PETROPAVLOVSK PLC. H Trading Update (July 2016)

Transcription

1 PETROPAVLOVSK PLC H Trading Update (July 2016)

2 Cautionary and Forward-looking Statements 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 Contents 1 H Trading Update 2 Underground Mining 3 Proposed POX Joint Venture 4 Proposed Acquisition of Amur Zoloto 5 Exploration Update 6 Strategy 3

4 H Trading Update 4

5 POG H Update Output lower vs. H due to scheduled processing of lower grades + severe flooding Production of 187.4Koz Sales of 195.4Koz at avg. US$1,194/oz incl. hedging effect Group s focus remains further reduction of Net Debt Net debt of c.us$598m (1) compared with c.us$610m as at 31 Dec 2015 Preliminary term sheets received from Sberbank + VTB incl. extending debt maturity profile with significantly relaxed near term repayment schedule Principal payment holidays granted April Oct 2016, negotiations ongoing FY 2016 outlook Targeting production at lower end of original guidance at c Koz, due to negative effects of flooding On track for FY TCC of c.us$700/oz (preliminary H TCC est. c.us$690/oz, down 10% vs. H1 2015) FY Net Debt target of c.us$570m Group reiterates FY capex of c.us$60m development + c.us$10m exploration 5 (1) As at 30 June 2016, preliminary unaudited figure

6 POG H Corporate Highlights Proposed acquisition of Amur Zoloto / Kamchatka Gold SRK report on AZ assets published + available on our website SRK confirm c.1.86moz of JORC Resources of which c.1.35moz are Reserves Discussions under way to consider amending proposed transaction to include acquisition by Petropavlovsk of Renova s gold assets in Kamchatka POX JV with GMD Gold Proposed JV unlocks c.4.0moz of refractory gold reserves JV is progressing well, circular to shareholders to be published Q Disposal of non-core assets Disposal of Ilyinskoye + remaining interest in Verkhnetisskaya for US$20m Sale in line with strategy of debt reduction + focus on core producing assets 6

7 7 H output impacted by regional flooding

8 Underground Mining at Pioneer 8

9 Preparation work carried out to commence underground production at NE Bakhmut 9 During H1, the following works were undertaken Design completed for underground mine access development + initial underground ore mining Preparation for decline portal completed (incl. access road, site levelling, power + water) Russian underground mining contractor for mine development + ore mining appointed Underground decline development to commence Aug 2016, first ore production est. Q Plan to complete 29,915m 3 of underground development H at avg. cost 13,100 RUR/m 3 Exploration targeting resources for underground mining at NE Bakhmut + other Pioneer zones expected to continue simultaneously alongside mine s development Underground mine design, NE Bakhmut

10 Pressure Oxidation (POX) 10

11 Refractory ore What is refractory ore? Mineralised rock resistant to recovery by standard cyanidation and carbon adsorption methods Processing options for refractory ore Crushing + Grinding Generally contains sulphide minerals, which encapsulate gold particles, making it difficult for the leach solution to reach the contained gold Roasting BIOX Oxidation of sulphide minerals is necessary to recover the gold Pressure oxidation (POX) Extraction of gold from refractory ore requires additional stages 11

12 A refractory ore Processing Hub in the Russian Far East Annual processing capacity of 500K tonnes of flotation concentrate via 4 x autoclaves Ability to process different types of refractory ore simultaneously Third party processing: option to process refractory content from third parties, incl. concentrate with a high carbon content Pokrovskiy will serve as a processing hub for refractory concentrate provided by Pioneer + Malomir mines Potential to upgrade to 6 x autoclaves Developed infrastructure allows for transportation of concentrate via road or rail 12

13 POX Processing Hub concept PIONEER Flotation Plant MALOMIR Flotation Plant Flotation Concentrate Recovery = 86% Recovery = 88% Flotation Concentrate Concentrate Re-grinding THE POKROVSKIY POX HUB Autoclave Oxidation RIP circuit Doré to Refinery POX Plant Recovery = 93% for Malomir and 98% for Pioneer 13

14 4.46 Moz JV accelerates POX development without straining the Group s balance sheet 3.95 Moz Non-refractory JORC Reserves Refractory JORC Reserves As at 31/12/2015 Reserves Au (Moz) Au (g/t) Proven Malomir Probable P+P Proven Pioneer Probable P+P Total Proven Probable P+P As at 31/12/2015 Resources Au (Moz) Au (g/t) Measured Malomir Indicated Inferred M&I Pioneer Total Measured Indicated Inferred M&I Measured Indicated Inferred M&I c.50% of our Reserves are refractory POX Hub will enable POG to unlock value from extensive refractory reserves (at Malomir + Pioneer) without incurring additional debt Once commissioned, POX Hub will be largest of its kind in Russia, able to process up to 500Kt of floatation concentrate p/a 4 x autoclave lines with capacity of 125Ktpa of floatation concentrate each Est. attributable production via POX Hub of c Koz p/a once fully operational at TCC similar to that of Pioneer s non refractory processing (1) 14 Note: proposed transaction is subject to shareholder approval and other conditions (1) Est. TCC of production c.us$600/oz, at current prices and FX rates Sustainable production from refractory assets for at least 20 years with excellent growth potential POX construction to resume H2 2016, with first production expected 2018 from Malomir (+ later Pioneer)

15 POX JV Key Facts 15 POG share of production POX Hub Capacity Allocation Minimum additional vol of concentrate to be supplied by POG (25% of POX capacity) 125Ktpa 125Ktpa 125Ktpa Autoclave 1 125Ktpa Autoclave 2 125Ktpa Autoclave 3 125Ktpa Residual capacity covered by POG Concentrate to be provided by GMD Gold 75Ktpa 50Ktpa Autoclave 4 125Ktpa GMD Gold to provide US$120m of equity financing in exchange for 51% share in JV Concentrate to be processed on a tolling basis: each partner has title to concentrate supplied + gold produced from it JV shall charge each partner a toll fee calculated on a full cost plus up to 5% margin basis, of which POG will receive 50% through dividends distribution JV agreement stipulates sharing POX hub capacity between partners on 50/50 basis (250Ktpa each) At this time, GMD Gold is only able to provide 50Kpta of concentrate. It has been agreed that POG shall provide concentrate amounting to minimum 25% of POX capacity (ie. 500Ktpa x 25% = minimum 125Ktpa) in addition to its share of capacity (250Ktpa) Residual capacity to be covered by POG, thus making the total volume of concentrate supplied by POG = = 450Ktpa POX average processing cost currently est. at c.us$75/t TCC of gold produced at POX currently est. at c.$600/oz JV is progressing well, circular to shareholders to be published Q3 2016

16 Proposed Acquisition of Amur Zoloto 16

17 17 DEAL IMPAC CT Petropavlovsk + Amur Zoloto: Compelling Strategic Rationale Immediate addition of c.40koz of production in 2016, at competitive TCC Projected production growth uplift of c.10% Future cash flow to assist debt reduction Addition of higher grade R&R Recent SRK report confirms 1.35Moz of Reserves and 1.86Moz of Resources (incl. c.1.2moz hard rock at avg. 1.8g/t) New hard rock R&R +180% vs. avg. POG grade Balance sheet optimisation Acquisition, paid for in shares, increases Group asset base by c.us$140m Improved financial flexibility from lenders Operational synergies Opportunity to decrease AZ TCC by bringing in low cost power generation from POG (electricity line extension) Potential for immediate production uplift via introduction of heap leach operations overseen by POG Acquisition will help to complement, diversify + de-risk Petropavlovsk s future production profile Source of production, resources and reserves figures: Amur Zoloto and 2016 SRK CPR Report. Transaction subject to prospectus / shareholder approval

18 AZ operates gold production + development assets in Russia s Khabarovsk region An established gold company with open-pit, underground + alluvial assets Founded in 2010, c.300 employees, EBITDA of c.us$9m FY x hard rock assets in production + 2 under development Producing placer deposits with processing capacity of 1,000,000m 3 per season (c.16koz p/a) High grade, non-refractory ore Amur Zoloto at a glance (1) In production or at pre production stage = low capex requirements Post tax NPV of mineral assets est. at US$170m (1) FY 2016 production target of 40Koz Mainly from alluvial operations + Krasivoye underground deposit 2016 FY TCC est. at c.us$680/oz Strong development programme, with medium-term growth of up to c.140koz p/a of production based on existing R&R Plan to increase annual production to c.140koz p/a by 2020 Both businesses are well aligned, with complimentary strengths + assets 18 (1) Source: Amur Zoloto and 2016 SRK CPR Report (1) Assuming a discount rate of 10% and a gold price of US$1,100/oz

19 POG and AZ Assets Key: Amur Zoloto Assets Yubileiny Malutka Petropavlovsk Assets Tas-Yurakh Scale = 100km Perevalnoye Pioneer Pokrovskiy Malomir Albyn 19

20 AZ Production + Financials (1) Gold Production (Koz) Facility Type Total Perevalnoye Open Pit + Plant Krasivoye Underground + (Yubileiny GOK) Plant Malyutka Open Pit + HL GOS Tas-Yurakh Open Pit + Underground Plant Total hard rock Alluvials Total AZ Capex (US$m) Total Perevalnoye Krasivoye (Yubileiny GOK) Malyutka GOS Tas-Yurakh Total hard rock Alluvials Total AZ Krasivoye (Yubileiny GOK) Perevalnoye Alluvials GOS Tas-Yurakh Malyutka 20 (1) Source: Amur Zoloto and 2016 SRK CPR Report. Figures may not add up due to rounding

21 Cash-Cost Comparison FY 2015 Petropavlovsk FY 2015 Amur Zoloto (1) Units Pioneer Pokrovskiy Malomir Albyn Total Units Tas- Yurakh Ulakhan Buor Total Gold sold Koz Gold sold Koz TCC US$m TCC US$m Avg. TCC US$/oz , Avg. TCC US$/oz Impairment of ore stockpiles US$m 9.5 (0.9) Change in finished goods, WIP, DSC US$m 2.1 (0.9) (0.7) 0.5 Adjusted operating costs US$m Adjusted operating costs US$m Central admin US$m Central admin US$m Capitalised stripping (end) US$m Capitalised stripping (end) US$m Capitalised stripping (start) US$m (8.4) (8.4) Capitalised stripping (start) US$m Site restoration US$m (0.5) (0.1) (0.1) (1.1) (1.7) Site restoration US$m Sustaining capex US$m Sustaining capex US$m All-in sustaining costs US$m All-in sustaining costs US$m # 17.1 AISC US$/oz , AISC US$/oz Exploration expenditure US$m Exploration expenditure US$m Capital expenditure US$m Capital expenditure US$m Impairment of ore stockpiles US$m Impairment of ore stockpiles US$m All-in costs US$m All-in costs US$m AIC US$/oz , AIC US$/oz (1) Source: Amur Zoloto

22 Synergies 22 AZ asset portfolio is underdeveloped Potential to accelerate AZ projects using POG expertise + PPE Opportunity for regional expansion: a number of promising unlicensed areas located in region between POG / AZ Energy costs AZ s operations run on diesel, Petropavlovsk primarily uses electricity (cheap + plentiful) Opportunity to drive costs down by switching to electricity via extension of supply from Amur Region Heap leach operations Potential for further uplift in production from proposed AZ HL operations using POG expertise Government support State grant of funds to the Group (c.us$100m) to help develop local electricity line Due to poor infrastructure, the Far East region is relatively under-explored for medium to large sized gold deposits. SRK considers there is reasonable potential to find / develop medium sized deposits if good target generation techniques are used in conjunction with AZ s knowledge of regional geology. (SRK Consulting, July 2016)

23 Key Deal Terms Transaction financing Via issue of 1,434,303,624 new ordinary shares in Petropavlovsk at per share Aggregate value of gross consideration payable on closing c.us$144m Upon completion Amur Zoloto will hold c.30% of the enlarged Group s issued share capital Shareholder approval Deal will require approval of Petropavlovsk shareholders Completion Subject to regulatory approvals 23

24 Reserves & Resources Petropavlovsk (1) Amur Zoloto (2) Total Ore Reserves Gold (Moz) Grade (g/t) Proven Probable Total (P+P) Non-Refractory Ore Reserves Proven Probable Total (P+P) Refractory Ore Reserves Proven Probable Total (P+P) Total Mineral Resources Gold (Moz) Grade (g/t) Measured + Indicated Inferred Non-refractory Mineral Resources Measured + Indicated Inferred Refractory Mineral Resources Measured + Indicated Inferred Total Ore Reserves Gold (Moz) Grade Probable (Hard Rock, Kt) g/t Probable (Alluvials, 000m3) g/m3 Total (P+P) 1.35 n/m Total Mineral Resources Gold (Moz) Grade Hard Rock Measured+Indicated (Kt) g/t Inferred (Kt) g/t Alluvials Indicated (000m3) g/m3 Inferred (000m3) - - Measured + Indicated 1.71 n/m Inferred 0.15 n/m n/m = not meaningful 24 (1) Source 2016 WAI Report. Petropavlovsk JORC R&R as at 31 Dec Resources are inclusive of Reserves. Visokoye, a non-core asset containing 2.5Moz of JORC Resources (incl. 1.2Moz of JORC Reserves) was disposed of following preparation of the above R&R statement (2) Source: 2016 SRK CPR Report. AZ JORC R&R as at 31 Dec 2015, all material is non-refractory

25 Amur Zoloto Assets / PPE (1) Ball Mill + Classifier Flotation Cells Gold Room Yubileiny Processing Plant Crushing Section Flotation Section Hydrometallurgical Section Filtering Unit Milling + Flotation 25 (1) Source: Amur Zoloto

26 Key Management Petropavlovsk Amur Zoloto Peter Hambro Chairman Dr. Pavel Maslovskiy CEO Musa Bazhaev Chairman, Russian Platinum Arsen Idrisov Deputy Chairman, Russian Platinum 26 Andrey Maruta CFO Dmitriy Chekashkin COO Alexander Polonyankin Deputy CEO, Strategy & Development Konstantin Zlotnikov Director, Project Management Experienced management team with focus on delivery + operational excellence

27 Exploration Update 27

28 Exploration in H Pioneer Bakhmut New thick lateral mineralised ore zone identified at Promezutochnaya / Bakhmut meeting point Strike length of 370m, avg. thickness 10.9 to 97.0m, at avg. cross sections grades of c.1.0 to 18.8g/t Estimated that this will add new rich non refractory ore for underground operations + avg. grade refractory ore for open pit mining Otvalnaya Zone is located on left bank of the Ulunga River, 1.6km north of NE Bakhmut, consists of main ore body / sub parallel ore bodies, followed for 500m along strike with thickness of best intersections 18.0m at 5.26 g/t Metallurgical samples shows c.70% recovery Estimated that Otvalnaya zone will provide non refractory ore for open + underground mining Material suitable for open pit mining (up to 130m from surface) has thickness of m at g/t Intersections of m thick at avg. grade of 2 6g/t (up to 18g/t in selected samples) occur below the designed pit

29 Exploration in H Quartzitovoye Malomir Exploration at deeper horizons ongoing for planned underground operation Exhausted by open pit mining, zone 55 confirmed to extend 200m beyond pit, m thickness at g/t (cut off grade 1.7g/t) Two ore bodies identified 150m to the east, suitable for underground extraction with avg. thickness m at g/t Albyn Elginskoye Exploration work being finalised at section of deposit scheduled for nearterm production Feasibility study (incl. R&R) being prepared Preliminary internal resource est. (0.5g/t cut off) suggests 2.7Moz at c.1.3g/t based on Russian categories C1 + C2 Reserves defined only for part of Elginskoye zone scheduled for production Remainder of zone being explored, further reserves expected to be estimated in next feasibility study

30 Strategy Impact 30

31 Combined effect of Petropavlovsk s medium term strategy Growth in high-grade R&R Through exploration + acquisition of complementary assets Higher gold production volumes From both refractory + non refractory sources Critical mass + scale Synergies Higher grades Increased cash generation Will enable debt to be paid down more aggressively Return of Excess cash Return of dividend Strategy geared towards re-rating the stock + driving shareholder value 31