DJ Polymetal International plc: Half-year report for the six month ended 30 June 2023
EQS Newswire / 25/09/2023 / 12:50 MSK Release time IMMEDIATE AIX, MOEX: POLY Date 25 September 2023
Polymetal International plc
Half-year report for the six month ended 30 June 2023
"Despite external pressures, we made good progress in the first half of the year while adapting to the logistics constraints. High commodity prices against a weakening Rouble, combined with steady operating performance, drove a healthy growth in the Group's earnings, adjusted EBITDA and free cash flow. We expect stronger production, stable cash costs within the original guidance, and significant free cash flow generation for the second half of the year, while remaining focused on progressing our development projects on schedule", said Vitaly Nesis, Group CEO of Polymetal International plc, commenting on the results.
FINANCIAL HIGHLIGHTS
-- In 1H 2023, revenue increased by 25% year-on-year (y-o-y), totalling USUSD 1,315 million (1H 2022: USUSD1,048 million), of which USUSD 393 million (30%) was generated from operations in Kazakhstan and USUSD 922 million(70%) from operations in the Russia. Average realised gold and silver prices tracked market dynamics: gold priceincreased by 3% while silver price remained flat y-o-y. Gold equivalent ("GE") production was 764 Koz, a 3%increase y-o-y. Gold sales increased by 25% y-o-y to 570 Koz, while silver sales increased by 19% to 10.4 Moz. TheCompany recorded a sales-production gap, notably for Kyzyl, as a result of persistent railway issues at theeastward direction. This gap is expected to be closed by the year end as the Company is gradually adjusting itstransportation routes.
-- Group Total Cash Costs ("TCC")[1] for 1H 2023 were USUSD 944/GE oz, below the lower end of the Group'sfull-year guidance of USUSD 950-1,000/GE oz, while being up 11% y-o-y, mostly due to a planned grade decline combinedwith domestic inflation, which was partially offset by weaker currency as well as increase in sales volumesresulting in spread of fixed costs over a larger amount of ounces sold.
-- All-in Sustaining Cash Costs ("AISC")1 remained broadly unchanged at USUSD 1,386/GE oz, up 1% y-o-y, andwithin the full-year guidance range of USUSD 1,300-1,400/GE, reflecting the decrease in capitalised stripping on theback of completed stripping campaigns.
-- Adjusted EBITDA1 was USUSD 559 million, an increase of 31% y-o-y, driven by higher sales volumes. Of this,USUSD 200 million (36%) was earned from operations in Kazakhstan, achieving a margin of 51%, and USUSD 359 million(64%), or a margin of 39%, earned from operations in the Russian Federation.The Adjusted EBITDA margin increased by2 percentage points to 43% (1H 2022: 41%).
-- Underlying net earnings[2] increased by 28% to USUSD 261 million (1H 2022: USUSD 203 million). Net earnings[3] were USUSD 190 million (1H 2022: USUSD 321 million loss due to one-off impairment charges).
-- Capital expenditures were USUSD 375 million[4], largely unchanged compared with USUSD 373 million in 1H 2022.The Company currently expects its FY2023 capex to be in the original guidance range of USUSD 700-750 million.
-- Net operating cash inflow was USUSD 35 million (1H 2022: USUSD 405 million outflow). This includes positivecash flow of USUSD 140 million from operations in Kazakhstan and negative cash flow of USUSD 105 million fromoperations in the Russian Federation. The Group reported negative free cash flow1 of USUSD 341 million, which isstill a significant improvement over 1H 2022 negative FCF of USUSD 630 million, that is made up of USUSD 55 millioninflow coming from Kazakhstan and USUSD 396 million outflow attributable to Russian assets. As usual, free cash flowis expected to be stronger in the second half of the year due to seasonally higher production and working capitalrelease.
-- Net debt1 increased to USUSD 2,590 million during the period (31 December 2022: USUSD 2,393 million),representing 2.25x of the LTM Adjusted EBITDA (2022: 2.35x). The increase in net debt was mainly driven by theworking capital build-up.
-- Polymetal is on track to meet its original 2023 production guidance of 1.7 Moz of gold equivalent. Thecompany maintains its 2023 guidance range of USUSD 950-1,000/GE oz and USUSD 1,300-1,400/GE oz for TCC and AISC,respectively. This guidance remains contingent on the RUB/USD and KZT/USD exchange rates which have a significanteffect on the Group's local currency denominated operating costs.
Financial highlights [5] 1H 2023 1H 2022 Change Revenue, USUSDm 1,315 1,048 +25% Total cash cost[6], USUSD /GE oz 944 853 +11% All-in sustaining cash cost2, USUSD /GE oz 1,386 1,371 +1% Adjusted EBITDA2, USUSDm 559 426 +31% Average realised gold price[7], USUSD /oz 1,926 1,864 +3% Average realised silver price3, USUSD /oz 22.9 22.9 0% Net earnings/(loss), USUSDm 190 (321) n/a Underlying net earnings2, USUSDm 261 203 +28% Return on Assets2, % 10% 7% +3% Return on Equity (underlying)2, % 13% 10% +3% Basic earnings/(loss) per share, USUSD 0.40 (0.68) n/a Underlying EPS2, USUSD 0.55 0.43 +28% Net debt2, USUSDm 2,590 2,393[8] +8% Net debt/Adjusted EBITDA 2.25[9] 2.355 -4% Net operating cash flow, USUSDm 35 (405) n/a Capital expenditure, USUSDm 375 373 0% Free cash flow2, USUSDm (341) (630) +46% Free cash flow post-M&A2, USUSDm (344) (658) +48%
OPERATING HIGHLIGHTS
-- No fatal accidents occurred among the Group's workforce and contractors in H1 2023 (consistent with H12022). Lost time injury frequency rate (LTIFR) among the Group's employees stood at 0.11 (0.08 in H1 2022), asthere were seven lost-time accidents, mostly related to falling or being hit by an object. None of the accidentswere within Kazakhstan operations.
-- GE output for H1 was up by 3% y-o-y to 764 Koz, including 213 Koz in Kazakhstan and 551 Koz in Russia. The Company reiterates its full-year production guidance of 1.7 Moz of GE (1.2 Moz in Russia and 500 Koz inKazakhstan).
1H 2023 1H 2022 Change PRODUCTION (Koz of GE1) Kazakhstan 213 244 -13% Kyzyl 128 135 -5% Varvara 86 109 -22% Russia 551 500 +10% TOTAL 764 744 +3% REVENUE (USUSDm) Kazakhstan 393 443 -11% Russia 922 605 +52% TOTAL 1,315 1,048 +25% NET DEBT2 (USUSDm) Kazakhstan 201 277 -27% Russia 2,389 2,117 +13% Total 2,590 2,393 +8% SAFETY LTIFR3 (Employees) 0.11 0.08 +36% Fatalities 0 0 n/a
Notes:
(1) Based on 80:1 Au/Ag conversion ratio and excluding base metals. Discrepancies in calculations are due to rounding.
(2) Comparative information is presented for 31 December 2022.
(3) LTIFR = lost time injury frequency rate per 200,000 hours worked. Company employees only are taken into account.
update on THE re-domICILATION AND listing
On 7 August 2023, the Company successfully completed its re-domiciliation to the AIFC (Kazakhstan). On 10 August, trading resumed on Astana International Exchange, which is now the primary listing venue for Polymetal. Cancellation of the Company's listing from the London Stock Exchange completed on 29 August 2023. On 19 September 2023, trading in Polymetal shares also resumed on the Moscow Exchange.
Conference call and webcast
The Company will hold a webcast on Monday, 25 September 2023, at 9:00 London time (14:00 Astana time).
To participate in the webcast, please register using the following link: https://event.on24.com/wcc/r/4340529/ E960C65B2522657D1D7187BD73EFDBF4.
Webcast details will be sent to you via email after registration.
Enquiries
Investor Relations Polymetal International plc ir@polymetalinternational.com Evgeny Monakhov +44 20 7887 1475 (UK) Kirill Kuznetsov +7 7172 476 655 (Kazakhstan) Media Polymetal International plc media@polymetal.kz Ainur Baigozha +7 7172 476 655 (Kazakhstan)
FORWARD-LOOKING STATEMENTS
This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements speak only as at the date of this release. These forward-looking statements can be identified by the use of forward-looking terminology, including the words "targets", "believes", "expects", "aims", "intends", "will", "may", "anticipates", "would", "could" or "should" or similar expressions or, in each case their negative or other variations or by discussion of strategies, plans, objectives, goals, future events or intentions. These forward-looking statements all include matters that are not historical facts. By their nature, such forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the company's control that could cause the actual results, performance or achievements of the company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the company's present and future business strategies and the environment in which the company will operate in the future. Forward-looking statements are not guarantees of future performance. There are many factors that could cause the company's actual results, performance or achievements to differ materially from those expressed in such forward-looking statements. The company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based.
TABLE OF CONTENTS
Financial review...........................................................6
Principal risks and uncertainties...............................................17
Going concern...........................................................18
Directors' responsibility statement.............................................19
Independent Review Report to Polymetal International plc............................20
Condensed Consolidated Income Statement......................................21
Condensed Consolidated Statement of Comprehensive Income........................22
Condensed Consolidated Statement of Financial Position............................23
Condensed Consolidated Statement of Cash Flows................................24
Condensed Consolidated Statement of Changes in Equity............................25
Notes to the consolidated financial statements....................................26
Alternative Performance Measures.............................................41 Financial review
market summary
Precious metals
In Q1 2023, banking sector turmoil, unsettling geopolitical anxiety and an unstable economic environment worldwide continued to drive demand for gold as a safe-haven asset. In Q2 2023, gold continued its upward trend, peaking at USUSD 2,048/oz in April, before reversing direction, following an agreement to raise the US debt ceiling in May. Finally, as at 30 June 2023, the LBMA gold price was trading at USUSD 1,912/oz, a 5% year-to-date increase. The average LBMA gold price for 1H was USUSD 1,933/oz, up 3% y-o-y.
Gold demand (excluding OTC) for 1H 2023 was down by 6% y-o-y to 2,062 tonnes. The negative dynamics stemmed from modest net outflows of 50 tonnes from exchange-traded funds (ETFs), compared with net 127 tonnes of inflows in 1H 2022. Factors driving outflows from ETFs included robust performance from key equity markets and gold price decline in Q2, driven by gradual hikes in interest rates by the global central banks.
Bar and coin investment and jewellery demand has been solid, following the end of COVID prevention restrictions in China as well as soaring inflation and weak monetary policy in Turkey. Jewellery demand increased to 951 tonnes (+2% year-on-year). Bar and coin investment also rose by 9% to 571 tonnes with demand in the Middle East reaching a 10-year high. Central banks continued to accumulate gold throughout 1H 2023 and added 387 tonnes to reserves, reaching the highest first-half demand since 2000. With inflation severely impacting supply chains within the electronics sector, technology demand was weak at 140 tonnes. Total 1H 2023 gold supply increased by 5% to 2,460 tonnes on the back of 3% growth in mine production to a record 1H level.
Silver price dynamics generally followed gold, peaking in April at USUSD 26.0/oz followed by gradual decline thorough the rest of Q2 2023 to USUSD 22.5/oz as at 30 June 2023. The average LBMA price in 1H 2023 stood at USUSD 23.3/oz, almost flat compared to 1H 2022.
Foreign exchange
The Group's revenues are denominated in US Dollars, while about a third of its borrowings and the majority of the Group's operating costs are denominated in local currencies (Russian Rouble and Kazakhstan Tenge). As a result, changes in exchange rates affected our financial results and performance.
In 1H 2023, the Kazakhstani Tenge stood at 452 KZT/USD on average and 454 KZT/USD at the end of the period, which was predominantly stable relative to 2022 values. As already seen in 2022, the currency did not follow the pattern of the Russian Rouble dynamics, which saw significant volatility (see below). The annual inflation rate in the country remained high, although decreased relative to a historical maximum of 2022 of 20.3% to 14.6% by June 2023.
The Russian Rouble started to depreciate relative to the 2022 year-end level since February on the back of capital outflow, weaker trade balance and geopolitical escalation. As a result, the Rouble rate recorded a 24% year-to-date decline to 87 RUB/USD. The average rate however was relatively unchanged versus 1H 2022 at 77 RUB/USD. Inflation in Russia significantly moderated after reaching multi-year highs in 2022, with the annualised inflation rate in June 2023 amounting to 3.25%.
Revenue
SALES VOLUMES 1H 2023 1H 2022 ?hange
Gold, Koz 570 456 +25%
Silver, Moz 10.4 8.7 +19%
Gold equivalent sold[10], Koz 700 573 +22%
Sales by metal
1H 2023 1H 2022 ?hange Volume variance, USUSDm Price variance, USUSDm
(USUSDm unless otherwise stated)
Gold 1,076 841 +28% 209 26
Average realised price[11] USUSD /oz 1,926 1,864 +3%
Average LBMA price USUSD /oz 1,933 1,875 +3%
Share of revenues % 82% 80%
Silver 227 191 +19% 36 0
Average realised price USUSD /oz 22.9 22.9 0%
Average LBMA price USUSD /oz 23.4 23.3 0%
Share of revenues % 17% 18%
Other metals 12 16 -25%
Share of revenues % 1% 2%
Total revenue 1,315 1,048 +25% 235 32
In 1H 2023, revenue grew by 25% y-o-y, driven by the growth of gold and silver sales compared to 1H 2022 when the Company experienced significant delays due to re-routing of sales channels. Gold sales increased by 28%, while gold production moved higher by 13%. Silver sales increased by 19% due to the contribution of Nezhda concentrate.
The Group's average realised price for gold was USUSD 1,926/oz in 1H 2023, up 3% from USUSD 1,864/oz in 1H 2022, and in line with the average market price of USUSD 1,933/oz. The Group's average realised silver price was USUSD 22.9/oz, flat y-o-y and 2% below market price of USUSD 23.4/oz.
The share of gold sales as a percentage of total revenue increased from 80% in 1H 2022 to 82% in 1H 2023, driven by a corresponding shift in production and sales volume by metal.
Revenue, USUSDm Gold equivalent sold, Koz OPERATION 1H 2023 1H 2022 ?hange 1H 2023 1H 2022 ?hange Kazakhstan 393 443 -11% 206 242 -15% Kyzyl 214 250 -14% 113 138 -18% Varvara 179 193 -7% 93 104 -10% Russia 922 605 +52% 494 331 +49% Total revenue 1,315 1,048 +25% 700 573 +22%
The increase in sales volumes during the period had a positive impact on revenues at operating mines in Russia, while revenue in Kazakhstan was down 11% year-on-year as a result of the decrease in GE volume sold, driven by railway transportation constraints for Kyzyl concentrate. Eastward transportation routes are being readjusted to eliminate the production/sales gap, and a meaningful decline in unsold concentrate volumes is expected in Q3 2023.
Cost of sales
(USUSDm) 1H 2023 1H 2022 ?hange
Cash operating costs 711 656 +8%
On-mine costs 322 317 +2%
Smelting costs 276 233 +18%
Purchase of ore and concentrates from third parties 34 40 -15%
Mining tax 79 66 +20%
Costs of production 851 794 +7%
Depreciation and depletion of operating assets 140 134 +4%
Rehabilitation expenses - 4 -100%
Total change in metal inventories (155) (277) -44%
Increase in metal inventories (165) (296) -44%
Write-down of metal inventories to net realisable value 10 20 -50%
(Reversal) of non-metal inventories to net realisable value - (1) -100%
Idle capacities and abnormal production costs 5 3 +67%
Total cost of sales 701 520 +35%
1? 2023 1? 2022
CASH OPERATING COST STRUCTURE
USUSDm Share USUSDm Share
Services 247 35% 237 36%
Consumables and spare parts 213 30% 183 28%
Labour 134 19% 127 19%
Mining tax 79 11% 66 10%
Purchase of ore and concentrates from third parties 34 5% 40 6%
Other expenses 4 1% 3 0%
Total cash operating cost 711 100% 656 100%
The total cost of sales increased by 35% in 1H 2023 to USUSD 701 million, reflecting a volume-based increase in sales (+22% in gold equivalent terms) combined with domestic inflation (15% y-o-y in Kazakhstan and 3% y-o-y in Russia) and an increase in mining tax.
The cost of services was up 4% y-o-y, caused mostly by higher volume of transportation services (notably at Nezhda and Kyzyl).
The cost of consumables and spare parts was up 16% compared to 1H 2022, impacted by changes in procurement to maintain supplies of critically important consumables and spares levels.
The cost of labour within cash operating costs was up 6% y-o-y, mainly stemming from annual salary increases (tracking domestic CPI inflation).
The decrease in purchases of third-party ore and concentrates by 15% was mostly driven by a shift to processing Peshernoye ore at Voro hub, compared to the treatment of third-party material in 1H 2022.
Mining tax increased by 20% y-o-y to USUSD 79 million, mainly driven by an increase in production volume combined with an increase in average realised prices, as well as an increase in gold mining tax rates in Kazakhstan from 5% to 7.5%.
Depreciation and depletion was USUSD 140 million, up 4% y-o-y. USUSD 20 million of depreciation cost is included within the increase in metal inventories (1H 2022: USUSD 54 million).
In 1H 2023, a net metal inventory increase of USUSD 165 million (1H 2022: USUSD 296 million) was recorded. The increase was mainly represented by the traditional seasonal concentrate build-up across the Group's Russian mines. The Company expects the bulk of this increase to be reversed by the end of 2023.
The Group recognised a USUSD 10 million write-down (1H 2022: USUSD 20 million) to the net realisable value of heap leach work-in-progress and low-grade ore at Russian mines (see Note 14 of the condensed financial statements).
General, administrative and selling expenses
(USUSDm) 1H 2023 1H 2022 Change Labour 121 123 -2% Share based compensation 6 8 -25% Services 7 4 +75% Depreciation 5 4 +25% Other 9 11 -18% Total general, administrative and selling expenses 148 150 -1%
General, administrative and selling expenses ("SGA") decreased by 1% y-o-y from USUSD 150 million in 1H 2022 to USUSD 148 million in 1H 2023, reflecting a decrease in staff costs in USD terms.
Other operating expenses
(USUSDm) 1H 2023 1H 2022 Change Exploration expenses 15 29 -48% Social payments 12 17 -29% Provision for investment in Special economic zone 7 7 0% Taxes, other than income tax 7 7 0% Change in estimate of environmental obligations (2) 2 n/a Additional tax charges/fines/penalties - 3 -100% Other expenses 9 4 +118% Total other operating expenses 48 69 -31%
Other operating expenses decreased to USUSD 48 million in 1H 2023 compared to USUSD 69 million in 1H 2022 mainly due to a scheduled decrease in social payments in accordance with existing partnership agreements and write-off of exploration expenses of USUSD 12 million at Viksha.
TOTAL Cash costs
In 1H 2023, total cash costs per gold equivalent ounce sold ("TCC") were USUSD 944/GE oz, up 11% y-o-y and 5% lower compared to 2H 2022. Planned grade decline across the Group's mines, combined with domestic inflation, had an overall negative impact on cost levels, which was partially offset by increase in sales volumes resulting in spread of mostly fixed SGA and other expenses over a larger amount of ounces sold.
The table below summarises major factors that have affected the Group's TCC and AISC dynamics y-o-y:
RECONCILIATION OF TCC AND AISC MOVEMENTS TCC, USUSD/oz Change AISC, USUSD/oz Change Cost per AuEq ounce 1H 2022 853 1,371 Change in average grade processed 90 +11% 116 +8% Domestic inflation 55 +6% 79 +6% SGA and other expenses decrease (17) -2% (56) -4% Capitalised stripping decrease - n/a (58) -4% RUB and KZT rate change (6) -1% (9) -1% Other (32) -2% (57) -2% Cost per AuEq ounce 1H 2023 944 +11% 1,386 +1%
Total cash cost by segment/operation, USUSD/GE oz
OPERATION 1H 2023 1H 2022 Change 2H 2022 Change Kazakhstan 871 712 +22% 742 +17% Kyzyl 649 575 +13% 623 +4% Varvara 1,138 894 +27% 945 +20% Russia 975 956 +2% 1,086 -10% Total Group TCC 944 853 +11% 991 -5%
Kazakhstan
-- Kyzyl's total cash costs were at USUSD 649/GE oz, significantly below the Group's average level, albeit up13% y-o-y and 4% half-on-half, because of an 18% decrease in sales volumes partially offset by 6% grade increase in1H 2023. Eastward transportation routes are being readjusted, and a notable decline in unsold concentrate volumesis expected in 2H 2023.
-- At Varvara, TCC were up 27% y-o-y and up 20% half-on-half at USUSD 1,138/GE oz on the back of a plannedgrade decline by 16%, combined with a 10% decrease in sales volumes and inflationary headwinds.
Russia
-- Across the Group's Russian mines, TCC were at USUSD 975/GE oz, up by 2% year-on-year and down by 10%half-on-half, mostly driven by 49% increase in sales volumes offsetting planned declines in gold grade processed.
ALL-IN SUSTAINING AND all-in cash costs
All-in sustaining cash costs[12] amounted to USUSD 1,386/GE oz, up 1% y-o-y and significantly below inflation, reflecting the decrease in capitalised stripping on the back of completed stripping campaigns.
AISC by operations were as follows:
All-in sustaining cash cost by segment/operation, USUSD/GE oz
OPERATION 1H 2023 1H 2022 Change Kazakhstan 1,314 922 +43% Kyzyl 883 800 +10% Varvara 1,629 1,083 +50% Russia 1,416 1,463 -3% Total Group AISC 1,386 1,371 +1%
AISC at all operating mines generally followed TCC dynamics.
In Kazakhstan, AISC were elevated by 43% to USUSD 1,314/oz, which was mostly driven by decrease in sales volume, resulting in the spread of sizeable sustaining capex (including investments in new TSF at Varvara) over a limited amount of ounces sold.
In Russia, AISC decreased by 3% to USUSD 1,416/oz, on the back of sales increase coupled with lower stripping volumes after completion of large stripping campaigns in 2022.
Total, USUSDm USUSD /GE oz
RECONCILIATION OF 1H 1H
2023 1H 2022 Change 2023 1H 2022 Change
ALL-IN COSTS
Cost of sales, excluding depreciation, depletion and write-down of inventory 576 417 +38% 822 728 +13%
to net realisable value (Note 2 of condensed financial statements)
adjusted for:
Idle capacities (5) (3) +66% (7) (5) +40%
Treatment charges deductions reclassification to cost of sales 33 21 +63% 47 36 +31%
SGA expenses, excluding depreciation, amortization and share based 62 61 +1% 88 107 -18%
compensation (Note 2 of condensed financial statements)
adjusted for:
SGA expenses of development projects (5) (8) (7) (13) -46%
-33%
Total cash costs 661 488 +35% 944 853 +11%
SGA expenses for Corporate and other segment and other operating expenses 111 119 -6% 159 208 -24%
Capital expenditure excluding development projects 167 115 +45% 238 201 +18%
Exploration expenditure (capitalised) 2 4 -57% 3 7 -57%
Capitalised stripping 29 58 -51% 41 102 -60%
All-in sustaining cash costs 970 785 +24% 1,386 1,371 +1%
Finance costs (net) 61 38 +61% 86 67 +28%
Capitalised interest 21 13 +66% 31 23 +35%
Income tax expense/(benefit) 45 (27) n/a 63 (47) n/a
After-tax all-in cash costs 1,097 809 +36% 1,566 1,413 +11%
Capital expenditure for development projects 145 207 -30% 206 362 -43%
SGA and other expenses for development assets 22 18 +22% 31 31 0%
All-in costs 1,264 1,034 +22% 1,804 1,806 +0%
Adjusted EBITDA[13] and EBITDA margin
(USUSDm)
1H 2023 1H 2022 Change Profit/(loss) for the period 190 (321) n/a Finance cost (net)[14] 61 38 +61% Income tax expense/(benefit) 45 (27) n/a Depreciation and depletion 122 85 +45% EBITDA 418 (225) n/a Net foreign exchange loss/(gain) 105 (92) n/a Impairment of non-current assets 12 689 -98% Share based compensation 5 8 -38% Change in fair value of contingent consideration liability 5 22 -77% Other non-cash items 14 26 -47% Adjusted EBITDA 559 426 +31% Adjusted EBITDA margin 43% 41% +2% Adjusted EBITDA per gold equivalent oz 798 745 +7%
Adjusted EBITDA by segment/operation
(USUSDm)
OPERATION 1H 2023 1H 2022 Change Kazakhstan 200 261 -23% Varvara 70 96 -27% Kyzyl 143 174 -18% Attributable corporate and other (13) (9) -44% Russia 359 165 +118% Total Group Adjusted EBITDA 559 426 +31%
In 1H 2023, Adjusted EBITDA was USUSD 559 million, 31% higher year-on-year, with an Adjusted EBITDA margin of 43%, reflecting a 22% increase in gold equivalent sold, combined with 3% increase in gold average realised price against the cost dynamics described above. In 1H 2023, Kyzyl contributed more than a quarter of total Group Adjusted EBITDA.
Other income statement items
Polymetal recorded a net foreign exchange loss in 1H 2023 of USUSD 105 million compared to an exchange gain of USUSD 92 million in 1H 2022, mostly attributable to the revaluation of the US Dollar-denominated borrowings of Russian operating companies - the functional currency of which is the Russian Rouble - which was partially offset by forex gain on intercompany loans with different functional currencies in the lending and borrowing subsidiaries.
The Group does not use any hedging instruments for managing foreign exchange risk, other than a natural hedge arising from the fact that the majority of the Group's revenue is denominated or calculated in US Dollars.
Income tax expense for 1H 2023 was USUSD 45 million compared to USUSD 27 million benefit in 1H 2022, charged at an effective tax rate of 19% (1H 2022: 8%), The increase was mainly attributable to the increased profit before foreign exchange and tax. For details refer to Note 11 of the condensed consolidated financial statements.
Net earnings, earnings per share and dividends
The Group recorded net profit of USUSD 190 million in 1H 2023 versus USUSD 321 million loss in 1H 2022 which was largely driven by impairment charges. The underlying net earnings attributable to the shareholders of the parent were USUSD 261 million, compared to USUSD 203 million in 1H 2022:
Reconciliation of underlying net earnings[15]
(USUSDm)
1H 2023 1H 2022 Change Profit/(loss) for the financial period attributable to the shareholders of the Parent 190 (321) n/a Write-down of inventory to net realisable value 10 19 -47% Foreign exchange loss/(gain) 105 (92) n/a Change in fair value of contingent consideration liability 5 22 -77% Impairment of non-current assets 12 689 -98% Tax effect (61) (115) -48% Underlying net earnings 261 203 +28%
Basic earnings per share was USUSD 0.40 compared to USUSD 0.68 loss per share in 1H 2022. Underlying basic EPS[16] was USUSD 0.55, compared to USUSD 0.43 in 1H 2022.
Capital expenditurE[17]
Capital stripping and underground Total Total
(USUSDm) Sustaining Development development Exploration
1H 2023 1H 2022
Development projects - 163 - 1 164 138
Kazakhstan - 18 - 1 19 -
Ertis POX - 18 - - 18 -
Other - - - 1 1 -
Russia - 145 - - 145 138
Operating assets 179 - 31 2 212 235
Kazakhstan 48 - 19 - 66 39
Varvara 36 - 6 - 42 14
Kyzyl 12 - 13 - 25 25
Russia 131 - 12 2 146 196[18]
Total capital 179 163 31 3 375 373
expenditure
Total capital expenditure marginally changed y-o-y and stood at USUSD 375[19] million in 1H 2023. Capital expenditure excluding capitalised stripping costs was USUSD 344 million in 1H 2023 (1H 2022: USUSD 299 million).
The major capital expenditure items in 1H 2023 were as follows:
Development projects
-- In Kazakhstan, capital expenditure of USUSD 18 million was related to initial investments into the ErtisPOX facility to fully sever the link between the company's subsidiaries in Kazakhstan and its blocked subsidiariesin the Russian Federation.
-- Capital expenditure at development projects of USUSD 145 million in Russia mainly covered Amursk POX-2 toensure project completion according to plan in 2H 2024, as well as mining fleet purchases, spare parts andconsumables purchases at Veduga.
Stay-in-business capex at operating assets
-- At Varvara, capital expenditure of USUSD 36 million was mainly related to the construction of a tailingsstorage facility and upgrading the mining fleet.
-- At Kyzyl, capital expenditure in 1H 2023 comprised USUSD 12 million, mainly represented by scheduledtechnical upgrades.
-- Across the Group's Russian mines, capital expenditure of USUSD 131 million was mostly related toinfrastructure upgrades, regular mining fleet replacements and maintenance capital expenditure at processingfacilities.
Exploration and stripping
-- The Group continues to invest in standalone exploration projects. Capital expenditure for exploration in1H 2023 was USUSD 3 million (1H 2022: USUSD 4 million).
-- Capitalised stripping and underground development costs totalled USUSD 31 million in 1H 2023 (1H 2022: USUSD74 million) and are attributable to operations, with 1H 2023 stripping ratios exceeding their life-of-mine averagesduring the period, particularly Kyzyl (USUSD 13 million), Varvara (USUSD 6 million) and Russian mines (USUSD 12 million).
Cash flows
(USUSDm) 1H 2023 1H 2022 ?hange Operating cash flows before changes in working capital 381 219 +74% Changes in working capital (346) (624) -45% Total operating cash flows 35 (405) n/a Capital expenditure (375) (373) 0% Net cash flow on acquisitions - 123 -100% Investments in associates (3) - n/a Other (1) (3) -67% Investing cash flows (379) (253) +50% Financing cash flows Net changes in borrowings 127 859 -85% Acquisition of non-controlling interest - (23) -100% Repayments of principal under lease liabilities (12) (2) +500% Contingent consideration paid - (13) -100% Total financing cash flows 115 821 -86% Net (decrease)/increase in cash and cash equivalents (229) 163 n/a Cash and cash equivalents at the beginning of the period 633 417 +52% Effect of foreign exchange rate changes on cash and cash equivalents (20) (39) -51% Cash and cash equivalents at the end of the period 384 541 -29%
Total operating cash flows in 1H 2023 strengthened y-o-y. Operating cash flows before changes in working capital grew by 74% year-on-year to USUSD 381 million, as a result of an increase in sales volumes and adjusted EBITDA. Net operating cash flows were USUSD 35 million, compared to USUSD 405 million outflow in 1H 2022, affected by a seasonal increase in working capital in 1H 2023 of USUSD 346 million (1H 2022: USUSD 624 million).
Total cash and cash equivalents decreased by 29% compared to 1H 2022 and comprised USUSD 384 million, with the following items affecting the cash position of the Group:
-- Operating cash flows of USUSD 35 million;
-- Investment cash outflows totaling USUSD 379 million, up 50% year-on-year, mainly represented by capitalexpenditure (stable y-o-y at USUSD 375 million) and investment in associates (USUSD 3 million);
-- The gross borrowings increase of USUSD 127 million;
-- Repayments of principal under lease liabilities of USUSD 12 million.
The Group reported negative free cash flow1 of USUSD 341 million (which is still a significant improvement over 1H 2022 negative FCF of USUSD 630 million); that is made up of USUSD 55 million inflow coming from Kazakhstan and USUSD 396 million outflow attributable to Russian assets.
(USUSDm) 1H 2023 1H 2022 ?hange Free cash flow (341) (630) +46% Kazakhstan 55 101 -45% Russia (396) (731) +46%
Free cash flow attributable to Kazakhstan assets decreased by USUSD 45 million, mainly affected by working capital build-up on the back of inventory accumulation which is gradually drawing down starting from July.
Free cash flow related to Russian assets is seasonally negative as usual, but lower than in 1H 2022, mostly driven by increase in operating cash flow as the sales channels have been re-adjusted.
balance sheet, Liquidity and funding
NET DEBT 30-Jun-23 31-Dec-22 Change Short-term debt and current portion of long-term debt 1,024 514 +99% Long-term debt 1,950 2,512 -22% Gross debt 2,974 3,026 -2% Less: cash and cash equivalents 384 633 -39% Net debt 2,590 2,393 +8% Net debt / Adjusted EBITDA[20] 2.25x 2.35x -3%
The Group's net debt increased to USUSD 2,590 million as of 30 June 2023, representing a Net debt/Adjusted EBITDA (over the last 12 months) ratio of 2.25x. The increase in net debt was driven by a seasonal and logistics-driven increase in working capital.
The proportion of long-term borrowings to total borrowings was 66% as at 30 June 2023 (83% as at 31 December 2022). As at 30 June 2023, the Group had USUSD 0.5 billion (31 December 2022: USUSD 0.35 billion) of available undrawn facilities, from a wide range of lenders that allows the Group to maintain its operational flexibility in the current environment. The Group has recently secured an additional USUSD 0.3 billion in a new revolving credit line.
Gross debt remained largely unchanged at USUSD 3 billion, of which 73% is denominated in hard currency. Cyprus and Kazakhstan represent 20% of the total debt outstanding, while Russia represents the remaining 80% of the debt.
The average cost of debt remained relatively low at 5.2% in 1H 2023 (1H 2022: 6.1%) supported by the Company's ability to negotiate competitive margins given the Group's excellent credit history. The Group is confident in its ability to repay its existing borrowings as they fall due.
INVENTORY
Inventory levels marginally increased by USUSD 10 million to USUSD 1,199 million for the 1H 2023, following USUSD 489 million drawn down in the 2H 2022 after USUSD 802 million seasonal accumulation in 1H 2022 on the back of sales channels restructuring in Russia.
USUSD 267 million of inventory balance relates to Kazakhstan, and USUSD 933 million of inventory comes from Russia.
While Kyzyl was impacted by logistical disruptions in 1H 2023, shipping delays have since been addressed, shipments were resumed in July, and gold produced in Kazakhstan is being shipped and sold on a regular basis. The build-up from 1H 2023 is expected to unwind by the end of the year.
Change
(USUSDm) 30 June Change 1H 31 Dec Change 2H 30 June 31 Dec
2023 2023 2022 2022 2022 1H 2021
2022
Kazakhstan 267 +76 191 -13 204 +31 173
?opper, gold and silver concentrate 59 +20 39 -3 42 +14 28
Ore stock piles 86 +14 71 +6 66 +3 63
Doré, work in-process, metal for refining and 54 +26 29 -18 47 +6 41
refined metals
Non-metal inventories 68 +16 51 +2 49 +8 41
Russia 933 -66 999 -476 1,475 +770 704
?opper, gold and silver concentrate 252 -6 258 -125 383 +229 154
Ore stock piles 192 -55 247 -128 375 +146 229
Doré, work in-process, metal for refining and 167 +7 160 -146 306 +197 109
refined metals
Non-metal inventories 323 -12 335 -77 412 +199 213
Total inventory 1,199 +10 1,189 -489 1,679 +802 877
Payable metals in inventory accumulated at 30 June 2023 were as follows:
(GE Koz) Kazakhstan Russia Total Group Concentrate and precipitate 81 297 377 Bullions - 165 165 Doré 10 23 32 Total payable metals 90 484 574
2023 YEAR-END outlook
Polymetal maintains a positive outlook for the second half of the year, both in terms of earnings and free cash flow, with the following factors expected to drive the operating and financial performance towards the year-end:
-- The Company remains on track to meet its FY2023 production guidance of 1.7 Moz of gold equivalent at TCCof USUSD 950-1,000/GE oz and AISC of USUSD 1,300-1,400/GE oz.
-- The cost guidance remains contingent on the RUB/USD and KZT/USD exchange rates that have a significanteffect on the Group's local currency-denominated operating costs.
-- Free cash flow generation will be significantly stronger in the second half of the year, driven by higherproduction and working capital drawdown. Principal risks and uncertainties
There are a number of potential risks and uncertainties which could have a material impact on the Group's performance and could cause actual results to differ materially from expected and historical results.
The principal risks and uncertainties facing the Group are categorised as follows:
-- Operational risks:? Production risk - Construction and development risk - Supply chain risk - Exploration risk
-- Sustainability risks:? Health and safety risk - Environmental risk - Human capital risk
-- Political and social risks:? Legal and compliance risk - Political risk - Taxation risk
-- Financial risks:? Market risk - Currency risk - Liquidity risk
A detailed explanation of these risks and uncertainties can be found on pages 100 to 109 of the 2022 annual report which is available at www.polymetalinternational.com.
The directors consider that these principal risks and uncertainties have not changed materially since the publication of the annual report for the year ended 31 December 2022 and continue to apply to the Group for the remaining six months of the financial year.
Further updates will be presented in the full annual financial report for 2023. Going concern
In assessing its going concern status, the Group has taken account of its principal risks and uncertainties, financial position, sources of cash generation, anticipated future trading performance, its borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings, and its capital expenditure commitments and plans.
In the going concern assessment, the Group also considered the implications of sanctions imposed by U.S. Department of State on JSC Polymetal, the Company's subsidiary in the Russian Federation. The Group determined that these implications would not have any material effect on the Group's liquidity position and its ability to finance its obligations.
To assess the resilience of the Group's going concern assessment in light of the macroeconomic volatility and sanctions imposed on Russia, management performed the stress downside scenario that is considered plausible over the next 12 months from the date of approval of the financial statements. As such, these do not represent the Group's 'best estimate' forecast, but were considered in the Group's assessment of going concern, reflecting the current evolving circumstances and the most significant severe but plausible changes in macro assumptions identified at the date of approving the press-release.
The Group has already taken precautionary measures to manage liquidity and provide flexibility for the future. In addition, it has been assumed that the Group has adapted its sales routes and supply chain and the net cash flows generated will be available for use within the Group. Under the stress scenario, the Group's income and profits are affected by simultaneous gold and silver price decrease combined with strengthening of the Russian Rouble and Kazakh Tenge, combined with sales delays related to restructuring of sales channels.
At the reporting date, the Group holds USUSD 0.4 bn of cash and USUSD 0.5 bn of undrawn credit facilities, which when combined with the forecast net cashflows under the stress scenario above, is considered to be adequate to meet the Group's financial obligations as they fall due over the next 12 months. No borrowing covenant requirements are forecast to be breached in the stress scenario. The Group expects to settle obligations as they fall due but also has mitigating actions available such as reducing production volumes and variable mining costs where possible, reducing and deferring non-essential and non-committed capital expenditure.
The Board is therefore satisfied that the Group's forecasts and projections, including the stress scenario above, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report, and that it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 June 2023. DIRECTORS' RESPONSIBILITY STATEMENT
Directors are responsible for the preparation of the condensed consolidated financial statements of Polymetal International plc (the "Company") and its subsidiaries (the "Group"), which comprise the consolidated statement of financial position as at 30 June 2023, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the six months ended 30 June 2023, in accordance with International Accounting Standard (IAS) 34, Interim Financial Reporting.
In preparing the condensed consolidated financial statements, directors are responsible for:
-- properly selecting and applying accounting policies;
-- presenting information, including accounting policies, in a manner that provides relevant, reliable,comparable and understandable information;
-- providing additional disclosures when compliance with the specific requirements in IFRSs are insufficientto enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance; and
-- making an assessment of the Group's ability to continue as a going concern.
Directors also are responsible for:
-- designing, implementing and maintaining an effective and sound system of internal controls throughout theGroup;
-- maintaining adequate accounting records that are sufficient to show and explain the Group's transactionsand disclose with reasonable accuracy at any time the consolidated financial position of the Group, and whichenable them to ensure that the condensed consolidated financial statements of the Group comply with IAS 34;
-- taking such steps as are reasonably available to them to safeguard the assets of the Group; and
-- preventing and detecting fraud and other irregularities.
These condensed consolidated financial statements were approved and authorised for issue by the Board of Directors on 22 September 2023 and signed on its behalf by
Evgueni Konovalenko
Vitaly Nesis
Senior Independent Non-Executive Director
Group Chief Executive Officer
REPORT ON REVIEW OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders and the Board of Directors of Polymetal International plc:
Introduction
We have reviewed the accompanying condensed consolidated statement of financial position of Polymetal International plc and its subsidiaries (the "Group") as of 30 June 2023 and the related condensed consolidated income statement, statements of comprehensive income, changes in equity and cash flows for the six months then ended, and selected explanatory notes. Management is responsible for the preparation and presentation of these condensed consolidated financial statements in accordance with International Accounting Standard ("IAS") 34, Interim Financial Reporting. Our responsibility is to express a conclusion on these condensed consolidated financial statements based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity. A review of condensed consolidated financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated financial statements are not prepared, in all material respects, in accordance with IAS 34 Interim Financial Reporting.
Natalia Golovkina
Audit partner
AO "Business Solutions and Technologies"
(ORNZ - 12006020384)
22 September 2023 CONDENSED CONSOLIDATED INCOME STATEMENT
Six months ended Six months ended
Note 30 June 2023 30 June 2022
(unaudited) (unaudited)
USUSDm USUSDm
Revenue 3 1,315 1,048
Cost of sales 4 (701) (520)
Gross profit 614 528
General, administrative and selling expenses 8 (148) (150)
Other operating expenses, net 9 (48) (69)
Impairment of non-current assets (12) (689)
Operating profit/(loss) 406 (380)
Foreign exchange (loss)/gain, net (105) 92
Change in fair value of financial instruments 17 (5) (22)
Finance expenses 10 (69) (41)
Finance income 8 3
Profit/(loss) before income tax 235 (348)
Income tax 11 (45) 27
Profit/(loss) for the period 190 (321)
Profit/(loss) for the financial period attributable to:
Equity shareholders of the Parent 190 (321)
190 (321)
Earnings/(loss) per share (USUSD)
Basic 12 0.40 (0.68)
Diluted 12 0.40 (0.68) CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months Six months
ended ended
30 June 2023 30 June 2022
Note
(unaudited) (unaudited)
USUSDm USUSDm
Profit/(loss) for the period 190 (321)
Other comprehensive (loss)/income, net of income tax (499) 1,404
Items that may be reclassified to profit or loss
Fair value (loss)/gain arising on hedging instruments 17 (4) 12
Exchange differences on translating foreign operations (545) 1,540
Currency exchange differences on intercompany loans forming net investment in 50 (148)
foreign operations
Total comprehensive (loss)/income for the period (309) 1,083
Total comprehensive (loss)/gain for the period attributable to:
Equity shareholders of the Parent (309) 1,083
(309) 1,083 CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note 30 June 2023 31 December 2022
(unaudited) (audited)
Assets USUSDm USUSDm
Property, plant and equipment 13 3,104 3,392
Right-of-use assets 88 131
Goodwill 12 14
Investments in associates and joint ventures 16 13
Non-current accounts receivable 34 31
Other non-current financial assets 13 24
Deferred tax asset 182 142
Non-current inventories 14 128 133
Total non-current assets 3,577 3,880
Current inventories 14 1,071 1,057
Prepayments to suppliers 164 185
Income tax prepaid 30 64
VAT receivable 128 148
Trade and other receivables 231 103
Other financial assets at FVTPL 7 10
Cash and cash equivalents 19 384 633
Total current assets 2,015 2,200
Total assets 5,592 6,080
Liabilities and shareholders' equity
Accounts payable and accrued liabilities (205) (270)
Current borrowings 15 (1,024) (514)
Income tax payable (15) (11)
Other taxes payable (67) (68)
Current portion of contingent consideration 19 (11) (9)
liability
Current lease liabilities 19 (19) (25)
Total current liabilities (1,341) (897)
Non-current borrowings 15 (1,950) (2,512)
Contingent and deferred consideration liabilities 19 (115) (112)
Deferred tax liability (89) (107)
Environmental obligations (63) (76)
Non-current lease liabilities 19 (65) (106)
Other non-current liabilities (30) (28)
Total non-current liabilities (2,312) (2,941)
Total liabilities (3,653) (3,838)
NET ASSETS 1,939 2,242
Stated capital account 12 2,450 2,450
Share-based compensation reserve 28 35
Cash flow hedging reserve 12 16
Translation reserve (2,038) (1,543)
Retained earnings 1,487 1,284
Total equity 1,939 2,242
Total liabilities and shareholders' equity (5,592) (6,080)
Condensed Consolidated Statement of Cash Flows
Six months ended Six months ended
30 June 2023 30 June 2022
(unaudited) (unaudited)
Note USUSDm USUSDm
Net cash generated by/(used in) operating activities 19 35 (405)
Cash flows from investing activities
Purchases of property, plant and equipment (375) (373)
Net cash inflow on asset acquisitions - 123
Investments in associates (3) -
Loans advanced (14) (8)
Repayment of loans provided 8 2
Contingent consideration received 5 3
Net cash used in investing activities (379) (253)
Cash flows from financing activities
Borrowings obtained 19 582 2,711
Repayments of borrowings 19 (455) (1,850)
Repayments of principal under lease liabilities (12) (2)
Acquisition of non-controlling interest - (23)
Contingent consideration paid - (15)
Net cash from financing activities 115 821
Net (decrease)/increase in cash and cash equivalents (229) 163
Cash and cash equivalents at the beginning of the period 633 417
Effect of foreign exchange rate changes on cash and cash equivalents (20) (39)
Cash and cash equivalents at the end of the period 384 541 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Note Stated capital Share-based Cash flow Translation Retained Total
account compensation reserve hedging reserve reserve earnings equity
USUSDm USUSDm USUSDm USUSDm USUSDm USUSDm
Balance at 1 January 2022 2,450 31 - (1,865) 1,587 2,203
(audited)
Loss for the period - - - - (321) (321)
Other comprehensive income, - - 12 1,392 - 1,404
net of income tax
Total comprehensive income/ - - 12 1,392 (321) 1,083
(loss)
Share-based compensation 8 - 8 - - 8
Acquisition of - - - - (23) (23)
non-controlling interest
Transfer to retained 12 - (9) - - 9 -
earnings
Balance at 30 June 2022 2,450 30 12 (473) 1,252 3,271
(unaudited)
Balance at 1 January 2023 2,450 35 16 (1,543) 1,284 2,242
(audited)
Profit for the period - - - - 190 190
Other comprehensive loss, - - (4) (495) - (499)
net of income tax
Total comprehensive (loss)/ - - (4) (495) 190 (309)
income
Share-based compensation 8 - 6 - - - 6
Transfer to retained 12 - (13) - - 13 -
earnings
Balance at 30 June 2023 2,450 28 12 (2,038) 1,487 1,939
(unaudited)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL
Polymetal Group is a leading gold and silver mining group, operating in Russia and Kazakhstan.
Polymetal International plc (the "Company") is the ultimate parent entity of Polymetal Group. The Company was incorporated on 29 July 2010 as a public limited company under Companies (Jersey) Law 1991 and as of reporting date has its place of business in Cyprus. As of 30 June 2023 its ordinary shares were traded on the London and, Moscow stock exchanges and Astana International Exchange (AIX).
On 7 August 2023, the Group completed the re-domiciliation of the Company from Jersey to the Astana International Financial Centre ("AIFC") in Kazakhstan. The Company remains listed on the AIX, which has become the Company's primary stock exchange, while its listing on London stock exchange was cancelled on 29 August 2023.
On 19 May 2023, JSC Polymetal, the holding company for the Group's assets located in the Russian Federation, and its subsidiaries were designated by the U.S. Department of State pursuant to Executive Order 14024 for operating in the metals and mining sector of the Russian economy. Following the designation the Board of Directors of the Company (the "Board") set up a special committee of independent non-executive directors (the "Special Committee") to ensure full and comprehensive compliance with U.S. sanctions.
In the light of these developments, and in the interests of preserving shareholder value, the Board and the Special Committee have decided to consider all possible options available for divestment of JSC Polymetal and its subsidiaries. Any potential transaction will be subject to receipt of any required corporate, governmental, and regulatory approvals, in all applicable jurisdictions, as necessary. Based on circumstances existing as of 30 June 2023, the Group has determined that JSC Polymetal and its subsidiaries did not meet the definition of the disposal group in accordance IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.
Basis of presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting issued by the International Accounting Standards Board. They should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the 2022 Annual Report of Polymetal International plc and its subsidiaries ("2022 Annual Report") available at www.polymetalinternational.com.
Accounting policies
These condensed consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments measured at fair value.
The accounting policies and methods of computation applied are consistent with those adopted and disclosed in the Group's consolidated financial statements for the year ended 31 December 2022, except as described below.
New accounting standards issued but not yet effective
The following amendments to the accounting standards were in issue but not yet effective as of date of authorisation of these condensed consolidated financial statements:
-- Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and JointVentures regarding the sale or contribution of assets between an investor and its associate or joint venture, theeffective date of the amendments has yet to be set. However, earlier application of the amendments is permitted;
-- Amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures regardingsupplier finance arrangements, effective for annual period beginning on or after1 January 2024 with earlier application permitted;
-- Amendments to IAS 1 Presentation of Financial Statements regarding the classificationof liabilities as current and non-current, effective for annual periods beginning on or after1 January 2024; and
-- Amendments to IFRS 16 Leases regarding lease liabilities in sale and leaseback transactions, effectivefor annual period beginning on or after 1 January 2024 with earlier application permitted.
Management has determined that these standards and interpretations are unlikely to have a material impact on the condensed consolidated financial statements or are not applicable to the Group.
New standards adopted by the Group
The following amendments to accounting standards become applicable for annual reporting periods commencing on or after 1 January 2023. The Group has determined these standards and interpretations are unlikely to have a significant impact on its condensed consolidated financial statements.
-- Amendments to IAS 1 Presentation of Financial Statements regarding the classificationof liabilities as current and non-current, effective for annual periods beginning on or after1 January 2024;
-- Amendments to IAS 12 regarding international tax reform (Pillar Two model rules) effective for annualperiod beginning on or after January 2023;
-- IFRS 17 Insurance Contracts, effective for annual period beginning on or after 1 January 2023 withearlier application permitted;
-- Amendments to IAS 1 and IFRS Practice Statement 2 requiring that an entity discloses its materialaccounting policies, instead of its significant accounting policies, effective for annual period beginning on orafter 1 January 2023 with earlier application permitted;
-- Amendments to IAS 8 replacing the definition of a change in accounting estimates with a definition ofaccounting estimates, effective for annual period beginning on or after 1 January 2023 with earlier applicationpermitted; and
-- Amendments to IAS 12 clarifying that the initial recognition exemption does not apply to transactions inwhich equal amounts of deductible and taxable temporary differences arise on initial recognition, effective forannual period beginning on or after 1 January 2023 with earlier application permitted.
Going concern
In assessing its going concern status, the Group has taken account of its principal risks and uncertainties, financial position, sources of cash generation, anticipated future trading performance, its borrowings and other available credit facilities, and its forecast compliance with covenants on those borrowings, and its capital expenditure commitments and plans.
In the going concern assessment, the Group also considered the implications of sanctions imposed by U.S. Department of State on JSC Polymetal, the Company's subsidiary in the Russian Federation. The Group determined that these implications would not have any material effect on the Group's liquidity position and its ability to finance its obligations.
To assess the resilience of the Group's going concern assessment in light of the macroeconomic volatility and sanctions imposed on Russia, management performed a stress downside scenario that is considered plausible over the next 12 months from the date of approval of the financial statements. As such these do not represent the Group's 'best estimate' forecast, but were considered in the Group's assessment of going concern, reflecting the current evolving circumstances and the most significant severe but plausible changes in macro assumptions identified at the date of approving the press-release.
The Group has already taken precautionary measures to manage liquidity and provide flexibility for the future. In addition, it has been assumed that the Group has adapted its sales routes and supply chain and the net cash flows generated will be available for use within the Group. Under the stress scenario, the Group's income and profits are affected by simultaneous gold and silver price decrease combined with strengthening of Russian Rouble and Kazakh Tenge, combined with sales delays related to restructuring of sales channels.
At the reporting date, the Group holds USUSD 0.4 bn of cash and USUSD 0.5 bn of undrawn credit facilities, which when combined with the forecast net cashflows under the stress scenario above, is considered to be adequate to meet the Group's financial obligations as they fall due over the next 12 months. No borrowing covenant requirements are forecast to be breached in the stress scenario. The Group expects to settle obligations as they fall due but also has mitigating actions available such as reducing production volumes and variable mining costs where possible, reducing and deferring non-essential and non-committed capital expenditure.
The Board is therefore satisfied that the Group's forecasts and projections, including the stress scenario above, show that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date of this report and that it is appropriate to adopt the going concern basis in preparing the condensed consolidated financial statements for the period ended 30 June 2023.
Exchange rates
Exchange rates used in the preparation of the condensed consolidated financial statements were as follows:
Russian Rouble/US Dollar Kazakh Tenge/US Dollar As at 30 June 2023 87.03 454.13 As at 31 December 2022 70.34 462.65 January 69.23 462.49 February 73.03 451.49 March 76.09 450.51 April 80.89 451.42 May 78.95 446.66 June 83.16 448.43 2. SEGMENT INFORMATION
The Group's operating segments are aligned to those businesses that are evaluated regularly by the chief operating decision maker (the CODM) in deciding how to allocate resources and in assessing performance. Operating segments with similar economic characteristics are aggregated into reportable segments.
In May 2023, following the designation of JSC Polymetal by the U.S. Department of State pursuant to Executive Order 14024, the governance and management structure of the Group was changed. As a part of ring-fencing the Group's Russian subsidiaries to ensure sanctions compliance, the management of the Russian operations has been delegated to the executives of JSC Polymetal, while the Company's Board and management focused on the operations of the Group's assets located in Kazakhstan, as well as separation of the Group's assets by jurisdiction, as described in Note 1.
As a result of these changes management of the Company has re-assessed the presentation of financial information required to assess performance and allocate resources. It was concluded that a jurisdiction-based reporting format is more meaningful from management and forecasting perspective, as well as better aligned to the new management structure, internal reporting and processes.
As at 30 June 2023 he Group has identified two reportable segments:
-- Kazakhstan (Varvarinskoye JSC, Komarovskoye Mining Company LLC, Bakyrchik Mining Venture LLC); and
-- Russian Federation (aggregating Khabarovsk, Magadan, Ural and Yakutia operating segments).
The measure which management and the CODM use to evaluate the performance of the Group is a segment Adjusted EBITDA, which is an Alternative Performance Measure (APM). For more information on the APMs used by the Group, including definitions, please refer to page 41.
The accounting policies of the reportable segments are consistent with those of the Group's accounting policies under IFRS. Revenue and cost of sales of the production entities are reported net of any intersegmental revenue and cost of sales, related to the intercompany sales of ore and concentrates.
Business segment current assets and liabilities, other than current inventory, are not reviewed by the CODM and therefore are not disclosed in these condensed consolidated financial statements. Additionally, net debt is included in performance measures, reviewed by CODM. The segment adjusted EBITDA reconciles to the profit before income tax as follows: 2. Segment information (continued)
Period ended 30 June 2023 (USUSDm) Period ended 30 June 2022 (USUSDm)
Total Total
KAZAKHSTAN RUSSIA reportable KAZAKHSTAN RUSSIA reportable
segments segments
Revenue from external customers 393 922 1,315 443 605 1,048
Cost of sales, excluding depreciation,
depletion and write-down of inventory to net 160 413 573 151 266 417
realisable value
Cost of sales 186 515 701 185 335 520
Depreciation included in Cost of sales (26) (92) (118) (34) (46) (80)
Write-down of metal inventory to net realisable - (8) (8) - (20) (20)
value
Write-down of non-metal inventory to net - (2) (2) - 1 1
realisable value
Rehabilitation expenses - - - - (4) (4)
General, administrative and selling expenses,
excluding depreciation, amortization and 26 113 139 17 121 138
share-based compensation
General, administrative and selling expenses 32 116 148 26 124 150
Depreciation included in SGA (1) (3) (4) (1) (3) (4)
Share-based compensation (5) - (5) (8) - (8)
Other operating expenses excluding additional 7 38 45 14 53 67
tax charges
Other operating expenses, net 7 41 48 16 53 69
Bad debt and expected credit loss allowance - (3) (3) - 1 1
Additional tax charges/fines/penalties - - - (2) (1) (3)
Share of loss of associates and joint ventures - - - - - -
Adjusted EBITDA 200 358 558 261 165 426
Depreciation expense 27 95 122 35 49 84
Rehabilitation expenses - - - - 4 4
Write-down of non-metal inventory to net - 2 2 - (1) (1)
realisable value
Write-down of metal inventory to net realisable - 8 8 - 20 20
value
Impairment of non-current assets - 12 12 - 689 689
Impairment of investment in associate - - - - - -
Share-based compensation 5 - 5 8 - 8
Bad debt and expected credit loss allowance - 3 3 - (1) (1)
Additional tax charges/fines/penalties - - - 2 1 3
Operating profit 168 238 406 216 (596) (380)
Foreign exchange gain/(loss), net (105) 92
Change in fair value of contingent (5) (22)
consideration liability
Finance expenses (69) (41)
Finance income 8 3
Profit before tax 235 (348)
Income tax expense (45) 27
Profit for the financial period 190 (321)
Current metal inventories 172 546 718 132 980 1,112
Current non-metal inventories 60 293 353 44 378 422
Non-current segment assets:
Property, plant and equipment, net 777 2,327 3,104 691 3,551 4,242
Goodwill - 12 12 - 20 20
Non-current inventory 34 94 128 28 117 145
Investments in associates 11 5 16 3 28 31
Total segment assets 1,054 3,277 4,331 898 5,074 5,972
Additions to property, plant and equipment:
Capital expenditure 88 320 408 43 361 404
Acquistion of subsidiaries - - - - 48 48
Total segment liabilities
Net debt (201) (2,389) (2,590) (2,016) (784) (2,800) 3. REVENUE
Six months ended 30 June 2023 (unaudited) Six months ended 30 June 2022 (unaudited)
Thousand Thousand Thousand Thousand
ounces/ ounces/ Average price (US ounces/ ounces/ Average price (US
tonnes tonnes Dollar per troy ounce USUSDm tonnes tonnes Dollar per troy ounce USUSDm
shipped payable /tonne payable) shipped payable /tonne payable)
Gold (Koz) 582 570 1,889 1,076 465 456 1,843 841
Silver (Koz) 10,877 10,393 21.8 227 8,965 8,745 21.8 191
Copper (t) 1,526 1,431 8,389 12 2,138 1,871 8,553 16
Total 1,315 1,048
Revenue analysed by geographical regions of customers is presented below:
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Sales within and to Kazakhstan 486 649
Sales within the Russian Federation 455 235
Sales to Asia 374 157
Sales to Europe - 7
Total 1,315 1,048
Included in revenue for the six months ended 30 June 2023 is revenue from customers with a share of total revenue greater than 10%. These were USUSD 265 million, USUSD 221 million and USUSD 193, respectively (period ended 30 June 2022: USUSD 408 million, USUSD 242 million and USUSD 153 million, respectively).
Presented below is an analysis by revenue streams:
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Bullions 605 252
Concentrate 414 376
Dore 265 408
Ore 31 12
Total 1,315 1,048 4. COST OF SALES
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Cash operating costs
On-mine costs (Note 5) 322 317
Smelting costs (Note 5) 276 233
Purchase of ore and concentrates from third parties 34 40
Mining tax 79 66
Total cash operating costs 711 656
Depreciation and depletion of operating assets (Note 7) 140 134
Rehabilitation expenses - 4
Total costs of production 851 794
Increase in metal inventories (165) (296)
Write-down of inventories to net realisable value (Note 14) 10 19
Idle capacities and abnormal production costs 5 3
701 520 5. ON-MINE COSTS
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Services 141 156
Labour 80 79
Consumables and spare parts 98 80
Other expenses 3 2
Total (Note 4) 322 317 6. SMELTING COSTS
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Consumables and spare parts 115 103
Services 106 81
Labour 54 48
Other expenses 1 1
Total (Note 4) 276 233 7. Depletion and depreciation of operating assets
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
On-mine 90 94
Smelting 50 40
Total in cost of production (Note 4) 140 134
Less: absorbed into metal inventories (22) (54)
Depreciation included in cost of sales 118 80
Depletion and depreciation of operating assets excludes depreciation relating to non-operating assets (included in general, administrative and selling expenses) and depreciation related to assets employed in development projects where the charge is capitalised. Depreciation expense, which is excluded in the Group's calculation of Adjusted EBITDA (see Note 2), also excludes amounts absorbed into unsold metal inventory balances. 0. 8. General, administrative and selling expenses
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Labour 121 123
Share-based compensation 6 8
Depreciation 5 4
Services 7 4
Other 9 11
Total 148 150 9. Other operating expenses, net
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Exploration expenses 15 29
Social payments 12 17
Provision for investment in Special Economic Zone 7 7
Taxes, other than income tax 7 7
Change in estimate of environmental obligations (2) 2
Other expenses, net 9 7
Total 48 69 10. Finance Costs
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Interest expense on borrowings 57 32
Unwinding of discount on lease liabilities (Note 19) 4 2
Unwinding of discount on environmental obligations 4 3
Unwinding of discount on contingent consideration liability (Note 19) 4 4
Total 69 41
Interest expense on borrowings excludes borrowing costs capitalised in the cost of qualifying assets of USUSD 21 million and USUSD 12 million during the six months ended 30 June 2023 and 30 June 2022, respectively. These amounts were calculated based on the Group's general borrowing pool and by applying an effective annualised interest rates of 4.86% and 3.8%, respectively, to cumulative expenditure on such assets. 11. Income Tax
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Current income taxes 125 107
Deferred income taxes (80) (134)
Total 45 (27)
As the Group has a number of tax concessions, the effective tax rate is determined for each separate entity, varying from 0% to 20%.
30 June 2023 31 December 2022
Deferred tax asset 182 142
Deferred tax liability (89) (107)
93 35
Increase in deferred tax asset, recognised during the reporting period, mainly resulted from deferred tax benefit of USUSD 85 million related, is related to the foreign exchange differences arising on the outstanding balances, which will be deductible for tax purposes on repayment of the principal amount (for six months ended 30 June 2022: increased deferred tax asset mainly resulted from USUSD 125 million of tax benefit recognised on impairment of property, plant and equipment).
The Group has applied the mandatory temporary exception under IAS 12 in relation to the accounting for deferred taxes arising from the implementation of the Pillar 2 rules.
?ax exposures
During the six months ended 30 June 2023 and 2022 no new individual significant exposures were identified as probable and therefore not provided for. Management has estimated possible tax exposure, representing contingent liabilities (Note 16) (covering taxes and related interest and penalties), of approximately USUSD 102 million (31 December 2022: USUSD 122 million) being uncertain tax positions, which relate to income tax. Change in the amount is mainly attributable to the Russian Rouble appreciation against US Dollar. This is connected largely to more assertive position of the Russian tax authorities in their interpretation of tax legislation in several recent court cases for other third party taxpayers. Fiscal periods remain open to review by the tax authorities in respect of taxes for the three and five calendar years preceding the year of tax review for Russia and Kazakhstan respectively. While the Group believes it has provided adequately for all tax liabilities based on its understanding of the tax legislation, the above facts may create additional financial risks for the Group. 12. dividends and Earnings per share
As of 30 June 2023 total number of voting rights in the Company amount to 473,626,239 ordinary shares of no par value, each carrying one vote (31 December 2022: 473,626,239). As of 30 June 2023 the Company held 39,070,838 shares in treasury and such shares did not enjoy any voting or economic rights (31 December 2022: 39,070,838 ordinary shares).
The ordinary shares reflect 100% of the total issued share capital of the Company.
The calculation of the basic and diluted earnings per share is based on the following data:
Weighted average number of shares: Diluted earnings per share
Both basic and diluted earnings per share were calculated by dividing profit for the period attributable to equity holders of the parent by the weighted average number of outstanding common shares before/after dilution respectively. The calculation of the weighted average number of outstanding common shares after dilution is as follows:
Six months ended
30 June 2023 30 June 2022
Weighted average number of outstanding common shares 473,626,239 473,626,239
Weighted average number of outstanding common shares after dilution 473,626,239 473,626,239
There were no adjustments required to earnings for the purposes of calculating the diluted earnings per share in the current period (period ended 30 June 2022: nil).
There were no adjustments to weighted average number of shares for the purposes of calculating the diluted earnings per share in the current period (period ended 30 June 2022: none), as no outstanding Long-Term Incentive Plan (LTIP) awards issued under 2020-2021 tranches represent dilutive potential ordinary shares with respect to earnings per share from continuing operations, as these are out of money as of the reporting date (30 June 2022: no dilutive potential ordinary shares).
The LTIP tranche, granted in 2019 lapsed during first half 2023 and accordingly, the related balance of USUSD 13 million in the share-based payment reserve was transferred into retained earnings (2022: USUSD 9 million was transferred into retained earnings in relation to 2018 LTIP tranche). 13. property, plant and equipment
Development Exploration Mining Non-mining Capital construction Total
assets assets assets assets in-progress
Cost USUSDm USUSDm USUSDm USUSDm USUSDm USUSDm
Balance at 31 December 2022 (audited) 500 85 3,743 93 1,147 5,568
Additions 28 5 119 3 253 408
Transfers (275) (3) 343 2 (67) -
Change in environmental obligations - - (1) - (1) (2)
Disposals and write-offs including - - (18) (1) (4) (23)
fully depleted mines
Translation to presentation currency (77) (13) (525) (17) (231) (863)
Balance at 30 June 2023 176 74 3,661 80 1,097 5,088
Development Exploration Mining Non-mining Capital construction Total
assets assets assets assets in-progress
Accumulated depreciation, USUSDm USUSDm USUSDm USUSDm USUSDm USUSDm
amortisation
Balance at 31 December 2022 (audited) (252) (2) (1,834) (53) (35) (2,176)
Charge for the period - - (148) (4) - (152)
Transfers 202 - (211) - 9 -
Impairment recognised during period - (12) - - - (12)
Disposals and write-offs including - - 16 1 - 17
fully depleted mines
Translation to presentation currency 34 1 290 8 6 339
Balance at 30 June 2023 (16) (13) (1,887) (48) (20) (1,984)
Net book value
31 December 2022 248 83 1,909 40 1,112 3,392
30 June 2023 160 61 1,774 32 1,077 3,104 14. Inventories
30 June 2023 31 December 2022
USUSDm USUSDm
Inventories expected to be recovered after twelve
months
Ore stock piles 82 89
?opper, gold and silver concentrate 8 10
Consumables and spare parts 38 34
Total non-current inventories
128 133
Inventories expected to be recovered in the next twelve
months
?opper, gold and silver concentrate 303 287
Ore stock piles 194 229
Work in-process 107 111
Doré 74 55
Metal for refining 25 20
Refined metals 15 3
Total current metal inventories
718 705
Consumables and spare parts 353 352
Total current inventories 1,071
1,057 15. BORROWINGS
The Group has a number of borrowing arrangements with various lenders. These borrowings consist of unsecured and secured loans and credit facilities denominated in US Dollars, Euros, Yuans and Russian Roubles.
Actual interest rate 30 June 2023 31 December 2022
at
Type of 30 June 31 Dec Current Non-current Total Current Non-current Total
rate 2023 2022
USUSDm USUSDm USUSDm USUSDm USUSDm USUSDm
Secured loans from third parties
US Dollar denominated fixed 2.73% 2.68% 33 142 175 33 158 191
Total secured loans from third parties 33 142 175 33 158 191
Unsecured loans from third
parties
US Dollar denominated floating 6.52% 5.69% 240 119 359 149 339 488
US Dollar denominated fixed 3.74% 3.75% 426 824 1,250 43 1,206 1,249
Euro denominated floating 3.39% 0.98% 2 18 20 2 19 21
RUB denominated floating 9.45% 9.35% 29 619 648 132 518 650
RUB denominated fixed 8.03% 8.03% 7 159 166 3 202 205
CNY denominated fixed 3.92% 5.99% 287 69 356 83 - 83
CNY denominated floating n/a 3.50% - - - 69 70 139
Total unsecured loans from third parties 991 1,808 2,799 481 2,354 2,835
Total 1,024 1,950 2,974 514 2,512 3,026
Movements in borrowings are presented in Note 19 below.
The table below summarises maturities of borrowings:
Period ended
30 June 2023 31 December 2022
USUSDm USUSDm
Less than 1 year 1,024 514
1-5 years 1,524 1,709
More than 5 years 426 803
Total 2,974 3,026 16. Commitments and Contingencies
Capital commitments
The Group's budgeted capital expenditure commitments as at 30 June 2023 amounted to USUSD 264 million (31 December 2022: USUSD 279 million).
Lease commitments
The Group's lease commitments, representing variable lease payments related to the Nezhda grid power line and substation, are estimated at USUSD 26 million (undiscounted), which will be expensed as incurred.
Taxation
Russian and Kazakh tax, currency and customs legislation is subject to varying interpretations, and changes, which can occur frequently. Management's interpretation of such legislation as applied to the transactions and activities of the companies of the Group may be challenged by the relevant regional and federal authorities and as a result, significant additional taxes, penalties and interest may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three and five calendar years preceding the year of review in the Russian Federation in Kazakhstan, respectfully. Under certain circumstances reviews may cover longer periods.
Management has identified a total exposure (covering taxes and related interest and penalties) of approximately USUSD 105 million in respect of contingent liabilities (31 December 2022: USUSD 125 million), mainly related to income tax as described in Note 11. 17. Fair Value Accounting
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable as follows:
Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly; and
Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
At 30 June 2023 and 31 December 2022, the Group held the following financial instruments at fair value through profit or loss (FVTPL):
30 June 2023
Level 1 Level 2 Level 3 Total
USUSDm USUSDm USUSDm USUSDm
Receivables from provisional copper, gold and silver concentrate sales - 180 - 180
Contingent consideration receivable - - 7 7
Shares held at FVTPL 1 - - 1
Royalty liabilities payable (24) (24)
Contingent consideration liability (Note 17) - - (38) (38)
Total 1 180 (55) 126
31 December 2022
Level 1 Level 2 Level 3 Total
USUSDm USUSDm USUSDm USUSDm
Receivables from provisional copper, gold and silver concentrate sales - 54 - 54
Contingent consideration receivable - - 17 17
Shares held at FVTPL 1 - - 1
Royalty liabilities payable (24) (24)
Contingent consideration liability (Note 17) - - (36) (36)
Total 1 54 (43) 12
During both reporting periods presented, there were no transfers between levels of fair value hierarchy.
Additionally, as of 30 June 2023 the Group held several interest rate swap contracts, recognised within non-current accounts receivables and other financial instruments in the amount of USUSD 12 million (31 December 2022: USUSD 16 million). All interest rate swap contracts exchanging floating rate interest amounts for rate interest amounts are designated as cash flow hedges to reduce the Group's cash flow exposure resulting from variable interest rates on borrowings. As the critical terms of the interest rate swap contracts and their corresponding hedged items are the same, the Group performs a qualitative assessment of effectiveness and it is expected that the value of the interest rate swap contracts and the value of the corresponding hedged items will systematically change in opposite direction in response to movements in the underlying interest rates. As of 30 June 2023 and 30 June 2022 it was determined that there is no hedge ineffectiveness identified and therefore change of fair value was recognised within other comprehensive income.
The Group recognised the following gains and loss from revaluation of its Level 3 financial instruments at FVTPL:
Six months ended
30 June 2023 30 June 2022
USUSDm USUSDm
Gain/(loss) on contingent consideration receivable 4
revaluation (16)
Gain on contingent consideration payable revaluation 1
1
Change in fair value of shares held at FVTPL
- (4)
Loss on royalty payable revaluation
- (3)
Total change in fair value of financial instruments 5
(22)
The carrying values of cash and cash equivalents, trade and other receivables, trade and other payables and short-term debt recorded at amortised cost approximate to their fair values because of the short maturities of these instruments.
The estimated fair value of the Group's debt, calculated using the market interest rate available to the Group as at 30 June 2023 is USUSD 2,643 million (31 December 2022: USUSD 2,615 million), and the carrying value as at 30 June 2023 is USUSD 2,974 million (31 December 2022: USUSD 3,026 million).
The fair value of receivables arising from copper, gold and silver concentrate sales contracts that contain provisional pricing mechanisms is determined using the appropriate quoted forward price from the exchange that is the principal active market for the particular metal. As such, these receivables are classified within Level 2 of the fair value hierarchy. Valuation methodologies used in the measurement of fair value for Level 3 financial assets and financial liabilities
The main level 3 inputs used by the Group in measuring the fair value of contingent consideration assets and liabilities, represented by various royalties and net smelter returns (NSR), are derived and evaluated as follows:
-- The relevant valuation model simulates expected production of metals at respective mines and are based onlife of mine models prepared using applicable ore reserves and mineral resource estimations;
-- Commodity prices - Commodity prices are based on latest internal forecasts, benchmarked against externalsources of information. The Group used flat real long-term gold and silver prices of USUSD 1,900 per ounce for 2024and USUSD 1,800 per ounce from 2024 (2022: USUSD 1,800) and USUSD 22 per ounce (2022: USUSD 22 per ounce), respectively.
-- Discount rates - The Group used a post-tax real discount rate of 16.2% (31 December 2022: 14.1%). For theMonte-Carlo modelling, where inflation is incorporated into volatility estimation, a nominal discount rate of 18.6%(31 December 2022: 16.0%) is applied.
-- Where the percentage of net NSR or royalty receivable or payable depends on commodity prices or foreignexchange rates reaching certain levels, the Group applies the Monte-Carlo modelling to incorporate the volatilitymeasure into the valuation, which is applied to the prevailing market prices/rates as of the valuation date. TheMonte-Carlo modelling is applied to Prognoz (NSR) contingent considerations payable and all contingentconsiderations receivable.
The key assumptions used in the Monte-Carlo calculations are set out below:
Metal Price as of valuation date per ounce/tonne Volatility, %% Constant correlation to gold, %% Gold 1,912 13,95%-14,25% n/a Silver 22.47-24.1 29.70%-31.25% 87.78% Copper 8,210 25.27% (72.37)% Zinc 2,363 34.86% (44.05)% RUB rate 87.0341 20.73% 51.17%
The Directors consider that a reasonably possible change in a valuation assumption would not have a material impact on the condensed consolidated financial statements for contingent considerations receivable and payable. 18. Related Parties
Related parties are considered to include shareholders, associates, joint ventures and entities under common ownership and control with the Group and members of key management personnel.
During the period ended 30 June 2023 transactions with the related parties are represented by miscellaneous purchases of USUSD 1.1 million (period ended 30 June 2022: USUSD 0.6) and various sales to the related parties of USUSD 0.3 million (period ended 30 June 2022: 0.3 million).
Outstanding balances with related parties as of 30 June 2023 are represented by accounts receivable of US 1 million (31 December 2022: USUSD 1.2 million). 19. Supplementary cash flow information
Six months ended Six months ended
30 June 2023 (unaidited) 30 June 2022 (unaudited)
Notes
USUSDm USUSDm
Profit before tax 235 (348)
Adjustments for:
Depreciation and depletion expense 2 123 85
Impairment of non-current assets 12 689
Write-down of inventories to net realisable value 10 19
Share-based compensation 8 6 8
Finance expenses 69 41
Finance income (8) (3)
Change in fair value of financial instruments 17 5 22
Foreign exchange gain/ (loss), net 105 (92)
Other non-cash items (2) 8
555 429
Movements in working capital
Change in inventories (205) (315)
Change in VAT and other taxes 26 (7)
Change in trade and other receivables (130) (42)
Change in prepayments to suppliers (7) (68)
Change in trade and other payables (31) (58)
Change in prepayments received - (134)
Cash generated from operations 208 (195)
Interest paid (79) (43)
Interest received 7 3
Income tax paid (101) (170)
Net cash generated by/(used in) operating activities 35 (405)
Increase in trade and other receivables is related to growth of receivables from provisional copper, gold and silver concentrate sales balance, which expected to be recovered in the second half 2023.
During the period ended 30 June 2023, the capital expenditure related to the new projects, increasing the operating capacity amounts to USUSD 89 million (period ended 30 June 2022: USUSD 209 million).
At the reporting date the cash balances include USUSD 30 million of cash and cash equivalents held in Russia (31 December 2022: USUSD 118 million), that are subject to certain legal restrictions and are therefore not available for general use of the Company (but fully available for use by its Russian subsidiaries). The Group determined that these restrictions would not have any material effect on the Group's liquidity position and its ability to finance its obligations. Changes in liabilities arising from financing activities.
The table below details changes in the Group's liabilities arising from financing activities, including both cash and non-cash changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will be, classified in the Group's condensed consolidated cash flow statements as cash flows from financing activities.
Lease modification presented in the table below relates to the updated lease contract the of overhead power line, supplying electricity to the Nezhda production site, which commenced in July 2022. The corresponding decrease was recognised in right-of-use assets.
Period ended 30 June 2023
Contingent Deferred Lease
Borrowings consideration payable consideration payable Royalty payable liabilities
at fair value at amortised cost
1 January 2023 3,027 36 85 24 131
Cash inflow 582 - - - -
Cash outflow (455) - - - (12)
Changes from
financing cash 127 - - - (12)
flows
Unwind of - 2 3 - 4
discount
Lease - - - - (14)
modification
Lease - - - - (2)
termination
Net foreign 293 4 - 6 -
exchange losses
Exchange
differences on
translating (473) (4) - (6) (23)
foreign
operations
Other changes (180) 2 3 - (35)
30 June 2023 2,974 38 88 24 84
Less current (1,024) (9) - (5) (19)
portion
Total
non-current 1,950 29 88 19 65
liabilities at
30 June
Period ended 30 June 2022
Contingent Deferred Lease
Borrowings consideration payable consideration payable Royalty payable liabilities
at fair value at amortised cost
1 January 2022 2,064 63 79 36
21
Cash inflow 2,711 -
- - -
Cash outflow (1,850) (4)
(15) - -
Changes from
financing cash 861 (15) - - (4)
flows
Additions as a
result of 161 - - - -
acquisitions
Change in fair
value, included -
in profit or - (1) - 3
loss
Unwind of 2
discount - 1 3 -
Arrangement fee -
amortisation 1 - - -
New leases 2
- - - -
Net foreign (417) -
exchange gains - - -
Exchange
differences on
translating 671 - - - 15
foreign
operations
Other changes 416 19
- 3 3
30 June 2022 3,341 48 82 51
24
Less current (1,189) - - -
portion (17)
Total
non-current 2,152 31 82 51
liabilities at 24
30 June 20. Subsequent Events
In July 2023, the Group increased its effective interest in the Baksy project to 75%, by consolidating 100% of Batys-Baiken LLC, an owner of 75% in Nur-Bayken LLC, which holds the license of Baksy copper-gold deposit for total cash consideration of USUSD 14 million. State-owned JSC Kazgeology owns the remaining 25%.
On 7 August 2023 the Group completed the re-domiciliation of the Company from Jersey to the Astana International Financial Centre ("AIFC") in Kazakhstan. The Company remains listed on the AIX, which has become the Company's primary stock exchange, while its listing on London Stock Exchange was cancelled on 29 August 2023.
On 4 August 2023, a windfall tax was introduced in the Russian Federation for a number of companies whose average income tax base for the years ended 31 December 2022 and 2021 exceeded RUB 1 billion. The Group's management estimates the windfall tax to be accrued in the amount of RUB 600 million (approximating to USUSD 7 million), which will be recognised and presented within current income tax for the financial year ending 31 December 2023.
In September 2023, the Group has agreed to cancel its historic call and put options and a shareholder agreement over 40.6% share in GRK Amikan LLC ("Amikan") with the previous joint venture (JV) partner (please refer to the transaction disclosure in the consolidated financial statements for the year ended 31 December 2020). This allowed to form a new joint venture over Amikan. The 40.6% stake was acquired from the previous JV partner by a new third party. Subsequently, JSC Polymetal disposed of its 9.5% stake in Amikan to the same third party for a ?ash consideration of USUSD 21 million. As a result, the Group now owns 49.9% interest of Amikan. Simultaneously, JSC Polymetal entered into a number of corporate arrangements with the new shareholder regarding Amikan project financing, governance and operations. The accounting treatment of this transaction will be determined in second half of 2023.
Alternative Performance Measures
Introduction
The financial performance reported by the Group contains certain Alternative Performance Measures (APMs), disclosed to complement measures that are defined or specified under International Financial Reporting Standards (IFRS). APMs should be considered in addition to, and not as a substitute for, measures of financial performance, financial position or cash flows reported in accordance with IFRS.
The Group believes that these measures, together with measures determined in accordance with IFRS, provide the readers with valuable information and an improved understanding of the underlying performance of the business.
APMs are not uniformly defined by all companies, including those within the Group's industry. Therefore, the APMs used by the Group may not be comparable to similar measures and disclosures made by other companies.
Purpose
APMs used by the Group represent financial KPIs for clarifying the financial performance of the Group and measuring it against strategic objectives, given the following background:
-- Widely used by the investor and analyst community in the mining sector and, together with IFRS measures,provide a holistic view of the Group;
-- Applied by investors to assess earnings quality, facilitate period to period trend analysis andforecasting of future earnings, and understand performance through eyes of management;
-- Highlight key value drivers within the business that may not be obvious in the financial statements;
-- Ensure comparability of information between reporting periods and operating segments by adjusting foruncontrollable or one-off factors which impact upon IFRS measures;
-- Used internally by management to assess the financial performance of the Group and its operatingsegments;
-- Used in the Group's dividend policy; and
-- Certain APMs are used in setting directors' and management's remuneration.
APMs and justification for their use
Group APM Closest equivalent Adjustments made to IFRS measure Rationale for adjustments
IFRS measure
-- Write-down of metal inventory to net
realisable value (post-tax)
-- -- Impairment/reversal of previously
Profit/(loss) recognised impairment of non-current assets
for the (post-tax) -- Excludes the impact
financial -- Foreign exchange (gain)/loss of key significant one-off
Underlying period (post-tax) non-recurring items and
net earnings attributable to -- Change in fair value of contingent significant non-cash items
equity consideration liability (post-tax) (other than depreciation) that
shareholders of -- Gains/losses on acquisition, can mask underlying changes in
the Group revaluation and disposals of interests in core performance.
subsidiaries, associates and joint ventures
(post-tax)
-- Excludes the impact
-- Underlying net earnings (as defined of key significant one-off
Underlying -- above) non-recurring items and
earnings per Earnings per -- Weighted average number of significant non-cash items
share share outstanding common shares (other than depreciation) that
can mask underlying changes in
core performance.
-- The most important
metric for evaluating a
-- Underlying net earnings (as defined company's profitability
Underlying -- No above)[21]
return on equivalent -- Average equity at the beginning and -- Measures the
equity the end of reporting year, adjusted for efficiency with which a
translation reserve company generates income using
the funds that shareholders
have invested.
-- A financial ratio
-- Underlying net earnings (as defined that shows the percentage of
Return on -- No above)1 before interest and tax profit a company earns in
assets equivalent -- Average total assets at the relation to its overall
beginning and the end of reporting year resources.
-- Finance cost (net)
-- Depreciation and depletion
-- Write-down of metal and non-metal
inventory to net realisable value
-- Impairment/reversal of previously
recognised impairment of non-current assets
-- Excludes the impact
-- Share based compensation of certain non-cash element,
-- -- Bad debt allowance either recurring or
Adjusted Profit/(loss) -- Net foreign exchange gain/losses non-recurring, that can mask
EBITDA before income underlying changes in core
tax -- Change in fair value of contingent operating performance, to be a
consideration liability proxy for operating cash flow
-- Rehabilitation costs generation.
-- Additional mining taxes, VAT,
penalties and accrued interest
-- Gains/losses on acquisition,
revaluation and disposals of interests in
subsidiaries, associates and joint ventures
-- Net
total of -- Measures the Group's
current and net indebtedness that provides
non-current an indicator of the overall
Net debt borrowings[22] -- Not applicable balance sheet strength.
-- Cash -- Used by creditors in
and cash bank covenants.
equivalents
Net debt/ -- No -- Used by creditors,
EBITDA ratio equivalent -- Not applicable credit rating agencies and
other stakeholders.
-- Reflects cash
-- Cash generating from operations
flows from -- Excluding acquisition costs in after meeting existing capital
operating business combinations and investments in expenditure commitments.
Free cash activity less associates and joint ventures
flow cash flow from -- Excluding loans forming part of net -- Measures the success
investing investment in joint ventures of the company in turning
activities -- Excluding proceeds from disposal of profit into cash through the
subsidiaries strong management of working
capital and capital
expenditure.
-- Free cash flow
-- Cash including cash used in/
flows from received from acquisition/
operating disposal of assets and joint
Free cash activity less ventures.
flow post M&A cash flow from -- Not applicable -- Reflects cash
investing generation to finance returns
activities to shareholders after meeting
existing capital expenditure
commitments and financing
growth opportunities.
-- Depreciation expense -- Calculated according
-- Total -- Rehabilitation expenses to common mining industry
cash operating -- Write-down of inventory to net practice using the provisions
costs realisable value of Gold Institute Production
-- -- Intersegment unrealised profit Cost Standard.
Total cash General, elimination -- Gives a picture of
costs (TCC) administrative -- Idle capacities and abnormal the company's current ability
& selling production costs to extract its resources at a
expenses -- Exclude Corporate and Other segment reasonable cost and generate
and development assets earnings and cash flows for
-- Treatment charges deductions use in investing and other
reclassification to cost of sales activities.
-- AISC is based on total cash costs, -- Includes the
-- Total and adds items relevant to sustaining components identified in World
cash operating production such as other operating expenses, Gold Council's Guidance Note
costs corporate level SG&A, and capital expenditures on Non-GAAP Metrics - All-In
All-in -- and exploration at existing operations Sustaining Costs and All-In
sustaining General, (excluding growth capital). After tax all-in Costs (June 2013), which is a
cash costs administrative cash costs includes additional adjustments for non-IFRS financial measure.
(AISC) & selling net finance cost, capitalised interest and
expenses income tax expense. All-in costs include -- Provides investors
additional adjustments on that for development with better visibility into
capital. the true cost of production.
-----------------------------------------------------------------------------------------------------------------------
[1] The financial performance reported by the Group contains certain Alternative Performance Measures (APMs) disclosed to compliment measures that are defined or specified under International Financial Reporting Standards (IFRS). For more information on the APMs used by the Group, including justification for their use, please refer to the "Alternative performance measures" section below.
[2] Adjusted for the after-tax amount of impairment charges, write-downs of metal inventory, foreign exchange gains/ losses and other change in fair value of contingent consideration.
[3] Profit for the period.
[4] On a cash basis, representing cash outflow on purchases of property, plant and equipment in the consolidated statement of cash flows.
[5] Totals may not correspond to the sum of the separate figures due to rounding. % changes can be different from zero even when absolute amounts are unchanged because of rounding. Likewise, % changes can be equal to zero when absolute amounts differ due to the same reason. This note applies to all tables in this release.
[6] Defined in the "Alternative performance measures" section below.
[7] In accordance with IFRS, revenue is presented net of treatment charges which are subtracted in calculating the amount to be invoiced. Average realised prices are calculated as revenue divided by gold and silver volumes sold, without effect of treatment charges deductions from revenue.
[8] As at 31 December 2022.
[9] On a last twelve months basis. Adjusted EBITDA for 2H 2022 was USUSD 591 million.
[10] Based on actual realised prices.
[11] Without effect of treatment charges deductions from revenue.
[12] All-in sustaining cash costs comprise total cash costs, all selling, general and administrative expenses for operating mines and head office not included in TCC (mainly represented by head office SGA), other expenses (excluding write-offs and non-cash items, in line with the methodology used for calculation of Adjusted EBITDA), and current period capex for operating mines (i.e. excluding new project capital expenditure (development capital), but including all exploration expenditure (both expensed and capitalised in the period) and minor brownfield expansions). For more information refer to the Alternative performance measures section below.
[13] Adjusted EBITDA is a key measure of the Group's operating performance and cash generation capacity (excluding impact of financing, depreciation and tax) and a key industry benchmark allowing peer comparison. Adjusted EBITDA also excludes the impact of certain accounting adjustments (mainly non-cash items) that can mask underlying changes in core operating performance.
The Group defines Adjusted EBITDA (a non-IFRS measure) as profit for the period adjusted for depreciation and amortisation, write-downs and reversals of inventory to net realisable value, impairment/reversal of previously recognised impairment of non-current assets, share-based compensation expenses, gains and losses on disposal or revaluation of investments in subsidiaries, joint ventures and associates, rehabilitation expenses, bad debt allowance, foreign exchange gains or losses, changes in fair value of contingent consideration, finance income, finance costs, income tax expense and other tax exposures accrued within other operating expenses. Adjusted EBITDA margin is Adjusted EBITDA divided by revenue.
[14] Net of finance income.
[15] Underlying net earnings represent net profit for the year excluding the impact of key items that can mask underlying changes in core performance.
[16] Underlying basic EPS are calculated based on underlying net earnings.
[17] On a cash basis.
[18] Including projects categorised as development in 1H 2022
[19] On accrual basis, capital expenditure was USUSD 408 million in 1H 2023 (1H 2022: USUSD 404 million).
[20] 1H 2023 - on a last twelve months basis.
[21] Annualised basis for half-year results.
[22] Excluding lease liabilities and royalty payments. File: Polymetal International plc: Half-year report for the six month ended 30 June 2023
25/09/2023 Dissemination of a Financial Press Release, transmitted by EQS News. The issuer is solely responsible for the content of this announcement. Media archive at www.todayir.com
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(END) Dow Jones Newswires
September 25, 2023 05:50 ET (09:50 GMT)
