Petropavlovsk’s profit increased by 166%

MINEX FORUM | September 12, 2017 | Views: 64

Petropavlovsk PLC issues its Half Year Report for the period from 1 January 2017 to 30 June 2017 (“H1 2017″ or the “Period”).

Financial Highlights

■   20% increase in Group Revenue to US$304 million (compared to US$254million in 2016) due to 19% increase in production and 5% increase in average realised gold price

■   Profit for the period increased by 166% at US$24.5 million (compared to US$9.2 million in 2016) benefited from higher revenues and only a modest increase in costs

■   91% increase in Operating Profit to US$65 million (H1 2016: US$34 million)

■   30% increase in EBITDA¨ to US$114 million (H1 2016: US$88 million)

■   150% increase in Net Cash from Operating Activitiesu to US$74.6 million

■   5% increase in average realised gold priceu of US$1,255/oz (H1 2016: US$1,194/oz) somewhat benefited from US$2.8 million contribution from cash flow hedge

■   Total Cash Costsu increased by only 2% from H1 2016:

–    TCCu US$675/oz within the original forecast range for the full year of US$600 – 700/oz (H1 2016: US$663/oz)

–    AISCu up 27% to US$965/oz (H1 2016: US$762/oz) primarily reflecting sustaining capital expenditure relating to underground developments and tailing dam expansion, exploration, stripping and greater central administration expenses

–    AICu up 37% to US$1,044/oz (H1 2016: US$761/oz), reflecting the increase in AISCuand capital expenditureu in relation to the POX Hub

■   5% reduction in Net Debtu to US$570 million (FY 2016: US$599 million)

■   Capital expenditureu of US$41.8 million includes US$10.9 million of exploration spend and US$31 million of development capex, u the majority of which related to the POX and underground projects, expansion of tailing dams and ongoing exploration (H1 2016: US$11.9 million)

H1 Production Highlights

■   19% yoy increase in H1 total gold production – c.232,400oz (H1 2016: 195,600oz)


Gold production – Dore (incl. GIC movement), ‘000oz
Q2 2017 Q2 2016 H1 2017 H1 2016
Pioneer 47.9 34.7 96.4 71.0
Pokrovskiy 8.4 9.1 14.2 17.2
Malomir 12.3 12.2 28.7 24.8
Albyn 45.7 38.8 93.1 82.6
Total 114.3 94.8 232.4 195.6

Note: from the beginning of 2017, the Company moved to using gold poured as the definition for production. Comparable 2016 gold production numbers are adjusted accordingly.

FY 2017 Outlook

■   Production forecast for full year of c.420,000 – 460,000oz reconfirmed

■   TCCu guidance for full year 2017 at c.US$700/oz, at upper end of original guidance (US$600 – 700/oz)

■   Forward contracts to sell an aggregate of 500Koz of gold over a period from July 2017 to December 2019 at an average price of US$1,252/oz were outstanding as at 30 June 2017

■   Year-end Net Debtu is expected to decrease to c.US$560 million, assuming an average gold price of US$1,265/oz for the remainder of the year

Development Update

■   POX construction progressing well – on time and on budget for commissioning in Q4 2018

■   Malomir flotation plant (Stage 1) being prepared for production of flotation concentrate in H1 2018

■   After delays at Malomir in the beginning of the year, underground development at both Pioneer and Malomir mines is moving ahead for full scale high grade ore production by the end of 2017

Exploration Update

■   Two new zones of non-refractory mineralisation suitable for open pit mining discovered at Pioneer:

▪    High grade pay shoot at NE Bakhmut – 2 proven to a depth of 140m below the pit floor and remains open; the best deep intersection (19.6m @ 10.90g/t) indicates strong exploration upside

▪    New non-refractory satellite deposit Katrin (near Pioneer) confirmed offering immediate production upside

■   New continuation of Unglichikan deposit identified; the discovery confirms strong exploration potential near the Albyn mine

■   Exploration at Ulgen, an early stage exploration target c.30km southwest from the Albyn plant, suggests there are many similarities with the 2.8Moz Elginskoye deposit

■   New high grade pay shoot discovered at Quartzitovoye, Malomir, with preparations under way to mine it from underground


IRC Update

IRC Ltd. is a producer and developer of industrial commodities with its shares quoted on the Hong Kong Stock Exchange (Stock Code 1029). IRC released its interim results for the six months ended 30 June 2017 on 31 August 2017. The results are available to view on the IRC website at

Key highlights from this report are as follows:

■   K&S is operating at c.50% capacity as at June and ramp-up continues for near full capacity at the year end

■   Threefold revenue increase to US$51.2 million (30 June 2016: US$16.1 million)

■   K&S generated EBITDAu of US$14 million

■   Production and sales volumes of iron ore concentrate more than tripled

–    Production volume up 271% to 697,431 tonnes (30 June 2016: 188,111 tonnes)

–    Sales volume up 218% to 698,632 tonnes (30 June 2016: 219,352 tonnes)

■   Net operating gain of US$2.3 million (30 June 2016: loss of US$11.4 million)

■   Loss for the period reduced to US$9.7 million (30 June 2016: loss of US$9.9 million)

■   ICBC agreed to restructure loan repayment schedule, including full principal repayment holiday in 2017

“We achieved Total Cash Costs (TCC¨) of US$675/oz, slightly up from US$663/oz in H1 2016 but within our original forecast range for 2017 of US$600 – 700/oz. Costs for the year are now expected to be c.US$700/oz at current exchange rates, at the upper end of original guidance. The increases in the Company’s All-in-Sustaining Costs (“AISC”u) toUS$965/oz and All-in Costs (“AIC”u) to US$1,044/oz primarily reflect sustaining capital expenditure relating to underground developments and tailing dam expansion, exploration, stripping and greater central administration expenses. AIC was also affected by capital expenditure in relation to the POX project.

The non-executive directors, myself included, are still relatively new to their roles within the Company following the recent changes to the Board at the June AGM. As such, we continue to develop and deepen our understanding of the business, its substantial potential and the work we must do to realise the best returns for all stakeholders. However, I have been impressed by what I have seen and heard so far, particularly during a recent visit with Vladislav Egorov, Non-Executive Director, to the Group’s operations in the Amur region. We visited all the operational sites including the underground developments and the POX construction. Additionally, we visited key support facilities and the regional office in Blagoveschensk, where we met with employees to discuss the business. I was very impressed with the level of diligence and enthusiasm that our people apply in executing the Company’s strategy”.

Mr Sergey Ermolenko, the Acting CEO of the Group who previously held this position from December 2011 to November 2014, has been instrumental in guiding our operations since his appointment on 18 July 2017. The Board is confident that Mr Ermolenko is well positioned to manage the Company during the transition to new leadership. In the meantime, the Board has engaged an agency to facilitate the search for a permanent CEO candidate, and we will update the market on further progress in due course”, Ian Ashby, Independent Non-Executive Chairman, comments


Commenting on the announcement, Sergey Ermolenko, Acting Chief Executive Officer, said: “Operationally, the Company had a positive first half of the year with a 19% year on year increase in total gold production for the period of c.232,400oz, compared to 195,600oz in H1 2016. As indicated in the H1 Update on 18 July 2017, these results were to plan and are the outcome of operational efficiencies and a strong performance in all operational areas across our mines.

The production results are especially encouraging given that the first half of the year is usually weaker than the second half for Petropavlovsk, due to the scheduling of heap leach operations and extensive stripping works in the first half of the year. The decision to introduce underground operations for the mining of high grade material will allow us to plan our mining operations in a smoother manner.

In line with this success, we reiterate our full year forecast for gold production of c.420,000 – 460,000oz, reflecting mainly our conservative approach to planned underground developments.

At the beginning of the year, a dedicated resin treatment facility was established to cost effectively improve the processing efficiency of resin at the Group’s Resin in Pulp plants. The implementation of these upgrades has been successful as measured by the positive contribution towards gold production throughout the first half of the year. Following these improvements, the Company moved to using gold poured as the definition for production, bringing production reported in line with production sold and thereby reducing the impact of GIC.  In our results, comparable 2016 gold production numbers are adjusted accordingly.

Regarding the POX hub, the oxygen plant and other key construction works are progressing well and in places nearing completion as scheduled for 2017, with some outstanding construction at an early stage. More than 80% of the project equipment is on site, including all critical and long lead items. The four 15m x 4m autoclaves are installed and lined with acid resistant lining. All core supporting structures are complete, including the oxygen, autoclave and filtration plants. An independent technical consultancy is monitoring our progress and considers that a one year time frame to complete remaining work is achievable.

We are targeting commissioning of the Malomir flotation plant (Stage 1) in Q4 2017 with flotation concentrate production in H1 2018. This is to be followed by oxygen plant commissioning in Q2 2018 and POX Hub commissioning in Q4 2018; the ramp up to commercial production is due to occur throughout 2019.

Underground developments progressed well during the period, advancing 1,446.1m at Pioneer, and 696.9m at Malomir despite delays with contractor mobilisation. We expect scalable production from underground operations by the end of the year.

Following a 1.55Moz increase in JORC non-refractory reserves in 2016, reinforcing our belief in the strong exploration potential of our existing assets, exploration work during 2017 continued to deliver positive results, including the discovery of a new non-refractory deposit Katrin, near Pioneer, and a new high grade pay shoot discovered in May at Quartzitovoye, Malomir. We are preparing to start production from both these new discoveries in the near future.

I am committed to driving operational stability during the transition to new management in my tenure as acting CEO. I will be focusing particularly on the successful implementation of our POX hub and underground development projects, underpinned by smooth and stable work at our producing mines, generating substantial cash flows for further developments. I am very happy to be supported by our team of specialists, whose commitment was clearly demonstrated during the recent Board visit to the mines.”

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