PETROPAVLOVSK PLC. H Production Update Roadshow Presentation

Transcription

1 PETROPAVLOVSK PLC H Production Update Roadshow Presentation 1

2 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.6.8moz Au to date 3 x gold mines, mix of open pit + underground c.16mtpa of 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 CHI NA Blagoveshcensk city (1) IRC market capitalisation as at close 25 July 2018 (US$134m, source: Bloomberg) x Petropavlovsk s equity interest (31.1%) = US$42m Pioneer Malomir Pilot POX Plant Russia Amur region Khab arovs k Albyn Hydro power plant EA O 2

3 Trading Data + Shareholder Structure Since 2009, Petropavlovsk PLC is listed on the Main Market of the London Stock Exchange Share Price + Gold Price (1) Price 7.11p 52 Week Range 6.29p 8.59p Market Cap. 235m ($310m) EV 674m ($903m) Gold PM Fix $1,232/oz 52 Week Range $1,217/oz - $1,355/oz Top 10 Shareholders 9.0p 8.5p 8.0p 7.5p Share Price + Trading Volumes (1) Price Vols 100m 90m 80m 70m 1 Fincraft Holdings Ltd (2) 22.4% 7.0p 60m 2 Sothic Capital Mgt 10.9% 3 DE Shaw & Co 7.8% 6.5p 50m 4 Prosperity Capital Mgt 5.7% 6.0p 40m 5 RCB Bank 4.7% 6 Slevin Ltd 4.6% 5.5p 30m 7 CABS Platform Ltd 4.6% 5.0p 20m 8 Hargreaves Lansdown 2.3% 9 Dimensional Fund Advisors 2.1% 4.5p 10m 10 Legal & General InvMgt 1.9% 4.0p 0m Top 10 Total 67% Jan 2015 Jul 2015 Jan 2016 Jul 2016 Jan 2017 Jul 2017 Jan 2018 Jul 2018 (1) Data as at market close 25 July 2018 (2) The largest shareholder is Kazakh businessman Kenges Rakishev with a total combined holding of 22.4% (via Fincraft Holdings and VTB Bank) 3

4 Leadership Has Been Restored Following the 2018 AGM CEO Dr Maslovskiy is supported by Chairman Sir Roderick Lyne and Senior Non-Executive Director Robert Jenkins 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. We are working closely with a top recruitment agency in order to ensure that we attract and invest not only in the best talent, but in the most appropriate candidates in order to maximise our combined capabilities Sir Roderic Lyne, Non-Executive Chairman (1) Sir Roderic Lyne, Non-Executive Chairman Sir Roderic was previously the Senior Independent Director between November 2015 and June 2016 Originally appointed to the Board in 2009 during the Company s merger with Aricom PLC, Sir Roderic was Chairman of the Remuneration and HSE Committees Sir Roderic was 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 January 2000 until August 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 April 2015 to June 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 reappointed 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 professional 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 4 (1) Upper House of the Russian Parliament (2) Acted as Honorary President between 2012 and Nov 2014

5 H Trading Update + Future Strategy 5

6 H Production Update Key Points Full operational review undertaken by CEO following his June appointment, with a plan introduced to get the business back on track, optimise performance + maximise margins H1 Production Development Update (POX + Underground) 232Koz vs. 201Koz in H1 2017, decrease due to lower processed grades + decrease in contribution of gold in circuit release Mixed underground performance: significant contribution by Quartzitovoye to overall Malomir production whilst development of NE Bakhmut (Pioneer) behind schedule Measures introduced to increase contribution of underground operations to overall production by end of H Malomir flotation plant commenced operations following delay due to absence of leadership Accelerated ramp up to design capacity + technological improvements being introduced POX commissioning anticipated in Dec, any POX output excluded from FY production estimates dry commissioning scheduled for Aug 2018 We expect to produce 20-30kt of high grade flotation concentrate by YE Ongoing operational review focus on optimisation + margins As a result of a full + ongoing operating review, more conservative FY 2018 has been issued Review highlighted lack of leadership in H1, with some disruption to operational + development plans, however, a programme of measures to rectify delays + improve current schedule is under way IRC Ltd. Previous Board arranged a US$30m bridge loan for IRC during recent period of financial difficulty Current Board is determined to improve guarantee situation, will update shareholders in due course 6

7 Conservative Strategy Focused On Shareholder Value Stable bulk tonnage operation boosted by addition of high grade underground operations + refractory ore treatment 1 Implement best corporate governance practices Business stabilised + momentum restored after a difficult year Formal process under way to strengthen Board composition by the appointment of additional Independent Non-Executive Directors Maintain continual improvement philosophy in best safety standards 2 Strengthen the balance sheet Loan facilities refinanced via successful US$500m Eurobond issue in Q Assessing ways to realise the value of Group s current interest in IRC 3 4 Growth: focus on completion of POX + contribution from high grade u/ground Maintain and expand R&R base Completion of POX project unlocks value within 9.6Moz of our refractory Resources Ongoing development of high grade underground operations at Pioneer + Malomir to complement + support non-refractory production Ongoing optimisation of R&R + expansion of non-refractory material to maximise profitability Further exploration to expand underground reserves Further exploration of identified refractory targets Potential licence acquisitions adjacent to existing infrastructure 5 Continue optimising costs, strengthening profitability Focus on operational efficiencies and cost optimisation on existing operations / new projects Gold price hedging / forward sales agreements are complementary measures MAXIMISE ROCE / IMPROVE SHAREHOLDER RETURNS 7

8 R&R 8

9 JORC Resources (Incl. Reserves) Impressive record of organic resource growth = sustaining long term production More than 23Moz of JORC Resources discovered since 2007 by our in-house experts Based on exploration capex spend between 2007 and 2017, the implied discovery cost per oz is just c.us$22 Mine life of 15+ years a 2008a 2009a 2010a 2011a 2012a 2013a 2014a 2015a 2016a 2017a 9 Refractory Resources Non-Refractory Resources Depletion + Disposals 9

10 Track Record: Processing Growth Strong track record of mine development, expansion + asset optimisation RIP + HL Processing 20Mtpa 18Mtpa 16Mtpa 14Mtpa 12Mtpa 10Mtpa 8Mtpa 6Mtpa 4Mtpa 2Mtpa 0Mtpa Listed on AIM POK RIP plant commissioned Acquired MAL (1) + ALB licences Moved to LSE Main Board PIO RIP plant expanded PIO RIP expanded MAL RIP plant commissioned MAL RIP expanded ALB commissioned POX construction begins (2) Plant expansions delivered: PIO, MAL, ALB Underground mining begins PIO + MAL a 2002a 2003a 2004a 2005a 2006a 2007a 2008a 2009a 2010a 2011a 2012a 2013a 2014a 2015a 2016a 2017a First gold from POK POK RIP expanded to 1.7Mtpa PIO RIP commissioned First gold from PIO First gold from MAL First gold from ALB Record production 741Koz (1) Petropavlovsk acquired its first exploration licence for Malomir in The licence for the main Malomir site was acquired in 2005 (2) Full scale POX plant development resumed in 2017 following a period of care / maintenance from 2013 onwards 10

11 Pressure Oxidation (POX) 11

12 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 in-house 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) 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 12

13 The POX Hub Is Designed To Treat Refractory Flotation Concentrate Dry commissioning scheduled for Aug, with full launch in Dec and ramp up to commercial production throughout 2019 Project Overview The POX Hub will be the second of its kind in Russia Mineralogy of reserves at Malomir + Pioneer suitable for Malomir Flotation Plant (stage 1+2) Ore processed 5,400 kt processing via flotation + POX Ore grade 1.04 g/t The hub site leverages existing Pokrovskiy infrastructure + easy Flotation recovery 86% access to power, water, oxygen, lime Project developed in partnership with Outotec, a global leader in POX Hub Concentrate processed kt minerals / metals processing technology Gold recovery 93% As at 31 Dec 2017, the total POX project cash spend amounted Total POX Hub recovery 80% to c.us$233m Estimated total operating costs (1) US$615 - Outstanding estimated POX capex as at 31 Dec 2017 = 675/oz c.us$62m (excl. Malomir flotation + tailings) Optionality: ability to process third party ore POX Project Schedule Malomir Flotation Plant (stage 1 = 3.6Mtpa) Construction Completed Filtration unit Autoclave unit Oxygen station Commissioning Now POX Hub Construction Construction (incl. filtration, autoclaves, oxygen plant) >90% complete Dry commissioning Aug 2018 Container unit, equipment storage Note: the first POX plant in Russia was commissioned by Polymetal in 2012 at the Amursk hub, which produced 280 Koz of gold equivalent in 2017 (96.4% recovery) (1) Includes mining costs, transport costs, flotation costs, POX costs 13

14 POX Hub Overview Process flowsheet and parameters Malomir concentrate 86% recovery 5.5% concentrate yield 24 g/t Au FROM 2018 Flotation Plant MALOMIR FROM 2023 Flotation Plant PIONEER Pioneer concentrate 82% recovery 2.9% concentrate yield 24 g/t Au ktpa concentrate ktpa concentrate 1 2 POX HUB 3 4 Concentrate Re-grinding Autoclave Oxidation 4x 15mx4m autoclave RIP Circuit Doré to Refinery TOTAL recovery = c.80% 90% mm bar minutes Purogold Resin Recoveries Malomir = 93% Pioneer = 98 % 14

15 2018 Outlook 15

16 FY 2018 Outlook We are in a strong position to complete the transition to a miner capable of realising the significant value of our assets Following our election in June and the return of Pavel Maslovskiy as Chief Executive Officer, the Board and I would like to reiterate our commitment to the strategic objective: that Petropavlovsk should be at the forefront of Russian gold mining, delivering sustainable and profitable growth through experienced management, technological development and exploration success Sir Roderic Lyne, Non-Executive Chairman 1 Production 400 to 410Koz (POX production excluded from estimates) 2 3 Total Cash Costs Capex Expected 15-20% higher vs. initial guidance of US$ /oz due to suboptimal organisation of mining works in H1 But management is focused on expanding margins + we continue to produce healthy cash flows c.us$105m incl. development, exploration + maintenance spend 4 Hedging contracts Outstanding forward sales totalling of avg. price of US$1,252/oz 16

17 IRC Ltd. 17

18 IRC Limited (1029.HK) Petropavlovsk has a 31.1% equity interest in the Hong Kong listed iron ore producer Who are IRC? A developer + producer of industrial commodities, principally iron ore. Based in the Russian Far East, IRC benefits from low production costs and proximity to the Chinese border Listed on the Hong Kong Stock Exchange in 2010, raising gross proceeds of c.us$240m IRC s key mining assets are K&S, Kuranakh and Garinskoye K&S: a producing iron ore (1) mine with a 20 year mine life, located in the Jewish Autonomous Region, Russian Far East Current capacity of 3.2Mtpa, with option to increase to 4.6Mtpa (K&S Phase 1.5) and 6.3Mtpa (K&S Phase II) The plant is currently operating at a steady capacity of c.74% as at Q Kuranakh: currently on care + maintenance since Q Garinskoye: project is at an advanced stage of exploration Making good progress both operationally + financially FY 2017 results highlights FY 65% Fe iron ore concentrate production of 1.56Mt, +339% vs Fivefold increase in revenues to US$109m Net profit of US$113m vs. net loss of US$18m in 2016 Current Status Petropavlovsk is a 31.1% shareholder IRC is accounted as an associate under the equity accounting method Worth US$42m as at 25 July 2018 (2) US$340m ICBC project finance facility to fund construction of K&S mine is 100% guaranteed by POG US$204m outstanding principal (as at 20 June 2018) (3) Latest instalment of c.us$35m (due 20 June 2018) was funded via a US$30m bridge loan from Petropavlovsk + IRC s internal cash resources Petropavlovsk is constantly assessing the best way to realise the value of its interest embedded within IRC Petropavlovsk + IRC approached ICBC to negotiate maturity profile / covenant relaxation all conditions precedent to grant the ICBC waivers have been fulfilled, waivers now in effect Petropavlovsk + IRC are also at an advanced stage of negotiations with a leading Russian lender to assist IRC obtain a loan for the remaining facility amount (1) K&S produces premium quality high grade 65% Fe iron ore. During 2017, the average price premium per tonne over 62% Fe iron ore amounted to 17% (2) IRC market capitalisation as at close 25 July 2018 (US$134m) x Petropavlovsk s equity interest (31.1%) = US$42m (3) Guarantee fee of 1.75% p/a on outstanding facility amount payable to Petropavlovsk by IRC 18

19 Appendix 19

20 H1 / Q vs Operational Results By Mine Pioneer + Pokrovskiy PIONEER POKROVSKIY Mining Units Q Q H H Q Q H H Total material moved m ,362 3,812 9,449 7,206 1, ,073 Ore mined t , 895 2, 183 2, Average grade g/t Gold content oz Processing RIP Q Q H H Q Q H H Total milled t 000 1,670 1,707 3,267 3, Average grade g/t Gold content oz Recovery % Gold recovered oz Heap Leach Q Q H H Q Q H H Total stacked t Average grade g/t Gold content oz Recovery % Gold recovered oz Gold production (Dore) oz

21 H1 / Q vs Operational Results By Mine Malomir + Albyn MALOMIR ALBYN Mining Units Q Q H H Q Q H H Total material moved m ,266 2,772 4,245 5,126 5,165 7,426 10,107 14,942 Ore mined t ,317 1,434 1,010 1,258 1,877 2,633 Average grade g/t Gold content oz Processing RIP Q Q H H Q Q H H Total milled t ,645 1,652 1,155 1, 152 2,291 2, 290 Average grade g/t Gold content oz Recovery % Gold recovered oz Flotation Plant Q Q H H Ore t Grade g/t Gold content oz Recovery % Yield % Concentrate produced t Grade g/t Gold content oz Gold production (Dore) oz

22 Operations Overview Group Production Summary FY 2015 FY 2017 Mining Units FY 2017a FY 2016a FY 2015a Total material moved m ,539 61,947 74,775 Ore mined t ,990 10,798 13,960 Average grade g/t Processing Units FY 2017a FY 2016a FY 2015a RIP Total milled t ,620 16,166 15,910 Average grade g/t Gold content Koz Recovery rate % 80% 86% 85% Gold recovered Koz Heap Leach Ore stacked t 000 1,250 1,141 1,341 Average grade g/t Gold content Koz Recovery rate % 50% 51% 52% Gold recovered Koz TOTAL gold production Koz Gold sales Koz Costs Units FY 2017a FY 2016a FY 2015a TCC US$/oz AISC US$/oz

23 FY 2017 Financial Highlights Profit for the period +31%, Net cash from operating activities +235% Units Change Gold production 000oz % Gold sold 000oz % Group revenue US$m % Average realised gold price US$/oz 1,262 1,222 +3% Total average cash costs (TCC) US$/oz % All-in sustaining costs (AISC) US$/oz % Operating profit US$m % Underlying EBITDA US$m (2%) Profit before tax US$m % Profit for the period US$m % Net cash from operating activities US$m % Net Debt (as at 31 Dec) US$m (585.1) (598.6) (2%) Note: Operating profit includes the Group s share of an estimated partial reversal of previous impairment losses on IRC PPE in relation to the K&S mine, amounting to 31.1% of c.us$130m Profit for the period reflects an increase in operating profit partially offset by the US$29.2m effect of deferred taxation 23

24 Debt Profile Net debt at a 5 year low, majority of existing debt long term in nature (fixed income) 2020 Convertible Bond Principal amount: US$100m Coupon: 9% Maturity: Mar 2020 Exchange price: Guaranteed Notes Principal amount: US$500m Coupon: 8.125% Maturity: Nov 2022 Rating: S&P = B, Fitch = B- Bank Loan Sberbank loan of c.us$4m Debt Composition 17% 1% 83% Gtd. Notes Issue Convertible Bond Bank Debt 24

25 Precious Metals Operating Cash Expenses 2017 vs Cash expenses increased 18% to US$313m in 2017, due to a stronger RUB + inflation of some RUB denominated costs, particularly energy FY2016 Precious Metals Operating Cash Expenses (1) Before movement in ore stockpiles, GIC and bullion in process of US$40.5m FY2017 Precious Metals Operating Cash Expenses (2) Before movement in ore stockpiles, GIC and bullion in process of US$19.2m Labour 21% Labour 23% Consumables + Other Consumables + Materials Other 37% Materials 37% Fuel 15% Other 10% Consumables + Consumables Other + Other Materials Materials 34% 37% Fuel 14% Other 7% External Services 8% Electricity 9% = US$266.0m (1) = US$313.4m (2) Note: avg. RUB:US$ FX rate FY2017 = 58.3, FY 2016 = % yoy change External Services 12% Electricity 10% 25

26 TCC / AISC Mine by Mine Group AISC +19% yoy, due to underlying increase in TCC, sustaining capex, exploration spend, prospective stripping and central admin Total Cash Costs (TCC, US$/oz) All In Sustaining Cash Costs (AISC, US$/oz) US$m Comment Sustaining exploration capex 16.1 Pioneer, Malomir, Albyn Sustaining u/ground capex 8.4 Pioneer, Malomir Planned tailings expansion 7.4 Pioneer, Malomir, Albyn Other sustaining capex 9.1 Across all mines 1,236 1,367 1, ,029 1, % +25% +13% -7% +12% +38% +30% +27% -0% +19% Pokrovskiy Pioneer Malomir Albyn FY TCC Pokrovskiy Pioneer Malomir Albyn FY AISC 2016a 2017a Change yoy 26

27 FY2017 Development + Exploration Spend Total FY2017 exploration + development capex = US$88.1m FY2017 Development Spend (US$m) Comment 33.2 US$66.2m Overall POX development spend as at 31 Dec 2017 = c.us$233m (1) US$33.2m was spent on POX in 2017 c.us$62m allocated to POX in c.us$6m allocated to Malomir flotation in 2018 POX Pioneer Malomir Albyn PPE Upgrade (1) Includes US$8.1m of flotation and tailing dam related expenditure FY2017 Exploration Spend (US$m) US$21.9m Pioneer Albyn Malomir 27