PETROPAVLOVSK PLC Investor Presentation March 2016
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
Who We Are + What We Do
We are a low cost Russian gold producer 4 open pit gold mines located in the Russian Far East c.9.2moz of Reserves within c.23.3moz of Resources (1) Over 15Mtpa of processing capacity Targeting stable production @ c.us$500/oz margin Exciting exploration potential Skilled workforce with local knowledge + expertise Part of FTSE Small Cap Index, c. 250m market cap Iron ore assets held via HK listed associate, IRC 4 (1) As at 31 Dec 2014, in accordance with the JORC Code. Resources are inclusive of Reserves
With assets located in the Russian Far East Amur Region Advantages of operating in the Amur Region Tradition of gold mining Excellent infrastructure Rich mineral R&R base Exploration potential Low-cost hydro-power Government support 5
Our strategy is to become a leading gold producer in a changing industry environment A general deterioration in the gold mineral base worldwide has shaped the Group s strategy Effective exploration programme Investment in infrastructure via government / private partnerships The Group s Strategy Bulk tonnage mining to costeffectively process lower grade ore Organic R&R growth through active exploration Pressure Oxidation of refractory ore Use of both open-pit + underground mining Use of forwards + derivatives as price protection Tight control of production costs + administrative expenses Ability to work in challenging geological conditions Ability to work with technologicallychallenging ores Умение рентабельно Cost-effective processing отрабатывать низкие of low-grade ores содержания золота 6
Debt financed our production growth and development of new technologies RIP Processing Capacity Gold Development Capex 15Mtpa 18Mtpa 11Mtpa 6Mtpa 7Mtpa 2Mtpa 2Mtpa 2Mtpa 3Mtpa 2006 2007 2008 2009 2010 2011 2012 2013 2014 US$35m US$77m US$91m US$169m US$326m US$544m US$408m US$190m US$63m Total gold development capex = US$1.9bn 7 Economies of scale enable cost-effective treatment of low-grade ore+development of new technology to enable treatment of refractory ores
Evolution of Net Debt 2010 YE 2015 $1,124m $1,063m $1,154m $948m $924m $930m $787m $696m $511m $610m $126m $171m 8 H1 2010 YE 2010 H1 2011 YE 2011 H1 2012 YE 2012 H1 2013 YE 2013 H1 2014 YE 2014 H1 2015 YE 2015 Net Debt peaked at c.us$1.2bn in H1 2013 and has declined by c.50% since that time
Rising gold price environment through to 2011 Gold PM Fix 2001 2015 (US$/oz) 2,000 US$1,900/oz 9 1,500 1,000 500 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Investment in exploration and POX project based on: Necessity of new technologies for deteriorated mineral base worldwide An abundance of refractory material in Russia incl. Group s mines A high + increasing gold price Plentiful debt financing Decision to finance investment from: Bank debt Convertible bonds Retained earnings 2012-2014 = abrupt change in environment The perfect storm ensued Gold price retreated Cash flows shrunk Credit availability evaporated due to geopolitical tensions Questions over ability to repay 2015 convertible Risk of breaching debt covenants Massive shorting of POG shares
2015: stock on loan started out at c.8%, dropping to c.0.5% towards year end 0.09 SoL as at 1 Jan SoL as at 31 Dec = 7.7% = 0.5% 0.08 0.07 0.06 0.05 9% 8% 7% 6% 5% 0.04 0.03 0.02 Completion of refinancing POG announces refinancing 4% 3% 2% 0.01 1% 0.00 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec POG Share Price (left axis) Stock on Loan (right axis) 0% 10 Notes: net short positions of 0.5% or higher of issued share capital + each 0.1% increment above this amount must be disclosed to the FCA
Refinancing has transformed the Group Prior to Refinancing Refinancing Group s Immediate Future Secured Net Debt US$930m as at YE 2014 US$310.5 convertible bond due Q1 2015 2-part refinancing Equity - US$135.5m rights issue - US$75.0m debt for equity swap Debt - US$100m, 9% convertible bond, maturing 2020 Redemption of existing US$310.5m bond Refocus on operational excellence + cash generation Transfer of enterprise value from creditors to equity investors Quality Assets Experienced Management Team Focus On Cash Flow Generation Low Costs + Disciplined Capex Spend Long-term Growth Potential 11 Q1 2015 refinancing programme enabled us to repay the bond + decrease Net Debt
JORC Reserves & Resources Resources 1.7Moz As at 1999 Production 1999 to 2015 As at YE 2014 >5.5Moz 23.3Moz Reserves 1.3Moz 9.2Moz Non-Refractory Refractory JORC Reserves & Resources Mt Grade Moz Mt Grade Moz Resources (Measured, Indicated + Inferred) 442.6 0.98 14.0 373.2 0.78 9.3 Reserves (Proven & Probable) 148.8 1.04 5.0 128.6 1.01 4.2 12 Low grades require large processing capacity to achieve economies of scale Note: Resources include Reserves. Figures may not add due to rounding
13 Pokrovskiy: NW extension at Pokrovka I pit
Pioneer + Albyn: cost-cutting success TCC C Pioneer: Key Info 2015 production: 231Koz (46% of total) Non-refractory R&R: 2.3Moz (1) 50% Refractory reserves: 1.5Moz (1) Underground potential: 3-6Moz $793/oz $598/oz -25% Grade es 1.5g/t 1.1g/t -27% Albyn: Key Info 2015 production: 158Koz (31% of total) Non-refractory R&R: 4.6Moz (1) TCC C Significant potential from satellite deposits $843/oz 1.4g/t $765/oz -9% Grade es 1.2g/t -14% H1 2014 H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 Mining $3.9/m 3 $2.2/m 3-43% Processing $8.5/t $5.2/t -38% Mining $3.3/m 3 $2.3/m 3-30% Processing $6.7/t $4.1/t -39% 14 H1 2014 H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 H1 2014 H1 2015 Potential to further extend non-refractory mine life (1) In Accordance with the JORC Code (2012), as at 31 Dec 2014
Malomir + Pokrovskiy: refractory processing engine of the future Malomir: Key Info 2015 production: 59Koz (12% of total) Non-refractory R&R: 0.7Moz (1) Refractory 12% reserves: 2.7Moz (1) Pokrovskiy: Key Info 2015 production: 56Koz (11% of total) Non-refractory R&R: 1.3Moz (1) POX processing hub when refractory production commences TCC C $1,032/oz +6% $1,098/oz Grade es 1.4g/t 1.0g/t -29% TCC C $1,011/oz $795/oz +27% Grade es 1.1g/t 1.1g/t Mining H1 2014 H1 2015 H1 2014 H1 2015 $4.8/m 3 $2.6/m 3-46% Processing $9.1/t $5.8/t -36% Mining H1 2014 H1 2015 H1 2014 H1 2015 $3.9/m 3 $2.7/m 3-31% Processing $10.7/t $7.9/t -26% 15 H1 2014 H1 2015 H1 2014 H1 2015 Massive low-cost refractory ore deposits at Malomir + optimal infrastructural base of POX hub at Pokrovskiy (1) In Accordance with the JORC Code (2012), as at 31 Dec 2014 H1 2014 H1 2015 H1 2014 H1 2015
16 Malomir: Mining at Quartzitovoye I and II
Future Development
Underground potential Pioneer NE Bakhmut Pioneer Andreevskaya Malomir Quartzitovoye Pokrovka I Main Ore Body 18 Confirmed: high grade ore body continues to a depth of 200m beneath bottom of pit (7.2m @ 36.3g/t and 5.7m@5.1g/t) Mineralisation is open to the depth Evaluated: underground resources to 50m depth 168Kt @ 10.9g/t (or 80Kt @ 22.0g/t) Confirmed: high-grade ore column (Vostok) continues to depth of 120m beneath bottom of pit (3.2 m @ 40.0g/t). Mineralisation is open to depth Evaluated: underground resources to 50m depth 225Kt @ 5.6 g/t (or 154Kt @ 6.9 g/t) Confirmed: high-grade ore column to depth of 230m below bottom of pit (22.4 m @ 7.9g/t). Mineralisation is open to depth Evaluated: underground resources to 50m depth 779Kt @ 3.9 g/t (or 512Kt @ 4.5g/t) Mineralisation is open to depth Work conducted to date 3 areas defined (Andreevskaya - Vostok, North-East Bakhmut, Quarzitovoye) to commence underground mine design and development; Confirmed: at four projected sites rich mineralisation stretches beyond designed pits
Pioneer: Bakhmut + Promezhutochnaya zones Geological block model with cut-off grade 3.0 g/t and optimal pit 15.7m @ 6.97g/t 1.5m @ 47.8g/t 19
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 20
A refractory ore Processing Hub in the Russian Far East Annual processing capacity of c.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 21
Q4 / FY 2015 Update
23 Q4 / FY 2015 Update 2015 production strategy: mining oz. with the highest possible profit margin, at the expense of oz. that are only marginally profitable - Production of 504Koz, sales of 482Koz at avg. price of US$1,178/oz (incl. US$20/oz hedging benefit) Principal focus = cash flow generation + paying down debt - c.us$320m reduction as at 31 Dec 2015 to c.us$610m, compared with c.us$930m as at 31 Dec 2014 - Significant reduction notwithstanding low gold price environment Outlook - Refinancing removed uncertainties regarding immediate liquidity + re-established stable operating environment - New strategy focuses on deleveraging + cash cost optimisation via production of high-margin oz - Underground mining at Pioneer / Malomir: it is expected these projects will be highly profitable, with potential to contribute high margin oz in 12-16 months - In discussions with a reputable industry player on a potential partnership for development of our POX project (est. capex to complete = US$120-140m) - 2016 gold production guidance: 460 500Koz
Key Takeaways
Our strategy: transfer enterprise value from debt to equity Debt repayment via cash flow growth Favour operating margin over total ounces produced Cost control Upside potential from underground operations Disciplined capital allocation Maximising cash flows at every stage of operations Optimal levels of capital + maintenance expenditure Mine plan flexibility Targeted gross margin of c.us$500/oz ( = gold price less TCC) Disposal of low margin alluvial production Reduce costs at operations through behavioural change + productivity enhancement + efficiency Reduce mining + processing costs Improve quality of R&R Unlock exciting underground potential at Pioneer + Malomir Change in exploration strategy to reduce exploration spend POX project: potential partnership for further development Optimal minimisation of sustaining costs Our focus is value creation in a challenging gold price environment 25
Appendix 26
Key mine by mine data Pokrovskiy Albyn 2015 production 56Koz (11% of production) 2015 production 158Koz (31% of production) RIP processing capacity c.2.0mtpa RIP processing capacity c.4.5mtpa R+R Resources Of Which Reserves R+R Resources Of Which Reserves Non-Refractory 1.3Moz 0.4Moz Non-Refractory 4.6Moz 1.4Moz LOM Non-Refractory 16 yrs 6 yrs LOM Non-Refractory 25 yrs 7.5 yrs Malomir Pioneer 2015 production 59Koz (12% of production) 2015 production 231Koz (46% of production) RIP processing capacity c.4.5mtpa (1) RIP processing capacity c.7.0mtpa R+R Resources Of Which Reserves R+R Resources Of Which Reserves Non-Refractory 0.7Moz 0.3Moz Non-Refractory 2.4Moz 1.5Moz LOM Non-Refractory 8 yrs 4 yrs LOM Non-Refractory 9 yrs 6 yrs Refractory 6.2Moz 2.7Moz Refractory 3.1Moz 1.4Moz LOM Refractory 24 yrs 11 yrs LOM Refractory 11 yrs 5 yrs 27 (1) Including c.2.0mtpa of refractory processing on standby. Note: LOM = Life of Mine. R&R data in accordance with JORC Code 2012
Financial Highlights (H1 2015) Continuing Operations (POG) Units H1 2015 H1 2014 Change Change Total gold production 000oz 240.2 306.4 (66.2) (22%) Gold sold 000oz 229.7 310.7 (81.0) (26%) Group revenue US$m 297.3 453.0 (155.7) (34%) Average realised gold price US$/oz 1,221 1,386 (165) (12%) Total Cash Costs (TCC) US$/oz 767 847 (80) (9%) Operating profit US$m 14.5 44.0 (29.5) (67%) Underlying EBITDA US$m 90.0 139.2 (49.2) (35%) (Loss) / profit before tax US$m (26.0) 8.3 (34.3) n/m Net loss for the period from continuing operations US$m (28.9) (16.8) (12.1) 72% Discontinued operations Net loss for the period from discontinued operations US$m (52.7) (78.5) 25.8 (33%) Total loss for the period US$m (81.6) (95.3) 13.7 (14%) Net cash from operating activities US$m 11.5 80.8 (69.3) (86%) From continuing operations US$m 19.8 104.0 (84.2) (81%) From discontinued operations US$m (8.3) (23.2) 14.9 (64%) H1 2015 YE 2014 Change Change Net Debt US$m (696.1) (929.7) 233.6 (25%) 28 n/m = not meaningful. Figures may not add due to rounding