Source - RNS
RNS Number : 0395L
Petropavlovsk PLC
28 September 2016
 

 

 


28 September 2016

 

Petropavlovsk PLC

 

Half-Year Report for the Period Ended 30 June 2016

 

Petropavlovsk PLC ("Petropavlovsk" or the "Company" or, together with its subsidiaries, the "Group") today issues its Half-Year Report for the period from 1 January 2016 to 30 June 2016 ("H1 2016" or the "Period").

 

Introducing the announcement, Peter Hambro, Chairman, said:

 

"I am pleased to announce a return to profitability for the six months to 30 June 2016 with an increase in Operating Profit (excluding IRC) to c.US$37.8 million and Profit after Tax of c.US$9.2 million. This was principally due to the Company's success in cutting production costs and overheads and weakening of the rouble, with Total Cash Costs ("TCC") falling by 14% and Central Administration Costs falling by 17%. The first half of our year is usually the weaker of the two, yet in this period we have managed to achieve a good set of results.

 

We are nearing our main strategic objective of amending the maturity profile of our bank facilities with our Russian lenders with a back-ended repayment profile. Key terms have been agreed in principle for the rebalancing of the Group's debt maturities with its production profile. We expect to be in a position to announce the conclusion of this before the end of October. At this stage we are also expecting to update the market on the previously announced corporate actions and acquisition plans, including the joint venture on the POX assets, the acquisition of the Amur Zoloto assets, and the consideration of the Kamchatka gold assets.

 

The financial and operational progress we have made has enabled the Company to progress the development of our flagship POX project, which is expected to unlock the value in our c.9.3 million ounces of refractory gold reserves and resources.

 

In addition, we have completed the underground mine portal and started access and ventilation declines. The first ore from underground is planned to be mined at Pioneer in Q1 2017. This is a significant milestone for the Group, which has hitherto been solely an open pit mining venture. This start up is in line with the Group's previously announced plan.

 

The value of our shareholding in IRC, the Hong Kong listed iron ore group, is also beginning to reflect IRC's recent success. IRC is progressing the commissioning and ramping up process at its flagship K&S mine and has recently started shipping iron ore concentrate to customers across the border in China, with regular commercial production anticipated soon. Petropavlovsk continues to guarantee the US$255 million of debt of IRC to ICBC/Sinosure.

 

The Company is focusing on delivering annual gold production in line with the lower end of our original guidance of c.460,000 - 500,000oz due to effects of severe flooding in the region, which impacted stripping works in H1 and production in the second half of the year.

 

In short, Petropavlovsk is delivering on the objectives that were set in 2015 to achieve our primary aim - the rebuilding of shareholder value.  We look forward to updating you on our progress."

 

FINANCIAL HIGHLIGHTS                                             

Operating Profit (excluding IRC) Up 161%

§ Operating profit (excluding IRC) increased to US$37.8 million (H1 2015: US$14.5 million)

 

Profit vs. Loss H1 2015

§ Profit after tax from continuing operations for the period of US$9.2 million vs. a loss of US$(28.9) million during the same period in 2015 due to a decrease in cash costs, reversal of stockpile impairments and reduction in interest expense

 

Cash Costs Down Across all Mines

§ TCC down 14% to US$663/oz, beating preliminary estimates (H1 2015: US$767/oz), due to a weaker rouble (average 70.54RUB / USD in H1 2016 vs. average 58.06RUB / USD in H1 2015) and continuous improvement in efficiencies of our operations

§ All-in-Sustaining Costs ("AISC") and All-in-Costs ("AIC") down 21% and 26% to US$762/oz and US$761/oz respectively (H1 2015: US$963/oz and US$1,031/oz) reflecting the reduction in TCC as well as lower central administration expenses, decrease in development, exploration, sustaining capital expenditure and impairment reversal

 

Further Net Debt Reduction

§ c.US$12.4 million reduction in Net Debt as at 30 June 2016 to c.US$598 million

§ The Group had sufficient liquidity headroom and complied with related financial covenants which were relaxed by the banks earlier in the year

 

EBITDA in Line with Company Estimates

§ H1 2016 underlying EBITDA (see the definition below) of US$88 million, in line with H1 2015, notwithstanding a decrease in total ounces sold and a lower realised gold price but mitigated by an improvement in cash costs

 

Capital Expenditure

§ 33% decrease in the Group's exploration and development expenditure of US$11.9 million in H1 2016 (H1 2015: US$17.8 million) excluding IRC. Key areas of focus in H1 2016 were underground exploration at Pioneer and expansion of tailing dams at Pioneer and Albyn.

 

H1 PRODUCTION HIGHLIGHTS

§ Total gold production of 187,400oz (H1 2015: 240,200oz). The decrease was mainly caused by the scheduled processing of lower grade material and seasonally bad weather

§ Gold sales of 195,400oz (H1 2015: 229,700oz) at an average price of US$1,194/oz (H1 2015: US$1,221/oz) including hedging loss of US$(5.5) million (H1 2015: gain of US$2.4 million).

 

DEBT MATURITY UPDATE

§  The Company currently has bank debt facilities of US$530 million from its Russian lenders - Sberbank (75% of total bank debt) and VTB. The Company has received major support to extend the maturity profile of facilities to 2022 with a back-ended repayment schedule to match the Company's production schedule. Key terms of the rebalancing of the Group's debt maturities with its production profile have been agreed in principle. Credit approval of the new terms is being targeted during October 2016 with final documentation to follow.

FY 2016 OUTLOOK

§ Production: expected to be in line with lower end of original guidance of c.460,000 - 500,000oz due to effects of severe flooding in the region, which impacted stripping works in H1 and production in the second half of the year

§ Costs: re-iterated guidance of FY TCC of c.US$700/oz

§ Forward contracts to sell an aggregate of 118.7Koz of gold at an average price of US$1,269/oz were outstanding as at 30 June 2016.

 

EXPLORATION UPDATE

§ A new 370m (open in one direction) ore zone identified at Pioneer with a thickness of up to 97.0m and grades ranging from 1.03g/t up to 18.79g/t, with potential to add new reserves and resources of high-grade, non-refractory ores for underground operations as well as regular grade (1.3-1.7g/t) refractory ores for open pit mining

§ 500m extension of Brekchievaya zone (Pioneer) confirmed with 1.4m to 1.7m thickness and grades between 9.05g/t and 12.15g/t

§ A feasibility study supported by exploration works being undertaken for the part of the Elginskoye deposit scheduled for near-term production. This is expected to confirm the current 2.7Moz internal and unaudited estimate of reserves in accordance with JORC (2012) Code by the end of 2016. The reserves were defined only for part of the Elginskoye deposit, whilst the rest of the zone remains under exploration.

 

UNDERGROUND MINING UPDATE

§  High grade mineral resource in excess of 500koz for underground mining proven at Pioneer and Malomir (North-East Bakhmut, Bakhmut, Andreevskaya and Quartzitovoye zones) with  significant potential for an uplift in the course of scheduled underground exploration works

§  Two recent high grade drill intersections (9.85g/t at 14m and 4.49g/t at 23.0m) from North-East Bakhmut N3 and one from North East Bakhmut N1 (27.7g/t at 2.7m) are yet to be included into the resource estimate

§  Further exploration potential at Pioneer Nikolaevskaya, Otvalnaya, Promezhutochnaya and North East Bakhmut No4 and 5 zones.

§  Work on the access portal has commenced and underground exploration works are scheduled for 2016-2017.

 

CORPORATE UPDATE

Proposed Deals

§  The previously announced corporate transactions will be reassessed upon the conclusion of the extending of the Company's bank facilities, which is the immediate priority. Corporate transactions remain subject to shareholder approval and any circular relating to the transactions would only be published once the financing discussions are complete. The Company will make further announcements as to the progress of these transactions during the fourth quarter.

 

 

Disposal of Subsidiaries

§  In April and May 2016, the Group announced that it signed an agreement to sell its wholly owned subsidiary OOO Ilyinskoye (Visokoye deposit) and its associate ZAO Verkhnetisskaya Ore Mining Company for an aggregate cash consideration of an equivalent US$20 million, payable in tranches during 2016. The disposal of LLC Ilyinskoye was completed in May 2016.

 

IRC Limited (IRC)

§ H1 2016 net loss attributable to owners of IRC reduced by 95% to US$9.9 million (30 June 2015: US$198.6 million)

§ Waivers obtained - ICBC confirmed that all conditions precedent to the grant of the ICBC waivers have been fulfilled and the waivers became effective in June 2016

§ Agreement reached with CNEEC to delay outstanding construction payments, alleviating IRC's cash flow position in the near term

§ K&S has completed numerous commissioning tests with production of maiden ores and is on track for commissioning in Q3 2016

§ On 30 August 2016, a maiden shipment of 4,527 tonnes of iron ore concentrates produced during the trial production at K&S departed for China

§ Kuranakh moved to care and maintenance with minimal cash outflow and costs

§ IRC's Half-year Report was released on 31 August 2016 and is available to view on the IRC website, http://www.ircgroup.com.hk/html/index.php 

§ Petropavlovsk continues to guarantee the US$255 million of debt IRC holds with ICBC/Sinosure.

 

 

 

Commenting on the announcement, Pavel Maslovskiy, CEO, said: 

 

I am very pleased to report that during H1 2016 we managed to achieve progress in every strategic objective that I outlined in my letter to shareholders in our 2015 Annual Report.

 

Strengthening our Balance Sheet

The progress in our main current strategic objective of strengthening of our balance sheet is evidenced by a further decrease in Net Debt to US$598 million during the first half of the year. Discussions with our main lenders are advanced and the Company aims to make a further announcement during October on a revised repayment schedule. The Company has received support to extend the maturity profile of bank facilities until 2022 and for a shift of the majority of the repayment towards the end of the schedule. The key terms of a new schedule have been agreed in principle with our main bank-lender strongly supporting our plans of development and we look forward to updating the market on final terms before the end of October when credit approval of the new terms is obtained.

 

Focusing on Cash Generation and Free Cash Flow Margin

I am very proud that our team managed to achieve a further 14% decrease in our total cash costs in spite of the year on year decrease in production and bad weather conditions. This was achieved due to Group cost optimisation measures introduced in response to the prevailing gold price environment and due to the weakening of the rouble against the dollar.

 

Strict financial discipline and optimisation measures introduced over several years are delivering strong results in the further decreasing of our central administrative costs which are down by 17% in the period, bringing a cumulative decrease of 60%(excluding IRC) since 2012 when the cost optimisation programme was initially launched.

 

As a result of this, the Group generated cash from operations in line with the previous year in spite of a decline in the realised gold price and number of ounces.

 

Protecting Long-Term Sustainability

To ensure that our business generates sustainable returns in the mid and long term as well as to maximise the net present value of the producing assets, we continue production related exploration and development of our ore bodies both for open pit and underground mining.

 

At the same time we have carried out early stage exploration and prospecting in the vicinity of our processing facilities including exploration on the expected deeper extensions of our Pioneer and Malomir (Quarzitovoye) deposits. As a result of this work we are increasing mineral resources and ore reserves for both the underground and open pit mining at Malomir and Pioneer as well as Albyn.

 

Following completion of a detailed engineering study we appointed an underground mining contractor who commenced decline development work at the North-East Bakhmut zone at Pioneer. At the same time the exploration drilling at the North East Bakhmut zone proved further extensions of high grade mineralisation, which should contribute to our near term underground production. The two new drill intersections of 9.85g/t at 14m thickness and 4.49g/t at 23.0m thickness have proved that our Pioneer deposit remains highly prospective for further significant high grade discoveries.

 

During H1 2016, we continued successful exploration at Quartzitovoye (Malomir) identifying further high grade as well as low grade mineralisation. We have commenced an engineering study preparing the deposit for underground mining.

 

At Albyn we are well under way updating the mineral resource and reserve estimates for the Elginskoye satellite deposit with H1 2016 exploration results.

 

Unlocking value from our Refractory Reserves

I am pleased to report that we have taken the decision to progress the development of our flagship POX project, which forms a key part of the Company's strategy.

 

With the current refractory reserve and resource base of 9.31Moz (including 3.95Moz of JORC reserves at Malomir and Pioneer), we expect the project to unlock significant value for our shareholders and ensure sustainable production from refractory assets for 20 years with excellent growth potential.

 

The proposed project schedule is about two and a half years including a full ramp-up of the plant. The ramp-up is based on each of the 4 autoclaves starting one month apart commencing September 2018 and finishing December 2018. During the initial stage we are planning to process Malomir concentrate. Once fully ramped up the POX plant is expected to process c.500kt of refractory concentrates per year. The POX plant design allocates slots for two further autoclave vessels, which can be added in the future increasing processing capacity by 50%.

 

We are extremely excited to be able to return to this project, which will allow us to realise the value of refractory resources not only within the Group but also within the Russian Far East area. The POX Hub design allows for separate and simultaneous processing of refractory concentrates with a wide range of metallurgical properties and could be used as a processing base for third parties on an off-take agreements basis.

               

Focus on Core Projects

Development of our core producing assets remains a key pillar of our strategy and for this reason we do not actively allocate meaningful capital expenditure to non-core projects. However, the Group frequently reviews ways in which value can be realised from these assets.

 

During Q2 2016, we signed an agreement to sell our Visokoye and Verkhnetisskaya assets, for a combined cash consideration equivalent to US$20 million, payable in tranches during 2016. As at 30 June 2016, an amount equivalent to US$15.5m had been received by the Group.

 

Our Strategic Priorities for the rest of 2016

Our key priority for the remainder of the year is to finalise discussions with our lending banks and thereafter swiftly conclude discussions in relation to the announced transactions.

 

Severe flooding during H1 2016 impacted production in June and July and also significantly delayed stripping works at the beginning of the year, which may potentially affect H2 production. This led us to review our production output and adjust our expectations to be at the lower end of our original guidance of c.460,000-500,000oz. In spite of this, due to the cost reduction strategies we have in place we still expect to meet FY TCC guidance of c.US$700/oz which, at current gold price levels, is an impressive margin of c.US$600/oz.

 

 

 

Pavel Maslovskiy, CEO

 

 

ENQUIRIES

 

Petropavlovsk PLC


Alya Samokhvalova 

+44 (0) 20 7201 8900

Grace Hanratty




 

Maitland


Neil Bennett

James Isola

+44 (0) 20 7379 5151

 

 

 

WEBCAST

 

There will be a webcast presentation followed by a question and answer session today at 9.00am (BST).

 

To view the presentation, please click here: http://microsites.streamuk.com/petropavlovsk221. Alternatively, please visit our website: http://www.petropavlovsk.net.

 

To ask a question, please dial:

RU Toll Number: +7 (0)495 646 9304

RU Toll-Free Number: 810 800 2136 5011

UK Toll Number: 02031394830

UK Toll-Free Number: 08082370030

 

International dial in details can be found here: http://events.arkadin.com/ev/docs/NE_FEL_Events_International_Access_List.pdf

 

When prompted, please enter this participant code: 84068553#

 

 

 

FINANCIAL RESULTS SUMMARY

 


Six months to 30 June 2016 (unaudited)

Six months to 30 June

2015 (unaudited)

Variance

Year ended

31 December 2015

Gold produced

187.4koz

240.2koz

(22%)

504.1koz

Gold sold 

195.4koz

229.7koz

(15%)

481.9koz

Avg. realised gold price

US$1,194/oz

US$1,221/oz

(2%)

US$1,178/oz

Total average cash costs

US$663/oz

US$767/oz

(14%)

US$749/oz

All-In Sustaining Costs

US$762/oz

US$963/oz

(21%)

US$874/oz

All-in Costs

US$761/oz

US$1,031/oz

(26%)

US$932/oz

Group revenue

US$254.0m

US$297.3m

(15%)

US$599.9m

Operating profit

US$34.2m

US$14.5m

136%

(US$80,1m)

Underlying EBITDA(a)

US$88.0m

US$90.0m

(2%)

US$172.8m

 Profit /(loss) before tax

US$4.8m

(US$26.0m)

n/m

(US$141.6m)

Total net profit/(loss)

US$9.2m

(US$81.6m)

n/m

US$297.5m

Net profit/(loss) attributable to equity shareholders of Petropavlovsk PLC

US$9.2m

(US$51.8m)

n/m

US$238.8m

Basic earnings/(loss) per share

US$0.00

(US$0.03)

n/m

US$0.09

Net cash from operating activities(b)

US$29.9m

US$11.5m

160%

US$103.4m

 

Note: Figures may be rounded

 

(a)   Underlying EBITDA is the profit for the Period before financial income, financial expenses, foreign exchange gains and losses, fair value changes, taxation, depreciation, amortisation and impairment charges. A reconciliation of loss for the year and underlying EBITDA is set out in note 24 to the financial statements

(b)   2015 includes IRC

 

 

FINANCIAL REVIEW

 

 

-           Financial Highlights

 


Six months to

30 June 2016

Six months to

30 June 2015


US$ million

US$ million

Continuing operations



Total attributable gold production ('000oz)

187.4

240.2

Gold sold ('000oz)

195.4

229.7

Group revenue

254.0

297.3

Average realised gold price (US$/oz)

1,194

1,221

Average LBMA gold price afternoon fixing (US$/oz)

1,221

1,206

Total average cash costs (US$/oz) (a)

663

767

All-in sustaining costs (b)

762

963

Underlying EBITDA(c)

88.0

90.0




Profit/(loss) for the period

9.2

(81.6)

From continuing operations

9.2

(28.9)

From discontinued operations

-

(52.7)




Basic profit/(loss) per share

US$0.00

(US$0.03)

From continuing operations

US$0.00

(US$0.02)

From discontinued operations

-

(US$0.01)




Net cash from operating activities

29.9

11.5

From continuing operations

29.9

19.8

From discontinued operations

-

(8.3)

 

(a)   Calculation of total cash costs ("TCC") is set out in the section Hard-rock mines operations below.

 

(b)   All-in sustaining costs ("AISC") and all-in costs ("AIC") are  calculated in accordance with guidelines for reporting all-in sustaining costs and all-in costs published by the World Gold Council. Calculation is set out in the section All-in sustaining costs and all-in costs below.

 

(c)   Reconciliation of loss for the period and underlying EBITDA is set out in note 24 to the condensed consolidated financial statements.

 

 

 


30 June 2016

31 December

 2015


US$ million

US$ million

  Cash and cash equivalents

18.3

28.2 (d)

  Loans

(529.1)

(552.8)

  Convertible bonds (e)

(86.9)

(85.5)

  Net Debt

(597.6)

610.0

 

(d)   Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development.

 

(e)   US$100.0 million convertible bonds due on 18 March 2020.

 

 

Note: Figures may not add up due to rounding

 

Revenue

 



Six months to

30 June 2016

Six months to

30 June 2015

 



US$ million

US$ million

Revenue from hard-rock mines


234.2

281.0

Revenue from other operations


19.8

16.3



254.0

297.3

 

Physical volumes of gold production and sales



Six months to

30 June 2016

Six months to

30 June 2015

 



 oz

 oz

Gold sold from hard-rock mines


195,434

229,657

Movement in gold in circuit and doré-bars


(8,034)

10,543

Total attributable production


187,400

240,200

 

Group revenue during the period was US$254.0 million, 15% lower than the US$297.3 million achieved in H1 2015.

 

Revenue from hard-rock mines was US$234.2 million, 17% lower than the US$281.0 million achieved in H1 2015. Gold remains the key commodity produced and sold by the Group, comprising 92% of total revenue generated in H1 2016. The physical volume of gold sold from hard-rock mines decreased by 15% from 229,657 ounces in H1 2015 to 195,434 ounces in H1 2016. The average realised gold price decreased by 2% from US$1,221/oz in H1 2015 to US$1,194/oz in H1 2016.

 

Hard-rock mines sold 48,124 ounces of silver in H1 2016 at an average price of US$15/oz, compared to 39,763 ounces in H1 2015 at an average price of US$16/oz.

 

Revenue generated as a result of third-party work by the Group's in-house service companies was US$19.8 million in H1 2016, a US$3.5 million increase compared to US$16.3 million in H1 2015. This revenue is substantially attributable to sales generated by the Group's engineering and research institute, Irgiredmet, primarily through engineering services and the procurement of materials, consumables and equipment for third parties, which comprised US$17.5 million in H1 2016 compared to US$14.9 million in H1 2015.

 

Cash flow hedge arrangements

In order to increase certainty in respect of a significant proportion of its cash flows, the Group has entered into a number of gold forward contracts.

 

Forward contracts to sell an aggregate of 65,828 ounces of gold matured during the period and resulted in US$(5.5) million net cash settlement paid by the Group (H1 2015: US$5.6 million contribution to cash revenue from forward contracts to sell an aggregate of 75,000 ounces of gold). 

 

Forward contracts to sell an aggregate of 118,723 ounces of gold at an average price of US$1,269/oz were outstanding as at 30 June 2016.

 

Forward contracts contributed US$(28)/oz to the average realised gold price.

 

The Group constantly monitors gold price and hedges some portion of production for periods of up to 12 months as considered necessary. Forward contracts to sell an aggregate of 77,276 ounces of gold at an average price of US$1,302/oz are outstanding as at 27 September 2016.

 

Underlying EBITDA and analysis of operating costs

 

 



 


Six months to

30 June 2016

Six months to

30 June 2015

 


US$ million

US$ million

Profit/(loss) for the period from continuing operations

9.2

(28.9)

Add/(less):



Interest expense

30.5

37.3

Investment income

(0.2)

(0.6)

Other finance (gains)/losses

(0.8)

3.8

Foreign exchange losses

5.9

7.4

Taxation

(4.4)

2.9

Depreciation

59.3

59.4

Impairment of exploration and evaluation assets

-

-

(Reversal of impairment) / impairment of ore stockpiles

(12.3) (a)

8.8

Share of results of associates (b)

0.9

-

Underlying EBITDA

88.0

90.0

 

(a)     Reflecting recovery in gold price and partial processing of ore stockpiles.

(b)     Group's share of interest expense, investment income, other finance gains and losses, foreign exchange losses, taxation, depreciation and impairment recognized by an associate (IRC)

 

 

Underlying EBITDA as contributed by business segments is set out below.

 



 


Six months to

30 June 2016

Six months to

30 June 2015

 


US$ million

US$ million

Pioneer

43.5

60.2

Pokrovskiy

6.6

5.2

Malomir

7.0

4.1

Albyn

46.7

34.8

Total Hard-rock mines

103.8

104.3

Corporate and other

(15.8)

(14.3)

Underlying EBITDA

88.0

90.0

 

 

Hard-rock mines

 

This period, hard-rock mines generated underlying EBITDA of US$103.8 million compared to US$104.3 million underlying EBITDA in H1 2015.

 

Total cash costs for hard-rock mines decreased from US$767/oz in H1 2015 to US$663/oz in H1 2016, primarily reflecting the effect of cost optimisation measures undertaken by the Group in response to the declining gold price environment as well as positive effect of Rouble depreciation. The decrease in the average realised gold price from US$1,221/oz in H1 2015 to US$1,194/oz in H1 2016 and decrease in physical ounces sold resulted in US$20.7 million decrease in the underlying EBITDA. This effect was mitigated by the improvement of the total cash costs which had a net US$20.2 million positive contribution to the underlying EBITDA in H1 2016.

 

The key components of the operating cash expenses are wages, electricity, diesel, chemical reagents and consumables, as set out in the table below. The key cost drivers affecting the operating cash expenses are stripping ratios, production volumes of ore mined and processed, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.  

 

Compared with H1 2015 there was no significant inflation Rouble denominated costs, in particular, electricity costs in Rouble decreased by up to 1% (decreased by up to 18% in US Dollar terms) and cost of diesel remained the same  level (decreased by up to 18% in US Dollar terms). The impact of Rouble price inflation was mitigated by the 21% average depreciation of the Rouble against the US Dollar, with the average exchange rate for the period going from 58.06 Roubles per US Dollar in H1 2015 to 70.54 Roubles per US Dollar in H1 2016. 

 

Refinery and transportation costs are variable costs dependent on production volume. Mining tax is also a variable cost dependent on the production volume and the gold price. The mining tax rate is 6%.

 

 



Six months to

30 June 2016


Six months to

30 June 2015



US$ million

%


  US$ million

%

 

Staff cost


25.6

21


33.8

19

 

Materials


44.1

35


72.0

40

 

Fuel


19.1

15


29.7

16

 

Electricity


10.6

9


14.2

8

 

Other external services


12.1

10


14.5

8

 

Other operating expenses


11.9

10


15.4

9

 



123.4

100


179.6

100

 

Movement in ore stockpiles, work in progress and bullion in process attributable to gold production (a)


(19.8)



(32.0)


 

Total operating cash expenses


103.6



147.6


 

 

(a)   Excluding deferred stripping.

 

 

 


Hard-rock mines

Six months to 30 June 2016

Six months to 30 June 2015


Pioneer

Pokrovskiy

Malomir

Albyn

Total

Total


US$

million

US$

 million

US$

million

US$

million

US$

million

US$

million








Revenue







Gold

84.8

20.5

29.6

98.5

233.4

280.4

Silver

0.5

0.1

0.1

0.1

0.7

0.6


85.3

20.6

29.7

98.6

234.2

281.0








Expenses







Operating cash expenses 

35.5

12.5

20.0

35.6

103.6

147.6

Refinery and transportation

0.1

-

-

0.1

0.3

0.6

Other taxes

1.0

0.2

0.8

1.2

3.2

4.3

Mining tax

5.1

1.3

1.8

6.0

14.2

16.6

Deferred stripping costs

-

-

-

9.0

9.0

7.6

Depreciation and amortisation

21.9

3.1

8.4

25.6

59.0

57.7

Reversal of impairment of ore stockpiles

(4.7)

(0.6)

(5.9)

(1.0)

(12.3)

8.8

Operating expenses

59.0

16.5

25.2

76.5

177.2

243.2

Result of precious metals operations 

26.3

4.1

4.5

22.1

57.0

37.8








Segment EBITDA

43.5

6.6

7.0

46.7

103.8

104.3








Physical volume of gold sold, oz

71,095

17,200

24,693

82,447

195,434

229,657








Cash costs

 







Operating cash expenses 

35.5

12.5

20.0

35.6

103.6

147.6

Refinery and transportation

0.1

-

-

0.1

0.3

0.6

Other taxes

1.0

0.2

0.8

1.2

3.2

4.3

Mining tax

5.1

1.3

1.8

6.0

14.2

16.6

Deferred stripping costs

-

-

-

9.0

9.0

7.6

Operating cash costs

41.8

14.0

22.7

51.9

130.4

176.7

Deduct: co-product revenue

(0.5)

(0.1)

(0.1)

(0.1)

(0.7)

(0.6)

Total cash costs

41.3

13.9

22.6

51.8

129.7

176.1








Average TCC/oz, US$/oz

582

                 810        

917

628

663

767








 

 

All-in sustaining costs and all-in costs

 

AISC decreased from US$963/oz in H1 2015 to US$762/oz in H1 2016, reflecting the reduction in TCC as well as lower central administration expenses and sustaining capital expenditure related to the existing mining operations.

 

AIC decreased from US$1,031/oz in H1 2015 to US$761/oz in H1 2016, reflecting the decrease in all-in sustaining costs explained above, reversal of impairment of refractory ore stockpiles due to gold price recovery and decrease in exploration expenditure and decrease of capital expenditure related to POX, which was limited to fulfilling existing contractual commitments.

 

 

 


Hard-rock mines

Six months to 30 June 2016

 

Six months to 30 June 2015

 


Pioneer

Pokrovskiy

Malomir

Albyn

Total

Total


US$

million

US$

 million

US$

million

US$

million

US$

million

US$

million








Physical volume of gold sold, oz

71,095

17,200

24,693

82,447

195,434

229,657








Total cash costs

41.3

13.9

22.6

51.8

129.7

176.1








Average TCC/oz, US$/oz

582

810

917

628

663

767








Reversal of impairment of ore stockpiles

(2.3)

(0.6)

(0.1)

(1.0)

(4.1)

4.2

Adjusted operating costs

39.0

13.3

22.5

50.8

125.6

180.2








Central administration expenses

4.8

1.2

1.7

5.5

13.1

15.7

Capitalised stripping at end                  of the period

5.2

-

1.2

17.8

24.2

26.6

Capitalised stripping at beginning of the period

-

-

-

(18.0)

(18.0)

 (8.4)

Close-down and site restoration

-

-

-

0.1

0.1

0.4

Sustaining capital expenditure

1.2

0.1

0.6

2.0

3.9

6.6

All-in sustaining costs

50.2

14.5

26.0

58.2

148.9

221.1








All-in sustaining costs, US$/oz

707

843

1,055

705

762

963








Exploration expenditure

3.3

-

1.2

3.0

7.6

9.7

Capital expenditure

0.2

-

0.2

-

0.4

1.5

Reversal of impairment of ore stockpiles (a)

(2.4)

-

(5.8)

-

(8.2)

4.6

All-in costs

51.3

14.5

21.6

61.2

148.7

236.8








All-in costs, US$/oz

722

845

876

742

761

1,031








 

(a)   Refractory ore stockpiles to be processed at the POX Hub.

 

 

 

 

Corporate and other

 

The Group has corporate offices in London, Moscow and Blagoveschensk which together represent the central administration function. Central administration expenses decreased by US$2.6 million from US$15.7 million in H1 2015 to US$13.1 million in H1 2016, primarily reflecting depreciation of the Rouble against the US Dollar.

 

During H1 2016 corporate and other operations contributed US$(15.8) million to the underlying EBITDA vs. US$(14.3) million in H1 2015. Included in result of corporate in other operations in H1 2016 is US$3.6 million share in losses generated by IRC.

 

 

Interest income and expense

 

  


Six months to

30 June 2016

Six months to

30 June 2015



US$ million

US$ million

Investment income


0.2

0.6

 

The Group earned US$0.2 million interest income on the cash deposits with banks.

 

 

 

  


Six months to

30 June 2016

Six months to

30 June 2015



US$ million

US$ million

Interest expense


30.4

37.2

Other


0.1

0.1



30.5

37.3

 

Interest expense for the period was comprised of US$5.9 million effective interest on the Convertible Bonds and US$24.5 million interest on bank facilities (H1 2015: US$7.7 million and US$29.5 million, respectively). There were no interest expense was capitalised as part of mine development costs within property, plant and equipment.

 

 

Other finance gains/ (losses)

 

  


Six months to

30 June 2016

Six months to

30 June 2015



US$ million

US$ million

Gain on settlement of the Existing Bonds

-

0.5

Fair value losses on derivative financial instruments

(a)

 

(a)

 

(1.5)

(4.2)

Guarantee fee in connection with IRC's ICBC facility

2.3

-



0.8

(3.8)

 

 

Taxation

 



Six months to

30 June 2016

Six months to

30 June 2015



US$ million

US$ million

Tax charge


(4.4)

2.9

 

The Group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The average statutory tax rate for H1 2016 was 20% in the UK and 20% in Russia.

 

The tax charge for this period primarily relates to the Group's precious metals operations and is represented by the current tax of US$15.0 million (H1 2015: US$16.2 million) and by the deferred tax credit, which is a non-cash item, of US$19.5 million (H1 2015: deferred tax credit of US$13.3 million). Included in the deferred tax  credit is a US$17.6 million foreign exchange effect. This arises primarily because the tax base for a significant portion of the future taxable deductions in relation to the Group's property, plant and equipment are denominated in Roubles whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value.

 

This period, the Group made corporation tax payments in aggregate of US$19.3 million in Russia (H1 2015: corporation tax payments in aggregate of US$26.2 million in Russia).

 

 

 

Profit/(loss) per share

 


Six months to

30 June 2016

Six months to

30 June 2015

Profit/(loss) for the period from continuing operations attributable to equity holders of Petropavlovsk PLC

 

US$9.2 million

 

(US$27.7) million

Weighted average number of Ordinary Shares

3,300,501,688

2,001,412,516

Basic profit/(loss) per ordinary share from continuing

operations

US$0.00

(US$0.02)

 

Basic profit per share for H1 2016 was US$0.00 compared to (US$0.02) basic loss per share for H1 2015.  The key factor affecting the basic profit/(loss) per share was the increase of net profit for the period attributable to equity holders of Petropavlovsk PLC from the net loss of US$(27.7) million for the first half of 2015 to US$9.2 million net profit for the first half of 2016.

 

The total number of Ordinary Shares in issue as at 30 June 2016 was 3,303,768,532 (30 June 2015: 3,300,561,697).

 

The Group has a number of potentially dilutive instruments which were anti-dilutive in the H1 2015 and H1 2016 and, accordingly, diluted profit/ (loss) per share was not different from the basic profit/(loss) per share.

 

 

Financial position and cash flows

 


30 June

2016

30 June

2015


US$ million

US$ million

  Cash and cash equivalents

18.3

31.1

  Loans

(529.1)

(643.0)

  Convertible bonds (a)

(86.9)

(84.2)

  Net Debt

597.6

(696.1)

 

(a)   US$100.0 million convertible bonds due on 18 March 2020 (31 December 2015: US$100.0 million convertible bonds due on 18 March 2020).

(b)  

 


Six months to

30 June 2016

Six months to                   30 June 2015


US$ million

US$ million

Net cash from operating activities:



Continuing operations

29.9

19.8

Discontinued operations

-

(8.3)


29.9

11.5

Net cash  from /(used in) investing activities:



Continuing operations

3.9

(9.2)

Discontinued operations

-

(42.4)       


3.9

(51.6)

Net cash (used in)/from financing activities:



Continuing operations

(45.9)

(35.6)

Discontinued operations

-

23.7


(45.9)

(11.9)

 

 

Key movements in cash and net debt from continuing operations

 

 


Cash

Debt

Net Debt

 


US$ million

US$ million

US$ million

 

As at 1 January 2016

28.2 (a)

(638.3)

(610.0)

 

Net cash generated by operating activities before working capital changes

85.2



 

Increase in working capital

(10.8)



 

Income tax paid

(19.3)



 

Capital expenditure on gold projects and in-house              service companies

(4.3)



 

Exploration expenditure on gold projects

(7.6)



 

Amounts repaid under bank facilities

(27.4)

27.4


 

Interest accrued


(30.4)


 

Interest paid

(25.1)

25.1


 

Proceeds from disposal of subsidiaries, net of cash disposed and net of liabilities settled

14.8




Funds transferred under investment agreement with the Russian Ministry of Far East Development

 

(16.9)




Foreign exchange

2.1

0.3



Other

0.6



 

As at 30 June 2016

18.3

(615.9)

(597.6)

 

 

(a)   Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development

 

The increase in working capital reflects US$7.9 million decrease in inventories reflecting the efforts undertaken by the Group to optimise the working capital structure offset by a US$16.7 million reduction in trade and other payables.  

 

As at 30 June 2016 there were no undrawn facilities available to the continuing operations.

 

 

 

 

 

 

Capital expenditure

 

The Group spent an aggregate of US$11.9 million on its gold projects in H1 2016 compared to US$17.8 million invested in H1 2015. The key areas of focus in H1 2016 were on exploration to support the underground mining at Pioneer, expansion of tailing dams at Pioneer and Albyn and ongoing exploration related to the areas adjacent to the ore bodies of the main mining operations.

 

 


Exploration expenditure

Development expenditure and other CAPEX (a)

Total

 


US$ million

US$ million

US$ million

POX

-

0.4

0.4

Pokrovskiy and Pioneer (b)

3.3

1.1

4.4

Malomir

1.2

0.6

1.8

Albyn

3.0

1.9

4.8

Upgrade of in-house service companies

-

0.4

0.4

Other

0.1

-

0.1


7.6

4.3

11.9

(a)   Including US$0.4 million of development expenditure in relation to POX is considered to be non-sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.

(b)   Including US$2.0 million of exploration expenditure in relation to the underground mining project at Pioneer to be non-sustaining capital expenditure for the purposes of calculating the all-in sustaining costs and all-in costs.

 

 

Foreign currency exchange differences

The Group's principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on translation of monetary assets and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are the Russian Rouble and GB Pounds Sterling.

 

The Rouble recovered by 12% during H1 2016, from RUB72.88: USD1 as at 31 December 2015 to RUB64.26: USD1 as at 30 June 2016. The average-on-year depreciation of the Rouble against the US Dollar was approximately 21%, with the average exchange rate for H1 2016 being RUB70.54 : USD1 compared to RUB58.06 : USD1 for H1 2015.

 

As a result of the significant volatility of the Russian Rouble, the Group recognised foreign exchange losses of US$5.9 million in H1 2016 (H1 2015: US$7.4 million) arising primarily on Rouble denominated net monetary assets.

 

Disposal of subsidiaries

This Period, the Group entered into agreements to sell its wholly owned subsidiary LLC Ilijnskoye and its associate JSC Verkhnetisskaya Ore Mining Company for an aggregate cash consideration of an equivalent to US$20 million, payable in tranches during 2016, out of which US$19.8 million were attributed to the value of Visokoe asset held by LLC Ilijnskoye and the remainder to Verkhnetisskaya Ore Mining Company. The disposal of LLC Ilijnskoye was completed on 11 May 2016. The Group recognised US$0.5 million net loss on this disposal.

 

 

H2 2016 Outlook

 

As the Group's operating cash expenses are substantially Rouble denominated, the Group expects that the impact of Rouble price inflation will be mitigated by the depreciation of the Rouble against the US Dollar. The current Rouble exchange rate is RUB 64.15/US$ compared to RUB64.26/USD as at 30 June 2016.

The Group re-iterates total average cash costs for the full year 2016 of c.US$700/oz.

 

 

Going concern

 

The Group monitors and manages its liquidity risk on an ongoing basis to ensure that it has access to sufficient funds to meet its obligations. Cash forecasts are produced regularly based on a number of inputs including, but not limited to, forecast commodity prices and impact of hedging arrangements, Group mining plan, forecast expenditure and debt repayment schedules. Sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, cost inflation, different production rates from the Group's producing assets and the timing of expenditure on development projects. This is done to identify risks to liquidity and covenant compliance and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.

 

The Group performed an assessment of the forecast cash flows and covenant compliance in relation to bank facilities for the period of 12 months from the date of approval of the 2016 Half-Year Report. As at 30 June 2016, the Group had sufficient liquidity headroom and complied with related financial covenants. The Group's projections demonstrate that although the Group expects to have sufficient working capital liquidity over the next 12 months, these projections indicate that, unless mitigating actions can be taken, there will be insufficient liquidity to meet its debt repayment schedule on 31 October 2016.

 

The Group initiated negotiations with its principal lenders with a view to obtaining satisfactory modifications and temporary waivers regarding the existing covenants and the current repayment schedule ahead of the current repayment schedule and ("Debt Restructuring"). The Group has received written comfort including preliminary term sheets from their principal lenders intending to support the Debt Restructuring. As part of these negotiations, the agreement has been reached in relation to temporary relaxation of the existing covenants and the debt repayment holidays were granted until 31 October 2016 to allow finalisation of the Debt Restructuring. If an agreement with the Group's principal lenders in relation to the Debt Restructuring cannot be reached, and as a result missed debt repayment occurs, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand.

 

The Group has guaranteed the outstanding amounts IRC owes to ICBC. The outstanding loan principal was US$255 million as at 30 June 2016. The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. In their 30 June 2016 interim report, IRC have identified a material uncertainty in relation to their ability to continue to operate as a going concern. The main uncertainties in relation to the ability of IRC to continue to operate as a going concern are the timing of the commissioning of the K&S project and the substantial volatility of the iron ore price. IRC is also in negotiations with several banks in Russia for working capital financing for the K&S project and is implementing active cost-saving measures to improve operating cash flows and financial position. If IRC were unable to achieve scheduled commissioning of the K&S project, successfully implement the measures described above or the market conditions turn out significantly less favourable to IRC than predicted, IRC may not have sufficient liquidity to facilitate a debt repayment of US$21.5 million in December 2016, which will cause the related facility to become immediately due and payable.

 

The risk that the Group will be unable to achieve appropriate mitigating actions is a material uncertainty which may cast significant doubt upon the Company's ability to continue to apply the going concern basis of accounting and, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

 

Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation, after taking into account the aforementioned factors, that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the 2016 Half-Year report. Accordingly, they continue to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial statements.

 

 

-          

-          

OPERATIONS REPORT

 

Highlights

 

Production

 

H1 2016 gold production of 187.4koz (H1 2015: 240.2koz: 22% decrease). The year on year decrease in production was mainly caused by the scheduled processing of lower grade material. Cold weather conditions in spring have affected the start of the heap-leach season shifting the production from the heap-leach to the second half of the year.

 

Total cash costs

 

H1 2016 TCC/oz decreased by 14% to US$663/oz across all operating mines primarily reflecting the effect of cost optimisation measures undertaken by the Group as well as the positive effect of Rouble depreciation. The key components of operating cash expenses are wages, electricity, diesel, chemical reagents and consumables. The key cost drivers affecting operating cash expenses are stripping ratios, production volumes of ore mined and processed, grades of ore processed, recovery rates, cost inflation and fluctuations in the Rouble to US Dollar exchange rate.  

 

 

Summary of gold production and total cash costs


Six months to

30 June

2016

Six months to

30 June

2015

Year ended

31 December

 2015

Hard-rock mines




Pioneer




Gold production ('000oz)

67.7

99.1

231.4

Total cash costs (US$/oz)

582

598

625

Albyn




Gold production ('000oz)

77.2

81.7

157.6

Total cash costs (US$/oz)

628

765

747

Malomir




Gold production ('000oz)

25.0

32.6

59.1

Total cash costs  (US$/oz)

917

1,098

1,092

Pokrovskiy




Gold production ('000oz)

17.5

26.8

56.0

Total cash costs (US$/oz)

810

1,011

871

Total production for hard-rock mines ('000oz)

187.4

240.2

504.1

Total average cash costs for the Group's hard-rock mines (US$/oz)

663

767

749

Total gold production ('000oz)

187.4

240.2

504.1

Note: Figures may not add up due to rounding

 

 

 

PIONEER

During H1 2016 the ore was sourced predominantly from Pits N10 and N11 of the Alexandra zone as well as Pit N2 (Promezhutochnaya) and Pit N7 (Vostochnaya). At the Andreevskaya zone (Pit N5) stripping works were carried out in H1 to access high grade ore for production in Q4 and some ore was blended from stockpiles. Heap leach operations commenced in Q2 (April), with a one month delay due to cold weather. In H2, ore is expected to be produced from the Alexandra, Bakhmut and Vostochnaya zones. At the Andreevskaya zone stripping works to access high grade areas will be continued through Q3 with production of material at the average grade of 8.4g/t scheduled for Q4.

 

 

Pioneer mining operations


Units

Six months to

30 June 2016

Six months to

30 June 2015

Year ended

31 December 2015

Total material moved

'000m3

9,597

12,868

23,980

Ore mined

t '000

1,656

3,146

6,016

Average grade

g/t

0.94

1.05

1.3

Gold content

'000oz

49.9

106.6

248.4

Pioneer processing operations

Resin-in-pulp ("RIP") plant

Total milled

'000t

3,372

3,392

6,582

Average grade

g/t

0.74

1.1

1.25

Gold content

'000oz

80.2

118.5

264.5

Recovery rate

%

82.6

82

85.0

Gold recovered

'000oz

66.3

97.6

224.7

Heap leach operations

Ore stacked

'000t

281

371

800

Average grade

g/t

0.53

0.6

0.56

Gold content

 '000oz

4.8

7.2

14.5

Recovery rate

%

30.2

22

46.2

Gold recovered

'000oz

1.5

1.6

6.7

Total gold recovered

'000oz

67.7

99.1

231.4

 

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 11% and 17% respectively was achieved.

 

 

TCC/oz:  US$582 (-3% H1 vs H1)

AISC/oz: US$707 (-19% H1 vs H1)

AIC/oz:    US$722 (-21% H1 vs H1)

 

 

ALBYN

During H1 2016, the majority of ore was sourced from the Eastern section of the pit as well as from stockpiles, whilst stripping works were carried out at the Northern section of the ore body. H2 2016 production is expected to come primarily from the Northern section. In H2 2016, minor tonnages are also scheduled from the Eastern section and from the stockpiles.

 

 

Albyn mining operations


Units

Six months to

30 June 2016

Six months to

30 June 2015

Year ended

31 December 2015

Total material moved

'000 m3

16,009

18,729

36,722

Ore mined

'000t

2,530

2,557

4,906

Average grade

g/t

1.1

1.2

1.15

Gold content

'000oz

88.0

98.9

181.5

Albyn processing operations

Resin-in-pulp ("RIP") plant

Total milled

'000t

2,341

2,274

4,600

Average grade

g/t

1.1

1.2

1.14

Gold content

'000oz

83.9

88.5

168.8

Recovery rate

%

92.0

92

93.3

Gold recovered

'000oz

77.2

81.7

157.6

Total gold recovered

'000oz

77.2

81.7

157.6

  

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 24% and 21% respectively was achieved.

 

TCC/oz:  US$628 (-18% H1 vs H1)

AISC/oz: US$705 (-24% H1 vs H1)

AIC/oz:    US$742 (-22% H1 vs H1)

 

 

MALOMIR

During the period ore was mined at Quartzitovoye 2. Mining and stripping were carried out throughout the whole of H1 at the Magnetitovoye pit and at Quartzitovoye 1. The remainder was blended using existing stockpiles. In H2, ore production will continue from Quartzitovoye 2. At the Magnetitovoye zone, production of the main volumes of ore scheduled for 2016 is expected to commence in Q3, in line with the schedule of stripping works.

 

 

Malomir mining operations


Units

Six months to

30 June 2016

Six months to

30 June 2015

Year ended

31 December 2015

Total material moved

'000m3

3,721

4,483

8,904

Ore mined

'000t

390

1,038

2,105

Average grade

g/t

1.2

1.1

1.01

Gold content

'000oz

15.1

36.6

68.5

Malomir processing operations

Resin-in-pulp ("RIP") plant

Total milled

'000t

1,554

1,451

2,937

Average grade

g/t

0.7

1.0

0.93

Gold content

'000oz

37.1

47.7

88.0

Recovery rate

%

67.3

68

67.2

Gold recovered

'000oz

25.0

32.6

59.1

Total gold recovered

'000oz

25.0

32.6

59.1

 

 

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 20% and 20% respectively was achieved.

 

TCC/oz:  US$917 (-16 % H1 vs H1)

AISC/oz: US$1,055 (-11% H1 vs H1)

AIC/oz:    US$876 (-40% H1 vs H1)

 

POKROVSKIY

During H1 2016, ore at Pokrovskiy was extracted mainly from Pit 1 (Zeyskoye ore body), from the Zheltunak satellite pit and from Pits 2 and 3 (Rucheynoye ore body). Heap leach operations commenced in Q2 (May) with a one month delay. In H2 ore is expected to be produced from the same areas as in H1.

 

Pokrovskiy mining operations


Units

Six months to

30 June 2016

Six months to

30 June 2015

Year ended

31 December 2015

Total material moved

'000m3

2,253

2,660

5,169

Ore mined

'000t

332

294

933

Average grade

g/t

0.98

1.6

1.41

Gold content

'000oz

10.5

15.2

42.2

Pokrovskiy processing operations

Resin-in-pulp ("RIP") plant

Total milled

'000t

899

866

1,791

Average grade

g/t

0.62

1.1

1.04

Gold content

'000oz

17.8

31

59.7

Recovery rate

%

91

82

84.3

Gold recovered

'000oz

16.2

25.4

50.4

Heap leach operations

Ore stacked

'000t

193

246

541

Average grade

g/t

0.4

0.5

0.53

Gold content

'000oz

2.7

4.2

9.2

Recovery rate

%

46

34

60.6

Gold recovered

'000oz

1.2

1.4

5.6

Total gold recovered

'000oz

17.5

26.8

56.0

 

Costs

The programme of cost optimisation has continued progressing well and a further decrease of the mining and processing unit costs by 18% and 28% respectively was achieved.

 

TCC/oz:  US$810 (-20% H1 vs H1)

AISC/oz: US$843 (-28% H1 vs H1)

AIC/oz:    US$845 (-28% H1 vs H1)

 

 

 

H1 2016 EXPLORATION

During H1 2016, most exploration works were carried out to facilitate the development of underground mining operations at Pioneer and Malomir, completing exploration of the Elginskoye deposit (Albyn flanks), and confirming other non-refractory targets near the Group's operational mines. The principal results of this work can be summarised as follows:

 

Pioneer:

All ore columns mined from the surface open pits at Pioneer were traced down below these pits.

 

§  Bakhmut Zone

At the point where the Promezutochnaya and Bakhmut zones meet, a new thick lateral mineralised ore zone has been identified. It deepens 45 to 65° to the north and its strike length confirmed to date is 370m. The average thickness varies from 10.9 to 97.0m, at average cross section grades of 1.03 to 18.79g/t. Inside the structure there are two distinct ore columns, c.200m apart from each other:

-       At ore column 1, four ore bodies with thickness between 1.0 - 12.4m and average cross-sections grades between 1.61 - 18.68g/t have been identified. These include 18.68g/t at 5.1m, 12.7g/t at 6.8m and 6.99g/t at 12.4m

-       At ore column 2, five ore bodies have been identified with thickness between 0.9 -20.6m, at 1.98 to 78.0g/t including 12.8g/t at 9.0m, 10.3g/t at 4.0m and 78.0g/t at 1.0m.

Surface drilling continued at other North East Bakhmut ore columns. The selected high grade intersections include 27.7m at 2.7m and 10.3g/t at 5.6m (North East Bakhmut N1); 9.85g/t at 14.0m (North East Bakhmut N2); 6.2g/t at 0.8m, 6.3 at 0.6m and 9.89g/t at 1.2m (North East Bakhmut No 4); 3.52g/t at 17.8m, 6.1g/t at 0.8m and 30.65g/t at 3.7m (North East Bakhmut N5).

 

Initial estimates show that the new ore structure will add new R&R of rich non-refractory ores for underground operations, alongside average refractory ores for open pit mining.

 

During September the development of underground access at the North East Bakhmut N3 pit has started in line with previously announced plans. Further exploration here is expected to continue from underground. Surface exploration on other areas at these payshoots is expected to continue in Q3 and Q4 of 2016.

 

§  Otvalnaya Zone

This zone is located at the left bank of the Ulunga River, 1.6km north of NE Bakhmut. In 2016, exploration of Otvalnaya's south-west flank was carried out. The zone strikes in a northwest direction and deepens at 50 - 65°. The ore zone consists of a main ore body with separate subparallel ore bodies. It has been followed for 500m along the strike with a thickness of 18.0m at 5.26g/t. The thickness of loose sediments within the explored interval is 3.5 - 26.5m and thinning towards a southwest direction. The zone has been proven to a depth of 360m and remains open downwards. The results of metallurgical sampling show 70% recovery rates. Initial estimates indicate that the Otvalnaya zone will provide non-refractory ore both for open and underground mining, in particular:

 

-     The part of the ore zone suitable for open pit mining (depth 130m) has a thickness of 0.8 - 15.4m at average grades of 0.88-3.4g/t, including 3.28g/t at 15.0m, 3.04g/t at 7.5m and 5.26g/t at 1.6m

-     At deep horizons beyond the designed pit, cross-sections of 3.8-7.5m at average grades of 2.0- 6.0g/t (up to 18.0g/t in some samples) have been identified.

 

§  Brekchievaya

A 500m continuation of the zone to the east has been identified at an average thickness of 1.4-1.7m at 9.05-12.15g/t; exploration work here continues.

 

·      Nikolaevskaya

 

Other notable results include a discovery of a new apophyisis at the Nikolaevskaya Zone. The apophyisis has been explored by unevenly spaced trenches and drill holes over a strike length of 1,000m and remains open in all directions.  Grades are generally between 0.9 and 1.5g/t at the intersections, with a thickness of 2 to 3m. The higher grade intersections include 2.05g/t at 5.0m, 4.5g/t at 4.0m, 2.24g/t at 5.0m and 5.07g/t at 1.8m. Mineralisation is expected to be predominantly refractory but it is exposed to the surface and should be suitable for open pit extraction.

 

·      Sosnovaya

Field work started at the Sosnovaya licence, covering a highly prospective area west, south west and south of Pioneer. The first geochemistry results indicate a more than 8km long gold-arsenic anomaly, which coincides with old alluvial workings. These results are considered to be very encouraging and further exploration is planned in this area.

 

 

Albyn: 

 

§  Elginskoye 

At Elginskoye the exploration works are being finalised at the part of the deposit scheduled for near-term production and a feasibility study including R&R is being prepared. The current preliminary internal resource estimate at a cut off 0.5g/t has 2.7Moz of gold at an average grade of 1.34g/t in C1+C2 Russian categories. The reserves were defined only for the part of Elginskoye ore field that is scheduled for production first, the rest of the zone remains under exploration. In the second half of the year detailed exploration by drilling on a 40x40m and 40x80m basis is expected to be continued. Updated Mineral Resource and Ore Reserve statements are expected later this year, once the exploration programme is fully completed.

 

§  Unglichkan

An in-fill drilling programme (40x20m and 20x15m) at Unglichkan to prepare the area for open pit mining is nearly completed. This took place at the southern group of the orebodies at drill holes on a 40x20m and 20x15m basis. As a result, the area's Inferred resources are expected to be upgraded to the Indicated category. Furthermore, new additional smaller zones of gold mineralisation have been discovered, which should add to the Mineral Resources and Ore Reserves at Unglichkan. New significant intersections include 1.6g/t at 10.0m, 2.91g/t at 13.0m, 5.93g.t at 3.0m and 42.28g/t at 1.4m. Updated Resource and Reserve estimates are currently being prepared.

 

 

Malomir: 

 

§  Quartzitovoye 

In H1 2016, exploration for underground operation at deeper horizons continued exploring deeper extensions of orebodies No 55 and 61. Ore zone 55 was confirmed to extend 200m beyond the pit. At a cut-off grade of 1.7g/t, the thickness of this zone is 1.4-12.9m at an average grade of 5.79-68.3g/t. In some drill holes it is 68.3g/t at 1.4m, 5.79g/t at 12.9m and 22.18g/t at 3.7m. Further exploration at these orebodies is expected to continue from underground. The design of the underground access and exploration programme from underground is in progress, which will also allow trial mining and production.

 

Apart from the main ore body 55, 150m to the east another two subparallel ore bodies were identified. They are potentially suitable for underground extraction and have an average thickness of 1.1-3.9m at average grades of 6.14-10.55g/t; work here continues.

 

DEVELOPMENT OF UNDERGROUND MINING

Company specialists have always believed in the potential for developing underground mining at Pioneer and Quartzitovoye (Malomir). However, until recently it was a secondary priority after open pit mining of non-refractory and refractory reserves.

 

The underground potential was first proven at Quartzitovoye (Malomir) where Russian GKZ approved a small reserve for potential underground mining in 2010. These were subsequently re-evaluated for open pit extraction via a bigger open pit, however 2015 - 2016 exploration proved high grade resources to extend at least 200m below the proposed bigger pit. The current unaudited JORC resource estimate for potential underground mining at Quartzitovoye is c.210koz (at 8.2g/t) of Indicated and c.100koz (5.3g/t) of Inferred. The Company plans to continue exploration and expects to increase this estimate.

 

These extensions have been explored by 40 drill holes, of which 25 intersected potentially economical mineralisation. Gold mineralisation is confined within three subparallel zones drilled at a 50-30m by 60-40m drill grid. Zones are up to 400m in strike length and have been proven to 200m below the open pit. They remain open in a down dip direction. Typical drill intersections have gold grades between 2.5 g/t and 10.8g/t with horizontal thickness of 1.4m to 3.6m. Further exploration at Quartizitovoye is proposed to continue via drilling from underground workings.

 

At Pioneer a resource potentially suitable for underground mining was first explored at the deeper extensions of the eastern part of the Andreesvkaya zone. A total of 42 deep drill holes have been completed there with 28 holes intersecting high grade mineralisation. However, most of the resources were subsequently mined or scheduled for open pit mining. Although the high grade zone remains open in a down dip direction, exploration of the deeper extensions is currently on hold here so as not to interfere with open pit stripping works.

 

The next target at Pioneer was North East Bakhmut No 3 where 39 deep drill holes were completed in 2015 and 2016. 30 drill holes intersected high grade mineralisation extending to the depth of up to 250m below the mined open pit. Gold mineralisation was present within a main zone accompanied by a series of a smaller satellite zones and apophysis. The grade of the drill intersections varies between 1.5 and 66.6g/t with horizontal thickness between 0.5 and 14.4m. Unaudited mineral resources for potential underground mining are estimated in accordance with JORC Code as c.100koz (at 6.1g/t) of Indicated and further c.30koz (at 5.8g/t) of Inferred.  The main mineralised zone remains open in down dip direction as well as in some areas along strike offering potential to increase resources.

 

The most recent drilling completed in Q3 2016 indicates the presence of a high grade pay shoot in the adjacent area of North East Bakhmut No2. To date, 9 drill holes over a 200m strike length have been completed in this area. Seven drill holes intersected potentially economical mineralisation. Selected best drill intercepts include 9.85g/t at 14m and 4.49g/t at 23.0m. These results are yet to be reflected in the mineral resource estimates. Mineralised zones remain open in a down dip direction. Further exploration here is a high priority as this area can be developed into production together with North East Bakhmut No 3.

 

Potential for further underground resources exists at North East Bakhmut No1. Here a drill hole completed in 2016 returned an intersection grading 27.7g/t over a thickness of 2.7m. North East Bakhmut zones Nos 4 and 5 are also regarded as prospective for increases in underground mineral resources. Selected drill intersections below the planned open pits include 10.5g/t at 1.7m, 9.9g/t at 1.2m, 6.2g/t at 6.5m, 12g/t at 3.0 and 5.1g/t at 3.1m.

 

High grade mineralisation was also explored at the Bakhmut zone. The very first high grade pay shoot discovered at Pioneer (Pay Shoot No1) was explored in previous years below the open pit but it remains open in a down dip direction. The preliminary resource estimate of the small area around the two drill holes is c.50koz at an average grade of 6.6g/t - the area has potential for additional resources to be discovered. It is expected to be explored via underground exploration in 2016-2017. 

 

2016 drilling also discovered a second pay shoot (Pay Shoot No 2) 160 m east from No 1. 40 drill holes were drilled here in 2016 covering a strike length of 300m. High grade mineralisation was discovered at 26 of these with grades between 1.5 and 78.0g/t and thickness of 0.7 to 20.6m. The unaudited preliminary estimate suggests resources for potential underground mining of c.130koz at an average grade of 4.1g/t.

 

Underground potential also exists at the Nikolaevskaya, Otvalnaya and Promezhutochnaya zones of Pioneer.

 

OUTLOOK FY 2016

Due to the effects of severe flooding in the first half of the year, we expect production to be at the lower end of our original guidance of c.460,000-500,000oz, as this impacted production in June and July and delayed stripping works in H1 2016, which could potentially affect the output in H2 2016.

 

We will continue the progress we have made in reducing cash costs across all mines and are expecting to be on track to achieve our full year guidance of c.US$700/oz.

 

Forward contracts to sell an aggregate of 118.7Koz of gold at an average price of US$1,269/oz were outstanding as at 30 June 2016.

 

IRC

IRC is a producer and developer of industrial commodities with its shares quoted on the Hong Kong Stock Exchange (Stock Code 1029).

 

In Q1 2016, IRC agreed with CNEEC to delay the outstanding construction payments, improving IRC's cash flow position in the near term. Kuranakh was moved to care and maintenance in March 2016 with minimal cash outflow and cost.

 

ICBC waivers were obtained on 23 June 2016, relating to the maintenance of certain cash deposits and obligations to comply with certain financial covenants.

 

Numerous commissioning tests were completed at K&S during H1 2016 and maiden ores were produced, with the plant on track to be commissioned in Q3 2016 - IRC considers this to be a transformative step for its business. On 14 September 2016, IRC announced that CNEEC had started the Hot Testing of the Drying Unit at K&S, needed for production during cold winter conditions. 

 

On 31 August 2016, IRC announced a net loss attributable to shareholders reduced by 95% to US$9.9 million (30 June 2015: US$198.6 million) and, underlying loss excluding impairment at US$9.8 million (30 June 2015: US$9.0 million).

 

 

PRINCIPAL RISKS AND UNCERTAINTIES

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results.  A detailed review of the key risks facing the Group is set out in the Risks to Our Performance section on pages 26 to 39 of the 2015 Annual Report which is available on the Group's website, www.petropavlovsk.net.  This also includes a description of the potential impact of such risks on the Group together with measures in place to manage or mitigate against each specific risk where this is within the Group's control.

The Board's view of the principal risks that could impact the Group for the remainder of the current financial year remain largely unchanged from those set out in the 2015 Annual Report.

A summary of the Group's key risks is set out below:

Operational Risks:

§  Factors which impact the level of production including: i) weather and ii) availability and failure of equipment or services;

§  Failure to execute various construction and development projects;

§  The Group's activities are reliant on the quantity and quality of the Mineral Resources and Ore Reserves available to it; and

§  The Group's Mineral Resources and Ore Reserves are estimates based on a range of assumptions

 

Financial risks:

§  Lack of funding and liquidity to allow the Group to:

i)              Support its existing operations;

ii)             Invest in and develop its exploration projects;

iii)            Extend the life and capacity of its existing mining operations; and

iv)            Refinance/repay the Group's debt as it falls due.

 

If the operational performance of the business declines significantly the Group will breach one or more of the financial and production covenants as set out in various financing arrangements.

§  The Group's results of operations may be affected by changes in the gold price.

§  Currency fluctuations may adversely affect the Group.

§  Risks related to the Company's 35.83% interest in IRC, a Hong Kong Listed iron ore producer:

i)              Funding may be demanded from Petropavlovsk under a guarantee in favour of the Industrial and Commercial Bank of China; and

ii)             IRC's results of operations may be affected by changes in the iron ore price;

 

Health, safety and environmental risks:

§  There could be failures in the Group's health and safety processes and/or a breach of Occupational, Health and Safety legislation.

§  The Group's operations require the use of hazardous substances including cyanide and other reagents which may result in damage to the environment, personnel and individuals within the local community.

 

Legal and regulatory risks:

§  The Group requires various licences and permits in order to operate.

§  The Group is subject to risks associated with operating in Russia.

§  The Group is subject to risks that may arise from the political uncertainty within Russia.

 

 

 

 

 

 

 

DIRECTORS' RESPONSIBILITIES STATEMENT

 

We confirm that to the best of our knowledge:

§  The condensed set of financial statements, which has been prepared in accordance with IAS34 "Interim Financial Reporting" as endorsed and adopted by the European Union, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the company, or the undertakings included in the consolidation as a whole as required by DTR4.2.4R;

§  The interim management report includes a fair review of the information required by DTR4.2.7R (indication of important events and their impact, and description of principal risks and uncertainties for the remaining six months of the financial year); and

§  The interim management report includes a fair review of the information required on related party transactions as required by DTR4.2.8R.

 

By order of the Board,

Peter Hambro                                                                      Andrey Maruta

Chairman                                                                                              Chief Financial Officer

 

27 September 2016

 

 

INDEPENDENT REVIEW REPORT TO PETROPAVLOVSK PLC

 

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 which comprises the income statement, the balance sheet, the statement of changes in equity, the cash flow statement and related notes 1 to 24. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board.  Our work has been undertaken so that we might state to the company those matters we are required to state to it in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our review work, for this report, or for the conclusions we have formed.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of, and has been approved by, the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting" as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information 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 (UK and Ireland) 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 condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2016 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Emphasis of matter - going concern

 

In forming our conclusion on our review of the condensed financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 2 of the condensed financial statements concerning the Group's ability to continue as a going concern. As disclosed in note 2, the Group is engaged in active negotiations with its principal lenders to modify the repayment schedule of its loan facilities, however, the outcome of these negotiations is uncertain at the date of approval of the condensed financial statements. Additionally, the Group continues to guarantee the ICBC loan of IRC, the Group's associate, which disclosed a material uncertainty in relation to its ability to continue as a going concern in the interim financial statements for the period to 30 June 2016. These conditions, together with the other matters set out in note 2 of the condensed financial statements, indicate the existence of a material uncertainty which may give rise to significant doubt over the Group's ability to continue as a going concern. The condensed financial statements do not include the adjustments that would result if the Group was unable to continue as a going concern.

 

Deloitte LLP

Chartered Accountants and Statutory Auditor

London, UK

27 September 2016

 

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Income Statement

Six months ended 30 June 2016

 

 



Six months ended

30 June 2016

(unaudited)

Six months ended

30 June 2015

(unaudited)

Year ended

31 December 2015

 


note

US$'000

US$ '000

US$'000

Continuing operations





Group revenue


253,953

297,277

599,914

Operating expenses

5

(216,154)

(282,772)

(619,635)



37,799

14,505

(19,721)

Share of results of associates

11

(3,563)

-

(60,422)

Operating profit/(loss)


34,236

14,505

(80,143)

Investment income 

6

                 200

572

1,018

Interest expense

6

            (30,479)

(37,335)

(71,514)

Other finance gains/(losses)

6

              828

(3,757)

9,064

Profit/(loss) before taxation


4,785

(26,015)

(141,575)

 Taxation

7

4,438

(2,898)

(48,879)

Profit/(loss) for the period from continuing operations


9,223

(28,913)

(190,454)

Discontinued operations (a)





Loss for the period from discontinued operations


-

(52,715)

(107,023)

Profit/(loss) for the period


9,223

(81,628)

(297,477)

Attributable to:





Equity shareholders of Petropavlovsk PLC


9,203

               (51,787)

(238,759)

Continuing operations


9,203

               (27,704)

(190,155)

Discontinued operations


-

               (24,083)

(48,604)

Non-controlling interests


20

         (29,841)

(58,718)

Continuing operations


20

           (1,209)

(299)

Discontinued operations


-

         (28,632)

(58,419)











Profit/(loss) per share










Basic profit/(loss) per share

8




From continuing operations


US$0.00

(US$0.02)

(US$0.07)

From discontinued operations


-

(US$0.01)

(US$0.02)



US$0.00

(US$0.03)

(US$0.09)

Diluted profit/(loss) per share

8




From continuing operations


US$0.00

(US$0.02)

(US$0.07)

From discontinued operations


-

(US$0.01)

(US$0.02)



US$0.00

(US$0.03)

(US$0.09)

 

(a)   IRC was classified as 'held for sale' and presented separately in the balance sheet as at 30 June 2015 as well as presented as a discontinued operation in the income statement for the period from 1 January until 7 August 2015, when it ceased being a subsidiary and became an associate to the Group.

 

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2016

 

 

 

 

 



Six months ended

30 June 2016

(unaudited)

US$'000

Six months ended

30 June 2015

(unaudited)

US$'000

 Year ended

31 December 2015

 

US$'000

Profit/(loss) for the period


9,223

(81,628)

(297,477)

Items that may be reclassified subsequently to profit or loss:





Revaluation of available-for-sale investments


307

-

161

Exchange differences:





      Exchange differences on translating foreign operations


1,781

237

(4,121)

      Transfer of foreign currency translation reserve to profit or loss on               





      disposal of a foreign operation


-

-

2,601

Cash flow hedges:





Fair value (losses)/ gains


(16,313)

(1,716)

7,090

Tax thereon


3,263

343

(1,418)

Transfer to revenue


5,504

(2,428)

(9,436)

Tax thereon


(1,101)

486

1,888

Other comprehensive loss for the period net of tax


(6,559)

(3,078)

(3,235)

Total comprehensive profit/(loss) for the period


2,664

(84,706)

(300,712)

Attributable to:





Equity shareholders of Petropavlovsk PLC


2,764

(54,925)

(241,916)

Non-controlling interests


(100)

(29,781)

(58,796)



2,664

(84,706)

(300,712)

Total comprehensive profit/(loss) for the period attributable to equity shareholders of Petropavlovsk PLC arises from:





Continuing operations


2,764

(30,738)

(195,360)

Discontinued operations (a)


-

(24,187)

(46,556)



2,764

(54,925)

(241,916)

 

(a)   IRC was classified as 'held for sale' and presented separately in the balance sheet as at 30 June 2015 as well as presented as a discontinued operation in the income statement for the period from 1 January 2015 until 7 August 2015, when it ceased being a subsidiary and became an associate to the Group.

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Balance Sheet

At 30 June 2016

 

 


 

 

note

30 June 2016

(unaudited)

US$'000

30 June 2015

(unaudited)

US$'000

31 December 2015

 

US$'000

Assets





Non-current assets





Exploration and evaluation assets

9

56,163

100,986

68,993

Property, plant and equipment

10

982,953

1,103,487

1,038,343

Prepayments for property, plant and equipment


187

4,183

1,841

Investments in associates

11

35,600

231

39,394

Available-for-sale investments


578

111

271

Inventories

12

54,459

38,354

51,434

Other non-current assets


231

122

175



1,130,171

1,247,474

1,200,451

Current assets





Inventories

12

186,959

219,296

175,222

Trade and other receivables

13

62,804

72,472

48,096

Derivative financial instruments

15

-

2,128

3,925

Cash and cash equivalents

14

18,311

31,099

28,239



268,074

324,995

255,482

Assets of disposal groups classified as held for sale


-

583,266(a)

-



268,074

908,261

255,482

Total assets


1,398,245

2,155,735

1,455,933

Liabilities





Current liabilities





Trade and other payables

16

(75,500)

(81,820)

(96,567)

Current income tax payable


(794)

(715)

(4,748)

Borrowings

17

(344,159)

(188,554)

(260,248)

Derivative financial instruments

15

(6,885)

-

-



(427,338)

(271,089)

(361,563)

Liabilities of disposal groups

associated with assets classified as held for sale

 

 

-

(310,206)(a)

-



(427,338)

(581,295)

(361,563)

Net current (liabilities)/assets


(159,264)

326,966

(106,081)

Non-current liabilities





Borrowings

17

(271,783)

(538,667)

(378,030)

Derivative financial instruments

15

(16,190)

(25,335)

(14,684)

Deferred tax liabilities


(151,886)

(142,685)

(173,499)

Provision for close down and restoration costs


(17,271)

(21,323)

(17,184)



(457,130)

(728,010)

(583,397)

Total liabilities


(884,468)

(1,309,305)

(944,960)

Net assets


513,777

846,430

510,973

Equity





Share capital

18

48,920

48,874

48,874

Share premium


518,142

518,142

518,142

Own shares


-

(8,933)

(8,933)

Hedging reserve


(5,431)

1,678

3,096

Share based payments reserve


-

3,369

280

Other reserves


(18,897)

(16,578)

(20,985)

Retained earnings


(47,278)

134,152

(47,922)

Equity attributable to the shareholders of Petropavlovsk PLC


495,456

680,704

492,552

Non-controlling interests


18,321

165,726

18,421

Total equity


513,777

846,430

510,973

 

(a)   IRC was classified as 'held for sale' and presented separately in the balance sheet as at 30 June 2015 as well as presented as a discontinued operation in the income statement for the period from 1 January 2015 until 7 August 2015, when it ceased being a subsidiary and became an associate to the Group.

 

This condensed consolidated interim financial information was approved by the Directors on 27 September 2016.

 

 

 

 

Peter Hambro                                      Andrey Maruta

Director                                                  Director

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2016

 

 

 






 



Share

capital

Share premium

Own shares(a)

Convertible bonds

reserve

Share based payments reserve

Hedging

reserve

Other  reserves(b)

Retained earnings

Total

Non-controlling interests

Total equity



US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Balance

at 1 January 2015


3,041

376,991

(8,925)

48,235

3,283

 

4,947

(16,709)

137,704

548,567

196,804

745,371

Total comprehensive (loss)/income


-

-

-

-

-

(3,269)

131

(51,787)

(54,925)

(29,781)

(84,706)

Loss for the period


-

-

-

-

-

-

-

(51,787)

(51,787)

(29,841)

(81,628)

Other comprehensive (loss)/income


-

-

-

-

-

(3,269)

131

-

(3,138)

60

(3,078)

Share based payments


-




17

-

-

-

17

-

17

Deferred share awards


-

-

-

-

69

-

-

-

69

-

69

Rights issue and settlement of the Existing Bonds


45,833

141,151

(8)

(48,235)

-

-

-

48,235

186,976

-

186,976

Disposal of subsidiaries


-

-

-

-

-

-

-

-

-

(761)

(761)

Other transaction with non- controlling interests


-

-

-

-

-

-

-

-

-

(536)

(536)

Balance

at 30 June 2015 (Unaudited)


48,874

518,142

(8,933)

-

3,369

1,678

(16,578)

134,152

680,704

165,726

846,430

Total comprehensive income/(loss)


-

-

-

-

-

1,418

(1,437)

(186,972)

(186,991)

(29,015)

(216,006)

Loss for the period


-

-

-

-

-

-

-

(186,972)

(186,972)

(28,877)

(215,849)

Other comprehensive income/(loss)


-

-

-

-

-

1,418

(1,437)

-

(19)

(138)

(157)

Deferred share awards


-

-

-

-

211

-

-

-

211

-

211

Issue of ordinary shares by subsidiary


-

-

-

-

-

-

-

(2,487)

(2,487)

51,921

49,434

Other transaction with non- controlling interests


-

-

-

-

-

-

866

249

1,115

779

1,894

Disposal of subsidiaries (c)


-

-

-

-

(3,300)

-

(866)

4,166

-

(170,990)

(170,990)

Transfer to retained earnings


-

-

-

-

-

-

(2,970)

2,970

-

-

-

Balance

at 31 December 2015


48,874

518,142

(8,933)

-

280

3,096

(20,985)

(47,922)

492,552

18,421 (d)

510,973

Total comprehensive (loss)/income


-

-

-

-

-

(8,527)

2,088

9,203

2,764

(100)

2,664

Profit  for the period


-

-

-

-

-

-

-

9,203

9,203

20

9,223

Other comprehensive (loss)/income


-

-

-

-

-

(8,527)

2,088

-

(6,439)

(120)

(6,559)

Deferred share awards


46

-

8,933

-

(280)

-

-

(8,559)

140

-

140

Balance

at 30 June 2016 (Unaudited)


48,920

518,142

-

-

-

(5,431)

(18,897)

(47,278)

495,456

18,321(d)

513,777

 

(a) Own shares represented 1,441,406 Ordinary Shares held by the Company's EBT until they were transferred upon vesting of the Deferred Share Award on 1 May 2016.

(b) Including translation reserve of US$(16.4) million (30 June 2015: US$(16.6) million, 31 December 2015: US$(18.2) million).

(c)  IRC Limited ('IRC') (note 11).

(d) IRC was the only non-wholly owned subsidiary of the Group that had a material non-controlling interest (note 11). 

 

 

          PETROPAVLOVSK PLC

Condensed Consolidated Cash Flow Statement

Six months ended 30 June 2016

 

 

 


 

 

note

Six months ended

30 June 2016

(unaudited)

US$'000

Six months ended

30 June 2015(a)

(unaudited)

US$'000

 Year ended

31 December 2015(a)

 

US$'000

Cash flows from operating activities





Cash generated from operations

19

74,350

79,150

208,841

Interest paid


(25,136)

(41,078)

(72,174)

Income tax paid


(19,295)

(26,568)

(33,287)

Net cash from operating activities


29,919

11,504

103,380

Cash flows from investing activities





Proceeds from disposal of subsidiaries, net of cash disposed and liabilities settled

21

14,790

6,433

6,485

Proceeds from disposal of the Group's interests in associates, joint ventures and available-for-sale investments


231

1,000

1,000

Purchase of property, plant and equipment


(4,331)

(52,464)(b)

(58,804)(b)

Exploration expenditure


(7,556)

(9,716)(b)

(18,854)(b)

Proceeds from disposal of property, plant and equipment


561

535

847

Loans granted


-

(29)

(47)

Repayment of amounts loaned to other parties


1

37

42

Interest received


193

1,678

2,183

Dividends received from joint venture


-

917

917

Net cash used in investing activities


3,889

(51,609)

(66,231)

Cash flows from financing activities





Proceeds from issue of ordinary share capital, net of transactions costs


-

156,163

156,163

Proceeds from issue of ordinary shares by IRC, net of transaction costs


-

-

49,434

Proceeds from borrowings



61,194(c)

82,885(c)

Repayments of borrowings


(26,971)

(192,758)(c)

(304,178)(c)

Debt transaction costs paid in connection with ICBC facility


-

(72)

(72)

Debt transaction costs paid in connection with bank loans


(447)

(574)

(1,896)

Restricted bank deposit placed in connection with ICBC facility


-

(1,000)

(1,000)

Refinancing costs


-

(34,307)

(34,418)

Transaction costs


(2,695)

-

-

Funds (transferred)/ received under investment agreement with the Russian Ministry of Far East Development

23

(16,894)

-

15,093

Guarantee fee in connection with ICBC facility


1,126

-

2,169

Dividends paid to non-controlling interests


-

(536)

(536)

Purchase of own shares


-

(8)

(8)

Net cash used in financing activities


(45,881)

(11,898)

(36,364)

Net (decrease)/increase in cash and cash equivalents in the period


(12,073)

(52,003)

785

Effect of exchange rates on cash and cash equivalents


2,145

11

(5,270)

Cash and cash equivalents at beginning of period

14

28,239

48,080

48,080

Cash and cash equivalents re-classified as assets held for sale at beginning of the period


-

55,459

55,459

Cash and cash equivalents re-classified as assets held for sale at disposal


-

-

(70,815)

Cash and cash equivalents re-classified as assets held for sale at end of the period


-

(20,448)

-

Cash and cash equivalents at end of period

14

18,311

31,099

28,239

 

(a)   IRC was classified as 'held for sale' and presented separately in the balance sheet as at 30 June 2015 as well as presented as a discontinued operation in the income statement for the period from 1 January 2015 until 7 August 2015, when it ceased being a subsidiary and became an associate to the Group.

(b)   Including US$44.4 million related to discontinued operations during the six months ended 30 June 2015 and US$45.1 million for the year ended 31 December 2015.

(c)   Including US$61.2 million proceeds from borrowings during the six months ended 30 June 2015, (year ended 31 December 2015: US$62.5 million) and US$35.9 million repayments of borrowings (year ended 31 December 2015: US$36.2 million) related to discontinued operations.

 

 

 

PETROPAVLOVSK PLC

Notes to the condensed consolidated interim financial statements

Six months ended 30 June 2016

                                                                                               

 

1.         General information

 

Petropavlovsk PLC (the 'Company') is a company incorporated and registered in England and Wales. The address of the registered office is 11 Grosvenor Place, London SW1X 7HH.

 

These condensed consolidated interim financial statements are for the six months ended 30 June 2016. The interim financial statements are unaudited.

 

The information for the year ended 31 December 2015 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. This information was derived from the statutory accounts for the year ended 31 December 2015, a copy of which has been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified.

 

The auditor's report did not contain a statement under section 498(2) or 498(3) of the Companies Act 2006.

 

 

2.         Basis of preparation and presentation

 

The annual financial statements of the Company and its subsidiaries (the "Group") for the year ended 31 December 2015 were prepared in accordance with International Financial Reporting Standards ("IFRS"s) as adopted by the European Union.

 

The condensed set of financial statements has been prepared using accounting policies consistent with those set out in the annual financial statements for the year ended 31 December 2015, with adoption of new and revised standards and interpretations as set out below, and in accordance with IAS 34 "Interim Financial Reporting", as adopted by the European Union.

 

Going concern

 

The Group monitors and manages its liquidity risk on an ongoing basis to ensure that it has access to sufficient funds to meet its obligations. Cash forecasts are produced regularly based on a number of inputs including, but not limited to, forecast commodity prices and impact of hedging arrangements, Group mining plan, forecast expenditure and debt repayment schedules. Sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, cost inflation, different production rates from the Group's producing assets and the timing of expenditure on development projects. This is done to identify risks to liquidity and covenant compliance and enable management to develop appropriate and timely mitigation strategies. The Group meets its capital requirements through a combination of sources including cash generated from operations and external debt.

 

The Group performed an assessment of the forecast cash flows and covenant compliance in relation to bank facilities for the period of 12 months from the date of approval of the 2016 Half-Year Report. As at 30 June 2016, the Group had sufficient liquidity headroom and complied with related financial covenants. The Group's projections demonstrate that although the Group expects to have sufficient working capital liquidity over the next 12 months, these projections indicate that, unless mitigating actions can be taken, there will be insufficient liquidity to meet its debt repayment schedule on 31 October 2016.

 

The Group initiated negotiations with its principal lenders with a view to obtaining satisfactory modifications and temporary waivers regarding the existing covenants and the current repayment schedule ahead of the current repayment schedule and ("Debt Restructuring"). The Group has received written comfort including preliminary term sheets from their principal lenders intending to support the Debt Restructuring. As part of these negotiations, the agreement has been reached in relation to temporary relaxation of the existing covenants and the debt repayment holidays were granted until 31 October 2016 to allow finalisation of the Debt Restructuring. If an agreement with the Group's principal lenders in relation to the Debt Restructuring cannot be reached, and as a result missed debt repayment occurs, this would result in events of default which, through cross-defaults and cross-accelerations, could cause all other Group's debt arrangements to become repayable on demand.

 

The Group has guaranteed the outstanding amounts IRC owes to ICBC. The outstanding loan principal was US$255 million as at 30 June 2016. The assessment of whether there is any material uncertainty that IRC will be able to repay this facility as it falls due is another key element of the Group's overall going concern assessment. In their 30 June 2016 interim report, IRC have identified a material uncertainty in relation to their ability to continue to operate as a going concern. The main uncertainties in relation to the ability of IRC to continue to operate as a going concern are the timing of the commissioning of the K&S project and the substantial volatility of the iron ore price. IRC is also in negotiations with several banks in Russia for working capital financing for the K&S project and is implementing active cost-saving measures to improve operating cash flows and financial position. If IRC were unable to achieve scheduled commissioning of the K&S project, successfully implement the measures described above or the market conditions turn out significantly less favourable to IRC than predicted, IRC may not have sufficient liquidity to facilitate a debt repayment of US$21.5 million in December 2016, which will cause the related facility to become immediately due and payable.

 

The risk that the Group will be unable to achieve appropriate mitigating actions is a material uncertainty which may cast significant doubt upon the Company's ability to continue to apply the going concern basis of accounting and, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business.

 

Nevertheless, after making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation, after taking into account the aforementioned factors, that the Group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the 2016 Half-Year Report. Accordingly, they continue to adopt the going concern basis of accounting in preparing these consolidated financial statements. 

Adoption of new and revised standards and interpretations

 

During the period the Group adopted all standards, amendments and interpretations that were effective for annual periods beginning on or after 1 January 2016 (such standards, amendments and interpretations were disclosed in note 2 to the Group's consolidated financial statements for the year ended 31 December 2015). These standards, amendments, and interpretations have not had a significant impact on the presentation or disclosure in Group's condensed consolidated financial statements for the interim period ended 30 June 2016. No other changes have been made to the Group's accounting policies in the period ended 30 June 2016. Additional disclosures with respect to the annual period requirements will be included in the Group's consolidated financial statements for the year ending 31 December 2016.

 

 

3.         Foreign currency translation

 

The following exchange rates to the US dollar have been applied to translate balances and transactions in foreign currencies:

 

 


As at

30 June

2016

Average

six months ended

30 June 2016

As at

30 June
 2015

Average

six months ended

30 June 2015

As at

31 December
2015

Average

year ended

31 December 2015

GB Pounds Sterling (GBP: US$)

0.75

0.70

0.64

0.66

0.68

0.65

Russian Rouble (RUB: US$)

64.26

70.54

55.52

58.06

72.88

61.30

 

 

4.             Segment information

 

The Group's reportable segments under IFRS 8, which are aligned with its operating locations, were determined to be Pokrovskiy, Pioneer, Malomir and Albyn hard-rock gold mines which are engaged in gold and silver production as well as field exploration and mine development.

Alluvial operations segment was comprising an alluvial gold operation which was engaged in gold production and field exploration. This operation was disposed on 22 April 2015 and, accordingly, alluvial operations is no longer a reportable segment.

 

Corporate and Other segment amalgamates corporate administration, in-house geological exploration and construction and engineering expertise, engineering and scientific operations and other supporting in-house functions as well as various gold projects and other activities that do not meet the reportable segment criteria.

 

Reportable operating segments are based on the internal reports provided to the Chief Operating Decision Maker ('CODM') to evaluate segment performance, decide how to allocate resources and make other operating decisions and reflect the way the Group's businesses are managed and reported.

 

The financial performance of the segments is principally evaluated with reference to operating profit less foreign exchange impacts.

 

 

Six months ended 30 June 2016

 

Pioneer

 

Pokrovskiy

 

Malomir

 

Albyn

Corporate

and other

 

Consolidated


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Revenue







Gold (a),  (b)

84,836

20,506

29,616

98,466

-

233,424

Silver

459

105

56

124

-

744

Other external revenue

-

-

-

-

19,785

19,785

Inter-segment revenue

-

-

572

181

44,788

45,541

Intra-group eliminations

-

-

(572)

(181)

(44,788)

(45,541)

Total Group revenue from external customers

85,295

20,611

29,672

98,590

19,785

253,953








Operating expenses and income







Operating cash costs

(41,809)

(14,038)

(22,687)

(51,860)

(18,968)

(149,362)

Depreciation

(21,899)

(3,136)

(8,414)

(25,599)

(241)

(59,289)

Central administration expenses

-

-

-

-

(13,096)

(13,096)

Reversal of impairment of ore stockpiles

4,730

631

5,903

1,003

-

12,267

Loss on disposal of subsidiaries

-

-

-

-

(791)

(791)

Total operating expenses (c)

(58,978)

(16,543)

(25,198)

(76,456)

(33,096)

(210,271)

Share of results of associates

-

-

-

-

(3,563)

(3,563)

Segment result

26,317

4,068

4,474

22,134

(16,874)

40,119








Foreign exchange losses






(5,883)

Operating profit






34,236

Investment income






200

Interest expense






(30,479)

Other finance gains






828

Taxation






4,438

Profit for the period from continuing operations






9,223















Segment assets

435,925

45,600

386,592

409,662

111,922

1,389,701

Unallocated cash






7,980

Loans given






564

Consolidated total assets






1,398,245

 

(a)    Including US$(5.5) million net cash settlement paid by the Group under the cash flow hedge.

(b)    Heap leach operations at Pioneer and Pokrovskiy are seasonal with production skewed towards the second half of the year.

(c)    Operating expenses less foreign exchange losses (note 5).

 

 

Six months ended 30 June 2015

 

Pioneer

 

Pokrovskiy

 

Malomir

 

Albyn

Alluvial

operations

Corporate

and other

 

Consolidated


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$' 000

Revenue








Gold (d), (e)

118,104

29,774

38,774

93,724

-

280,376

Silver

383

96

57

101

-


637

Other external revenue

-

-

-

-

-

16,264

16,264

Inter-segment revenue

-

-

791

236

-

73,309

74,336

Intra-group eliminations

-

-

(791)

(236)

-

(73,309)

(74,336)

Total Group revenue from external customers

118,487

29,870

38,831

93,825

-

16,264

297,277









Operating expenses and income








Operating cash costs

(58,254)

(24,657)

(34,779)

(59,001)

1,006

(15,515)

(191,200)

Depreciation

(18,424)

(4,496)

(8,716)

(26,092)

(1,388)

(241)

(59,357)

Central administration expenses

-

-

-

-

-

(15,667)

(15,667)

Impairment of ore stockpiles

(777)

(2,090)

(5,106)

(798)

-

-

(8,771)

Loss on disposal of subsidiaries

-

-

-

-

(384)

-

(384)

Total operating expenses (f)

(77,455)

(31,243)

(48,601)

(85,891)

(766)

(31,423)

(275,379)









Segment result

41,032

(1,373)

(9,770)

7,934

(766)

(15,159)

21,898









Foreign exchange losses







(7,393)

Operating profit







14,505

Investment income







572

Interest expense







(37,335)

Other finance gains/(losses)







(3,757)

Taxation







(2,898)

Loss for the period from continuing operations







(28,913)

















Segment assets

469,380

55,612

443,413

458,707

-

140,255

1,567,367

Unallocated cash







4,241

Loans given







861

Assets classified as held for sale







583,266

Consolidated total assets

118,104

29,774

38,774

93,724

-

2,155,735

 

(d)    Including US$2.4 million contribution from the cash flow hedge.

(e)    Heap leach operations at Pioneer and Pokrovskiy are seasonal with production skewed towards the second half of the year.

(f)     Operating expenses less foreign exchange losses (note 5).

 

 

Year ended 31 December 2015

 

Pioneer

 

Pokrovskiy

 

Malomir

 

Albyn

Alluvial

operations

Corporate

and other

 

Consolidated


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$' 000

Revenue








Gold (g)

253,914

61,002

71,044

181,687

-

-

567,647

Silver

641

168

84

149

-

-

1,042

Other external revenue

-

-

-

-

-

31,225

31,225

Inter-segment revenue

-


1,284

433


130,042

131,759

Intra-group eliminations

-

-

(1,284)

(433)

-

(130,042)

(131,759)

Total Group revenue from external customers

254,555

61,170

71,128

181,836

-

31,225

599,914









Operating expenses and income








Operating cash costs

(135,926)

 (45,082)

(65,434)

 (115,314)

1,006

 (32,159)

 (392,909)

Depreciation

(45,864)

 (12,344)

(18,195)

 (50,819)

 (1,388)

 (494)

 (129,104)

Central administration expenses

-

-

-

-

-

(30,419)

 (30,419)

Reversal of impairment of mining assets

-

-

-

-

-

-

-

Impairment of exploration and evaluation assets

-

(2,324)

(140)

-

-

(34,978)

(37,442)

Impairment of ore stockpiles

 (11,945)

884

 (6,065)

 (299)

-

-

 (17,425)

Impairment of investments in associates

-

-

-

-

-

-

-

Loss on disposal of subsidiaries

-

-

-

-

(384)

-

(384)

Total operating expenses (h)

(193,735)

(58,866)

(89,834)

 (166,432)

(766)

(98,050)

(607,683)









Share of net loss of associates

-

-

-

-

-

(60,422)

 (60,422)

Segment result

60,820

 2,304

(18,706)

15,404

(766)

(127,247)

(68,191)









Foreign exchange losses







(11,952)

Operating loss







(80,143)

Investment income







1,018

Interest expense







(71,514)

Other finance gains







9,064

Taxation







(48,879)

Loss for the period from continuing operations







(190,454)

















Segment assets

 407,004

 40,357

 425,029

447,161

 -

130,690

1,450,241

Unallocated cash







5,193

Loans given







499

Consolidated total assets







1,455,933

 

(g)    Including US$9.4 million contribution from the cash flow hedge.

(h)    Operating expenses less foreign exchange losses (note 5).

 

 

5.         Operating expenses and income

 


Six months ended

30 June 2016

US$'000

Six months ended

30 June 2015

US$' 000

 Year ended

31 December 2015

US$'000

Net operating expenses (a)

208,651

250,557

522,013

Impairment of exploration and evaluation assets

-

-

37,442

Impairment of ore stockpiles (a)

(12,267)

8,771

17,425

Central administration expenses (a)

13,096

15,667

30,419

Foreign exchange losses

5,883

7,393

11,952

Loss on disposal of subsidiaries (b)

791

384

384


216,154

282,772  

619,635  

 

(a) As set out below.

(b) Note 21.

 

 

Net operating expenses

 


Six months ended

30 June 2016

US$'000

Six months ended

30 June 2015

US$' 000

 Year ended

31 December 2015

US$'000

Depreciation

59,289

59,357

129,104

Staff costs

29,009

38,063

70,632

Materials

44,424

72,283

131,914

Fuel

19,224

30,143

55,835

External services

13,516

15,140

29,004

Mining tax

14,226

16,553

33,138

Electricity

10,651

14,294

25,008

Smelting and transportation costs

332

629

1,079

Movement in ore stockpiles, deferred stripping, work in progress and bullion in process attributable to gold production

(10,808)

(26,821)

(11,777)

Taxes other than on income

3,187

4,389

7,928

Insurance

2,937

3,383

7,244

Professional fees

456

564

554

Office costs

139

130

304

Operating lease rentals

477

281

645

Business travel expenses

617

724

1,541

Provision for impairment of trade and other receivables

141

1,273

1,261

Bank charges

87

235

855

Goods for resale

8,980

8,246

12,816

Other operating expenses

11,343

11,856

24,514

Other expenses/(income)

424

(165)

414


208,651

250,557

522,013

 

 

Central administration expenses

 


Six months ended

30 June 2016

US$'000

Six months ended

30 June 2015

US$' 000

 Year ended

31 December 2015

US$'000

Staff costs

8,744

9,756

18,908

Professional fees

616

1,241

2,040

Insurance

412

615

1,191

Operating lease rentals

926

894

1,900

Business travel expenses

419

543

1,611

Office costs

246

291

544

Other

1,733

2,327

4,225


13,096

15,667

30,419

 

Impairment charges

 

Impairment of mining assets

 

The Group undertook an impairment review of the tangible assets attributable to the gold mining projects and the supporting in-house service companies and concluded no impairment was required as at 30 June 2016.

 

Impairment of ore stockpiles

 

The Group assessed the recoverability of the carrying value of ore stockpiles and recorded reversals of impairment/ impairment charges as set out below:

 


Six months ended 30 June 2016


Six months ended 30 June 2015

 

 

Pre-tax

reversal of impairment

Taxation

Post-tax

reversal of impairment


Pre-tax impairment charge

Taxation

Post-tax impairment charge


US$'000

US$'000

US$'000


US$'000

US$'000

US$'000

Pokrovskiy

(631)

126

(505)


2,090

(418)

1,672

Pioneer

(4,730)

945

(3,785)


777

(155)

622

Malomir

(5,903)

1,181

(4,722)


5,106

(1,021)

4,085

Albyn

(1,003)

201

(802)


798

(160)

638


(12,267)

2,453

(9,814)


8,771

(1,754)

7,017

 

6.         Financial income and expenses



 


Six months ended

30 June 2016

US$'000

Six months ended

30 June 2015

US$' 000

 Year ended

31 December 2015

US$'000

Investment income




Interest income

200

572

1,018


200

572

1,018

Interest expense




Interest on bank loans

(24,527)

(29,481)

(57,731)

Interest on convertible bonds

(5,865)

(7,748)

(13,570)


(30,392)

(37,229)

(71,301)

Unwinding of discount on environmental obligation

(87)

(106)

(213)


(30,479)

(37,335)

(71,514)

Other finance gains/(losses)




Gain on settlement of the Existing Bonds

-

478

478

Fair value (loss)/gain on derivative financial instruments (a)

(1,506)

(4,235)

6,417

Financial guarantee fee (b)

2,334

-

2,169


828

(3,757)

9,064

 

(a)     Result from re-measurement of the conversion option of the US$100 million Convertible Bonds to fair value (note 17).

(b)     Note 20.

 

 

7.         Taxation

 




 


Six months ended

30 June 2016

Six months ended

30 June 2015

 Year ended

31 December 2015


US$'000

US$'000

US$'000

Current tax




Russian current tax

15,021

16,231

31,752


15,021

16,231

31,752

Deferred tax




(Reversal)/origination of timing differences (a)

(19,459)

(13,333)

17,127

Total tax charge

(4,438)

2,898

48,879

 

(a)   Including effect of foreign exchange movements in respect of deductible temporary differences of US$(17.6) million (six months ended 30 June 2015: US$(2.8) million, year ended 31 December 2015: US$40.3 million) which primarily arises as the tax base for a significant portion of the future taxable deductions in relation to the Group's property, plant and equipment are denominated in Russian Rouble whilst the future depreciation charges associated with these assets will be based on their US$ carrying value and reflects the movements in the Russian Rouble to the US Dollar exchange rate.

 

 

8.         Earnings per share

 



 


Six months ended

30 June 2016

Six months ended

30 June 2015

 Year ended

31 December 2015


US$'000

US$'000

US$'000

Profit/(loss) for the period attributable to equity holders of Petropavlovsk PLC

9,203

(51,787)

(238,759)

From continuing operations

9,203

(27,704)

(190,155)

From discontinued operations

-

(24,083)

(48,604)

Interest expense on convertible bonds, net of tax (a)


-

-

Profit/(loss) used to determine diluted earnings per share

9,203

(51,787)

(238,759)

From continuing operations

9,203

(27,704)

(190,155)

From discontinued operations

-

(24,083)

(48,604)


No of shares

No of shares

 

No of shares

Weighted average number of Ordinary Shares

3,300,501,688

2,001,412,516

2,657,332,030

Adjustments for dilutive potential Ordinary Shares (a), (b)

-

-

-

Weighted average number of Ordinary Shares for diluted earnings per share

3,300,501,688

2,001,412,516

2,657,332,030


US$

US$

US$

Basic profit/(loss) per share

0.00

(0.03)

(0.09)

From continuing operations

0.00

(0.02)

(0.07)

From discontinued operations

-

(0.01)

(0.02)





Diluted profit/(loss) per share

0.00

(0.03)

(0.09)

From continuing operations

0.00

(0.02)

(0.07)

From discontinued operations

-

(0.01)

(0.02)

 

(a) Convertible bonds which could potentially dilute basic profit/ (loss) per ordinary share in the future are not included in the calculation of diluted profit/ (loss) per share because they were anti-dilutive for the six months ended 30 June 2016 and 30 June 2015 and the year ended 31 December 2015.

 

(b) The Group had a potentially dilutive option issued to International Finance Corporation ('IFC') to subscribe for 1,067,273 Ordinary Shares (note 18)  which was anti-dilutive and therefore was not included in the calculation of diluted loss per share for the six months ended 30 June 2015 and the year ended 31 December 2015.

 

9.        Exploration and evaluation assets

 

 



 

Visokoe

Flanks of Pokrovskiy

Flanks of

Albyn

 

Other (a)

 

Total



US$'000

US$'000

US$'000

US$'000

US$'000

At 1 January 2016


16,251

2,287

39,080

11,375

68,993

Additions


213

615

2,457

426

3,711

Reallocation and other transfers


-

(75)

-

(2)

(77)

Disposal of subsidiary


(16,464) (b)

-

-

-

(16,464)

At 30 June 2016


-

2,827

41,537

11,799

56,163

 

(a) Represent amounts capitalised in respect of a number of projects in the Amur region.

(b) Note 21.

 

 

10.      Property, plant and equipment

 



Mining

assets

Non-mining assets

Capital construction in progress

Total



US$'000

US$'000

US$'000

US$'000

Cost






At 1 January 2016


1,861,891

197,698

341,587

2,401,176

Additions


6,278

78

3,492

9,848

Transfers from capital construction in progress (a) 


1,226

40

(1,266)

-

Disposals


(9,777)

(2,668)

(13)

(12,458)

Disposal of subsidiary


-

(2,052)

(2,436)

(4,488)

Reallocation and other transfers


9,104

(208)

(8,896)

-

Foreign exchange differences


-

2,600

-

2,600

At 30 June 2016


1,868,722

195,488

332,468

2,396,678







Accumulated depreciation and impairment






At 1 January 2016


1,182,974

173,375

6,484

1,362,833

Charge for the year


57,016

2,663

-

59,679

Disposals


(7,175)

(2,582)

-

(9,757)

Disposal of subsidiary


-

(1,127)

-

(1,127)

Reallocation and other transfers


208

(208)

-

-

Foreign exchange differences


-

2,097

-

2,097

At 30 June 2016


1,233,023

174,218

6,484

1,413,725

Net book value






At 1 January 2016 (b)


678,917

24,323

335,103

1,038,343

At 30 June 2016 (b)


635,699

21,270

325,984

982,953

 

(a) Being costs primarily associated with continuous development of Pioneer and Albyn projects.

(b) Property, plant and equipment with a net book value of US$117.2 million (30 June 2015: US$134.2 million, 31 December 2015: US$125.6 million) have been pledged to secure borrowings of the Group.

 

 

11.          Investments in associates

 

 

 

Six months ended

30 June 2016

Six months ended

30 June 2015

 Year ended

31 December 2015


US$'000

US$'000

US$'000

IRC Limited ('IRC') (a)

35,600

-

39,163

JSC Verkhnetisskaya Ore Mining Company (b)

-

231

231


35,600

231

39,394

 

(a)   IRC ceased being a subsidiary to the Group and is recognised as an associate to the Group from 7 August 2015.

(b)   Note 21.

 

 

Summarised financial information for those associates that are material to the Group is set out below.

 

 


IRC

IRC


Six months ended

30 June 2016

 Year ended

31 December 2015


US$'000

US$'000

Non-current assets



Exploration and evaluation assets

6,811

6,717

Property, plant and equipment

215,979

199,714

Prepayments for property, plant and equipment

88,377

88,859

Other non-current assets

2,117

2,277


313,284

297,567

Current assets



Cash and cash equivalents

24,578

56,144

Other current assets

35,631

55,038


60,209

111,182

Current liabilities



Borrowings (a)

42,790

53,050

Other current liabilities

18,211

18,398


61,001

71,448

Non-current liabilities



Borrowings (a)

196,434

215,238

Other non-current liabilities

13,098

12,773


209,532

228,011

Net assets

102,960

109,290

 

(a)   On 6 December 2010, KS GOK LLC ('K&S'), a subsidiary of IRC, entered into a US$400 million Engineering Procurement and Construction Contract with China National Electric Engineering Corporation for the construction of the Group's mining operations at K&S. On 13 December 2010, K&S entered into a project finance facility agreement with the Industrial and Commercial Bank of China Limited ('ICBC') (the 'ICBC Facility Agreement') pursuant to which ICBC would lend US$340 million to K&S to be used to fund the construction of the Group's mining operations at K&S in time for the start of major construction works in early 2011. Interest under the facility was charged at 2.80% above London Interbank Offering rate ('LIBOR') per annum. The facility is guaranteed by the Company (notes 20) and is repayable semi-annually in 16 instalments US$21,250 thousand each, starting from December 2014 and is fully repayable by June 2022. The outstanding loan principal was US$255 million as at 30 June 2016 (31 December 2015: US$276.3 million). The loan is carried at amortised cost with effective interest rate at 6.13% per annum (2015: 5.91%). As at 31 December 2015, US$2.1 million was deposited in a debt service reserve accounts ('DSRA') with ICBC under a security deposit agreement related to the ICBC Facility Agreement. In January 2016, IRC placed US$28.3 million in order to replenish the DSRA level pursuant to the security deposit agreement. In accordance with the waiver and consent letter dated 19 April 2016, which conditions precedent were satisfied on 21 June 2016, ICBC waived the restriction on withdrawing from the DSRA for the repayment of the ICBC loan and related interest and the requirement of IRC to maintain the DSRA until 30 June 2018. Accordingly, balance of US$1.98 million remained in the DSRA as at 30 June 2016 without replenishment. ICBC Facility Agreement contains certain financial covenants to which ICBC has agreed to grant a waiver until 31 December 2017, inclusive. As at 30 June 2015, The Group's 35.83% ownership in the issued capital of IRC was pledged to ICBC as security for the obligations of the Company as guarantor and in consideration for the waiver of financial covenants under the ICBC facility (31 December 2015: 521,376,470 ordinary shares (approximately 8.47%) in the issued capital of IRC were pledged to ICBC).

 

 


IRC

IRC


Six months ended

30 June 2016
US$'000

Period from

 7 August to 31 December 2015
US$'000

Revenue

16,147

31,627

Net operating expenses

(26,734)

(199,081)

including



Depreciation

(433)

(371)

Impairment of mining assets

-

(138,623)

Impairment of exploration and evaluation assets

-

(4,475)

Impairment of ore stockpiles

-

(7,492)

Impairment of investments in joint ventures

(147)

(5,895)

Foreign exchange losses

(2,300)

(1,075)

Investment income

276

295

Interest expense

(635)

(683)

Taxation

1,002

(774)

Loss for the period 

(9,944)

(168,616)

Other comprehensive profit/ (loss)

1,254

(1,740)

Total comprehensive loss

(8,690)

(170,356)

 

 

 

12.          Inventories

 


30 June

2016

30 June

2015

31 December

2015


US$'000

US$'000

US$'000

Current




Construction materials

5,923

8,031

6,952

Stores and spares

51,984

75,506

66,534

Ore in stockpiles (a), (c)

22,475

26,959

17,249

Work in progress

71,345

69,451

53,579

Deferred stripping costs

24,177

26,586

17,981

Bullion in process

1,530

1,852

1,212

Other

9,525

10,911

11,715


186,959

219,296

175,222

Non-current




Ore in stockpiles (a), (b), (c)

54,459

38,354

51,434


54,459

38,354

51,434

 

(a)   Note 5.

(b)   Ore in stockpiles that is not planned to be processed within twelve months after the reporting period.

(c)   As at 30 June 2016, ore in stockpiles include balances in the aggregate of US$16.0 million carried at net realisable value (30 June 2015: US$54.6 million, 31 December 2015: US$63.1 million).

 

 

13.      Trade and other receivables

 


30 June

2016

30 June

2015

31 December

2015


US$'000

US$' 000

US$'000

VAT recoverable

30,812

37,892

31,489

Advances to suppliers 

8,959

8,027

3,320

Trade receivables

5,942

10,877

4,018

Other debtors

17,091

15,676

9,269


62,804

72,472

48,096

 

 

14.          Cash and cash equivalents

 


30 June

2016

30 June

2015

31 December

2015


US$'000

US$' 000

US$'000

Cash at bank and in hand

18,155

30,018

22,144

Short-term bank deposits

156

1,081

6,095


18,311

31,099

28,239 (a)

 

(a)   Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development.

 

 

15.      Derivative financial instruments

 


30 June 2016


30 June 2015


31 December 2015


Assets

Liabilities


Assets

Liabilities


Assets

Liabilities


US$'000

US$'000


US$'000

US$'000


US$'000

US$'000

Forward gold contracts - cash flow hedge (a), (b), (c)

-

(6,885)


2,128

-


3,925

-

Conversion option (d), (e)

-

(16,190)


-

(25,335)


-

(14,684)


-

(23,075)


2,128

(25,335)


3,925

(14,684)

 

(a)   Forward contracts to sell an aggregate of 118,723 ounces of gold at an average price of US$1,269 per ounce are outstanding as at 30 June 2016 (30 June 2015: 75,000 ounces at an average price of US$1,201 per ounce, 31 December 2015: 71,551 ounces of gold at an average price of US$1,116 per ounce).

 

(b)   Measured at fair value and considered as Level 2 of the fair value hierarchy which valuation incorporates the following inputs:

-      gold forward curves observable at quoted intervals; and

-      observable credit spreads.

 

(c)   The hedged forecast transactions are expected to occur at various dates during the next 12 months.

 

Gain and losses recognised in the hedging reserve in equity as at the reporting date will be recognised in the income statement in the periods during which the hedged gold sale transactions affect the income statement.

 

There was no ineffectiveness to be recorded from the cash flow hedge during the six months ended 30 June 2016 and 2015 and the year ended 31 December 2015.

 

(d)   Note 17.

 

(e)   Measured at fair value and considered as Level 2 of the fair value hierarchy which valuation incorporates the following inputs:

-      the Group's credit risk;

-      historic share price volatility;

-      the conversion price;

-      time to maturity; and

-      risk free rate.

 

 

16.          Trade and other payables

 



30 June

2016

30 June

2015

31 December 2015



US$'000

US$'000

US$'000

Trade payables


36,014

26,176

44,263

Advances from customers


1,847

6,216

569

Advances received on resale and commission contracts (a)


9,715

19,490

12,770

Accruals and other payables


27,924

29,938

38,965(b)



75,500

81,820

96,567

 

(a)   Amounts included in advances received on resale and commission contracts at 30 June 2016 and 30 June 2015 and 31 December 2015 relate to services performed by the Group's subsidiary, Irgiredmet, in its activity to procure materials such as reagents, consumables and equipment for third parties.

(b)   Including US$15.1 million liability under an investment agreement with the Russian Ministry of Far East Development (note 23).

 

The Directors consider that the carrying amount of trade and other payables approximates their fair value.

 

 

17.      Borrowings

 


30 June

2016

30 June

2015

31 December

 2015


US$'000

US$'000

US$'000

Borrowings at amortised cost




Convertible Bonds (a), (b)

86,867

84,180

85,503

Bank loans

529,075

643,041

552,775


615,942

727,221

638,278





Amount due for settlement within 12 months

344,159

188,554

260,248

Amount due for settlement after 12 months

271,783

538,667

378,030


615,942

727,221

638,278

 

(a)   Liability component of the US$100 million Convertible Bonds due on 18 March 2020, measured at amortised cost. The interest charged was calculated by applying an effective interest rate of 13.89% to the liability component.

 

The conversion option of the US$100 million Convertible Bonds represents the fair value of the embedded option for the bondholders to convert into the equity of the Company ("the Conversion Right"). As the Company can elect to pay the cash value in lieu of delivering the Ordinary Shares following the exercise of the Conversion Right, the conversion option is a derivative liability. Accordingly, the conversion option is measured at fair value and is presented separately within derivative financial liabilities.

 

(b)   As at 30 June 2016, the fair value of the Convertible Bonds, considered as Level 1 of the fair value hierarchy and calculated by applying the market traded price to the convertible bonds outstanding, amounted to US$110.0 million (30 June 2015: US$111.0 million , 31 December 2015: US$106.3 million).

 

 

18.     Share capital

 

 


30 June 2016


30 June 2015


31 December 2015


No of shares

US$'000


No of shares

US$'000


No of shares

US$'000

Allotted, called up and fully paid









At the beginning of the period

3,300,561,697

48,874


197,638,425

3,041


197,638,425

3,041

Issued during the period

3,206,835

46


3,102,923,272

45,833


3,102,923,272

45,833

At the end of the period

3,303,768,532

48,920


3,300,561,697

48,874


3,300,561,697

48,874

 

 

The Company has one class of ordinary shares which carry no right to fixed income.

 

The Company had an option issued to the IFC on 20 April 2009 to subscribe for 1,067,273 Ordinary Shares at an exercise price of £11.84 per share, subject to adjustments. The option expired unexercised on 25 May 2015.

 

 

19.      Notes to the cash flow statement

 

Reconciliation of loss before tax to operating cash flow


Six months ended 30 June 2016

Six months ended 30 June 2015

Year ended                      31 December 2015


US$'000

US$'000

US$'000

Profit/(loss) before tax including discontinued operations

4,785

(79,177)

(248,179)

Adjustments for:




Share of results of joint venture

-

(430)

(588)

Share of results of associates

3,563

-

60,422

Investment income

(200)

(3,182)

(4,351)

Other finance (gains)/losses

(828)

3,757

(6,894)

Interest expense

30,479

38,355

72,703

Share based payments

140

86

297

Depreciation

59,289

56,116

121,599

Impairment of exploration and evaluation assets

-

-

37,442

(Reversal of impairment)/ impairment of ore stockpiles

(12,267)

8,771

17,425

Effect of processing previously impaired stockpiles

(7,536)

(4,454)

(8,535)

Provision for impairment of trade and other receivables

141

1,276

1,264

Write-down to adjust the carrying value of IRC's net assets to fair value less costs to sell

 

-

 

44,865

96,639

Loss on disposals of property, plant and equipment

2,148

402

1,090

Loss on disposal of subsidiaries

791

384

384

Foreign exchange losses

5,883

10,008

15,237

Other non-cash items

(1,223)

4,343

5,337

Changes in working capital:




(Increase)/decrease in trade and other receivables

(2,066)

(7,560)

3,621

Decrease/(increase)/ in inventories

7,922

(4,744)

22,675

(Decrease)/increase in trade and other payables

(16,671)

10,334

21,253

Net cash generated from operations

74,350

79,150

208,841

 

 

Non-cash transactions

 

Except for the issue of the Ordinary Shares in exchange for the Existing Bonds, there have been no significant non-cash transactions during the six months ended 30 June 2015 and the year ended 31 December 2015.

 

There were no significant non-cash transactions during the six months ended 30 June 2016.

 

 

20.      Related parties

 

Related parties the Group entered into transactions with during the reporting period

 

OJSC Asian-Pacific Bank ('Asian-Pacific Bank') and LLC Insurance Company Helios Reserve ('Helios') are considered to be related parties as members of key management have an interest in and collectively exercise significant influence over these entities.

 

The Petropavlovsk Foundation for Social Investment (the 'Petropavlovsk Foundation') is considered to be a related party due to the participation of the key management of the Group in the governing board of the Petropavlovsk Foundation and their presence in its board of guardians. 

 

CJSC Verkhnetisskaya Ore Mining Company ('Verkhnetisskaya') is an associate to the Group and hence was a related party until 27 May 2016 when the Group disposed its interest in Verkhnetisskaya.

 

CJSC ZRK Omchak and its wholly owned subsidiary LLC Kaurchak ('Omchak') are associates to the Group and hence were related parties until 29 April 2015 when the Group disposed its interest in Omchak.

 

IRC Limited and its subsidiaries are associates to the Group and hence are related parties since 7 August 2015.

 

Transactions with related parties the Group entered into during the six months ended 30 June 2016 and 30 June 2015 and the year ended 31 December 2015 are set out below.

 

Trading Transactions

 

Related party transactions the Group entered into that relate to the day-to-day operation of the business are set out below.

 


Sales to related parties


Purchases from related parties


Six months ended                     30 June 2016

US$'000

Six months ended                     30 June 2015

US$'000

Year ended

31 December 2015

US$'000


Six months ended                     30 June 2016

US$'000

Six months ended                     30 June 2015

US$'000

Year ended

31 December 2015

US$'000

 

Asian-Pacific Bank







 

Other

12

435

575


39

44

113

 


12

435

575


39

44

113

 

Trading transactions with other related parties







 

Insurance arrangements with Helios, rent and other transactions with other entities in which key management have interest and exercises a significant influence or control

52

1,182


1,786

3,772

5,716

 

Associates







 

IRC Limited and its subsidiaries

-

49


950

-

1,152

 

CJSC ZRK Omchak and its wholly owned subsidiary LLC Kaurchak

2

2


-

-

-

 


122

54

1,233


2,736

3,772

6,868

 

 

During the six months ended 30 June 2016, the Group made US$0.1 million charitable donations to the Petropavlovsk Foundation (six months ended 30 June 2015: US$0.3 million and year ended 31 December 2015: US$0.4 million).

 

The outstanding balances with related parties at 30 June 2016, 30 June 2015 and 31 December 2015 are set out below.

 


Amounts owed by related parties


Amounts owed to related parties


30 June 2016

30 June

2015

31 December 2015


30 June 2016

30 June

2015

31 December 2015


US$'000

US$'000

US$'000


US$'000

US$'000

US$'000

Helios and other entities in which key management have interest and exercises a significant influence or control

1,318

2,873

1,328


-

 

 

-

450

Associates








IRC Limited and its subsidiaries

2,073

-

2,023


1,320

-

1,233


3,391

2,873

3,351


1,320

-

1,683

 

Banking arrangements

 

The Group has current and deposit bank accounts with Asian-Pacific Bank.

 

 

The bank balances at 30 June 2016, 30 June 2015 and 31 December 2015 are set out below.

 


30 June

2016

30 June

2015(a)

31 December

2015


US$' 000

US$' 000

US$' 000

Asian-Pacific Bank

2,739

19,342

3,208

 

(a)  Including US$16 million presented within assets classified as held for sale as at 30 June 2015.

-

Financing transactions

 

The Group has charged a fee for the provision of the guarantee to IRC, equal to 1.75% on the outstanding loan amount under the ICBC Facility Agreement and which amounted to US$2.3 million during the year ended 30 June 2016 (31 December 2015: US$2.2 million). The Guarantee fee principal outstanding amounted to an equivalent of US$1.2 million (31 December 2015:$nil).

 

The Group had an interest-free unsecured loan issued to Verkhnetisskaya. Loan principal outstanding amounted to an equivalent of US$2.8 million as at 31 December 2015 and an equivalent of US$3.6 million as at 30 June 2015.

 

During the year ended 31 December 2015, the Group received a number of loans from Asian-Pacific Bank. Loan principal outstanding as at 30 June 2016 was US$nil (31 December 2015: an equivalent of US$2.7 million, 30 June 2015: US$nil). During the six months ended 30 June 2016, interest charged on loans received from Asian-Pacific Bank comprised US$0.03 million (31 December 2015: US$0.5 million)

 

Key management compensation

 

Key management personnel, comprising a group of 15 (30 June 2015: 22 and 31 December 2015: 18) individuals, including Executive and Non-Executive Directors of the Company and members of senior management, are those having authority and responsibility for planning, directing and controlling the activities of the Group.

 

 


Six months ended

30 June 2016

Six months ended

30 June 2015

Year ended

31 December 2015


US$'000

US$' 000

US$'000

Wages and salaries

2,744

4,175

7,231

Pension costs

96

238

357

Share-based compensation

140

69

280


2,980

4,482

7,868

 

 

21.          Disposal of subsidiaries

 

During  the six months ended 30 June 2016, the Group entered into agreements to sell its wholly owned subsidiary LLC Ilijnskoye and its associate JSC Verkhnetisskaya Ore Mining Company for an aggregate cash consideration of an equivalent to US$20 million, payable in tranches during 2016, out of which US$19.8 million were attributed to the value of Visokoe asset held by LLC Ilijnskoye and the remainder to Verkhnetisskaya Ore Mining Company.The disposal of LLC Ilijnskoye was completed on 11 May 2016.

 

The net assets of Ilijnskoye at the date of disposal are set out below.

 


11 May 2016
US$'000

Exploration and evaluation assets

16,464

Property, plant and equipment

3,361

Inventories

21

Trade and other receivables

80

Cash and cash equivalents

9

Trade and other payables

(156)

Net assets disposed

19,779



Consideration (a)

19,269

Loss on disposal

510



Net cash outflow arising on disposal:


Consideration received in cash and cash equivalents (a)

14,769

Less: cash and cash equivalents disposed of

(9)


14,760

 

(a)   Net of transaction costs.

 

 

22.          Analysis of net debt

 


 

 

At 1 January 2016

Net cash

movement

Exchange movement

Non-cash

changes

 

At 30 June

2016


US$'000

US$'000

US$'000

US$'000

US$'000

Cash and cash equivalents

28,239(a)

(12,073)

2,145

-

18,311

Borrowings

(638,278)

52,554

174

(30,392)

(615,942)

Net debt

(610,039)

40,481

2,319

(30,392) (b)

(597,631)

 

(a) Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development (note 23).

(b) Being amortisation of borrowings

 


 

 

At 1 January

 2015

 

  Net cash

movement


Exchange movement

Non-cash

changes

 

At 31 December 2015


US$'000

US$'000


US$'000

US$'000

US$'000

Cash and cash equivalents

48,080

 (15,173)


(4,668)

-

28,239 (a)

Borrowings

(977,804)

316,188


(105)

23,443

(638,278)

Net debt

(929,724)

301,015


(4,773)

23,443 (b)

(610,039)

 

(a)   Including US$15.1 million received under investment agreement with the Russian Ministry of Far East Development (note 23).

(b)   Being amortisation of borrowings and the effect of the Refinancing.

 

 

23.     Capital commitments

 

At 30 June 2016, the Group had entered into contractual commitments in relation to its continuing operations for the acquisition of property, plant and equipment and mine development costs amounting to US$1.0 million (30 June 2015: US$1.1 million and 31 December 2015: US$1.0 million), including US$1.0 million in relation to the POX Hub (30 June 2015: US$1.1 million and 31 December 2015: US$1.0 million).

 

Investment agreement with the Russian Ministry of Far East Development

On 14 December 2015, the Group entered into an investment agreement with the Russian Ministry of Far East Development (the 'Investment Agreement'). The Investment Agreement involves provision of RUB5.5billion (an equivalent to c.US$75 million as at 31 December 2015) funding towards the construction of the electricity power line in the North-East of the Amur Region of Russia, where the Group's Albyn and Malomir mines and adjacent licence areas are operated, during the period 2015 - 2019. The funds are advances to the Group and then should be transferred to the joint-stock company Far East Grid Distribution Company ('DRSK'), who is to engage a contractor to build the relevant power supply infrastructure. The Group's responsibility under the Investment Agreement will be to monitor the progress and to report to the Russian Ministry of Far East Development. The Group will be taking ultimate responsibility for the construction of the power line. Upon completion, the Group will get access to the enhanced capacity of the power supply infrastructure in the region. Under the terms of the Investment Agreement, the Group has committed to continue development of its assets in the region, including further development of Albyn and Malomir mines.

 

As at 31 December 2015, the Group received RUB1.1billion (an equivalent to US$15.1 million) funds under the Investment Agreement. During the six months ended 30 June 2016, these amounts were transferred to relevant sub-contractors to fund the construction of the electricity power line.

 

 

24.          Reconciliation of non-GAAP measures (unaudited)

 

 


Six months ended

30 June 2016

US$'000

Six months ended

30 June 2015

US$'000

Year ended

31 December 2015

US$'000

Profit/(loss) for the period from continuing operations

9,223

(28,913)

(190,454)

Add/(less):




Interest expense

30,479

37,335

71,514

Investment income

(200)

(572)

(1,018)

Other finance (gains)/losses

(828)

3,757

(9,064)

Foreign exchange losses

5,883

7,393

11,952

Taxation

(4,438)

2,898

48,879

Depreciation

59,289

59,357

129,104

Impairment of exploration and evaluation assets

-

-

37,442

(Reversal of impairment)/ impairment of ore stockpiles

(12,267)

8,771

17,425

Share in results of associates (a)

894

-

57,009

Underlying EBITDA

88,035

90,026

172,789

 

(a)   Group's share of interest expense, investment income, other finance gains and losses, foreign exchange losses, taxation, depreciation and impairment recognised by an associate (note 11).

 

 

 

Note: Figures throughout this release may not add up due to rounding.

 

 

Forward-looking statements

 

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the Group's results of operations, financial position, liquidity, prospects, growth, strategies and expectations of the industry.  

 

By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward-looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward-looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in law or regulation, currency fluctuations (including the US dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, political and economic uncertainty.  Save as required by the Listing and Disclosure and Transparency Rules, the Company is under no obligation to update the information contained in this release.

 

Past performance cannot be relied on as a guide to future performance.

 

The content of websites referred to in this announcement does not form part of this announcement.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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