RNS Number : 3552K
Petropavlovsk PLC
01 September 2021
 

 

 

01 September 2021

 

Petropavlovsk PLC

 

Interim Results for the Period Ended 30 June 2021

 

Petropavlovsk PLC ("Petropavlovsk", or the "Company" and, together with its subsidiaries, the "Group") today issues its Interim Results for the period from 1 January 2021 to 30 June 2021 ("H1 2021" or the "Period").

Denis Alexandrov, Chief Executive Officer, said:

"Petropavlovsk's financial performance in the first-half reflects the transitional period we are navigating as we shift to processing more refractory ore to supply our state-of-the-art POX plant with more of our own-mined reserves. In the first half of the year, own-mine production continued the downward trend that started in 2020, however we are now observing that trend reversing and expect higher production in the second half, supported by the recent launch of the Pioneer flotation plant. We therefore maintain our production guidance for the full year.

First-half revenue and EBITDA tracked the reduction in output and while costs did rise due, in part, to lower volumes, I am pleased to report that total cash costs for own-mined ore for the period were in the lower half of our guidance range. Furthermore, we generated cash flow from operations before changes in working capital of US$113.7 million in H1 2021, along with a net profit of US$ 48.9 million compared to a loss in the same period last year.

Looking ahead, with the Pioneer flotation plant set to unlock the potential of the mine's refractory reserves in the second half of the year, we will see the POX hub operating at closer to full capacity as the year progresses. We also continue to progress the Malomir expansion, which will further increase our capacity to produce refractory ore concentrate for the POX plant when completed in Q3 2022.

At Albyn, we continue to see the harder, more challenging ore from Elginskoye that now feeds the plant limits the throughput and recoveries we can achieve. Furthermore, based on our experience mining the deposit, we expect exploration drilling being conducted at Elginskoye this year to confirm the deposit contains more refractory ore than previously estimated. In light of this, we are currently studying options for adding flotation capacity to the Albyn hub, which would provide an additional source of concentrate for the POX hub.

We are currently in the final stage of the operational review my team and I began earlier in the year - the drafting of a new strategy and development plan for the Company that will help us realise the value of assets like Albyn and Elginskoye, support future production, and deliver improved returns to shareholders. I look forward to presenting this plan to stakeholders at our upcoming Capital Markets Day this autumn.

 

 

Financial Highlights

 

 

H1 2021

H1 2020

% Change

Total gold produced

koz

195.0

320.6

(39%)

Own gold production

koz

158.3

213.7

(26%)

3rd-party concentrate production

koz

36.7

106.9

(66%)

Total gold sold

koz

187.1

312.4

(40%)

Average realised gold price

US$/oz

1,795

1,640

9%

Total cash costs (own gold)[1]

US$/oz

906

800

13%

All-in sustaining costs

US$/oz

1,404

1,220

15%

Group revenue

US$m

351.9

522.7

(33%)

Underlying EBITDA

US$m

114.3

192.6

(41%)

Operating profit (a)

US$m

48.3

144.3

(67%)

Profit/(loss) for the period

US$m

48.9

(22.0)

-

Capital expenditure

US$m

47.3

59.6

(21%)

Cash generated from operations before working capital changes

US$m

113.7

183.3

(38%)

Cash generated from operations

US$m

57.1

172.8

(67%)

Net debt

US$m

(535.6)

(538.0)

-

(a)   Since the 2020 annual report operating profit is presented from the perspective of group operations excluding the results of the associate, IRC. This is more representative of how the business is viewed following the classification of IRC as held for sale and this change in classification also been applied to the comparative period.

 

§ Gold sales were 187.1 koz in H1 2021, down 40% from 312.4 koz sold in H1 2020, which is consistent with the decrease in total gold production during the Period

§ Average realised gold price[2]increased 9% to US$1,795/oz, with zero impact from the Company's hedging programme

§ Group revenue was US$351.9m, or 33% lower year-on-year, as the impact of lower sales was partially offset by higher gold prices and increased revenue from service divisions

§ Underlying EBITDA* was US$114.3m, or 41% lower, in line with the reduction in sale volumes, as higher gold prices were offset by an increase in total cash costs during the period

§ Profit for the period was US$48.9m or US$0.01 per share, compared to a loss of US$22m in the prior year, including some non-cash items

§ Total cash costs (TCC) for gold produced from own ore in H1 2021 were US$906/oz (13% higher year-on-year), well within the Company's 2021 cost guidance range, with the increase influenced mainly by lower grades and recoveries at the mines as well as some Rouble-denominated cost inflation and higher mining taxes where certain tax incentives expired

§ All-in sustaining costs (AISC) were 15% higher year-on-year at US$1,404/oz, reflecting the increase in TCC, higher administrative costs, and the decrease in physical ounces sold in H1 2021, partially offset by a decrease in capitalized stripping at Malomir and Pioneer

§ Capital expenditure* for the period was US$47.3m (21% lower vs US$59.6 in H1 2020) reflecting the deferral of some expenses to the second half of the year

 

Balance Sheet and Liquidity

§ Cash (unaudited) as of 30 June 2021 was US$36.5m (31 March 2021: US$7.5m, 31 December 2020: US$35.4m) including US$2.1m in transit (see note 15 to the Financial Statements)

§ Debt principal outstanding as of 30 June 2021 was US$573m (31 March 2021: US$538m, 31 December 2020: US$538m) with the increase due to use of the Gazprombank ("GPB") revolving credit facility for day-to-day working capital requirements

§ Interest-bearing gold prepays stood at US$37.1m as at 30 June 2021 (US$53.3m as at 31 March 2021, US$63.8m as at 31 December 2020), a net decrease of US$16.2m over the course of Q2 2021 and US$26.7m since the beginning of the year. The Company plans to fully settle the gold prepays by year-end

§ To replace the gold prepays and support day-to-day liquidity needs, the Group secured a c.US$54m (RUB 4 billion) increase in the limit of its revolving credit facilities ("RCF") with GPB, from c.US$68m (RUB 5 billion) to a total of c.US$122m (RUB 9 billion), along with a maturity extension from May 2022 to June 2026. At interest rates of 2.8 - 4.5%, the RCF is significantly lower cost than existing borrowings. The Company intends to further increase the credit limit under the RCF going forward to support liquidity

§ On 10 August 2021, the Company's wholly-owned subsidiary Petropavlovsk 2016 (the "Issuer") announced the final tender results of an offer to purchase for cash up to US$200m of the aggregate principal amount of its 8.125% guaranteed notes maturing 2022 (the "US$500m Notes"). The Issuer accepted for purchase an aggregate principal amount of validly tendered US$500m Notes totalling US$135,731,000.

§ On 28 July 2021, the Group secured a US$200m term loan (30 June 2023 maturity), which was used for the buy-back of US$135,731,000 of the US$500m Notes in accordance with the tender offer. The term loan interest rate is significantly lower than the 8.125% coupon on the US$500 Notes

Operational Highlights

§ H1 2021 gold production totalled 195.0koz, a decrease of 39% versus 320.6koz in H1 2020

§ Own mined gold production amounted to 158.3koz in H1 2021 (H1 2020: 213.7koz), with the 26% year-on-year decrease being primarily due to the switch to processing ore from the Elginskoye deposit at Albyn and preparations for the launch of the Pioneer flotation plant, which entailed a shift to mining refractory ore for stockpiling and a planned temporary shutdown of the processing plant in April

§ 3rd-party concentrate gold production decreased by 66% to 36.7koz in H1 2021 (H1 2020: 106.9koz) due to expected lower volumes of concentrate available for purchase and lower grades in the concentrates supplied

Gold production (koz)

 

 

Asset

H1 2021

H1 2020

Pioneer

46.0

60.3

Malomir

70.1

81.6

Albyn

42.3

71.8

3rd-party concentrate (POX Hub)

36.7

106.9

Total Group

195.0

320.6

Note: Numbers may not add up due to rounding effect

 

Pokrovskiy Pressure Oxidation (POX) Hub

§ A total of 123kt of refractory gold concentrate was processed through the POX Hub in H1 2021, including 76kt from Malomir with an average grade of 28.5g/t and 38kt of 3rd-party concentrate with an average grade of 30.7g/t

§ The new flotation plant at Pioneer supplied 8kt of concentrate at an average grade of 21.9g/t to the POX Hub in May and June, with 5.5koz of gold recovered for the Period (95% recovery rate)

2021 Guidance

§ The Company affirms its 2021 full-year production guidance of 430 - 470koz of gold, comprising own gold production of 370 - 390koz and gold production from 3rd-party concentrate of 60 - 80koz

§ Total cash costs for own gold production for the year are also expected to be within the Company's guidance range of US$870 - 970 per ounce

§ Capital expenditure for the year is expected to be up to US$140m, consisting of sustaining and development capex of US$120m and exploration spend of c.US$20m

Responsible Business

§ Zero fatal accidents have occurred at Petropavlovsk's operations this year to date, neither among the Group's employees nor its contractors

§ An increase in the number of reported incidents and, consequently, LTIFR during the period is partially attributable to an improved reporting methodology implemented this year. The severity of reported injuries has decreased during the period, and we have seen a positive trend in the monthly reduction of injuries since the beginning of the year. The availability and in-depth analysis of robust data are the first steps towards improving health and safety reporting, in alignment with international best practices

§ A strengthened health and safety leadership team, led since April by Head of Health & Safety Roman Dertinov, has resulted in the drafting of a new and improved set of Fundamental Safety Rules, which have been approved by the Board of Directors and are now being rolled out across the Group to promote safer working practices

§ The Group is also implementing several new long-term injury prevention projects, including initiatives specifically aimed at addressing falls from height and electrical safety

§ Zero environmental incidents were reported in H1 2021

Metric

Units

H1 2021

H1 2020

LTIFR

Per 1m hrs worked

1.75

1.23

Environmental incidents

Number

0

0

Note: Environmental incidents defined as moderate or serious

§ Due to recent severe flooding in the Amur region, the Company is carrying out daily environmental monitoring of local rivers and streams. No material environmental pollution has been identified

§ Attention is drawn to the update on principal risks and uncertainties presented later in this release

COVID-19 Update

§ No material COVID-19 outbreaks have occurred at our sites this year to date, and the Company continues to implement strict quarantine and safety measures across its operations

§ In Q2 2021, the Company launched an on-site vaccination programme at each of its mines, accompanied by a supporting informational campaign via corporate and social media and other communications channels

§ As of 23 August 2021, 47.3% of employees at the Group's operating subsidiaries have been fully vaccinated (2 doses) and an additional 32.4% have exhibited Covid antibodies

§ At the time of reporting, the Group's supply chains remain fully functional

 

 

Development and Exploration Update

Progress on Development Projects

§ On 31 May 2021, the Company launched the Pioneer flotation plant, with the capacity to process 3.6Mtpa of ore, thereby doubling the Group's total processing capacity for refractory gold ore from its own mines to 7.2Mtpa (including the existing Malomir plant)

§ The Pioneer flotation plant is expected to produce up to 60kt of flotation concentrate this year, and up to 100kt in 2022, reducing the Company's reliance on 3rd-party concentrate to feed the Pokrovskiy POX plant

§ The construction of a third line at the Malomir flotation plant progressed throughout H1 2021 and will add an additional 1.8Mtpa of flotation capacity upon completion in Q3 2022, bringing the total combined Group capacity to 9.0Mtpa

Exploration

§ Pioneer - A review of reserves is underway using updated parameters that better reflect prevailing gold prices. As a result, notable increases are expected in reserves of gold contained in refractory and non-refractory ore for both open pit and underground mining (excluding mining activities)

§ Malomir - Work in H1 2021 focused on the evaluation of high-grade ores in underground workings along the eastern flank of the Quartzitovoye deposit. Scattered older wells drilled in the area have exhibited grades of up to 20.2-28.4 g/t per 2.1-3.8 m

§ Osipkan - Exploration work on the northern, un-delineated section of the deposit, suitable for heap leaching, is being accelerated. Alongside poorer ores with grades of 0.7-1.3 g/t, drilling on the targeted area has revealed ore sections with visible gold and grades of up to 67.05 g/t per 1.7 m

§ Tokur - Exploration work at the site has been temporarily suspended

§ Albyn - Geologists are currently reviewing the potential for underground mining of an estimated 30 tonnes of un-delineated ore resources at depth below the depleted Albyn open pit

§ Elginskoye - Exploration drilling on the deposit planned for this year is nearing completion. The programme was designed to better delineate the deposit and new technological mapping of the drilled-out area has been completed. Metallurgical studies have found the ore responds well to processing by gravity-flotation

§ Unglichikanskoye - Technological studies of samples for processing via gravity-flotation are nearing completion

Corporate Events

§ On 12 July 2021, the Board of Directors appointed Mr. Evgeny Potapov as a non-executive director. Mr. Potapov was nominated by Uzhuralzoloto Group of Companies ("UGC"), the Company's largest shareholder, pursuant to the relationship agreement in place between the Company and UGC. Mr Potapov replaced Mr. Maxim Kharin, who resigned from the Board

IRC Update

§ Petropavlovsk is a major shareholder in IRC (31.1%), a Hong-Kong-listed producer and developer of industrial commodities. On 27 August 2021, IRC released its interim results for the six months ended 30 June 2021. The results are available to view on the IRC website at http://www.ircgroup.com.hk

§ Petropavlovsk continues to act as guarantor in relation to the obligations of IRC Limited's subsidiary K&S under two loan facility agreements with Gazprombank. IRC continues to pay down the debt in line with the repayment schedule. In addition, K&S made an early repayment of US$20m to GPB in July and US$30m in August. Therefore, the outstanding loan principal amount as of the end of August 2021 amounted to c.US$143.5m.

Webcast and Conference Call

The Company's CEO Denis Alexandrov and CFO Danila Kotlyarov will host a webcast followed by a Q&A session to present the Company's financial results today at 09:00 BST / 11.00 MSK. The webcast can be accessed via the following link:

https://webcasting.brrmedia.co.uk/broadcast/6115521dc97de6636c2d913d

Alternatively, phone users can listen to the webcast and participate in the Q&A session via the following dial-in numbers:

United Kingdom

+44 (0)330 336 9105

Russia

+7 495 213 1767

When prompted, please use the following confirmation code: 8000181

About Petropavlovsk

Petropavlovsk PLC (LSE: POG. MOEX: POGR) is a major integrated Russian gold producer with JORC Resources of 19.50Moz Au which include Reserves of 7.16Moz Au. Following its IPO on the Alternative Investment Market (AIM) in 2002, Petropavlovsk was promoted to the London Stock Exchange in 2009, where today it is a Premium Listed company and a constituent of the FTSE 250, FTSE 350 and FTSE All Share indices. The Company's shares also trade on the Moscow Exchange and are a constituent of the RTS Index and MOEX Index.

The Company's key operating mines (Pioneer, Malomir and Albyn) and its Pokrovskiy Pressure Oxidation (POX) Hub are located in the Amur Region in the Russian Far East. Petropavlovsk has produced a total of c.8.5Moz of gold since operations began in 1994 and has a strong track record of mine development, expansion, and asset optimisation.

Petropavlovsk is one of the region's largest employers and one of the largest contributors to the sustainable development of the local economy.

For more information

 

Please visit www.petropavlovskplc.com or contact:

 

Petropavlovsk PLC

John Mann / Max Zaltsman

+44 (0) 20 7201 8900

TeamIR@petropavlovskplc.com

Hudson Sandler

Charlie Jack / Katerina Parker / Elfie Kent

+44 (0) 20 7796 4133

Petropavlovsk@hudsonsandler.com

 

Cautionary note on forward-looking statements

This release may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward looking statements include all matters that are not historical facts. They appear in a number of places throughout this release and include, but are not limited to, statements regarding the Group's intentions, beliefs or current expectations concerning, among other things, the future price of gold, the Group's results of operations, financial position, liquidity, prospects, growth, estimation of mineral reserves and resources and strategies, and exchange rates and the expectations of the industry. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances [outside the control of the Group. Forward-looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates may differ materially from those described in, or suggested by, any forward- looking statements contained in this release. In addition, even if the development of the markets and the industry in which the Group operates are consistent with the forward looking statements contained in this release, those developments may not be indicative of developments in subsequent periods. A number of factors could cause results and/or developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation, general economic and business conditions, demand, supply and prices for gold and other long-term commodity price assumptions (and their effect on the timing and feasibility of future projects and developments), trends in the gold mining industry and conditions of the international gold markets, competition, actions and activities of governmental authorities (including changes in laws, regulations or taxation), currency fluctuations (including as between the US Dollar and Rouble), the Group's ability to recover its reserves or develop new reserves, changes in its business strategy, any litigation, and political and economic uncertainty. Except as required by applicable law, rule or regulation (including the Listing and Disclosure Guidance and Transparency Rules), the Group does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Past performance cannot be relied on as a guide to future performance. The content of websites referred to in this announcement does not form part of this announcement.

 

 

Financial Review

 

Note: Figures may not add up due to rounding

 

Financial Highlights

 

 

 

H1 2021

H1 2020

 

 

 

 

Gold sold 

'000oz

187.1

312.4

Group revenue

US$ million

351.9

522.7

Average realised gold price¨

US$/oz

1,795

1,640

Average LBMA gold price afternoon fixing

US$/oz

1,806

1,645

Total Cash Costs¨ (a)

US$/oz

1,020

983

Total Cash Costs from own materials (a)

US$/oz

906

800

Total Cash Costs from third parties concentrate (a)

US$/oz

1,639

1,380

All-in Sustaining Costs¨ (b)

US$/oz

1,404

1,220

All-in Costs¨ (b)

US$/oz

1,514

1,325

Underlying EBITDA¨

US$ million

114.3

192.6

Operating profit (с)

US$ million

48.3

144.3

Profit before tax

US$ million

69.1

16.5

Profit/(loss) for the period

US$ million

48.9

(22.0)

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

US$ million

44.5

(23.9)

Basic profit/(loss) per share

US$

0.01

(0.01)

Cash generated from operations before working capital changes

US$ million

113.7

183.3

Net cash from operating activities

US$ million

25.2

112.1

 

(a)   Calculation of Total Cash Costsu ("TCC") is set out in the section Hard rock mines below.

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

(c)   Since the 2020 annual report operating profit is presented from the perspective of group operations excluding the results of the associate, IRC. This is more representative of how the business is viewed following the classification of IRC as held for sale and this change in classification also been applied to the comparative period.

 

 

 

30 June 2021

US$ million

31 December 2020 US$ million

  Cash and cash equivalents

 

36.5

35.4

  Notes(d)

 

(502.6)

(502.0)

  Convertible bonds (e)

 

(34.5)

(34.0)

  Bank loans (f)

 

(35.0)

-

  Net Debt¨

 

(535.6)

(500.6)

 

(d)   US$500 million Guaranteed Notes due on 14 November 2022 at amortised cost.

(e)   US$125 million convertible bonds due on 03 July 2024 at amortised cost.

(f)    Outstanding principal amount of revolving credit facility with Gazprombank. 

 

 

Revenue

 

 

H1 2021

H1 2020

 

 

US$ million

US$ million

Revenue from hard rock mines

 

335.8

512.3

Revenue from other operations

 

16.2

10.4

 

 

351.9

522.7

 

Group revenue during the period was US$351.9 million, 33% lower than the US$522.7 million achieved in H1 2020.

 

Revenue from hard rock mines during the period was US$335.8 million, 34% lower than the US$512.3 million achieved in H1 2020. Gold remains the key commodity produced and sold by the group, comprising 95% of total revenue generated in H1 2021. The physical volume of gold sold from hard rock mines decreased by 40% from 312,354 oz in H1 2020 to 187,064 oz in H1 2021, incl. 26% decrease of own gold production primarily due to the switch to processing ore from the Elginskoye deposit at Albyn and preparations for the launch of the Pioneer flotation plant, which entailed a shift to mining refractory ore for stockpiling and a planned temporary shutdown of the processing plant in April and 66% decrease in 3rd-party gold production to 36.7koz in H1 2021 (H1 2020: 106.9koz) due to expected lower volumes of concentrate available for purchase and lower grades in the concentrates supplied. The average realised gold price¨¨ increased by 9% from US$1,640/oz in H1 2020 to US$1,795/oz in H1 2021. The average realised gold price¨ was not affected by hedge arrangements in H1 2021 and H1 2020. There were no sales of silver in H1 2021 and H1 2020.

 

Revenue generated as a result of third-party work by the group's in-house service companies was US$16.2 million in H1 2021, a US$5.8 million increase compared to US$10.4 million in H1 2020. This revenue is substantially attributable to sales generated by the group's engineering and research institute, Irgiredmet, primarily through engineering services and the procurement of materials, consumables and equipment for third parties, which comprised US$14.9 million in H1 2021 compared to US$9.0 million in H1 2020.

 

Cash flow hedge arrangements

 

In March 2020 the group has entered into a number of gold option and currency option contracts, in both cases structured as zero cost collars where the company purchased a put option and sold a call option, in order to increase certainty in respect of a proportion of its operating cash flows.

 

Zero cost collars for the underlying aggregate of US$42 million (US$7 million per month) with a RUB:USD exercise price of RUB75.00 for put options and a RUB:USD exercise price in the range of between RUB90.65 and RUB100.00 for call options matured during H1 2021 and resulted in US$0.6 million net cash settlement received by the group. Zero cost collars for the underlying aggregate of US$42 million (US$7 million per month until December 2021) with a RUB:USD exercise price of RUB75.00 for put options and a RUB:USD exercise price in the range between RUB90.65 and RUB100.00 for call options were outstanding as at 30 June 2021.

 

Zero cost collars for the underlying aggregate of 21,000 oz of gold (3,500 oz of gold per month) with an exercise price of US$1,600/oz for put options and US$1,832/oz for call options matured during H1 2021 and resulted in US$(0.3) million net cash settlement paid by the group. Zero cost collars for the underlying aggregate of 21,000 oz of gold (3,500 oz of gold per month until December 2021) with an exercise price of US$1,600/oz for put options and US$1,832/oz for call options were outstanding as at 30 June 2021.

 

The aforementioned contracts did not qualify for hedge accounting under IFRS 9. Accordingly, there was no adjustment to the average realized gold price in H1 2021 and H1 2020 for the effect of net settlement under these arrangements.

 

Corresponding fair values for gold and currency option contracts are disclosed in note 16 to the group's consolidated interim financial statements for the six months ended 30 June 2021.

 

 

 

Underlying aggregate amount

Put option exercise price

Call option exercise price

Option contract matured in H1 2021:

 

 

 

Gold option contracts

21,000 oz (3,500 oz of gold per month)

US$1,600/oz

US$1,832/oz

Currency option contacts

US$42 million (US$7 million per month)

RUB75.00

RUB90.65 -
RUB100.00

Option contracts outstanding as at 30 June 2021:

220212021:

 

 

 

Gold option contracts

21,000 oz (3,500 oz of gold per month until December 2021)

US$1,600/oz

US$1,832/oz

Currency option contracts

US$42 million (US$7 million per month until December 2021)

RUB75.00

RUB90.65 -
RUB100.00

 

 

Underlying EBITDA

 

 

 

 

H1 2021

             H1 2020

 

US$ million

US$ million

Profit/(loss) for the period

48.9

(22.0)

Add/(less):

 

 

Net (impairment reversals)/impairment losses on financial instruments

(1.1)

1.3

Investment and other finance income

(3.3)

(4.0)

Interest expense

24.3

33.4

Net other finance (gains)/losses (a)  

(4.7)

98.9

Foreign exchange losses/(gains)

0.7

(26.7)

Taxation

20.3

38.5

Depreciation

63.0

64.7

Write-down of inventory to net realisable value

0.1

-

Impairment of gold in circuit

0.7

-

Reversal of write-down to adjust the carrying value of net assets of disposal group to fair value less costs to sell

(34.9)

-

Share of results of associates (b)  

0.3

8.6

Underlying EBITDA¨¨

114.3

192.6

       

 

(a)   Including US$32.0 million fair value gain from re-measurement of the conversion option of the convertible bonds
 (H1 2020:US$(122.2) million fair value loss from re-measurement of the conversion option of the convertible bond) and US$ (31.6) million fair value loss on the agreement for the sale of stake in IRC.

(b)   Group's share of interest expense, investment income, other finance gains and losses, foreign exchange gains/losses, taxation, depreciation and impairment/reversal of impairment recognised by an associate and impairment/reversal of impairment recognised against investment in the associate.  

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

 

 

 

 

H1 2021

H1 2020

 

US$ million

US$ million

Pioneer

34.4

59.3

Malomir

67.9

70.9

Albyn

42.7

75.0

Total Hard rock mines

145.0

205.1

Corporate and other

(32.2)

(23.0)

Underlying EBITDA by segment

112.8

182.2

IRC

1.5

10.5

Underlying EBITDA¨

114.3

192.6

       

 

 

 

Hard rock mines

 

During this period, hard rock mines generated Underlying EBITDA¨ of US$145.0 million compared to US$205.1 million Underlying EBITDA¨ in H1 2020.

 

Total Cash Costs¨ for hard rock mines increased from US$983/oz in H1 2020 to US$1,020/oz in H1 2021.

 

The increase in Total Cash Costs from own material from US$800/oz in H1 2020 to US$906/oz in H1 2021 primarily reflects the effect of lower grades and recoveries of non-refractory ore processed at Albyn plant as the result of switching to processing of ore from the Elginskoye deposit as the main source of non-refractory ore starting from 2021 which replaced the depleted Albyn pit, as well as the impact of the Pioneer flotation plant launching to produce refractory concentrate for further processing at the POX Hub, lower grades of refractory ore processed at Malomir, lower recoveries of non-refractory ore processed at Pioneer, the impact of inflation of certain Rouble denominated costs, and the effect of mining tax rates as set out below. This effect was partially mitigated by the effect of higher grades of non-refractory ore processed at Pioneer and Malomir, and the effect of higher recoveries of refractory ore processed at Malomir, as well as by the effect of Rouble depreciation.

 

Total Cash Costs from 3rd parties concentrate increased from US$1,380/oz in H1 2020 to US$1,639/oz in H1 2021. Total Cash Costs from 3rd parties concentrate are directly dependent on gold price which has increased in H1 2021.

 

The decrease in physical ounces sold from 312,354 oz in H1 2020 to 187,064 oz in H1 2021 resulted in US$(82.3) million decrease in the Underlying EBITDA¨.The increase in TCC¨ contributed to a further US$(6.8) million decrease in the Underlying EBITDA¨. This effect was partly offset by the increase in the average realised gold price¨ from US$1,640/oz in H1 2020 to US$1,795/oz in H1 2021 with US$29.0 million effect on Underlying EBITDA¨.

 

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

 

The Rouble depreciated against the US Dollar by 7% in H1 2021 compared to H1 2020, with the average exchange rate for the period of 74.31 Roubles per US Dollar in H1 2021 compared to 69.42 Roubles per US Dollar in H1 2020, somewhat mitigating the effect of Rouble denominated costs inflation.

 

Refinery and transportation costs are variable costs dependent on production volume. Mining tax is also a variable cost dependent on production volume and the gold price realised. The Russian statutory mining tax rate is 6%. Under the Russian Federal Law 144-FZ dated 23 May 2016 that introduced certain amendments to the Russian Tax Code, taxpayers who are participants in Regional Investment Projects ("RIP") have the right to apply the reduced mining tax rate provided certain conditions are met. JSC Pokrovskiy Rudnik and LLC Malomirskiy Rudnik applied full mining tax rate in H1 2021 and H1 2020, LLC Albynskiy Rudnik applied 1.2% mining tax rate in H1 2020 and full mining tax rate in H1 2021, resulting in US$18.4 million mining tax expense in H1 2021 compared to US$15.2 million mining tax expense in H1 2020.

 

 

 

 

H1 2021

 

H1 2020

 

 

US$ million

%

 

US$ million

%

 

Staff costs (a)  

 

46.7

22

 

40.8

15

 

Materials

 

44.4

21

 

40.8

15

 

Flotation concentrate purchased

 

49.2

23

 

130.2

47

 

Fuel

 

16.2

8

 

17.5

6

 

Electricity

 

15.9

7

 

17.7

6

 

Other external services

 

25.7

12

 

18.1

6

 

Other operating expenses

 

14.2

7

 

12.9

5

 

 

 

212.4

100

 

278.1

100

 

 

 

 

 

 

 

 

 

Movement in ore stockpiles, gold in circuit, bullion in process, limestone and flotation concentrate attributable to gold production

 

(44.2)

 

 

9.3

 

 

Total operating cash expenses

 

168.2

 

 

287.4

 

 

 

(a) Including staff redundancies costs US$0.3 million in H1 2021 due to enhancing operational governance and improving management structure.

 

Hard rock mines

H1 2021

H1 2020

 

Pioneer

Malomir

Albyn

Total

Total

 

 

US$

million

US$

million

US$

million

US$

million

US$

million

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

Gold

134.7

125.4

75.7

335.8

512.3

 

Including:

 

 

 

 

 

 

Gold from own material

82.5

125.4

75.7

283.5

353.6

 

Gold from 3rd parties concentrate

52.3

-

-

52.3

158.8

 

Silver

-

-

-

-

-

 

 

134.7

125.4

75.7

335.8

512.3

 

Expenses

 

 

 

 

 

 

Operating cash expenses 

93.7

47.1

27.4

168.2

287.4

 

Refinery and transportation

0.1

0.1

0.0

0.3

0.5

 

Other taxes

1.0

1.9

0.9

3.9

4.1

 

Mining tax

5.4

8.3

4.6

18.4

15.2

 

Depreciation

22.7

27.3

11.5

61.5

63.5

 

Write-down of inventory to net realisable value

-

-

0.0

0.0

-

 

Impairment/(reversal of impairment) of ore stockpiles and gold in circuit

-

0.7

-

0.7

(0.1)

 

Operating expenses

     123.0

       85.4

       44.5

     253.0

     370.7

 

Result of precious metals operations 

       11.7

       39.9

       31.2

       82.8

     141.7

 

 

 

 

 

 

 

 

Add/(less):

 

 

 

 

 

 

Depreciation

       22.7

       27.3

       11.5

       61.5

       63.5

 

Write-down of inventory to net realisable value

-

-

0.0

0.0

-

 

Impairment/(reversal of impairment) of ore stockpiles and gold in circuit

-

0.7

-

0.7

(0.1)

 

Segment EBITDA

       34.4

       67.9

       42.7

     145.0

     205.1

 

 

 

 

 

 

 

 

Physical volume of gold sold, oz

      74,932  

      69,895  

      42,238  

       187,064  

312,354

 

Including:

 

 

 

 

 

 

Gold sold from own material, oz

      45,859  

      69,895  

      42,238  

       157,992  

213,436

 

Gold sold from 3rd parties concentrate, oz

      29,073  

             -    

             -    

        29,073  

98,919

 

 

 

 

 

 

 

 

Cash costs

 

 

 

 

 

 

 

Operating cash expenses 

            93.7

            47.1

            27.4

     168.2

     287.4

 

Refinery and transportation

              0.1

              0.1

              0.0

         0.3

         0.5

 

Other taxes

              1.0

              1.9

              0.9

         3.9

         4.1

 

Mining tax

              5.4

              8.3

              4.6

       18.4

       15.2

 

Operating cash costs

          100.3

            57.5

            33.0

          190.8

     307.2

 

Deduct: co-product revenue

          -  

           -  

          -  

          -  

          -  

 

Total Сash Сosts¨

          100.3

            57.5

            33.0

          190.8 

     307.2

 

Including:

 

 

 

 

 

 

Total Cash Costs from own material

52.6

57.5

33.0

143.1

170.7

 

Total Cash Costs from 3rd parties concentrate

47.7

-

-

47.7

136.5

 

 

 

 

 

 

 

 

TCC¨, US$/oz

     1,339

        822

        781

        1,020

        983

 

TCC from own material, US$/oz

1,148

822

781

906

800

 

TCC from 3rd parties concentrate, US$/oz

1,639

-

-

1,639

1,380

 

 

 

 

 

 

 

 

 

All-in Sustaining Costs and All-in Costs

 

AISC¨ increased from US$1,220/oz in H1 2020 to US$1,404/oz in H1 2021. The increase in AISC¨ reflects increase in TCC¨ explained above as well as higher central administration expenses and the decrease in physical ounces sold in H1 2021 with an aggregate of sustaining capital and exploration expenditures and sustaining lease remaining at approximately the same level as in H1 2020. This effect was partly offset by the decrease in capitalized stripping expenditure during the period at Malomir and Pioneer.

 

AIC¨ increased from US$1,325/oz in H1 2020 to US$1,514/oz in H1 2021, primarily reflecting the increase in AISC¨ explained above. The start of operations at the Elginskoye deposit resulted in the decrease of capital expenditure with Elginskoye project being considered as sustaining in 2021. This effect was mainly offset by the decrease in physical ounces sold in H1 2021 with an aggregate of non-sustaining capital expenditures related to Pioneer flotation plant, 3rd flotation line at Malomir, capitalized stripping expenditure in respect of refractory ore at Pioneer and non-sustaining exploration expenditures remaining at approximately the same level as in H1 2020.

c

 

Hard rock mines

H1 2021

H1 2020

 

 

Pioneer

Malomir

Albyn

Total

Total

 

US$

million

US$

million

US$

million

US$

million

US$

million

 

 

 

 

 

 

Physical volume of gold sold, oz

        74,932

        69,895

        42,238

        187,064

  312,354

 

 

 

 

 

 

Total Cash Costs¨

          100.3

            57.5

            33.0

            190.8

     307.2

 

 

 

 

 

 

TCC¨, US$/oz

          1,339

             822

             781

            1,020

        983

 

 

 

 

 

 

Impairment/(reversal of impairment) of  ore stockpiles and gold in circuit

-

0.7

-

0.7

(0.1)

Write-down of inventory to net realisable value

-

-

0.0

0.0

-

Adjusted operating costs

          100.3

            58.2

            33.0

            191.5

     307.1

 

 

 

 

 

 

Central administration expenses (a)  

            11.8

            11.1

              6.7

              29.6

       20.7

Capitalised stripping

              5.4

              5.1

               -  

              10.5

       23.7

Close-down and site restoration

              0.8

              0.6

              0.3

                1.6

         0.7

Sustaining exploration expenditure

              0.1

               -  

              2.9

                3.0

         0.5

Sustaining capital expenditure

              6.9

              7.2

            11.7

              25.8

       26.2

Sustaining lease

              0.3

              0.2

              0.2

                0.7

2.1

All-in Sustaining Costs¨

          125.7

            82.4

            54.7

            262.7

     381.0

 

 

 

 

 

 

All-in Sustaining Costs¨, US$/oz

          1,677

          1,179

          1,294

            1,404

     1,220

 

 

 

 

 

 

Exploration expenditure

               -  

              1.5

               -  

                1.5

         4.6

Capital expenditure

            11.4

              5.7

               -  

              17.1

       28.2

Capitalised stripping

              2.1

               -  

               -  

                2.1

-

All-in Costs¨

          139.1

            89.5

            54.7

            283.3

     413.8

 

 

 

 

 

 

All-in Costs¨, US$/oz

          1,856

          1,281

          1,294

            1,514

     1,325

 

 

 

 

 

 

               

(a)   Including staff redundancies costs US$0.8 million in H1 2021 due to enhancing operational governance and improving management structure.

Corporate and other

 

Corporate and other operations contributed US$(32.2) million to Underlying EBITDA¨ in H1 2021 compared to US$(23.0) million in H1 2020. Corporate and other operations primarily include central administration function, result of in-house service companies and the group's share of results of its associate IRC.

 

The group has corporate offices in London, Moscow and Blagoveschensk, which together represent the central administration function. Central administration expenses increased by US$8.9 million from US$20.7 million in H1 2020 to US$29.6 million in H1 2021, including staff redundancies costs US$0.8 million in H1 2021 due to enhancing operational governance and improving management structure.

 

 

Results of associate

 

The group's share of profit generated by IRC is US$1.2 million in H1 2021 (H1 2020: US$1.8 million). Following re-classification of 29.9% interest in IRC as assets held for sale, the group recognised a US$34.9 million reversal of write-down to adjust the carrying value of net assets of disposal group to fair value less costs to sell in H1 2021. IRC contributed US$1.5 million to the group's Underlying EBITDAu in H1 2021 (H1 2020: US$10.5 million).

 

 

Impairment review

 

Impairment of mining assets

 

As at 30 June 2021 and 30 June 2020, the group undertook a review of impairment indicators of the tangible assets attributable to its gold mining projects and supporting in-house service companies. Detailed calculations of recoverable amounts, which are value-in-use calculations based on discounted cash flows, were prepared which concluded no impairment was required as at 30 June 2021 and 30 June 2020.

 

Impairment of exploration and evaluation assets

 

As at 30 June 2021 and 30 June 2020, the group performed a review of its exploration and evaluation assets and concluded no impairment was required.

 

Exploration and evaluation assets in the statement of financial position primarily relate to the areas adjacent to the existing mines.

 

Financial income and expenses

 

Investment and other finance income 

 

  

 

H1 2021

H1 2020

 

 

US$ million

US$ million

Interest income (a)

 

0.2

0.6

Guarantee fee income (b)

 

3.1

3.4

 

 

3.3

4.0

 

(a)   Interest income on bank deposits.

(b)   Guarantee fee income under Gazprombank Guarantee arrangements, as set out in section "Corporate activities" below.

 

Interest expense

  

 

H1 2021

H1 2020

 

 

US$ million

US$ million

Interest expense

 

25.4

34.0

Interest capitalised

 

(1.6)

(1.0)

Other

 

0.4

0.4

 

 

24.3

33.4

 

Interest expense for the period comprised of US$20.9 million of effective interest on the Notes, US$2.0 million of effective interest on the Convertible Bonds, US$2.1 million of interest on prepayments on gold sale agreements, US$0.3 million of interest on finance lease and US$0.1 million of interest on bank loans (H1 2020: US$21.0 million of effective interest on the Notes, US$6.5 million of effective interest on the Convertible Bonds, US$6.3 million of interest on prepayments on gold sale agreements and US$0.3 million interest on finance lease).

 

As the group continued with construction of Pioneer flotation plant, 3rd flotation line at Malomir, these projects met eligibility criteria for borrowing costs capitalization under IAS 23 "Borrowing Costs" with US$1.6 million of interest expense capitalized within property, plant and equipment (H1 2020: US$1.0 million of interest expense was capitalized within property, plant and equipment in relation to flotation line at Pioneer).

 

Net other finance gains/(losses)

 

Net other finance gains for the period totaled US$4.7 million compared to US$(98.9) million of net other finance losses in H1 2020. Key elements of other finance gains and losses this period include:

 

-   US$32.0 million fair value non-cash gain from re-measurement of the conversion option of the convertible bonds, reflecting the increase in the underlying share price of the Company;

-      US$3.9 million net fair value gain on gold and currency option contracts;

-      US$0.4 million gains on other items;

-      US$(31.6) million fair value non-cash loss on the agreement for the sale of stake in IRC.

 

 

Net impairment reversals/ (impairment losses) on financial instruments

 

In H1 2021, the group recognised a US$0.6 million decrease in the provision for expected credit losses under Gazprombank guarantee arrangements (H1 2020:  US$1.3 million of provision for expected credit losses).

 

 

 

 

Taxation

 

 

 

H1 2021

H1 2020

 

 

US$ million

US$ million

Tax charge

 

20.3

38.5

 

The group is subject to corporation tax under the UK, Russia and Cyprus tax legislation. The statutory tax rate for H1 2021 was 19% in the UK and 20% in Russia.

 

The tax charge for the period primarily related to the group's gold mining operations and is represented by a current tax charge of US$17.3 million (H1 2020: US$25.1 million) and a deferred tax charge, which is a non-cash item, of US$3.0 million (H1 2020: US$13.4 million). Included in the deferred tax charge in H1 2021 is a US$3.2 million credit (H1 2020: US$23.7 million charge) from the effect of foreign exchange which primarily arises because the tax base for a significant portion of the future taxable deductions in relation to the group's property, plant and equipment are denominated in Russian Roubles, whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value.

 

The effective tax rate was also affected by expenses that are not taxable/deductible for tax purposes which primarily relate to fair value gains/losses on re-measurement of the conversion option of the Convertible Bonds and reversal of write-down/write-down of investment in IRC to fair value less costs to sell, effect of tax losses for which no deferred income tax asset was recognized which primarily related to interest expense incurred in the UK and Russian withholding tax on intercompany dividends.

 

During the period, the group made corporation tax payments in aggregate of US$21.2 million in Russia (H1 2020: corporation tax payments in aggregate of US$28.5 million in Russia).

 

 

Earnings per share

 

 

H1 2021

 

H1 2020

 

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

 

US$44.5 million

 

US$(23.9) million

Weighted average number of Ordinary Shares

3,957,270,254

3,310,369,237

Basic profit/(loss) per ordinary share

US$0.01

US$(0.01)

 

Basic profit per share for H1 2021 was US$0.01 compared to US$(0.01) basic loss per share for H1 2020.

 

The total number of Ordinary Shares in issue as at 30 June 2021 was 3,957,270,254 (30 June 2020: 3,312,825,822).

 

Financial position and cash flows

 

 

30 June 2021

31 December 2020

 

US$ million

US$ million

  Cash and cash equivalents

36.5

35.4

  Notes (a)

(502.6)

(502.0)

  Convertible bonds (b)

(34.5)

(34.0)

  Bank loans (c)

(35.0)

-

  Net Debt¨

(535.6)

(500.6)

 

 

(a) US$500 million Guaranteed Notes due on 14 November 2022 at amortised cost.

(b) US$125 million convertible bonds due on 03 July 2024 at amortised cost.

(c) Outstanding principal amount of revolving credit facility with Gazprombank.

 

 

 

 

 

 

 

 

H1 2021

H1 2020

 

US$ million

US$ million

  Net cash from operating activities

25.2

112.1

  Net cash used in investing activities (d)

(59.3)

(82.7)

  Net cash from/(used in) financing activities

34.9

(2.0)

 

(d) Including US$47.3 million Capital Expenditureu (H1 2020: US$59.6 million).

 

Key movements in cash and Net Debtu

 

 

Cash

Debt

Net Debtu

 

 

US$ million

US$ million

US$ million

 

As at 1 January 2021

35.4

(536.0)

(500.6)

 

Net cash generated by operating activities before working capital changes

113.7

 

 

 

Changes in working capital

(56.6)

 

 

 

Corporation tax paid

(21.2)

 

 

 

Capital Expenditureu

(47.3)

 

 

 

Capitalized stripping

(12.6)

 

 

 

Proceeds from borrowings

35.0

(35.0)

 

 

Interest accrued

 

(23.1)

 

 

Interest paid

(24.5) (e)

22.0

 

 

Guarantee fee received

13.8

 

 

 

Interest received

0.2

 

 

 

Other

0.6

 

 

 

As at 30 June 2021

36.5

(572.1)

(535.6)

 

 

(e) Including US$2.1 million interest paid in relation to advance payments from Gazprombank. 

 

Capital Expenditure ¨

 

The group invested an aggregate of US$47.3 million in H1 2021 compared to US$59.6 million in H1 2020. The key areas of focus in this period were on Pioneer and Malomir flotation and development to support the mining at Elginskoye. The group capitalised US$1.6 million of interest expense incurred in relation to the group's debt into the cost of the Pioneer flotation and Malomir 3rd line flotation (H1 2020: US$1.0 million of interest expense incurred in relation to the group's debt into the cost of the Pioneer flotation).

 

 

Exploration expenditure

Development and other capital expenditure

Total

Capital Expenditure ¨

 

 

US$ million

US$ million

US$ million

POX

-

1.5

1.5

Pioneer (a), (b)

0.1

16.7

16.8

Malomir (c), (d), (e)

0.8

11.3

12.0

Albyn (f)

2.9

10.8

13.7

Other

0.7

-

0.7

Corporate and in-house services

-

2.6

2.6

 

4.4

42.9

47.3

(a)   Including US$2.0 million of development expenditure in relation to Pioneer Underground project to be sustaining capital expenditure for the purposes of calculating AISC and AIC.

(b)   Including US$11.4 million development expenditure in relation to the Pioneer Flotation project (US$10.7 million of expenditure in relation to flotation and US$0.7 million of expenditure in relation to hydrotechnical storage facilities) to be non-sustaining capital expenditure for the purposes of calculating the AISC and AIC.

(c)   Including US$0.6 million of development expenditure in relation to Malomir Underground project to be sustaining capital expenditure for the purposes of calculating AISC and AIC.

(d)   Including US$2.3 million of development expenditure in relation to Malomir 1st and 2nd lines Flotation (US$2.3 million of expenditure in relation to hydrotechnical storage facilities) to be sustaining capital expenditure for the purposes of calculating AISC and AIC.

(e)   Including US$5.7 million of development expenditure in relation to Malomir 3rd line Flotation to be non-sustaining capital expenditure for the purposes of calculating AISC and AIC.

(f)    Including US$2.6 million of exploration expenditure in relation to Elginskoye project, US$0.6 million of development expenditure in relation to road between Elginskoye and Albyn processing facilities and US$6.0 million of development expenditure in relation to hydrotechnical storage facilities for Elginskoye project to be sustaining  capital expenditure for the purposes of calculating AISC and AIC.

 

 

Foreign currency exchange differences

 

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

 

The following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.

 

 

 

30 June 2021

31 December 2020

GB Pounds Sterling (GBP: US$)

 

0.72

 

0.73

Russian Rouble (RUB: US$)

 

72.37

 

73.88

 

The Rouble recovered by 2% against the US Dollar during H1 2021, from RUB73.88: US$1 as at 31 December 2020 to RUB72.37: US$1 as at 30 June 2021. The average period-on-period depreciation of Rouble against the US Dollar was approximately 7%, with the average exchange rate for H1 2021 being RUB74.31: US$1 compared to RUB69.42 : US$1 for H1 2020.The Group recognised foreign exchange losses of US$0.7 million in H1 2021 (H1 2020: US$26.7 million gains) arising primarily on Rouble denominated net monetary liabilities (including advance payments received from Gazprombank and Sberbank under gold sales agreements).

 

 

Corporate activities

 

Guarantee over IRC's external borrowings

 

The group historically entered into an arrangement to provide a guarantee over its associate's, IRC, external borrowings, the ICBC Facility ('ICBC Guarantee'). Under the terms of the arrangement the group was entitled to receive an annual fee equal to 1.75% of the outstanding amount.

 

In March 2019, IRC refinanced the ICBC Facility through entering into a US$240 million new facility with Gazprombank ('Gazprombank Facility'). The facility was fully drawn down during the year ended 31 December 2019. The outstanding loan principal was US$194 million as at 30 June 2021. A new guarantee was issued by the group over part of the Gazprombank Facility ('Gazprombank Guarantee'), the guarantee mechanism is implemented through a series of five guarantees that fluctuate in value through the eight-year life of the loan, with the possibility of the initial US$160 million principal amounts guaranteed reducing to US$40 million within two to three years, subject to certain conditions being met. For the final two years of the Gazprombank Facility, the guaranteed amounts will increase to US$120 million to cover the final principal and interest repayments. If certain springing recourse events transpire, including default on a scheduled payment, then full outstanding loan balance is accelerated and subject to the guarantee. Under the Gazprombank Guarantee arrangements, the guarantee fee receivable is determined at each reporting date on an independently determined fair value basis, which for the six months ended 30 June 2021, 30 June 2020 and year ended 31 December 2020 was calculated at the annual rate of 3.07% by reference to the average outstanding principal balance under Gazprombank Facility. The guarantee fee charged for the six months ended 30 June 2021 was US$3.1 million, with corresponding value of US$3.4 million after reversal of provision for expected credit losses (30 June 2020: US$3.4 million, with corresponding value of US$3.2 million after provision for expected credit losses; 31 December 2020: US$6.7 million, with corresponding value of US$6.3 million after provision for expected credit losses).

 

 

The following assets and liabilities have been recognised in relation to the ICBC Guarantee and Gazprombank Guarantee as at 30 June 2021 and 31 December 2020:

 

 

 

30 June 2021

31 December 2020

 

US$ million

US$ million

Other receivables - ICBC Guarantee

-

0.0

Other receivables - Gazprombank Guarantee

1.5

11.9

Financial guarantee contract - Gazprombank Guarantee (a)

(7.7)

(8.2)

 

(a)   Classified as «held for sale» and presented separately in the statement of financial position as at 30 June 2021 and 31 December 2020.

 

Potential disposal of interest in IRC

 

During the period, the group has continued to explore disposal options for the interest in IRC and further engaged with several parties to dispose of the equity holding and release the group's obligation to guarantee IRC's external debt under the Gazprombank Facility (note 21). Following negotiations with several interested parties the directors resolved to approve the potential disposal of 29.9% investment in IRC. In the opinion of the directors it is highly probable this disposal to be completed within 12 months after the reporting date and accordingly, 29.9% investment in IRC together with the financial guarantee contract were considered to be a disposal group held-for sale under IFRS 5 "Non-current Assets Held for Sale and Discontinued Operations" as at 30 June 2021.

 

Tender offer to purchase up to US$200 million maximum tender amount of outstanding US$500 million 8.125 per cent Guaranteed Notes

  

On 13th July 2021 the Company announced that its wholly-owned subsidiary, Petropavlovsk 2016 Limited announced the launch of its offer to purchase for cash up to US$200 million aggregate principal amount of its 8.125 per cent Guaranteed Notes due 2022.

 

Tender offer is financed via Gazprombank loan facility with a total limit of US$200 million, that was consequently entered in July 2021 with an interest rate significantly lower than the Notes. Gazprombank loan repayment schedule is US$66 million in December 2022, US$66 million in March 2023 and remaining balance in June 2023.

 

On 10 August 2021,  Petropavlovsk 2016 Limited announced the final tender results‒ US$135,731,000 aggregate principal amount of the Notes were validly tendered.

 

Going concern

 

Please refer to the note 2 to the group's consolidated financial statements for the six months ended 30 June 2021.

 

2021 Outlook

 

Production outlook is on track to meet the full year target of 430 - 470koz of gold in 2021. The group expects own metal TCC in 2021 to be in the range of US$870 - US$970/oz, excluding third-party concentrate as the pricing of concentrate depends on highly volatile gold price.

 

 

 

Principal Risks and Uncertainties

 

The Group is exposed to a variety of risks and uncertainties which could significantly affect its business and financial results. A detailed review of the key risks facing the Group is set out in the Principal Risks section on pages 68 to 75 of the 2020 Annual Report, which is available on the Group's website, http://www.petropavlovskplc.com. This also includes a description of the potential impact of such risks on the Group together with measures in place to manage or mitigate against each specific risk where this is within the Group's control.

The nature of the principal risks and uncertainties facing the Group for the remainder of the current financial year remains substantially unchanged. An update on these risks and events in H1 2021 relevant to them, including any new or emerging factors within the context of existing risks, is set out below.

There may be additional risks unknown to the Group and other risks, currently believed to be immaterial, which could turn out to be material. These risks, whether they materialize, individually or simultaneously, could significantly affect the Group's business and financial results. The Group will continue to monitor internal and external areas of uncertainty and threat closely as well as remain vigilant on internal controls and incorporate any further developments as part of the full-year assessment of principal risks and uncertainties.  Without limiting the generality of the foregoing, an extensive independent environmental review to be conducted in H2 2021 could potentially uncover additional risks that the Group will need to address.

Below is indication of events relevant to our principal risks that have occurred during the first six months of 2021:

Operational risks

·      3rd-party concentrate gold production decreased in H1 2021 due to lower volumes and grades of concentrate available for purchase;

·      The Pioneer flotation plant was commissioned in May 2021, with an expected capacity of 60kt of concentrate in 2021 and 100kt in 2022.

·      Anomalous torrential rains led to flooding in some parts of Amur region causing some logistical issues and interruption to production, all of which were minor in effect. 

·      Inflation in Russia in June 2021 reached 6.5% per annum, affecting some of the Company's supplies, none of which was critical.

The Company has also identified the risk of lowering production performance due to processing new types of ore as an emerging operational risk for the business. In H1 2021, the Company began processing ore from Elginskoye. The ore mined at Elginskoye is of a lower grade than that previously mined from the Albyn deposit, and, as a result recovery rates and mill grinding capacity may be reduced, resulting in operational under-performance and higher cost. As announced in April 2021, exploration and metallurgical surveys are underway at Elginskoye to complete full-scale mapping of the deposit and may result in updates to the Company's production plans. The Company continues to expect to meet its production forecasts for 2021.

Financial risks

·   The Company completed the partial buy-back of its U.S.$500m 8.125% guaranteed notes due in 2022, purchasing c.US$136m of the outstanding U.S.$500m Notes using the proceeds of a term loan facility with Gazprombank which matures some six months later than and bears interest at a lower rate than that payable in respect of the U.S.$500m Notes. 

·    The property insurance previously maintained by the Company in respect of its facilities expired in the first half of 2021 and was not automatically renewed due to concerns that the insurance had not been procured at market rates. The Company is in the course of tendering for the provision of property and other insurances and expects this process to be completed and the real assets insured in September 2021. In the interim, there remains a risk that, in the event that an event occurs at one of the facilities the costs of which might have been expected to be recoverable from its insurers, such costs will be borne by the Company without recourse to insurance. All insurances mandated by law in Russia are in place.

Country and regional risks

·     In June 2021, KPMG LLP published its interim report pursuant to 'Resolution 19' identifying several potential issues with transactions involving the Company with an estimated value of US$157 million. These issues include transactions with potentially undisclosed related parties and likely conflicts of interest.

Sustainability risks

·    The Company published its 2020 sustainability report in July 2021, highlighting key sustainability initiatives across the business.

·     No fatal accidents and zero environmental incidents were reported in H1 2021. The Group has strengthened its health and safety and environmental teams through the employment of new field specialists aiming to bring best practice and expertise.

·    No material COVID-19 outbreaks took place at the Company's operations in H1 2021. As of 30 June 2021, 28% of employees at the Group's operating subsidiaries have been fully vaccinated (47.3% at 23 August 2021).  Nonetheless, the risk posed by the Covid-19 pandemic remains high.

 

The Company continues to monitor its principal risks. 

 

 

 

 

Director's Responsibilities Statement

 

We confirm that to the best of our knowledge:

§ The condensed set of consolidated interim financial statements has been prepared in accordance with UK-adopted IAS34 "Interim Financial Reporting" as required by DTR4.2.4R

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

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

 

By order of the Board,

 

Denis Alexandrov

Chief Executive Officer

Danila Kotlyarov

Chief Financial Officer

 

31 August 2021

 

 

 

Independent Review Report to Petropavlovsk PLC

 

Report on the condensed consolidated interim financial statements

Our conclusion

 

We have reviewed Petropavlovsk plc's condensed consolidated interim financial statements (the "interim financial statements") in the Interim financial report of Petropavlovsk plc for the 6 month period ended 30 June 2021 (the "period").

 

Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

What we have reviewed

The interim financial statements comprise:

·      the condensed consolidated balance sheet as at 30 June 2021;

·      the condensed consolidated statement of profit and loss and condensed consolidated

·      statement of comprehensive income for the period then ended;

·      the condensed consolidated statement of cash flows for the period then ended;

·      the condensed consolidated statement of changes in equity for the period then ended; and

·      the explanatory notes to the interim financial statements.

 

The interim financial statements included in the Interim financial report of Petropavlovsk plc have been prepared in accordance with UK adopted International Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Interim financial report, including the interim financial statements, is the responsibility of, and has been approved by the directors. The directors are responsible for preparing the Interim financial report in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

 

Our responsibility is to express a conclusion on the interim financial statements in the Interim financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

 

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, 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.

 

We have read the other information contained in the Interim financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

 

MHA MacIntyre Hudson

Chartered Accountants

London

31 August 2021
 

Condensed Consolidated Interim Financial Statements and

Notes to the Condensed Consolidated Interim Financial Statements

 

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Profit or Loss

Six months ended 30 June 2021

                                                                                                                                               

 

 

 

 

Six months ended

30 June 2021

(unaudited)

Six months ended

30 June 2020

(unaudited)

Year ended

31 December 2020

 

note

US$'000

US$'000

US$'000

Group revenue

5

351,945

522,731

988,534

Operating expenses

6

(303,652)

(378,440)

(840,494)

-           Operating profit

 

48,293

144,291

148,040

-           Share of results of associate

12

1,216

1,845

52,681

-           Reversal of write-down/(write-down) to adjust the carrying value of net assets of disposal group to fair value less costs to sell

12

34,874

-

(55,798)

Net impairment reversals/(impairment losses) on financial instruments

7

1,056

(1,274)

1,000

Investment and other finance income

7

3,266

3,962

7,754

Interest expense

7

(24,252)

(33,383)

(58,533)

Net other finance gains/(losses)

7

4,683

(98,893)

(67,957)

Profit before taxation

 

69,136

16,548

27,187

Taxation

8

(20,257)

(38,542)

(76,069)

Profit/(loss) for the period

 

48,879

(21,994)

(48,882)

Attributable to:

 

 

 

 

Equity shareholders of Petropavlovsk PLC

 

44,543

(23,934)

(45,633)

Non-controlling interests

 

4,336

1,940

(3,249)

Earnings per share

 

 

 

 

Basic profit/(loss) per share

9

US$0.01

US$(0.01)

US$(0.01)

Diluted profit/(loss) per share

9

US$0.01

US$(0.01)

US$(0.01)

 

 

 

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Comprehensive Income

Six months ended 30 June 2021

 

 

 

 

 

 

 

 

Six months ended

30 June 2021

(unaudited)

US$'000

 

Six months ended

30 June 2020

(unaudited)

US$'000

 

Year ended

31 December 2020

 

US$'000

Profit/(loss) for the period

 

48,879

(21,994)

(48,882)

-           Items that may be reclassified subsequently to profit or loss:

 

 

 

 

Exchange differences:

 

 

 

 

      Exchange differences on translating foreign operations

 

400

(2,261)

(3,029)

      Share of other comprehensive (loss)/profit of associate

 

(75)

425

902

 

 

325

(1,836)

(2,127)

Total comprehensive profit/(loss) for the period

 

49,204

(23,830)

(51,009)

Attributable to:

 

 

 

 

Equity shareholders of Petropavlovsk PLC

 

44,868

(25,770)

(47,760)

Non-controlling interests

 

4,336

1,940

(3,249)

 

 

49,204

(23,830)

(51,009)

 

 

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Financial Position

At 30 June 2021

 

 

 

note

30 June 2021

(unaudited)

US$'000

30 June 2020

(unaudited)

US$'000

31 December 2020

 

US$'000

-           Assets

 

 

 

 

Non-current assets

 

 

 

 

Exploration and evaluation assets

10

14,320

57,751

45,182

Property, plant and equipment

11

1,231,671

1,219,716

1,204,550

Investments in associate

12

5,077

50,950

3,936

Inventories

13

89,663

64,556

86,186

Trade and other receivables

14

354

578

481

Derivative financial instruments

16

-

2,730

-

Other non-current assets

 

892

763

893

 

 

1,341,977

1,397,044

1,341,228

Current assets

 

 

 

 

Inventories

13

230,895

221,554

196,668

Trade and other receivables

14

69,485

86,827

98,551

Current tax assets

 

18,150

10,535

13,312

Derivative financial instruments

16

1,397

37,647

3,320

Cash and cash equivalents

15

36,536

73,458

35,404

 

 

356,463

430,021

347,255

Assets of disposal group classified as held for sale

12

77,403

-

42,529

 

 

433,866

430,021

389,784

Total assets

 

1,775,843

1,827,065

1,731,012

Liabilities

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

17

(156,127)

(229,648)

(191,139)

Current tax liabilities

 

(433)

(2,138)

(144)

Borrowings

18

(35,000)

-

-

Derivative financial instruments

16

(32,200)

(3,168)

(6,072)

Provision for close down and restoration costs

 

(34)

-

(34)

Lease liabilities

 

(1,428)

(2,473)

(1,895)

 

 

(225,222)

(237,427)

(199,284)

Liabilities of disposal group associated with assets classified as held for sale

12

(7,663)

-

(8,232)

 

 

(232,885)

(237,427)

(207,516)

Net current assets

 

200,981

192,594

182,268

Non-current liabilities

 

 

 

 

Borrowings

18

(537,094)

(611,436)

(536,020)

Derivative financial instruments

16

(57,095)

(171,939)

(89,088)

Deferred tax liabilities

 

(143,034)

(126,045)

(140,034)

Provision for close down and restoration costs

 

(70,948)

(36,616)

(70,515)

Financial guarantee contract

21

-

(10,199)

-

Trade and other payables

17

(10,583)

(19,473)

(13,950)

Lease liabilities

 

(3,044)

(2,144)

(2,248)

 

 

(821,798)

(977,852)

(851,855)

Total liabilities

 

(1,054,683)

(1,215,279)

(1,059,371)

Net assets

 

721,160

611,786

671,641

Equity

 

 

 

 

Share capital

19

57,464

49,035

57,464

Share premium

 

596,713

518,142

596,713

Share based payments reserve

 

349

-

34

Translation reserves

 

(18,507)

(18,139)

(18,907)

Retained earnings

 

 

 

 

 

73,598

50,352

29,130

Equity attributable to the shareholders of Petropavlovsk PLC

 

709,617

599,390

664,434

Non-controlling interests

 

11,543

12,396

7,207

Total equity

 

721,160

611,786

671,641

 

These condensed consolidated financial statements for Petropavlovsk PLC, registered number 4343841, were approved by the Directors on 30 August 2021 and signed on their behalf by

Denis Alexandrov                                                                                Danila Kotlyarov

Chief Executive Officer                                                                      Chief Financial Officer

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2021

 

 

 

Total attributable to equity holders of Petropavlovsk PLC

 

 

 

 

Share

capital

Share premium

Share based payments reserve

Hedging

reserve

Translation reserve

Retained earnings/ (losses)

Total

Non-controlling interests

Total equity

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Balance

at 1 January 2020

 

49,003

518,142

199

-

(15,878)

73,605

625,071

10,456

635,527

Total comprehensive (loss)/profit

 

-

-

-

-

(2,261)

(23,509)

(25,770)

1,940

(23,830)

Profit/(loss) for the period

 

-

-

-

-

-

(23,934)

(23,934)

1,940

(21,994)

Other comprehensive (loss)/profit

 

-

-

-

-

(2,261)

425

(1,836)

-

(1,836)

Deferred share awards

 

32

-

(199)

-

-

256

89

-

89

Balance

at 30 June 2020  (unaudited)

 

49,035

518,142

-

-

(18,139)

50,352

599,390

12,396

611,786

Total comprehensive loss

 

-

-

-

-

(768)

(21,222)

(21,990)

(5,189)

(27,179)

Loss for the period

 

-

-

-

-

-

(21,699)

(21,699)

(5,189)

(26,888)

Other comprehensive (loss)/profit

 

-

-

-

-

(768)

477

(291)

-

(291)

Conversion of convertible bonds

 

8,429

78,571

-

-

-

-

87,000

-

87,000

Deferred share awards

 

-

-

34

-

-

-

34

-

34

Balance

at 31 December 2020

 

57,464

596,713

34

-

(18,907)

29,130

664,434  

7,207

671,641  

Total comprehensive profit

 

-

-

-

-

400

44,468

44,868

4,336

49,204

Profit for the period

 

-

-

-

-

-

44,543

44,543

4,336

48,879

Other comprehensive profit/(loss)

 

-

-

-

-

400

(75)

325

-

325

Deferred share awards

 

-

-

315

-

-

-

315

-

315

Balance

at 30 June 2021 (unaudited)

 

57,464

596,713

349

-

(18,507)

73,598

709,617

11,543

721,160

 

 

 

 

 

        

 

PETROPAVLOVSK PLC

Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2021

 

 

 

 

 

 

 

 

 

note

Six months ended

30 June 2021

(unaudited)

US$'000

Six months
ended

30 June 2020

 (unaudited)

US$'000

 Year ended

31 December 2020

 

 

US$'000

-           Cash flows from operating activities

 

 

 

 

Cash generated from operations

20

57,134

172,758

265,860

Interest paid

 

(24,453)

(32,149)

(58,086)

Guarantee fee received

21

13,810

-

5,000

Income tax paid

 

(21,247)

(28,513)

(56,472)

Net cash from operating activities

 

25,244

112,096

156,302

Cash flows from investing activities

 

 

 

 

Purchase of property, plant and equipment

20

(58,413)

(78,618)

(151,503)

Expenditure on exploration and evaluation assets

10

(1,490)

(4,648)

(8,829)

Proceeds from disposal of property, plant and equipment

 

373

57

194

Interest received

 

215

558

1,065

Net cash used in investing activities

 

(59,315)

(82,651)

(159,073)

Cash flows from financing activities

 

 

 

 

Exercise of gold options

16

(284)

-

(1,525)

Exercise of currency options

16

648

677

1,389

Exercise of other options

16

-

(999)

(999)

Proceeds from borrowings

18

35,000

-

-

Principal elements of lease payments

 

(447)

(1,655)

(3,493)

Bond solicitation expenses

 

-

-

(1,705)

Net cash from/(used in) financing activities

 

34,917

(1,977)

(6,333)

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

 

846

27,468

(9,104)

Effect of exchange rates on cash and cash equivalents

 

286

(2,163)

(3,645)

Cash and cash equivalents at beginning of period

15

35,404

48,153

48,153

Cash and cash equivalents at end of period

15

36,536

73,458

35,404

 

 

 

 

 

 

PETROPAVLOVSK PLC

Notes to the condensed consolidated interim financial statements

Six months ended 30 June 2021

 

-           1. General information

 

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

 

These condensed consolidated interim financial statements are for the six months ended 30 June 2021. The interim financial statements are unaudited.

 

These condensed interim financial statements do not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the board of directors on 16 May 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 of the Companies Act 2006.

 

 

-           2. Basis of preparation and presentation

 

The interim condensed consolidated financial statements of the Company and its subsidiaries (the "group") for the six-month reporting period ended 30 June 2021 have been  prepared in accordance with the UK-adopted International Accounting Standard 34 'Interim Financial Reporting' and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority. The interim condensed consolidated financial statements do not include all of the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements for the year ended 31 December 2020.

 

The condensed consolidated set of financial statements has been prepared using accounting policies consistent with those set out in the annual financial statements for the year ended 31 December 2020, which had been prepared in accordance with both "International Accounting Standards in conformity with the requirements of the Companies Act 2006" and "International Financial Reporting Standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union".

 

Going concern

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

 

The group performed an assessment of the forecast cash flows for the period of at least 12 months from the date of approval of the 2021 Half-Year Report and Accounts. As at 30 June 2021, the group had sufficient liquidity. The group is also satisfied that it has sufficient headroom under a base case scenario for the period till end of 2022. The group has also performed projections under a layered stressed case that is based on:

 

―    A gold price, which is approximately 10% lower than the upper quartile of the average of the market consensus forecasts;

―    Processing of 3rd-party concentrate through POX facilities is approximately 10% lower than projected and oxide gold production from underground operations at Pioneer and Malomir approximately 10% lower than projected;

―    Delayed commissioning of the Malomir third flotation line beyond 2022; and

―    Russian Rouble : US Dollar exchange rate that is approximately 10% stronger than the average of the market consensus forecasts.

In selecting these scenarios, the directors have also considered the potential impacts of COVID-19. On the basis of the limited impact of Covid-19 on the Company's and IRC's operations in 2020 and comprehensive measures for 2021, management currently doesn't anticipate Covid-19 to be a material risk and hence doesn't stress the Going Concern model for its impact.

 

This layered stressed case indicates that mitigating actions will be required to be taken in order to ensure sufficient liquidity for the relevant period till end of 2022.

The mitigated downside case includes the following mitigating actions:

§  Reduction of group central administrative expenses by US$6 million in 2022. This estimated reduction has been applied in 2021 budget in the second half of 2021. We assume that a similar saving can be achieved in 2022;

§  Postponing capital expenditures from September 2021 beyond the going concern period. This includes exploration, maintenance and third flotation lines at both Malomyr and Pioneer. Since the launch of the third Malomir flotation line in the RWC scenario is moved beyond the going concern period, reduction of the relevant capital expenditures does not affect production capacity within the going concern period;

§  Postponing mining works planned as deferred stripping in 2022. These do not affect gold production in the going concern period;

§  Borrowings of up to US$25 million using a revolving credit line with a limit of c.US$116 million.

Having taken into account the aforementioned factors, and after making enquiries and considering the uncertainties described above, the directors have a reasonable expectation that the group will have adequate resources to continue in operational existence for the foreseeable future, being at least the next 12 months from the date of approval of the 2021 Half-year  Report and Accounts. Accordingly, they continue to adopt the going concern basis of accounting in preparing these consolidated financial statements.

 

Adoption of new and revised standards and interpretations

 

During the period the group adopted all standards, amendments and interpretations that were effective for annual periods beginning on or after 1 January 2021 (such standards, amendments and interpretations were disclosed in note 2 to the group's consolidated financial statements for the year ended 31 December 2020). These standards, amendments, and interpretations have not had a significant impact on the presentation or disclosure in group's condensed consolidated financial statements for the interim period ended 30 June 2021. No other changes have been made to the group's accounting policies in the period ended 30 June 2021. Additional disclosures with respect to the annual period requirements will be included in the Group's consolidated financial statements for the year ending 31 December 2021.

 

Areas of judgement in applying accounting policies and key sources of estimation uncertainty

 

When preparing the consolidated financial statements, management necessarily makes judgements and estimates that can have a significant impact on the financial statements. Areas of judgement in applying accounting policies and key sources of estimation uncertainty are consistent with those set out in the annual financial statements for the year ended 31 December 2020.

 

 

-           3. Foreign currency translation

 

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

 

 

 

As at

30 June

2021

Average

six months ended

30 June 2021

As at

30 June
 2020

Average

six months ended

30 June 2020

As at

31 December
2020

Average

year ended

31 December 2020

GB Pounds Sterling (GBP: US$)

0.72

0.72

0.81

0.79

0.73

0.78

Russian Rouble (RUB: US$)

72.37

74.31

69.95

69.42

73.88

72.18

 

 

 

-           4. Segment information

 

The group's reportable segments under IFRS 8, which are aligned with its operating locations, were determined to be Pioneer, Malomir and Albyn hard rock gold mines which are engaged in gold and silver production as well as field exploration and mine development. POX Hub facilities are allocated between Pioneer, Malomir and Albyn reportable segments based on the expected use by each segment.

 

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

 

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

 

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

 

 

 

Six months ended 30 June 2021

 

Pioneer

 

Malomir

 

Albyn

Corporate

and other

 

Consolidated

 

US$'000

US$'000

US$'000

US$'000

US$'000

Revenue

 

 

 

 

 

Gold

134,742

125,360

75,681

-

335,783

Silver

-

-

-

-

-

Other external revenue

-

-

-

16,162

16,162

Inter segment revenue

18,185

199

20

60,464

78,868

Intra group eliminations

(18,185)

(199)

(20)

(60,464)

(78,868)

Total group revenue from external customers

134,742

125,360

75,681

16,162

351,945

 

 

 

 

 

 

Operating expenses and income

 

 

 

 

 

Operating cash costs

(100,303)

(57,458)

(33,002)

(18,778)

(209,541)

Depreciation

(22,694)

(27,279)

(11,495)

(1,513)

(62,981)

Central administration expenses

-

-

-

(29,579)

(29,579)

Write-down of inventory to net realisable value

-

-

(31)

(114)

(145)

Impairment of gold in circuit

-

(700)

-

-

(700)

Total operating expenses (a)

(122,997)

(85,437)

(44,528)

(49,984)

(302,946)

Segment result

11,745

39,923

31,153

(33,822)

48,999

 

 

 

 

 

 

Foreign exchange losses

 

 

 

 

(706)

Operating profit

 

 

 

 

48,293

Share of results of associate

 

 

 

 

1,216

Reversal of write-down to adjust the carrying value of net assets of disposal group to fair value less costs to sell

 

 

 

 

34,874

Net impairment reversals on financial instruments

 

 

 

 

1,056

Investment and other finance income

 

 

 

 

3,266

Interest expense

 

 

 

 

(24,252)

Net other finance gains

 

 

 

 

4,683

Taxation

 

 

 

 

(20,257)

Profit for the period

 

 

 

 

48,879

Segment assets

614,805

602,269

327,199

151,820

1,696,093

Unallocated cash

 

 

 

 

2,347

Consolidated total assets

 

 

 

 

1,698,440

 

(a)    Operating expenses excluding foreign exchange losses (note 6).

 

 

 

Six months ended 30 June 2020

 

Pioneer

 

Malomir

 

Albyn

Corporate

and other

 

Consolidated

 

US$'000

US$'000

US$'000

US$'000

US$'000

Revenue

 

 

 

 

 

Gold

258,378

136,404

117,553

-

512,335

Silver

                  -    

                -    

               -    

-

-                           

Other external revenue

-

-

-

10,396

10,396

Inter segment revenue

17,169

         179

6,633

        71,166

95,147

Intra group eliminations

(17,169)

   (179)

(6,633)

(71,166)

(95,147)

Total group revenue from external customers

258,378

136,404

117,553

10,396

522,731

 

 

 

 

 

 

Operating expenses and income

 

 

 

 

 

Operating cash costs

(199,104)

(65,529)

(42,560)

(12,679)

(319,872)

Depreciation

(22,987)

(23,941)

(16,607)

(1,125)

(64,660)

Central administration expenses

-

-

-

(20,671)

(20,671)

Reversal of impairment of ore stockpiles

-

15

-

-

15

Reversal of impairment of gold in circuit

-

38

-

-

38

Total operating expenses (b)

(222,091)

(89,417)

(59,167)

(34,475)

(405,150)

Segment result

36,287

46,987

58,386

(24,079)

117,581

 

 

 

 

 

 

Foreign exchange gains

 

 

 

 

26,710

Operating profit

 

 

 

 

144,291

Share of results of associate

 

 

 

 

1,845

Net impairment losses on financial instruments

 

 

 

 

             (1,274)

Investment and other finance income

 

 

 

 

              3,962

Interest expense

 

 

 

 

          (33,383)

Net other finance losses

 

 

 

 

         (98,893)

Taxation

 

 

 

 

         (38,542)

Loss for the period

 

 

 

 

(21,994)

Segment assets

622,174

665,757

313,567

219,735

1,821,233

Unallocated cash

 

 

 

 

5,832

Consolidated total assets

 

 

 

 

1,827,065

 

(b)    Operating expenses excluding foreign exchange gains (note 6).

 

 

 

 

2020

 

Pioneer

Malomir

Albyn

Corporate

and other

Consolidated

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

Revenue

 

 

 

 

 

 

Gold

 

486,207

247,921

221,244

-

955,372

Silver

 

338

100

196

-

634

Other external revenue

 

-

-

-

32,528

32,528

Inter segment revenue

 

32,694

380

23,104

143,425

199,603

Intra group eliminations

 

(32,694)

(380)

(23,104)

(143,425)

(199,603)

Total group revenue from external customers

 

486,545

248,021

221,440

32,528

988,534

 

 

 

 

 

 

 

Operating expenses and income

 

 

 

 

 

 

Operating cash costs

 

(366,677)

(106,959)

(92,307)

(35,497)

(601,440)

Depreciation

 

(49,824)

(53,771)

(27,969)

(2,515)

(134,079)

Central administration expenses

 

-

-

-

(61,371)

(61,371)

Iimpairment of mining assets

 

-

-

(58,806)

-

(58,806)

Impairment of exploration and evaluation assets

 

-

-

(16,112)

-

(16,112)

Impairment of gold in circuit

 

(77)

-

-

-

(77)

Impairment of bullion in process

 

(41)

-

-

-

(41)

Write-down of inventory to net realisable value

 

-

-

-

(1,215)

(1,215)

Total operating expenses (c)

 

(416,619)

(160,730)

(195,194)

(100,598)

(873,141)

Segment result

 

69,926

87,291

26,246

(68,070)

115,393

 

 

 

 

 

 

 

Foreign exchange gains

 

 

 

 

 

32,647

Operating profit

 

 

 

 

 

148,040

Share of results of associate

 

 

 

 

 

52,681

Write-down to adjust the carrying value of net assets of disposal group to fair value less costs to sell

 

 

 

 

 

(55,798)

Net impairment reversals on financial instruments

 

 

 

 

 

1,000

Investment and other finance income

 

 

 

 

 

7,754

Interest expense

 

 

 

 

 

(58,533)

Net other finance losses

 

 

 

 

 

(67,957)

Taxation

 

 

 

 

 

(76,069)

Loss for the year

 

 

 

 

 

(48,882)

Segment assets

 

619,004

603,684

312,678

149,698

1,685,064 

Unallocated cash

 

 

 

 

 

3,419

Consolidated total assets

 

 

 

 

 

1,688,483

               

 

(c)    Operating expenses excluding foreign exchange gains (note 6).

 

 

 

 

5. Group revenue

 

Six months ended

30 June 2021

US$'000

Six months ended

30 June 2020

US$'000

 Year ended

31 December 2020

US$'000

Sales of goods:

 

 

 

Gold

335,783

512,335

955,372

Silver

-

-

634

Other goods

9,837

3,976

19,664

Rendering of services:

 

 

 

Engineering and construction contracts

5,087

5,036

10,390

Other services

880

1,042

1,897

Rental income

358

342

577

 

351,945

522,731

988,534

Timing of revenue recognition:

 

 

 

At a point in time

345,620

516,311

975,670

Over time

6,325

6,420

12,864

 

351,945

522,731

988,534

 

 

 

6. Operating expenses and income

 

 

Six months ended

30 June 2021

US$'000

Six months ended

30 June 2020

US$'000

 Year ended

31 December 2020

US$'000

Net operating expenses (a)

272,522

384,532

735,519

Impairment of mining assets and in-house service (a)

-

-

58,806

Impairment of exploration and evaluation assets(a)

-

-

16,112

Write-down of inventory to net realisable value

145

-

1,215

Reversal of impairment of ore stockpiles (a)

-

(15)

-

Impairment/(reversal of impairment) of gold in circuit

700

(38)

77

Impairment of bullion in process

-

-

41

Central administration expenses (a)

29,579

20,671

61,371

Foreign exchange losses/(gains)

706

(26,710)

(32,647)

 

303,652

378,440

840,494  

 

(a)       As set out below.

 

Net operating expenses

 

 

Six months ended

30 June 2021

US$'000

Six months ended

30 June 2020

US$'000

 Year ended

31 December 2020

US$'000

Depreciation

62,981

64,660

134,079

Staff costs

51,179

45,178

88,492

Materials

45,428

42,277

88,623

Flotation concentrate purchased

49,175

130,175

201,647

Fuel

16,360

17,652

29,565

External services

26,698

18,941

43,095

Mining tax charge

18,351

15,238

33,796

Electricity

15,927

17,779

33,880

Smelting and transportation costs

276

466

777

Movement in ore stockpiles, work in progress, bullion in process, limestone and flotation concentrate attributable to gold production

(44,211)

9,297

29,962

Taxes other than income

3,975

4,238

7,962

Insurance

684

2,225

3,641

Rental fee

1,187

1,609

2,861

(Reversal of provision)/provision for impairment of trade and other receivables

(230)

(27)

650

Bank charges

853

553

1,088

Repair and maintenance

1,801

2,860

5,061

Security services

1,979

2,265

4,424

Travel expenses

731

606

1,284

Goods for resale

7,856

2,673

11,068

Other operating expenses

11,522

5,867

13,564

 

272,522

384,532

735,519

 

 

Central administration expenses

 

 

Six months ended

30 June 2021

US$'000

Six months ended

30 June 2020

US$'000

 Year ended

31 December 2020

US$'000

Staff costs

15,217

13,217

29,926

Professional fees

10,211

3,662

20,615

Insurance

649

415

739

Rental fee

240

193

416

Business travel expenses

415

369

541

Office costs

402

383

830

Other

2,445

2,432

8,304

 

29,579

20,671

61,371

 

 

 

 

Impairment charges

 

Impairment of mining assets

 

The group undertook a review of impairment indicators of the tangible assets attributable to its gold mining projects and supporting in-house service companies. Detailed calculations of recoverable amounts, which are value-in-use calculations based on discounted cash flows, were prepared which concluded no impairment was required as at 30 June 2021 and 30 June 2020.

 

As at 31 December 2020, the group recognised a pre-tax impairment of an aggregate of US$74.9 million (being a post-tax impairment of an aggregate of US$59.9 million) to the extent that recoverable amounts no longer supported the relevant carrying values of assets that were part of Albyn CGU on the statement of financial position as at 31 December 2020. A pre-tax impairment of US$58.8 million (US$47.0 million post-tax) has been recorded against the associated assets within property, plant and equipment and a pre-tax impairment of US$16.1 million (US$12.9 million post-tax) has been recorded against the associated exploration and evaluation assets.

 

Impairment of exploration and evaluation assets

 

The group performed a review of its exploration and evaluation assets and concluded no impairment was required as at 30 June 2021 and 30 June 2020. As at 31 December 2020, no impairment except for in relation to exploration and evaluation assets that were part of Albyn CGU was required.

 

As at 30 June 2021, 30 June 2020 and 31 December 2020, exploration and evaluation assets in the statement of financial position primarily related to the areas adjacent to the existing mines (note 10).

 

 

The key assumptions which formed the basis of forecasting future cash flows and the value in use calculation are set out below:

 

 

 

Year ended

30 June 2021

Year ended

31 December 2020

Long-term real gold price (a)

 

US$1,464/oz

US$1,575/oz

Discount rate (b)

 

7.1%

6.4%

RUB : US$ exchange rate (c)

 

RUB74.6 : US$1

RUB73.6 : US$1

 

(a)   Being upper 75% range of the analyst forecasts based on Consensus Economics, published in June 2021 and January 2021. Based on experience of analyst forecasts being on a conservative side, it is management's view that the upper 75% range is a more accurate basis on which to base the forecasting of forecasting future cash flows for value-in-use calculations.

(b)   Being the post-tax real weighted average cost of capital, an equivalent to a nominal pre-tax discount rate of 9.4% (2020: 8.7%), applied to cash flows prepared on a consistent post-tax real basis.

(c)   Based on Consensus Economics, published in June 2021 (2020: in January 2021).

 

 

Impairment of ore stockpiles

 

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

 

 

 

 

Six months ended 30 June 2021

Six months ended 30 June 2020

Year ended 31 December 2020

 

 

Pre-tax Impairment charge /(reversal of impairment)

Taxation

Post-tax impairment charge/(reversal of impairment)

Pre-tax Impairment charge /(reversal of impairment)

Taxation

Post-tax impairment charge/(reversal of impairment)

Pre-tax Impairment charge /(reversal of impairment)

Taxation

Post-tax impairment charge/(reversal of impairment)

 

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Pioneer

-

-

-

-

-

-

-

-

-

Malomir

-

-

-

(15)

3

(12)

-

-

-

Albyn

-

-

-

-

-

-

-

-

-

 

-

-

-

(15)

3

(12)

-

-

-

 

 

 

-           7. Financial income and expenses and impairment of financial instruments

 

 

 

 

Six months ended

30 June 2021

US$'000

Six months ended

30 June 2020

US$'000

 Year ended

31 December 2020

US$'000

Net impairment reversals/(impairment losses) on financial instruments

 

 

 

Reversal of impairment of financial assets

487

2

309

Financial guarantee contract

569

(1,276)

691

 

1,056

(1,274)

1,000

Investment and other finance income

 

 

 

Interest income

211

574

1,100

Guarantee fee income (a)

3,055

3,388

6,654

 

3,266

3,962

7,754

Interest expense

 

 

 

Notes

(20,935)

(20,986)

(42,238)

Convertible bonds

(2,019)

(6,455)

(9,231)

Bank loans

(124)

-

-

Prepayment on gold sale agreements

(2,063)

(6,295)

(9,938)

Lease liabilities

(283)

(281)

(485)

 

(25,424)

(34,017)

(61,892)

Interest capitalised

1,605

1,019

4,134

Unwinding of discount on environmental obligation

(433)

(385)

(775)

 

(24,252)

(33,383)

(58,533)

Net other finance gains/(losses)

 

 

 

Fair value gain/(loss) on the conversion option (b)

31,993

(122,248)

(45,775)

Loss on Bonds conversion (c)

-

-

(9,536)

Fair value gain on the guarantee receivable (d)

-

226

571

Fair value gain/(loss) on the call option over non-controlling interests (e)

-

20,558

(11,022)

Fair value loss on other derivative financial instruments

-

(733)

(733)

Fair value gain/(loss) on listed equity investments

127

(59)

(92)

Gain on lease modification

249

224

224

Fair value gain/(loss) on gold option contracts(f)

4,799

(4,544)

(7,021)

Fair value (loss)/gain on currency option contracts(f)

(902)

7,683

4,132

Fair value loss on the agreement for the sale of stake in IRC(g)

(31,583)

-

-

Bond solicitation expenses

-

-

(1,705)

 

4,683

(98,893)

(67,957)

         

 

(a)   Guarantee fee income under Gazprombank Guarantee arrangements (note 21).

(b)   Result of re-measurement of the conversion option to fair value (notes 16 and 18).

(c)   Result of Bonds being converted and settled in shares at their nominal value and the carrying value of Convertible Bonds.

(d)   Result of re-measurement of receivable from IRC under ICBC Guarantee arrangements to fair value (note 21).

(e)   Result of re-measurement of the TEMI option to fair value (notes 16 and 21).

(f)    Result of measurement of gold and currency option contracts (note 16).

(g)   Results of measurement of value the derivative associated with a transaction undertaken by the Company on 16 March 2020 with Stocken Board AG in connection with the sale of a stake in IRC.

 

 

 

 

-           8. Taxation

 

 

 

 

 

Six months ended

30 June 2021

Six months ended

30 June 2020

 Year ended

31 December 2020

 

US$'000

US$'000

US$'000

Current tax

 

 

 

Russian current tax

17,261

25,100

48,652

 

17,261

25,100

48,652

Deferred tax

 

 

 

Origination of temporary differences (a)

2,996

13,442

27,417

Total tax charge (b)

20,257

38,542

76,069

 

(a)   Including effect of foreign exchange movements in respect of deductible temporary differences of US$(3.2) million (six months ended 30 June 2020: US$23.7 million, year ended 31 December 2020: US$33.1 million) which primarily arises as the tax base for a significant portion of the future taxable deductions in relation to the group's property, plant and equipment are denominated in Russian Rouble whilst the future depreciation charges associated with these assets will be based on their US Dollar carrying value and reflects the movements in the Russian Rouble to the US Dollar exchange rate.

(b)   Including effect of expenses that are not taxable/deductible for tax purposes which primarily relate to fair value gain/loss on re-measurement of the conversion option of the Convertible Bonds (note 7), effect of tax losses for which no deferred income tax asset was recognised which primarily relate to interest expense incurred in the UK (note 7) and Russian withholding tax on intercompany dividends.

 

Tax laws, regulations and court practice applicable to the group are complex and subject to frequent change, varying interpretations and inconsistent and selective enforcement. There are a number of practical uncertainties associated with the application of relevant tax legislation and there is a risk of tax authorities making arbitrary judgements of business activities. If a particular treatment, based on management's judgement of the group's business activities, was to be challenged by the tax authorities, the group may be subject to tax claims and exposures. Management has calculated a total exposure (including taxes and respective interest and penalties) estimated to be US$7.5 million (six months ended 30 June 2020: US$6.7 million and 2020: US$7.5 million) of contingent liabilities, including US$0.2 million (30 June 2020: US$1.1 million  and  31 December 2020: US$0.2 million) in respect of income tax and US$7.4 million (30 June 2020: US$5.6 million and 31 December 2020: US$7.3 million) in respect of other taxes.

 

 

-           9. Earnings per share

 

 

 

 

 

Six months ended

30 June 2021

Six months ended

30 June 2020

 Year ended

31 December 2020

 

US$'000

US$'000

US$'000

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

44,543

(23,934)

(45,633)

Interest expense on convertible bonds

2,019

-(a)

-(a)

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

46,562

(23,934)

(45,633)

 

No of shares

No of shares

 

No of shares

Weighted average number of Ordinary Shares

3,957,270,254

3,310,369,237

3,564,250,949

Adjustments for dilutive potential Ordinary Shares

281,481,494

-(a)

-(a)

Weighted average number of Ordinary Shares for diluted earnings per share

4,238,751,748

3,310,369,237

3,564,250,949

 

US$

US$

US$

Basic profit/(loss) per share

0.01

(0.01)

(0.01)

Diluted profit/(loss) per share

0.01

(0.01)

(0.01)

         

 

(a)  Convertible bonds which could potentially dilute basic profit/(loss) per ordinary share in the future are not included in the calculation of diluted profit/(loss) per share because they were anti-dilutive for the six months ended 30 June 2020 and the year ended 31 December 2020.

 

 

-     10.           Exploration and evaluation assets

 

 

 

Flanks of Pioneer

Flanks of

Albyn

 

Other

 

Total

 

 

US$'000

US$'000

US$'000

US$'000

At 1 January 2021

 

7,544

32,347

5,291

45,182

Additions

 

 

 

1,485

1,485

Transfer to mining assets (a)

 

-

(32,347)

-

(32,347)

At 30 June 2021

 

7,544

-

6,776

14,320

 

(a)   Amount capitalised in respect of Elginskoye.

 

 

-           11.        Property, plant and equipment

 

 

 

Mining

assets (d)

Non-mining assets (d)

Capital construction in progress

Total

 

 

US$'000

US$'000

US$'000

US$'000

Cost

 

 

 

 

 

At 1 January 2021

 

2,613,218

183,475

98,577

2,895,270

Additions (a)

 

27,585

9,246

28,963

65,794

Interest capitalised

 

-

-

1,605

1,605

Transfers from exploration and evaluation assets (note 10)

 

48,459

-

-

48,459

Transfers from capital construction in progress (b)

 

91,446

320

(91,766)

-

Disposals (c)

 

(31,906)

(16,622)

-

(48,528)

Reallocation and other transfers

 

114

(114)

-

-

Foreign exchange differences

 

-

487

7

494

At 30 June 2021(f)

 

2,748,916

176,792

37,386

2,963,094

 

 

 

 

 

 

Accumulated depreciation and impairment

 

 

 

 

 

At 1 January 2021

 

1,560,511

130,209

-

1,690,720

Charge for the year (e)

 

61,521

2,268

-

63,789

Disposals

 

(30,633)

(8,962)

-

(39,595)

Transfers from exploration and evaluation assets (note 10)

 

16,112

-

-

16,112

Reallocation and other transfers

 

(1,302)

1,302

-

-

Foreign exchange differences

 

-

397

-

397

At 30 June 2021(f)

 

1,606,209

125,214

-

1,731,423

Net book value

 

 

 

 

 

At 1 January 2021 (g)

 

1,052,707

53,266

98,577

1,204,550

At 30 June 2021 (g)

 

1,142,707

51,578

37,386

1,231,671

 

(a)   Including US$13.4 million additions of stripping cost.

(b)   Being costs primarily associated with the Flotation Pioneer and Elginskoye projects.

(c)   Including US$29.0 million of fully depreciated fleet that is not suitable for future use due to wear and tear, US$7.0 million disposals of lease modification, US$6.0 million disposals of mining fleet due to derecognition of the replaced part.

(d)   Mining and Non-mining assets include right-of-use assets.

(e)   Including US$17.7 million depreciation charge of capitalized stripping cost.

(f)    Including US$479.5 million of fully depreciated property, plant and equipment (31 December 2020: US$498.0 million).

(g)   Including US$52.1 million net book value of capitalized stripping cost (31 December 2020: US$56.4 million).

 

 

-           12. Investment in associate and disposal group held for sale

 

 

 

30 June 2021

30 June 2020

31 December 2020

 

US$'000

US$'000

US$'000

IRC Limited ('IRC') (a)

5,077

50,950

3,936

 

5,077

50,950

3,936

 

(a)  1.2% interest in IRC, with 29.9% interest in IRC re-classified as assets held for sale as set out below (30 June  2020:  31.1%, 31 December  2020:  1.2% with 29.9% interest in IRC re-classified as assets held for sale).

 

Summarised financial information for IRC and its subsidiaries is set out below.

 

 

IRC

IRC

IRC

 

30 June 2021

30 June 2020

31 December 2020

 

US$'000

US$'000

US$'000

Non-current assets

 

 

 

Exploration and evaluation assets

20,303

20,035

20,165

Property, plant and equipment

566,866

512,652

573,041

Other non-current assets

13,836

14,840

14,481

 

601,005

547,527

607,687

Current assets

 

 

 

Cash and cash equivalents

67,019

4,980

20,371

Other current assets

93,810

52,065

53,063

 

160,829

57,045

73,434

Current liabilities

 

 

 

Borrowings (a)

(19,476)

(19,869)

(20,082)

Other current liabilities

(77,884)

(82,781)

(77,898)

 

(97,360)

(102,650)

(97,980)

Non-current liabilities

 

 

 

Borrowings (a)

(172,843)

(191,981)

(181,998)

Other non-current liabilities

(17,416)

(24,181)

(18,857)

 

(190,259)

(216,162)

(200,855)

Net assets

474,215

285,760

382,286

 

(a)   On 18 December 2018, IRC entered into two facility agreements for a loan in aggregate of US$240 million (the "Gazprombank Facility"). The Gazprombank Facility will mature in 2026 and consists of two tranches. The principal under the first tranche amounts to US$160 million with interest being charged at the London Inter-bank Offer Rate ("LIBOR") + 5.7% per annum and is repayable in equal quarterly payments during the term of the Gazprombank Facility, the final payment in December 2026. The principal under the second tranche amounts to US$80 million with interest being charged at LIBOR + 7.7% per annum and is repayable in full at the end of the term, in December 2026. Interest charged on the drawn down amounts under the two tranches is payable in equal quarterly payments during the term of the Gazprombank Facility. As at 30 June 2021, 30 June 2020 and 31 December 2020, the entire facility amount of US$240 million has been fully drawn down.

 

(b)  The Gazprombank Facility is secured by (i) IRC's property, plant and equipment with net book value of US$52 million, (ii) 100% equity share of Kapucius Services Limited in LLC KS GOK and (iii) a guarantee from the Company. Please refer to the note 21 for the details on the guarantee arrangements. The Gazprombank Facility is also subject to certain financial covenants and requirements.

 

 

 

IRC

IRC

IRC

 

Six months ended

30 June 2021
US$'000

Six months ended

30 June 2020
US$'000

Year ended

31 December 2020
US$'000

Revenue

217,170

106,173

224,591

Net operating expenses

(108,374)

(86,489)

(97,366)

including

 

 

 

Depreciation

(11,904)

(13,465)

(28,818)

Impairment losses under expected credit loss model

 (2,054)

(5,176)

(7,115)

Reversal of impairment of mining assets 

-

-

75,832

Foreign exchange (losses)/gains

(585)

4,690

6,934

 

 

 

 

Investment income

15

26

44

Interest expense

(10,847)

(13,338)

(25,157)

Taxation

266

(440)

(1,602)

Profit for the period  

98,230

5,932

100,510

Other comprehensive (loss)/profit

(6,352)

1,368

2,902

Total comprehensive profit

91,878

7,300

103,412

 

Group's share %

1.2%

31.1%

31.1%

Group's share in profit for the period

1,216

1,845

31,257

Reversal of impairment of investment in associate

-

-

21,424

Share of results of associate

1,216

1,845

52,681

 

 

Impairment of investment in associate

As at 30 June 2021, the group identified no impairment indicators or indicators of impairment reversal in relation to its investment in IRC (30 June 2020: no impairment indicators and 31 December 2020: detailed calculations of recoverable amounts, which are value-in-use calculations based on discounted cash flows, were prepared which concluded a US$21.4 million reversal impairment was required and recorded accordingly).  

 

Following negotiations with several interested parties the directors resolved to approve the potential disposal of 29.9% investment in IRC (note 3.1). This disposal is expected to be completed within 12 months after the reporting date and accordingly investment in IRC has been classified as "held for sale" and presented separately in the statement of financial position as at 31 December 2020.

 

The following assets and liabilities re-classified as held for sale are set out below.

 

 

 

30 June 2021

 

31 December 2020

 

 

Fair value less costs to sell(a)

 

Carrying

amount

Fair value less costs to sell(a)

 

 

US$'000

 

US$'000

US$'000

Investment in associate (b)

 

77,403

 

98,327

42,529

Total assets of disposal group classified as held for sale

 

77,403

 

98,327

42,529

Financial guarantee contract

 

(7,663)

 

(8,232)

(8,232)

Total liabilities of disposal group associated with assets classified as held for sale

 

(7,663)

 

(8,232)

(8,232)

Net assets of disposal group classified as held for sale

 

69,740

 

90,095

34,297

Reversal of write-down/(write-down) to adjust the carrying value of net assets of disposal group to fair value less costs to sell

                 

34,874

 

 

(55,798)

 

(a)   Based on market share price of HK$0.27 per IRC share as at 30 June 2021 (31 December 2020: HK$0.14), less estimated transaction costs, and fair value of Gazprombank Guarantee of US$nill (31 December 2020: US$nil).

A decrease/ increase of 10% in IRC's share price would result in US$7.3 million additional write-down/ reversal of write-down adjustment (31 December 2020: US$3.8 million).

(b)  29.9% interest in IRC Limited (31 December 2020: 29.9%)

 

 

 

-           13.        Inventories

 

 

30 June

2021

30 June

2020

31 December

2020

 

US$'000

US$'000

US$'000

Current

 

 

 

Construction materials

8,300

9,652

9,060

Stores and spares

89,012

81,956

84,309

Ore in stockpiles

56,288

59,945

29,901

Gold in circuit (a)

28,160

10,055

26,567

Bullion in process (a)

21,179

17,936

9,284

Flotation concentrate

13,782

33,068

32,801

Other

14,174

8,942

4,746

 

230,895

221,554

196,668

Non-current

 

 

 

Ore in stockpiles (b)

77,621

64,556

75,605

Other (c)

12,042

-

10,581

 

89,663

64,556

86,186

 

(a)   As at 30 June 2021, there were no bullion in process (30 June 2020: US$nil, 31 December 2020: US$0.2 million) carried at net realisable value and there were US$0.6 million of gold in circuit  (30 June 2020: US$nil, 31 December 2020: US$3.4 million) carried at net realisable value (note 6).

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

(c)   As at 30 June 2021 there were US$12 million goods for resale at Irgiredmet planned to be realised more than one year after the reporting period (30 June 2020: US$nil, 31 December 2020: US$10.6 million).

 

 

 

-           14.        Trade and other receivables

 

 

30 June

2021

30 June

2020

31 December

2020

 

US$'000

US$'000

US$'000

Current

 

 

 

VAT recoverable

31,051

33,756

37,959

Advances to suppliers 

13,617

13,329

17,800

Prepayments for property, plant and equipment

3,168

5,411

5,753

Trade receivables

7,085

5,467

8,547

Contract assets

1,472

1,211

827

Guarantee fee receivable (a)

1,482

13,041

11,926

Other debtors

11,610

14,612

15,739

 

69,485

86,827

98,551

Non-current

 

 

 

Other

354

578

481

 

354

578

481

 

(a)   Please refer to 12 and 21 for the details of ICBC and Gazprombank guarantee arrangements.

 

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

 

 

 

 

-           15.        Cash and cash equivalents

 

 

30 June

2021

30 June

2020

31 December

2020

 

US$'000

US$'000

US$'000

Cash at bank and in hand

15,947

20,540

7,862  

Short-term bank deposits

18,489

52,918

27,542  

Cash in transit

2,100

-

-

 

36,536

73,458

35,404

 

 

 

 

-           16. Derivative financial instruments

 

 

 

30 June 2021

 

30 June 2020

 

31 December 2020

 

Assets

Liabilities

 

Assets

Liabilities

 

Assets

Liabilities

 

US$'000

US$'000

 

US$'000

US$'000

 

US$'000

US$'000

Current

 

 

 

 

 

 

 

 

Gold option contracts (a), (c)

192

(604)

 

1,119

(2,936)

 

172

(5,668)

Currency option contracts (b), (c)

1,205

(13)

 

4,948

(232)

 

3,148

(404)

Call option over non-controlling interests

-

-

 

31,580

-

 

-

-

Financial liability on agreement for the sale of stake in IRC (d)

 

-

(31,583)

 

 

-

-

 

-

-

 

1,397

(32,200)

 

37,647

(3,168)

 

3,320

(6,072)

Non-current

 

 

 

 

 

 

 

 

Gold option contracts (a), (c)

-

-

 

72

(2,799)

 

-

-

Currency option contracts (b), (c)

-

-

 

2,658

(579)

 

-

-

Conversion option (e), (f)

-

(57,095)

 

 

(168,561)

 

-

(89,088)

 

-

(57,095)

 

2,730

(171,939)

 

-

(89,088)

                     

 

(a)   Gold option contracts with an exercise price of US$1,600/oz for purchased put options and US$1,832/oz for issued call options for an aggregate of 21,000 ounces of gold maturing over a period until December 2021. 

(b)   Currency option contracts with an exercise price of RUB75.00 for purchased put options and in the range between RUB90.65 and RUB100.00 for issued call options for an aggregate of US$42 million maturing over a period until December 2021.

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

- Historic gold price / RUB: USD exchange rates volatility;

- Exercise price;

- Time to maturity; and

- Risk free rate.

(d)   The derivative associated with a transaction undertaken by the Company on 16 March 2020 with Stocken Board AG in connection with the sale of a stake in IRC measured at fair value and  considered as level 3 of the fair value hierarchy and includes the following inputs:

- IRC share price;

- Historic volatility of IRC share price;

- Time to maturity;

- Implied sale price;

- Occurrence of certain events specified in the contract; and

- Discount for lack of marketability of the contract. 

(e)   Note 18.

(f)    Measured at fair value and considered as Level 3 of the fair value hierarchy which valuation incorporates the following inputs:

- The group's credit risk and implied credit spreads (Level 3);

- Historic share price volatility;

- The conversion price;

- Time to maturity; and

- Risk free rate.

 

 

 

-           17.        Trade and other payables

 

 

 

30 June

2021

30 June

2020

31 December
 2020

 

 

US$'000

US$'000

US$'000

Current

 

 

 

 

Trade payables (a)

 

33,904

64,217

48,604

Payables for property, plant and equipment

 

5,441

3,865

9,244

Contract liabilities - advances from customers under gold sales agreements (b)

 

37,134

101,547

63,787

Other contract liabilities (c)

 

17,213

14,743

7,371

Accruals and other payables

 

62,435

45,276

62,133

 

 

156,127

229,648

191,139

Non-current

 

 

 

 

Contract liabilities - advances from customers under gold sales agreements (b)

 

-

19,473

-

Other contract liabilities (c)

 

10,363

-

13,288

Accruals and other payables

 

220

-

662

 

 

10,583

19,473

13,950

 

 

(a)   The trade payables as at 30 June 2021 include US$9.2 million payable for flotation concentrate purchased (30 June 2020: US$28.5  million, 31 December 2020: US$23.1 million).

(b)    Include US$37.1 million (30 June 2020: US$121.0 million, 31 December 2020: US$63.8 million) Russian Rouble denominated advance payments received from Gazprombank under gold sales agreements. Advance payments are to be settled against physical delivery of gold produced by the group in regular intervals over the period of up to twelve months from the reporting date based on the sales price prevailing at delivery that is determined with reference to LBMA fixing. Contractual interest charged on the advances received as at 30 June 2021 is in the range 8.0 - 8.32% and is payable monthly (30 June 2020: in the range of 8.0 - 8.9% for Russian Rouble denominated advances payable monthly, 31 December 2020: in the range of 8.0 - 8.32% for Russian Rouble denominated advances payable monthly). The table below sets out reconciliation of opening and closing balances, including revenue recognised in the period (note 5) that was included in the contract liability balance at the beginning of the period.

 

 

 

 

Six months ended
 30 June 2021

Six months ended 30 June 2020

Year ended

31 December 2020

 

 

US$'000

US$'000

US$'000

At the beginning of the period

 

63,787

187,433

187,433

New contract liabilities

 

-

45,414

71,222

Revenue recognised in the period that was included in the contract liability balance at the beginning of the period

 

(27,334)

(93,161)

(163,043)

Revenue recognised in the period against new contract liabilities

 

-

-

(7,107)

Interest accrued (note 7)

 

2,063

6,295

9,938

Interest paid (note 7)

 

(2,063)

(6,295)

(9,938)

Foreign exchange difference

 

681

(18,666)

(24,718)

At the end of the period

 

37,134

121,020

63,787

 

 

(c)   Being primarily advances received under re-sale contracts in connection with services performed by the group's subsidiary, Irgiredmet, in its activity to procure materials such as reagents, consumables and equipment for third parties.

 

 

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

 

 

-          

-          

-          

 

 

-           18.        Borrowings

 

 

30 June

2021

30 June

2020

31 December

 2020

 

US$'000

US$'000

US$'000

Borrowings at amortised cost

 

 

 

Notes (a)

502,613

501,051

501,990

Convertible Bonds (b)

34,481

110,385

34,030

Bank loans (c)

35,000

-

-

 

572,094

611,436

536,020

 

 

 

 

Amount due for settlement within 12 months

35,000

-

-

Amount due for settlement after 12 months

537,094

611,436

536,020

 

572,094

611,436

536,020

 

(a)   US$500 million Guaranteed Notes due for repayment on 14 November 2022 (the "Notes"), measured at amortised cost. The Notes were issued by the group's wholly owned subsidiary Petropavlovsk 2016 Limited and are guaranteed by the Company and its subsidiaries JSC Pokrovskiy Rudnik, LLC Albynskiy Rudnik and LLC Malomirskiy Rudnik. The Notes have been admitted to the official list of the Irish Stock Exchange and to trading on the Global Exchange Market of the Irish Stock Exchange on 14 November 2017. The Notes carry a coupon of 8.125% payable semi-annually in arrears. The interest charged was calculated by applying an effective interest rate of 8.35%.

 

(b)   Debt component of the US$125 million Convertible Bonds due on 03 July 2024 measured at amortised cost and not revalued. As at 30 June 2021, the outstanding principal amount of the Convertible Bonds was US$38 million (30 June 2020: US$125 million, 31 December 2020: US$38 million). The bonds were issued by the Group's wholly owned subsidiary Petropavlovsk 2010 Limited (the "Issuer") on 03 July 2019 and are guaranteed by the Company. The bonds carry a coupon of 8.25% per annum, payable quarterly in arrears. The bonds are, subject to certain conditions, convertible into fully paid ordinary shares of the Company with an initial exchange price of US$0.1350 subject to customary adjustment provisions.  The interest charged was calculated by applying an effective interest rate of 12.08%.

 

        During the year ended 31 December 2020, the Company has received Conversion Notices in respect of the exercise of conversion rights under the US$125 million Convertible Bonds. The principal amount of the Convertible Bonds in respect of which the Conversion Notices have been served amounted to an aggregate of US$87 million, which, at a fixed exchange price of US$0.1350 per ordinary share, resulted in the issue and allotment of an aggregate of 644,444,432 new ordinary shares.

       

        The conversion option of the convertible bonds represents the fair value of the embedded option for the bondholders to convert into the equity of the Company (the "Conversion Right"). As the Company can elect to pay the cash value in lieu of delivering the Ordinary Shares following the exercise of the Conversion Right the conversion option is a derivative liability. Accordingly, the conversion option is measured at fair value and is presented separately within derivative financial liabilities (note 16) which the fair value loss is included in the net other finance (losses)/ gains (note 7).

 

        As at 30 June 2021, the fair value of debt component of the convertible bonds, considered as Level 3 of the fair value hierarchy, amounted to US$ 39.0 million (30 June 2020: US$124.7 million, 31 December 2020: US$36.8 million), with the carrying value of US$34.5 million (30 June 2020: US$110.4 million, 31 December 2020: US$34.0 million). Valuation incorporates the following inputs: the group's credit risk and implied credit spreads, time to maturity and risk free rate.

 

        As at 30 June 2021, the fair value of the convertible bonds, considered as Level 1 of the fair value hierarchy and calculated by applying the market traded price to the convertible bonds outstanding, amounted to US$96.1 million (30 June 2020: US$293.3 million, 31 December 2020: US$125.9 million).

 

(c)   In April 2021, the group signed RUB5 billion (an equivalent of approximately US$67 million) revolving credit facility with Gazprombank valid until May 2022. As at 30 June 2021, the outstanding principal amount were US$35 million, US$10 million, bearing 3.7% interest and repayable until April 2022, US$7 million, bearing 2.9% interest and repayable until October 2021 and US$18 million, bearing 2.8% interest and repayable until December 2021.

 

 

 

-           19.  Share capital

 

 

 

30 June 2021

 

30 June 2020

 

31 December 2020

 

No of shares

US$'000

 

No of shares

US$'000

 

No of shares

US$'000

Allotted, called up and fully paid

 

 

 

 

 

 

 

 

At the beginning of the period

3,957,270,254

57,464

 

3,310,210,281

49,003

 

3,310,210,281

49,003

Issued during the period

-

-

 

2,615,541

32

 

647,059,973  

8,461

At the end of the period

3,957,270,254

57,464

 

3,312,825,822

49,035

 

3,957,270,254

57,464

 

 

 

-           20. Notes to the cash flow statement

 

Reconciliation of profit before tax to operating cash flow

 

Six months ended 30 June 2021

Six months ended 30 June 2020

Year ended

 31 December 2020

 

US$'000

US$'000

US$'000

Profit before tax

69,136

16,548

27,187

Adjustments for:

 

 

 

Share of results of associate

(1,216)

(1,845)

(52,681)

Net (impairment reversals)/ impairment losses on financial instruments

(1,056)

1,274

(1,000)

Investment and other finance income

(3,266)

(3,962)

(7,754)

Interest expense

24,252

33,383

58,533

Net other finance (gains)/losses

(4,683)

98,893

67,957

Share based payments

315

89

123

Depreciation

62,981

64,660

134,079

Impairment/(reversal of impairment) of mining assets and in-house service

-

-

58,806

Impairment of exploration and evaluation assets

-

-

16,112

Write-down of inventory to net realisable value

145

-

1,215

Reversal of impairment of ore stockpiles

-

(15)

-

Effect of processing previously impaired stockpiles

-

(502)

(517)

Impairment/(reversal of impairment) of gold in circuit

700

(38)

77

Effect of processing previously impaired gold in circuit

(77)

(206)

(244)

Impairment of bullion in process

-

-

41

(Reversal of provision)/provision for impairment of trade and other receivables

(896)

(21)

1,339

Loss on disposals of property, plant and equipment

1,272

663

1,451

(Reversal of write-down)/write-down to adjust the carrying value of net assets of disposal group to fair value less costs to sell

(34,874)

-

55,798

Foreign exchange losses/(gains)

706

(26,710)

(32,647)

Other non-cash items

263

999

645

Changes in working capital:

 

 

 

Decrease/(increase) in trade and other receivables

17,515

13,045

(5,149)

(Increase)/decrease in inventories

(37,554)

82,129

85,512

Decrease in trade and other payables

(36,529)

(105,626)

(143,023)

Net cash generated from operations

57,134

172,758

265,860

 

 

 

Reconciliation of cash flows used to purchase property, plant and equipment

 

 

Six months ended 30 June 2021

Six months ended 30 June 2020

Year ended

31 December 2020

 

US$'000

US$'000

US$'000

Additions to property, plant and equipment

65,794

83,121

163,368

Non-cash additions to property, plant and equipment:

 

 

 

Transfer from materials

370

50

2,120

Capitalised depreciation

(808)

(430)

(3,818)

Right-of-use assets additions

(7,953)

(1,735)

(3,410)

 

57,403

81,006

158,260

Associated cash flows:

 

 

 

Purchase of property, plant and equipment

58,413

78,618

151,503

Decrease in prepayments for property, plant and equipment

2,585

3,804

3,480

(Decrease)/increase in payables for property, plant and equipment

(3,803)

(1,945)

3,434

Cash movements presented in other cash flow lines:

 

 

 

Changes in working capital

208

529

(157)

 

57,403

81,006

158,260

 

 

 

 

Non-cash transactions

 

There were no significant non-cash transactions during the six months ended 30 June 2021 and 30 June 2020.  An equivalent of US$0.1 million of VAT recoverable was offset against profit tax during the year ended 31 December 2020 and US$1 million of provision of profit tax relating to Albyn, was accrued as at 31 December 2020.

 

-           21. Related parties

 

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

 

The Petropavlovsk Foundation for Social Investment (the 'Petropavlovsk Foundation') is considered to be a related party due to the participation of the key management of the group in the board of directors of the Petropavlovsk Foundation.

 

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

 

The Uzhuralzoloto Group of Companies that holds over 20% of the Company's shares is substantial shareholder and hence is related party.

 

Transactions with related parties the group entered into during the six months ended 30 June 2021, 30 June 2020 and the year ended 31 December 2020 are set out below.

 

 

Trading Transactions

 

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

 

 

Sales to related parties

 

Purchases from related parties

 

Six months ended

 30 June 2021

US$'000

Six months ended

 30 June 2020

US$'000

Year ended

31 December 2020

US$'000

 

Six months ended

 30 June 2021

US$'000

Six months ended

 30 June 2020

US$'000

Year ended

31 December 2020

US$'000

 

Close family members of key management personnel

-

-

-

 

-

195

256

 

IRC Limited and its subsidiaries

-

58

85

 

56

111

 

 

-

58

85

 

56

253

367

 

                   

 

During the six months ended 30 June 2021, the group made US$nil million charitable donations to the Petropavlovsk Foundation (six months ended 30 June 2020: US$0.2 million; year ended 31 December 2020: US$0.3 million).

 

 

The outstanding balances with related parties at 30 June 2021, 30 June 2020 and 31 December 2020 are set out below.

 

 

Amounts owed by related parties

 

Amounts owed to related parties

 

30 June 2021

30 June

2020

31 December 2020

 

30 June 2021

30 June

2020

31 December 2020

 

US$'000

US$'000

US$'000

 

US$'000

US$'000

US$'000

Substantial shareholders

-

-

-

 

27

-

-

IRC Limited and its subsidiaries

2,034

3,622

3,604

 

1,122

1,166

1,100

 

2,034

3,622

3,604

 

1,149

1,166

1,100

 

 

Financing transactions

 

Guarantee over IRC's external borrowings

 

The group historically entered into an arrangement to provide a guarantee over its associate's, IRC, external borrowings, the ICBC Facility ('ICBC Guarantee'). As at 30 June 2021, there was no outstanding contractual guarantee fee (30 June 2020: outstanding contractual guarantee fee of US$5.0 million with corresponding fair value after provision for credit losses of US$4.7 million; 31 December 2020: outstanding contractual guarantee fee of US$0.01 million with corresponding fair value after provision for credit losses of US$0.01 million).

 

In March 2019, IRC has refinanced the ICBC Facility through entering into a US$240 million new facility with Gazprombank ('Gazprombank Facility'). The facility was fully drawn down during the year ended 31 December 2019.

 

A new guarantee was issued by the group over part of the Gazprombank Facility ('Gazprombank Guarantee'), the guarantee mechanism is implemented through a series of five guarantees that fluctuate in value through the eight-year life of the loan, with the possibility of the initial US$160 million principal amounts guaranteed reducing to US$40 million within two to three years, subject to certain conditions being met. For the final two years of the Gazprombank Facility, the guaranteed amounts will increase to US$120 million to cover the final principal and interest repayments. If certain springing recourse events transpire, including default on a scheduled payment, then full outstanding loan balance is accelerated and subject to the guarantee. The outstanding loan principal was US$194 million as at 30 June 2021 (30 June 2020: US$214 million; 31 December 2020: US$204 million). Under the Gazprombank Guarantee arrangements, the guarantee fee receivable is determined at each reporting date on an independently determined fair value basis, which for the six months ended 30 June 2021 was at the annual rate of 3.07% by reference to the average outstanding principal balance under Gazprombank Facility (six months ended 30 June 2020: 3.07%; year ended 31 December 2020: 3.07%). The guarantee fee charged for the six months ended 30 June 2021 was US$3.1 million, with corresponding value of US$3.4 million after reversal of provision for expected credit losses (30 June 2020: US$3.4 million, with corresponding value of US$3.2 million after provision for expected credit losses; 31 December 2020: US$6.7 million, with corresponding value of US$6.3 million after provision for expected credit losses). As at 30 June 2021 the remaining outstanding contractual guarantee fee was US$1.5 million, with corresponding value of US$1.5 million after provision for expected credit losses (30 June  2020: US$9.0 million, with corresponding value of US$8.4 million after provision for expected credit losses; 31 December 2020: US$12.3 million, with corresponding value of US$11.9 million after provision for expected credit losses).

 

The following assets and liabilities have been recognised in relation to the ICBC Guarantee and Gazprombank Guarantee as at 30 June 2021, 30 June 2020 and 31 December 2020:

 

 

30 June

2021

30 June

2020

31 December

2020

 

US$'000

US$'000

US$'000

Other receivables - ICBC Guarantee (a)

-

4,662

7

Other receivables - Gazprombank Guarantee (b)

1,482

8,380

11,919

Financial guarantee contract - Gazprombank Guarantee (c), (d)

7,663

10,199

8,232

 

a)      The fair value of the receivable, comprising billed fee receivable, less provision for credit losses. Considered Level 3 of the fair value hierarchy which valuation incorporates the following inputs:

           - Assessment of the credit standing of IRC and implied credit spread;

           - Share price and share price volatility of IRC as at 30 June 2021, 30 June 2020 and 31 December 2020.

b)      Amounts of guarantee fee that are expected to be received from IRC and calculated by applying annual rate of 3.07% for six month ended 30 June 2021 and 2020 and year ended 31 December 2020 by reference to the average outstanding principal balance under Gazprombank Facility for the relevant period, less provision for ECL.

c)      Measured in accordance with ECL model: the amount of the loss allowance equals to 12-month ECL as it has been concluded that the credit risk on the financial guarantee contract has not increased significantly since initial recognition.

d)      Classified as "held for sale" and presented separately in the statement of financial position as at 30 June 2021 and 31 December 2020.

 

The results from relevant re-measurements of the aforementioned assets and liabilities were recognised within Other finance gains and losses and impairments of financial instruments (note 7).

 

Other financing transactions

 

In March 2018, the group entered into a loan agreement with Dr. Pavel Maslovskiy. The loan principal outstanding amounted to an equivalent of US$0.2 million, with corresponding value of US$0.2 million after provision for expected credit losses, as at 30 June 2020 and US$0.1 million, with corresponding value of US$nil after provision for expected credit losses, as at 31 December 2020. The loan together with accrued interest was fully repaid as at 30 June 2021. Interest charged during the six months ended 30 June 2021 comprised an equivalent of US$0.01 million (six month ended 30 June 2020: US$0.01 million, year ended 31 December 2020: US$0.01 million). At 10 August 2020, Dr. Pavel Maslovskiy ceased to be a related party.

 

In April 2019, the group entered into a loan agreement with Dr. Alya Samokhvalova. The loan principal outstanding amounted to an equivalent of US$0.4 million, with corresponding value of US$0.4 million after provision for expected credit losses, as at 30 June 2020 and US$0.3 million, with corresponding value of US$nil after provision for expected credit losses, as at 31 December 2020. The loan together with accrued interest was fully repaid as at 30 June 2021. Interest charged during the six month ended 30 June 2021 comprised an equivalent of US$0.01 million (six month ended 30 June 2020: US$0.01 million, year ended 31 December 2020: US$0.03 million). At 12 October 2020, Dr. Alya Samokhvalova ceased to be a related party.

 

 

Key management compensation

 

Key management personnel, comprising a group of 10 individuals during the period (six months ended 30 June 2020: 17 and year ended 31 December 2020: 11), including Executive and Non-Executive Directors of the Company and members of senior management, are those having authority and responsibility for planning, directing and controlling the activities of the group.

 

 

 

Six months ended

30 June 2021

Six months ended

30 June 2020

Year ended

31 December 2020

 

US$'000

US$'000

US$'000

Wages and salaries

4,049

2,255

4,228

Pension costs

30

38

47

Share-based compensation

315

91

33

 

4,394

2,384

4,308

 

 

-           22. Analysis of Net Debt¨

 

 

 

At 1 January 2021

Net cash

movement

Exchange movement

Non-cash

changes

 

At 30 June

2021

 

US$'000

US$'000

US$'000

US$'000

US$'000

Cash and cash equivalents

35,404

846

286

-

36,536

Borrowings

(536,020)

(12,996) (a)

-

(23,078) (b)

(572,094)

Net Debtu

(500,616)

(12,150)

286

(23,078)

(535,558)

Lease liabilities

(4,143)

713

(370)

(672)

(4,472)

Conversion option (c)

(89,088)

-

-

31,993

(57,095)

 

(593,847)

(11,437)

(84)

8,243

(597,125)

 

a)     Being US$22.0 million interest paid on borrowings, which is presented as operating cash flows in the Statement of cash flows and US$35.0 million proceeds from borrowings.

b)      Being principally accrued interest expense which is presented as operating cash flows in the Statement of cash flows when paid (note 7).

c)      Notes 16, 18.

 

 

 

 

At 1 January 2020

Net cash

movement

Exchange movement

Non-cash

changes

 

At 30 June

2020

 

US$'000

US$'000

US$'000

US$'000

US$'000

Cash and cash equivalents

48,153

27,468

(2,163)

-

73,458

Borrowings

(609,463)

25,468 (d)

-

(27,441) (e)

(611,436)

Net Debtu

(561,310)

52,936

(2,163)

(27,441)

(537,978)

Lease liabilities

(13,178)

2,053

769

5,739

(4,617)

Conversion option (f)

(46,313)

-

-

(122,248)

(168,561)

 

(620,801)

54,989

(1,394)

(143,950)

(711,156)

 

(a)    Being US$25.5 million interest paid on borrowings, which is presented as operating cash flows in the Statement of cash flows.

(b)   Being principally accrued interest expense which is presented as operating cash flows in the Statement of cash flows when paid (note 7).

(c)   Notes 16, 18.

 

 

 

 

 

At 1 January 2020

Net cash

movement

Exchange movement

Non-cash

changes

At 31 December  2020

 

US$'000

US$'000

US$'000

US$'000

US$'000

Cash and cash equivalents

48,153

(9,104)

(3,645)

-

35,404

Borrowings

(609,463)

47,447(g)

-

25,996(h)

(536,020)

Net Debtu

(561,310)

38,343

(3,645)

25,996

(500,616)

Lease liabilities

(13,178)

4,153

1,022

3,860

(4,143)

Conversion option (i)

(46,313)

-

-

(42,775)

(89,088)

 

(620,801)

42,496

(2,623)

(12,919)

(593,847)

 

(d)   Being US$47.4 million interest paid on borrowings, which is presented as operating cash flows in the Statement of cash flows.

(e)   Being principally accrued interest expense which is presented as operating cash flows in the Statement of cash flows when paid (note 7) and US$77.5 million of Bonds conversion into share.

(f)     Notes 16, 18. 

 

 

-           23.        Commitments and contingencies

-          

-           Capital commitments

 

At 30 June 2021, the group had entered into contractual commitments in relation to the acquisition of property, plant and equipment amounting to US$21.4 million (30 June 2020: US$9.7million, 31 December 2020: US$3.5 million) including US$15.6 million in relation to Malomir Flotation project (30 June 2020: US$1.2 million, 31 December 2020: US$0.9 million) and US$4.5 million in relation to Pioneer Flotation project (30 June 2020: US$5.8 million, 31 December 2020: US$2.0 million).

 

-           Contingencies

 

On 24 June 2021, the Company announced that KPMG LLP had published an Interim Reporting regarding its forensic investigation into certain transactions undertaken by the Company and its subsidiaries, and IRC Ltd and its subsidiaries, in the three years to August 2020.

 

The Interim Report has identified a number of potential issues with transactions involving the Company with an estimated value of US$157 million. These issues include potentially undisclosed related parties and likely conflicts of interest. KPMG intends to focus on these transactions, amongst a number of other potential issues, during its ongoing investigation. As KPMG's work is ongoing, KPMG and the Company are not able to draw or disclose firm conclusions at this stage.

 

The group may be exposed to the risk of civil, criminal or regulatory actions and liabilities (including fines and penalties) may accrue to the group if it becomes apparent that transactions have been entered into with related parties of the Group without proper processes having been followed, including proper approvals obtained and/or disclosures made.

 

At the current time the existence, timing and quantum of potential future liability (if any) including fines, penalties, damages or other consequences arising from any such transactions or failures to obtain all proper approvals or make proper disclosures cannot be determined or measured.  As a consequence, no associated liabilities have been recognised in relation to these matters in the consolidated statement of financial position as at 30 June 2021 and 31 December 2020.

 

 

-           24. Subsequent events

 

On 13th July 2021 the Company announced that its wholly-owned subsidiary, Petropavlovsk 2016 Limited announced the launch of its offer to purchase for cash up to US$200 million aggregate principal amount of its 8.125 per cent Guaranteed Notes due 2022. Tender offer is financed via Gazprombank loan facility with a total limit of US$200 million, that was consequently entered in July 2021 with an interest rate significantly lower than the Notes. Gazprombank loan repayment schedule is US$66 million in December 2022, US$66 million in March 2023 and remaining balance in June 2023.

 

On 10 August 2021 Petropavlovsk 2016 Limited announced the final tender results, US$135,731,000 aggregate principal amount of the Notes were validly tendered.

 

 

The Use and Application of Alternative Performance Measures (APMs)

 

Throughout this Half Year Report, when discussing the group's financial performance, reference is made to APMs.

 

Each of the APMs is defined and calculated by the group and as such they are non-IFRS measures because they may include or exclude certain items that an IFRS measure ordinarily would or would not take into account. APMs should not be regarded as an alternative or substitute for the equivalent measures calculated and presented in accordance with IFRS but instead should be seen as additional information provided to investors to enable the comparison of information between different reporting periods of the group.

 

Although the APMs used by the group may be calculated in a different manner and defined differently by other peers in the precious metals mining sector (despite being similar in title), they are nonetheless relevant and commonly used measures for the industry in which Petropavlovsk operates. These and similar measures are used widely by certain investors, analysts and other interested parties as supplemental measures of financial performance.

 

Some of the APMs form part of the group's Key Performance Indicators (KPIs), which are used to monitor progress and performance against strategic objectives and to benchmark the performance of the business each year.

 

A discussion of the relevance of each APM as well as a description of how they are calculated is set out below, with reconciliation to IFRS equivalents from the consolidated IFRS financial statements (Consolidated Statement of Profit or Loss (SPL), Consolidated Statement of Financial Position (SFP), Consolidated Statement of Cash Flows (SCF) and the notes to the consolidated IFRS financial statements).

 

Total Cash Costs (TCC)

 

Definition

The total cash cost per ounce is the cost of producing and selling an ounce of gold from the group's three hard-rock operations and processing and selling an ounce of gold by treatment of third party sourced refractory concentrate at the POX Hub.

 

Calculation

TCC are calculated by the group as operating cash costs less co-product revenue. TCC per oz are calculated as total cash costs divided by the ounces of gold sold. TCC per oz are presented on a segment basis.

 

Operating cash costs are defined by the group as operating cash expenses plus refinery and transportation costs, other taxes and mining tax. This also equates to the group's segment result as reported under IFRS plus each segment's loss/gain on disposal of subsidiaries, impairment of ore stockpiles, gold in circuit, bullion in process and flotation concentrate, impairment of exploration and evaluation assets, impairment of mining assets, write-down of inventory to net realizable value, central administration expenses, depreciation minus each segment's revenue from external customers, bullion in process and flotation concentrate, reversal of impairment of mining assets and in-house service. Operating cash costs are presented on a segment basis.

 

Operating cash expenses are defined by the group as the total of staff costs, materials, fuel, electricity, other external services, other operating expenses, and the movement in ore stockpiles, work in progress, bullion in process and flotation concentrate attributable to gold production. The main cost drivers affecting operating cash expenses are stripping ratios, production volumes of ore mined / processed, recovery rates, cost inflation and fluctuations in the ruble to US dollar exchange rate.

 

Other companies may calculate this measure differently.

 

Relevance

The group closely monitors its current and projected costs to track and benchmark the ongoing efficiency and effectiveness of its operations. This monitoring includes analysing fluctuations in the components that operating cash costs and cost per tonne mined and processed to identify where and how efficiencies may be made.

 

Reconciliation

The tables below provide a reconciliation between operating expenses and total cash costs to calculate the cash cost per ounce sold for relevant periods.

 

 

H1 2021

 

Ref

 

Pioneer

 

Malomir

 

Albyn

Corporate

and other

 

Total

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

Operating expenses

SPL

 

 

 

 

              303,652

Deduct:

 

 

 

 

 

 

Foreign exchange losses

note 6

 

 

 

 

                (706)

Depreciation

note 6

 

 

 

 

             (62,981)

Write-down of inventory to net realisable value

note 6

 

 

 

 

                      (145)

Impairment of gold in circuit

note 6

 

 

 

 

                  (700)

Central administration expenses

note 6

 

 

 

 

             (29,579)

Operating cash costs

note 4

       100,303

    57,458

    33,002

         18,778

              209,541

Deduct:

 

 

 

 

 

 

Corporate and other segment

note 4

 

 

 

(18,778)

(18,778)

Deduct: silver revenue

note 4

-

-

-

-

-

Total Cash Costs

 

       100,303

    57,458

    33,002

-

190,763

 

 

 

 

 

 

 

Total ounces sold

oz

         74,932

69,895

42,238

 

187,064

Total Cash Cost per ounce sold

US$/oz

           1,339

822

781

 

1,020

 

H1 2020

 

Ref

 

Pioneer

 

Malomir

 

Albyn

Corporate

and other

 

Total

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

Operating expenses

SPL

 

 

 

 

              378,440

Deduct:

 

 

 

 

 

 

Foreign exchange gains

note 6

 

 

 

 

                26,710

Depreciation

note 6

 

 

 

 

             (64,660)

Reversal of impairment of ore stockpiles

note 6

 

 

 

 

                      15

Reversal of impairment of gold in circuit

note 6

 

 

 

 

                      38

Central administration expenses

note 6

 

 

 

 

             (20,671)

Operating cash costs

note 4

       199,104

    65,529

    42,560

         12,679

              319,872

Deduct:

 

 

 

 

 

 

Corporate and other segment

note 4

 

 

 

(12,679)

(12,679)

Deduct: silver revenue

note 4

-

-

-

-

-

Total Cash Costs

 

       199,104

    65,529

    42,560

-

307,193

 

 

 

 

 

 

 

Total ounces sold

oz

         158,844

81,726

71,785

 

312,354

Total Cash Cost per ounce sold

US$/oz

           1,253

802

593

 

983

 

FY2020

 

Ref

 

Pioneer

 

Malomir

 

Albyn

Corporate

and other

 

Total

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

Operating expenses

SPL

 

 

 

 

840,494

Deduct:

 

 

 

 

 

 

Foreign exchange gains

note 6

 

 

 

 

32,647

Depreciation

note 6

 

 

 

 

(134,079)

Impairment of mining assets

note 6

 

 

 

 

(58,806)

Impairment of exploration and evaluation assets

note 6

 

 

 

 

 

(16,112)

Write-down of inventory to net realisable value

note 6

 

 

 

 

 

(1,215)

Impairment of gold in circuit

note 6

 

 

 

 

(77)

Impairment of bullion in process

note 6

 

 

 

 

(41)

Central administration expenses

note 6

 

 

 

 

(61,371)

Operating cash costs

note 4

366,677

106,959

92,307

35,497

601,440

Deduct:

 

 

 

 

 

 

Corporate and other segment

note 4

 

 

 

(35,497)

(35,497)

Deduct: silver revenue

note 4

(338)

(100)

(196)

-

(634)

Total Cash Costs

 

366,339

106,859

92,111

-

565,309

 

 

 

 

 

 

 

Total ounces sold

oz

279,364

140,436

126,658

-

546,458

Total Cash Cost per ounce sold

US$/oz

1,311

761

727

-

1,034

 

All-in Sustaining Costs (AISC)

 

Definition

AISC includes both operating and capital costs required to sustain gold production on an ongoing basis, over and above the direct mining and selling costs shown by TCC.

 

Calculation

AISC are calculated by the group as TCC plus/(minus) impairment/(reversal of impairment) of ore stockpiles, gold in circuit, bullion in process and flotation concentrate, central administration expenses, plus sustaining capitalized stripping, close-down and site restoration, sustaining capital and exploration expenditure and payments under sustaining leases. This is then divided by the ounces of gold sold. AISC are presented on a segment basis.

 

AISC are calculated in accordance with guidelines for reporting AISC as published by the World Gold Council in June 2013. Other companies may calculate this measure differently.

 

Relevance

AISC allows for a better understanding of the true cost of producing gold once key components such as central admin costs and the cost of sustaining capital and exploration expenditure are taken into account. Management uses this measure to monitor the performance of our assets and their ability to generate positive cash flows.

 

 

Reconciliation

The tables below provide a reconciliation between total cash costs and all-in sustaining costs to calculate all-in sustaining cost per ounce sold for relevant periods.

 

H1 2021

 

Ref

 

Pioneer

 

Malomir

 

Albyn

Corporate

and other

 

Total

 

 

US$'000

US$'000

US$'000

US$'000

US$'000

Total Cash Costs

 

       100,303

    57,458

    33,002

-

190,763

Impairment of gold in circuit

note 6

               -  

700

          -  

               -  

                     700

Write-down of inventory to net realisable value

 

  note 6

               -  

-

          31  

               -  

31

Central administration expenses

note 6

           11,849

     11,051

      6