Over the course of the second quarter, Polyus continued to upgrade and expand its existing BIO units. This includes the modernization of four reactors (out of six planned for 2020) at BIO-3 unit and the commissioning of two additional reactors at BIO-4, which led to increased processing capacity and improved performance of the BIO complex in the second quarter of 2020. The Company targets the completion of these initiatives in the second half of 2020.

Flotation concentrate production

On a quarter-on-quarter basis, production of flotation concentrate increased 15% to approximately 30 thousand tonnes with lower gold content, as part of the technological adjustments during the BIO-circuits modernisation. Thus, volumes of gold contained in flotation concentrate decreased 29% to 44 thousand ounces.  

Mining works and ore processing

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Rock moved, kt	25,021	33,621	-26%	34,388	35,508	33,361	-25%	58,642	65,593	-11%
incl. stripping, kt	20,796	29,485	-29%	29,554	30,465	27,692	-25%	50,281	54,757	-8%
Stripping ratio, t/t	4.9	7.1	-31%	6.1	6.0	4.9	0%	6.0	5.1	18%
Ore mined, kt	4,225	4,136	2%	4,834	5,043	5,669	-25%	8,361	10,836	-23%
Average grade in ore mined, g/t	3.52	2.93	20%	3.30	3.52	3.48	1%	3.23	3.42	-6%
Ore processed, kt	3,539	3,503	1%	3,645	3,416	3,358	5%	7,042	6,847	3%
Average grade in ore processed, g/t	3.47	3.20	8%	3.88	4.01	4.03	-14%	3.34	3.89	-14%
Recovery, %	85.4%	84.8%	0.6ppts	84.0%	82.5%	82.1%	3.3ppts	85.1%	81.5%	3.6ppts
Doré gold, koz	305.0	323.7	-6%	338.4	356.1	343.1	-11%	628.7	691.3	-9%
Refined gold output, koz	264.0	215.0	23%	300.8	239.9	282.7	-7%	479.0	531.0	-10%
Flotation concentrate production, t	30,023	26,185	15%	33,756	38,732	22,725	32%	56,208	48,874	15%
Antimony in flotation concentrate, t	2,432	2,739	-11%	4,936	4,978	3,732	-35%	5,171	4,859	6%
Gold contained in concentrate, koz	44.1	61.9	-29%	83.3	103.0	68.5	-36%	106.0	131.2	-19%
Total gold output, koz	308.1	276.9	11%	384.1	342.9	351.2	-12%	585.0	662.2	-12%

Blagodatnoye

2Q 2020 Highlights

Ø Volumes of ore processed totalled 2,254 thousand tonnes.

Ø Average grade in ore mined rose to 1.32 g/t, compared to 1.23 g/t in the previous quarter.

Ø Refined gold output totalled 116 thousand ounces.

Gold output

Doré gold output in the second quarter of 2020 amounted to 116 thousand ounces, up 2% compared to the previous quarter. Refined gold output amounted to 116 thousand ounces, compared to 103 thousand ounces in the previous reporting period, reflecting changes in gold in inventory at the refinery. On a year on year basis, refined gold output increased 12%.

Mining works

Volumes of rock moved decreased 5% to 15,884 thousand tonnes compared to the previous quarter.

In line with the sequence of mining works, volumes of ore mined decreased 28% to 3,590 thousand tonnes, compared to 4,986 thousand tonnes in the first quarter of 2020. Polyus downscaled its mining activities at lower-grade flanks of the deposit, which resulted in an increase in the average grades in ore mined to 1.32 g/t in the second quarter of 2020 (up from 1.23 g/t in the previous quarter).  

Ore processing

Following an increase in average grades in ore mined, the average grade in ore processed increased to 1.80 g/t during the reporting period, from 1.76 g/t in the first quarter of 2020.

Volumes of ore processed amounted to 2,254 thousand tonnes, up 3% compared to the previous quarter. Recovery rate stood at 88.5%, compared to 88.7% in the first quarter of 2020.

Polyus is proceeding with the Feasibility Study for the construction of a new mill (Mill-5). The Feasibility Study is expected to be completed in the second half of 2020.

Mining works and ore processing

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Total rock moved, kt	15,884	16,678	-5%	16,727	17,691	16,334	-3%	32,562	33,384	-2%
including stripping, kt	12,294	11,692	5%	11,284	13,299	13,754	-11%	23,986	28,589	-16%
Stripping ratio, t/t	3.4	2.3	48%	2.1	3.0	5.3	-36%	2.8	6.0	-53%
Ore mined, kt	3,590	4,986	-28%	5,443	4,392	2,580	39%	8,576	4,795	79%
Average grade in ore mined, g/t	1.32	1.23	7%	1.11	1.17	1.34	-1%	1.27	1.28	-1%
Ore processed, kt	2,254	2,188	3%	2,340	2,061	2,322	-3%	4,442	4,604	-4%
Average grade in ore processed, g/t	1.80	1.76	2%	1.77	1.72	1.61	12%	1.78	1.59	12%
Recovery, %	88.5%	88.7%	-0.2ppts	88.5%	87.7%	87.5%	1.0ppts	88.6%	87.5%	1.1ppts
Doré gold, koz	115.8	113.0	2%	114.5	101.1	104.4	11%	228.8	205.6	11%
Refined gold output, koz	116.3	103.4	12%	126.2	96.5	104.1	12%	219.7	198.1	11%

Verninskoye

2Q 2020 Highlights

Ø Average grade in ore mined stood at 2.11 g/t, compared to

1.99 g/t in the first quarter of 2020.

Ø Doré output totalled 72 thousand ounces, up 10% on the previous quarter.

Gold output

Refined gold output amounted to 68 thousand ounces and was almost flat on a quarter-on-quarter basis. Doré gold output rose to 72 thousand ounces driven by higher volumes of ore processed in the second quarter of 2020, compared to 65 thousand ounces in the previous quarter.

Mining works

Volumes of rock moved amounted to 7,497 thousand tonnes, remaining almost flat compared to the previous quarter.

Volumes of ore mined decreased to 1,439 thousand tonnes, down 6% from 1,527 thousand tonnes in the previous quarter, while average grades rose to 2.11 g/t (1.99 g/t in the first quarter of 2020), in line with the mining plan.

Ore processing

During the reporting period, the average grade in ore processed stood at 2.90 g/t, remaining unchanged from the previous quarter.

Volumes of ore processed amounted to 858 thousand tonnes, up 10% on the previous quarter, reflecting the completion of scheduled maintenance works at the Verninskoye Mill, which had finished in March 2020. 

The recovery rate stood at 89.6% and remained flat compared to the previous quarter.

Polyus is well on track with the further capacity expansion of the Verninskoye Mill to 3.5 million tonnes per annum. The Company continued construction works at the extension to its main building, where an additional grinding circuit will be installed.

Mining works and ore processing

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Total rock moved, kt	7,497	7,517	0%	5,879	6,682	6,263	20%	15,014	11,912	26%
including stripping, kt	6,058	5,990	1%	4,605	5,426	5,323	14%	12,048	9,994	21%
Stripping ratio, t/t	4.2	3.9	8%	3.6	4.3	5.7	-26%	4.1	5.2	-21%
Ore mined, kt	1,439	1,527	-6%	1,274	1,256	940	53%	2,966	1,918	55%
Average grade in ore mined, g/t	2.11	1.99	6%	2.32	2.30	3.01	-30%	2.06	2.83	-27%
Ore processed, kt	858	778	10%	796	724	790	9%	1,636	1,515	8%
Average grade in ore processed, g/t	2.90	2.90	0%	2.90	2.90	2.90	0%	2.90	2.90	0%
Recovery, %	89.6%	89.6%	0.0ppts	89.6%	89.5%	89.5%	0.1ppts	89.6%	89.5%	0.1ppts
Doré gold, koz	71.7	65.0	10%	66.7	60.7	66.1	8%	136.7	126.6	8%
Refined gold output, koz	68.3	69.1	-1%	63.9	63.3	61.7	11%	137.4	128.7	7%

Alluvials

2Q 2020 Highlights

Ø Start of the washing season.

Ø Gold in slime production amounted to 43 thousand ounces.

Ø Refined gold output totalled 30 thousand ounces.

In the second quarter of 2020, Alluvial deposits produced 43 thousand ounces of gold in slime, up 8% on the second quarter of 2019. This increase was primarily due to higher volumes of sands washed.

Refined gold output totalled 30 thousand ounces, remaining broadly flat compared to the second quarter of 2019.

Sands washing

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Sands washed, 000 m³	2,888	-	n.a.	1,207	5,115	2,259	28%	2,888	2,259	28%
Average grade, g/m³	0.46	-	n.a.	0.54	0.52	0.55	-16%	0.46	0.55	-16%
Gold in slime, koz	42.7	-	n.a.	21.1	84.9	39.6	8%	42.7	39.6	8%
Refined gold output, koz	29.8	-	n.a.	34.6	81.4	29.6	1%	29.8	29.6	1%

Kuranakh

2Q 2020 Highlights

Ø Recovery rate at the Kuranakh Mill reached 89.1%.

Ø Refined gold output amounted to 58 thousand ounces, up 14% compared to the previous quarter.

Gold output

Doré gold output in the second quarter of 2020 amounted to 60 thousand ounces, a 14% increase compared to the first quarter of 2020, primarily due to the recommencement of the heap leaching operations. Refined gold output amounted to 58 thousand ounces, up 14% on the previous quarter.  

Mining works

Volumes of rock moved amounted to 7,505 thousand tonnes, down 2% on a quarter-on-quarter basis. Volumes of ore mined increased 32% to 2,286 thousand tonnes, compared to the first quarter of 2020. In line with the mining plan, Polyus intensified its mining activities and increased the share of lower-grade material in ore mined due to the start of the heap leaching activities. This resulted in a decrease in the average grade to 1.04 g/t (1.17 g/t in the first quarter of 2020).

Ore processing

Volumes of ore processed at the Kuranakh Mill amounted to 1,497 thousand tonnes, up 2% on the previous quarter.

Average grade in ore processed at the Mill stood at 1.25 g/t, remaining flat quarter-on-quarter.

Recovery rate rose to 89.1%, up 0.1 ppts from the previous quarter.

Heap leaching

Leaching activities recommenced in May 2020. 670 thousand tonnes were processed at heap leaching facilities in the second quarter of 2020, with an average grade of 0.72 g/t. Doré gold output totalled 6 thousand ounces.

Mining works and ore processing

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Total rock moved, kt	7,505	7,675	-2%	7,373	8,083	7,965	-6%	15,180	15,357	-1%
including stripping, kt	5,219	5,947	-12%	5,682	5,831	5,685	-8%	11,166	11,451	-2%
Stripping ratio, t/t	2.3	3.4	-32%	3.4	2.6	2.5	-8%	2.8	2.9	-3%
Ore mined, kt	2,286	1,728	32%	1,691	2,252	2,280	0%	4,014	3,906	3%
Average grade in ore mined, g/t	1.04	1.17	-11%	1.21	1.03	1.04	0%	1.10	1.08	2%
Total ore processed, kt	2,167	1,467	48%	1,505	2,313	1,720	26%	3,634	3,064	19%
Mill
Ore processed, kt	1,497	1,467	2%	1,457	1,469	1,364	10%	2,963	2,708	9%
Average grade in ore processed, g/t	1.25	1.25	0%	1.25	1.21	1.23	2%	1.25	1.22	3%
Recovery, %	89.1%	89.0%	0.1ppts	89.0%	88.8%	88.9%	0.2ppts	89.0%	88.8%	0.2ppts
Doré gold, koz	54.0	52.3	3%	52.0	50.3	48.2	12%	106.3	95.4	11%
Heap-leach
Ore processed, kt	670	-	n.a.	48	844	356	88%	670	356	88%
Average grade in ore processed, g/t	0.72	-	n.a.	0.77	0.78	0.73	-1%	0.72	0.73	-1%
Recovery, %	72.3%	-	n.a.	72.3%	72.3%	72.3%	0.0ppts	72.3%	72.3%	0.0ppts
Doré gold, koz	5.8	-	n.a.	4.4	17.4	6.1	-5%	5.8	6.1	-5%
Total doré gold, koz	59.8	52.3	14%	56.4	67.7	54.3	10%	112.1	101.5	10%
Refined gold output, koz	57.5	50.5	14%	62.9	68.2	50.0	15%	108.0	93.6	15%

Natalka

2Q 2020 Highlights

Ø Volumes of ore processed amounted to 2,935 thousand tonnes.

Ø Recovery rate stood at 70.5%.

Ø Refined gold output reached 110 thousand ounces.

Gold output

Doré gold output in the second quarter of 2020 amounted to 117 thousand ounces, up 11% compared to the previous quarter, reflecting higher volumes of ore processed as well as higher head grades.  Refined gold output amounted to 110 thousand ounces, compared to 95 thousand ounces in the first quarter of 2020.

Mining works

In the second quarter of 2020, both volumes of rock moved and ore mined remained almost flat quarter-on-quarter, amounting to 17,929 thousand tonnes and 5,824 thousand tonnes, respectively. The average grades in ore mined stood at 1.26 g/t (1.31 g/t in the first quarter of 2020).

Polyus is progressing with construction activities at the operation's main tailings storage facility, which is expected to be commissioned in the second half of 2020.

Ore processing

Volumes of ore processed totalled 2,935 thousand tonnes, up 6% on the preceding quarter. This increase reflects the scheduled maintenance works, which had been completed in February 2020.

Average grade in ore processed rose to 1.76 g/t, compared to 1.59 g/t in the previous quarter. This reflects intensified mining activities in the higher-grade Central pit area.

Recovery rate averaged at 70.5% in the second quarter, remaining largely flat quarter-on-quarter.

Temporary variations in the feed composition, with a higher share of ore with lower gravity recoverability, have been negatively affecting recovery rate at Natalka since March. The Company proceeds with the implementation of operational initiatives targeting recovery improvement in the second half of 2020. The Company has already installed the first flash flotation unit in May 2020 and currently proceeds with its ramp-up. Polyus expects to complete the project by commissioning one more flash flotation unit along with additional CIL columns in the second half of 2020.

Mining works and ore processing

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Total rock moved, kt	17,929	17,861	0%	19,218	18,904	16,809	7%	35,790	32,152	11%
including stripping, kt	12,105	12,012	1%	13,450	14,370	12,618	-4%	24,117	24,001	0%
Stripping ratio, t/t	2.1	2.1	0%	2.3	3.2	3.0	-30%	2.1	2.9	-28%
Ore mined, kt	5,823	5,849	0%	5,768	4,534	4,191	39%	11,673	8,151	43%
Average grade in ore mined, g/t	1.26	1.31	-4%	1.17	1.13	1.10	15%	1.29	1.09	18%
Ore processed, kt	2,935	2,762	6%	3,241	2,852	2,711	8%	5,697	5,155	11%
Average grade in ore processed, g/t	1.76	1.59	11%	1.61	1.51	1.56	13%	1.67	1.66	1%
Recovery, %	70.5%	70.7%	-0.2ppts	72.3%	71.6%	71.4%	-0.9ppts	70.6%	71.5%	-0.9ppts
Doré gold, koz	117.4	106.2	11%	117.2	99.8	98.3	19%	223.6	197.4	13%
Refined gold output, koz	110.4	95.0	16%	132.2	100.4	87.2	27%	205.4	172.3	19%

Sukhoi Log

2Q 2020 Highlights

Ø The Pre-Feasibility Study is at an advanced stage.

Pre-Feasibility Study highlights

During the reporting period, the mine plan for the Sukhoi Log Development Project (the "Project) was finalised, with the focus on optimising mining and stripping volumes to provide for smooth ramp-up and optimal grades in processing. The Project's capital estimate has now been realigned with the mining plan optimisation. 

Other parts of the Pre-Feasibility Study, including metallurgy and processing, project infrastructure, environment and logistics have now been completed and are undergoing a comprehensive internal review.

Based on the assessment of the drilling samples obtained during the 2019 exploration and verification programme, the Company expects to provide a further update on the Inferred & Indicated Mineral Resources estimates and publish a maiden Ore Reserve estimate for Sukhoi Log in the second half of 2020.

Polyus targets the start of the Feasibility Study in the second half of 2020.

Additional drilling activity at Sukhoi Log

The Company made a decision to expand the in-fill drilling campaign and now expects to drill approximately 33,700 meters before the end of the year, compared to the 30,000 meters initially planned. During the reporting period, Polyus completed 20,568 meters of the in-fill drilling programme. The drilling works are focused on the future pit area, where Polyus expects to carry out mining activities during the first years of Sukhoi Log's operations. This will allow the Company to better define the gold mineralisation within this area and enable more accurate planning and sequencing of the mining works.

The Company also proceeded with additional drilling at Sukhoi Log's flanks and deep levels in 2020.

FINANCIAL UPDATE

Gold sales

In the second quarter of 2020, the Company sold a total of 672 thousand ounces of gold, a 24% increase on the previous quarter. Total gold sales include 26 thousand ounces of gold contained in concentrate from Olimpiada.

Estimated gold sales in the reporting period totalled approximately $1,148 million, compared to $861 million in the previous quarter and $886 million in the second quarter of 2019.  

Debt management

The Company's gross debt decreased to $3,870 million, compared to $4,561 million as at the end of the first quarter of 2020. At the same time, the Company's gross debt, including liabilities under cross currency and interest rate swaps related to RUB-denominated bank credit facilities decreased to $4,160 million, compared to $4,934 million in the previous quarter.

In April, the Company repaid the principal amount of $677 million notes outstanding from its own cash. In May, Polyus fully redeemed its 2021 convertible bonds, with the principal amount and accrued interest of $186 million notes outstanding as at 31 March 2020. All holders opted for the conversion and approximately 1.5% of the total share capital was delivered. The group borrowed approximately 1.35% of the total share capital from PGIL, its shareholder, in order to deliver the GDRs to convertible note holders. Polyus intends to return the borrowed shares to PGIL upon the completion of the additional share issue.

As at 30 June 2020, the Company's estimated cash position stood at $1,654 million (31 March 2020: $1,878 million). The estimated net debt position decreased compared to the previous quarter, and amounted to $2,216 million (31 March 2020: $2,683 million), while the estimated net debt position, including the liabilities under cross currency and interest rate swaps, decreased to $2,506 million (31 March 2020: $3,056 million). The group's net liabilities under cross currency and interest rate swaps related to RUB-denominated bank credit facilities and rouble bonds totalled approximately $290 million as of the end of the second quarter (31 March 2020: $373 million).

	2020	2021	2022	2023	2024	2025
Debt maturities [2], $ mln	9	233	501	1,062	2,000	29

Eurobonds	Bank loans	Finance lease	Local rouble bonds
45%	40%	2%	13%

	2Q'20	1Q'20	Q-o-Q	4Q'19	3Q'19	2Q'19	Y-o-Y	1H'20	1H'19	Y-o-Y
Refined gold sold, koz	646	533	21%	722	650	628	3%	1,179	1,176	0%
Gold contained in concentrate, koz	26	11	136%	172	79	57	-54%	37	79	-53%
Gold payable in concentrate, koz	18	9	100%	140	67	46	-61%	27	64	-58%
Total gold sales, koz	672	544	24%	894	729	685	-2%	1,216	1,255	-3%
Gold sales, $ mln	1,148	861	33%	1,277	1,061	886	30%	2,009	1,627	23%
Weighted-average refined gold selling price, $/oz	1,723	1,592	8%	1,482	1,482	1,314	31%	1,664	1,311	27%
Average LBMA price, $/oz	1,711	1,583	8%	1,481	1,472	1,309	31%	1,645	1,307	26%
Net debt, $ mln	2,216	2,683	-17%	3,285	3,317	3,639	-39%	2,216	3,639	-39%
Net debt (incl. derivatives), $ mln	2,506	3,056	-18%	3,253	3,393	3,665	-32%	2,506	3,665	-32%

CONFERENCE CALL INFORMATION

Polyus will host an analyst conference call on 16 July 2020 at 11 am London time (1 pm Moscow time) to present and discuss the second quarter operating results.

To join the conference call, please dial:

Conference ID: 22512823#

UK 

+44 207 194 37 59 (Local access)

0800 376 61 83 (Toll free)  

USA

+1 646 722 49 16 (Local access)

844 286 06 43 (Toll free)

Russia

+7 495 646 93 15 (Local access)

8 800 500 98 63 (Toll free)

To access the replay, please dial:

Passcode: 418946236#

UK

+44 20 3364 5147

USA

+1 (646) 722-4969  

Russia

+7 (495) 249-16-71

Enquiries: 

Investor and Media contact

Victor Drozdov, Director Communications & Investor Relations (CIR) Department 

+7 495 641 33 77 

[email protected] 

Forward looking statements  

This announcement may contain "forward-looking statements" concerning Polyus and/or Polyus Group. Generally, the words "will", "may", "should", "could", "would", "can", "continue", "opportunity", "believes", "expects", "intends", "anticipates", "estimates" or similar expressions identify forward-looking statements. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Forward-looking statements include statements relating to future capital expenditures and business and management strategies and the expansion and growth of Polyus' and/or Polyus Group's operations. Many of these risks and uncertainties relate to factors that are beyond Polyus' and/or Polyus Group's ability to control or estimate precisely and therefore undue reliance should not be placed on such statements which speak only as of the date of this announcement. Polyus and/or any Polyus Company assumes no obligation in respect of, and does not intend to update, these forward-looking statements, except as required pursuant to applicable law.

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[1] Based on a 200,000 work hours factor.

[2] Net of non-cash IFRS adjustments

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