Polymetal International plc (POLY)
09-Mar-2022 / 10:00 MSK
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Polymetal International plc

Update on activity and impact of sanctions

Polymetal reports that all of its operations in Russia and Kazakhstan continue uninterrupted and provides an update on the impact of economic sanctions and the most recent changes to capital control legislation in Russia.

The tragedy unfolding in Ukraine is horrific and heartbreaking. We mourn the human losses and call for a peaceful and lasting resolution to the conflict. Our thoughts and prayers go out to those affected.

At the time of writing, the Group states that:

Operations

• Polymetal’s activities in Russia and Kazakhstan continue uninterrupted.

• In 2021, operations in Kazakhstan generated 43% of the Group’s adjusted EBITDA and 48% of its net income. Operations in Kazakhstan represent 40% (12 Moz) of Polymetal’s gold equivalent reserves.

• The Group’s scope of operating activities and production forecasts remain stable. The Company reviews non-essential capital projects to preserve cash and minimize risk. Management specifically notes that the POX-2, Urals Flotation, Kutyn and Prognoz projects are not subject to review and their execution will continue as planned.

Sale of ingots/concentrates

• Sales of bullion and concentrates from Kazakhstan continue as usual.

• In Russia, Polymetal sells silver concentrate from Dukat (sold mainly in Kazakhstan as well as East Asia) and refractory gold concentrate from Mayskoye and Nezhda (sold in China and Kazakhstan). The Company has received assurances from buyers that all existing contracts remain in good standing.

• Bullion sales in Russia were affected by sanctions imposed by the United States, the EU and the United Kingdom. The company has fully adjusted its sales to comply with all applicable sanctions.

• Domestic physical demand for gold in Russia was supported by the Russian Central Bank’s decision to resume domestic gold purchases. According to the CBR statement, the purchases will be made at Today’s LBMA price the purchase. The Company is also working to increase the number of counterparties for export bullion sales.

Inventory & supplies

• Polymetal regularly carries at least three months of inventory consumption of critical materials, consumables and spare parts. Insurance stock levels have increased further since the onset of the COVID-19 pandemic in 2020. This additional inventory will provide a safety buffer in the event of unforeseen supply chain disruptions. The Company has initiated a logistics and procurement review with the goal of increasing supply chain resilience and potentially shifting critical supplies to domestically or China-made consumables and equipment.

Liquidity & net debt

• Net debt increased to US$ 1.87 billion as of March 1 (December 31, 2021: US$1.65 billion) primarily due to seasonal increases in working capital. 96% of total debt is denominated in US dollars.

• The Central Bank of Russia raises its key rate to 20% (instead of 9.5%) February 28and. The average cost of debt in March remained low at approx. 2.9%. However, management expects that a sharp increase in interest rates for new borrowings denominated in Russian rubles and foreign currencies will affect the Company’s average cost of debt for 2022. 27% of the debt of the Group matures within the next 12 months.

• The Group has approx. US$0.4 billion in cash and cash equivalents deposited with unlicensed financial institutions. With the strong free cash flow from the company’s operations in Kazakhstan, Polymetal has enough headroom to continue to meet its obligations and capital commitments over the next 12 months, even in the absence of new borrowings. In addition, the Company maintains US$1 billion of undrawn lines of credit with unauthorized financial institutions. We will provide further updates on the Group’s liquidity position in due course.

Dividends

• The Company currently intends to pay the balance of the dividend as proposed by the Board on March 2, 2022. At the same time, the Board retains the discretionary power to reassess its dividend recommendation before the Annual General Meeting with a view to ensuring the liquidity and solvency of the company.

Capital controls

• Since March 1, 2022, certain foreign currency transactions involving Russian residents are restricted.

• Russian legal persons are prohibited from paying dividends to foreign persons, although formally these instructions only apply to dividends from joint-stock companies paid through professional securities market participants. It is currently unclear whether the Company will be able to pay dividends from its Russian subsidiaries at the holding company level.

• Russian residents are required to sell 80% of foreign currency received under export contracts with non-residents when transferring goods or services. Purchases will be made at the rate of the Central Bank of Russia.

• These new regulations are currently not expected to have a significant impact on the Company other than the impact on intra-group dividends described above.

Plank

• Six independent directors, including the Chairman and the Lead Independent Director, have resigned from the Board with effect from March 7. Polymetal’s board has launched a search for new independent directors and intends to maintain full compliance with the UK governance code.

The Group strictly complies with all relevant legislation and implements comprehensive measures to comply with all applicable international sanctions. The scope and impact of any potential new sanctions (and any counter-sanctions) are still unknown. However, they could further affect major Russian financial institutions as well as mining companies. Polymetal believes that targeted sanctions against the company remain unlikely, but not impossible. Contingency planning was proactively initiated to maintain business continuity.

Further updates will be provided in due course.

Requests

Forward-looking statements

DUE TO THE RECENT MASSIVE DDOS ATTACKS, OUR WEBSITE MAY BE TEMPORARILY UNAVAILABLE, ALTHOUGH WE CONTINUE TO DISTRIBUTE AND PUBLISH ALL OUR ANNOUNCEMENTS. THEY WILL BE FULLY AVAILABLE WHEN THE SITE RETURNS TO NORMAL OPERATION.

This release may contain statements that are, or may be deemed to be, “forward-looking statements.” These forward-looking statements speak only as of the date of this release. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “targets”, “believes”, “expects”, “aims”, “intends”, “will”. , “may”, “plans”, “would”, “could” or “should” or similar expressions or, in each case, negative or other variations thereof or through the discussion of strategies, plans, objectives, goals, future events or intentions. These forward-looking statements all include matters that are not historical facts. By their nature, these forward-looking statements involve known and unknown risks, uncertainties and other important factors beyond the company’s control that could cause the company’s actual results, performance or achievements to differ materially from future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Forward-looking statements are not guarantees of future performance. Many factors could cause the company’s actual results, performance or achievements to differ materially from those expressed in such forward-looking statements. The Company expressly disclaims any obligation or undertaking to issue updates or revisions to any forward-looking statements contained herein to reflect any change in the Company’s expectations with respect thereto or any change in events, conditions or circumstances about which these statements are based.