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Polymetal International plc Half-year report for the six month ended 30 June 2023 ? “Despite external pressures, we made good progress in the first half of the year while adapting to the logistics constraints. High commodity prices against a weakening Rouble, combined with steady operating performance, drove a healthy growth in the Group’s earnings, adjusted EBITDA and free cash flow. We expect stronger production, stable cash costs within the original guidance, and significant free cash flow generation for the second half of the year, while remaining focused on progressing our development projects on schedule”, said Vitaly Nesis, Group CEO of Polymetal International plc, commenting on the results. FINANCIAL HIGHLIGHTS
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? ? OPERATING HIGHLIGHTS
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? Notes: (1) Based on 80:1 Au/Ag conversion ratio and excluding base metals. Discrepancies in calculations are due to rounding. (2) Comparative information is presented for 31 December 2022. (3) LTIFR = lost time injury frequency rate per 200,000 hours worked. Company employees only are taken into account. ?update on THE re-domICILATION AND listing On 7 August 2023, the Company successfully completed its re-domiciliation to the AIFC (Kazakhstan). On 10 August, trading resumed on Astana International Exchange, which is now the primary listing venue for Polymetal. Cancellation of the Company’s listing from the London Stock Exchange completed on 29 August 2023. On 19 September 2023, trading in Polymetal shares also resumed on the Moscow Exchange. Conference call and webcast The Company will hold a webcast on Monday, 25 September 2023, at 9:00 London time (14:00 Astana time). To participate in the webcast, please register using the following link: https://event.on24.com/wcc/r/4340529/E960C65B2522657D1D7187BD73EFDBF4. Webcast details will be sent to you via email after registration. Enquiries
FORWARD-LOOKING STATEMENTS This release may include statements that are, or may be deemed to be, “forward-looking statements”. These forward-looking statements speak only as at the date of this release. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or “should” or similar expressions or, in each case their negative or other variations or by discussion of strategies, plans, objectives, goals, future events or intentions. These forward-looking statements all include matters that are not historical facts. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the company’s control that could cause the actual results, performance or achievements of the company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the company’s present and future business strategies and the environment in which the company will operate in the future. Forward-looking statements are not guarantees of future performance. There are many factors that could cause the company’s actual results, performance or achievements to differ materially from those expressed in such forward-looking statements. The company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the company’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. ? TABLE OF CONTENTS Financial review...........................................................6 Principal risks and uncertainties...............................................17 Going concern...........................................................18 Directors’ responsibility statement.............................................19 Independent Review Report to Polymetal International plc............................20 Condensed Consolidated Income Statement......................................21 Condensed Consolidated Statement of Comprehensive Income........................22 Condensed Consolidated Statement of Financial Position............................23 Condensed Consolidated Statement of Cash Flows................................24 Condensed Consolidated Statement of Changes in Equity............................25 Notes to the consolidated financial statements....................................26 Alternative Performance Measures.............................................41 Financial reviewmarket summary Precious metals In Q1 2023, banking sector turmoil, unsettling geopolitical anxiety and an unstable economic environment worldwide continued to drive demand for gold as a safe-haven asset. In Q2 2023, gold continued its upward trend, peaking at US$ 2,048/oz in April, before reversing direction, following an agreement to raise the US debt ceiling in May. Finally, as at 30 June 2023, the LBMA gold price was trading at US$ 1,912/oz, a 5% year-to-date increase. The average LBMA gold price for 1H was US$ 1,933/oz, up 3% y-o-y. Gold demand (excluding OTC) for 1H 2023 was down by 6% y-o-y to 2,062 tonnes. The negative dynamics stemmed from modest net outflows of 50 tonnes from exchange-traded funds (ETFs), compared with net 127 tonnes of inflows in 1H 2022. Factors driving outflows from ETFs included robust performance from key equity markets and gold price decline in Q2, driven by gradual hikes in interest rates by the global central banks. Bar and coin investment and jewellery demand has been solid, following the end of COVID prevention restrictions in China as well as soaring inflation and weak monetary policy in Turkey. Jewellery demand increased to 951 tonnes (+2% year-on-year). Bar and coin investment also rose by 9% to 571 tonnes with demand in the Middle East reaching a 10-year high. Central banks continued to accumulate gold throughout 1H 2023 and added 387 tonnes to reserves, reaching the highest first-half demand since 2000. With inflation severely impacting supply chains within the electronics sector, technology demand was weak at 140 tonnes. Total 1H 2023 gold supply increased by 5% to 2,460 tonnes on the back of 3% growth in mine production to a record 1H level. Silver price dynamics generally followed gold, peaking in April at US$ 26.0/oz followed by gradual decline thorough the rest of Q2 2023 to US$ 22.5/oz as at 30 June 2023. The average LBMA price in 1H 2023 stood at US$ 23.3/oz, almost flat compared to 1H 2022. Foreign exchange The Group’s revenues are denominated in US Dollars, while about a third of its borrowings and the majority of the Group’s operating costs are denominated in local currencies (Russian Rouble and Kazakhstan Tenge). As a result, changes in exchange rates affected our financial results and performance. In 1H 2023, the Kazakhstani Tenge stood at 452 KZT/USD on average and 454 KZT/USD at the end of the period, which was predominantly stable relative to 2022 values. As already seen in 2022, the currency did not follow the pattern of the Russian Rouble dynamics, which saw significant volatility (see below). The annual inflation rate in the country remained high, although decreased relative to a historical maximum of 2022 of 20.3% to 14.6% by June 2023. The Russian Rouble started to depreciate relative to the 2022 year-end level since February on the back of capital outflow, weaker trade balance and geopolitical escalation. As a result, the Rouble rate recorded a 24% year-to-date decline to 87 RUB/USD. The average rate however was relatively unchanged versus 1H 2022 at 77 RUB/USD. Inflation in Russia significantly moderated after reaching multi-year highs in 2022, with the annualised inflation rate in June 2023 amounting to 3.25%. Revenue
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In 1H 2023, revenue grew by 25% y-o-y, driven by the growth of gold and silver sales compared to 1H 2022 when the Company experienced significant delays due to re-routing of sales channels. Gold sales increased by 28%, while gold production moved higher by 13%. Silver sales increased by 19% due to the contribution of Nezhda concentrate. The Group’s average realised price for gold was US$ 1,926/oz in 1H 2023, up 3% from US$ 1,864/oz in 1H 2022, and in line with the average market price of US$ 1,933/oz. The Group’s average realised silver price was US$ 22.9/oz, flat y-o-y and 2% below market price of US$ 23.4/oz. The share of gold sales as a percentage of total revenue increased from 80% in 1H 2022 to 82% in 1H 2023, driven by a corresponding shift in production and sales volume by metal. ?
The increase in sales volumes during the period had a positive impact on revenues at operating mines in Russia, while revenue in Kazakhstan was down 11% year-on-year as a result of the decrease in GE volume sold, driven by railway transportation constraints for Kyzyl concentrate. Eastward transportation routes are being readjusted to eliminate the production/sales gap, and a meaningful decline in unsold concentrate volumes is expected in Q3 2023. ? ? Cost of sales
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The total cost of sales increased by 35% in 1H 2023 to US$ 701 million, reflecting a volume-based increase in sales (+22% in gold equivalent terms) combined with domestic inflation (15% y-o-y in Kazakhstan and 3% y-o-y in Russia) and an increase in mining tax. The cost of services was up 4% y-o-y, caused mostly by higher volume of transportation services (notably at Nezhda and Kyzyl). The cost of consumables and spare parts was up 16% compared to 1H 2022, impacted by changes in procurement to maintain supplies of critically important consumables and spares levels. The cost of labour within cash operating costs was up 6% y-o-y, mainly stemming from annual salary increases (tracking domestic CPI inflation). The decrease in purchases of third-party ore and concentrates by 15% was mostly driven by a shift to processing Peshernoye ore at Voro hub, compared to the treatment of third-party material in 1H 2022. Mining tax increased by 20% y-o-y to US$ 79 million, mainly driven by an increase in production volume combined with an increase in average realised prices, as well as an increase in gold mining tax rates in Kazakhstan from 5% to 7.5%. Depreciation and depletion was US$ 140 million, up 4% y-o-y. US$ 20 million of depreciation cost is included within the increase in metal inventories (1H 2022: US$ 54 million). In 1H 2023, a net metal inventory increase of US$ 165 million (1H 2022: US$ 296 million) was recorded. The increase was mainly represented by the traditional seasonal concentrate build-up across the Group’s Russian mines. The Company expects the bulk of this increase to be reversed by the end of 2023. The Group recognised a US$ 10 million write-down (1H 2022: US$ 20 million) to the net realisable value of heap leach work-in-progress and low-grade ore at Russian mines (see Note 14 of the condensed financial statements). General, administrative and selling expenses
General, administrative and selling expenses (“SGA”) decreased by 1% y-o-y from US$ 150 million in 1H 2022 to US$ 148 million in 1H 2023, reflecting a decrease in staff costs in USD terms. Other operating expenses
Other operating expenses decreased to US$ 48 million in 1H 2023 compared to US$ 69 million in 1H 2022 mainly due to a scheduled decrease in social payments in accordance with existing partnership agreements and write-off of exploration expenses of US$ 12 million at Viksha. TOTAL Cash costs In 1H 2023, total cash costs per gold equivalent ounce sold (“TCC”) were US$?944/GE oz, up 11% y-o-y and 5% lower compared to 2H 2022. Planned grade decline across the Group’s mines, combined with domestic inflation, had an overall negative impact on cost levels, which was partially offset by increase in sales volumes resulting in spread of mostly fixed SGA and other expenses over a larger amount of ounces sold. The table below summarises major factors that have affected the Group’s TCC and AISC dynamics y-o-y:
? ? Total cash cost by segment/operation, US$/GE oz
Kazakhstan
Russia
ALL-IN SUSTAINING AND all-in cash costs All-in sustaining cash costs[12] amounted to US$ 1,386/GE oz, up 1% y-o-y and significantly below inflation, reflecting the decrease in capitalised stripping on the back of completed stripping campaigns. AISC by operations were as follows: All-in sustaining cash cost by segment/operation, US$/GE oz
AISC at all operating mines generally followed TCC dynamics. In Kazakhstan, AISC were elevated by 43% to US$ 1,314/oz, which was mostly driven by decrease in sales volume, resulting in the spread of sizeable sustaining capex (including investments in new TSF at Varvara) over a limited amount of ounces sold. In Russia, AISC decreased by 3% to US$ 1,416/oz, on the back of sales increase coupled with lower stripping volumes after completion of large stripping campaigns in 2022. ?
? Adjusted EBITDA[13] and EBITDA margin ?(US$m)
? ? Adjusted EBITDA by segment/operation (US$m) ?
In 1H 2023, Adjusted EBITDA was US$ 559 million, 31% higher year-on-year, with an Adjusted EBITDA margin of 43%, reflecting a 22% increase in gold equivalent sold, combined with 3% increase in gold average realised price against the cost dynamics described above. In 1H 2023, Kyzyl contributed more than a quarter of total Group Adjusted EBITDA. Other income statement items Polymetal recorded a net foreign exchange loss in 1H 2023 of US$ 105 million compared to an exchange gain of US$ 92 million in 1H 2022, mostly attributable to the revaluation of the US Dollar-denominated borrowings of Russian operating companies — the functional currency of which is the Russian Rouble — which was partially offset by forex gain on intercompany loans with different functional currencies in the lending and borrowing subsidiaries. The Group does not use any hedging instruments for managing foreign exchange risk, other than a natural hedge arising from the fact that the majority of the Group’s revenue is denominated or calculated in US Dollars. Income tax expense for 1H 2023 was US$ 45 million compared to US$ 27 million benefit in 1H 2022, charged at an effective tax rate of 19% (1H 2022: 8%), The increase was mainly attributable to the increased profit before foreign exchange and tax. For details refer to Note 11 of the condensed consolidated financial statements. Net earnings, earnings per share and dividends The Group recorded net profit of US$ 190 million in 1H 2023 versus US$ 321 million loss in 1H 2022 which was largely driven by impairment charges. The underlying net earnings attributable to the shareholders of the parent were US$ 261 million, compared to US$ 203 million in 1H 2022: Reconciliation of underlying net earnings[15] (US$m)
Basic earnings per share was US$ 0.40 compared to US$ 0.68 loss per share in 1H 2022. Underlying basic EPS[16] was US$ 0.55, compared to US$ 0.43 in 1H 2022. Capital expenditurE[17]
Total capital expenditure marginally changed y-o-y and stood at US$ 375[19] million in 1H 2023. Capital expenditure excluding capitalised stripping costs was US$ 344 million in 1H 2023 (1H 2022: US$ 299 million). The major capital expenditure items in 1H 2023 were as follows: Development projects
Stay-in-business capex at operating assets
Exploration and stripping
Cash flows
Total operating cash flows in 1H 2023 strengthened y-o-y. Operating cash flows before changes in working capital grew by 74% year-on-year to US$ 381 million, as a result of an increase in sales volumes and adjusted EBITDA. Net operating cash flows were US$ 35 million, compared to US$ 405 million outflow in 1H 2022, affected by a seasonal increase in working capital in 1H 2023 of US$ 346 million (1H 2022: US$ 624 million).? Total cash and cash equivalents decreased by 29% compared to 1H 2022 and comprised US$ 384 million, with the following items affecting the cash position of the Group:
The Group reported negative free cash flow1 of US$ 341 million (which is still a significant improvement over 1H 2022 negative FCF of US$ 630 million); that is made up of US$ 55 million inflow coming from Kazakhstan and US$ 396 million outflow attributable to Russian assets.
Free cash flow attributable to Kazakhstan assets decreased by US$ 45 million, mainly affected by working capital build-up on the back of inventory accumulation which is gradually drawing down starting from July. Free cash flow related to Russian assets is seasonally negative as usual, but lower than in 1H 2022, mostly driven by increase in operating cash flow as the sales channels have been re-adjusted. balance sheet, Liquidity and funding
The Group’s net debt increased to US$ 2,590 million as of 30 June 2023, representing a Net debt/Adjusted EBITDA (over the last 12 months) ratio of 2.25x. The increase in net debt was driven by a seasonal and logistics-driven increase in working capital. The proportion of long-term borrowings to total borrowings was 66% as at 30 June 2023 (83% as at 31 December 2022). As at 30 June 2023, the Group had US$ 0.5 billion (31 December 2022: US$ 0.35 billion) of available undrawn facilities, from a wide range of lenders that allows the Group to maintain its operational flexibility in the current environment. The Group has recently secured an additional US$ 0.3 billion in a new revolving credit line. Gross debt remained largely unchanged at US$ 3 billion, of which 73% is denominated in hard currency. Cyprus and Kazakhstan represent 20% of the total debt outstanding, while Russia represents the remaining 80% of the debt. The average cost of debt remained relatively low at 5.2% in 1H 2023 (1H 2022: 6.1%) supported by the Company’s ability to negotiate competitive margins given the Group’s excellent credit history. The Group is confident in its ability to repay its existing borrowings as they fall due. ? INVENTORY Inventory levels marginally increased by US$ 10 million to US$ 1,199 million for the 1H 2023, following US$ 489 million drawn down in the 2H 2022 after US$ 802 million seasonal accumulation in 1H 2022 on the back of sales channels restructuring in Russia. US$ 267 million of inventory balance relates to Kazakhstan, and US$ 933 million of inventory comes from Russia. While Kyzyl was impacted by logistical disruptions in 1H 2023, shipping delays have since been addressed, shipments were resumed in July, and gold produced in Kazakhstan is being shipped and sold on a regular basis. The build-up from 1H 2023 is expected to unwind by the end of the year. ?
? Payable metals in inventory accumulated at 30 June 2023 were as follows:
2023 YEAR-END outlook Polymetal maintains a positive outlook for the second half of the year, both in terms of earnings and free cash flow, with the following factors expected to drive the operating and financial performance towards the year-end:
There are a number of potential risks and uncertainties which could have a material impact on the Group’s performance and could cause actual results to differ materially from expected and historical results. The principal risks and uncertainties facing the Group are categorised as follows:
A detailed explanation of these risks and uncertainties can be found on pages 100 to 109 of the 2022 annual report which is available at www.polymetalinternational.com. The directors consider that these principal risks and uncertainties have not changed materially since the publication of the annual report for the year ended 31 December 2022 and continue to apply to the Group for the remaining six months of the financial year. Further updates will be presented in the full annual financial report for 2023. ?? Going concernIn assessing its going concern status, the Group has taken account of its principal risks and uncertainties, financial position, sources of cash generation, anticipated future trading performance, its borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings, and its capital expenditure commitments and plans. In the going concern assessment, the Group also considered the implications of sanctions imposed by U.S. Department of State on JSC Polymetal, the Company’s subsidiary in the Russian Federation. The Group determined that these implications would not have any material effect on the Group’s liquidity position and its ability to finance its obligations. To assess the resilience of the Group’s going concern assessment in light of the macroeconomic volatility and sanctions imposed on Russia, management performed the stress downside scenario that is considered plausible over the next 12 months from the date of approval of the financial statements. As such, these do not represent the Group’s ‘best estimate’ forecast, but were considered in the Group’s assessment of going concern, reflecting the current evolving circumstances and the most significant severe but plausible changes in macro assumptions identified at the date of approving the press-release. The Group has already taken precautionary measures to manage liquidity and provide flexibility for the future. In addition, it has been assumed that the Group has adapted its sales routes and supply chain and the net cash flows generated will be available for use within the Group. Under the stress scenario, the Group’s income and profits are affected by simultaneous gold and silver price decrease combined with strengthening of the Russian Rouble and Kazakh Tenge, combined with sales delays related to restructuring of sales channels. At the reporting date, the Group holds US$ 0.4 bn of cash and US$ 0.5 bn of undrawn credit facilities, which when combined with the forecast net cashflows under the stress scenario above, is considered to be adequate to meet the Group’s financial obligations as they fall due over the next 12 months. No borrowing covenant requirements are forecast to be breached in the stress scenario. The Group expects to settle obligations as they fall due but also has mitigating actions available such as reducing production volumes and variable mining costs where possible, reducing and deferring non-essential and non-committed capital expenditure. The Board is therefore satisfied that the Group’s forecasts and projections, including the stress scenario above, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report, and that it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 June 2023. ? DIRECTORS’ RESPONSIBILITY STATEMENT? Directors are responsible for the preparation of the condensed consolidated financial statements of Polymetal International plc (the “Company”) and its subsidiaries (the “Group”), which comprise the consolidated statement of financial position as at 30 June 2023, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the six months ended 30 June 2023, in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting. ? In preparing the condensed consolidated financial statements, directors are responsible for:
? Directors also are responsible for:
? ? These condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 22 September 2023 and signed on its behalf by
? ? REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTSTo the?Shareholders and the?Board of Directors of Polymetal International plc: ? Introduction ? We have reviewed the?accompanying condensed consolidated statement of financial position of Polymetal International plc and its subsidiaries (the?“Group”) as?of 30 June 2023 and the?related condensed consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the?six months then ended, and selected explanatory notes. Management is responsible for the?preparation and presentation of these condensed consolidated financial statements in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting. Our responsibility is to express a?conclusion on these condensed consolidated financial statements based on our review. ? Scope of Review ? We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the?Independent Auditor of?the?Entity. A?review of condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A?review is substantially less in scope than an?audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an?audit. Accordingly, we do not express an?audit opinion. ? Conclusion ? Based on our review, nothing has come to our attention that causes us to believe that the?accompanying condensed consolidated financial statements are not prepared, in?all material respects, in?accordance with IAS 34 Interim Financial Reporting. ? ? Natalia Golovkina ? Audit partner ? AO “Business Solutions and Technologies” (ORNZ № 12006020384) ? 22 September 2023 ?
CONDENSED CONSOLIDATED INCOME STATEMENT
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? ? CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME?
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? ? Condensed Consolidated Statement of Cash Flows ?
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CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Polymetal Group is a leading gold and silver mining group, operating in Russia and Kazakhstan. Polymetal International plc (the “Company”) is the ultimate parent entity of Polymetal Group. The Company was incorporated on 29 July 2010 as a public limited company under Companies (Jersey) Law 1991 and as of reporting date has its place of business in Cyprus. As of 30 June 2023 its ordinary shares were traded on the London and, Moscow stock exchanges and Astana International Exchange (AIX). On 7 August 2023, the Group completed the re-domiciliation of the Company from Jersey to the Astana International Financial Centre ("AIFC") in Kazakhstan. The Company remains listed on the AIX, which has become the Company’s primary stock exchange, while its listing on London stock exchange was cancelled on 29 August 2023. On 19 May 2023, JSC Polymetal, the holding company for the Group’s assets located in the Russian Federation, and its subsidiaries were designated by the U.S. Department of State pursuant to Executive Order 14024 for operating in the metals and mining sector of the Russian economy.?Following the designation the Board of Directors of the Company (the “Board”) set up a special committee of independent non-executive directors (the “Special Committee”) to ensure full and comprehensive compliance with U.S. sanctions. In the light of these developments, and in the interests of preserving shareholder value, the Board and the Special Committee have decided to consider all possible options available for divestment of JSC Polymetal and its subsidiaries. Any potential transaction will be subject to receipt of any required corporate, governmental, and regulatory approvals, in all applicable jurisdictions, as necessary. Based on circumstances existing as of 30 June 2023, the Group has determined that JSC Polymetal and its subsidiaries did not meet the definition of the disposal group in accordance IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. Basis of presentation The unaudited condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board. They should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2022 Annual Report of Polymetal International plc and its subsidiaries (“2022 Annual Report”) available at www.polymetalinternational.com. Accounting policies These condensed consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments measured at fair value. The accounting policies and methods of computation applied are consistent with those adopted and disclosed in the Group’s consolidated financial statements for the year ended 31 December 2022, except as described below. New accounting standards issued but not yet effective The following amendments to the accounting standards were in issue but not yet effective as of date of authorisation of these condensed consolidated financial statements:
Management has determined that these standards and interpretations are unlikely to have a material impact on the condensed consolidated financial statements or are not applicable to the Group. ? New standards adopted by the Group The following amendments to accounting standards become applicable for annual reporting periods commencing? on or after 1 January 2023. The Group has determined these standards and interpretations are unlikely to have a significant impact on its condensed consolidated financial statements.
? Going concern In assessing its going concern status, the Group has taken account of its principal risks and uncertainties, financial position, sources of cash generation, anticipated future trading performance, its borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings, and its capital expenditure commitments and plans. In the going concern assessment, the Group also considered the implications of sanctions imposed by U.S. Department of State on JSC Polymetal, the Company’s subsidiary in the Russian Federation. The Group determined that these implications would not have any material effect on the Group’s liquidity position and its ability to finance its obligations. To assess the resilience of the Group’s going concern assessment in light of the macroeconomic volatility and sanctions imposed on Russia, management performed a stress downside scenario that is considered plausible over the next 12 months from the date of approval of the financial statements. As such these do not represent the Group’s ‘best estimate’ forecast, but were considered in the Group’s assessment of going concern, reflecting the current evolving circumstances and the most significant severe but plausible changes in macro assumptions identified at the date of approving the press-release. The Group has already taken precautionary measures to manage liquidity and provide flexibility for the future. In addition, it has been assumed that the Group has adapted its sales routes and supply chain and the net cash flows generated will be available for use within the Group. Under the stress scenario, the Group’s income and profits are affected by simultaneous gold and silver price decrease combined with strengthening of Russian Rouble and Kazakh Tenge, combined with sales delays related to restructuring of sales channels. At the reporting date, the Group holds US$ 0.4 bn of cash and US$ 0.5 bn of undrawn credit facilities, which when combined with the forecast net cashflows under the stress scenario above, is considered to be adequate to meet the Group’s financial obligations as they fall due over the next 12 months. No borrowing covenant requirements are forecast to be breached in the stress scenario. The Group expects to settle obligations as they fall due but also has mitigating actions available such as reducing production volumes and variable mining costs where possible, reducing and deferring non-essential and non-committed capital expenditure. The Board is therefore satisfied that the Group’s forecasts and projections, including the stress scenario above, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report and that it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 June 2023. ? Exchange rates Exchange rates used in the preparation of the condensed consolidated financial statements were as follows:
? The Group’s operating segments are aligned to those businesses that are evaluated regularly by the chief operating decision maker (the CODM) in deciding how to allocate resources and in assessing performance. Operating segments with similar economic characteristics are aggregated into reportable segments. In May 2023, following the designation of JSC Polymetal by the U.S. Department of State pursuant to Executive Order 14024, the governance and management structure of the Group was changed. As a part of ring-fencing the Group’s Russian subsidiaries to ensure sanctions compliance, the management of the Russian operations has been delegated to the executives of JSC Polymetal, while the Company’s Board and management focused on the operations of the Group’s assets located in Kazakhstan, as well as separation of the Group’s assets by jurisdiction, as described in Note 1. As a result of these changes? management? of the Company has re-assessed the presentation of financial information required to assess performance and allocate resources. It was concluded that a ?jurisdiction-based reporting format is more meaningful from management and forecasting perspective, as well as better aligned to the new management structure, internal reporting and processes. As at 30 June 2023 he Group has identified two reportable segments:
? The measure which management and the CODM use to evaluate the performance of the Group is a segment Adjusted EBITDA, which is an Alternative Performance Measure (APM). For more information on the APMs used by the Group, including definitions, please refer to page 41. The accounting policies of the reportable segments are consistent with those of the Group’s accounting policies under IFRS. Revenue and cost of sales of the production entities are reported net of any intersegmental revenue and cost of sales, related to the intercompany sales of ore and concentrates. Business segment current assets and liabilities, other than current inventory, are not reviewed by the CODM and therefore are not disclosed in these condensed consolidated financial statements. Additionally, net debt is included in performance measures, reviewed by CODM. The segment adjusted EBITDA reconciles to the profit before income tax as follows:
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? ? Revenue analysed by geographical regions of customers is presented below: ?
? Included in revenue for the six months ended 30 June 2023 is revenue from customers with a share of total revenue greater than 10%. These were US$ 265 million, US$ 221 million and US$ 193, respectively (period ended 30 June 2022: US$ 408 million, US$ 242 million and US$ 153 million, respectively). Presented below is an analysis by revenue streams: ?
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? Depletion and depreciation of operating assets excludes depreciation relating to non-operating assets (included in general, administrative and selling expenses) and depreciation related to assets employed in development projects where the charge is capitalised. Depreciation expense, which is excluded in the Group’s calculation of Adjusted EBITDA (see Note 2), also excludes amounts absorbed into unsold metal inventory balances. ? ??
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? Interest expense on borrowings excludes borrowing costs capitalised in the cost of qualifying assets of US$ 21 million and US$ 12 million during the six months ended 30 June 2023 and 30 June 2022, respectively. These amounts were calculated based on the Group’s general borrowing pool and by applying an effective annualised interest rates of 4.86% and 3.8%, respectively, to cumulative expenditure on such assets. ? ?
As the Group has a number of tax concessions, the effective tax rate is determined for each separate entity, varying from 0% to 20%.
? Increase in deferred tax asset, recognised during the reporting period, mainly resulted from deferred tax benefit of US$ 85 million related, is related to the foreign exchange differences arising on the outstanding balances, which will be deductible for tax purposes on repayment of the principal amount (for six months ended 30 June 2022: increased deferred tax asset mainly resulted from US$ 125 million of tax benefit recognised on impairment of property, plant and equipment). The Group has applied the mandatory temporary exception under IAS 12 in relation to the accounting for deferred taxes arising from the implementation of the Pillar 2 rules. Тax exposures During the six months ended 30 June 2023 and 2022 no new individual significant exposures were identified as probable and therefore not provided for. Management has estimated possible tax exposure, representing contingent liabilities (Note 16) (covering taxes and related interest and penalties), of approximately US$ 102 million (31 December 2022: US$ 122 million) being uncertain tax positions, which relate to income tax. Change in the amount is mainly attributable to the Russian Rouble appreciation against US Dollar. This is connected largely to more assertive position of the Russian tax authorities in their interpretation of tax legislation in several recent court cases for other third party taxpayers. Fiscal periods remain open to review by the?tax authorities in respect of taxes for the?three and five calendar years preceding the?year of tax review for Russia and Kazakhstan respectively. While the?Group believes it has provided adequately for all tax liabilities based on its understanding of the?tax legislation, the?above facts may create additional financial risks for the?Group.? ? ? As of 30 June 2023 total number of voting rights in the Company amount to 473,626,239 ordinary shares of no par value, each carrying one vote (31 December 2022: 473,626,239). As of 30 June 2023 the Company held 39,070,838 shares in treasury and such shares did not enjoy any voting or economic rights (31 December 2022: 39,070,838 ordinary shares). ? The ordinary shares reflect 100% of the total issued share capital of the Company. ? The calculation of the basic and diluted earnings per share is based on the following data: Weighted average number of shares: Diluted earnings per share Both basic and diluted earnings per share were calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of outstanding common shares before/after dilution respectively. The calculation of the weighted average number of outstanding common shares after dilution is as follows: ?
? There were no adjustments required to earnings for the purposes of calculating the diluted earnings per share in the current period (period ended 30 June 2022: nil). There were no adjustments to weighted average number of shares for the purposes of calculating the diluted earnings per share in the current period (period ended 30 June 2022: none), as no outstanding Long-Term Incentive Plan (LTIP) awards issued under 2020-2021 tranches represent dilutive potential ordinary shares with respect to earnings per share from continuing operations, as these are out of money as of the reporting date (30 June 2022: no dilutive potential ordinary shares). The LTIP tranche, granted in 2019 lapsed during first half 2023 and accordingly, the related balance of US$ 13 million in the share-based payment reserve was transferred into retained earnings (2022: US$ 9 million was transferred into retained earnings in relation to 2018 LTIP tranche). ? ?
? ? ?
? ? ? The Group has a number of borrowing arrangements with various lenders. These borrowings consist of unsecured and secured loans and credit facilities denominated in US Dollars, Euros, Yuans and Russian Roubles. ?
? Movements in borrowings are presented in Note 19 below. ? The table below summarises maturities of borrowings: ?
? ? Capital commitments The Group’s budgeted capital expenditure commitments as at 30 June 2023 amounted to US$ 264 million (31 December 2022: US$ 279 million). Lease commitments The Group’s lease commitments, representing variable lease payments related to the Nezhda grid power line and substation, are estimated at US$ 26 million (undiscounted), which will be expensed as incurred. Taxation Russian and Kazakh tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management’s interpretation of such legislation as applied to the transactions and activities of the companies of the Group may be challenged by the relevant regional and federal authorities and as a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three and five calendar years preceding the year of review in? the Russian Federation in Kazakhstan, respectfully. Under certain circumstances reviews may cover longer periods. Management has identified a total exposure (covering taxes and related interest and penalties) of approximately US$ 105 million in respect of contingent liabilities (31 December 2022: US$ 125 million), mainly related to income tax as described in Note 11. ? The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable as follows: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly; and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). At 30 June 2023 and 31 December 2022, the Group held the following financial instruments at fair value through profit or loss (FVTPL): ? ?
? ? During both reporting periods presented, there were no transfers between levels of fair value hierarchy. ? Additionally, as of 30 June 2023 the Group held several interest rate swap contracts, recognised within non-current accounts receivables and other financial instruments in the amount of US$ 12 million (31 December 2022: US$ 16 million). All interest rate swap contracts exchanging floating rate interest amounts for rate interest amounts are designated as cash flow hedges to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. As the critical terms of the interest rate swap contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the interest rate swap contracts and the value of the corresponding hedged items will systematically change in opposite direction in response to movements in the underlying interest rates. As of 30 June 2023 and 30 June 2022 it was determined that there is no hedge ineffectiveness identified and therefore change of fair value was recognised within other comprehensive income. ? The Group recognised the following gains and loss from revaluation of its Level 3 financial instruments at FVTPL:
? The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables and short-term debt recorded at amortised cost approximate to their fair values because of the short maturities of these instruments. The estimated fair value of the Group’s debt, calculated using the market interest rate available to the Group as at 30 June 2023 is US$ 2,643 million (31 December 2022: US$ 2,615 million), and the carrying value as at 30 June 2023 is US$ 2,974 million (31 December 2022: US$ 3,026 million). The fair value of receivables arising from copper, gold and silver concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal. As such, these receivables are classified within Level 2 of the fair value hierarchy. ? Valuation methodologies used in the measurement of fair value for Level 3 financial assets and financial liabilitiesThe main level 3 inputs used by the Group in measuring the fair value of contingent consideration assets and liabilities, represented by various royalties and net smelter returns (NSR), are derived and evaluated as follows:
The key assumptions used in the Monte-Carlo calculations are set out below: ?
? The Directors consider that a reasonably possible change in a valuation assumption would not have a material impact on the condensed consolidated financial statements for contingent considerations receivable and payable. ? Related parties are considered to include shareholders, associates, joint ventures and entities under common ownership and control with the Group and members of key management personnel. During the period ended 30 June 2023 transactions with the related parties are represented by miscellaneous purchases of US$ 1.1 million (period ended 30 June 2022: US$ 0.6) and various sales to the related parties of US$ 0.3 million (period ended 30 June 2022: 0.3 million). Outstanding? balances with related parties as of 30 June 2023 are represented by accounts receivable of US 1 million (31 December 2022: US$ 1.2 million). ? ?
? Increase in trade and other receivables is related to growth of receivables from provisional copper, gold and silver concentrate sales balance, which expected to be recovered in the second half 2023. During the period ended 30 June 2023, the capital expenditure related to the new projects, increasing the operating capacity amounts to US$ 89 million (period ended 30 June 2022: US$ 209 million). At the reporting date the cash balances include US$ 30 million of cash and cash equivalents held in Russia (31 December 2022: US$ 118 million), that are subject to certain legal restrictions and are therefore not available for general use of the Company (but fully available for use by its Russian subsidiaries). The Group determined that these restrictions would not have any material effect on the Group’s liquidity position and its ability to finance its obligations. Changes in liabilities arising from financing activitiesThe table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's condensed consolidated cash flow statements as cash flows from financing activities. Lease modification presented in the table below relates to the updated lease contract the of overhead power line, supplying electricity to the Nezhda production site, which commenced in July 2022. The corresponding decrease was recognised in right-of-use assets. ?
? In July 2023, the Group increased its effective interest in the Baksy project to 75%, by consolidating 100% of? Batys-Baiken LLC, an owner of 75% in Nur-Bayken LLC, which holds the license of Baksy copper-gold deposit for total cash consideration of US$ 14 million. State-owned JSC Kazgeology owns the remaining 25%. On 7 August 2023 the Group completed the re-domiciliation of the Company from Jersey to the Astana International Financial Centre ("AIFC") in Kazakhstan. The Company remains listed on the AIX, which has become the Company’s primary stock exchange, while its listing on London Stock Exchange was cancelled on 29 August 2023. On 4 August 2023, a windfall tax was introduced in the Russian Federation for a number of companies whose average income tax base for the years ended 31 December 2022 and 2021 exceeded RUB 1 billion. The Group’s management estimates the windfall tax to be accrued in the amount of RUB 600 million (approximating to US$ 7 million), which will be recognised and presented within current income tax for the financial year ending 31 December 2023. In September 2023, the Group has agreed to cancel its historic call and put options and a shareholder agreement over 40.6% share in GRK Amikan LLC (“Amikan”) with the previous joint venture (JV) partner (please refer to the transaction disclosure in the consolidated financial statements for the year ended 31 December 2020). This allowed to form a new joint venture over Amikan. The 40.6% stake was acquired from the previous JV partner by a new third party. Subsequently, JSC Polymetal disposed of its 9.5% stake in Amikan to the same third party for a сash consideration of US$ 21 million. As a result, the Group now owns 49.9% interest of Amikan. ?Simultaneously, JSC Polymetal entered into a number of corporate arrangements with the new shareholder regarding Amikan project financing, governance and operations. The accounting treatment of this transaction will be determined in second half of 2023. ? ? ? Alternative Performance Measures Introduction The financial performance reported by the Group contains certain Alternative Performance Measures (APMs), disclosed to complement measures that are defined or specified under International Financial Reporting Standards (IFRS). APMs should be considered in addition to, and not as a substitute for, measures of financial performance, financial position or cash flows reported in accordance with IFRS. The Group believes that these measures, together with measures determined in accordance with IFRS, provide the readers with valuable information and an improved understanding of the underlying performance of the business. APMs are not uniformly defined by all companies, including those within the Group’s industry. Therefore, the APMs used by the Group may not be comparable to similar measures and disclosures made by other companies. Purpose APMs used by the Group represent financial KPIs for clarifying the financial performance of the Group and measuring it against strategic objectives, given the following background:
APMs and justification for their use
? [1] The financial performance reported by the Group contains certain Alternative Performance Measures (APMs) disclosed to compliment measures that are defined or specified under International Financial Reporting Standards (IFRS). For more information on the APMs used by the Group, including justification for their use, please refer to the “Alternative performance measures” section below. [2] Adjusted for the after-tax amount of impairment charges, write-downs of metal inventory, foreign exchange gains/losses and other change in fair value of contingent consideration. [3] Profit for the period. [4] On a cash basis, representing cash outflow on purchases of property, plant and equipment in the consolidated statement of cash flows. [5] Totals may not correspond to the sum of the separate figures due to rounding. % changes can be different from zero even when absolute amounts are unchanged because of rounding. Likewise, % changes can be equal to zero when absolute amounts differ due to the same reason. This note applies to all tables in this release. [6] Defined in the “Alternative performance measures” section below. [7] In accordance with IFRS, revenue is presented net of treatment charges which are subtracted in calculating the amount to be invoiced. Average realised prices are calculated as revenue divided by gold and silver volumes sold, without effect of treatment charges deductions from revenue. [8] ?As at 31 December 2022. [9] On a last twelve months basis. Adjusted EBITDA for 2H 2022 was US$ 591 million. [10] Based on actual realised prices. [11] Without effect of treatment charges deductions from revenue. [12] All-in sustaining cash costs comprise total cash costs, all selling, general and administrative expenses for operating mines and head office not included in TCC (mainly represented by head office SGA), other expenses (excluding write-offs and non-cash items, in line with the methodology used for calculation of Adjusted EBITDA), and current period capex for operating mines (i.e. excluding new project capital expenditure (development capital), but including all exploration expenditure (both expensed and capitalised in the period) and minor brownfield expansions). For more information refer to the Alternative performance measures section below. [13] Adjusted EBITDA is a key measure of the Group's operating performance and cash generation capacity (excluding impact of financing, depreciation and tax) and a key industry benchmark allowing peer comparison. Adjusted EBITDA also excludes the impact of certain accounting adjustments (mainly non-cash items) that can mask underlying changes in core operating performance. The Group defines Adjusted EBITDA (a non-IFRS measure) as profit for the period adjusted for depreciation and amortisation, write-downs and reversals of inventory to net realisable value, impairment/reversal of previously recognised impairment of non-current assets, share-based compensation expenses, gains and losses on disposal or revaluation of investments in subsidiaries, joint ventures and associates, rehabilitation expenses, bad debt allowance, foreign exchange gains or losses, changes in fair value of contingent consideration, finance income, finance costs, income tax expense and other tax exposures accrued within other operating expenses. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue. [14] Net of finance income. [15] Underlying net earnings represent net profit for the year excluding the impact of key items that can mask underlying changes in core performance. [16] Underlying basic EPS are calculated based on underlying net earnings. [17] On a cash basis. [18] Including projects categorised as development in 1H 2022 [19] On accrual basis, capital expenditure was US$ 408 million in 1H 2023 (1H 2022: US$ 404 million). [20] 1H 2023 – on a last twelve months basis. [21] Annualised basis for half-year results. [22] Excluding lease liabilities and royalty payments. File: Polymetal International plc: Half-year report for the six month ended 30 June 2023
25/09/2023 Dissemination of a Financial Press Release, transmitted by EQS News. |
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