Polymetal International plc

Q3 2014 production results

Polymetal International plc (LSE, MOEX: POLY, ADR: AUCOY) (together with its subsidiaries - "Polymetal", the "Company", or the "Group") is pleased to announce the Group's production results for the third quarter and nine months ended September 30, 2014.

HIGHLIGHTS

·     Polymetal reports another strong set of the results, with 1,040 Koz of gold equivalent produced during the nine month period ended 30 September 2014, an increase of 7% year-on-year. Production growth was mainly driven by increased throughput at Dukat, Omolon and Mayskoye, combined with a solid grade profile.

·     As a result, the Company reaffirms it is on track to exceed its original gold equivalent production guidance of 1.3 Moz for 2014 by approximately 5%. The Company expects to produce 1.35 Moz of gold equivalent in 2015 and 1.40 Moz of gold equivalent in 2016.

·     Gold equivalent production in the third quarter was 388 Koz, an increase of 16% quarter-on-quarter. This represents a decrease of 6% from the previous year, mainly due to falling production at Khakanja and Varvara. Quarterly gold production was 259 Koz, up 32% quarter-on-quarter and down 8% year-on-year. Silver production in the third quarter was 7.7 Moz, up 2% year-on-year.

·     With the start of the navigation season, the Company has commenced concentrate shipment at Mayskoye. The first 22 Kt of concentrate containing 39 Koz of payable gold were sold during the quarter, and joint processing of Albazino and Mayskoye concentrates started at the Amursk POX plant. 

·     Net debt at 30 September 2014 increased by US$ 294 million compared to 30 June 2014 to US$ 1,332 million as the Company obtained an additional US$ 318.5 million of debt for the acquisition of the Kyzyl gold project in Kazakhstan (completed on September 4, 2014), while continuing to generate free cash flow and pay dividends.

·     The Company is continuing to benefit from the ongoing depreciation of the Russian ruble relative to the US dollar in 2H 2014. In Q3, the average exchange rate was 36.2 USD/RUB versus 35.0 USD/RUB in 1H 2014. As of 15 October 2014, the exchange rate was 40.5 USD/RUB. As a result, the Company is further reducing its full-year Total Cash Cost guidance to US$ 625-675 per gold equivalent ounce, and All-in Sustaining Cash Cost to US$ 925-975 per gold equivalent ounce.

"Polymetal has maintained its strong operating track record this year while delivering on its key strategic priorities", said Vitaly Nesis, CEO of Polymetal, commenting on the results. "The successful completion of the Kyzyl acquisition in September is complemented by solid performance across our mines and resulting strong free cash flow generation, which will allow us to maintain an optimistic outlook on operating and financial results for the year."

CONFERENCE CALL AND WEBCAST

Polymetal will hold a conference call and webcast onThursday 16 October at 2:30 pm London time (5:30 pm Moscow time).

To participate in the call, please dial:

8 10 8002 041 4011 access code 534993# (free from Russia), or

+44 (0) 20 3367 9457 (free from the UK), or

+1 866 907 5925 (free from the US), or

any of the above numbers (from outside the UK, the US and Russia) or follow the link:

http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=2408

Please be prepared to introduce yourself to the moderator or register.

Webcast replay will be available on Polymetal's website (www.polymetalinternational.com) and at http://www.audio-webcast.com/cgi-bin/visitors.ssp?fn=visitor&id=2408. A recording of the call will be available immediately after the call at +44 (0) 20 3367 9460 (from within the UK), +1 87 7642 3018 (from within the US) and +7 495 745 7948 (from within Russia), access code 289760#, from 6:30 pm Moscow time Thursday, October 16, till 6:30 pm Moscow time Thursday, October 23, 2014.

Enquiries

FORWARD-LOOKING STATEMENTS

THIS RELEASE MAY INCLUDE STATEMENTS THAT ARE, OR MAY BE DEEMED TO BE, "FORWARD-LOOKING STATEMENTS". THESE FORWARD-LOOKING STATEMENTS SPEAK ONLY AS AT THE DATE OF THIS RELEASE. THESE FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, INCLUDING THE WORDS "TARGETS", "BELIEVES", "EXPECTS", "AIMS", "INTENDS", "WILL", "MAY", "ANTICIPATES", "WOULD", "COULD" OR "SHOULD" OR SIMILAR EXPRESSIONS OR, IN EACH CASE THEIR NEGATIVE OR OTHER VARIATIONS OR BY DISCUSSION OF STRATEGIES, PLANS, OBJECTIVES, GOALS, FUTURE EVENTS OR INTENTIONS.  THESE FORWARD-LOOKING STATEMENTS ALL INCLUDE MATTERS THAT ARE NOT HISTORICAL FACTS. BY THEIR NATURE, SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER IMPORTANT FACTORS BEYOND THE COMPANY'S CONTROL THAT COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE BASED ON NUMEROUS ASSUMPTIONS REGARDING THE COMPANY'S PRESENT AND FUTURE BUSINESS STRATEGIES AND THE ENVIRONMENT IN WHICH THE COMPANY WILL OPERATE IN THE FUTURE. FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE. THERE ARE MANY FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO DISSEMINATE ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN TO REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENTS ARE BASED.

DUKAT OPERATIONS

Note:       (1) Technological recovery, includes gold and silver within work-in-progress inventory (concentrate, precipitate).

Quarterly silver production at Dukat increased to 6.1 Moz, an increase of 8% year-on-year, which was driven by the better grade profile at the Lunnoye underground mine and the increased throughput at both processing plants - the Omsukchan concentrator and the Lunnoye plant. Silver production for the nine months was 19.2 Moz, up 13% year-on-year, while gold production grew to 37.4 Koz, up 19% year-on-year.

At Dukat, the amount of ore mined increased 13% quarter-on-quarter and 22% year-on-year in line with the expanded processing capacity of the plant. At Goltsovoye, the amount of ore mined in Q3 increased 16% year-on-year due to sustained improvements in dilution control and the reduction of mining losses.

The scheduled quarterly decrease in grades processed at the Omsukchan concentrator was partially offset by further growth in plant throughput, which increased by 4% quarter-on-quarter to 443 Kt. Average recoveries during the quarter decreased slightly to 86.1% for silver and 84.4% for gold as a result of the decrease in grades.

At Arylakh, the underground development continued following the completion of open-pit mining in Q2. The ore is still predominantly sourced from Lunnoye underground mine.

The Lunnoye plant is now operating at full capacity of 400 Ktpa. In Q3, silver production at Lunnoye reached 1.3 Moz, up 26% year-on-year and 15% quarter-on-quarter, as a result of better recoveries, increased throughput and strong grade profile.

ALBAZINO-AMURSK 

Notes:     (1) To concentrate.

(2) For information only; not considered as gold produced and therefore not reflected in the table representing total production. Included in total production upon sale to off-taker.

Gold production at Albazino/Amursk in Q3 increased by 16% quarter-on-quarter to 61.7 Koz, but decreased 37% year-on-year as Polymetal ceased seasonal sales of concentrate to 3^rd party off-takers following the ramp up of the Amursk POX plant to full capacity at the end of 2013. The decrease in average gold grade in concentrate processed was fully offset by the increased processing volumes and further improved recoveries at the Amursk POX plant, which continues to operate steadily at its full design capacity.  

The processing plant at Albazino exceeded its new nameplate capacity of 1,600 Ktpa during the quarter, while grades and recoveries increased by 2% and 1% quarter-on-quarter.

MAYSKOYE

Notes:     (1) To concentrate.

(2) For information only; not considered as gold produced and therefore not reflected in the table representing total production. Included in   total production upon sale to off-taker or internal downstream processing to saleable metal product.

At Mayskoye, gold in concentrate produced over the nine month period increased almost three-fold to 142 Koz while the quarterly gold production in concentrate increased to 54 Koz. This was primarily driven by higher average grades and increased processing volumes.

At the Mayskoye underground mine, underground development and amount of ore mined increased 13% quarter-on-quarter. The average grade processed at the Mayskoye concentrator increased 20% year-on-year, bringing the 9 month average in line with the reserve average due to tighter dilution control. This has also had a positive impact on recoveries at the concentrator, which are now at 86.1%, a 6% increase quarter-on-quarter.

Sales to off-takers in China commenced in August after the start of the summer navigation period. During the quarter, the company sold 22 Kt of concentrate with the average grade of 61 g/t of gold contributing 39 Koz of payable gold to the annual production.

1.8 Kt of concentrate was processed at the Amursk POX plant together with Albazino concentrate during the quarter. The POX plant achieved the above-design recoveries of 94% and contributed 3 Koz to total gold production from Mayskoye.

Concentrate shipping in Q4 will continue to be split between off-take sales and processing at the Amursk POX, depending on the metallurgical properties of the material to optimise costs.

OMOLON OPERATIONS

Note:       (1) Technological recovery, includes gold and silver within work-in-progress inventory.

At Omolon, gold and silver production for the nine months increased by 56% and 4% year-on-year, respectively, driven by higher grade profile, as well as a 11% increase in Kubaka mill throughput. In Q3, the Kubaka plant focused on processing Dalneye and Sopka ores.

At Tsokol, the amount of ore mined increased by 40% quarter-on-quarter in anticipation of the planned switch from Sopka ore to Tsokol ore at the plant in Q4.

At Sopka, the amount of ore mined increased further by 25% quarter-on-quarter due to re-allocation of mining fleet from Dalneye where mining will be resumed in Q4 2014 - Q1 2015. Open-pit mining at Sopka is expected to be completed in Q4 2014.

At the Birkachan open pit mining was completed in June, and the underground development started in Q3. At the Birkachan heap leach, irrigation of the existing leach pads continued in the quarter and 4.2 Koz of gold were recovered from the solution during nine months 2014.

VORO

Note:       (1) Including the effect of rounding

Gold production at Voro for the nine months 2014 decreased slightly by 2% year-on-year to 115 Koz as a result of a scheduled decrease in grades at the CIP circuit, which was offset by 4% increase in average grades at the heapleaching circuit.

The amounts of ore mined during nine months 2014 were 11% higher year-on-year, with the majority of the increase attributable to primary ore.

VARVARA

Note:       (1) Technological recovery, includes gold and copper within work-in-progress inventory.

At Varvara, gold production in Q3 declined 19% quarter-on-quarter as a result of increased processing of leach material after a temporary closure of the flotation circuit in July in order to prevent accumulation of excess concentrate stockpiles in a weaker copper concentrate market.

Copper concentrate production will be resumed shortly after the current stockpile of 8 Kt of concentrate containing 1.5 Kt of copper and 7 Koz of gold is sold in full. The Company has already signed a contract with an off-taker in Europe and is currently proceeding with shipment of concentrate.

The amount of ore mined increased by 34% quarter-on-quarter as the mine has switched to ore mining at the South pit.

Recoveries remained depressed as leaching time decreased on the back of throughput expansion. Several metallurgical initiatives are currently being implemented which should aid in improving recoveries in Q4.

KHAKANJA

Note:       (1) Technological recovery, includes gold and silver within work-in-progress inventory (precipitate)

Gold production at Khakanja in Q3 2014 decreased 9% year-on-year to 29.5 Koz, while silver production was 0.4 Moz, down 33% year-on-year. These decreases were driven by planned grade declines as the Khakanja mine is nearing depletion and the feed is complemented by material from lower-grade stockpiles.

Quarter-on-quarter gold production increased by 11% and silver production by 7% as more than half of the processed ore was represented by higher grade material from Avalyakan and Ozerny.

Mining at Ozerny increased to 78 Kt ahead of winter road operating season.

At Avlayakan, underground development is continuing at a stable pace of approx. 1 km per quarter while ore mining from stopes continued to increase, reaching 10 Kt in Q3. Shipping of ore from Avlayakan to Khakanja processing plant for the current year has now been successfully completed in line with the schedule.

HEALTH AND SAFETY

Polymetal deeply regrets to report the occurrence of a fatal incident in Q3 at the Dukat underground mine, becoming the third fatality during the year. An underground worker was severely injured by a piece of rock in one of the stopes. The investigation of this case is ongoing.

The Company is implementing additional measures to ensure proper enforcement of existing rules and safety risk management procedures. Unscheduled safety trainings were provided for all workers, and the knowledge and application of safety rules by engineers was checked. All hazardous facilities access and isolation rules have also been re-visited.

The comprehensive safety review the Company launched in response to recent deterioration in its safety performance is ongoing. Golder Consulting has been engaged to assist Polymetal in assessing the geomechanical aspects at our underground mines, with actionable recommendations expected to be compiled by the end of Q4.

PERSONNEL

Mr. Yuri Ovchinnikov (42)was appointed Managing Director of the newly acquired Kyzyl Project in Kazakhstan. Mr. Ovchinnikov joined Polymetal in 2006 as Head of Procurement at Voro, then worked as Deputy Managing Director for Procurement at the Amursk POX and, lately, as Deputy Managing Director for Sales at Varvara since 2010.  Mr. Ovchinnikov holds a degree in engineering from the Volgograd State Agriculture University.