Financial Highlights Overview
Costs
· A c.9% year-on-year ("yoy") decrease in average TCC/oz for the Group's four mines to US$767/oz (H1 2014: US$847/oz) mainly due to:
- Significant yoy decreases in TCC/oz of 25% and 9% at Pioneer and Albyn respectively: the Group's main mines which, combined, are expected to produce c.79% of the Group's gold production in 2015
- 13% further increase in operational efficiencies, facilitated by 66% depreciation of the Rouble against the US Dollar in H1 2015 vs H1 2014
- A 37% yoy reduction in costs per tonne mined and 36% yoy reduction in costs per tonne processed
· Decrease in TCC/oz achieved in spite of a scheduled 21% yoy decrease in grades processed, including 27% and 14% respective decrease in grades processed at Pioneer and Albyn
· 11% and 34% respective decrease in TCC/oz at Pioneer and Albyn for Q2 2015 compared with Q1 2015
- Q2 2015 TCC/oz stood at US$567/oz for Pioneer and US$611/oz for Albyn
· Inflationary pressures experienced by the Group offset by:
- The role-out of a new system of procurement, which resulted in a c.4% yoy reduction in the purchasing price for diesel
- The devaluation of the Rouble against the US Dollar, which has benefited Rouble-denominated costs, such as labour, materilas, diesel, electricity and external services. Rouble-denominated costs account for c.75% of the Group's operating cash costs
Reduction in other expenditure
· The Group's cost-cutting programme delivered impressive results:
- 31% yoy decrease in administrative costs
- 84% yoy decrease in development capex
- 48% yoy decrease in exploration capex
Net Debt
· c.US$234 million reduction in net debt as at 30 June 2015 to c.US$696 million following the Group's refinancing, compared with c.US$930 million audited net debt as at 31 December 2014
· Reiterated 2015 year-end net debt guidance of c.US$600 million
· The Company is trading comfortably within its relaxed bank covenants for the period to 30 June 2015
· Reiterated net debt : EBITDA ratio target of 1.5:1, with the Group's production plan providing sufficient cash flows for its scheduled senior bank debt repayments by the middle of 2018 and repayment of US$100 million Convertible Bonds in 2020
EBITDA
· H1 2015 underlying EBITDA of US$90 million, of which 70% was generated in Q2 (H1 2014 US$ 139 million), in line with the Group's forecast
- Resulted in an 89% reduction in loss per share at US$0.03 (H1 2014: US$0.28)
Production
· H1 2015 total gold production of 240.2koz, in line with guidance
· Petropavlovsk maintains flexibility in output in order to minimize operational expenses and maximise cash flow in low gold price environment
FY 2015 Outlook
· H2 2015 production is forecast to be significantly higher than H1, especially at Pioneer, the Group's flagship mine
· Tactical decision on absolute levels of production will be taken during the remainder of H2 2015 to achieve targeted cash flow generation and net debt repayment
· Current mine plans envisage an improvement in head grades and recovery rates across all four mines due to a combination of careful mine planning and the optimisation of technical parameters:
- Pioneer: H2 head grades calculated to more than double compared with H1; expected improvement in recovery rates
- Albyn: H2 head grades to increase by up to 33% compared with H1; recovery rates scheduled to remain stable or to slightly improve
- Malomir: H2 head grades scheduled to be the same or slightly better than in H1; improvement in recovery rates forecast
- Pokrovskiy: H2 head grades scheduled to be the same or slightly better than in H1;
- Increase in grades to be achieved not through high grading but through the planned development of pits and the exploitation of high-grade ore bodies, in accordance with the Group's mining schedules
· In addition, the Group re-iterates its full-year guidance of:
- c.US$600/oz for TCC/oz;
- c.US$600 million for net debt; and
- US$35 million for total capital expenditure
· The Group continues its exploration works and expects to make a further update on new Reserves and Resources in Q1 2016.
