Polyus : Financial Results for the Third Quarter of 2020

Press Release

12 November 2020

PJSC Polyus

Financial results for the third quarter of 2020

PJSC Polyus (LSE, MOEX - PLZL) ("Polyus", the "Company", and together with the Company subsidiaries, the "group") has today released its consolidated financial results for the third quarter of 2020.

Key highlights

1. Total gold sales volumes amounted to 772 thousand ounces, up 15% compared to the second quarter of 2020. This reflects seasonally higher production volumes at Alluvials as well as increased refined gold production volumes across almost all hard-rock deposits. This also includes 70 thousand ounces of gold contained in concentrate from Olimpiada, compared to 26 thousand ounces in the second quarter of 2020.
2. Revenue for the third quarter 2020 totalled $1,454 million, up 26% compared to the previous quarter. This is partially attributable to the aforementioned growth in gold sales volumes. At the same time, the average realised refined gold price was 11% higher compared to the second quarter, at $1,907 per ounce.
3. The group's TCC for the third quarter increased 9% to $369 per ounce compared to the previous quarter due to the seasonal increase in output at the structurally higher cost alluvial operations. In addition, higher MET expenses, driven by the increase in average realised gold price put additional pressure on the group's TCC. These factors were partially offset by an increase in share of lower-costantimony-rich flotation concentrate in total gold sold. The latter also resulted in higher by-product credit of $14 per ounce in the third quarter compared to $1 per ounce in the previous quarter.
4. Polyus adjusts its TCC guidance for 2020 downwards, based on the
   Company's operational performance for the nine months of 2020, with total cash costs now expected to stay within the range of $375-$425 per ounce for the full year 2020, compared to the previous estimate of $400-$450 per ounce. Polyus continues to apply the foreign exchange rate assumption of 60 rouble per dollar for TCC guidance calculation.
5. Adjusted EBITDA for the third quarter of 2020 reached $1,103 million, a 28% increase compared to $860 million in the previous quarter, the highest on record and driven by growth in gold sales volumes and higher gold prices during the period.
6. Capital expenditures ("capex") for the period remained largely flat, at $130 million, compared to $127 million in the previous quarter.

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1. Levered free cash flow for the third quarter of 2020 reached $720 million, primarily due to growth in the operating profit for the period.
2. The net debt /adjusted EBITDA ratio decreased to 0.7x compared to 0.8x as at the end of the previous quarter, reflecting a lower net debt position and adjusted EBITDA growth over the last twelve months.
3. Polyus has today provided an overview of the key highlights of the Pre- Feasibility study for Sukhoi Log, confirming the outstanding economic viability of the project, in addition to selecting key areas of the project for further in-depth analysis.

Dividend update

In September, the Board of Directors of PJSC Polyus recommended dividends for the first six months ended 30 June 2020 in the amount of 240.18 Russian roubles per ordinary share. The dividend amount is equivalent to approximately $3.01 per ordinary share, or $1.51 per depositary share (with two depositary shares representing interest in one ordinary share)1.

The total recommended dividend payout for the first half of 2020 amounts to approximately $410 million1, in line with the Company's dividend policy. The dividend has been approved by the Company's Extraordinary General Shareholders' Meeting on 30 September 2020. The dividend record date was on 20 October 2020.

COVID-19 update

Strict protective measures and safety protocols remain in place across all the Company operations. These include special access control arrangements requiring all rotational employees to be tested for COVID-19 and quarantined in observation facilities prior to their transfer to Polyus' sites. Besides that, the Company has introduced antibody blood testing of employees going to production sites (those with a sufficient amount of antibodies can enter production sites through a simplified procedure). In total, since the beginning of the pandemic Polyus has conducted 131 thousand COVID-19 tests and donated medical equipment to local hospitals in the regions of operations. Use of personal protective equipment is mandatory. All communal areas are regularly disinfected, and all employees working both at offices and production sites are subject to regular testing. In addition, the Company is carrying out daily temperature checks for all Polyus and contractor employees.

During the third quarter of 2020, the Company allocated $50 million to measures aimed at preventing the spread of the COVID-19 pandemic. Out of the total amount the Company incurred $36 million was recorded in Cost of gold sales (additional staff expenses related to extended working shifts) and Other expenses (COVID-19 test kits, medical services and support to regional hospitals) in amounts of $15 million and $21 million, respectively. The remaining $14 million was attributable to in-progress inventory and capitalised as part of property, plant and equipment in the Statement of Financial position. The expenses associated with COVID-19 and recognised as part of Cost of gold sales were excluded from both TCC and AISC calculations. At the same time, all P&L expenses related to COVID-19, in the amount of $36 million were excluded from the adjusted EBITDA calculation, respectively.

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Pavel Grachev, Chief Executive Officer of PJSC Polyus, commented:

"Polyus posted solid financial results for the third quarter of 2020, driven by growth in sales volumes and a higher gold price in the reporting period. For the first time in the Company's history EBITDA surpassed a $1 billion threshold, setting a new record high at $1.1 billion.

Based on the Company's cost performance for the first nine months of 2020, we are adjusting our TCC guidance for the year downwards. Polyus now expects total cash costs for the full year of 2020 to stay within the range of $375-$425 per ounce, compared to the previous estimate of $400-$450 per ounce.

We also continue to progress with the development of our flagship greenfield project, Sukhoi Log. Following the publication of the Maiden Ore Reserve estimate a few weeks ago, we have now published an overview of the key highlights from the Pre- Feasibility study. This has reconfirmed the outstanding quality of the largest untapped gold deposit globally, and we are now proceeding with further technical and financial analysis of the project at the Feasibility study stage. We expect to provide a further update on Sukhoi Log following the completion of the Feasibility Study in 2022."

Comparative financial results

$ million (if not mentioned otherwise)

Operating highlights

Gold production (koz)2

Gold sold (koz)

Realised prices

Average realised refined gold price ($/oz)

Financial performance

Total revenue

Operating profit

Operating profit margin

Profit for the period

Earnings per share - basic (US Dollar) Earnings / (loss) per share - diluted (US Dollar)

Adjusted net profit

Adjusted net profit margin

Adjusted EBITDA

Adjusted EBITDA margin

Net cash flow from operations

Capital expenditure

Cash costs
Total	cash cost	(TCC)	per ounce sold
($/oz)3
All-in	sustaining	cash	cost (AISC)
per ounce sold ($/oz)4

Financial position

Cash and cash equivalents Net debt (incl. derivatives)5

Net debt (incl. derivatives)/adjusted EBITDA (x)6

3Q		2Q					3Q						9M			9M
		Q-o-Q		Y-o-Y			Y-o-Y
2020		2020				2019					2020			2019
771	690	12%		753		2%		2,056		2,037	1%
772	672	15%		729		6%		1,988		1,984	0%
1,907	1,723	11%		1,482		29%		1,755		1,372	28%
1,454	1,157	26%		1,070		36%		3,483		2,718	28%
948	702	35%		590		61%		2,131		1,492	43%
65%	61%		4 ppts		55%		10		61%		55%		6 ppts
				ppts
516	684	(25%)		300		72%		811		1,247	(35%)
3.59	5.11	(30%)		2.13		69%		5.67		9.27	(39%)
3.58	5.11	(30%)		2.13		68%		5.65		9.26	(39%)
771	485	59%		459		68%		1,742		1,067	63%
53%	42%		11 ppts		43%		10		50%		39%	11
				ppts			ppts
1,103	860	28%		705		56%		2,552		1,797	42%
76%	74%		2 ppts		66%		10		73%		66%		7 ppts
				ppts
955	652	46%		603		58%		2,151		1,492	44%
130	127	2%		157		(17%)		381		410	(7%)
369	340	9%		412		(10%)		366		376	(3%)
571	568	1%		628		(9%)		601		602	0%
1,633	1,654	(1%)		1,538		6%		1,633		1,538	6%
2,299	2,506	(8%)		3,393		(32%)		2,299		3,393	(32%)
0.7	0.8	(13%)		1.5		(53%)		0.7		1.5	(53%)

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Total Cash Costs

In the third quarter, the group's TCC increased by 9% to $369 per ounce compared to the previous quarter due to the seasonal increase in output at the structurally higher-cost alluvial operations. Moreover, higher MET expenses, driven by the increase in average realised gold price put additional pressure on the group's TCC.

These factors were partially offset by a higher share of lower-costantimony-rich flotation concentrate in total gold sold. The latter also resulted in higher by-product credit of $14 per ounce in the third quarter compared to $1 per ounce in the previous quarter.

TCC performance by mine, $/oz

		2Q 2020			3Q 2020	361				511	485	746	837
					359
314	284	324	316	306	323
Olimpiada	Blagodatnoye	Natalka	Verninskoye	Kuranakh	Alluvials

In the third quarter, TCC at Olimpiada declined 10% compared to the second quarter, to $284 per ounce. This was driven by a higher share of lower-costantimony-rich flotation concentrate in total gold sold during the quarter. This also resulted in an increase in by-product credit ($34 per ounce in the third quarter compared to $3 per ounce in the second quarter). In addition, a higher average grade in ore processed (3.56 grams per tonne in the third quarter compared to 3.47 grams per tonne in the second quarter) positively impacted the costs performance for the period. These factors were partially offset by higher MET expenses during the reporting period.

At Blagodatnoye, TCC amounted to $359 per ounce, up 11% compared to the second quarter, driven by higher MET expenses and higher consumption of reagents in the reporting period.

At Natalka, TCC declined to $316 per ounce, down 12% compared to the previous quarter, mainly driven by a 2.7 ppts increase in recovery rate (73.2% in the third quarter compared to 70.5% in the second quarter), following the installation of the second flash flotation unit and introduction of three CIL columns during the reporting period.

TCC at Verninskoye amounted to $323 per ounce, up 6% compared to the second quarter, primarily due scheduled maintenance works at the mill, which were completed in September 2020.

At Kuranakh, TCC declined to $485 per ounce, down 5% compared to the second quarter, driven by a higher share of lower-cost gold produced from the heap leaching facilities in the total gold sold during the reporting period.

At Alluvials, TCC increased 12% to $837, reflecting the write-off of seasonal deferred expenditures in the third quarter.

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