PETROPAVLOVSK PLC. Repositioning For Growth September 2018

Transcription

1 PETROPAVLOVSK PLC Repositioning For Growth September

2 Disclaimer This document is being supplied to you by Petropavlovsk PLC (the Company ) solely for your information. The information in this presentation has been provided by the Company or obtained from publically available sources. No representation or warranty, express or implied, is given by or on behalf of the Company or any of the Company s directors, officers or employees or any other person as to the accuracy or completeness of the information or opinions contained in this document. Some statements contained in this presentation or in documents referred to in it are or may be forward-looking statements, including references to guidance. Such statements reflect the Company s current views with respect to future events and are subject to risks, assumptions, uncertainties and other factors beyond the Company s control that could cause actual results to differ from those expressed in such statements. Although the Company believes that such forward-looking statements, which speak only as of the date of this presentation, are reasonable, no assurance can be given that they will prove to be correct. Therefore, you should not place undue reliance on these statements There can be no assurance that the results and events contemplated by the forward-looking statements contained in this presentation will, in fact, occur. The Company will not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date of this presentation, except as required by law or by any appropriate regulatory authority. Nothing in this presentation or in documents referred to in it should be considered as a profit forecast. The past performance of the Company and its securities is not, and should not be relied on as, a guide to the future performance of the Company and its securities This presentation does not constitute, or form part of or contain any invitation, recommendation or offer to any person to underwrite, subscribe for, buy, sell, otherwise acquire, exchange or dispose of any shares or securities in the Company or advise persons to do so in any jurisdiction, including, but not limited to, the Russian Federation, nor shall it, or any part of it, form the basis of or be relied on in any connection with or act as an inducement to enter into any contract or commitment therefore or engage in any other investment activity. In particular, this presentation and the information contained herein are not an offer of securities for sale in the United States. This presentation does not constitute an advertisement of any securities in the Russian Federation No reliance may be placed for any purpose whatsoever on the information or opinions contained in this presentation or on its completeness and no liability whatsoever is accepted for any loss howsoever arising from any use of this presentation or its contents or otherwise in connection therewith. The development and production plans and estimates set out herein represent the current views of the Company's management. The Company s Board reviews the production estimates on an ongoing basis. All planning is subject, inter alia, to available funding and capital allocation decisions English law and English courts will have exclusive jurisdiction over any disputes arising from or connected with this presentation 2

3 Introductory Remarks 3

4 Petropavlovsk at a Glance A leading Russian gold miner, operating in the Amur region since 1994 Three gold mines, c.6.9moz of gold produced to date (1) 20.86Moz of JORC Resources (2) including 8.15Moz of Reserves c.16mtpa of RIP processing capacity Gold production: 2019: c.500koz : c koz High untapped exploration potential POX Hub on schedule for launch Dec 2018, with production Q Experienced management team + skilled workforce 31% equity interest in low cost Hong Kong listed iron producer IRC (1) As at 30 Jun 2018, incl. gold produced by our alluvial operations and JVs (2) As at 31 Dec 2017, in accordance with the JORC Code. Resources (M,I&I) are incl. of Reserves 4

5 A Leading Russian Gold Miner, Operating In The Amur Region Since 1994 Established operational foothold in the Far East of Russia Assets have produced c.6.9moz Au to date 3 x gold mines, mix of open pit + underground c.16mtpa of RIP processing capacity Each mine has direct access to road, rail + national grid Long life mineral resource base 20.86Moz of JORC Resources High untapped exploration potential Experienced management team + workforce Strong track record of mine development, expansion + asset optimisation New growth opportunities POX Hub at Pokrovskiy due to launch Q High grade from underground assets already making a contribution IRC: a low cost iron ore producer 31% equity interest, Hong Kong listed (1) Operating mines Underground mine POX Analytical labs Hydro power plant Pokrovskiy POX Hub CHINA CHI NA Pioneer Malomir Pilot POX Plant (1) IRC market capitalisation as at close 24 September 2018 (US$89.0m, source: Bloomberg) x Petropavlovsk s equity interest (31.1%) = US$27.7m Russia Amur region Blagoveshcensk Khab arovs k Albyn Hydro power plant EA O 5

6 Petropavlovsk: Repositioned for Growth Full operational review completed optimisation measures already demonstrating returns 1 Improved FY 2018 Guidance FY 2018 production guidance uplift from 400Koz 410Koz to 420Koz 450Koz, due to mine plan optimisation + gold in concentrate Cash cost guidance reduced by 10% to US$750 - US$800/oz 2 POX On Track For Dec Launch Dry commissioning has commenced, maiden production expected by early Q Supports estimated production of Koz p/a for the next 5 yrs 3 Enhanced Flotation Concentrate Parameters >50% improvement in Malomir concentrate grade (to c.36-40g/t) reduces operating costs Concentrate now sellable without further processing to create additional liquidity if required Higher grades + better yields allow for uplift in spare processing capacity at POX Hub 4 Improved Operational + Financial Results at IRC H1 production up 50% H1 EBITDA up 43% 5 Significant Progress in Refinancing IRC Loan Russian bank credit committee has approved refinancing of IRC s project finance facility POG guarantee to be reduced in stages upon satisfaction of milestones by IRC Repayment of US$30m bridge loan + US$6m guarantee fee expected by mid-dec 6

7 H Results 7

8 H Operational Highlights Challenging operational period in H1 significant improvement anticipated in H2 H Production Split By Operation Pioneer 39% 78.6Koz 70.3Koz 5.6Koz Pokrovskiy 46.8Koz 3% Albyn 35% Malomir 23% Malomir (Open pit + Underground Operation) Non-refractory mining focused on Quartzitovoye 1 + Dorozhny, with ongoing pit expansion at Magnetitovoye 2 Underground mining development continued at Quartzitovoye 1. Total u/ground development in H1 comprised 3,760m with 158kt of ore mined at an avg. grade of 5.4g/t In Q2, mining of refractory ores for flotation plant began at Central pit. Flotation commissioned July Major refractory ore mining work to feed flotation plant will focus on Central open pit, where high grade ore (avg. grade up to 2g/t) expected, alongside low grade ore (avg. grade g/t) Significant volumes of stockpiled refractory ore available Pioneer (Open pit + Underground Operation) Ore mined from six pits + blended in from existing stockpiles Underground mine development carried out in preparation for underground mine production ramp up Total H1 underground development comprised 2,167m, with 48kt of development ore mined (avg. grade of 2.3g/t) Ore mined as a by-product of development work, hence gold grades lower vs. avg. reserve grade of 4.65g/t Grades expected to increase in H2 when mine works at full capacity Albyn (Open Pit Operation) Overburden removal + mining work continued at eastern, central + southern areas of Central pit Process plant operated as planned with a high recovery rate of 94% 8

9 H Financial Results Highlights Gold produced + sold lower in H vs. H due to lower recovery of gold in circuit Units H H Change Change Gold sold Koz (30.4) (13%) Avg. realised gold price US$/oz 1,285 1, % Group revenue US$m (33.5) (11%) Total cash costs (TCC) US$/oz % All-in sustaining costs (AISC) US$/oz 1, % Operating (loss) / profit US$m (17.2) 64.9 (82.1) (127%) Underlying EBITDA US$m (53.4) (47%) (Loss) / Profit before tax US$m (16.2) 46.8 (63.0) (135%) (Loss) / Profit for the period US$m (24.8) 24.5 (49.3) (201%) Net cash from operating activities US$m % Net debt US$m (565.7) (585.1) (1) 19.4 (3%) Development capex US$m % Exploration capex US$m % (1) As at 31 Dec

10 H Total Cash Costs (TCC) H1 delays due to less than satisfactory performance at Albyn and stoping at Pioneer US$/oz 308 (1) (135) (15) Cost improvement expected in H % 899 TCC H Cost increase Deferred stripping (1) H1 increase due to sub-optimal organisation of mining works Other taxes Co-product effect Changes in grades+recoveries FX TCC H FY 2018 TCC expected to be within US$ /oz range lower than previous guidance + a significant improvement on reported H figure 10

11 H Development and Exploration Capex Total H capex spend = c.us$67m (c.us$54m development + c.us$13m exploration) Development (US$m) Exploration (US$m) PPE Upgrade Albyn Tailings Tailings, underground, equipment Pokrovskiy + Pioneer 6.1 Flotation, tailings, underground Malomir Exploration Pioneer US$6.1m + Malomir US$4.3m + Albyn US$2.5m POX 34.0 Overall POX spend as at 30 Jun 2018 = c.us$267m, commissioning expected Dec 2018 Total FY 2018 capex estimated at c.us$107m, in line with previous guidance, of which c.us$70m is attributable to the POX Hub, (incl. Malomir flotation) Note: numbers may not add up due to rounding 11

12 Positioned For Growth: Pressure Oxidation 12

13 POX: New Growth Opportunities Launch of the POX Hub at Pokrovskiy will unlock value embedded in our refractory ore More than 50% of Russia s defined gold resources are refractory or partially refractory POX is a globally recognised process for treating refractory ore / flotation concentrate Our POX plant is the result of almost a decade of work by an inhouse group of scientific experts + engineers Principal Refractory / Partially Refractory Deposits in Russia Pioneer (40km from POX Hub) Pokrovskiy POX Hub Extraction of gold from refractory ore requires additional stages (flotation + then pressure oxidation (POX) to extract gold from flotation concentrate) Malomir (670km from POX Hub) Transition to processing of refractory reserves will allow for significant decrease in costs due to: (1) Lower mining costs as a result of a stripping ratio of 7:1 for non-refractory reserves vs. a ratio of just 2:1 for our refractory reserves (2) Non-refractory avg. reserve grade of c.1.0g/t vs. refractory concentrate grade of c.40g/t Excellent location supported by well established infrastructure 10km from Trans-Siberian Railway Access to ample hydropower Milling facilities + skilled workforce Potential for toll treatment of third party concentrates Petropavlovsk expects to unlock c.50% of R&R via the POX Hub Non-refractory 54% / 11.2Moz Non-refractory 50% / 4.1Moz JORC Resources 20.9 Moz JORC Reserves 8.2 Moz Refractory 46% / 9.6Moz Refractory 50% / 4.1Moz (1) In accordance with JORC Code as at 31 Dec 2017, Resources (M,I&I) are inclusive of Reserves 13

14 POX Hub Overview Process flowsheet and parameters Malomir concentrate 87% recovery 3.7% concentrate yield c.37g/t Au Flotation Plant MALOMIR Flotation Plant PIONEER Pioneer concentrate 79% recovery 2.8% concentrate yield c.20g/t Au Staged Commissioning Q Est. commissioning 2023 Up to 300Ktpa concentrate (1) ktpa concentrate 1 2 POX HUB 3 4 Concentrate Re-grinding Autoclave Oxidation 4x 15mx4m autoclaves RIP Circuit Doré to Refinery 90% mm bar minutes Purogold Resin Smelting into bullion to be sold to banks Total circuit recovery = c.93-98% Existing Infrastructure Wet commissioning Oct 2018 Existing Infrastructure Existing Infrastructure (1) Company estimates. 300Ktpa based on a 5.6% concentrate yield. At 3% concentrate yield production is estimated at 200Ktpa 14

15 POX Hub Construction Update Construction schedule: currently in commissioning phase + on track for Q production 1 st line of Malomir flotation launched July 2018, 2 nd line expected to be commissioning in Q Concentrate being stockpiled at POX Hub ahead of Dec 2018 commissioning Oxygen plant at the POX Hub was commissioned Aug 2018, with first production of liquid oxygen expected Oct POX Hub dry commissioning well advanced, with hot commissioning expected to commence Dec at current rate of progress Q3 Q4 Q1 Q2 Q3 Q4 Flotation Plant Development Malomir 1st Line (Commissioning / Ramping up) Malomir 2nd Line (Commissioning / Ramping up) Malomir 3rd Line (Construction / Commissioning) Pioneer Construction to 2023 POX Hub Development Q3 Q4 Q1 Q2 Q3 Q4 Oxygen Plant Autoclaves: Dry Commissioning Autoclaves: Wet Commissioning First Production 15

16 Malomir Flotation Plant Unlocking Refractory Ounces for the POX Hub Staged design of 5.4Mtpa aligned with existing crushing / grinding capacity of 6.0Mtpa Concentrate to be transported to POX Hub for processing Refractory ores for flotation to be processed alongside high grade non-refractory ore from underground operation Flotation line #1 at Malomir commissioned successfully in Jul, now at full capacity (1.8Mtpa) Flotation line #2 ready for commissioning by end of Sep Flotation line #3 to be commissioned 2019 Currently producing c.36-40g/t concentrate, a significant improvement on the original design, achieved by Group metallurgists as part of the improved technological flowsheet + currently being achieved on an industrial scale Producing less volumes of concentrate but at a higher grade Significant cashflow improvement from reduced processing + transportation costs Creation of extra capacity at the POX Hub allows for potential inclusion of material from third party suppliers Positive impact of higher grade concentrate: a 50%+ uplift in concentrate grade alongside improved yield will lead to a c.8% decrease in TCC/oz Malomir Flotation Plant Impact of Grade + Concentrate Yields on TCC Original Parameters New Higher Grade Grade 24.7g/t 37.4g/t Yield 5.6% 3.7% TCC US$751/oz US$689/oz 16

17 POX Hub Construction Progress During Q External view of the POX Hub complex Outotec staff inspecting the press filter Mounting of stirrers Internal view of the POX plant 17

18 POX Hub Construction Progress During Q Filtration building Pipework system Autoclaves Oxygen plant 18

19 Outlook: 2018 and Beyond 19

20 Outlook Guidance for both 2018 and 2019 has materially improved FY 2018 guidance improved following a review + measures introduced to enhance performance during the last 3 months 1 Gold Production FY2018 output (incl. gold in concentrate) estimated at c koz, higher vs. management s initial assessment of Koz as announced in July Cash Costs TCC guidance lowered to US$750 US$800/oz, 10% lower vs. guidance given in July 2018, due to cost optimisation programme initiative 3 Capex Guidance c.us$107m for the year Significant improvements to 2019 production schedule Improved Concentrate 1 Parameters at Malomir 2 Improved Cash Flow Forecast overall flotation concentrate grade in 2019 of c.36-40g/t, an increase of c.50% from original forecast of c.24g/t, alongside a decrease in concentrate yield High grade concentrate has already been produced in advance of POX plant commissioning Decrease in volume of concentrate to be transported and treated via autoclaves reduces costs significantly Extra capacity at POX Hub to increase output Beyond Production of c.500koz Au Based on current reserves base, excl. uplift from geological exploration potential : c.500koz p/a 4 Improved FY2019 TCC vs. FY2018 Estimated FY 2019 TCC of US$650 US$700/oz 20

21 Appendix 21

22 H Operating Cash Expenses H Gold PM Fix vs. RUB:US$ FX H Operating Cash Expenses Breakdown $1,400 $1, Electricity 9% Other op. expenses 7% Other external services 15% 61 $1,300 $1, Fuel 15% Total = US$158m Staff costs 23% Materials + spares 31% $1,200 Jan Feb Mar Apr May Jun 55 c.75% of our operating cash expenses are RUB denominated Some inflation of certain RUB denominated costs Gold RUB/USD H H Change Avg. RUB/US$ FX % Avg. Gold PM Fix US$/oz 1,318 1,238 +6% INFLATION (RUB denominated) (US$ equivalent) Chemicals Up to +30% Up to +27% Consumables -17% to +21% -19% to +18% Diesel +25% +22% Electricity +5% +3% 22

23 TCC and AISC By Asset Total Cash Costs (TCC, US$/oz) H avg. 675 H avg. 899 All-in Sustaining Costs (AISC, US$/oz) H avg. 965 H avg. 1,138 1,286 1,262 1,140 1,454 1,416 1, , ,116 1, Pokrovskiy Malomir Albyn Pioneer Pokrovskiy Malomir Pioneer Albyn H H

24 H Liquidity Profile / Repayment Schedule Debt Profile (US$m) (1) Short term 7 Long term 591 Total 599 Total principal repayment on borrowings US$500m notes maturing Nov 2022 US$100m convertible bond issue maturing Mar H Total 24 (1) At amortised cost

25 Leadership Team CEO Pavel Maslovskiy is supported by Chairman Sir Roderic Lyne, Senior Non-Executive Director Robert Jenkins and Non-Independent Non-Executive Director Bektas Mukazhanov The Board has invested significant time into a formal recruitment process to secure a diversified, fully compliant and exemplary composition of directors at Board level Sir Roderic Lyne, Non-Executive Chairman (1) Sir Roderic Lyne, Non-Executive Chairman Previously Senior Independent Director between Nov Jun 2016 Originally appointed to the Board in 2009 during the Company s merger with Aricom PLC Previously a Non-Executive Director of Aricom PLC, between 2006 and 2009 A fluent Russian speaker, Sir Roderic served as British Ambassador to Russia from Jan 2000 until Aug 2004 (3) Mr Robert Jenkins, Independent Non-Executive Director A fluent Russian speaker with almost 25 years of Russian industry related expertise, Mr Jenkins served as a director from Apr 2015 to Jun 2017 He has been CFO of two Russia focused natural resource companies, including Eurasia Mining PLC, and also a Director and Audit Committee Chairman of Ruspetro plc and of Toledo Mining Corporation PLC During his previous tenure as a director of the Company, Mr Jenkins chaired the Audit Committee and was a Senior Independent Director as well as a member of the Nomination Committee (2) Dr Pavel Maslovskiy, Chief Executive Officer One of the co-founders, Dr Maslovskiy was CEO from the Group s inception in 1994 to Dec 2011, following his appointment as a Senator-Member of the Federation Council (1) Dr Maslovskiy retired as a Senator-Member in Oct 2014 and was re-appointed as CEO in Nov 2014 (2) Prior to embarking on his business career, Dr Maslovskiy was a Professor of Metallurgy at the Moscow Aircraft Technology Institute 25 yrs of experience (4) Mr Bektas Mukazhanov, Non-Independent Non-Executive Director Mr Mukazhanov brings a wealth of knowledge from his experience at a senior level in the financial and information technology industries Mr Mukazhanov holds degrees in computer science and information technology and is a CFA charterholder Mr Mukazhanov is an employee at Fincraft Holdings Ltd, the major shareholder of Petropavlovsk PLC 25 (1) Upper House of the Russian Parliament (2) Acted as Honorary President between 2012 and Nov 2014