PETROPAVLOVSK PLC H1 2016 Trading Update (July 2016)
PETROPAVLOVSK PLCH1 2016 Trading Update (July 2016)
Cautionary and Forward-looking Statements
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Contents
Underground Mining
Proposed POX Joint Venture
H1 2016 Trading Update1
2
3
33
Proposed Acquisition of Amur Zoloto
Exploration Update
Strategy
4
5
6
H1 2016 Trading Update
44
H1 2016 Trading Update
POG H1 2016 Update
Output lower vs. H1 2015 due to scheduled processing of lower grades + severe flooding
Production of 187.4Koz
Sales of 195.4Koz at avg. US$1,194/oz incl. hedging effect
Group’s focus remains further reduction of Net Debt
Net debt of c.US$598m(1) compared with c.US$610m as at 31 Dec 2015
Preliminary term sheets received from Sberbank + VTB incl. extending debt maturity profile with significantly relaxed nearterm repayment schedule
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maturity profile with significantly relaxed nearterm repayment schedule
Principal payment holidays granted April Oct 2016, negotiations ongoing
FY 2016 outlook
Targeting production at lower end of original guidance at c.460 500Koz, due to negative effects of flooding
On track for FY TCC of c.US$700/oz (preliminary H1 2016 TCC est. c.US$690/oz, down 10% vs. H1 2015)
FY Net Debt target of c.US$570m
Group reiterates FY capex of c.US$60m development + c.US$10m exploration
(1) As at 30 June 2016, preliminary unaudited figure
POG H1 2016 Corporate Highlights
Proposed acquisition of Amur Zoloto / Kamchatka Gold
SRK report on AZ assets published + available on our website
SRK confirm c.1.86Moz of JORC Resources of which c.1.35Moz are Reserves
Discussions under way to consider amending proposed transaction to include acquisition by Petropavlovsk of Renova’s gold assets in Kamchatka
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POX JV with GMD Gold
Proposed JV unlocks c.4.0Moz of refractory gold reserves
JV is progressing well, circular to shareholders to be published Q3 2016
Disposal of non-core assets
Disposal of Ilyinskoye + remaining interest in Verkhnetisskaya for US$20m
Sale in line with strategy of debt reduction + focus on core producing assets
H1 2016 output impacted by regional flooding
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Underground Mining at
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Pioneer
Preparation work carried out to commence underground production at NE Bakhmut
During H1, the following works were undertaken
Design completed for underground mine access development + initial underground ore mining
Preparation for decline portal completed (incl. access road, site levelling, power + water)
Russian underground mining contractor for mine development + ore
Underground mine design, NE Bakhmut
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contractor for mine development + ore mining appointed
Underground decline development to commence Aug 2016, first ore production est. Q1 2017
Plan to complete 29,915m3 of underground development H2 2016 at avg. cost 13,100 RUR/m3
Exploration targeting resources for underground mining at NE Bakhmut + other Pioneer zones expected to continue simultaneously alongside mine’s development
Pressure Oxidation (POX)
1010
Pressure Oxidation (POX)
Refractory ore
Mineralised rock resistant to recovery by standard cyanidation and carbon adsorption methods
Generally contains sulphide minerals, which encapsulate gold
Crushing + Grinding
What is refractory ore? Processing options for refractory ore
particles, making it difficult for the leach solution to reach the contained gold
Oxidation of sulphide minerals is necessary to recover the gold
Roasting BIOX
Pressure oxidation
(POX)
11
Extraction of gold from refractory ore requires additional stages
A refractory ore Processing Hub in the Russian Far East
Annual processing capacity of 500K tonnes of flotation concentrate via 4 x
autoclaves
Third party processing: option to process
refractory content from third parties, incl.
concentrate with a high carbon content
Ability to process different types of
refractory ore simultaneously
1212
Pokrovskiy will serve as a processing hub for
refractory concentrate provided by Pioneer +
Malomir mines
Developed infrastructure allows for
transportation of concentrate via road or
rail
Potential to upgrade to 6 x autoclaves
POX Processing Hub concept
MALOMIR Flotation Plant
Recovery = 88%Recovery = 86%
PIONEER Flotation Plant
Flotation Concentrate
Flotation Concentrate
POX Plant Recovery = 93% for Malomir and 98% for Pioneer
ConcentrateRe-grinding
AutoclaveOxidation
RIP circuit Doré to Refinery
THE POKROVSKIY POX HUB
1313
JV accelerates POX development without straining the Group’s balance sheet
Non-refractory JORC Reserves
Refractory JORC Reserves
3.95Moz
4.46Moz
c.50% of our Reserves are refractory…
POX Hub will enable POG to unlock value from extensive refractory reserves (at Malomir + Pioneer) without incurring additional debt
Once commissioned, POX Hub will be largest of its kind in Russia, able to process up to 500Kt of floatation concentrate p/a
4 x autoclave lines with capacity of 125Ktpa of
As at 31/12/2015 Reserves Au (Moz) Au (g/t)
Malomir
Proven 0.3 1.27
Probable 2.2 1.01
P+P 2.5 1.04
Pioneer
Proven 0.4 1.06
Probable 1.0 0.86
1414 Note: proposed transaction is subject to shareholder approval and other conditions (1) Est. TCC of production c.US$600/oz, at current prices and FX rates
4 x autoclave lines with capacity of 125Ktpa of floatation concentrate each
Est. attributable production via POX Hub of c.200 –300Koz p/a once fully operational at TCC similar to that of Pioneer’s nonrefractory processing(1)
Sustainable production from refractory assets for at least 20 years with excellent growth potential
POX construction to resume H2 2016, with first production expected 2018 from Malomir (+ later Pioneer)
Pioneer Probable 1.0 0.86
P+P 1.5 0.91
Total
Proven 0.8 1.14
Probable 3.2 0.96
P+P 3.9 0.99
As at 31/12/2015 Resources Au (Moz) Au (g/t)
Malomir
Measured 0.3 1.21
Indicated 3.4 0.89
Inferred 2.4 0.70
M&I 3.7 0.91
Pioneer
Measured 0.6 0.95
Indicated 1.9 0.71
Inferred 0.7 0.58
M&I 2.4 0.76
Total
Measured 0.9 1.04
Indicated 5.3 0.82
Inferred 3.2 0.67
M&I 6.2 0.85
POX JV Key Facts
GMD Gold to provide US$120m of equity financing in exchange for 51% share in JV
Concentrate to be processed on a tolling basis: each partner has title to concentrate supplied + gold produced from it
JV shall charge each partner a toll fee calculated on a full cost plus up to 5% margin basis, of which POG will receive 50% through dividends distribution
JV agreement stipulates sharing POX hub capacity between partners on 50/50 basis (250Ktpa each)
At this time, GMD Gold is only able to provide
POG share of production
Minimum additional vol of concentrate to be supplied by POG
(25% of POX capacity)
Residual capacity
covered by POG
Concentrate to be
provided by
POX Hub Capacity Allocation
1515
At this time, GMD Gold is only able to provide 50Kpta of concentrate. It has been agreed that POG shall provide concentrate amounting to minimum 25% of POX capacity (ie. 500Ktpa x 25% = minimum 125Ktpa) in addition to its share of capacity (250Ktpa)
Residual capacity to be covered by POG, thus making the total volume of concentrate supplied by POG = 250 + 125 + 75 = 450Ktpa
POX average processing cost currently est. at c.US$75/t
TCC of gold produced at POX currently est. at c.$600/oz
JV is progressing well, circular to shareholders to be published Q3 2016
125Ktpa 125Ktpa 125Ktpa
50Ktpa
75Ktpa
Autoclave 1125Ktpa
Autoclave 2125Ktpa
Autoclave 3125Ktpa
Autoclave 4125Ktpa
provided by GMD Gold
Proposed Acquisition of
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Amur Zoloto
Petropavlovsk + Amur Zoloto:Compelling Strategic Rationale Immediate addition of c.40Koz of production in 2016, at
competitive TCC
Projected production growth uplift of c.10%
Future cash flow to assist debt reduction
Addition of higher grade R&R
Recent SRK report confirms 1.35Moz of Reserves and 1.86Moz of Resources (incl. c.1.2Moz hard rock at avg. 1.8g/t)
New hard rock R&R +180% vs. avg. POG grade
DE
AL
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PA
CT
1717
Balance sheet optimisation
Acquisition, paid for in shares, increases Group asset base by c.US$140m
Improved financial flexibility from lenders
Operational synergies
Opportunity to decrease AZ TCC by bringing in low cost power generation from POG (electricity line extension)
Potential for immediate production uplift via introduction of heap leach operations overseen by POG
DE
AL
IM
PA
CT
Source of production, resources and reserves figures: Amur Zoloto and 2016 SRK CPR Report. Transaction subject to prospectus / shareholder approval
Acquisition will help to complement, diversify + de-risk Petropavlovsk’s future production profile
AZ operates gold production + development assets in Russia’s Khabarovsk region
An established gold company with open-pit, underground + alluvial assets
Founded in 2010, c.300 employees, EBITDA of c.US$9m FY2015
2 x hard rock assets in production + 2 under development
Producing placer deposits with processing capacity of 1,000,000m3 per season (c.16Koz p/a)
High grade, non-refractory ore
Amur Zoloto at a glance(1)
1818
In production or at preproduction stage = low capex requirements
Posttax NPV of mineral assets est. at US$170m(1)
FY 2016 production target of 40Koz
Mainly from alluvial operations + Krasivoye underground deposit
2016 FY TCC est. at c.US$680/oz
Strong development programme, with medium-term growth of up to c.140Koz p/a of production based on existing R&R
Plan to increase annual production to c.140Koz p/a by 2020
(1) Source: Amur Zoloto and 2016 SRK CPR Report (1) Assuming a discount rate of 10% and a gold price of US$1,100/oz
Both businesses are well aligned, with complimentary strengths + assets
POG and AZ Assets
Malutka
Tas-Yurakh
Yubileiny
Amur ZolotoAssets
Petropavlovsk Assets
Key:
Scale
= 100km
1919
Perevalnoye
Pioneer
Pokrovskiy
Malomir
Albyn
AZ Production + Financials(1)
Gold Production (Koz) Facility Type 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 TotalPerevalnoye Open Pit + Plant 9 32 35 37 32 29 27 26 23 17 12 279
Krasivoye(Yubileiny GOK)
Underground + Plant
15 20 19 22 30 30 29 14 - - - 179
Malyutka Open Pit + HL - - - 19 35 60 65 59 63 53 15 369
GOS Tas-YurakhOpen Pit + Underground + Plant
- - - 13 25 3 - - - - - 41
Total hard rock 24 52 54 91 122 122 121 99 86 71 27 868
Alluvials 15 17 17 17 16 18 13 13 0 0 0 126
Total AZ 40 68 72 108 138 139 133 111 86 71 27 994
Capex (US$m) 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Total
Perevalnoye 13 19 2 - - - - - - - - 34
2020
Perevalnoye 13 19 2 - - - - - - - - 34
Krasivoye(Yubileiny GOK)
- 2 8 3 - - 2 2 - - - 20
Malyutka - - 28 6 8 1 1 2 - - - 47
GOS Tas-Yurakh - - - 4 4 - - - - - - 7
Total hard rock 13 22 38 14 13 2 3 4 - - - 107
Alluvials - - 4 2 - - - - - - - 6
Total AZ 13 22 42 16 13 2 3 4 - - - 114
0
100
200
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Krasivoye (Yubileiny GOK)
Perevalnoye
Alluvials
GOS Tas-Yurakh
Malyutka
(1) Source: Amur Zoloto and 2016 SRK CPR Report. Figures may not add up due to rounding
Cash-Cost Comparison
FY 2015 Petropavlovsk FY 2015 Amur Zoloto(1)
Units Pioneer Pokrovskiy Malomir Albyn Total UnitsTas-
YurakhUlakhan Buor Total
Gold sold Koz 216.3 51.6 59.8 154.2 481.9 Gold sold Koz 15.0 4.2 3.9 23.1
TCC US$m 135.3 44.9 65.3 115.2 360.7 TCC US$m 7.6 2.1 2.0 11.7
Avg. TCC US$/oz 625 871 1,092 747 749 Avg. TCC US$/oz 508 494 520 508
Impairment of ore stockpiles
US$m 9.5 (0.9) 0.3 0.3 9.2Change in finished goods, WIP, DSC
US$m 2.1 (0.9) (0.7) 0.5
Adjusted operating costs US$m 144.8 44.0 65.6 115.5 369.9 Adjusted operating costs US$m 10.5 1.4 1.5 13.4
2121
Adjusted operating costs US$m 144.8 44.0 65.6 115.5 369.9 Adjusted operating costs US$m 10.5 1.4 1.5 13.4
Central admin US$m 13.7 3.3 3.8 9.7 30.4 Central admin US$m 2.4 0.7 0.6 3.7
Capitalised stripping (end) US$m - - - 18.0 18.0 Capitalised stripping (end) US$m - - - -
Capitalised stripping (start) US$m - - - (8.4) (8.4) Capitalised stripping (start) US$m - - - -
Site restoration US$m (0.5) (0.1) (0.1) (1.1) (1.7) Site restoration US$m - - - -
Sustaining capex US$m 4.7 0.1 1.2 6.7 12.7 Sustaining capex US$m 0.4 - - -
All-in sustaining costs US$m 162.7 47.3 70.6 140.3 420.9 All-in sustaining costs US$m 12.9 2.1 2.2 # 17.1
AISC US$/oz 752 918 1,180 910 874 AISC US$/oz 859 497 548 740
Exploration expenditure US$m 7.1 1.0 4.2 6.6 18.9 Exploration expenditure US$m - - - -
Capital expenditure US$m 0.4 - 0.6 - 1.0 Capital expenditure US$m 0.3 0.8 1.0 2.1
Impairment of ore stockpiles
US$m 2.4 - 5.8 - 8.2 Impairment of ore stockpiles US$m - - - -
All-in costs US$m 172.6 48.3 81.2 146.9 449.0 All-in costs US$m 13.2 2.9 3.1 19.2
AIC US$/oz 798 937 1,357 953 932 AIC US$/oz 879 700 790 831
(1) Source: Amur Zoloto
Synergies
AZ asset portfolio is underdeveloped
Potential to accelerate AZ projects using POG expertise + PPE
Opportunity for regional expansion: a number of promising unlicensed areas located in region between POG / AZ
Energy costs
AZ’s operations run on diesel, Petropavlovsk primarily uses electricity (cheap + plentiful)
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(cheap + plentiful)
Opportunity to drive costs down by switching to electricity via extension of supply from Amur Region
Heap leach operations
Potential for further uplift in production from proposed AZ HL operations using POG expertise
Government support
State grant of funds to the Group (c.US$100m) to help develop local electricity line
“Due to poor infrastructure, the Far East region is relatively under-explored for medium to large sized gold deposits. SRK considers there is reasonable potential to find / develop medium sized deposits if good target generation techniques are
used in conjunction with AZ’s knowledge of regional geology.” (SRK Consulting, July 2016)
Key Deal Terms
Transaction financing
Via issue of 1,434,303,624 new ordinary shares in Petropavlovsk at £0.0689
per share
Aggregate value of gross consideration payable on closing c.US$144m
Upon completion Amur Zoloto will hold c.30% of the enlarged Group’s issued
2323
share capital
Shareholder approval
Deal will require approval of Petropavlovsk shareholders
Completion
Subject to regulatory approvals
Reserves & Resources
Petropavlovsk(1) Amur Zoloto(2)
Total Ore ReservesGold(Moz)
Grade
Probable (Hard Rock, Kt) 1.21 1.8 g/t
Probable (Alluvials, 000m3) 0.14 0.5 g/m3
Total (P+P) 1.35 n/m
Total Mineral ResourcesGold(Moz)
Grade
Hard Rock
Measured+Indicated (Kt) 1.56 2.3 g/t
Inferred (Kt) 0.15 4.7 g/t
Total Ore ReservesGold(Moz)
Grade(g/t)
Proven 1.2 1.03
Probable 7.2 0.96
Total (P+P) 8.4 0.97
Non-Refractory Ore Reserves
Proven 0.5 0.91
Probable 4.0 0.97
Total (P+P) 4.5 0.96
2424
(1) Source 2016 WAI Report. Petropavlovsk JORC R&R as at 31 Dec 2015. Resources are inclusive of Reserves. Visokoye, a non-core asset containing 2.5Moz of JORC Resources (incl. 1.2Moz of JORC Reserves) was disposed of following preparation of the above R&R statement (2) Source: 2016 SRK CPR Report. AZ JORC R&R as at 31 Dec 2015, all material is non-refractory
Inferred (Kt) 0.15 4.7 g/t
Alluvials
Indicated (000m3) 0.15 0.6 g/m3
Inferred (000m3) - -
Measured + Indicated 1.71 n/m
Inferred 0.15 n/m
n/m = not meaningful
Refractory Ore Reserves
Proven 0.8 1.14
Probable 3.2 0.96
Total (P+P) 4.0 0.99
Total Mineral ResourcesGold(Moz)
Grade(g/t)
Measured + Indicated 15.8 0.89
Inferred 7.7 0.79
Non-refractory Mineral Resources
Measured + Indicated 9.6 0.93
Inferred 4.8 0.89
Refractory Mineral Resources
Measured + Indicated 6.2 0.85
Inferred 3.2 0.67
Amur Zoloto Assets / PPE(1)
Flotation Cells Gold RoomBall Mill + Classifier
2525
Crushing Section Flotation SectionYubileiny Processing Plant
Filtering Unit Milling + FlotationHydrometallurgical Section
(1) Source: Amur Zoloto
Key Management
Arsen Idrisov
Petropavlovsk Amur Zoloto
2626
Peter HambroChairman
Dr. Pavel MaslovskiyCEO
Andrey MarutaCFO
Dmitriy ChekashkinCOO
Musa BazhaevChairman, Russian Platinum
Alexander PolonyankinDeputy CEO, Strategy &
Development
Konstantin ZlotnikovDirector, Project
Management
Arsen IdrisovDeputy Chairman,Russian Platinum
Experienced management team with focus on delivery + operational excellence
Exploration Update
2727
Exploration Update
Exploration in H1 2016
Bakhmut
New thick lateral mineralised ore zone identified at Promezutochnaya / Bakhmutmeeting point
Strike length of 370m, avg. thickness 10.9 to 97.0m, at avg. cross sections grades of c.1.0 to 18.8g/t
Estimated that this will add new rich nonrefractory ore for underground operations + avg. grade refractory ore for open pit mining
Pioneer
2828
+ avg. grade refractory ore for open pit mining
Otvalnaya
Zone is located on left bank of the Ulunga River, 1.6km north of NE Bakhmut, consists of main ore body / subparallel ore bodies, followed for 500m along strike with thickness of best intersections 18.0m at 5.26 g/t
Metallurgical samples shows c.70% recovery
Estimated that Otvalnaya zone will provide nonrefractory ore for open + underground mining
Material suitable for open pit mining (up to 130m from surface) has thickness of 0.8 15.4m at 0.93.4g/t
Intersections of 3.87.5m thick at avg. grade of 2 6g/t (up to 18g/t in selected samples) occur below the designed pit
Exploration in H1 2016
Malomir Albyn
Quartzitovoye
Exploration at deeper horizons ongoing for planned underground operation
Exhausted by open pit mining, zone 55 confirmed to extend 200m beyond
Elginskoye
Exploration work being finalised at section of deposit scheduled for nearterm production
Feasibility study (incl. R&R) being prepared
2929
pit, 1.4 12.9m thickness at 5.8 68.3g/t (cutoff grade 1.7g/t)
Two ore bodies identified 150m to the east, suitable for underground extraction with avg. thickness 1.1 3.9m at 6.1 10.6g/t
Preliminary internal resource est. (0.5g/t cut off) suggests 2.7Moz at c.1.3g/t based on Russian categories
C1 + C2 Reserves defined only for part of Elginskoye zone scheduled for production
Remainder of zone being explored, further reserves expected to be estimated in next feasibility study
Strategy Impact
3030
Strategy Impact
Combined effect of Petropavlovsk’s medium term strategy
Through exploration + acquisition of complementary assets
Higher gold production volumes
Growth in high-grade R&R
Synergies
From both refractory + nonrefractory sources
3131
Strategy geared towards re-rating the stock + driving shareholder value
Return of Excess cash
Increased cash generation
Critical mass + scale
Return of dividend
Will enable debt to be paid down more aggressively
Synergies
Higher grades