Polyus : Financial results for the first quarter 2021

Press Release

27 May 2021

PJSC Polyus

Financial results for the first quarter 2021

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 first quarter 2021.

Key highlights

1. Total gold sales volumes amounted to 569 thousand ounces in the first quarter of 2021, down 31% compared to the fourth quarter of 2020. This reflects lower refined gold volumes at Olimpiada, Blagodatnoye and Natalka, mainly due to changes in gold in inventory at the refinery and a seasonal slowdown in production at Alluvials and Kuranakh. In addition, Polyus recorded no sales of flotation concentrate in the reporting period, compared to 141 thousand ounces in the fourth quarter of 2020.
2. Revenue for the first quarter of 2021 totalled $1,017 million, down 32% compared to the previous quarter. This is attributable to the aforementioned decline in refined gold volumes and the absence of sales of flotation concentrate during the quarter. In addition, the average realised price of refined gold was 4% lower than in the fourth quarter, at $1,788 per ounce.
3. The group's TCC for the first quarter increased by 9% to $386 per ounce compared to $354 per ounce in the previous quarter. This reflects the lower average grade in ore processed at Olimpiada and Blagodatnoye, as well as the absence of sales of lower cost flotation concentrate during the quarter. The latter also resulted in a zero by-product credit compared to $14 per ounce in the fourth quarter of 2020.
4. Adjusted EBITDA for the first quarter of 2021 amounted to $739 million, a 35% decrease compared to $1,138 million in the previous quarter, driven by lower gold sales volumes over the period.
5. Capital expenditures ("capex") for the period decreased to $127 million, from $272 million in the previous reporting period.
6. The net debt (incl. derivatives)/adjusted EBITDA ratio decreased to 0.5x compared to 0.7x at the end of 2020, reflecting a lower net debt position and growth in adjusted EBITDA over the last twelve months.

Dividend update

The Board of Directors of PJSC Polyus on 21 April 2021 recommended the dividends for the second half of 2020 in the amount of 387.15 Russian roubles per ordinary

share. The dividend is subject to approval by the Company's annual general

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shareholders' meeting convened on 27 May 2021. The recommended dividend amount is equivalent to approximately $5.09 per ordinary share or $2.55 per depositary share. The total recommended dividend payout for the second half of 2020 will correspond to approximately $693 million. The total dividend payout for the full year of 2020 will correspond to approximately $1,107 million. This amount includes $414 million paid for the first half of 2020. The dividend record date recommended by

the Company's Board is 7 June 2021, subject to approval by the Company's annual general shareholders' meeting.

COVID-19 update

During the first quarter of 2021, the Company allocated $35 million towards measures aimed at preventing the spread of COVID-19. Of this total amount, $11 million is included into Cost of gold sales (additional staff expenses related to extended working shifts), and $13 million is in Other expenses (COVID-19 test kits, medical services and support provided to regional hospitals). The remaining $11 million is attributed to in-progress inventory ($4 million) and infrastructure facilities ($7 million) which was 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 ($24 million) were excluded from the adjusted EBITDA calculation.

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

"Polyus has reported solid cash generation for the first quarter of 2021. The Company posted $739 million of EBITDA and $423 million of levered free cash flow.

We continue to make progress on our brownfield development projects, including the recently approved Mill-5 construction. At Verninskoye, we have completed our expansion project to 3.5 million tonnes per annum, well ahead of initial schedule.

Despite our capital expenditure for the reporting period coming in significantly below the previous quarter, we reiterate our initial capex guidance and expect to invest $1,000-$1,100 million across the group in 2021."

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Comparative financial results

	$ million (if not mentioned otherwise)	1Q 2021	4Q 2020		Q-o-Q		1Q 2021	1Q 2020		Y-o-Y
	Operating highlights
	Gold production (koz)1	592	710		(17%)		592	595		(1%)
	Gold sold (koz)	569	829		(31%)		569	544		5%
	Realised prices
	Weighted-average refined gold selling price, $/oz	1,788	1,872		(4%)		1,788	1,592		12%
	Financial performance
	Total revenue	1,028	1,515		(32%)		1,028	872		18%
	Operating profit	612	935		(35%)		612	481		27%
	Operating profit margin	60%	62%		(2) ppts	60%	55%		5 ppts
	Profit for the period	450	835		(46%)		450	(389)		N.A.
	Earnings / (loss) per share - basic (US Dollar)	3.33	6.17		(46%)		3.33	(3.06)		N.A.
	Earnings / (loss) per share - diluted (US Dollar)	3.32	6.15		(46%)		3.32	(3.06)		N.A.
	Adjusted net profit2	469	732		(36%)		469	338		39%
	Adjusted net profit margin	46%	48%		(2) ppts	46%	56%		(10) ppts
	Adjusted EBITDA3	739	1,138		(35%)		739	589		25%
	Adjusted EBITDA margin	72%	75%		(3) ppts	72%	68%		4 ppts
	Net cash flow from operations	686	895		(23%)		686	544		26%
	Capital expenditure4	127	272		(53%)		127	124		2%
	Cash costs
	Total cash cost (TCC) per ounce sold ($/oz)5	386	354		9%		386	394		(2%)
	All-in sustaining cash cost (AISC)	641	613		5%		641	684		(6%)
	per ounce sold ($/oz)6
	Financial position
	Cash and cash equivalents	1,800	1,445		25%		1,800	1,878		(4%)
	Net debt (incl. derivatives)7	2,074	2,464		(16%)		2,074	3,056		(32%)
	Net debt (incl. derivatives)/adjusted EBITDA (x)8	0.5	0.7		(29%)		0.5	1.1		(55%)

Total Cash Costs

In the first quarter, the group's TCC increased by 9% to $386 per ounce compared to $354 per ounce in the previous quarter. This reflects the lower average grade in ore processed at Olimpiada and Blagodatnoye, as well as the absence of lower cost flotation concentrate sales during the period. The latter also resulted in a zero byproduct credit compared to $14 per ounce in the fourth quarter of 2020.

1. Gold production is comprised of 569 thousand ounces of refined gold and 23 thousand ounces of gold in flotation concentrate in the first quarter of 2021 and 688 thousand ounces of refined gold and 22 thousand ounces of gold in flotation concentrate in the fourth quarter 2020 respectively.
2. Adjusted net profit is defined by the group as net profit / (loss) for the period adjusted for impairment loss / (reversal of impairment), unrealised (gain) / loss on derivative financial instruments, net, foreign exchange (gain) / loss, net, and associated deferred and current income tax related to such items.
3. Adjusted EBITDA is defined by the group as profit for the period before income tax, depreciation and amortisation, (gain) / loss on derivative financial instruments (including the effect of the disposal of a subsidiary and subsequent accounting at equity method), finance costs, net, interest income, foreign exchange loss / (gain), net, impairment loss / (reversal of impairment), (gain) / loss on property, plant and equipment disposal, expenses associated with an equity-settledshare-based payment plan, expenses associated with covid-19, loss on transfer of Omchak power grid and special charitable contributions as required to ensure calculation of the Adjusted EBITDA is comparable with the prior period.
4. Capital expenditure figures are presented on an accrual basis (here presented net of the Sukhoi Log deposit license acquisition cost and net of Omchak power grid construction cost). For details see reconciliation on page 20.
5. TCC is defined by the group as the cost of gold sales, less property, plant and equipment depreciation and amortisation and change in allowance for obsolescence of inventory, expenses associated with covid-19 and adjusted by non-monetary change in inventory. TCC per ounce sold is the cost of producing an ounce of gold, which includes mining, processing and refining costs. The group calculates TCC per ounce sold as TCC divided by total ounces of gold sold for the period. The group calculates TCC and TCC per ounce sold for certain mines on the same basis, using corresponding mine-level financial information.
6. AISC is defined by the group as TCC plus selling, general and administrative expenses, stripping activity asset additions, sustaining capital expenditures, unwinding of discounts on decommissioning liabilities, provision for annual vacation payment, employee benefit obligations cost, and change in allowance for obsolescence of inventory less amortisation and depreciation included in selling, general and administrative expenses. AISC is an extension of TCC and incorporates costs related to sustaining production and additional costs which reflect the varying costs of producing gold over the life-cycle of a mine. The group believes AISC is helpful in understanding the economics of gold mining. AISC per ounce sold is the cost of producing and selling an ounce of gold, including mining, processing, transportation and refining costs, general costs from both mine and alluvial operations, and the additional expenditures noted in the definition of AISC. The group calculates AISC per ounce sold as AISC divided by total ounces of gold sold for the period.
7. Net debt is defined as non-current borrowings plus current borrowings less cash and cash equivalents and bank deposits. Net debt also includes assets and liabilities under cross- currency and interest rate swaps at the reporting date. Net debt excludes derivative financial instrument assets/liabilities other than cross-currency and interest rate swaps, site restoration and environmental obligations, deferred tax, deferred revenue and other non-current liabilities. Net debt should not be considered as an alternative to current and non- current borrowings, and should not necessarily be construed as a comprehensive indicator of the group's overall liquidity.
8. The group calculates net debt (incl. derivatives) to Adjusted EBITDA as net debt (including derivatives) divided by Adjusted EBITDA for the last twelve months

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In the first quarter, TCC at Olimpiada rose to $395 per ounce, up 33% compared to the fourth quarter of 2020. This reflects the absence of sales of lower cost flotation concentrate, which also resulted in a zero by-product credit compared to $29 per ounce in the fourth quarter of 2020. A decline in average grades in ore processed (3.02 grams per tonne in the first quarter compared to 3.34 grams per tonne in the fourth quarter) also negatively impacted the cost performance. Under the current mine plan, Polyus is intensifying stripping activities and processing higher volumes of lower grade ore stockpiles in 2021.

At Blagodatnoye, TCC amounted to $359 per ounce, up 5% compared to the fourth quarter. This was driven by a temporary decline in average grades in ore processed (1.65 grams per tonne in the first quarter compared to 1.91 grams per tonne in the fourth quarter), as well as a decrease in recovery rate from 88.7% to 86.2% compared to the previous quarter.

In the first quarter, TCC at Natalka increased to $377 per ounce, up 10% compared to the previous quarter. This reflects a temporary decline in recovery rate to 71.1% compared to 73.0% in the previous quarter and appreciation of the local currency on average during the reporting period. Lower sales volumes, driven by changes in gold in inventory at the refinery, also negatively impacted TCC per ounce.

In the first quarter, TCC at Verninskoye amounted to $338 per ounce, up 4% compared to the fourth quarter. This was driven by a temporary decline in average grades in ore processed (2.82 grams per tonne in the first quarter compared to 2.90 grams per tonne in the fourth quarter), as well as appreciation of the local currency on average during the quarter.

At Kuranakh, TCC rose to $539 per ounce, up 4% compared to the fourth quarter, primarily due to the seasonal downscaling of heap leaching operations.

Due to the seasonality of activity at placer deposits, no gold was produced at Alluvials in the first quarter of 2021. The washing season ended in November 2020, and was resumed in April 2021 as usual.

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All-in sustaining costs (AISC)

In the first quarter, the group's AISC amounted to $641 per ounce, a 5% increase quarter-on-quarter due to higher TCC per ounce for the period.

All-in sustaining costs by mine, $/oz

		4Q 2020			1Q 2021		616	660	566	836	841	1,413
						542
458	458	464	520
													-
Olimpiada	Blagodatnoye	Natalka	Verninskoye	Kuranakh	Alluvials

In the first quarter of 2021, AISC at Olimpiada remained flat at $458 per ounce, as higher TCC per ounce was fully offset by lower sustaining capital expenditures. AISC at Blagodatnoye increased to $542 per ounce, while AISC at Natalka increased to $616, both driven by higher levels of stripping activity in the reporting period. AISC at Verninskoye decreased to $566 per ounce due to lower levels of stripping activity and lower sustaining capital expenditures in the reporting period. AISC at Kuranakh remained broadly flat at $841 per ounce.

Capex

In the first quarter, capital expenditures decreased to $127 million, from $272 million in the previous period, reflecting lower capital expenditures across all business units.

At Olimpiada, capital expenditures decreased to $28 million in the first quarter of 2021 compared to $93 million in the previous reporting period, with a new SAG-mill installed at Mill-3 then. Polyus procured two Jameson Cell flotation units: the first was commissioned at Mill-2 in January and the second will be ramped up in June. The Company continued to upgrade its mining fleet with the delivery of two 220-tonne trucks (nine units in the fourth quarter).

At Blagodatnoye, capital expenditures decreased to $21 million in the first quarter of 2021 compared to $43 million in the previous reporting period as the Company completed an active phase of mining fleet procurement. Polyus is proceeding with groundworks and site preparation for the Mill-5 project, while finalizing the tender procedures to select the major contractor and long-lead equipment suppliers.

Capital expenditures at Natalka decreased 41% to $20 million in the first quarter, compared to $34 million in the previous reporting period, when construction of the first start-up complex of new tailings storage facility was completed and flash flotation roll- out along with a new CIL line commissioning took place. In the reporting period, Polyus proceeded with the development of the Mill's auxiliary and infrastructure facilities, including construction of the second start-up complex of new tailings storage facility.

At Verninskoye, capital expenditures decreased to $15 million in the first quarter compared to $25 million in the previous quarter. The Company completed the installation of technological equipment at the extension to the main building during maintenance in February and launched the hot commissioning of a new ball mill in March. That said, Polyus completed the project of throughput capacity expansion at

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