TIDMPOG
RNS Number : 7578Y
Petropavlovsk PLC
17 May 2021
17 May 2021
Petropavlovsk PLC
Annual Results for the Year Ended 31 December 2020
Petropavlovsk PLC ("Petropavlovsk", or the "Company" and,
together with its subsidiaries, the "Group") today issues its
audited Annual Results for the year ended 31 December 2020.
Mr Denis Alexandrov , CEO said: "Petropavlovsk delivered a solid
financial performance in 2020 despite numerous challenges, with
revenue and EBITDA improving substantially year-on-year on the back
of a 6% increase in production and higher gold prices.
Looking ahead, there is much to be addressed to drive
improvement across the business in 2021 and beyond. From a cash
flow perspective, one of our immediate opportunities is maximising
utilisation of the POX Hub using our own refractory gold
concentrates to reduce reliance on lower-margin third-party
material via the successful on-schedule delivery of two major
projects - the Pioneer flotation plant later this year and the
Malomir flotation plant expansion next year. In addition, we
continue to assess the development of our other assets, with the
Albyn hub in particular having great potential that has not
previously been fully considered.
The new management team continues to make progress enhancing
operational governance and I am confident that the ongoing business
review will present further opportunities to deliver greater
transparency and efficiencies throughout the organisation."
Financial Highlights
FY 2020 FY 2019 % Change
----------------------------------- -------- -------- -------- ---------
Own gold production koz 385.6 471.6 (18%)
Production from third-party
concentrates koz 162.5 45.7 256%
Total gold produced koz 548.1 517.3 6%
Total gold sold koz 546.5 514.0 6%
Avg. realised gold price US$/oz 1,748 1,346 30%
Total cash costs for own
material US$/oz 852 703 21%
Total cash costs for third-party
concentrate US$/oz 1,474 1,260 17%
Total Cash Costs [1] US$/oz 1,034 749 38%
All-in Sustaining Costs US$/oz 1,312 1,020 29%
----------------------------------- -------- -------- -------- ---------
Group revenue (including
non-precious operations) US$m 988.5 741.6 33%
Underlying EBITDA US$m 350.7 264.8 32%
Operating profit US$m 148.0 150.7 (2%)
(Loss) / profit for the
period US$m (48.9) 25.7 n/m
Capital expenditure US$m 117.8 103.8 13%
Cash generated from operations
before working capital
changes US$m 328.5 250.5 31%
Cash generated from operations US$m 156.3 95.4 64%
Net debt US$m 500.6 561.3 (11%)
-- Total gold produced: up 6% to 548.1koz, comprising an 18%
decline to 385.6koz of own gold produced and a 256% increase to
162.5koz of gold produced from the processing of third-party
refractory gold concentrates at the POX Hub
-- Total gold sales: up 6% to 546.5koz driven by the increase in
gold production
-- Average realised gold price : [2] increased 30% to
US$1,748/oz with zero impact from the Company's hedging
programme
-- Total cash costs (own material): up 21% to US$852/oz and
in-line with guidance, primarily driven by an 18% decline in gold
sold, an expected decline in processed grades at Albyn which was
depleted in 2020, lower grades of non-refractory ore at Malomir, an
increase in mining tax as subsidies expired at Albyn and Malomir
and cost inflation. This was partly offset by higher grades and
recoveries at Pioneer and the benefit of Rouble depreciation
-- Total cash costs (third parties): increase of 17% to
US$1,474/oz reflecting the significant increase in gold prices in
2020
-- Total Cash Costs (TCC) (own material and third parties):
increased 38% to US$1,034/oz due to higher TCC for own material and
third-party concentrates
-- All-in Sustaining Costs (AISC) : up 29% to US$1,312/oz driven
by the increase in TCC , with total sustaining capital, sustaining
lease and capitalised stripping expenditures remaining
approximately in-line with total sustaining capital and capitalised
stripping expenditures in 2019, where capitalised stripping
expenditures refer to stripping costs incurred in prior periods
that improved access to ore mined in 2020
-- Group revenue (including non-precious operations): up 33% to
US$988.5m, reflecting the increase in gold sales and higher
realised gold prices
-- Underlying EBITDA : increased 32% to US$350.7m driven by an
increase in revenues which were partly offset by higher costs
-- Profit for the period : decreased to a loss of US$(48.9)m (FY
2019: US$25.7m), primarily due to the impact of the following
non-cash items: a US$42.8 million loss on the fair value
re-measurement of the conversion option of the convertible bonds
(2019: US$31.1m); an impairment of mining and exploration and
evaluation assets of US$74.9m driven by an adjustment in the
valuation of the Albyn and Elginskoye projects where additional
exploration and geological modelling has demonstrated that an
earlier than anticipated switch to refractory processing at
Elginskoye will be required due to a higher proportion and an
uneven distribution of refractory ore as part of the overall
deposit; and, following a re-classification of a 29.9% interest in
IRC as assets held for sale, a US$55.8m write-down (2019: nil) to
adjust the carrying value of net assets of the disposal group to
fair value less costs to sell. For illustrative purposes the
primary non-cash adjustments to the (Loss)/profit for the period
are presented in the table below.
US$m FY 2020 FY 2019
--------------------------------------------------- -------- --------
(Loss)/profit for the period (48.9) 25.7
add back:
Reversals of impairment - guarantee arrangements (1.0) (30.8)
Net fair value losses - conversion option,
TEMI option and IRC guarantee 53.2 29.5
Impairment/(reversal) of impairment 74.9 (52.2)
Write down to adjust the carrying value 55.8 -
of net assets of disposal group to fair
value less costs to sell (IRC)
Share of results of associate (52.7) 35.4
Foreign exchange (gains)/losses (32.6) 20.8
Deferred taxation 27.4 (2.4)
Profit for the period excluding primary
non-cash items 76.1 26.0
-- Capital expenditure : increased 13% to US$117.8m, above
guidance of US$90m - US$100m with spending primarily focussed on
the construction of flotation plants at Malomir and Pioneer,
development activities at Elginskoye and spending to support
underground mining at Pioneer and Malomir
-- Cash generated from operations before working capital
changes: increased significantly by 31% to US$328.5m reflecting
growth in EBITDA
-- Cash generated from operations: increased 64% to US$156.3m,
with the primary working capital movement being repayment of
interest-bearing gold prepays
-- Net debt : [3] reduction to US$500.6m as at 31 December 2020,
principally driven by partial conversion of the US$125m Convertible
Bonds
-- Gold prepays : the Company continued to settle the
interest-bearing gold prepays which stood at US$63.8m as at 31
December 2020 (US$187.4m as at 31 December 2019), a net decrease of
US$123.6m over the period
POX Hub
Maximising utilisation of the POX Hub
-- Maximising utilisation of the POX Hub remains one of the
Company's key priorities to reduce reliance on low-margin
third-party concentrates
-- As updated on 20 April 2021, commissioning of the Pioneer
flotation plant is scheduled for Q2 2021 and will double the
Group's capacity to process refractory ore from its own mines to
7.2Mtpa once operational. Construction of a third line at the
Malomir flotation plant will add an additional 1.8Mtpa of flotation
capacity from Q3 2022, bringing the total combined Group capacity
to 9.0Mtpa
-- A pre-feasibility study accompanied by a drilling and
exploration programme is to be undertaken in 2021 at Albyn and
Elginskoye given its significant potential to become a third source
of refractory gold to supply the POX Hub which has not previously
been fully considered
Corporate and Business Update
Business review and enhancing operational governance
-- The ongoing business review being undertaken following the
appointment of Denis Alexandrov as CEO and a new management team
will present further opportunities to deliver greater transparency
and efficiencies throughout the organisation. These opportunities
include:
-- Simplifying the corporate structure, improving management
systems, standardising processes and reducing G&A costs;
-- A new medium-term corporate development strategy to be
delivered by Q3 2021 and followed by the proposal of a dividend
policy; and
-- Completion of a full management restructuring by the end of
Q2 2021, including addressing management oversight and talent gaps
within the existing structure and adding critical core competencies
that were missing within the management team
Other
-- In its Q1 2021 Trading Update released on 29 April 2021, IRC
Limited (31.1% owned by Petropavlovsk) announced that it had paid
c.US$8.5m to Gazprombank as principal loan repayment and interest
payments during the quarter . This is in accordance with the
repayment schedule for the loan facility agreements guaranteed by
Petropavlovsk. A US$5m fee was paid during the quarter to
Petropavlovsk for guaranteeing the facility agreements
-- On 19 April 2021, the Company announced the appointment of
Mr. Mikhail Irzhevsky as an independent non-executive director with
effect from 16 April 2021. Following his appointment to the board,
he has also become a member of the audit, remuneration and
nominations committees and Mr. Maxim Kharin has stepped down from
the audit committee.
2021 Guidance
-- Production : remains on track to meet full year guidance of
430 - 470koz and comprises 370 - 390koz of own gold production
which is in-line with 2020, and 60 - 80koz of gold from third-party
concentrate which is lower than in 2020
-- Costs : own gold TCC expected to be in the range of US$870 -
US$970/oz, excluding third-party concentrate as the pricing of
concentrate depends on the highly volatile gold price
-- Capital expenditure : US$140m, consisting of sustaining and
development capex of US$120m and exploration spend of c.US$20m
2020 Reserves & Resources Update
-- At 31 December 2020, the Company's internal estimate of total
Group Mineral Resources (including Reserves) decreased 7% to
19.50Moz of gold (end of 2019: 21.03Moz) and total Reserves
decreased 15% to 7.16Moz of gold (end of 2019: 8.46Moz)
-- The decrease in Mineral Resources is due to mine depletion, a
re-evaluation of Mineral Resources at Tokur from JORC Code 2004 to
JORC Code 2012 and the adoption of more conservative open pit
constraint assumptions for reporting Elginskoye Resources
-- The decrease in Ore Reserves is due to mine depletion and a
more prudent approach to reporting, including removal low grade
stockpiles, Quartzitovoye open pit, Malomir RIP tailings and Tokur
Reserves from the statement
-- None of the decrease in Ore Reserves resulting from the more
prudent approach to reporting were scheduled to be mined and hence
the resulting decrease has no material impact on the Group's
production plans
-- A summary of our Reserves and Resources tables is shown below
and a breakdown by each asset may be found on our website at:
https://petropavlovskplc.com/development-exploration-reserves-and-resources/reserves-and-resources/
2020 Exploration Update
Exploration in 2020 was focused on extending and defining known
mineralisation at or around existing mining operations, as well as
regional programs aimed at increasing our understanding of earlier
stage deposits close to existing mining centers. This work included
drilling, trenching and metallurgical studies to understand the
nature of the ore and how its responds to either refractory or
non-refractory processing
Highlights at Pioneer include partial conversion of the Pokrovka
2 orebody to reserves which are due to be mined in 2021-2022, and
possible extensions to underground mineralisation at NE Bakhmut
zones 2 & 3 which are currently being mined. In addition,
mineralisation at Alexandra was extended down dip with results
indicating there is potential to further expand ore reserves at
this zone
At Albyn, significant drilling and metallurgical test work was
undertaken to understand the nature of the Elginskoye orebody and
the optimal processing route. Initial studies indicate an
increasing portion of the orebody appears to respond well to
gravity-flotation-POX rather than the RIP processing route.
Drilling at Unglichikanskoye confirmed down-dip extensions to the
southern group of mineralised zones which is expected to increase
mineral resources at the project once the results have been
incorporated
At Malomir, work continued to increase confidence in the Tokur,
Osipkan and Mariinskoye potential satellite deposits to upgrade
these deposits in terms of resources and reserves
Conference Call and Webcast
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/60785e9b0386285386cc9077
.
Alternatively, phone users can listen to the webcast and
participate in the Q&A session via the following numbers:
United Kingdom dial-in number +44 (0) 330 336 9434
Russian dial-in number +7 495 213 1767
When prompted, please use the following confirmation code:
1291065
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
Russia Index.
Petropavlovsk's key operating mines (Pioneer, Malomir and Albyn)
are in the Amur Region in the Russian Far East. Petropavlovsk has
produced a total of c.8.3Moz of gold since operations began in 1994
and has a strong track record of mine development, expansion and
asset optimisation.
The Group recently entered a new era of growth following the
successful commissioning and start-up of its flagship asset, the
Pressure Oxidation (POX) Hub at Pokrovskiy, which enables the
processing of the Company's abundant refractory reserves and
resources.
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 +44 (0) 20 7201 8900
Patrick Pittaway / Max Zaltsman / Viktoriya TeamIR@petropavlovskplc.com
Kim
Hudson Sandler +44 (0) 20 7796 4133
Charlie Jack / Katerina Parker / Elfie Petropavlovsk@hudsonsandler.com
Kent
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, the impact of the current Covid-19 pandemic, 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 do not form part of this announcement.
Financial Review
Despite the many difficulties related to the COVID-19 pandemic
and corporate changes within the Group, 2020 was a further year of
strong headline financial performance by Petropavlovsk.
Helped by strong gold prices and increases in production volumes
attributable to improved POX capacity utilisation, the company's
revenues increased by 33% YoY (2019 YoY: 48% increase), resulting
in an increase in EBITDA, which improved by 32% YoY (2019 YoY:
45%). This has enabled the company to continue its trend of
significant deleveraging, reaching a Net debt/EBITDA of 1.4x, as at
31 December 2020 (2019: 2.1x), which is the lowest in the company's
recent history.
In line with its strategy, the company has also prioritised the
repayment of its interest-bearing gold advances, decreasing this
amount by US$123.6 million over 2020, with the remaining balance at
the end of 2020 being US$63.8 million (2019: US$187.4 million).
Together with the partial conversion of the convertible bonds, this
helped decrease the total amount of interest paid in 2020 by 14% to
US$58.1 million (2019: US$67.2 million).
Cash generated from operations before working capital ("WC")
changes increased significantly to US$328.5 million (2019:US$250.5
million) reflecting the growth in EBITDA. In line with the Group's
2020 capital allocation priorities, this cash was used primarily to
repay the gold advances and fund capital expenditures aimed at
increasing the Group's refractory ore processing capabilities,
including: the Pioneer flotation plant, initial spending for a
third flotation line at Malomir, POX plant upgrades, as well as
development of the Elginskoye deposit in advance of the planned
transfer of mining operations from the depleted Albyn deposit to
Elginskoye.
Reducing the cost of debt remains a key priority in 2021, with
the Group aiming to significantly optimise its debt and portfolio
of liquidity sources by converting the gold advances credit limit
with Gazprombank into Revolving Credit Facilities ("RCF") at much
more favourable terms which reflect the strong fundamentals of the
business. This work is already proceeding with the Group entering
into a RCF agreement with a c.US$67 million limit with Gazprombank
in April 2021, with the aim of increasing this amount substantially
by the end of the year.
The significant strengthening of the company's balance sheet
will allow the Group to address the refinancing of its US$500
million notes due November 2022 on significantly more favourable
terms. That is a key priority for the company and detailed plans
are being discussed to be actioned in H2 2021.
Cost control remains a management priority; however, TCC for own
gold production increased 21% to US$852/oz, reflecting an 18%
decline in the volume of own gold sold, the effect of lower grades
of non-refractory ore processed at Albyn and Malomir and lower
grades of refractory ore processed at Malomir, the impact of
inflation of certain Rouble denominated costs, and the effect of
higher mining taxes paid. This effect was partially mitigated by
the effect of higher grades and recoveries of non-refractory ore
processed at Pioneer and the effect of higher recoveries of
refractory ore processed at Malomir, as well as by the effect of
Rouble depreciation.
The company has showed a net loss of US$(48.9) million (2019:
net profit of US$25.7 million) that has primarily resulted from the
following three non-cash items: a) US$42.8 million loss on the fair
value re-measurement of the convertible option of the convertible
bonds (2019: US$31.1 million) which resulted primarily from the
increase in the share price of the company, as 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. As the company can elect to pay the cash value in lieu
of delivering the ordinary shares following exercise of the
conversion right, the conversion option is a derivative liability.
Accordingly, the conversion option is measured at fair value with
the relevant loss included in net other finance (losses) / gains;
b) impairment of mining and exploration and evaluation assets of
US$74.9 million driven by an adjustment in the valuation of the
Albyn and Elginskoye projects, which were historically accounted as
a single cash generating unit ("CGU"), with assets being
depreciated on the basis of reserves unit-of-production using the
combined Albyn and Elginskoye reserve base. The valuation
adjustment happened as a result of additional exploration and
geological modelling which showed a decrease in average grades, an
increase in the proportion of refractory ores as well as uneven
distribution of refractory and non-refractory ores. That resulted
in an earlier than anticipated switch to processing refractory ore
from Elginskoye, which dictated the necessity to allocate part of
the POX assets to the Albyn CGU and, combined, these factors led to
the impairments being recognised. It is important to note that the
Elginskoye deposit is underexplored and currently significant
exploration works are planned for 2021, targeting the conversion of
resources to reserves, increasing resources as well as clarifying
the metallurgical quality of all types of ore. As such, the current
production plan for Albyn is intermediate and significant changes
are expected by the end of 2021; and c) following a
re-classification of a 29.9% interest in IRC as assets held for
sale, the Group recognised a US$55.8 million write-down to adjust
the carrying value of net assets of disposal group to fair value
less costs to sell.
Note: Figures may not add up due to rounding
Financial Highlights
2020 2019
Gold sold '000oz 546.5 514.0
------------------------------------------------ ------------ ------ -----
Group revenue US$ million 988.5 741.6
------------------------------------------------ ------------ ------ -----
Average realised gold price US$/oz 1,748 1,346
------------------------------------------------ ------------ ------ -----
Average LBMA gold price afternoon fixing US$/oz 1,770 1,393
------------------------------------------------ ------------ ------ -----
Total Cash Costs (a) US$/oz 1,034 749
------------------------------------------------ ------------ ------ -----
Total cash costs from own material (a) US$/oz 852 703
------------------------------------------------ ------------ ------ -----
Total cash costs from third parties concentrate
(a) US$/oz 1,474 1,260
------------------------------------------------ ------------ ------ -----
All-in Sustaining Costs (b) US$/oz 1,312 1,020
------------------------------------------------ ------------ ------ -----
All-in Costs (b) US$/oz 1,451 1,103
------------------------------------------------ ------------ ------ -----
Underlying EBITDA US$ million 350.7 264.8
------------------------------------------------ ------------ ------ -----
Operating profit (c) US$ million 148.0 150.7
------------------------------------------------ ------------ ------ -----
Profit before tax US$ million 27.2 52.9
------------------------------------------------ ------------ ------ -----
(Loss)/profit for the year US$ million (48.9) 25.7
------------------------------------------------ ------------ ------ -----
(Loss)/profit for the year attributable to
equity shareholders of Petropavlovsk PLC US$ million (45.6) 26.9
------------------------------------------------ ------------ ------ -----
Basic (loss)/profit per share US$ (0.01) 0.01
------------------------------------------------ ------------ ------ -----
Cash generated from operations before working
capital changes US$ million 328.5 250.5
------------------------------------------------ ------------ ------ -----
Net cash from operating activities US$ million 156.3 95.4
------------------------------------------------ ------------ ------ -----
(a) Calculation of Total Cash Costs ("TCC") is set out in the section Hard rock mines below.
(b) All-in Sustaining Costs ("AISC") and All-in Costs ("AIC")
are calculated in accordance with guidelines for reporting All-in
Sustaining Costs and All-in Costs published by the World Gold
Council.
Calculation is set out in the section All-in Sustaining Costs and All-in Costs below.
(c) In the 2020 Annual Report operating profit is now 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.
31 December 31 December
2020 2019
Cash and cash equivalents US$ million 35.4 48.2
-------------------------- --------------- ------------- -----------
Notes (d) US$ million (502.0) (500.4)
-------------------------- --------------- ------------- -----------
Convertible bonds (e) US$ million (34.0) (109.1)
-------------------------- --------------- ------------- -----------
Net Debt US$ million (500.6) (561.3)
-------------------------- --------------- ------------- -----------
(d) US$500 million Guaranteed Notes due on 14 November 2022 at
amortised cost.
(e) US$125 million convertible bonds due on 03 July 2024 at
amortised cost.
Revenue
2020 2019
Revenue from hard rock
mines US$ million 956.0 692.6
------------------------------ --------------- ------ ------
Revenue from other operations US$ million 32.5 49.0
------------------------------ --------------- ------ ------
US$ million 988.5 741.6
--------------- --------------------------- ------ ------
Group revenue during the period was US$988.5 million, 33% higher
than the US$741.6 million achieved in 2019.
Revenue from hard rock mines during the period was US$956.0
million, 38% higher than the US$692.6 million achieved in 2019.
Gold remains the key commodity produced and sold by the Group,
comprising 97% of total revenue generated in 2020. The physical
volume of gold sold from hard rock mines increased by 6% from
514,005 oz in 2019 to 546,458 oz in 2020. The average realised gold
price increased by 30% from US$1,346/ oz in 2019 to US$1,748/oz in
2020. The average realised gold price was not affected by hedge
arrangements (2019: US$(61)/oz). Hard rock mines sold 23,891 oz of
silver in 2020 at an average price of US$27/oz, compared to 56,568
oz in 2019 at an average price of US$15/oz.
Revenue generated as a result of third- party work by the
Group's in-house service companies was US$32.5 million in 2020, a
US$(16.5) million decrease compared to US$49.0 million in 2019.
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$30.0 million in 2020 compared to US$45.1 million in
2019.
Cash Flow Hedge Arrangements
In March 2020 the Group 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$63 million
(US$7 million per month for the period from April to December 2020)
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 2020 and resulted in
US$1.4 million net cash settlement received by the Group.
Zero cost collars for the underlying aggregate of US$84 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 31 December 2020.
Zero cost collars for the underlying aggregate of 31,500 oz of
gold (3,500 oz of gold per month for the period from April to
December 2020) with an exercise price of US$1,600/ oz for put
options and US$1,832/oz for call options matured during 2020 and
resulted in US$(1.5) million net cash settlement
paid by the Group. In 2019 the Group used gold forward contracts
as cash flow hedge arrangements which resulted in US$(31.5) million
net cash settlement paid by the Group on forward contracts to sell
230,000 oz of gold. Zero cost collars for the underlying aggregate
of 42,000 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 31 December
2020.
The aforementioned contracts did not qualify for hedge
accounting under IFRS 9. Accordingly, there was no adjustment to
the average realized gold price in 2020 for the effect of net
settlement under these arrangements.
Corresponding fair values for gold and currency option contracts
are disclosed in note 18 to the Group's consolidated financial
statements for the year ended 31 December 2020.
PUT OPTION CALL OPTION
UNDERLYING EXERCISE EXERCISE
AGGREGATE AMOUNT PRICE PRICE
Option contracts matured in
2020:
---------------------------- --------------------------- ----------- ------------
31,500 oz (3,500 oz of
gold per
month for the period
from April to December
Gold option contracts 2020) US$1,600/oz US$1,832/oz
---------------------------- --------------------------- ----------- ------------
US$63 million (US$7 million
per month for the
period from April to RUB90.65
Currency option contracts December 2020) RUB75.00 - RUB100.00
--------------------------- ----------- ------------
Option contracts outstanding
as at 31 December 2020:
---------------------------- --------------------------- ----------- ------------
42,000 oz of gold (3,500
oz of gold per
month until December
Gold option contracts 2021) US$1,600/oz US$1,832/oz
---------------------------- --------------------------- ----------- ------------
US$84 million (US$7 million
per
month until December RUB90.65
Currency option contracts 2021) RUB75.00 - RUB100.00
--------------------------- ----------- ------------
Underlying EBITDA
2020 2019
US$ million US$ million
(Loss)/profit for the period (48.9) 25.7
------------------------------------------------------ ------------- -------------
Add/(less):
------------------------------------------------------ ------------- -------------
Net impairment reversals on financial instruments (1.0) (30.8)
------------------------------------------------------ ------------- -------------
Investment and other finance income (7.8) (8.8)
------------------------------------------------------ ------------- -------------
Interest expense 58.5 59.9
------------------------------------------------------ ------------- -------------
Net other finance losses (a) 68.0 42.2
------------------------------------------------------ ------------- -------------
Foreign exchange (gains)/losses (32.6) 20.8
------------------------------------------------------ ------------- -------------
Taxation 76.1 27.2
------------------------------------------------------ ------------- -------------
Depreciation 134.1 137.8
------------------------------------------------------ ------------- -------------
Impairment/(reversal of impairment) of mining assets
and in-house service 58.8 (52.2)
------------------------------------------------------ ------------- -------------
Impairment of exploration and evaluation assets 16.1 -
------------------------------------------------------ ------------- -------------
Write-down of inventory to net realisable value 1.2 -
------------------------------------------------------ ------------- -------------
Reversal of impairment of ore stockpiles - (2.8)
------------------------------------------------------ ------------- -------------
Impairment of gold in circuit 0.1 0.1
------------------------------------------------------ ------------- -------------
Impairment of bullion in process 0.0 -
------------------------------------------------------ ------------- -------------
Write-down to adjust the carrying value of net assets
of disposal group to fair value less costs to sell 55.8 -
------------------------------------------------------ ------------- -------------
Share of results of associate (b) (27.7) 45.7
------------------------------------------------------ ------------- -------------
Underlying EBITDA 350.7 264.8
------------------------------------------------------ ------------- -------------
(a) Including US$42.8 million fair value loss from
re-measurement of the conversion option of the convertible bonds
(2019: US$31.1 million).
(b) Group's share of interest expense, investment income, other
finance gains and losses, foreign exchange gains and losses,
taxation, depreciation and impairment/reversal of impairment
recognised by an associate and impairment/reversal of impairment
recognised against investment in the associate.
Underlying EBITDA as contributed by segment and the associate is
set out below.
2020 2019
US$ million US$ million
Pioneer 119.9 53.3
-------------------------- ------------ ------------
Malomir 141.1 104.2
-------------------------- ------------ ------------
Albyn 129.1 149.3
-------------------------- ------------ ------------
Total Hard rock mines 390.1 306.8
-------------------------- ------------ ------------
Corporate and other (64.3) (52.3)
-------------------------- ------------ ------------
Underlying EBITDA by
segment 325.7 254.5
-------------------------- ------------ ------------
IRC 25.0 10.3
-------------------------- ------------ ------------
Underlying EBITDA 350.7 264.8
-------------------------- ------------ ------------
Hard Rock Mines
During the period, hard rock mines generated Underlying EBITDA
of US$390.1 million compared to US$306.8 million of Underlying
EBITDA in 2019.
Total Cash Costs for hard rock mines increased from US$749/oz in
2019 to US$1,034/oz in 2020.
The increase in Total cash costs from own material from
US$703/oz in 2019 to US$852/oz in 2020 primarily reflects the
effect of lower grades of non-refractory ore processed at Albyn and
Malomir and lower grades of refractory ore processed at Malomir,
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 and recoveries
of non-refractory ore processed at Pioneer 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 third parties concentrate increased from
US$1,260/ oz in 2019 to US$1,474/oz in 2020. Total cash costs from
third parties concentrate are directly dependent on gold price
which has significantly increased in 2020.
The increase in physical ounces sold from 514,005 oz in 2019 to
546,458 oz in 2020 resulted in US$19.4 million increase in
Underlying EBITDA . The increase in the average realised gold price
from US$1,346/oz in 2019 to US$1,748/oz in 2020 contributed to a
further US$220.0 million increase in Underlying EBITDA . This
effect was partly offset by the increase in TCC with US$(156.1)
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 12% in 2020
compared to 2019, with the average exchange rate for the period of
72.18 Roubles per US Dollar in 2020 compared to 64.69 Roubles per
US Dollar in 2019, somewhat mitigating the effect of Rouble
denominated cost 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 which 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 a full mining tax rate in
2020, LLC Albynskiy Rudnik applied 1.2% mining tax rate from
January till August 2020 and a full mining tax rate from September
till December 2020, resulting in US$33.8 million mining tax expense
compared to US$15.9 million mining tax expense in 2019 when a 1.2%
mining tax rate was applied by both LLC Albynskiy Rudnik and LLC
Malomirskiy Rudnik and a full mining tax rate by JSC Pokrovskiy
Rudnik.
2020 2019
US$ million % US$ million %
Staff costs 77.6 16 83.2 21
---------------------------------------- ------------ --- ------------- ---
Materials 83.5 17 86.6 22
---------------------------------------- ------------ --- ------------- ---
Flotation concentrate purchased 201.6 41 74.0 19
---------------------------------------- ------------ --- ------------- ---
Fuel 29.3 6 43.3 11
---------------------------------------- ------------ --- ------------- ---
Electricity 33.8 7 34.0 8
---------------------------------------- ------------ --- ------------- ---
Other external services 41.0 8 42.3 11
---------------------------------------- ------------ --- ------------- ---
Other operating expenses 26.8 5 32.0 8
---------------------------------------- ------------ --- ------------- ---
493.6 100 395.5 100
---------------------------------------- ------------ --- ------------- ---
Movement in ore stockpiles, gold in
circuit, bullion in process, limestone
and flotation concentrate attributable
to gold production 30.0 (34.2)
---------------------------------------- ------------ --- ------------- ---
Total operating cash expenses 523.6 361.4
---------------------------------------- ------------ --- ------------- ---
Hard rock mines
---------------------------------- ----------------------------------------- ------------- -------------
Pioneer Malomir Albyn 2020 Total 2019 Total
US$ million US$ million US$ million US$ million US$ million
------------ ------------- ------------ ------------- -------------
Revenue
---------------------------------- ------------ ------------- ------------ ------------- -------------
Gold 486.2 247.9 221.2 955.4 691.7
=================================== ============ ============= ============ ============= =============
Including:
---------------------------------- ------------ ------------- ------------ ------------- -------------
Gold from own material 212.0 247.9 221.2 681.1 631.4
----------------------------------- ------------ ------------- ------------ ------------- -------------
Gold from 3rd parties
concentrate 274.2 - - 274.2 60.3
=================================== ============ ============= ============ ============= =============
Silver 0.3 0.1 0.2 0.6 0.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
486.5 248.0 221.4 956.0 692.6
---------------------------------- ------------ ------------- ------------ ------------- -------------
Expenses
---------------------------------- ------------ ------------- ------------ ------------- -------------
Operating cash expenses 352.9 86.3 84.4 523.6 361.4
----------------------------------- ------------ ------------- ------------ ------------- -------------
Refinery and transportation 0.5 0.2 0.2 0.8 0.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
Other taxes 2.3 3.9 1.6 7.8 7.6
----------------------------------- ------------ ------------- ------------ ------------- -------------
Mining tax 11.0 16.6 6.2 33.8 15.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
Depreciation 49.8 53.8 28.0 131.6 135.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
Impairment/(reversal of
impairment) of mining
assets and in-house service - - 58.8 58.8 (42.8)
----------------------------------- ------------ ------------- ------------ ------------- -------------
Impairment of exploration
and evaluation assets - - 16.1 16.1 -
----------------------------------- ------------ ------------- ------------ ------------- -------------
Impairment/(reversal of
impairment) of ore stockpiles,
bullion in process and
gold in circuit 0.1 - - 0.1 (2.7)
----------------------------------- ------------ ------------- ------------ ------------- -------------
Operating expenses 416.6 160.7 195.2 772.5 476.3
----------------------------------- ------------ ------------- ------------ ------------- -------------
Result of precious metals
operations 69.9 87.3 26.2 183.5 216.3
----------------------------------- ------------ ------------- ------------ ------------- -------------
Add/(less):
---------------------------------- ------------ ------------- ------------ ------------- -------------
Depreciation 49.8 53.8 28.0 131.6 135.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
Impairment/(reversal of
impairment) of mining
assets and in-house service - - 58.8 58.8 (42.8)
----------------------------------- ------------ ------------- ------------ ------------- -------------
Impairment of exploration
and evaluation assets - - 16.1 16.1 -
----------------------------------- ------------ ------------- ------------ ------------- -------------
Impairment/(reversal of
impairment) of ore stockpiles,
bullion in process and
gold in circuit 0.1 - - 0.1 (2.7)
----------------------------------- ------------ ------------- ------------ ------------- -------------
Segment EBITDA 119.9 141.1 129.1 390.1 306.8
----------------------------------- ------------ ------------- ------------ ------------- -------------
Physical volume of gold
sold, oz 279,364 140,436 126,658 546,458 514,005
----------------------------------- ------------ ------------- ------------ ------------- -------------
Including:
---------------------------------- ------------ ------------- ------------ ------------- -------------
Gold sold from own material,
oz 119,173 140,436 126,658 386,267 471,563
----------------------------------- ------------ ------------- ------------ ------------- -------------
Gold sold from 3rd parties
concentrate, oz 160,191 - - 160,191 42,442
=================================== ============ ============= ============ ============= =============
Cash costs
---------------------------------- ------------ ------------- ------------ ------------- -------------
Operating cash expenses 352.9 86.3 84.4 523.6 361.4
----------------------------------- ------------ ------------- ------------ ------------- -------------
Refinery and transportation 0.5 0.2 0.2 0.8 0.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
Other taxes 2.3 3.9 1.6 7.8 7.6
----------------------------------- ------------ ------------- ------------ ------------- -------------
Mining tax 11.0 16.6 6.2 33.8 15.9
----------------------------------- ------------ ------------- ------------ ------------- -------------
Operating cash costs 366.7 107.0 92.3 565.9 385.8
----------------------------------- ------------ ------------- ------------ ------------- -------------
Deduct: co-product revenue (0.3) (0.1) (0.2) (0.6) (0.9)
----------------------------------- ------------ ------------- ------------ ------------- -------------
Total Cash Costs 366.3 106.9 92.1 565.3 384.9
=================================== ============ ============= ============ ============= =============
Including:
---------------------------------- ------------ ------------- ------------ ------------- -------------
Total cash costs from
own material 130.2 106.9 92.1 329.1 331.5
----------------------------------- ------------ ------------- ------------ ------------- -------------
Total cash costs from
3rd parties concentrate 236.2 - - 236.2 53.4
=================================== ============ ============= ============ ============= =============
TCC , US$/oz 1,311 761 727 1,034 749
=================================== ============ ============= ============ ============= =============
TCC from own material,
US$/oz 1,092 761 727 852 703
----------------------------------- ------------ ------------- ------------ ------------- -------------
TCC from 3rd parties concentrate,
US$/oz 1,474 - - 1,474 1,260
=================================== ============ ============= ============ ============= =============
All-In Sustaining Costs and All-In Costs
AISC increased from US$1,020/oz in 2019 to US$1,312/oz in 2020.
The increase in AISC primarily reflects increase in TCC explained
above. Aggregate of sustaining capital expenditures related to the
existing mining operations, underground mining projects at Pioneer
and Malomir, POX project, Malomir flotation plant, sustaining lease
and capitalized stripping expenditure during the period at Malomir
and Pioneer remained at approximately the same level as the
aggregate of sustaining capital expenditures and capitalized
stripping expenditure in 2019.
AIC increased from US$1,103/oz in 2019 to US$1,451/oz in 2020,
reflecting the increase in AISC explained above, development
expenditure for Elginskoye infrastructure, Pioneer flotation plant,
a 3rd flotation line at Malomir and capitalized stripping
expenditure in respect of refractory ore at Pioneer. This was
partially offset by a decrease in Capital Expenditure in relation
to the POX project,
with the POX Hub commissioned in 2019 and being considered as
sustaining in 2020.
Hard rock mines
-------------------------------- ---------------------------------------- ------------- ------------
2020 2019
Pioneer Malomir Albyn Total Total
US$ million US$ million US$ million US$ million US$ million
------------ ------------ ------------ ------------- ------------
Physical volume of gold
sold, oz 279,364 140,436 126,658 546,458 514,005
================================= ============ ============ ============ ============= ============
Total Cash Costs 366.3 106.9 92.1 565.3 384.9
================================= ============ ============ ============ ============= ============
TCC , US$/oz 1,311 761 727 1,034 749
================================= ============ ============ ============ ============= ============
Impairment/(reversal
of impairment) of ore
stockpiles, bullion in
process and gold in circuit 0.1 - - 0.1 (2.7)
--------------------------------- ------------ ------------ ------------ ------------- ------------
Adjusted operating costs 366.5 106.9 92.1 565.4 382.3
--------------------------------- ------------ ------------ ------------ ------------- ------------
Central administration
expenses 31.4 15.8 14.2 61.4 52.5
--------------------------------- ------------ ------------ ------------ ------------- ------------
Capitalised stripping 11.2 22.6 - 33.8 27.1
--------------------------------- ------------ ------------ ------------ ------------- ------------
Close down and site restoration 1.3 0.5 0.1 1.8 1.1
--------------------------------- ------------ ------------ ------------ ------------- ------------
Sustaining exploration
expenditures 0.5 - 0.4 0.9 4.1
--------------------------------- ------------ ------------ ------------ ------------- ------------
Sustaining capital expenditure 25.1 18.1 6.0 49.2 57.2
--------------------------------- ------------ ------------ ------------ ------------- ------------
Sustaining lease 0.4 2.1 1.7 4.2 -
--------------------------------- ------------ ------------ ------------ ------------- ------------
All-in Sustaining Costs 436.4 165.9 114.5 716.8 524.3
================================= ============ ============ ============ ============= ============
All-in Sustaining Costs
, US$/oz 1,562 1,181 904 1,312 1,020
================================= ============ ============ ============ ============= ============
Exploration expenditure - 3.1 5.7 8.8 10.1
--------------------------------- ------------ ------------ ------------ ------------- ------------
Capital expenditure 23.1 3.5 32.2 58.8 32.4
--------------------------------- ------------ ------------ ------------ ------------- ------------
Capitalised stripping 8.7 - - 8.7 -
--------------------------------- ------------ ------------ ------------ ------------- ------------
All-in Costs 468.2 172.5 152.4 793.1 566.8
================================= ============ ============ ============ ============= ============
All-in Costs , US$/oz 1,676 1,228 1,203 1,451 1,103
================================= ============ ============ ============ ============= ============
Corporate and other
C orporate and other operations contributed US$(64.3) million to
Underlying EBITDA in 2020 compared to US$(52.3) million in 2019.
Corporate and other operations primarily include central
administration function, results 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$8.8
million from US$52.5 million in 2019 to US$61.4 million in
2020.
Results of Associate
T he Group's share of profit generated by IRC is US$52.7million,
including US$23.6 million effect from partial reversal of
impairment at K&S mine and a further US$21.4 million reversal
of impairment of investment in IRC (2019: US$(12.0) million share
of losses generated by IRC and a further US$23.4 million impairment
of investment in IRC). Following re-classification of 29.9%
interest in IRC as assets held for sale, the Group recognised a
US$55.8 million write-down to adjust the carrying value of net
assets of disposal group to fair value less costs to sell. IRC
contributed US$25.0 million to the Group's Underlying EBITDA in
2020 (2019:US$10.3 million).
Impairment Review
Impairment of Mining Assets
At 31 December 2020 the Group undertook a review of impairment
indicators of the 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 an impairment
in relation to Albyn CGU was required. This was primarily driven by
latest changes in the geological block model, including decrease in
average grade of both non-refractory and refractory ore, essential
changes in the proportion of the non-refractory and refractory ore,
uneven distribution of non-refractory and refractory ore bodies,
which lead to the deficit of non-refractory ore to fill the Albyn
RIP Plant after 2024 and the requirement to move the construction
of the flotation line from 2027 to 2023 with consequent
re-scheduling of the commissioning of the flotation line from
January 2028 to January 2024.
All these factors lead to the increase of the operating and
capital costs of the Albyn CGU and corresponding decrease of its
recoverable amounts, and combined with increased carrying values of
the Albyn CGU due to the proportional allocation of the POX Hub
facilities, resulted in the corresponding impairment as set out
below.
As at 31 December 2020, the Group recognised a pre-tax
impairment of an aggregate of US$74.9 million to the extent that
recoverable amounts no longer supported the relevant carrying
values of assets that are part of Albyn CGU as set out below:
_ US$58.8 million (US$47.0 million post- tax) has been recorded
against the associated assets within property, plant and equipment;
and
_ US$16.1 million (US$12.9 million post- tax) has been recorded
against the associated exploration and evaluation assets.
As at 31 December 2019, the Group recognised impairment
reversals at the Pioneer CGU and the supporting in-house service
companies of US$43.5 million (US$34.8 million post-tax) and US$9.4
million (US$7.8 million post-tax), respectively.
Impairment of Exploration and Evaluation Assets
As at 31 December 2020, the Group performed a review of its
exploration and evaluation assets and concluded no impairment was
required, except as referred to above (31 December 2019: the Group
performed a review of its exploration and evaluation assets and
concluded no impairment was required).
Exploration and evaluation assets in the statement of financial
position primarily relate to the areas adjacent to the existing
mines.
Financial Income and Expenses
INVESTMENT AND OTHER 2020 2019
FINANCE INCOME US$ million US$ million
Investment income (a) 1.1 3.2
--------------------------- ------------ -------------
Guarantee fee income
(b) 6.7 5.6
--------------------------- ------------ -------------
7.8 8.8
----------------------- ------------ -------------
(a) Interest income on bank deposits.
(b) Guarantee fee income under Gazprombank Guarantee agreements,
as set out in section "Corporate activities" below.
Interest Expense
2020 2019
US$ million US$ million
Interest expense 61.9 71.6
------------------------- ------------- ------------
Interest capitalised (4.1) (12.3)
------------------------- ------------- ------------
Other 0.8 0.6
------------------------- ------------- ------------
58.5 59.9
--------------------- ------------- ------------
Interest expense for the period comprised of US$42.2 million of
effective interest on the Notes, US$9.2 million of effective
interest on the Convertible Bonds, US$9.9 million of interest on
prepayments on gold sale agreements and US$0.5 million interest on
finance lease (2019: US$42.0 million of effective interest on the
Notes, US$13.0 million of effective interest on the Convertible
Bonds, US$16.0 million of interest on prepayments on gold sale
agreements and US$0.6 million interest on finance lease). As the
Group continued with construction of Elginskoye infrastructure,
Pioneer flotation plant, 3rd flotation line at Malomir, these
projects met eligibility criteria for borrowing costs
capitalization under IAS 23 "Borrowing Costs" with US$4.1 million
of interest expense capitalized within property, plant and
equipment (2019: US$12.3 million of interest expense was
capitalised within property, plant and equipment).
Net Other Finance Gains/(Losses)
Net other finance losses for the period totalled US$(68.0)
million compared to US$(42.2) million of net other finance losses
in 2019. Key elements of other finance gains and losses this period
include:
_ US$(42.8) million fair value non-cash loss from re-measurement
of the conversion option of the convertible bonds;
_ US$(11.0) million fair value loss on the call option to
acquire 25% interest in the Group's subsidiary LLC TEMI from its
current shareholder as set out in section "Corporate activities"
below;
_ US$(9.5) million loss on bonds conversion;
_ US$(7.0) million fair value loss on gold option contracts;
_ US$4.1 million fair value gain on currency option
contracts;
_ US$(1.7) million net other losses.
Net Impairment Reversals on Financial Instruments
In 2020, the Group recognised US$0.3 million reversal of
impairment of financial assets (2019: US$2.3 million reversal of
impairment of financial assets) and net of US$0.7 million reversal
of provision for expected credit losses under Gazprombank guarantee
arrangements (2019: US$28.5 million reversal of provision for
expected credit losses under Gazprombank and ICBC guarantee
arrangements).
Taxation
2020 2019
US$ million US$ million
Tax charge 76.1 27.2
--------------- ------------- -------------
The Group is subject to corporation tax under the UK, Russia and
Cyprus tax legislation. The statutory tax rate for 2020 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$48.7 million (2019: US$29.7 million) and a deferred tax
charge, which is a non-cash item, of US$27.4 million (2019:
deferred tax credit of US$2.4 million). Included in the deferred
tax charge in 2020 is a US$33.1million charge (2019: US$20.4
million credit) 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 deductible for tax purposes which primarily relate to fair
value losses on re-measurement of the conversion option of the
Convertible Bonds and 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 recognised 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$56.5 million in Russia (2019: corporation tax
payments in aggregate of US$32.7 million in Russia).
Earnings per Share
2020 2019
(Loss)/profit for the
period attributable to
equity holders of Petropavlovsk US$(45.6)
PLC million US$26.9 million
------------------------------------- ------------- ---------------
Weighted average number
of Ordinary Shares 3,564,250,949 3,309,193,559
------------------------------------- ------------- ---------------
Basic (loss)/profit per
ordinary share US$(0.01) US$0.01
------------------------------------- ------------- ---------------
Basic loss per share for 2020 was US$(0.01) compared to US$0.01
basic profit per share for 2019.
The total number of Ordinary Shares in issue as at 31 December
2020 was 3,957,270,254 (31 December 2019: 3,310,210,281).
Financial Position and Cash Flows
31 December 31 December
2020 2019
US$ million US$ million
Cash and cash equivalents 35.4 48.2
------------------------------ ------------- -----------------------
Notes (a) (502.0) (500.4)
------------------------------ ------------- -----------------------
Convertible bonds (b) (34.0) (109.1)
------------------------------ ------------- -----------------------
Net Debt (500.6) (561.3)
------------------------------ ------------- -----------------------
(a) US$500 million Guaranteed Notes due on 14 November 2022 at
amortised cost.
(b) US$125 million convertible bonds due on 03 July 2024 at
amortised cost.
2020 2019
US$ million US$ million
Net cash from operating
activities 156.3 95.4
------------------------------- ------------- -------------
Net cash used in investing
activities (c) (159.1) (84.7)
------------------------------- ------------- -------------
Net cash (used in)/from
financing activities (6.3) 8.9
------------------------------- ------------- -------------
(c) Including US$117.8 million Capital Expenditures (2019:
US$103.8 million)
Key Movements in Cash and Net Debt
Cash Debt Net Debt
US$ million US$ million US$ million
As at 1 January 2020 48.2 (609.5) (561.3)
------------------------------------------- ------------- ------------- -------------
Net cash generated by operating activities
before working capital changes 328.6
------------------------------------------- ------------- ------------- -------------
Changes in working capital (62.7)
------------------------------------------- ------------- ------------- -------------
Corporation tax paid (56.5)
------------------------------------------- ------------- ------------- -------------
Capital Expenditure (117.8)
------------------------------------------- ------------- ------------- -------------
Capitalized stripping (42.5)
------------------------------------------- ------------- ------------- -------------
Bonds conversion 77.5
------------------------------------------- ------------- ------------- -------------
Interest accrued (51.5)
------------------------------------------- ------------- ------------- -------------
Interest paid (58.1)(d) 47.4
------------------------------------------- ------------- ------------- -------------
ICBC Guarantee fee 5.0
------------------------------------------- ------------- ------------- -------------
Interest received 1.1
------------------------------------------- ------------- ------------- -------------
Other (9.9)
------------------------------------------- ------------- ------------- -------------
As at 31 December 2020 35.4 (536.0) (500.6)
------------------------------------------- ------------- ------------- -------------
(d) Including US$10 million interest paid in relation to advance
payments from Gazprombank and Sberbank.
Capital Expenditure
The Group invested an aggregate of US$117.8 million in 2020
compared to US$103.8 million in 2019. The key areas of focus in
this period were on Pioneer and Malomir flotation, Elginskoye mine
development and development to support the underground mining at
Pioneer. The Group capitalised US$4.1 million of interest expense
incurred in relation to the Group's debt into the cost of
construction of Elginskoye infrastructure, Pioneer flotation plant,
3rd flotation line at Malomir (2019: US$12.3 million of interest
expense incurred in relation to the Group's debt into the cost of
the POX Hub, Malomir flotation and Pioneer flotation).
Development
expenditure
Exploration and other Total
expenditure CAPEX CAPEX
US$ million US$ million US$ million
POX - 5.6 5.6
-------------------------- ------------ ------------- ------------
Pioneer (a), (b) 0.5 42.5 43.0
-------------------------- ------------ ------------- ------------
Malomir (c), (d), (e) 0.8 16.4 17.2
-------------------------- ------------ ------------- ------------
Albyn (f) 6.1 36.6 42.7
-------------------------- ------------ ------------- ------------
Other 2.3 - 2.3
-------------------------- ------------ ------------- ------------
Corporate and in-house
services - 7.0 7.0
-------------------------- ------------ ------------- ------------
Total 9.7 108.0 117.8
-------------------------- ------------ ------------- ------------
(a) Including US$0.2M of exploration in relation to Pioneer
Underground project, US$6.9M of development expenditure in relation
to underground project to be sustaining capital expenditure for the
purposes of calculating AISC and AIC .
(b) Including US$23.1M of development expenditure in relation to
Pioneer Flotation project (US$17.4M of expenditure in relation to
flotation and US$5.7M of expenditure in relation to hydrotechnical
storage facilities) to be non-sustaining capital expenditure for
the purposes of calculating AISC and AIC .
(c) Including US$2.0M 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$7.1M of development expenditure in relation to
Malomir flotation (US$2.6M of expenditure in relation to flotation
and US$4.5M of expenditure in relation to hydrotechnical storage
facilities) which is considered to be sustaining capital
expenditure for the purposes of calculating AISC and AIC .
(e) Including US$3.5M of development expenditure in relation to
Malomir 3rd line flotation which is considered to be non-sustaining
capital expenditure for the purposes of calculating AISC and AIC
.
(f) Including US$5.7M of exploration expenditure in relation to
Elginskoye, US$21.5M of development expenditure in relation to road
between Elginskoye and Albyn processing facilities, US$9.8M of
development expenditure in relation to hydrotechnical storage
facilities for Elginskoye project and US$0.9M in relation Albyn
processing facilities , which are considered to be non-sustaining
capital expenditure for the purposes of calculating AISC and AIC
.
Foreign Currency Exchange Differences
The Group's principal subsidiaries have a US Dollar functional
currency. Foreign exchange differences arise on the translation of
monetary assets and liabilities denominated in foreign currencies,
which for the principal subsidiaries of the Group are the Russian
Rouble and GB Pounds Sterling.
The following exchange rates to the US Dollar have been applied
to translate monetary assets and liabilities denominated in foreign
currencies.
31 December 31 December
2020 2019
GB Pounds Sterling (GBP:
US$) 0.73 0.75
------------------------------ ------------- -------------
Russian Rouble (RUB: US$) 73.88 61.91
------------------------------ ------------- -------------
The Rouble depreciated by 19% against the US Dollar during 2020,
from RUB61.91: US$1 as at 31 December 2019 to RUB73.88: US$1 as at
31 December 2020. The average period-on-period depreciation of the
Rouble against the US Dollar was approximately 12%, with the
average exchange rate for 2020 being RUB72.18: US$1 compared to
RUB64.69 : US$1 for 2019. The Group recognised foreign exchange
gains of US$32.6 million in 2020 (2019: US$21.0 million losses)
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$204 million
as at 31 December 2020.
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 years ended 31 December 2020 and
2019 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 year ended 31 December 2020 was
US$6.7 million, with corresponding value of US$6.3 million after
provision for expected credit losses (2019: US$$5.6 million, with
corresponding value of $5.0 million after provision for expected
credit losses).
The following assets and liabilities have been recognised in
relation to the ICBC Guarantee and Gazprombank Guarantee as at 31
December 2020 and 31 December 2019:
31 December 31 December
2020 2019
US$ million US$ million
Other receivables - ICBC Guarantee 0.0 4.4
----------------------------------------------------- ------------- ------------
Other receivables - Gazprombank Guarantee 11.9 5.0
----------------------------------------------------- ------------- ------------
Financial guarantee contract - Gazprombank Guarantee
(a) (8.2) (8.9)
----------------------------------------------------- ------------- ------------
(a) Classified as "held for sale" and presented separately in
the statement of financial position as at 31 December 2020.
Potential Disposal of Interest in IRC
On 18 March 2020, the Group signed a preliminary agreement to
dispose of its 29.9% out of 31.1.% interest in IRC to Stocken Board
AG for a cash consideration of US$10 million, subject to certain
conditions precedent being met, including the release of the
Group's obligation to guarantee IRC's external debt under the
Gazprombank Facility. This was a non-adjusting event and the
investment was not considered to be an asset held-for sale under
IFRS 5 "Non-current Assets Held for Sale and Discontinued
Operations" as at 31 December 2019.
Throughout 2020, 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 26). 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 31 December
2020.
Option to Acquire Non-Controlling 25% Interest in LLC TEMI
In May 2019, the Group entered into the option contract to
acquire non-controlling 25% interest in LLC TEMI, holder of
licenses for the Elginskoye Ore Field and Afanasievskaya
Prospective Ore Area, from its shareholder Agestinia Trading
Limited for an aggregate consideration of US$60 million (adjusted
to US$53.5 million if certain conditions are met). The option
premium payable is US$13 million, which was paid in 2019. The
exercise period of the option is 730 days from 22 May 2019.
The Group employed an independent third-party expert to
undertake the valuations of the underlying 25% interest in LLC TEMI
and the call option. As at 31 December 2020, the fair value of the
derivative financial asset was US$nil.
Partial Conversion of US$125 Million Convertible Bonds
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.
Going Concern
Please refer to the note 2 to the Group's consolidated financial
statements for the year ended 31 December 2020.
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$970/oz, excluding
third-party concentrate as the pricing of concentrate depends on
highly volatile gold price.
FY 2020 Consolidated Annual Financial Statements
Consolidated Statement of Profit or Loss
For the year ended 31 December 2020
2020 2019
NOTE US$'000 US$'000
Group revenue 5 988,534 741,589
--------------------------------- ---- ---------- ---------
Operating expenses 6 (840,494) (590,853)
--------------------------------- ---- ---------- ---------
Operating profit 148,040 150,736
--------------------------------- ---- ---------- ---------
Share of results of associate 14 52,681 (35,376)
---- ---------- ---------
Write-down to adjust the
carrying value of net
assets of disposal group
to fair value less costs
to sell 14 (55,798) -
---- ---------- ---------
Net impairment reversals
on financial instruments 9 1,000 30,797
--------------------------------- ---- ---------- ---------
Investment and other finance
income 9 7,754 8,826
--------------------------------- ---- ---------- ---------
Interest expense 9 (58,533) (59,854)
---- ---------- ---------
Net other finance losses 9 (67,957) (42,190)
--------------------------------- ---- ---------- ---------
Profit before taxation 27,187 52,939
--------------------------------- ---- ---------- ---------
Taxation 10 (76,069) (27,246)
--------------------------------- ---- ---------- ---------
(Loss)/profit for the
year (48,882) 25,693
--------------------------------- ---- ---------- ---------
Attributable to:
------------------------------ ---- ---------- ---------
Equity shareholders of
Petropavlovsk PLC (45,633) 26,883
--------------------------------- ---- ---------- ---------
Non-controlling interests (3,249) (1,190)
--------------------------------- ---- ---------- ---------
Earnings per share
--------------------------------- ---- ---------- ---------
Basic (loss)/profit per
share 11 US$(0.01) US$0.01
--------------------------------- ---- ---------- ---------
Diluted (loss)/profit
per share 11 US$(0.01) US$0.01
--------------------------------- ---- ---------- ---------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
(Loss)/profit for the
year (48,882) 25,693
-------------------------------------- --------- ---------
Items that may be reclassified
subsequently to profit
or loss:
================================== ========= =========
Exchange differences:
---------------------------------- --------- ---------
Exchange differences on
translating foreign operations (3,029) 2,102
-------------------------------------- --------- ---------
Share of other comprehensive
gain/(loss) of associate 902 (1,084)
-------------------------------------- --------- ---------
Cash flow hedges:
---------------------------------- --------- ---------
Fair value losses - (22,652)
-------------------------------------- --------- ---------
Tax thereon - 4,234
-------------------------------------- --------- ---------
Transfer to revenue - 31,471
-------------------------------------- --------- ---------
Tax thereon - (5,865)
====================================== ========= =========
(2,127) 8,206
---------------------------------- --------- ---------
Total comprehensive (loss)/profit
for the year (51,009) 33,899
-------------------------------------- --------- ---------
Attributable to:
---------------------------------- --------- ---------
Equity shareholders of
Petropavlovsk PLC (47,760) 35,067
-------------------------------------- --------- ---------
Non-controlling interests (3,249) (1,168)
-------------------------------------- --------- ---------
(51,009) 33,899
---------------------------------- --------- ---------
Consolidated Statement of Financial Position
At 31 December 2020
31 December 31 December
2020 2019
Note US$'000 US$'000
----------------------------------------- ---- ----------- -----------
Assets
----------------------------------------- ---- ----------- -----------
Non-current assets
----------------------------------------- ---- ----------- -----------
Exploration and evaluation assets 12 45,182 53,123
----------------------------------------- ---- ----------- -----------
Property, plant and equipment 13 1,204,550 1,209,817
----------------------------------------- ---- ----------- -----------
Investments in associate 14 3,936 48,680
----------------------------------------- ---- ----------- -----------
Inventories 15 86,186 60,257
----------------------------------------- ---- ----------- -----------
Trade and other receivables 16 481 556
----------------------------------------- ---- ----------- -----------
Derivative financial instruments 18 - 11,022
----------------------------------------- ---- ----------- -----------
Other non-current assets 893 880
----------------------------------------- ---- ----------- -----------
1,341,228 1,384,335
----------------------------------------- ---- ----------- -----------
Current assets
----------------------------------------- ---- ----------- -----------
Inventories 15 196,668 307,773
----------------------------------------- ---- ----------- -----------
Trade and other receivables 16 98,551 105,975
----------------------------------------- ---- ----------- -----------
Current tax assets 13,312 5,807
----------------------------------------- ---- ----------- -----------
Derivative financial instruments 18 3,320 -
----------------------------------------- ---- ----------- -----------
Cash and cash equivalents 17 35,404 48,153
----------------------------------------- ---- ----------- -----------
347,255 467,708
----------------------------------------- ---- ----------- -----------
Assets of disposal group classified as
held for sale 14 42,529 -
----------------------------------------- ---- ----------- -----------
389,784 467,708
----------------------------------------- ---- ----------- -----------
Total assets 1,731,012 1,852,043
----------------------------------------- ---- ----------- -----------
Liabilities
----------------------------------------- ---- ----------- -----------
Current liabilities
----------------------------------------- ---- ----------- -----------
Trade and other payables 19 (191,139) (389,041)
----------------------------------------- ---- ----------- -----------
Current tax liabilities (144) (535)
----------------------------------------- ---- ----------- -----------
Derivative financial instruments 18 (6,072) (266)
----------------------------------------- ---- ----------- -----------
Provision for close down and restoration
costs 22 (34) -
----------------------------------------- ---- ----------- -----------
Lease liabilities 23 (1,895) (5,373)
----------------------------------------- ---- ----------- -----------
(199,284) (395,215)
----------------------------------------- ---- ----------- -----------
Liabilities of disposal group associated
with assets classified as held for sale 14 (8,232) -
----------------------------------------- ---- ----------- -----------
(207,516) (395,215)
----------------------------------------- ---- ----------- -----------
Net current assets 182,268 72,493
----------------------------------------- ---- ----------- -----------
Non-current liabilities
----------------------------------------- ---- ----------- -----------
Borrowings 20 (536,020) (609,463)
----------------------------------------- ---- ----------- -----------
Derivative financial instruments 18 (89,088) (46,313)
----------------------------------------- ---- ----------- -----------
Deferred tax liabilities 21 (140,034) (112,566)
----------------------------------------- ---- ----------- -----------
Provision for close down and restoration
costs 22 (70,515) (36,231)
----------------------------------------- ---- ----------- -----------
Financial guarantee contract 26 - (8,923)
----------------------------------------- ---- ----------- -----------
Trade and other payables 19 (13,950) -
----------------------------------------- ---- ----------- -----------
Lease liabilities 23 (2,248) (7,805)
----------------------------------------- ---- ----------- -----------
(851,855) (821,301)
----------------------------------------- ---- ----------- -----------
Total liabilities (1,059,371) (1,216,516)
----------------------------------------- ---- ----------- -----------
Net assets 671,641 635,527
----------------------------------------- ---- ----------- -----------
Equity
----------------------------------------- ---- ----------- -----------
Share capital 24 57,464 49,003
----------------------------------------- ---- ----------- -----------
Share premium 596,713 518,142
----------------------------------------- ---- ----------- -----------
Share based payments reserve 34 199
----------------------------------------- ---- ----------- -----------
Translation reserve (18,907) (15,878)
----------------------------------------- ---- ----------- -----------
Retained earnings 29,130 73,605
----------------------------------------- ---- ----------- -----------
Equity attributable to the shareholders
of Petropavlovsk PLC 664,434 625,071
----------------------------------------- ---- ----------- -----------
Non-controlling interests 7,207 10,456
----------------------------------------- ---- ----------- -----------
Total equity 671,641 635,527
----------------------------------------- ---- ----------- -----------
These consolidated financial statements for Petropavlovsk PLC,
registered number 4343841, were approved and authorised for issue
by the directors on 16 May 2021 and signed on their behalf by James
W. Cameron Jr., Non-Executive Chairman and Denis Alexandrov, Chief
Executive Officer
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Total attributable to equity holders of Petropavlovsk
PLC
-------------- ------------------------------------------------------------------------------------ ---------------- --------
Share
based
Share Share payments Hedging Translation Retained Non-controlling Total
capital premium reserve reserve reserve earnings/(losses) Total interests equity
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Balance at 1
January 2019 48,963 518,142 227 (7,166) (17,980) 47,538 589,724 11,624 601,348
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Total
comprehensive
income/(loss) - - - 7,166 2,102 25,799 35,067 (1,168) 33,899
============== ======== ======== ========= ======== ============ ================== ========= ================ ========
Profit for the
year - - - - - 26,883 26,883 (1,190) 25,693
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Other
comprehensive
income/(loss) - - - 7,166 2,102 (1,084) 8,184 22 8,206
======== ======== ========= ======== ============ ================== ========= ================ ========
Deferred share
awards 40 - (28) - - 268 280 - 280
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Balance at 31
December 2019 49,003 518,142 199 - (15,878) 73,605 625,071 10,456 635,527
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Total
comprehensive (47,760
loss - - - - (3,029) (44,731) ) (3,249) (51,009)
============== ======== ======== ========= ======== ============ ================== ========= ================ ========
Loss for the (45,633 (45,633
year - - - - - ) ) (3,249) (48,882)
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Other
comprehensive
(loss)/income - - - - (3,029) 902 (2,127) - (2,127)
============== ======== ======== ========= ======== ============ ================== ========= ================ ========
Conversion of
convertible
bonds 8,429 78,571 - - - - 87,000 - 87,000
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Deferred share
awards 32 - (165) - - 256 123 - 123
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Balance at 31
December 2020 57,464 596,713 34 - (18,907) 29,130 664,434 7,207 671,641
-------------- -------- -------- --------- -------- ------------ ------------------ --------- ---------------- --------
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
2020 2019
note US$'000 US$'000
Cash flows from operating activities
------------------------------------------------------ ---- ---------- ---------
Cash generated from operations 25 265,860 189,321
------------------------------------------------------ ---- ---------- ---------
Interest paid (58,086) (67,160)
------------------------------------------------------ ---- ---------- ---------
Guarantee fee received in connection with ICBC
facility 26 5,000 6,000
------------------------------------------------------ ---- ---------- ---------
Income tax paid (56,472) (32,723)
------------------------------------------------------ ---- ---------- ---------
Net cash from operating activities 156,302 95,438
------------------------------------------------------ ---- ---------- ---------
Cash flows from investing activities
------------------------------------------------------ ---- ---------- ---------
Purchase of property, plant and equipment 25 (151,503) (120,798)
------------------------------------------------------ ---- ---------- ---------
Expenditure on exploration and evaluation assets 12 (8,829) (10,136)
------------------------------------------------------ ---- ---------- ---------
Proceeds from disposal of property, plant and
equipment 194 111
------------------------------------------------------ ---- ---------- ---------
Repayment of loans granted 26 - 56,243
------------------------------------------------------ ---- ---------- ---------
Other loans granted 26 - (389)
------------------------------------------------------ ---- ---------- ---------
Interest received 1,065 3,283
------------------------------------------------------ ---- ---------- ---------
Call option over non-controlling interests 26 - (13,000)
------------------------------------------------------ ---- ---------- ---------
Net cash used in investing activities (159,073) (84,686)
------------------------------------------------------ ---- ---------- ---------
Cash flows from financing activities
------------------------------------------------------ ---- ---------- ---------
Issue of Bonds, net of transaction cost 20 - 120,561
------------------------------------------------------ ---- ---------- ---------
Repayment of Bonds 20 - (108,000)
------------------------------------------------------ ---- ---------- ---------
Exercise of the Call Option over the company's
shares 18 - (2,215)
------------------------------------------------------ ---- ---------- ---------
Exercise of gold options 18 (1,525) -
------------------------------------------------------ ---- ---------- ---------
Exercise of currency options 18 1,389 -
------------------------------------------------------ ---- ---------- ---------
Exercise of other options 18 (999) -
------------------------------------------------------ ---- ---------- ---------
Funds advanced to the Group under investment
agreement with the
Russian Ministry of Far East Development - 8,772
------------------------------------------------------ ---- ---------- ---------
Funds transferred under investment agreement
with the
Russian Ministry of Far East Development - (8,772)
------------------------------------------------------ ---- ---------- ---------
Principal elements of lease payments (3,493) (1,468)
------------------------------------------------------ ---- ---------- ---------
Bond solicitation expenses (1,705) -
------------------------------------------------------ ---- ---------- ---------
Net cash (used in)/from financing activities (6,333) 8,878
------------------------------------------------------ ---- ---------- ---------
Net decrease in cash and cash equivalents in
the period (9,104) 19,630
------------------------------------------------------ ---- ---------- ---------
Effect of exchange rates on cash and cash equivalents (3,645) 2,371
------------------------------------------------------ ---- ---------- ---------
Cash and cash equivalents at beginning of period 17 48,153 26,152
------------------------------------------------------ ---- ---------- ---------
Cash and cash equivalents at end of period 17 35,404 48,153
------------------------------------------------------ ---- ---------- ---------
Notes to the Consolidated Financial Statements
For the year ended 31 December 2020
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.
The financial information set out in this statement does not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. This set of financial results was approved by
the board on 16 May 2021. The financial information for the years
ended 31 December 2020 and 31 December 2019 has been extracted from
the statutory accounts for each year.
The independent auditor's report on the 2020 statutory accounts
was (i) unqualified, (ii) did not include references to any matters
to which the auditor drew attention by way of emphasis without
qualifying its reports and (iii) did not contain statements under
section s498(2) or sS498(3) of the Companies Act 2006. The audited
statutory accounts for the year ended 31 December 2019 have been
delivered to the Registrar of Companies.
The Annual Report will be published on 28 May 2021.
The audited statutory accounts for the year ended 31 December
2020 will be delivered to the Registrar of Companies following the
Company's annual meeting convened for 30 June 2021.
2. Significant accounting policies
2.1. Basis of preparation and presentation
The financial information in this announcement has been prepared
using the recognition and measurement principles of International
Financial Reporting Standards ('IFRS') as adopted by the European
Union, IFRIC Interpretations and the Companies Act 2006. The
consolidated financial statements have been prepared under the
historical cost convention, as modified by the revaluation of
certain financial assets and financial liabilities (including
derivative financial instruments) at fair value through profit or
loss. The principal accounting policies applied in the preparation
of these consolidated financial statements are set out below. These
policies have been consistently applied to all years presented,
unless otherwise stated.
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
2020 Annual Report and Accounts. As at 31 December 2020, the Group
had sufficient liquidity headroom. The Group is also satisfied that
it has sufficient headroom under a base case scenario for the
period to May 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 Pioneer flotation by six weeks in
2021 and of the Malomir third flotation line by three months in
2022 with relevant reduction of processing volumes; 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 which are described in detail in
the Annual Report.
This layered stressed case indicates that mitigating actions
will be required to be taken in order to ensure sufficient
liquidity for the relevant period to May 2020. The mitigating
actions include items within the control of the management, such as
cost cutting, timing of capital expenditure and working capital
management. In April 2021, the Group also secured RUB5 billion (an
equivalent of approximately US$67 million) revolving credit
facility with Gazprombank valid until May 2022 which will be used
to cover liquidity needs as and when required.
As at 31 December 2020, the Group has guaranteed the outstanding
amounts IRC owed to Gazprombank. The outstanding loan principal was
US$203.9 million as at 31 December 2020 and the facility is subject
to an initial US$160 million guarantee by the Group (see note 26).
The assessment of whether there is any material uncertainty that
IRC will be able to repay this facility as it falls due is another
key element of the Group's overall going concern assessment. IRC
projections demonstrate that IRC expects to have sufficient
liquidity over the next 12 months and expects to meet its
obligations under the Gazprombank Facility. If a missed repayment
under debt or guarantee obligations occurs which, if not remedied
by the Group, would result in events of default which, through
cross-defaults and cross-accelerations, could cause all other
Group's debt arrangements to become repayable on demand.
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 2020 Annual Report and Accounts.
Accordingly, they continue to adopt the going concern basis of
accounting in preparing these consolidated financial
statements.
2.2. Adoption of new and revised standards and
interpretations
The following new and revised Standards and Interpretations that
were effective for annual periods beginning on or after 1 January
2020 and applicable to the Group have been adopted:
_ Amendments to References to the Conceptual Framework in IFRS
Standards (29 March 2018);
_ Amendments to IFRS 3 (October 2018): Definition of Business;
and
_ Amendments to IAS 1 and IAS 8 (October 2018): Definition of
Material.
These standards, amendments, and interpretations have not had a
significant impact on amounts reported, presentation or disclosure
in these consolidated financial statements and are not expected to
significantly affect the future periods.
New standards and interpretations that are applicable to the
Group, issued but not yet effective for the reporting period
beginning 1 January 2020.
At the date of approval of these financial statements, the
following Standards and Interpretations which have not been applied
in these consolidated financial statements were in issue but not
yet effective (and in some cases had not yet been adopted by the
EU):
_ IFRS 17 Insurance Contracts;
_ Amendments to IFRS 16: COVID-19-related Rent Concessions;
_ Amendments to IAS 1: Classification of Liabilities as Current
or Non-current;
_ Amendments to IAS 16: Property, Plant and Equipment - Proceeds
before intended use;
_ Amendments to IFRS 3: Reference to the Conceptual
Framework;
_ Amendments to IAS 37: Onerous Contracts - Cost of Fulfilling a
Contract;
_ Annual Improvements to IFRS Standards 2018-2020 Cycle;
_ Amendments to IFRS 10 and IAS 28: Sale or contribution of
assets between an investor and its associate or joint venture.
The Group intends to adopt these new and amended standards and
interpretations, if applicable, when they become effective.
2.3. Basis of Consolidation
These consolidated financial statements consist of the financial
statements of the company and its subsidiaries as at the reporting
date. Subsidiaries are all entities over which the Group has
control.
Control is achieved when the Group is exposed, or has rights, to
variable returns from its involvement with the subsidiary and has
the ability to affect those returns through its power over the
subsidiary. Specifically, the Group controls a subsidiary if, and
only if, it has all of the following:
_ Power over the subsidiary (i.e. existing rights that give it
the current ability to direct the relevant activities of the
subsidiary);
_ Exposure, or rights, to variable returns from its involvement
with the subsidiary; and
_ The ability to use its power over the subsidiary to affect its
returns.
When the Group has less than a majority of the voting rights of
a subsidiary or similar rights of a subsidiary, it considers all
relevant facts and circumstances in assessing whether it has power
over the subsidiary including:
_ The size of the Group's holding of voting rights relative to
the size and dispersion of holdings of the other vote holders;
_ Potential voting rights held by the Group, other vote holders
or other parties;
_ Rights arising from other contractual arrangements; and
_ Any additional facts and circumstances that indicate that the
Group has, or does not have, the current ability to direct the
relevant activities at the time that decisions need to be made,
including voting patterns at previous shareholders' meetings.
The company reassesses whether or not it controls a subsidiary
if facts and circumstances indicate that there are changes to one
or more of the three elements of control listed above.
Consolidation of a subsidiary begins when the Group obtains
control over the subsidiary and ceases when the Group loses control
of the subsidiary. Specifically, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated statement of income and other comprehensive income
from the date the Group gains control until the date when the Group
ceases to control the subsidiary.
Inter-company transactions, balances and unrealised gains on
transactions between Group companies are eliminated on
consolidation. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset
transferred. Where necessary, adjustments are made to the financial
statements of subsidiaries to ensure consistency of accounting
policies with the policies adopted by the Group.
Non-controlling interests in the net assets of consolidated
subsidiaries are identified separately from the Group's equity
therein. The interests of non-controlling shareholders may be
initially measured at fair value or at the non-controlling
interests' proportionate share of the fair value of the acquiree's
identifiable net assets. The choice of measurement is made on an
acquisition-by-acquisition basis. Subsequent to acquisition, the
carrying amount of non-controlling interests is the amount of those
interests at initial recognition plus the non-controlling
interests' share of subsequent changes in equity. The recognised
profit or loss and other comprehensive income are attributed to
non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
2.4. Non-controlling interests
The Group treats transactions with non-controlling interests as
transactions with equity owners. For purchases from non-controlling
interests, the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the
subsidiary is recorded in equity.
2.5. Investments in associate
An associate is an entity over which the Group is in a position
to exercise significant influence but not control or joint
control.
Investments in associate are accounted for using the equity
method of accounting. Under the equity method of accounting, the
investments are initially recognised at cost and adjusted
thereafter to recognise the Group's share of the post-acquisition
profits or losses of an associate in profit or loss and the Group's
share of movements in other comprehensive income of an associate in
other comprehensive income.
Losses of an associate in excess of the Group's interest in that
associate (which includes any long-term interests that, in
substance, form part of the Group's net investment in the
associate) are recognised only to the extent that the Group has
incurred legal or constructive obligations or made payments on
behalf of the associate.
When a Group entity transacts with an associate of the Group,
unrealised profits and losses are eliminated to the extent of the
Group's interest in the relevant associate.
The carrying amount of equity-accounted investments is tested
for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable.
In the 2020 Annual Report operating profit is now 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.
2.6. Non-current assets (or disposal groups) held for sale
Non-current assets (and disposal groups) classified as held for
sale are measured at the lower of carrying amount and fair value
less costs to sell.
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered through a sale
transaction rather than through continuing use. This condition is
regarded as met only when the sale is highly probable and the asset
(or disposal group) is available for immediate sale in its present
condition. Management must be committed to the sale which should be
expected to qualify for recognition as a completed sale within one
year from the date of classification.
When the Group is committed to a sale plan involving loss of
control of a subsidiary, all of the assets and liabilities of that
subsidiary are classified as held for sale when the criteria
described above are met, regardless of whether the Group will
retain a non-controlling interest in its former subsidiary after
the sale.
2.7. Foreign currency translation
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates (the functional
currency). For the purpose of the consolidated financial
statements, the results and financial position of each Group
company are expressed in US Dollars, which is the Group's
presentation currency. The functional currency of the company is
the US Dollar.
The rates of exchange used to translate balances from other
currencies into US Dollars were as follows (currency per US
Dollar):
Average Average
year year
As at ended As at ended
31 December 31 December 31 December 31 December
2020 2020 2019 2019
GB Pounds Sterling
(GBP : US$) 0.73 0.78 0.75 0.78
------------------------- ------------ ------------ ------------ ------------
Russian Rouble (RUB
: US$) 73.88 72.18 61.91 64.69
------------------------- ------------ ------------ ------------ ------------
In preparing the financial statements of the individual
companies, transactions in currencies other than the entity's
functional currency (foreign currencies) are translated into the
functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are remeasured.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at the year-end exchange
rates of monetary assets and liabilities denominated in foreign
currencies are recognised in profit or loss. Non-monetary items
carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair
value was determined. Non-monetary items that are measured in terms
of historical cost in a foreign currency are not retranslated.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations which
have a functional currency other than US Dollars are translated at
exchange rates prevailing on the reporting date. Income and expense
items are translated at the average exchange rates for the year,
unless exchange rates fluctuate significantly during that year, in
which case the exchange rates at the date of transactions are used.
Exchange differences arising, if any, are recognised in other
comprehensive income and expenses and accumulated in equity, with
share attributed to non-controlling interests as appropriate. On
the disposal of a foreign operation, all of the accumulated
exchange differences in respect of that operation attributable to
the shareholders of the company are reclassified to profit or
loss.
Goodwill and fair value adjustments arising on the acquisition
of a foreign operation are treated as assets and liabilities of the
foreign operation.
2.8. Exploration and evaluation assets
Exploration and evaluation expenditure incurred in relation to
those projects where such expenditure is considered likely to be
recoverable through future extraction activity or sale, or where
the exploration activities have not reached a stage which permits a
reasonable assessment of the existence of reserves, are capitalised
and recorded on the statement of financial position within
exploration and evaluation assets for mining projects at the
exploration stage. Exploration and evaluation expenditure comprise
costs directly attributable to:
_ Researching and analysing existing exploration data;
_ Conducting geological studies, exploratory drilling and
sampling;
_ Examining and testing extraction and treatment methods;
_ Compiling pre-feasibility and feasibility studies; and
_ Costs incurred in acquiring mineral rights, the entry premiums
paid to gain access to areas of interest and amounts payable to
third parties to acquire interests in existing projects.
Exploration and evaluation assets are subsequently valued at
cost less impairment. In circumstances where a project is
abandoned, the cumulative capitalised costs related to the project
are written off in the period when such decision is made.
Exploration and evaluation assets are not depreciated. These
assets are transferred to mine development costs within property,
plant and equipment when a decision is taken to proceed with the
development of the project.
2.9. Property, plant and equipment
Mine development costs
Development expenditure incurred by or on behalf of the Group is
accumulated separately for each area of interest in which
economically recoverable resources have been identified. Such
expenditure includes costs directly attributable to the
construction of a mine and the related infrastructure. Once a
development decision has been taken, the carrying amount of the
exploration and evaluation expenditure in respect of the area of
interest is aggregated with the development expenditure and
classified under non-current assets as 'mine development costs'.
Mine development costs are reclassified as 'mining assets' at the
end of the commissioning phase, when the mine is capable of
operating in the manner intended by management.
Mine development costs are not depreciated, except for property
plant and equipment used in the development of a mine. Such
property, plant and equipment are depreciated on a straight-line
basis based on estimated useful lives and depreciation is
capitalised as part of mine development costs.
Mining assets
Mining assets are stated at cost less accumulated depreciation.
Mining assets include the cost of acquiring and developing mining
assets and mineral rights, buildings, vehicles, plant and machinery
and other equipment located on mine sites and used in the mining
operations.
Mining assets, where economic benefits from the asset are
consumed in a pattern which is linked to the production level, are
depreciated using a units of production method based on the volume
of ore reserves. This results in a depreciation charge proportional
to the depletion of reserves. The basis for determining ore reserve
estimates is set out in note 3.2. Where the mining plan anticipates
future capital expenditure to support the mining activity over the
life of the mine, the depreciable amount is adjusted for the
related assets under construction and estimated future
expenditure.
Certain property, plant and equipment within mining assets are
depreciated based on estimated useful lives, if shorter than the
remaining life of the mine or if such property, plant and equipment
can be moved to another site subsequent to the mine closure.
Stripping activity assets
Stripping costs incurred during the development of the mine are
capitalised as part of mine development costs and are subsequently
depreciated over the life of a mine on a units of production
basis.
Stripping costs incurred during the production phase of a mine
if they relate to gaining improved access to an identified
component of an ore body to be mined in future periods are deferred
and capitalised as part of the mining assets and are written off to
profit or loss in the period over which economic benefits related
to the stripping activity are realised where this is the most
appropriate basis for matching the costs against the related
economic benefits.
Where, during the production phase, further development of the
mine requires a phase of unusually high overburden removal activity
that is similar in nature to pre-production mine development, such
stripping costs are considered in a manner consistent with
stripping costs incurred during the development of the mine before
the commercial production commences.
Non-mining assets
Non-mining assets are stated at cost less accumulated
depreciation. Non-mining assets are depreciated on a straight-line
basis based on estimated useful lives.
Capital construction in progress
Capital construction in progress is stated at cost. On
completion, the cost of construction is transferred to the
appropriate category of property, plant and equipment. Capital
construction in progress is not depreciated.
Depreciation
Property, plant and equipment are depreciated using a units of
production method as set out above or on a straight-line basis
based on estimated useful lives. Estimated useful lives normally
vary as set out below:
Average
life
Number
of years
Buildings 15-50
---------------------------- ---------
Plant and machinery 3-20
---------------------------- ---------
Vehicles 5-7
---------------------------- ---------
Office equipment 5-10
---------------------------- ---------
Computer equipment 3-5
---------------------------- ---------
The residual values and the useful lives of the assets are
reviewed at least at each financial year end and, if expectations
differ from previous estimates, the change(s) are accounted for as
a change in an accounting estimate in accordance with IAS 8
'Accounting Policies, Changes in Accounting Estimates and
Errors'.
2.10. Impairment of non-financial assets
Property, plant and equipment, exploration and evaluation assets
and other non-financial assets are tested for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. This applies to the assets held by
the Group itself as well as the Group's share of the assets held by
the associate.
When a review for impairment is conducted, the recoverable
amount is assessed by reference to the higher of 'value in use'
(being the net present value of expected future cash flows of the
relevant cash generating unit) or 'fair value less costs of
disposal'. Where there is no binding sale agreement or active
market, fair value less costs to sell is based on the best
information available to reflect the amount the Group could receive
for the cash generating unit in an arm's length transaction. Future
cash flows are based on:
_ Estimates of the quantities of the r eserves and mineral
resources for which there is a high degree of confidence of
economic extraction;
_ Future production levels;
_ Future commodity prices (assuming the current market prices
will revert to the Group's assessment of the long-term average
price, generally over a period of up to five years); and
_ Future cash costs of production, capital expenditure,
environment protection, rehabilitation and closure.
IAS 36 'Impairment of assets' includes a number of restrictions
on the future cash flows that can be recognised in respect of
future restructurings and improvement related capital expenditure.
When calculating 'value in use', it also requires that calculations
should be based on exchange rates current at the time of the
assessment.
For operations with a functional currency other than the US
Dollar, the impairment review is undertaken in the relevant
functional currency. These estimates are based on detailed mine
plans and operating budgets, modified as appropriate to meet the
requirements of IAS 36 'Impairment of assets'.
The discount rate applied is based upon a post-tax discount rate
that reflects current market assessments of the time value of money
and the risks associated with the relevant cash flows, to the
extent that such risks are not reflected in the forecast cash
flows.
If the carrying amount of the asset exceeds its recoverable
amount, the asset is impaired and an impairment loss is charged to
profit or loss so as to reduce the carrying amount in the statement
of financial position to its recoverable amount. A previously
recognised impairment loss is reversed if the recoverable amount
increases as a result of a reversal of the conditions that
originally resulted in the impairment. This reversal is recognised
in profit or loss and is limited to the carrying amount that would
have been determined, net of depreciation, had no impairment loss
been recognised in prior years.
2.11. Provisions for close down and restoration costs
Close down and restoration costs include the dismantling and
demolition of infrastructure and the removal of residual materials
and remediation of disturbed areas. Close down and restoration
costs are provided for in the accounting period when the legal or
constructive obligation arising from the related disturbance
occurs, whether this occurs during the mine development or during
the production phase, based on the net present value of estimated
future costs. Provisions for close down and restoration costs do
not include any additional obligations which are expected to arise
from future disturbance. The costs are estimated on the basis of a
closure plan. The cost estimates are calculated annually during the
life of the operation to reflect known developments and are subject
to formal review at regular intervals.
The amortisation or unwinding of the discount applied in
establishing the net present value of provisions is charged to
profit or loss in each accounting period. The amortisation of the
discount is shown as a financing cost, rather than as an operating
cost. Other movements in the provisions for close down and
restoration costs, including those resulting from new disturbance,
updated cost estimates, changes to the lives of operations and
revisions to discount rates are capitalised within property, plant
and equipment. These costs are then depreciated over the lives of
the assets to which they relate.
Where rehabilitation is conducted systematically over the life
of the operation, rather than at the time of closure, provision is
made for the outstanding continuous rehabilitation work at each
reporting date. All other costs of continuous rehabilitation are
charged to profit or loss as incurred.
Changes in the measurement of a liability relating to the
decommissioning of plant or other site preparation work (that
result from changes in the estimated timing or amount of the cash
flow or a change in the discount rate), are added to or deducted
from the cost of the related asset in the current period. If a
decrease in the liability exceeds the carrying amount of the asset,
the excess is recognised immediately in profit or loss. If the
asset value is increased and there is an indication that the
revised carrying value is not recoverable, an impairment test is
performed in accordance with the accounting policy set out
above.
2.12. Financial instruments
Financial assets and financial liabilities are recognised in the
consolidated statement of financial position when the Group entity
becomes party to the contractual provisions of the instrument.
Financial assets and liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
are added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial
recognition. Transaction costs attributable to financial assets and
financial liabilities carried at fair value through profit or loss
(FVPL) are expensed in profit or loss.
The subsequent measurement of financial assets and liabilities
is set out below.
Effective interest method
The effective interest rate method is a method of calculating
the amortised cost of a financial asset or financial liability and
of allocating interest over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future
cash receipts and payments through the expected life of the
financial asset or financial liability, or where appropriate, a
shorter period, to the gross carrying amount of the financial asset
or amortised cost of the financial liability.
Probability of default
For the purpose of IFRS, management considers the following
definition of "default", subject to underlying agreements:
_ A missed or delayed disbursement of interest and/or
principal;
_ Bankruptcy, administration, legal receivership, or other legal
blocks to the timely payment of interest and/or principal; or
_ A distressed exchange occurs where a new security is issued
which amounts to a diminished financial obligation or had the
apparent purpose of helping the borrower avoid default.
Financial assets
Classification and subsequent measurement
The Group classified its financial assets in the following
measurement categories:
_ Those to be measured subsequently at fair value (either
through profit or loss or through OCI); and
_ Those to be measured at amortised cost.
The classification depends on the entity's business model for
managing the financial assets and the contractual cash flow
characteristics of the financial asset.
Financial assets that meet the following conditions are
subsequently measured at amortised cost:
_ The financial asset is held within a business model whose
objective is to hold financial assets in order to collect
contractual cash flows; and
_ The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
All other financial assets are subsequently measured at fair
value either through OCI or profit or loss.
The Group may, at initial recognition, irrevocably designate a
financial asset as measured at FVPL if doing so eliminates or
significantly reduces a measurement or recognition inconsistency
(sometimes referred to as an 'accounting mismatch') that would
otherwise arise from measuring assets or liabilities or recognising
the gains and losses on them on different bases.
Impairment
The Group assesses on a forward looking basis the expected
credit losses (ECL) associated with its financial assets carried at
amortised cost. The impairment methodology applied depends on
whether there has been a significant increase in credit risk.
For trade receivables and contract assets, the Group applies the
IFRS 9 simplified approach to measuring ECL which uses a lifetime
expected loss allowance for all trade receivables and contract
assets. Trade receivables and contract assets are written off when
there is no reasonable expectation of recovery.
Credit-impaired financial assets
A financial asset is credit-impaired when one or more events
that have a detrimental impact on the estimated future cash flows
of that financial asset have occurred. Evidence that a financial
asset is credit-impaired include observable data about the
following events:
_ Significant financial difficulty of the issuer or the
borrower;
_ A breach of contract, such as a default or past due event;
_ The lender(s) of the borrower, for economic or contractual
reasons relating to the borrower's financial difficulty, having
granted to the borrower a concession(s) that the lender(s) would
not otherwise consider;
_ It is becoming probable that the borrower will enter
bankruptcy or other financial reorganisation;
_ The disappearance of an active market for that financial asset
because of financial difficulties; or
_ The purchase or origination of a financial asset at a deep
discount that reflects the incurred credit losses.
For credit-impaired financial assets, the credit-adjusted
effective interest rate is applied to the amortised cost of the
financial asset from initial recognition. When calculating the
credit-adjusted effective interest rate, the Group estimates the
expected cash flows by considering all contractual terms of the
financial asset and ECL.
Cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits
and short-term, highly liquid investments readily convertible to
known amounts of cash and subject to insignificant risk of changes
in value and are measured at cost which is deemed to be fair value
as they have a short-term maturity.
Trade receivables
Trade receivables are recognised initially at the amount of
consideration, unless they contain significant financing
components, when they are recognised at fair value, and are
subsequently measured at amortised cost using the effective
interest rate method, less loss allowance.
Financial liabilities and equity
Equity Instruments
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued are recorded at the proceeds
received, net of direct issue cost.
Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently measured at
amortised cost, using the effective interest method. Any difference
between the proceeds (net of transaction costs) and the redemption
amount is recognised in profit or loss over the period of the
borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the reporting date.
Trade and other payables
Trade and other payables are recognised initially at fair value
and subsequently measured at amortised cost, using the effective
interest method.
Financial guarantee contracts
Gazprombank Guarantee: The guarantee asset and liability under
the financial guarantee contract are recognised as one unit of
account at nil fair value on inception. Subsequently, the guarantee
asset is measured at amortised cost based on the guarantee fee
accrued to the reporting date that is expected to be received from
IRC less provision for expected credit losses and the guarantee
liability is measured at the amount of the loss allowance for
expected credit losses. The guarantee liability is measured at the
higher of the amount of the loss allowance in accordance with IFRS
9 and the amount initially recognised less the cumulative amount of
income recognised in accordance with the principles of IFRS 15. As
the amount initially recognised was nil, the guarantee liability is
measured at the amount of the loss allowance for expected credit
losses in accordance with IFRS 9.
ICBC Guarantee: The liability was measured on a consistent
basis, however, upon transition to IFRS 9 the guarantee fee income
asset was recognised as the present value of all future guarantee
income measured at FVTPL.
Derivatives and hedging activities
Derivatives are initially recognised at fair value at the date
the derivative contracts are entered into and are subsequently
re-measured at fair value. The accounting for subsequent changes in
fair value depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being
hedged.
The Group designates certain derivative financial instruments as
hedging relationships. For the purposes of hedge accounting,
hedging relationships may be of three types:
_ Fair value hedges are hedges of particular risks that may
change the fair value of a recognised asset or liability;
_ Cash flow hedges are hedges of particular risks that may
change the amount or timing of future cash flows; and
_ Hedges of net investment in a foreign entity are hedges of
particular risks that may change the carrying value of the net
assets of a foreign entity.
The Group have not designated any derivate financial instruments
as hedge relationships in 2020 (2019: the Group had only cash flow
hedges).
To qualify for hedge accounting the hedging relationship must
meet several strict conditions on documentation, probability of
occurrence, hedge effectiveness and reliability of measurement. If
these conditions are not met, then the relationship does not
qualify for hedge accounting. In this case the hedging instrument
and the hedged item are reported independently as if there were no
hedging relationship.
The effective portion of changes in fair value of derivatives
that are designated and qualify as cash flow hedges is recognised
in other comprehensive income. The fair value gain or loss relating
to the ineffective portion is recognised immediately in profit or
loss.
Amounts previously recognised in other comprehensive income and
accumulated in hedging reserve in equity are reclassified to profit
or loss in the periods when the hedged item is recognised in profit
or loss, in the same line of the statement of profit or loss as the
recognised hedged item.
Hedge accounting is discontinued when the hedging instrument
expires or is sold, terminated or exercised, or no longer qualifies
for hedge accounting. Any gain or loss recognised in other
comprehensive income at that time is accumulated in equity and is
reclassified to profit or loss when the forecast transaction is
ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the gain or loss
accumulated in equity is recognised immediately in profit or
loss.
Changes in fair value of any derivative instrument that does not
qualify for hedge accounting are recognised in profit or loss
immediately and included in other finance gains or losses.
Derivatives embedded in other financial instruments or
non-financial host contracts are treated as separate derivatives
when their risks and characteristics are not closely related to
their host-contract and the host contract is not carried at fair
value. Embedded derivatives are recognised at fair value at
inception. Any change to the fair value of the embedded derivatives
is recognised in other finance gains or losses in profit or loss.
Embedded derivatives which are settled net are disclosed in line
with the maturity of their host contracts.
2.13. Provisions
Provisions are recognised when the Group has a present
obligation, whether legal or constructive, as a result of a past
event for which it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation and a reliable estimate can be made of the amount of the
obligation.
Provisions are measured at the present value of management's
best estimate of the expenditure required to settle the obligation
at the reporting date. The discount rate used to determine the
present value reflects current market assessments of the time value
of money and the risks specific to the liability.
2.14. Inventories
Inventories include the following major categories:
_ Stores and spares represent raw materials consumed in the
production process as well as spare parts and other maintenance
supplies;
_ Construction materials represent materials for use in capital
construction and mine development;
_ Ore in stockpiles represent material that, at the time of
extraction, is expected to be processed into a saleable form and
sold at a profit. Ore in stockpiles is valued at the average cost
per tonne of mining and stockpiling the ore. Quantities of ore in
stockpiles ore are assessed through surveys and assays. Ore in
stockpiles is classified between current and non-current inventory
based on the expected processing schedule in accordance with the
Group's mining plan;
_ Work in progress inventory primarily represents gold in
processing circuit that has not completed the production process.
Work in progress inventory is valued at the average production
costs; and
_ Flotation concentrate represents very fine, powder-like
product containing the valuable ore mineral from which most of the
waste mineral has been eliminated. Flotation concentrate is valued
at the average production costs.
Inventories are valued at the lower of cost and net realisable
value, with cost being determined primarily on a weighted average
cost basis.
Provisions are recorded to reduce ore in stockpiles, work in
process, flotation concentrate and finished goods inventory to net
realisable value where the net realisable value is lower than
relevant inventory cost at the reporting date. Net realisable value
is determined with reference to relevant market prices less
estimated costs to complete production and bring the inventory into
its saleable form. Provisions are also recorded to reduce mine
operating supplies to net realisable value, which is generally
determined with reference to salvage or scrap value, when it is
determined that the supplies are obsolete. Provisions are reversed
to reflect subsequent recoveries in net realisable value where the
inventory is still on hand at the reporting date.
2.15. Leases
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). The right-of-use assets are recognised at their fair
value or, if lower, at the present value of the minimum lease
payments, each determined at the commencement date of the lease.
The corresponding liability to the lessor is included in the
statement of financial position as a lease obligation. The
right-of-use asset is included within Property, plant and
equipment. Right-of-use assets are depreciated on a straight-line
basis over the shorter of the lease term and the estimated useful
lives of the assets. The Group applies IAS 36 to determine whether
right-of-use assets are impaired and accounts for any identified
impairment loss when incurred.
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. Lease liabilities include the net
present value of the following lease payments:
_ Fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
_ Variable lease payment that are based on an index or a
rate;
_ Amounts expected to be payable by the lessee under residual
value guarantees;
_ The exercise price of a purchase option if the lessee is
reasonably certain to exercise that option; and
_ Payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is generally not
readily determinable. Subsequently, the lease liability is adjusted
for interest and lease payments, as well as the impact of lease
modifications, amongst others. Lease liabilities are presented as a
separate line in the statement of financial position.
The Group continues to account for the payments associated with
short-term leases, leases of low-value assets and leases to explore
for or use minerals and similar non-regenerative resources as an
expense on a straight-line basis in profit or loss.
2.16. Revenue recognition
To recognise revenue under IFRS 15, the Group applies the
following five steps:
_ Identify the contract(s) with a customer;
_ Identify the separate performance obligations in the contract:
Performance obligations are promises in a contract to transfer to a
customer goods or services that are distinct;
_ Determine the transaction price: The transaction price is the
amount of consideration to which the Group expects to be entitled
in exchange for transferring promised goods or services to a
customer. If the consideration promised in a contract includes a
variable amount, the Group estimates the amount of consideration to
which it expects to be entitled in exchange for transferring the
promised goods or services to a customer;
_ Allocate the transaction price to each performance obligation
on the basis of the relative stand-alone selling prices of each
distinct good or service promised in the contract; and
_ Recognise revenue when a performance obligation is satisfied
by transferring a promised good or service to a customer (which is
when the customer obtains control of that good or service). A
performance obligation may be satisfied at a point in time or over
time. For a performance obligation satisfied over time, the Group
selects an appropriate measure of progress to determine how much
revenue should be recognised as the performance obligation is
satisfied.
Sales of gold and silver
The majority of the Group's revenue is derived from the sale of
refined gold. The sale of gold is classified as a single
performance obligation and revenue is recognised at a point in time
when control has passed to the customer, as specified in individual
sales contracts. The sales price is determined with reference to
LBMA fixing at the time of sale.
Silver is a co-product of gold production. Sales of silver is
recognised in revenue. Sales of silver is classified as a single
performance obligation and revenue is recognised at a point in time
when control has passed to the customer, as specified in individual
sales contracts.
Other revenue
Other revenue is recognised as follows:
_ Engineering contracts: revenue under each engineering contract
is classified as a single performance obligation and revenue is
recognised over time based on percentage completion applied to the
contract price;
_ Flotation concentrate: the sale of flotation concentrate is
classified as a single performance obligation and revenue is
recognised at a point in time when control has passed to the
customer, as specified in individual sales contracts;
_ Sales of other goods represent the procurement of materials,
consumables and equipment for third parties. Revenue from sales of
other goods is classified as a single performance obligation and
revenue is recognised at a point in time when control has passed to
the customer;
_ Other services: revenue from other services is classified as a
single performance obligation and revenue is recognised over time
during the term of the relevant contract; and
_ Rental income is classified as a single performance obligation
and revenue is re cognised over time during the term of the
relevant lease.
2.17. Borrowing costs
Borrowing costs are generally expensed as incurred except where
they relate to the financing of acquisition, construction or
development of qualifying assets, which are mining projects under
development that necessarily take a substantial period of time to
get prepared for their intended use. Such borrowing costs are
capitalised and added to capital construction in progress until
such time when the project is substantially ready for its intended
use (which is when commercial production is ready to commence).
To the extent that funds are borrowed to finance a specific
mining project, borrowing costs capitalised represent the actual
borrowing costs incurred. To the extent that funds are borrowed for
the general purpose, borrowing costs capitalised are determined by
applying the interest rate applicable to appropriate borrowings
outstanding during the period to the average amount of capital
expenditure incurred to develop the relevant mining project during
the period.
2.18. Taxation
Tax expense for the period comprises current and deferred tax.
Tax is recognised in profit or loss, except to the extent that it
relates to items recognised in the statement of comprehensive
income or directly in equity. In this case, the tax is also
recognised in the statement of comprehensive income or directly in
equity, respectively.
Current tax is the tax expected to be payable on the taxable
income for the year calculated using rates that have been enacted
or substantively enacted by the reporting date. It includes
adjustments for tax expected to be payable or recoverable in
respect of previous periods.
Full provision is made for deferred taxation on all temporary
differences existing at the reporting date with certain limited
exceptions. Temporary differences are the difference between the
carrying value of an asset or liability and its tax base. The main
exceptions to this principle are as follows:
_ Tax payable on the future remittance of the past earnings of
subsidiaries, associate and jointly controlled entities is provided
for except where the company is able to control the remittance of
profits and it is probable that there will be no remittance in the
foreseeable future;
_ Deferred tax is not provided on the initial recognition of
goodwill or from the initial recognition of an asset or liability
in a transaction that does not affect accounting profit or taxable
profit and is not a business combination; and
_ Deferred tax assets are recog nised only to the extent that it
is more likely than not that they will be recovered.
Deferred tax is provided in respect of fair value adjustments on
acquisitions. These adjustments may relate to assets such as mining
rights that, in general, are not eligible for income tax
allowances. In such cases, the provision for deferred tax is based
on the difference between the carrying value of the asset and its
nil income tax base.
Deferred tax is calculated at the tax rates and laws that are
expected to apply in the period when the liability is settled or
the asset is realised using tax rates and laws that have been
enacted, or substantively enacted, at the reporting date. Deferred
tax is charged or credited to profit or loss, except when it
relates to items charged or credited directly to equity, in which
case the deferred tax is also dealt within equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set-off current tax assets against
current tax liabilities, when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
3. Areas of judgement in applying accounting policies and key sources of estimation uncertainty
When preparing the consolidated financial statements in
accordance with the accounting policies as set out in note 2, the
directors necessarily makes judgements and estimates that can have
a significant impact on the financial statements. These judgements
and estimates are based on directors' best knowledge of the
relevant facts and circumstances and previous experience. Actual
results may differ from these estimates under different assumptions
and conditions.
3.1. Critical accounting judgements
The following are the critical judgements, apart from those
involving estimations (which are presented separately below), that
the directors have made in the process of applying the Group's
accounting policies and that have the most significant effect on
the amounts recognised in these financial statements.
Significant influence over IRC and IRC classification
As at 31 December 2020, the Group was the single largest
shareholder of IRC, holding approximately 31.1% of IRC's issued
shares. The Group considers that it exercises significant influence
over, but does not control, IRC such that its equity is accounted
for as an investment in an associate, in accordance with IAS 28
"Investments in associates". Significant influence is defined as
the power to participate in the financial and operating policy
decisions of the investee. If control were to exist then IRC would
be required to be consolidated as a subsidiary into the Group's
consolidated financial information.
In making this assessment, the Group also considered the
definition of control under IFRS 10 "Consolidated Financial
Statements" being where an investor controls an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns
through its power over the investee.
The factors considered included:
_ Relative shareholdings;
_ Shareholder voting rights;
_ Rights to nominate and appoint directors and executive
management of IRC;
_ Influence over the IRC board and executive management; and
_ Operational independence of IRC.
After taking into account the aforementioned control factors in
aggregate, it is considered that the Group does not exercise de
facto control over IRC and IRC is not a subsidiary to the
Group.
Accordingly, accounting treatment applied to treat the Group's
investment in IRC is as an investment in associate in accordance
with IAS 28 "Investments in associates".
Continuous increase in iron ore price and increase in production
output as reaching design capacity by K&S mine of IRC, combined
with depreciation of the Russian Rouble against the US Dollar, had
a positive effect on the value in use of the IRC investment during
the year ended 31 December 2020. The Group reviewed the carrying
value of its 31.1% investment in IRC and concluded that, based on
value-in-use calculations, a US$21.4 million reversal of impairment
was required and recorded accordingly (2019: a US$23.4 million
impairment was required and recorded accordingly) (note 14).
On 18 March 2020, the Group signed a preliminary agreement to
dispose of its 29.9% out of 31.1.% interest in IRC to Stocken Board
AG for a cash consideration of US$10 million, subject to certain
conditions precedent being met, including the release of the
Group's obligation to guarantee IRC's external debt under the
Gazprombank Facility (note 26). This was a non-adjusting event and
the investment was not considered to be an asset held-for-sale
under IFRS 5 "Non-current Assets Held for Sale and Discontinued
Operations" as at 31 December 2019.
Throughout 2020, 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 26). 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 31 December 2020.
The Group does not participate in the business conducted by IRC
neither did it historically receive cash inflows from IRC
operations in the form of dividends or other distributions.
Furthermore the Group is not involved in the management of IRC and
the investment in IRC is not considered to be part of core business
of the Group. Management therefore do not consider IRC to be a
separate major line of business, notwithstanding the value of the
investment included in the Statement of financial position and the
size of the share of results in IRC included in the Statement of
Profit or Loss. Consequently, IRC is not recognised as a
discontinued operation under IFRS 5 "Non-current Assets Held for
Sale and Discontinued Operations".
Valuation of financial guarantee contract
The Group has provided a guarantee over IRC's external
borrowings from Gazprombank, which was issued in March 2019.
Details of the guarantee arrangements are set out in note 26.
The Group made an accounting policy choice to recognise the
guarantee asset and liability under the financial guarantee
contract as one unit of account at nil fair value on inception.
Subsequently, the guarantee asset is recognised on accruals basis
and the guarantee liability is measured at the amount of the loss
allowance for expected credit losses (ECL), as this was higher than
the amount initially recognised less the cumulative amount of
income recognised in accordance with the principles of IFRS 15.
In determining the amount of the loss allowance, the Group makes
significant judgement with regards to whether the credit risk on
the financial guarantee contract has increased significantly since
initial recognition and whether the amount of the loss allowance is
measured as a 12-month ECL or lifetime ECL in accordance with the
IFRS 9 Impairment Model.
In making the assessment whether the credit risk on the
financial guarantee contract has increased significantly since
initial recognition, the Group considered the following
factors:
_ Changes in the cumulative probability of default;
_ Changes in the calculated shadow credit rating of IRC using a
Moody's scorecard methodology;
_ Operational and financial performance of IRC during the period
and future outlook;
_ Compliance with debt service obligations and covenants under
the Gazprombank Facility;
_ Changes in the regulatory, economic, or technological
environment of IRC; and
_ The impact of the IRC investment impairment review (note
14).
After taking into account the aforementioned factors in
aggregate, the directors concluded that the credit risk on the
financial guarantee contract has not increased significantly since
initial recognition. Accordingly, the financial guarantee contract
liability as at 31 December 2020 was recognised in the amount of
12-month ECL of US$8.2 million (2019: in the amount of 12-month ECL
of US$8.9 million).
The following methodologies and key input and assumptions were
used to estimate the amount of the 12-month ECL:
_ Estimation of the total liability value using a number of
valuation techniques incorporating an estimation of current market
borrowing rates, as well as techniques considering the capital
structure of IRC and future projections of the likelihood of
default;
_ Information used in the valuation included factors relating to
IRC performance mentioned in addition to equity market prices for
IRC and Petropavlovsk and yields on comparable credit bonds in the
mining industry; and
_ The total liability value is used to derive a market implied
annualised default rate over the life of the guarantee which is
then applied to the balance over the next 12 months to estimate the
probability of default over this period and subsequent loss
adjusted for assumed recovery.
Functional currency
IAS 21 "The Effects of Changes in Foreign Exchange Rates"
defines functional currency as the currency of the primary economic
environment in which the entity operates. The Group therefore
performs an analysis of the currencies in which each subsidiary
primarily generates and expends cash. This involves an assessment
of the currency in which sales are generated and operational and
capital expenditures are incurred, and currency in which external
borrowing costs are denominated. Management makes judgements in
defining the functional currency of the Group's subsidiaries based
on economic substance of the transactions relevant to these
entities.
For each of the Group's consolidated entities, management
performed analysis of relevant factors that are indicators of
functional currency and, based on the analysis performed,
determined functional currency, accordingly. The Group concluded
that the functional currency for each of the subsidiaries in
Russia, except for its research institute Irgiredmet, is the US
Dollar. Functional currency for Irgiredmet was concluded to be the
Russian Rouble.
Cash generating unit ("CGU") determination and impairment
indicators
The Group exercises judgement in determining the Group's
individual CGUs based upon an assessment of the whether the cash
inflows generated are capable of being separately identifiable and
independent. This assessment considered whether there is an active
market for the outputs of each significant element of the
production process, including gold concentrate, and the Group's
CGUs were concluded to be Pioneer, Malomir and Albyn (note 4) with
POX Hub facilities allocated between Pioneer, Malomir and Albyn
CGUs based on expected processing of flotation concentrate.
Management also applies judgement in allocating assets that do not
generate independent cash inflows to the Group's CGUs. Any changes
to CGU determinations would impact the carrying values of the
respective CGUs.
The Group considers both external and internal sources of
information in assessing whether there are any indications that its
CGUs are impaired. External sources of information include changes
in the market, economic and legal environment in which the Group
operates that are not within its control. Internal sources of
information include the manner in which mining assets and plant and
equipment are being used or are expected to be used and indicators
of economic performance of such assets. Judgement is therefore
required to determine whether these updates represent significant
changes in the recoverable amount of an asset or CGU, and are
therefore indicators of impairment or impairment reversal.
Advances from customers under gold sales contracts
The Group has entered into prepaid gold sales arrangements,
which are settled solely through physical delivery and are priced
based on the spot gold price, prevailing at the date of the
respective shipment. The arrangements are considered to fall under
IFRS 15 'Revenue from Contracts with Customers' and the advances
received represent contract liabilities included within Trade and
other payables as Advances from customers rather than falling to be
accounted under IFRS 9 'Financial Instruments' on which case it
would be presented within borrowings. As of 31 December 2020, the
relevant contract liabilities amount to US$63.8 million (31
December 2019: US$187.4 million).
3.2. Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Ore reserve estimates
The Group estimates its ore reserves and mineral resources based
on the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (the JORC Code) and the
internally used Russian Classification System, adjusted to conform
with the mining activity to be undertaken under the Group mining
plan. Both the JORC Code and the Russian Classification System
require the use of reasonable investment assumptions when reporting
reserves, including future production estimates, expected future
commodity prices and production cash costs.
Ore reserve estimates are used in the calculation of
depreciation of mining assets using a units of production method
(note 13), impairment charges (note 6) and for forecasting the
timing of the payment of close down and restoration costs (note
22). Also, for the purposes of impairment reviews and the
assessment of life of mine for forecasting the timing of the
payment of close down and restoration costs, the Group may take
into account mineral resources in addition to ore reserves where
there is a high degree of confidence that such resources will be
extracted. Ore reserve estimates may change from period to period
as additional geological data becomes available during the course
of operations or economic assumptions used to estimate reserves
change. Such changes in estimated reserves may affect the Group's
financial results and financial position in a number of ways,
including the following:
_ Asset carrying values due to changes in estimated future cash
flows (note 6);
_ Depreciation charged to profit or loss where such charges are
determined by using a units of production method or where the
useful economic lives of assets are determined with reference to
the life of the mine;
_ Provisions for close down and restoration costs where changes
in estimated reserves affect expectations about the timing of the
payment of such costs (note 22); and
_ Carrying value of deferred tax assets and liabilities (note
21) where changes in estimated reserves affect the carrying value
of the relevant assets and liabilities.
Impairment and impairment reversals
The Group reviews the carrying values of property, plant and
equipment to determine whether there is any indication that those
assets are impaired. The recoverable amount of an asset, or
cash-generating unit ('CGU'), is measured as the higher of fair
value less costs to sell and value in use.
The Group necessarily applies judgement in the determining the
assumptions to be applied within the value in use calculations. The
key assumptions which formed the basis of forecasting future cash
flows and the value in use calculation are set out in note 6.
Future changes to the key assumptions in the value in use
calculation could impact the carrying value of the respective
assets. The impairment assessments are sensitive to changes in
commodity prices, foreign exchange rates and discount rates.
Changes to these assumptions would result in changes to conclusions
in relation to impairment, which could have a significant effect on
the consolidated financial statements. Details of impairment and/or
impairment reversals, together with a sensitivity analysis, in
relation to the property, plant and equipment are set out in note
6.
Valuation of convertible bonds
The conversion option is a derivative financial liability
measured at fair value whose valuation incorporates among other
inputs the Group's credit risk, implied credit spreads and historic
share price volatility. The significant increase in the gold price
that together with depreciation of the Russian Rouble, in which
most of the Group's operating expenses are denominated, have
contributed to significant increase in the share price of the
company increasing the value of the convertible bond option
liability.
Taxation
The Group is subject to income tax in the UK, Russian Federation
and Cyprus.
Deferred tax liabilities are calculated on taxable temporary
differences, being the difference between the tax and accounting
base.
Deferred tax assets, including those arising from unused tax
losses carried forward for the future tax periods and deductible
temporary differences, are recognised only when it is either
probable that the future taxable profits will be available against
which the unused tax losses can be utilised or there are sufficient
taxable temporary differences.
Assumptions about the generation of future taxable profits
depend on management's estimates of future cash flows. Judgements
are also required about the application of income tax legislation.
In addition, the functional currency for the subsidiaries in Russia
is the US Dollar which gives rise to foreign exchange movements in
relation to temporary differences and deferred tax
(note 10).
The aforementioned estimate and assumptions are subject to risk
and uncertainty and there is a possibility that changes in
circumstances will alter expectations, which may impact the amount
of deferred tax recognised in the statement of financial position
and the amount of other tax losses and temporary differences not
yet recognised. In such circumstances, the carrying amount of
recognised deferred tax assets may require adjustment, resulting in
a corresponding charge or credit to profit or loss. In particular,
if the Russian Rouble was 10% weaker as at 31 December 2020, this
would give rise to an additional US$14.9 million deferred tax
liability and corresponding increase to the tax charge for the year
ended 31 December 2020. Details of deferred tax disclosures are set
out in note 21.
3.3. Other sources of estimation uncertainty
Exploration and evaluation costs
The Group's accounting policy for exploration and evaluation
expenditure results in exploration and evaluation expenditure being
capitalised for those projects where such expenditure is considered
likely to be recoverable through future extraction activity or sale
or where the exploration activities have not reached a stage which
permits a reasonable assessment of the existence of reserves. This
policy requires management to make certain estimates and
assumptions as to future events and circumstances, in particular
whether the Group will proceed with development based on existence
of reserves or whether an economically viable extraction operation
can be established. Such estimates and assumptions may change from
period to period as new information becomes available. If,
subsequent to the exploration and evaluation expenditure being
capitalised, a judgement is made that recovery of the expenditure
is unlikely or the project is to be abandoned, the relevant
capitalised amount will be written off to profit or loss. Details
of exploration and evaluation assets are set out in note 12.
Deferred stripping costs
Stripping costs are deferred and capitalised if they relate to
gaining improved access to an identified component of an ore body
to be mined in future periods. The capitalised amount is determined
based on the volume of waste extracted, compared with expected ore
volume in the identified component of the ore body. The
identification of the components of a mine's ore body is a critical
estimate and is made by reference to the respective life of mine
plan. Changes to the life of mine plan, including the life and
design of a mine, may result in the capitalisation of production
stripping costs or adjustments of the carrying value of stripping
costs capitalised in previous periods. As a result, there could be
significant adjustments to the amounts of deferred stripping costs
capitalised. Details of deferred stripping costs capitalised are
set out in note 13.
Close down and restoration costs
Costs associated with restoration and rehabilitation of mining
sites are typical for extractive industries and are normally
incurred at the end of the life of the mine. Provision is
recognised for each mining site for such costs discounted to their
net present value, as soon as the obligation to incur such costs
arises. The costs are estimated on the basis of the scope of site
restoration and rehabilitation activity in accordance with the mine
closure plan and represent management's best estimate of the
expenditure that will be incurred. Estimates are reviewed annually
as new information becomes available.
The actual costs may be different from those estimated due to
changes in relevant laws and regulations, changes in prices as well
as changes to the restoration techniques. The actual timing of cash
outflows may be also different from those estimated due to changes
in the life of the mine as a result of changes in ore reserves or
processing levels. As a result, there could be significant
adjustments to the provision for close down and restoration costs
established which would affect future financial results. Details of
provision for close down and restoration costs are set out in note
22.
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.
Corporate
and
Pioneer Malomir Albyn other Consolidated
2020 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
------------------------------------------- ---------- ---------- ---------- ---------- ------------
(32,694
Intra group eliminations ) (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)
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Impairment 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 inventories to
net realisable value - - - (1,215) (1,215)
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Total operating expenses (a) (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
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Segment liabilities (109,478) (70,650) (28,169) (166,788) (375,085)
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Deferred tax - net (140,034)
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Unallocated cash 3,419
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Borrowings (536,020)
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Net assets of disposal group
classified as held for sale 34,297
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Net assets 671,641
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Other segment information
----------------------------------------- ---------- ---------- ---------- ---------- ------------
Additions to non-current assets:
----------------------------------------- ---------- ---------- ---------- ---------- ------------
Exploration and evaluation expenditure - 799 5,707 2,310 8,816
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Capital Expenditure 54,926 19,905 40,518 3,191 118,540
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Capitalised Stripping 20,992 23,836 - - 44,828
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Other items capitalised (b) 20,838 9,113 7,726 - 37,677
------------------------------------------- ---------- ---------- ---------- ---------- ------------
Average number of employees 2,816 1,280 1,421 3,372 8,889
------------------------------------------- ---------- ---------- ---------- ---------- ------------
(a) Operating expenses excluding foreign exchange gains (note
6).
(b) Interest and close down and restoration costs capitalised
(note 13).
Corporate
and
Pioneer Malomir Albyn other Consolidated
2019 US$'000 US$'000 US$'000 US$'000 US$'000
Revenue
--------------------------------------- --------- --------- --------- --------- ------------
Gold (c) 223,193 239,365 229,139 - 691,697
----------------------------------------- --------- --------- --------- --------- ------------
Silver 464 267 146 - 877
----------------------------------------- --------- --------- --------- --------- ------------
Other external revenue - - - 49,015 49,015
----------------------------------------- --------- --------- --------- --------- ------------
Inter segment revenue 45,970 537 4,493 145,326 196,326
----------------------------------------- --------- --------- --------- --------- ------------
Intra group eliminations (45,970) (537) (4,493) (145,326) (196,326)
----------------------------------------- --------- --------- --------- --------- ------------
Total Group revenue from external
customers 223,657 239,632 229,285 49,015 741,589
----------------------------------------- --------- --------- --------- --------- ------------
Operating expenses and income
--------------------------------------- --------- --------- --------- --------- ------------
Operating cash costs (170,349) (135,427) (80,017) (48,745) (434,538)
----------------------------------------- --------- --------- --------- --------- ------------
Depreciation (41,225) (46,549) (48,144) (1,857) (137,775)
----------------------------------------- --------- --------- --------- --------- ------------
Central administration expenses - - - (52,527) (52,527)
----------------------------------------- --------- --------- --------- --------- ------------
Reversal of impairment of mining
assets and in-house service 42,755 - - 9,404 52,159
----------------------------------------- --------- --------- --------- --------- ------------
(Impairment)/reversal of impairment
of ore stockpiles (664) (517) 3,959 - 2,778
----------------------------------------- --------- --------- --------- --------- ------------
Reversal of impairment/(impairment)
of gold in circuit 101 (243) - - (142)
----------------------------------------- --------- --------- --------- --------- ------------
Total operating expenses (d) (169,382) (182,736) (124,202) (93,725) (570,045)
----------------------------------------- --------- --------- --------- --------- ------------
Segment result 54,275 56,896 105,083 (44,710) 171,544
----------------------------------------- --------- --------- --------- --------- ------------
Foreign exchange losses (20,808)
----------------------------------------- --------- --------- --------- --------- ------------
Operating profit 150,736
----------------------------------------- --------- --------- --------- --------- ------------
Share of results of associate (35,376)
----------------------------------------- --------- --------- --------- --------- ------------
Net impairment reversals on
financial instruments 30,797
----------------------------------------- --------- --------- --------- --------- ------------
Investment and other finance
income 8,826
----------------------------------------- --------- --------- --------- --------- ------------
Interest expense (59,854)
----------------------------------------- --------- --------- --------- --------- ------------
Net other finance losses (42,190)
----------------------------------------- --------- --------- --------- --------- ------------
Taxation (27,246)
----------------------------------------- --------- --------- --------- --------- ------------
Profit for the year 25,693
----------------------------------------- --------- --------- --------- --------- ------------
Segment assets 629,169 705,230 315,152 199,578 1,849,129
----------------------------------------- --------- --------- --------- --------- ------------
Segment liabilities (185,883) (157,335) (23,065) (128,204) (494,487)
----------------------------------------- --------- --------- --------- --------- ------------
Deferred tax - net (112,566)
----------------------------------------- --------- --------- --------- --------- ------------
Unallocated cash 2,914
----------------------------------------- --------- --------- --------- --------- ------------
Borrowings (609,463)
----------------------------------------- --------- --------- --------- --------- ------------
Net assets 635,527
----------------------------------------- --------- --------- --------- --------- ------------
Other segment information
--------------------------------------- --------- --------- --------- --------- ------------
Additions to non-current assets:
--------------------------------------- --------- --------- --------- --------- ------------
Exploration and evaluation expenditure 691 - 8,350 1,095 10,136
----------------------------------------- --------- --------- --------- --------- ------------
Capital Expenditure 34,945 24,840 22,009 18,362 100,156
----------------------------------------- --------- --------- --------- --------- ------------
Capitalised Stripping 14,454 12,653 - - 27,107
----------------------------------------- --------- --------- --------- --------- ------------
Other items capitalised (e) 19,058 6,087 1,435 - 26,580
----------------------------------------- --------- --------- --------- --------- ------------
Average number of employees 2,910 1,284 1,442 3,345 8,981
----------------------------------------- --------- --------- --------- --------- ------------
(c) Net of US$(31.5) million net of cash settlement paid by the
Group for realised cash flow hedges.
(d) Operating expenses excluding foreign exchange losses (note
6).
(e) Interest and close down and restoration costs capitalised
(note 13).
Entity wide disclosures
Revenue by geographical location (a)
2020 2019
US$'000 US$'000
Russia and CIS 714,263 678,348
------------------------------------- -------- --------
United Kingdom of Great Britain
and Northern Ireland 208,166 44,975
------------------------------------- -------- --------
Switzerland 66,059 17,898
------------------------------------- -------- --------
Other 46 368
------------------------------------- -------- --------
988,534 741,589
-------------------------------- -------- --------
(a) Based on the location to which the product is shipped or in
which the services are provided.
Non-current assets by location of asset (b)
2020 2019
US$'000 US$'000
Russia 1,339,675 1,371,358
------------ ---------- ---------
Other 878 1,113
------------ ---------- ---------
1,340,553 1,372,471
------- ---------- ---------
(b) Excluding financial instruments and deferred tax assets.
Information about major customers
During the years ended 31 December 2020 and 31 December 2019 the
Group generated revenues from the sales of gold to banks. Included
in gold sales revenue for the year ended 31 December 2020 are
revenues of US$955 million which arose from sales of gold to three
bank groups that individually accounted for more than 10% of the
Group's revenue, namely US$612 million to Gazprombank and US$135
million to Sberbank group, and US$208 million to ICBC (2019: US$647
million which arose from sales of gold to two bank groups that
individually accounted for more than 10% of the Group's revenue,
namely US$518 million to Gazprombank and US$129 million to Sberbank
group). The proportion of Group revenue of each bank may vary from
year to year depending on commercial terms agreed with each bank.
Management considers there is no major customer concentration risk
due to high liquidity inherent to gold as a commodity.
5.Group revenue
2020 2019
US$'000 US$'000
Sales of goods:
------------------------------- -------- --------
Gold 955,372 691,697
------------------------------------ -------- --------
Silver 634 877
------------------------------------ -------- --------
Other goods 19,664 33,395
------------------------------------ -------- --------
Rendering of services:
------------------------------- -------- --------
Engineering and construction
contracts 10,390 12,535
------------------------------------ -------- --------
Other services 1,897 2,347
------------------------------------ -------- --------
Rental income 577 738
------------------------------------ -------- --------
988,534 741,589
------------------------------- -------- --------
2020 2019
US$'000 US$'000
------------------------------- -------- --------
Timing of revenue recognition:
------------------------------- -------- --------
At a point in time 975,670 725,969
------------------------------------ -------- --------
Over time 12,864 15,620
------------------------------------ -------- --------
988,534 741,589
------------------------------- -------- --------
For assets and liabilities related to contracts with customers,
including revenue recognised in the period that was included in the
contract liability balance at the beginning of the period, please
refer to notes 16 and 19.
6. Operating expenses and income
2020 2019
US$'000 US$'000
Net operating expenses (a) 735,519 572,313
---------------------------------------------------- -------- --------
Impairment/(reversal of impairment) of mining
assets and in-house service (a) 58,806 (52,159)
---------------------------------------------------- -------- --------
Impairment of exploration and evaluation assets (a) 16,112 -
---------------------------------------------------- -------- --------
Write-down of inventory to net realisable value 1,215 -
---------------------------------------------------- -------- --------
Reversal of impairment of ore stockpiles (a) - (2,778)
---------------------------------------------------- -------- --------
Impairment of gold in circuit 77 142
---------------------------------------------------- -------- --------
Impairment of bullion in process 41 -
---------------------------------------------------- -------- --------
Central administration expenses (a) 61,371 52,527
---------------------------------------------------- -------- --------
Foreign exchange (gains)/losses (32,647) 20,808
---------------------------------------------------- -------- --------
840,494 590,853
---------------------------------------------------- -------- --------
(a) As set out below.
Net operating expenses
2020 2019
US$'000 US$'000
Depreciation 134,079 137,775
------------------------------------------------------------------ -------- --------
Staff costs 88,492 97,615
------------------------------------------------------------------ -------- --------
Materials 88,623 91,004
------------------------------------------------------------------ -------- --------
Flotation concentrate purchased 201,647 74,010
------------------------------------------------------------------ -------- --------
Fuel 29,565 43,612
------------------------------------------------------------------ -------- --------
External services 43,095 46,392
------------------------------------------------------------------ -------- --------
Mining tax charge 33,796 15,917
------------------------------------------------------------------ -------- --------
Electricity 33,880 34,118
------------------------------------------------------------------ -------- --------
Smelting and transportation costs 777 858
------------------------------------------------------------------ -------- --------
Movement in ore stockpiles, work in progress, bullion in process,
limestone and flotation
concentrate attributable to gold production 29,962 (34,156)
------------------------------------------------------------------ -------- --------
Taxes other than income 7,962 7,706
------------------------------------------------------------------ -------- --------
Insurance 3,641 8,437
------------------------------------------------------------------ -------- --------
Rental fee 2,861 3,194
------------------------------------------------------------------ -------- --------
Provision for impairment of trade and other receivables 650 2,021
------------------------------------------------------------------ -------- --------
Bank charges 1,088 876
------------------------------------------------------------------ -------- --------
Repair and maintenance 5,061 6,896
------------------------------------------------------------------ -------- --------
Security services 4,424 4,503
------------------------------------------------------------------ -------- --------
Travel expenses 1,284 2,902
------------------------------------------------------------------ -------- --------
Goods for resale 11,068 19,471
------------------------------------------------------------------ -------- --------
Other operating expenses 13,564 9,162
------------------------------------------------------------------ -------- --------
735,519 572,313
------------------------------------------------------------------ -------- --------
Central administration expenses
2020 2019
US$'000 US$'000
Staff costs 29,926 33,466
------------------------------ -------- --------
Professional fees 20,615 1,771
------------------------------ -------- --------
Insurance 739 797
------------------------------ -------- --------
Rental fee 416 481
------------------------------ -------- --------
Business travel expenses 541 2,000
------------------------------ -------- --------
Office costs 830 832
------------------------------ -------- --------
Other 8,304 13,180
------------------------------ -------- --------
61,371 52,527
------------------------- -------- --------
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 in relation to Pioneer and Malomir CGUs and indicated
an impairment in relation to Albyn CGU as at 31 December 2020.
The directors concluded to record 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 are part of Albyn CGU on the statement of financial position
as at 31 December 2020 as set out below:
_ A pre-tax impairment of US$58.8 million (being a post-tax
impairment of US$47.0 million) has been recorded against the
associated assets within property, plant and equipment; and
_ A pre-tax impairment of US$16.1 million (being a post-tax
impairment of US$12.9 million) has been recorded against the
associated exploration and evaluation assets.
As at 31 December 2019, the Group recognised US$43.5 million
(US$34.8 million post-tax) reversal of impairment previously
recorded against the carrying value of the assets of the Pioneer
CGU and US$9.4 million (US$7.8 million post-tax) reversal of
impairment previously recorded against the carrying value of the
assets of the supporting in-house service companies. The
aforementioned impairment reversals took into consideration the
effect of depreciation attributable to relevant assets and
intra-group transfers of previously impaired assets.
Impairment of exploration and evaluation assets
The Group performed a review of its exploration and evaluation
assets and concluded no impairment except for in relation to assets
that are part of Albyn CGU was required as at 31 December 2020 (31
December 2019: The Group performed a review of its exploration and
evaluation assets and concluded no impairment was required).
As at 31 December 2020 and 31 December 2019, exploration and
evaluation assets in the statement of financial position primarily
related to the areas adjacent to the existing mines (note 12).
The key assumptions which formed the basis of forecasting future
cash flows and the value in use calculation are set out below:
Year ended Year ended
31 December 31 December
2020 2019
Long-term real gold price (a) US$1,575/oz US$1,400/oz
------------------------------ -------------- --------------
Discount rate (b) 6.4% 7.0%
--------------------------------- -------------- --------------
RUB : US$ exchange rate (c) RUB73.6 : US$1 RUB65.8 : US$1
--------------------------------- -------------- --------------
(a) Being upper 75% range of the analyst forecasts based on
Consensus Economics, published in December 2019 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 8.7% (2019: 9.8%),
applied to cash flows prepared on a consistent post-tax real
basis.
(c) Based on Consensus Economics, published in December 2019 and
January 2021.
With all other assumptions being constant, changes to the
aforementioned key assumptions could potentially result in
impairment of certain mining assets as set out below:
Potential
impairment
Long-term real gold price (a) US$1,420/oz US$212 million
----------------------------- ----------- --------------
Discount rate (b) 7.4% US$18 million
----------------------------- ----------- --------------
RUB66.0 :
RUB : US$ exchange rate (a) US$1 US$113 million
----------------------------- ----------- --------------
(a) In relation to Pioneer and Albyn CGUs.
(b) In relation to Albyn CGU.
Impairment of ore stockpiles
The Group assessed the recoverability of the carrying value of
ore stockpiles and recorded impairment charges/reversals of
impairment as set out below:
Year ended 31 December Year ended 31 December
2020 2019
-------- ------------------------------------ ------------------------------------
Pre-tax Post-tax Pre-tax Post-tax
impairment impairment impairment impairment
charge Taxation charge charge Taxation charge
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
----------- ---------- ----------- ----------- ---------- -----------
Pioneer - - - 664 (133) 531
--------- ----------- ---------- ----------- ----------- ---------- -----------
Malomir - - - 517 (88) 429
--------- ----------- ---------- ----------- ----------- ---------- -----------
Albyn - - - (3,959) 673 (3,286)
--------- ----------- ---------- ----------- ----------- ---------- -----------
- - - (2,778) 452 (2,326)
-------- ----------- ---------- ----------- ----------- ---------- -----------
7. Auditor's remuneration
The Group, including its overseas subsidiaries, obtained the
following services from the company's auditor and their
associate:
2020 2019
US$'000 US$'000
Audit fees and related fees
---------------------------------------------------------- -------- --------
Fees payable to the company's auditor for the annual
audit of the parent company and consolidated financial
statements 1,750 1,021
----------------------------------------------------------- -------- --------
Fees payable to the company's auditor and their associate
for other services to the Group:
---------------------------------------------------------- -------- --------
For the audit of the company's subsidiaries as part
of the audit of the consolidated financial statements 650 351
----------------------------------------------------------- -------- --------
For the audit of subsidiary statutory accounts pursuant
to legislation (a) 122 84
----------------------------------------------------------- -------- --------
Fees payable to the previous auditor for work carried
out in the previous year for the annual audit of the
parent company and consolidated financial statements 486 -
----------------------------------------------------------- -------- --------
3,008 1,456
---------------------------------------------------------- -------- --------
Non-audit fees
---------------------------------------------------------- -------- --------
Other services pursuant to legislation - interim review 400 337
----------------------------------------------------------- -------- --------
Fees for reporting accountants services (b) - 400
----------------------------------------------------------- -------- --------
400 737
---------------------------------------------------------- -------- --------
(a) Including the statutory audit of subsidiaries in the UK and
Cyprus.
(b) Fees payable in relation to the circular for the ICBC
guarantee restructuring process (notes 26).
8. Staff costs
2020 2019
US$'000 US$'000
Wages and salaries 93,099 103,728
--------------------------------- -------- --------
Social security costs 25,065 26,952
--------------------------------- -------- --------
Pension costs 131 121
--------------------------------- -------- --------
Share-based compensation 123 280
--------------------------------- -------- --------
118,418 131,081
---------------------------- -------- --------
Average number of employees 8,889 8,981
--------------------------------- -------- --------
9. Financial income and expenses and impairment of financial
instruments
2020 2019
US$'000 US$'000
Net impairment reversals on financial instruments
-------------------------------------------------- -------- ------------------
2,333
Reversal of impairment of financial assets 309 (a)
----------------------------------------------------- -------- ------------------
28,464
Financial guarantee contract 691 (b)
----------------------------------------------------- -------- ------------------
1,000 30,797
-------------------------------------------------- -------- ------------------
Investment and other finance income
-------------------------------------------------- -------- ------------------
Interest income 1,100 3,216
----------------------------------------------------- -------- ------------------
Guarantee fee income (c) 6,654 5,610
----------------------------------------------------- -------- ------------------
7,754 8,826
-------------------------------------------------- -------- ------------------
Interest expense
-------------------------------------------------- -------- ------------------
Notes (42,238) (41,995)
----------------------------------------------------- -------- ------------------
Convertible bonds (9,231) (12,984)
----------------------------------------------------- -------- ------------------
Prepayment on gold sale agreements (9,938) (16,019)
----------------------------------------------------- -------- ------------------
Lease liabilities (485) (593)
----------------------------------------------------- -------- ------------------
(61,892) (71,591)
-------------------------------------------------- -------- ------------------
Interest capitalised 4,134 12,287
----------------------------------------------------- -------- ------------------
Unwinding of discount on environmental obligation (775) (550)
----------------------------------------------------- -------- ------------------
(58,533) (59,854)
-------------------------------------------------- -------- ------------------
Net other finance (losses)/gains
-------------------------------------------------- -------- ------------------
Fair value loss on the conversion option
(d) (42,775) (31,127)
----------------------------------------------------- -------- ------------------
Loss on repurchase of the Existing Bonds
(e) - (11,211)
----------------------------------------------------- -------- ------------------
Loss on Bonds conversion (f) (9,536) -
----------------------------------------------------- -------- ------------------
Fair value gain on the guarantee receivable
(g) 571 3,607
----------------------------------------------------- -------- ------------------
Fair value loss on the call option over
non-controlling interests (h) (11,022) (1,978)
----------------------------------------------------- -------- ------------------
Fair value loss on other derivative financial
instruments (733) (1,345)
----------------------------------------------------- -------- ------------------
Fair value loss on listed equity investments (92) (302)
----------------------------------------------------- -------- ------------------
Gain on lease modification 224 166
----------------------------------------------------- -------- ------------------
Fair value loss on gold option contracts
(i) (7,021) -
----------------------------------------------------- -------- ------------------
Fair value gain on currency option contracts
(i) 4,132 -
----------------------------------------------------- -------- ------------------
Bond solicitation expenses (1,705) -
----------------------------------------------------- -------- ------------------
(67,957) (42,190)
-------------------------------------------------- -------- ------------------
( a) 2019: US$3.2 million reversal of ECL in relation to loans
granted to IRC (note 26).
(b) 2019: US$28.5 million gain, being net of:
- Recognition of US$8.9 million guarantee contract liability
under Gazprombank guarantee arrangements as at 31 December 2019 in
the amount of 12-month ECL; and
- De-recognition of US$(37.4) million guarantee contract
liability previously recognised under ICBC guarantee arrangements
in the amount of the lifetime ECL following termination of the ICBC
Facility Agreement. Further details on the financial guarantee
contracts are set out in note 26.
(c) Guarantee fee income under Gazprombank Guarantee
arrangements (note 26).
(d) Result of re-measurement of the conversion option to fair
value (notes 18 and 20).
(e) US$100 million convertible bonds due 2020 (the 'Existing
Bonds'): difference between the US$108 million paid to fund the
Repurchase Price and the carrying value of the Existing Bonds at
redemption (note 20).
(f) Result of Bonds being converted and settled in shares at
their nominal value and the carrying value of Convertible
Bonds.
(g) Result of re-measurement of receivable from IRC under ICBC
Guarantee arrangements to fair value (2019: result of
re-measurement of receivable from IRC under ICBC guarantee
arrangements to fair value, including US$0.7 million guarantee fee
income) (note 26).
(h) Result of re-measurement of the TEMI option to fair value
(notes 18 and 26).
(i) Result of measurement of gold and currency option contracts
(note 18).
10. Taxation
2020 2019
US$'000 US$'000
Current tax
------------------------------------ --------- ---------
Russian current tax 48,652 29,660
----------------------------------------- --------- ---------
48,652 29,660
------------------------------------ --------- ---------
Deferred tax
------------------------------------ --------- ---------
Origination/(reversal) of temporary
differences (a) 27,417 (2,414)
----------------------------------------- --------- ---------
Total tax charge (b) 76,069 27,246
----------------------------------------- --------- ---------
(a) Including effect of foreign exchange movements in respect of
deductible temporary differences of US$33.1 million (year ended 31
December 2019: US$(20.4) 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.
2020 2019
US$'000 US$'000
(Loss)/profit before tax 27,187 52,939
---------------------------------------------------------------- --------- ---------
Less: share of results of associate (52,681) 35,376
---------------------------------------------------------------- --------- ---------
(Loss)/profit before tax (excluding associate) (25,494) 88,315
---------------------------------------------------------------- --------- ---------
Tax on profit (excluding associate) at the Russian corporation
tax rate of 20% (2019: 20%) (5,099) 17,663
---------------------------------------------------------------- --------- ---------
(4,813)
Effect of the reduced corporation tax rate 23 (a)
---------------------------------------------------------------- --------- ---------
Effect of different tax rates of subsidiaries operating
in other jurisdictions 1,207 1,239
---------------------------------------------------------------- --------- ---------
Tax effect of expenses that are not deductible for tax
purposes (b) 23,382 7,681
---------------------------------------------------------------- --------- ---------
Tax effect of tax losses for which no deferred income
tax asset was recognised (c) 15,460 11,967
---------------------------------------------------------------- --------- ---------
Utilisation of previously unrecognised tax losses (2) (124)
---------------------------------------------------------------- --------- ---------
Foreign exchange movements in respect of deductible
temporary differences (d) 33,064 (20,424)
---------------------------------------------------------------- --------- ---------
Other adjustments (e) 8,034 14,057
---------------------------------------------------------------- --------- ---------
Tax charge 76,069 27,246
---------------------------------------------------------------- --------- ---------
(a) Under the Russian Federal Law 144-FZ dated 23 May 2016
taxpayers who are participants to the Regional Investment Projects
("RIP") have the right to apply the reduced corporation tax rate
over the period until 2027, subject to eligibility criteria. In
2019 LLC Malomirskiy Rudnik and LLC Albynskiy Rudnik have received
tax relief as a RIP participant and was entitled to the reduced
statutory corporation tax rate of 17%.
(b) Primarily relate to fair value loss on re-measurement of the
conversion option of the Convertible Bonds (note 9) and write-down
to adjust the carrying value of net assets of the disposal group to
fair value less costs to sell ( note 14).
(c) Primarily relate to interest expense incurred in the UK and
loss on repurchase of the Existing Bonds (note 9) (2019: primarily
relate to interest expense incurred in the UK and loss on
repurchase of the Existing Bonds).
(d) Foreign exchange movements primarily arise 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.
(e) Other adjustments primarily relate to Russian withholding
tax on intercompany dividends and dividend income treated as not
exempt from UK corporation tax under s.931R Corporation Tax Act
2009.
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 (2019:
US$10.5 million) of contingent liabilities, including US$0.2
million (2019:US$4.8 million) in respect of income tax and US$7.3
million (2019: US$5.7 million) in respect of other taxes.
11. Earnings per share
2020 2019
US$'000 US$'000
(Loss)/profit for the year attributable
to equity holders of Petropavlovsk
PLC (45,633) 26,883
--------------------------------------------- ------------- -------------
Interest expense on convertible
bonds (a) - -
---------------------------------------- ------------- -------------
(Loss)/profit used to determine
diluted earnings per share (45,633) 26,883
--------------------------------------------- ------------- -------------
No of shares No of shares
---------------------------------------- ------------- -------------
Weighted average number of Ordinary
Shares 3,564,250,949 3,309,193,559
--------------------------------------------- ------------- -------------
Adjustments for dilutive potential
Ordinary Shares (a) - -
---------------------------------------- ------------- -------------
Weighted average number of Ordinary
Shares for diluted earnings
per share 3,564,250,949 3,309,193,559
--------------------------------------------- ------------- -------------
US$ US$
---------------------------------------- ------------- -------------
Basic (loss)/profit per share (0.01) 0.01
--------------------------------------------- ------------- -------------
Diluted (loss)/profit per share (0.01) 0.01
--------------------------------------------- ------------- -------------
(a) Convertible bonds which could potentially dilute basic
profit per ordinary share in the future are not included in the
calculation of diluted profit per share because they were
anti-dilutive for the years ended 31 December 2020 and 31 December
2019.
12. Exploration and Evaluation Assets
Flanks
Flanks of
of Pioneer Albyn OTHer Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2020 7,544 43,397 2,182 53,123
------------------------------------ ----------- -------- -------- --------
Additions - 5,707 3,109 8,816
------------------------------------ ----------- -------- -------- --------
Reallocation and other transfers - (645) - (645)
------------------------------------ ----------- -------- -------- --------
Impairment (note 6) - (16,112) - (16,112)
------------------------------------ ----------- -------- -------- --------
At 31 December 2020 7,544 32,347 5,291 45,182
------------------------------------ ----------- -------- -------- --------
Flanks
Flanks of
of Pioneer Albyn Other Total
US$'000 US$'000 US$'000 US$'000
At 1 January 2019 6,919 35,047 1,149 43,115
------------------------------------ ----------- -------- -------- --------
Additions 691 8,350 1,095 10,136
------------------------------------ ----------- -------- -------- --------
Reallocation and other transfers (66) - - (66)
------------------------------------ ----------- -------- -------- --------
Transfer to mining assets - - (62) (62)
------------------------------------ ----------- -------- -------- --------
At 31 December 2019 7,544 43,397 2,182 53,123
------------------------------------ ----------- -------- -------- --------
13. Property, Plant and Equipment
Mining Non-mining Capital
assets assets construction
(d) (d) in progress Total
US$'000 US$'000 US$'000 US$'000
Cost
-------------------------------------------- --------- ------------ ------------- ---------
At 1 January 2019 2,057,758 174,543 386,415 2,618,716
--------------------------------------------- --------- ------------ ------------- ---------
Additions (a) 67,691 24,427 33,406 125,524
--------------------------------------------- --------- ------------ ------------- ---------
Interest capitalised (b) - - 12,287 12,287
--------------------------------------------- --------- ------------ ------------- ---------
Close down and restoration cost capitalised
(note 22) 14,293 - - 14,293
--------------------------------------------- --------- ------------ ------------- ---------
Transfer from exploration and evaluation
assets (note 12) 62 - - 62
--------------------------------------------- --------- ------------ ------------- ---------
Transfers from capital construction in
progress (c) 390,540 815 (391,355) -
--------------------------------------------- --------- ------------ ------------- ---------
Disposals (e) (21,148) (7,718) (50) (28,916)
--------------------------------------------- --------- ------------ ------------- ---------
Reallocation and other transfers 80 (271) - (191)
--------------------------------------------- --------- ------------ ------------- ---------
Foreign exchange differences - 2,719 36 2,755
--------------------------------------------- --------- ------------ ------------- ---------
At 31 December 2019 (h) 2,509,276 194,515 40,739 2,744,530
--------------------------------------------- --------- ------------ ------------- ---------
Additions (a) 78,060 4,654 80,654 163,368
--------------------------------------------- --------- ------------ ------------- ---------
Interest capitalised (b) - - 4,134 4,134
--------------------------------------------- --------- ------------ ------------- ---------
Close down and restoration cost capitalised
(note 22) 33,543 - - 33,543
--------------------------------------------- --------- ------------ ------------- ---------
Transfers from capital construction in
progress (c) 26,190 1,165 (27,355) -
--------------------------------------------- --------- ------------ ------------- ---------
Disposals (e) (33,890) (12,653) (152) (46,695)
--------------------------------------------- --------- ------------ ------------- ---------
Reallocation and other transfers 39 (39) 645 645
--------------------------------------------- --------- ------------ ------------- ---------
Foreign exchange differences - (4,167) (88) (4,255)
--------------------------------------------- --------- ------------ ------------- ---------
At 31 December 2020 (h) 2,613,218 183,475 98,577 2,895,270
--------------------------------------------- --------- ------------ ------------- ---------
Accumulated depreciation and impairment
-------------------------------------------- --------- ------------ ------------- ---------
At 1 January 2019 1,337,785 133,621 1,508 1,472,914
--------------------------------------------- --------- ------------ ------------- ---------
Charge for the year (f) 135,265 3,386 - 138,651
--------------------------------------------- --------- ------------ ------------- ---------
Disposals (20,355) (6,158) (7) (26,520)
--------------------------------------------- --------- ------------ ------------- ---------
Reallocation and other transfers (4,843) 4,696 (110) (257)
--------------------------------------------- --------- ------------ ------------- ---------
Reversal of impairment of mining assets
and in-house service (note 6) (42,755) (8,013) (1,391) (52,159)
--------------------------------------------- --------- ------------ ------------- ---------
Foreign exchange differences - 2,084 - 2,084
--------------------------------------------- --------- ------------ ------------- ---------
At 31 December 2019 (h) 1,405,097 129,616 - 1,534,713
--------------------------------------------- --------- ------------ ------------- ---------
Charge for the year (f) 133,655 4,242 - 137,897
--------------------------------------------- --------- ------------ ------------- ---------
Disposals (32,610) (4,936) - (37,546)
--------------------------------------------- --------- ------------ ------------- ---------
Reallocation and other transfers (4,437) 4,437 - -
--------------------------------------------- --------- ------------ ------------- ---------
Impairment (note 6) 58,806 - - 58,806
--------------------------------------------- --------- ------------ ------------- ---------
Foreign exchange differences - (3,150) - (3,150)
--------------------------------------------- --------- ------------ ------------- ---------
At 31 December 2020 (h) 1,560,511 130,209 - 1,690,720
--------------------------------------------- --------- ------------ ------------- ---------
Net book value
-------------------------------------------- --------- ------------ ------------- ---------
At 31 December 2019 (g) 1,104,179 64,899 40,739 1,209,817
--------------------------------------------- --------- ------------ ------------- ---------
At 31 December 2020 (g) 1,052,707 53,266 98,577 1,204,550
--------------------------------------------- --------- ------------ ------------- ---------
(a) Including US$44.8 million stripping cost capitalised (2019:
US$27.1 million).
(b) Borrowing costs were capitalised at the weighted average
rate of the Group's relevant borrowings being 9.0% (2019:
9.1%).
(c) Being costs primarily associated with the Elginskoye and POX
hub projects (2019: Being costs primarily associated with the POX
hub project and the Malomir flotation plant).
(d) Mining and Non-mining assets include of right-of-use assets.
For the movement in the right-of-use assets during the period see
note 23.
(e) Including US$19.5 million of fully depreciated fleet that is
not suitable for future use due to wear and tear, US$11.7 million
disposals of mining fleet due to derecognition of the replaced part
(31 December 2019: US$13.8 million of fully depreciated fleet that
is not suitable for future use due to wear and tear, US$7.5 million
disposals of mining fleet due to derecognition of the replaced
part).
(f) Including US$30.3 million depreciation charge of capitalized
stripping cost (2019: US$32.2 million).
(g) Including US$56.4 million net book value of capitalized
stripping cost (31 December 2019: US$41.9 million).
(h) Including US$498.0 million of fully depreciated property,
plant and equipment (31 December 2019: US$485.2 million).
14. Investment in associate and disposal group held for sale
2020 2019
US$'000 US$'000
IRC Limited ('IRC') (a) 3,936 48,680
----------------------------- --------- ---------
3,936 48,680
------------------------ --------- ---------
(a) 1.2% interest in IRC, with 29.9% interest in IRC
re-classified as assets held for sale as set out below (31 December
2019: 31.1%).
Summarised financial information for IRC and its subsidiaries is
set out below.
IRC IRC
2020 2019
US$'000 US$'000
Non-current assets
---------------------------------- --------- ---------
Exploration and evaluation assets 20,165 19,877
--------------------------------------- --------- ---------
Property, plant and equipment 573,041 522,640
--------------------------------------- --------- ---------
Other non-current assets 14,481 14,859
--------------------------------------- --------- ---------
607,687 557,376
---------------------------------- --------- ---------
Current assets
---------------------------------- --------- ---------
Cash and cash equivalents 20,371 4,292
--------------------------------------- --------- ---------
Other current assets 53,063 46,106
--------------------------------------- --------- ---------
73,434 50,398
---------------------------------- --------- ---------
Current liabilities
---------------------------------- --------- ---------
Borrowings (a) (20,082) (20,703)
--------------------------------------- --------- ---------
Other current liabilities (77,898) (80,288)
--------------------------------------- --------- ---------
(97,980) (100,991)
---------------------------------- --------- ---------
Non-current liabilities
---------------------------------- --------- ---------
Borrowings (a) (181,998) (201,204)
--------------------------------------- --------- ---------
Other non-current liabilities (18,857) (27,578)
--------------------------------------- --------- ---------
(200,855) (228,782)
---------------------------------- --------- ---------
Net assets 382,286 278,001
--------------------------------------- --------- ---------
(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 31 December 2020 and 2019, the entire facility
amount of US$240 million has been fully drawn down.
The Gazprombank Facility is secured by (i) IRC's property, plant
and equipment with net book value of US$52.3 million, (ii) 100%
equity share of Kapucius Services Limited in LLC KS GOK and (iii) a
guarantee from the company. Please refer to the note 26 for the
details on the guarantee arrangements. The Gazprombank Facility is
also subject to certain financial covenants and requirements.
IRC IRC
Year ended Year ended
31 December 31 December
2020 2019
US$'000 US$'000
Revenue 224,591 177,164
----------------------------------------- ------------ -------------
Net operating expenses (97,366) (178,653)
========================================= ============ =============
Including:
------------------------------------ ------------ -------------
Depreciation (28,818) (28,504)
----------------------------------------- ------------ -------------
Impairment losses under expected
credit loss model (7,115) -
----------------------------------------- ------------ -------------
Reversal of impairment of mining
assets 75,832 -
----------------------------------------- ------------ -------------
Foreign exchange gains/(losses) 6,934 (6,181)
============ =============
Investment income 44 83
----------------------------------------- ------------ -------------
Interest expense (25,157) (40,421)
----------------------------------------- ------------ -------------
Taxation (1,602) 3,157
----------------------------------------- ------------ -------------
Profit/(loss) for the year 100,510 (38,670)
----------------------------------------- ------------ -------------
Other comprehensive profit/(loss) 2,902 (3,483)
----------------------------------------- ------------ -------------
Total comprehensive profit/(loss) 103,412 (42,153)
----------------------------------------- ------------ -------------
Group's share % 31.1% 31.1%
----------------------------------------- ------------ -------------
Group's share in profit/(loss)
for the year 31,257 (12,026)
----------------------------------------- ------------ -------------
Reversal of impairment/(impairment)
of investment in associate 21,424 (23,350)
----------------------------------------- ------------ -------------
Share of results of associate 52,681 (35,376)
----------------------------------------- ------------ -------------
The Group undertook a review of impairment indicators of its
investment in IRC. Detailed calculations of recoverable amounts,
which are value-in-use calculations based on discounted cash flows,
were prepared which concluded US$21.4 million reversal impairment
was required and recorded accordingly (31 December 2019: US$23.4
million impairment was required and recorded accordingly). The key
assumptions which formed the basis of forecasting future cash flows
and the value in use calculation as at 31 December 2020 were real
long-term selling price for 65% iron ore concentrate of US$77.5 per
dry metric tonne and discount rate, being the post-tax real
weighted average cost of capital, of 9.7%.
Following negotiations with several interested parties the
directors resolved to approve the potential disposal of 29.9%
investment in IRC (note 3.1). This disposal is expected to be
completed within 12 months after the reporting date and accordingly
investment in IRC has been classified as "held for sale" and
presented separately in the statement of financial position as at
31 December 2020.
The following assets and liabilities were re-classified as held
for sale as at 31 December 2020.
Fair value
less costs
to sell
Carrying ( (a)
amount ()
US$'000 US$'000
Investment in associate (b) 98,327 42,529
--------------------------------------- --------- -----------
Total assets of disposal group
classified as held for sale 98,327 42,529
--------- -----------
Financial guarantee contract (8,232) (8,232)
--------- -----------
Total liabilities of disposal
group associated with assets
classified as held for sale (8,232) (8,232)
--------- -----------
Net assets of disposal group
classified as held for sale 90,095 34,297
--------- -----------
Write-down to adjust the carrying
value of net assets of disposal
group to fair value less costs
to sell (55,798)
--------- -----------
(a) Based on market share price of HK$0.14 per IRC share as at
31 December 2020, less estimated transaction costs, and fair value
of Gazprombank Guarantee of US$nil.
A decrease/ increase of 10% in IRC's share price would result in
US$3.8 million additional write-down/ reversal of write-down
adjustment.
(b) 29.9% interest in IRC Limited
15. Inventories
Year ended Year ended
31 December 31 December
2020 2019
US$'000 US$'000
Current
--------------------------- ------------ ------------
Construction materials 9,060 6,600
-------------------------------- ------------ ------------
Stores and spares 84,309 86,985
-------------------------------- ------------ ------------
Ore in stockpiles (a) 29,901 68,479
-------------------------------- ------------ ------------
Gold in circuit (a) 26,567 37,740
-------------------------------- ------------ ------------
Bullion in process (a) 9,284 4,732
-------------------------------- ------------ ------------
Flotation concentrate 32,801 97,932
-------------------------------- ------------ ------------
Other 4,746 5,305
-------------------------------- ------------ ------------
196,668 307,773
--------------------------- ------------ ------------
Non-current
--------------------------- ------------ ------------
Ore in stockpiles (a), (b) 75,605 60,257
-------------------------------- ------------ ------------
Other (c) 10,581 -
-------------------------------- ------------ ------------
86,186 60,257
--------------------------- ------------ ------------
(a) As at 31 December 2020, there were no balances of ore in
stockpiles carried at net realisable value (31 December 2019:
US$0.1 million) and there were US$3.4 million of gold in circuit
(31 December 2019: US$1.4 million) and US$0.2 million of bullion in
process (31 December 2019: US$nil) 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 31 December 2020 there were US$10.6 million goods for
resale at Irgiredmet planned to be realised more than one year
after the reporting period.
16. Trade and other receivables
2020 2019
US$'000 US$'000
Current
-------------------------------- -------- --------
VAT recoverable 37,959 51,499
------------------------------------- -------- --------
Advances to suppliers 17,800 10,513
------------------------------------- -------- --------
Prepayments for property, plant
and equipment 5,753 9,216
------------------------------------- -------- --------
Trade receivables (a) 8,547 10,254
------------------------------------- -------- --------
Contract assets 827 2,856
------------------------------------- -------- --------
Guarantee fee receivable (b) 11,926 9,417
------------------------------------- -------- --------
Other debtors (c) 15,739 12,220
------------------------------------- -------- --------
98,551 105,975
-------------------------------- -------- --------
Non-current
-------------------------------- -------- --------
Other (d) 481 556
------------------------------------- -------- --------
481 556
-------------------------------- -------- --------
(a) Net of provision for impairment of US$1.1 million (2019:
US$1.2 million). Trade receivables are generally due for settlement
between three and twelve months.
(b) Please refer to 14 and 26 for the details of ICBC and
Gazprombank guarantee arrangements.
(c) Net of provision for impairment of US$2.2 million (2019:
US$1.7 million).
(d) Net of provision for impairment of US$0.1 million (2019:
US$nil).
The directors consider that the carrying amount of trade and
other receivables approximates their fair value.
17. Cash and cash equivalents
2020 2019
US$'000 US$'000
Cash at bank and in hand 7,862 14,181
------------------------------ -------- --------
33,972
Short-term bank deposits 27,542 (a)
------------------------------ -------- --------
35,404 48,153
------------------------- -------- --------
(a) Including US$1.1 million of restricted bank deposit as at 31 December 2019.
18. Derivative financial instruments
31 December 31 December
2020 2019
--------------------------------- --------------------- ---------------------
Assets Liabilities Assets Liabilities
US$'000 US$'000 US$'000 US$'000
-------- ----------- -------- -----------
Current
--------------------------------- -------- ----------- -------- -----------
Gold option contracts (a),
(c) 172 (5,668) - (-)
------------------------------------ -------- ----------- -------- -----------
Currency option contracts (b),
(c) 3,148 (404) - -
------------------------------------ -------- ----------- -------- -----------
Other - - - (266)
------------------------------------ -------- ----------- -------- -----------
3,320 (6,072) (266)
--------------------------------- -------- ----------- -------- -----------
Non-current
--------------------------------- -------- ----------- -------- -----------
Conversion option (d), (e) - (89,088) - (46,313)
------------------------------------ -------- ----------- -------- -----------
Call option over non-controlling
interests (f), (g) - - 11,022 -
------------------------------------ -------- ----------- -------- -----------
- (89,088) 11,022 (46,313)
--------------------------------- -------- ----------- -------- -----------
(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 42,000 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$84 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) Note 20.
(e) 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.
(f) Call option to acquire non-controlling 25% interest in the
Group's subsidiary LLC TEMI: In May 2019, the Group entered into
the option contract to acquire non-controlling 25% interest in LLC
TEMI from its shareholder Agestinia Trading Limited for an
aggregate consideration of US$60 million (adjusted to US$53.5
million if certain conditions are met). LLC TEMI holds the licences
for the Elginskoye Ore Field and Afanasievskaya Prospective Ore
Are, which have substantial non-refractory gold reserves and
resources, suitable for processing at the Albyn Plant. Further
details on this transaction are set out in note 26.
(g) Measured at fair value and considered as Level 3 of the fair
value hierarchy which valuation incorporates the following
inputs:
- The current valuation of the underlying investment (Level
3);
- Historic peers' volatility attributed to the valuation of the
underlying investment (Level 3);
- The exercise price;
- Time to maturity; and
- Risk free rate.
19. Trade and other payables
2020 2019
US$'000 US$'000
Current
--------------------------------- -------- --------
Trade payables (a) 48,604 134,818
-------------------------------------- -------- --------
Payables for property, plant
and equipment 9,244 5,810
-------------------------------------- -------- --------
Contract liabilities - advances
from customers under gold sales
agreements (b) 63,787 187,433
-------------------------------------- -------- --------
Other contract liabilities (c) 7,371 9,233
-------------------------------------- -------- --------
Accruals and other payables 62,133 51,747
-------------------------------------- -------- --------
191,139 389,041
--------------------------------- -------- --------
Non-current
--------------------------------- -------- --------
Other contract liabilities (c) 13,288 -
-------------------------------------- -------- --------
Accruals and other payables 662 -
-------------------------------------- -------- --------
13,950 -
--------------------------------- -------- --------
(a) The trade payables as at 31 December 2020 include US$23.1
million payable for flotation concentrate purchased (31 December
2019: US$81.0 million).
(b) Include US$63.8 million (31 December 2019: US$152.5 million)
Russian Rouble denominated and US$nil million (31 December 2019:
US$34.9 million) US Dollar denominated advance payments received
from Gazprombank and Sberbank, respectively, under gold sales
agreements. Advance payments are to be settled against physical
delivery of gold produced by the Group in regular intervals over
the period of up to twelve months from the reporting date based on
the sales price prevailing at delivery that is determined with
reference to LBMA fixing. Contractual interest charged on the
advances received as at 31 December 2020 is in the range 8.0 -
8.32% and is payable monthly (31 December 2019: in the range of
10.0-10.32% for Russian Rouble denominated advances and in the
range 7.43% - 7.45% for US Dollar denominated advances, payable
monthly). The table below sets out reconciliation of opening and
closing balances, including revenue recognised in the period (note
5) that was included in the contract liability balance at the
beginning of the period.
2020 2019
US$'000 US$'000
At 1 January 187,433 163,820
------------------------------------------------------------------ --------- ---------
New contract liabilities 71,222 192,663
------------------------------------------------------------------ --------- ---------
Revenue recognised in the period that was included in the
contract liability balance at the beginning of the period (163,043) (143,974)
------------------------------------------------------------------ --------- ---------
Revenue recognised in the period against new contract liabilities (7,107) (44,367)
------------------------------------------------------------------ --------- ---------
Interest accrued (note 9) 9,938 16,019
------------------------------------------------------------------ --------- ---------
Interest paid (note 9) (9,938) (16,019)
------------------------------------------------------------------ --------- ---------
Foreign exchange difference (24,718) 19,291
------------------------------------------------------------------ --------- ---------
At 31 December 63,787 187,433
------------------------------------------------------------------ --------- ---------
(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. Revenue recognised in
the period (note 5) that was included in the contract liability
balance at the beginning of the period amounted to US$1.3 million
(2019: US$1.6 million).
The directors consider that the carrying amount of trade and
other payables approximates to their fair value.
20. Borrowings
2020 2019
US$'000 US$'000
Borrowings at amortised cost
-------------------------------- -------- --------
Notes (a) 501,990 500,377
------------------------------------- -------- --------
Convertible bonds (b) 34,030 109,086
------------------------------------- -------- --------
536,020 609,463
-------------------------------- -------- --------
Amount due for settlement after
12 months 536,020 609,463
------------------------------------- -------- --------
536,020 609,463
-------------------------------- -------- --------
(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
31 December 2020, the outstanding principal amount of the
Convertible Bonds was US$38 million (31 December 2019: US$125
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%.
The Group has used the US$120.6 million net proceeds from the
issue of US$125 million Convertible Bonds to fund the repurchase of
the outstanding US$100 million convertible bonds as set out below,
resulting in the net US$12.6 million cash inflow. Concurrently with
the issue of the US$125 million Convertible Bonds, the Group also
concluded the invitation to repurchase (the "Repurchase") any and
all of the outstanding US$100 million 9.00% convertible bonds due
2020 (the "Existing Bonds"). Holders whose Existing Bonds have been
accepted for purchase by the Issuer pursuant to the Repurchase were
eligible to receive US$1,080 per US$1,000 in principal amount of
the Existing Bonds (the "Repurchase Price"). The Issuer also paid,
in respect of Existing Bonds accepted for purchase pursuant to the
Repurchase, a cash amount representing the accrued but unpaid
interest ("Accrued Interest") on each US$1,000 in aggregate
principal amount of Existing Bonds accepted for repurchase from and
including 18 June 2019, being the immediately preceding interest
payment date applicable to the Existing Bonds, to but excluding the
settlement date for the Repurchase (the "Repurchase Settlement
Date"). The Accrued Interest, based on a Repurchase Settlement Date
of 3 July 2019 comprised US$3.75 per US$1,000 in aggregate
principal amount of Existing Bonds. The remaining Existing Bonds
were redeemed at the Repurchase Price on 9 July 2019. The Issuer
also paid a cash amount representing the Accrued Interest on each
US$1,000 in aggregate principal amount of Existing Bonds from and
including 18 June 2019 to redemption.
The Existing Bonds were subsequently cancelled by the Issuer.
The US$11.2 million difference between the US$108.0 million paid to
fund the Repurchase Price and the carrying value of the Existing
Bonds at redemption was recognized as loss on repurchase of the
Existing Bonds (note 9).
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 18) which
the fair value loss is included in the net other finance (losses)/
gains (note 9).
As at 31 December 2020, the fair value of debt component of the
convertible bonds, considered as Level 3 of the fair value
hierarchy, amounted to US$36.8million (31 December 2019: US$122.8
million), with the carrying value of US$34.0 million (31 December
2019: US$109.0 million). Valuation incorporates the following
inputs: the Group's credit risk and implied credit spreads, time to
maturity and risk free rate.
As at 31 December 2020, 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$125.9 million (31 December 2019:
US$169.1 million).
21. Deferred taxation
2020 2019
US$'000 US$'000
At 1 January 112,566 113,354
------------------------------------- --------- ---------
Deferred tax charged/(credited)
to profit or loss (a) 27,417 (2,414)
------------------------------------- --------- ---------
Deferred tax charged to equity - 1,631
------------------------------------- --------- ---------
Exchange differences 51 (5)
------------------------------------- --------- ---------
At 31 December 140,034 112,566
------------------------------------- --------- ---------
Deferred tax liabilities (140,034) (112,566)
------------------------------------- --------- ---------
Net deferred tax liability (140,034) (112,566)
------------------------------------- --------- ---------
(a) Note 10.
Charged/(credited) Charged At 31
At 1 January to profit directly Exchange December
2020 or loss to equity differences 2020
US$'000 US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 130,877 8,937 - (76) 139,738
------------------------------ -------------- ------------------ ----------- ------------- ----------
Inventory 8,391 3,551 - 59 12,001
------------------------------ -------------- ------------------ ----------- ------------- ----------
Exploration and evaluation
assets 8,026 96 - - 8,122
------------------------------ -------------- ------------------ ----------- ------------- ----------
Other temporary differences (1,358) (4,360) - 68 (5,650)
------------------------------ -------------- ------------------ ----------- ------------- ----------
Tax losses carried forward (b) (33,370) 19,193 - - (14,177)
------------------------------ -------------- ------------------ ----------- ------------- ----------
112,566 27,417 - 51 140,034
---------------------------- -------------- ------------------ ----------- ------------- ----------
(b) Deferred tax recognised in relation to unused tax losses of
JSC Pokrovskiy mine, LLC Malomirskiy Rudnik, LLC TEMI and in-house
service companies to the extent that it is either probable that
future taxable profit will be available against which the unused
tax losses can be utilised or there are sufficient taxable
temporary differences.
Charged/(credited) Charged At 31
At 1 January to profit directly Exchange December
2019 or loss to equity differences 2019
US$'000 US$'000 US$'000 US$'000 US$'000
Property, plant and equipment 121,800 9,063 - 14 130,877
------------------------------------ -------------- ------------------ ----------- ------------- ----------
Inventory 11,264 (2,823) - (50) 8,391
------------------------------------ -------------- ------------------ ----------- ------------- ----------
Exploration and evaluation assets 7,088 938 - - 8,026
------------------------------------ -------------- ------------------ ----------- ------------- ----------
Other temporary differences (3,183) 163 1,631 31 (1,358)
------------------------------------ -------------- ------------------ ----------- ------------- ----------
Tax losses carried forward (c) (23,615) (9,755) - - (33,370)
------------------------------------ -------------- ------------------ ----------- ------------- ----------
113,354 (2,414) 1,631 (5) 112,566
---------------------------------- -------------- ------------------ ----------- ------------- ----------
(c) Deferred tax recognised in relation to unused tax losses of
JSC Pokrovskiy mine, LLC Malomirskiy Rudnik, LLC TEMI and in-house
service companies to the extent that it is either probable that
future taxable profit will be available against which the unused
tax losses can be utilised or there are sufficient taxable
temporary differences.
As at 31 December 2020, the Group did not recognise deferred tax
assets in respect of the accumulated unused tax losses comprising
US$850.5 million (2019: US$718.8 million) on the basis that there
is no certainty about future taxable profit of relevant entities
against which the unused tax losses can be utilised or there are
insufficient relevant taxable temporary differences. Tax losses of
US$540.3 million (2019: US$535.4 million) and corporate interest
restriction disallowances of US$287.5 million (2019: US$155.6
million) arise in the UK and tax losses of US$21.8 million (2019:
US$26.7 million) arise in Russia, both can be carried forward
indefinitely.
As at 31 December 2020, the Group did not recognise deferred tax
assets of US$10.6 million (2019: US$7.8 million) in respect of
deductible temporary differences arising primarily on close down
and restoration costs.
The Group has not recorded a deferred tax liability in respect
of withholding tax and other taxes that would be payable on the
unremitted earnings associated with investments in its subsidiaries
and associate as the Group is able to control the timing of the
reversal of those temporary differences and does not intend to
reverse them in the foreseeable future. As at 31 December 2020,
statutory unremitted earnings comprised in aggregate US$946.8
million (2019: US$960.1 million).
22. Provision for close down and restoration costs
2020 2019
US$'000 US$'000
At 1 January 36,231 21,388
--------------------------------------- -------- --------
Unwinding of discount 775 550
--------------------------------------- -------- --------
Change in estimates (a) 33,543 14,293
--------------------------------------- -------- --------
Amounts charged against provision - -
---------------------------------- -------- --------
At 31 December 70,549 36,231
--------------------------------------- -------- --------
Amount due for settlement within
12 months 34 -
--------------------------------------- -------- --------
Amount due for settlement after
12 months 70,515 36,231
--------------------------------------- -------- --------
70,549 36,231
---------------------------------- -------- --------
(a) Primarily reflects updated cost estimates for acid mine
water drainage treatment and unit costs (2019: primarily reflects
the effect of change in the forecast Russian Rouble to the US
Dollar exchange rate and the inflation rate).
The Group recognised provisions in relation to close down and
restoration costs for the following mining operations:
2020 2019
US$'000 US$'000
POX Hub 13,717 7,401
------------- -------- --------
Pioneer 29,192 12,864
------------- -------- --------
Malomir 16,955 10,630
------------- -------- --------
Albyn 10,685 5,336
------------- -------- --------
70,549 36,231
-------- -------- --------
The provision recognised represents the present value of the
estimated expenditure that will be incurred, which has been arrived
at using the long-term risk-free pre-tax cost of borrowing. The
expenditure arises at different times over the life of mine. The
expected timing of significant cash outflows is between years 2022
and 2055 varying from mine site to mine site.
23. Lease liabilities
The following information is in relation to transactions for
which the Group is a lessee (for leases where the Group is a
lessor, see note 29).
Movement in the lease liabilities during the years ended 31
December 2020 and 31 December 2019 was as follows:
2020 2019
US$'000 US$'000
At 1 January 13,178 1,739
-------------------------------------- -------- --------
Additions 3,410 13,279
-------------------------------------- -------- --------
Interest expense 485 593
-------------------------------------- -------- --------
Payment of lease liabilities,
including interest expense (4,153) (1,879)
-------------------------------------- -------- --------
Disposals (7,755) (1,124)
-------------------------------------- -------- --------
Foreign exchange differences (1,022) 570
-------------------------------------- -------- --------
At 31 December 4,143 13,178
-------------------------------------- -------- --------
Amount due for settlement within
12 months 1,895 5,373
-------------------------------------- -------- --------
Amount due for settlement after
12 months 2,248 7,805
-------------------------------------- -------- --------
4,143 13,178
--------------------------------- -------- --------
The associated right-of-use assets were measured at the amount
equal to the lease liabilities adjusted for prepaid and accrued
lease payments in accordance with IFRS 16. The recognised
right-of-use assets relate to the rent of office premises and other
non-mining assets.
The movement in the right-of-use asset during the years ended 31
December 2020 and 31 December 2019 was as follows:
2020 2019
US$'000 US$'000
At 1 January 11,725 1,818
---------------------------- -------- ----------------
Additions 3,410 13,279
---------------------------- -------- ----------------
Disposals (7,531) (958)
---------------------------- -------- ----------------
Depreciation (3,423) (2,423)
---------------------------- -------- ----------------
Translation difference (23) 9
---------------------------- -------- ----------------
At 31 December 4,158 11,725
---------------------------- -------- ----------------
The statement of profit or loss shows the following amounts
relating to leases where the Group is a lessee:
2020 2019
US$'000 US$'000
Depreciation charge of right-of-use
assets 3,423 2,423
----------------------------------------- -------- --------
Interest expense 485 593
----------------------------------------- -------- --------
Expense relating to short-term
leases 1,576 2,169
----------------------------------------- -------- --------
Expense relating to leases of
low-value that are not shown
above as short-term leases 62 49
----------------------------------------- -------- --------
24. Share capital
2020 2019
----------------------------------- ---------------------- ----------------------
No of shares US$'000 No of shares US$'000
------------- ------- ------------- -------
Allotted, called up and fully paid
----------------------------------- ------------- ------- ------------- -------
At 1 January 3,310,210,281 49,003 3,307,151,712 48,963
----------------------------------- ------------- ------- ------------- -------
Issued during the period 647,059,973 8,461 3,058,569 40
----------------------------------- ------------- ------- ------------- -------
At 31 December 3,957,270,254 57,464 3,310,210,281 49,003
----------------------------------- ------------- ------- ------------- -------
25. Notes to the statement of cash flows
Reconciliation of profit before tax to operating cash flow
2020 2019
US$'000 US$'000
(Loss)/profit before tax 27,187 52,939
----------------------------------------------------------- --------- ---------
Adjustments for:
----------------------------------------------------------- --------- ---------
Share of results of associate (52,681) 35,376
----------------------------------------------------------- --------- ---------
Net impairment reversals on financial instruments (1,000) (30,797)
----------------------------------------------------------- --------- ---------
Investment and other finance income (7,754) (8,826)
----------------------------------------------------------- --------- ---------
Interest expense 58,533 59,854
----------------------------------------------------------- --------- ---------
Net other finance losses 67,957 42,190
----------------------------------------------------------- --------- ---------
Share based payments 123 280
----------------------------------------------------------- --------- ---------
Depreciation 134,079 137,775
----------------------------------------------------------- --------- ---------
Impairment/(reversal of impairment) of mining assets
and in-house service 58,806 (52,159)
----------------------------------------------------------- --------- ---------
Impairment of exploration and evaluation assets 16,112 -
----------------------------------------------------------- --------- ---------
Write-down of inventory to net realisable value 1,215 -
----------------------------------------------------------- --------- ---------
Reversal of impairment of ore stockpiles - (2,778)
----------------------------------------------------------- --------- ---------
Effect of processing previously impaired stockpiles (517) (6,398)
----------------------------------------------------------- --------- ---------
Impairment of gold in circuit 77 142
----------------------------------------------------------- --------- ---------
Effect of processing previously impaired gold in circuit (244) (1,413)
----------------------------------------------------------- --------- ---------
Impairment of bullion in process 41 -
----------------------------------------------------------- --------- ---------
Provision for impairment of trade and other receivables 1,339 2,280
----------------------------------------------------------- --------- ---------
Loss on disposals of property, plant and equipment 1,451 1,118
----------------------------------------------------------- --------- ---------
Write-down to adjust the carrying value of net assets
of disposal group to fair value less costs to sell 55,798 -
----------------------------------------------------------- --------- ---------
Foreign exchange (gains)/losses (32,647) 20,808
----------------------------------------------------------- --------- ---------
Other non-cash items 645 129
----------------------------------------------------------- --------- ---------
Changes in working capital:
----------------------------------------------------------- --------- ---------
Increase in trade and other receivables (5,149) (31,204)
----------------------------------------------------------- --------- ---------
Decrease/(increase) in inventories 85,512 (133,848)
----------------------------------------------------------- --------- ---------
(Decrease)/Increase in trade and other payables (143,023) 103,853
----------------------------------------------------------- --------- ---------
Net cash generated from operations 265,860 189,321
----------------------------------------------------------- --------- ---------
Reconciliation of cash flows used to purchase property, plant
and equipment
2020 2019
US$'000 US$'000
Additions to property, plant and equipment 163,368 125,524
--------------------------------------------------------- -------- --------
Non-cash additions to property, plant and equipment:
--------------------------------------------------------- -------- --------
Transfer from materials 2,120 7,343
--------------------------------------------------------- -------- --------
Capitalised depreciation (3,818) (737)
--------------------------------------------------------- -------- --------
Right-of-use assets additions (3,410) (13,279)
--------------------------------------------------------- -------- --------
158,260 118,851
--------------------------------------------------------- -------- --------
Associated cash flows:
--------------------------------------------------------- -------- --------
Purchase of property, plant and equipment 151,503 120,798
--------------------------------------------------------- -------- --------
Decrease/(increase) in prepayments for property, plant
and equipment 3,480 (1,982)
--------------------------------------------------------- -------- --------
Increase in payables for property, plant and equipment 3,434 568
--------------------------------------------------------- -------- --------
Cash movements presented in other cash flow lines:
--------------------------------------------------------- -------- --------
Changes in working capital (157) (533)
--------------------------------------------------------- -------- --------
158,260 118,851
--------------------------------------------------------- -------- --------
Non-cash transactions
An equivalent of US$0.1 million of VAT recoverable was offset
against profit tax during the year ended 31 December 2020 (year
ended 31 December 2019 : US$0.1 million) and US$1 million of
provision of profit tax relating to Albyn, was accrued as at 31
December 2020 (31 December 2019: US$1.5 million). There were no
other significant non-cash transactions during the years ended 31
December 2020 and 2019.
26. Related parties
Related parties the Group entered into transactions with during
the reporting period
The Petropavlovsk Foundation for Social Investment (the
'Petropavlovsk Foundation') is considered to be a related party due
to the participation of the key management of the Group in the
board of directors of the Petropavlovsk Foundation.
IRC Limited and its subsidiaries (note 33) are associates to the
Group and hence are related parties since 7 August 2015.
Transactions with related parties which the Group entered into
during the years ended 31 December 2020 and 2019 are set out
below.
Trading Transactions
Related party transactions the Group entered into that relate to
the day-to-day operation of the business are set out below.
Purchases from related
Sales to related parties parties
--------------------------------------- -------------------------- ------------------------
2020 2019 2020 2019
US$'000 US$'000 US$'000 US$'000
------------ ------------ ----------- -----------
Close family members of key management
personnel - - 256 4,046 (a)
--------------------------------------- ------------ ------------ ----------- -----------
IRC Limited and its subsidiaries 85 42 111 5,458 (b)
--------------------------------------- ------------ ------------ ----------- -----------
85 42 367 9,504
--------------------------------------- ------------ ------------ ----------- -----------
(a) In March 2018, the Group entered into a transaction with the
member of key management personnel to purchase the office building
and land, which were subject to an operating lease arrangement. The
aggregate consideration paid was an equivalent of c. US$3.2
million. The transaction was completed in February 2019.
(b) On 13 December 2019, the Group entered into the sale and
purchase agreement with a seller (the "Seller"), a related party of
the company, LLC GMMC. Pursuant to the sale and purchase agreement,
the Group agreed to purchase, and the Seller agreed to sell, a
helicopter for a consideration of RUB316.7 million (equivalent to
US$5.0 million).
During the year ended 31 December 2020, the Group made US$0.3
million charitable donations to the Petropavlovsk Foundation (2019:
US$1.0 million).
The outstanding balances with related parties at 31 December
2020 and 2019 are set out below.
Amounts owed by related amounts owed to related
parties parties
--------------------------------------- ------------------------- -------------------------
2020 2019 2020 2019
US$'000 US$'000 US$'000 US$'000
------------ ----------- ------------ -----------
Close family members of key management
personnel - - - 759
--------------------------------------- ------------ ----------- ------------ -----------
IRC Limited and its subsidiaries 3,604 3,651 1,100 5,863
--------------------------------------- ------------ ----------- ------------ -----------
3,604 3,651 1,100 6,622
--------------------------------------- ------------ ----------- ------------ -----------
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 31 December 2020 the remaining
outstanding contractual guarantee fee was US$0.01 million, which
had a corresponding fair value of US$0.01 million (31 December
2019: outstanding contractual guarantee fee of US$5.0 million with
corresponding fair value after provision for credit losses of
US$4.4 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$204 million as at 31 December
2020 (31 December 2019: US$225 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 years ended 31 December 2020 and 2019 was at
the annual rate of 3.07% by reference to the average outstanding
principal balance under Gazprombank Facility. The guarantee fee
charged for 2020 was US$6.7 million, with corresponding value of
US$6.3 million after provision for expected credit losses (31
December 2019: US$5.6 million, with corresponding value of US$5.0
million after provision for expected credit losses). As at 31
December 2020 the remaining outstanding contractual guarantee fee
was US$12.3 million, with corresponding value of US$11.9 million
after provision for expected credit losses (31 December 2019:
US$5.6 million, with corresponding value of US$5.0 million after
provision for expected credit losses).
The following assets and liabilities have been recognised in
relation to the ICBC Guarantee and Gazprombank Guarantee as at 31
December 2020 and 31 December 2019:
31 December 31 DECEMBER
2020 2019
US$'000 US$'000
Other receivables - ICBC Guarantee
(a) 7 4,436
------------------------------------- ------------- -------------
Other receivables - Gazprombank
Guarantee (b) 11,919 4,981
------------------------------------- ------------- -------------
Financial guarantee contract -
Gazprombank Guarantee (c), (d) 8,232 8,923
------------------------------------- ------------- -------------
(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 31
December 2020 and 2019.
(b) Amounts of guarantee fee that are expected to be received
from IRC and calculated by applying annual rate of 3.07% for 2020
and 2019 by reference to the average outstanding principal balance
under Gazprombank Facility for the relevant the 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 (note 3.1.).
(d) Classified as "held for sale" and presented separately in
the statement of financial position as at 31 December 2020 (note
3.1.).
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 9).
Other financing transactions
In March 2018, the Group entered into a loan agreement with Dr.
Pavel Maslovskiy. As at 31 December 2020, the loan principal
outstanding amounted to an equivalent of US$0.1 million, with
corresponding value of US$nil after provision for expected credit
losses (2019: US$0.2 million, with corresponding value of US$0.2
million after provision for expected credit losses). Interest
charged during the year ended 31 December 2020 comprised an
equivalent of US$0.01 million (2019: 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. As at 31 December 2020 the loan principal
outstanding amounted to an equivalent of US$0.3 million, with
corresponding value of US$nil after provision for expected credit
losses (2019: US$0.4 million, with corresponding value of US$0.4
million after provision for expected credit losses). Interest
charged during the year ended 31 December 2020 comprised an
equivalent of US$0.03 million (2019: US$0.02 million). At 12
October 2020, Dr. Alya Samokhvalova ceased to be a related
party.
Investing transactions
In May 2019, the Group entered into the option contract to
acquire the remaining non-controlling 25% interest in the
subsidiary LLC TEMI from Agestinia Trading Limited, a
non-controlling holder of 25% interest in LLC TEMI, for an
aggregate consideration of US$60 million (adjusted to US$53.5
million if certain conditions are met). This represents a related
party transaction as it is over the equity of a subsidiary company.
The option premium payable is US$13 million, which was paid during
the year ended 31 December 2019. The exercise period of the option
is 730 days from 22 May 2019.
The Group employed an independent third party expert to
undertake the valuations of the underlying 25% interest in LLC TEMI
and the call option. As at 31 December 2020, the fair value of the
derivative financial asset was US$nil million (31 December 2019:
US$11.0 million) reflecting a loss on re-measurement to fair value
of US$(11.0) million (31 December 2019: US$(2.0) million loss)
(note 18).
There are no other related party relationships with Agestinia
Trading Limited present.
Key management compensation
Key management personnel, comprising a group of 11 individuals
during the period (2019: 14), including executive and non-executive
directors of the company and members of senior management, are
those having authority and responsibility for planning, directing
and controlling the activities of the Group.
2020 2019
US$'000 US$'000
Wages and salaries 4,228 5,794
--------------------------- -------- --------
Pension costs 47 62
--------------------------- -------- --------
Share-based compensation 33 157
--------------------------- -------- --------
4,308 6,013
------------------------- -------- --------
27. Analysis of Net Debt
At 31
At 1 Net cash Exchange Non-cash December
January Movement movement changes 2020
2020 US$'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(a) - 25,996(b) (536,020)
-------------------------- -------------- --------- --------- --------- ---------
Net debt (561,310) 38,343 (3,645) 25,996 (500,616)
-------------------------- -------------- --------- --------- --------- ---------
Lease liabilities (c) (13,178) 4,153 1,022 3,860 (4,143)
-------------------------- -------------- --------- --------- --------- ---------
Conversion option (d) (46,313) - - (42,775) (89,088)
-------------------------- -------------- --------- --------- --------- ---------
(620,801) 42,496 (2,623) (12,919) (593,847)
-------------------------- -------------- --------- --------- --------- ---------
(a) Being US$47.4 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 9) and US$77.5 million of Bonds conversion into
share.
(c) Note 23.
(d) Notes 18, 20 and 28.
At 31
At 1 Net cash Non-cash December
January Movement Exchange movement changes 2019
2019 US$'000 US$'000 US$'000 US$'000 US$'000
Cash and cash equivalents 26,152 19,630 2,371 - 48,153
--------------------------- ------------- ---------- ----------------- --------- ---------
(53,414)
Borrowings (594,177) 38,128 (e) - (f) (609,463)
--------------------------- ------------- ---------- ----------------- --------- ---------
Net debt (568,025) 57,758 2,371 (53,414) (561,310)
--------------------------- ------------- ---------- ----------------- --------- ---------
Lease liabilities (g) (1,739) 1,879 (570) (12,748) (13,178)
--------------------------- ------------- ---------- ----------------- --------- ---------
Conversion option (h) (2,411) - - (43,902) (46,313)
--------------------------- ------------- ---------- ----------------- --------- ---------
Call option over company's
shares (1,136) 2,215 - (1,079) -
--------------------------- ------------- ---------- ----------------- --------- ---------
(573,311) 61,852 1,801 (111,143) (620,801)
--------------------------- ------------- ---------- ----------------- --------- ---------
(e) Being US$50.7 million interest paid on borrowings, which is
presented as operating cash flows in the Statement of cash flows,
and US$12.6 million net cash inflow from the issue of US$125
million Convertible Bonds and the repurchase of the outstanding
US$100 million convertible bonds (note 20).
(f) Being principally accrued interest expense which is
presented as operating cash flows in the Statement of cash flows
when paid (note 9).
(g) Note 23.
(h) Notes 18, 20 and 28.
28. Financial instruments and financial risk management
Capital risk management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern in order to
provide returns for shareholders and benefits for other
stakeholders and to optimise the weighted average cost of capital
and tax efficiency subject to maintaining sufficient financial
flexibility to undertake its investment plans.
The capital structure of the Group consists of Net debt (note
27) and equity (comprising issued capital, reserves and retained
earnings). As at 31 December 2020, the capital comprised US$1.2
billion (2019: US$1.2 billion).
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to reduce
debt. The Group adopts a modular approach in developing its
projects in order to minimise upfront capital expenditure and
related funding requirements. The Group manages in detail its
funding requirements on a 12 month rolling basis and maintains a
five year forecast in order to identify medium-term funding
needs.
The Group is not subject to any externally imposed capital
requirements.
As at 31 December 2020, there are no material offsetting
contracts (2019: none).
Significant accounting policies
Details of significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement
and the basis on which income and expenses are recognised, in
respect of each class of financial asset, financial liability and
equity instrument are disclosed in note 2 to the consolidated
financial statements.
Categories of financial instruments
2020 2019
US$'000 US$'000
Financial assets
-------------------------------------- -------- --------
Financial assets at amortised cost
-------------------------------------- -------- --------
Cash and cash equivalents 35,404 48,153
---------------------------------------- -------- --------
Trade receivables and contract
assets 9,374 13,110
---------------------------------------- -------- --------
Loans granted to an associate - -
-------------------------------------- -------- --------
Other financial assets at amortised
cost 18,139 10,441
---------------------------------------- -------- --------
Financial assets at FVPL
-------------------------------------- -------- --------
Guarantee fee receivable 7 4,436
---------------------------------------- -------- --------
Listed equity securities 194 286
---------------------------------------- -------- --------
Derivative financial instruments 3,320 11,022
---------------------------------------- -------- --------
Financial liabilities
-------------------------------------- -------- --------
Financial liabilities at amortised
cost
-------------------------------------- -------- --------
Trade and other payables 68,875 143,706
---------------------------------------- -------- --------
Borrowings 536,020 609,463
---------------------------------------- -------- --------
Lease liabilities 4,143 13,178
---------------------------------------- -------- --------
Derivative financial instruments 95,160 46,579
---------------------------------------- -------- --------
Financial guarantee contract - 8,923
---------------------------------------- -------- --------
Fair value measurements
Recurring fair value measurements are set out below.
Level 1 Level 2 Level 3 Total
31 December 2020 US$'000 US$'000 US$'000 US$'000
Financial assets
----------------------------------- -------- -------- -------- --------
Financial assets at FVPL:
----------------------------------- -------- -------- -------- --------
Guarantee fee receivable - - 7 7
----------------------------------- -------- -------- -------- --------
Listed equity securities 194 - - 194
----------------------------------- -------- -------- -------- --------
Gold option contracts - 172 - 172
----------------------------------- -------- -------- -------- --------
Currency option contracts - 3,148 - 3,148
----------------------------------- -------- -------- -------- --------
Call option over non-controlling
interests - - - -
----------------------------------- -------- -------- -------- --------
Total financial assets 194 3,320 7 3,521
----------------------------------- -------- -------- -------- --------
Financial liabilities
----------------------------------- -------- -------- -------- --------
Conversion option - - 89,088 89,088
----------------------------------- -------- -------- -------- --------
Gold option contracts - 5,668 - 5,668
----------------------------------- -------- -------- -------- --------
Currency option contracts - 404 - 404
----------------------------------- -------- -------- -------- --------
Total financial liabilities - 6,072 89,088 95,160
----------------------------------- -------- -------- -------- --------
Level 1 Level 2 Level 3 Total
31 December 2019 US$'000 US$'000 US$'000 US$'000
Financial assets
----------------------------------- -------- -------- --------- ---------
Financial assets at FVPL:
----------------------------------- -------- -------- --------- ---------
Guarantee fee receivable - - 4,436 4,436
----------------------------------- -------- -------- --------- ---------
Listed equity securities 286 - - 286
----------------------------------- -------- -------- --------- ---------
Call option over non-controlling
interests - - 11,022 11,022
----------------------------------- -------- -------- --------- ---------
Total financial assets 286 - 15,458 15,744
----------------------------------- -------- -------- --------- ---------
Financial liabilities
----------------------------------- -------- -------- --------- ---------
Conversion option - - 46,313 46,313
----------------------------------- -------- -------- --------- ---------
Other - 266 - 266
----------------------------------- -------- -------- --------- ---------
Total financial liabilities - 266 46,313 46,579
----------------------------------- -------- -------- --------- ---------
There were no transfers between Levels 1, 2 and 3 for recurring
fair value measurements during the year.
The changes in Level 3 items for the periods ended 31 December
2020 and 31 December 2019 are set out in the table below:
Call option
over non-
Guarantee controlling Conversion
fee receivable interests option Total
US$'000 US$'000 US$'000 US$'000
1 January 2019 6,829 - (2,411) 4,418
----------------------------------- --------------- ------------ ------------ ---------
Purchases (note 26) - 13,000 - 13,000
----------------------------------- --------------- ------------ ------------ ---------
Cash settlements (6,000) - - (6,000)
----------------------------------- --------------- ------------ ------------ ---------
Issue of convertible bonds (note
20) - - (12,775) (12,775)
----------------------------------- --------------- ------------ ------------ ---------
Gains/ (losses) recognised in
net other
finance gains/ (losses) (note
9) 3,607 (1,978) (31,127) (29,498)
----------------------------------- --------------- ------------ ------------ ---------
31 December 2019 4,436 11,022 (46,313) (30,855)
----------------------------------- --------------- ------------ ------------ ---------
Cash settlements (5,000) - - (5,000)
----------------------------------- --------------- ------------ ------------ ---------
Gains/ (losses) recognised in
net other finance gains/ (losses)
(note 9) 571 (11,022) (42,775) (53,226)
----------------------------------- --------------- ------------ ------------ ---------
31 December 2020 7 - (89,088) (89,081)
----------------------------------- --------------- ------------ ------------ ---------
Valuation inputs and relationships to fair value
The quantitative information about the significant unobservable
inputs used in level 3 fair value measurements is set out in the
table below:
Fair value
at 31 December
----------------------- ------------------ -------------------------- ---------------- ---------------------------
Relationship of
2020 2019 Unobservable Range of unobservable
US$'000 US$'000 inputs inputs inputs to fair value
-------- -------- -------------------------- ---------------- ---------------------------
A reasonable change
in unobservable inputs
has been assessed
to not result in a
- Implied credit significantly different
Guarantee fee 7 4,436 spread - 11.5% fair value measurement
Receivable (note (2019:
26) 12.4%);
----------------------- -------- -------- -------------------------- ---------------- ---------------------------
Call option over - 11,022 - The current valuation - US$20 A reasonable change
non- of the underlying million in unobservable inputs
controlling interests investment; and (2019: has been assessed
(notes 18, 26) US$71 million); to not result in a
- Historic peers' - 45% significantly different
volatility attributed (2019: fair value measurement
to the valuation 40%)
of
the underlying investment
----------------------- -------- -------- -------------------------- ---------------- ---------------------------
1% increase in credit
- The Group's credit spread would result
Conversion option risk and implied in US$1.0 million
- (89,088) (46,313) credit spreads - 9.33% increase in fair value
US$125 million (2019: (2019: US$4.2 million
convertible 7.25%) increase)
bonds due in 2025
(note 20)
----------------------- -------- -------- -------------------------- ---------------- ---------------------------
Valuation processes
The Group employed independent third-party experts to undertake
valuations of all Level 3 financial instruments.
Financial risk management
The Group's activities expose it to interest rate risk, foreign
currency risk, risk of change in the commodity prices, credit risk
and liquidity risk. The Group's overall risk management programme
focuses on the unpredictability of financial markets and seeks to
minimise potential adverse effects on the Group's financial
performance.
Risk management is carried out by a central finance department
and all key risk management decisions are approved by the board of
directors. The Group identifies and evaluates financial risks in
close cooperation with the Group's operating units. The board
provides written principles for overall risk management, as well as
guidance covering specific areas, such as foreign exchange risk,
interest rate risk, gold price risk, credit risk and investment of
excess liquidity.
Interest rate risk
The Group has borrowings with fixed rate, which are carried at
amortised cost. They are therefore not subject to interest rate
risk as defined in IFRS 7, since neither the carrying amount nor
the future cash flows will fluctuate because of a change in market
interest rates. The Group does not have borrowings with variable
interest rates.
Foreign exchange risk
The Group operates internationally and is exposed to foreign
exchange risk arising from fluctuations in currencies the Group
transacts, primarily US Dollars, GB Pounds Sterling and Russian
Roubles.
Exchange rate risks are mitigated to the extent considered
necessary by the board of directors, through holding the relevant
currencies. At present, the Group does not undertake any foreign
currency transaction hedging.
The carrying amounts of the Group's foreign currency denominated
monetary assets and monetary liabilities at period end are set out
below.
Assets Liabilities
------------------- ------------------ ------------------
2020 2019 2020 2019
US$'000 US$'000 US$'000 US$'000
-------- -------- -------- --------
Russian Roubles 65,868 86,581 580,277 165,473
------------------- -------- -------- -------- --------
US Dollars (a) 8,100 10,759 423 4,169
------------------- -------- -------- -------- --------
GB Pounds Sterling 2,839 1,252 5,705 759
------------------- -------- -------- -------- --------
EUR 3 22 6,398 603
------------------- -------- -------- -------- --------
Other currencies 11 10 269 267
------------------- -------- -------- -------- --------
(a) US Dollar denominated monetary assets and liabilities in
Group companies with Rouble functional currency.
The table set out below illustrates the Group's profit
sensitivity to changes in exchange rates by 25% (2019: 25%),
representing management's assessment of a reasonably possible
change in foreign exchange currency rates. The analysis was applied
to monetary assets and liabilities at the reporting dates
denominated in respective currencies.
2020 2019
US$'000 US$'000
Russian Rouble currency impact 128,602 19,723
------------------------------------- -------- --------
US Dollar currency impact 1,919 1,647
------------------------------------- -------- --------
GB Pounds Sterling currency impact 716 123
------------------------------------- -------- --------
EUR currency impact 1,599 145
------------------------------------- -------- --------
Other currencies 65 64
------------------------------------- -------- --------
Credit risk
The Group's principal financial assets are cash and cash
equivalents, comprising current bank accounts and amounts held on
deposit with banks. In the case of deposits, the Group is exposed
to a credit risk, which results from the non-performance of
contractual agreements on the part of the contract party. The Group
is also exposed to a credit risk in relation to the amounts
guaranteed under the Gazprombank Facility (notes 14 and 26). The
Group's maximum exposure to credit risk is limited to the carrying
amounts of the financial assets recorded in the consolidated
financial statements as set out above and the US$204 million
outstanding principal under the Gazprombank Facility (notes 14 and
26).
The major financial assets are cash and cash equivalents of
US$35.4 million (2019: US$48.2 million) and receivables from IRC
with an aggregate carrying value of US$13.8 million (2019: US$12.3
million) (note 26). There is no significant concentration of credit
risk with respect to trade receivables and contract assets. The
credit risk on cash and cash equivalents is limited because the
main counterparties are banks with high credit-ratings assigned by
international credit-rating agencies as set out below. As at 31
December 2020, the credit rating for IRC, calculated as shadow
credit rating using a Moody's scorecard methodology, was B3.
Carrying Carrying
amount at amount at
31 December 31 December
Credit 2020 2019
Counterparty rating US$'000 US$'000
============== ======== ============ ============
Gazprombank BBB- 12,676 28,616
--------------- ------- ------------ ------------
Asian-Pacific B 10,330 483
--------------- ------- ------------ ------------
Sberbank BBB 8,209 8,501
--------------- ------- ------------ ------------
Citibank AA- 3,357 2,073
--------------- ------- ------------ ------------
VTB BBB- 559 5,936
--------------- ------- ------------ ------------
Other 273 2,544
------------------------- ------------ ------------
35,404 48,153
----------------------- ------------ ------------
The analysis of loss allowances that have been recognised for
financial assets and financial guarantee contracts is set out
below:
Other financial
Trade receivables assets at Financial
and contract amortised guarantee
assets cost contract Total
US$'000 US$'000 US$'000 US$'000
Loss allowance at 1 January 2020 1,219 2,370 8,923 12,512
--------------------------------- ----------------- --------------- ---------- --------
Increase in loss allowance 555 822 - 1,377
--------------------------------- ----------------- --------------- ---------- --------
Written off during the year (32) (356) - (388)
--------------------------------- ----------------- --------------- ---------- --------
Unused amount reversed (333) - (691) (1,024)
--------------------------------- ----------------- --------------- ---------- --------
Exchange differences (276) (369) - (645)
--------------------------------- ----------------- --------------- ---------- --------
Loss allowance at 31 December
2020 1,133 2,467 8,232 11,832
--------------------------------- ----------------- --------------- ---------- --------
Other financial
Trade receivables assets at Financial
and contract Loans granted amortised guarantee
assets to an associate cost contract Total
US$'000 US$'000 US$'000 US$'000 US$'000
Loss allowance at 1
January 2019 891 3,163 1,128 37,387 42,569
--------------------------- ----------------- ---------------- --------------- ---------- --------
Increase in loss allowance 421 - 1,326 8,923 10,670
--------------------------- ----------------- ---------------- --------------- ---------- --------
Written off during the
year (90) - - - (90)
--------------------------- ----------------- ---------------- --------------- ---------- --------
Unused amount reversed - (3,163) - (37,387) (40,550)
--------------------------- ----------------- ---------------- --------------- ---------- --------
Exchange differences (3) - (84) - (87)
--------------------------- ----------------- ---------------- --------------- ---------- --------
Loss allowance at 31
December 2019 1,219 - 2,370 8,923 12,512
--------------------------- ----------------- ---------------- --------------- ---------- --------
Commodity price risk
The Group generates most of its revenue from the sale of gold.
The Group's policy is to sell its products at the prevailing market
price. In 2020 and 2019, the Group has entered into gold forward
contracts to protect cash flows from the volatility in the gold
price (note 18).
Liquidity risk
Liquidity risk is the risk that suitable sources of funding for
the Group's business activities may not be available. The Group
constantly monitors the level of funding required to meet its
short, medium and long-term obligations. The Group also monitors
compliance with restrictive covenants set out in various loan
agreements (note 20) to ensure there is no breach of covenants
resulting in associated loans become payable immediately.
Effective management of liquidity risk has the objective of
ensuring the availability of adequate funding to meet short-term
requirements and due obligations as well as the objective of
ensuring a sufficient level of flexibility in order to fund the
development plans of the Group's businesses.
The table below details the Group's remaining contractual
maturity for its financial liabilities with agreed repayment
periods. The amounts disclosed are the contractual undiscounted
cash flows and so these balances will not necessarily agree with
the amounts disclosed in the statement of financial position. The
contractual maturity is based on the earliest date on which the
Group may be required to pay.
3 months
-
0 - 3 months 1 year 1 - 2 years 2 - 3 years 3 - 6 years 6+ years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2020
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Borrowings
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Convertible bonds - - - - 38,000 -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Notes - - 500,000 - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Future interest payments
(a) - 42,976 43,760 3,135 2,351 -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Trade and other payables 47,755 21,120 - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Lease liabilities 894 1,234 618 564 550 2,234
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Financial guarantee
contract
(b) 203,871 - - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Total non-derivative
financial
liabilities 252,520 65,330 544,378 3,699 40,901 2,234
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Gold option contracts 950 4,718 - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Currency option contracts 2 402 - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Total derivative financial
liabilities 952 5,120 - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
2019
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Borrowings
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Convertible bonds - - - - 125,000 -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Notes - - - 500,000 - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Future interest payments
(a) - 48,359 50,938 50,938 18,047 -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Trade and other payables 106,353 37,353 - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Lease liabilities 1,724 4,203 5,578 2,491 357 -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Financial guarantee
contract
(b) 225,000 - - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Total non-derivative
financial
liabilities 333,077 89,915 56,516 553,429 143,404 -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Other 266 - - - - -
--------------------------- -------------- -------- ------------- ------------- ------------- --------
Total derivative financial
liabilities 266 - - - - -
-------------- -------- ------------- ------------- ------------- --------
(a) Future interest payments have been estimated using interest
rates applicable at 31 December. There are no borrowings that are
subject to variable interest rates and, therefore, subject to
change in line with the market rates.
(b) Note 26.
29. Operating lease arrangements
The Group as a Lessor
The Group earned property rental income during the year of
US$0.6 million (2019: US$0.7million) on buildings owned by its
subsidiary Irgiredmet.
30. Commitments and Contingencies
Capital Commitments
At 31 December 2020, the Group had entered into contractual
commitments in relation to the acquisition of property, plant and
equipment amounting to US$3.5 million, including US$2.0 million in
relation to Pioneer Flotation project and US$0.9 million in
relation to Malomir Flotation project. (31 December 2019: The Group
had entered into contractual commitments in relation to the
acquisition of property, plant and equipment amounting to US$10.7
million, including US$7.4 million in relation to Pioneer Flotation
project and US$2.5 million in relation to POX Hub project.)
Contingencies
On 23 November 2020, the company announced that it had engaged
KPMG LLP to carry out an independent review of certain transactions
undertaken by the company and its subsidiaries or IRC and its
subsidiaries in the three years to August 2020 pursuant to
Resolution 19. PWC Advisory in Russia have also been appointed to
carry out a further transactional review. This work in ongoing.
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 31 December
2020.
31. Subsequent events
In April 2021, the Group signed RUB5 billion (an equivalent of
approximately US$67 million) revolving credit facility with
Gazprombank valid until May 2022. The following amounts have been
drawn down:
- US$10 million, bearing 3.7% interest and repayable within 12
months; and
- US$7 million, bearing 2.9% interest and repayable within 6
months.
32. Reconciliation of non-GAAP measures (unaudited)
2020 2019
US$'000 US$'000
(Loss)/profit for the year (48,882) 25,693
--------------------------------- -------- --------
Add/(less):
-------------------------------- -------- --------
Net impairment reversals
on financial instruments (1,000) (30,797)
--------------------------------- -------- --------
Investment and other finance
income (7,754) (8,826)
--------------------------------- -------- --------
Interest expense 58,533 59,854
--------------------------------- -------- --------
Net other finance losses 67,957 42,190
--------------------------------- -------- --------
Foreign exchange (gains)/losses (32,647) 20,808
--------------------------------- -------- --------
Taxation 76,069 27,246
--------------------------------- -------- --------
Depreciation 134,079 137,775
--------------------------------- -------- --------
Impairment/(reversal of
impairment) of mining assets
and in-house service 58,806 (52,159)
--------------------------------- -------- --------
Impairment of exploration
and evaluation assets 16,112 -
--------------------------------- -------- --------
Write-down of inventory
to net realisable value 1,215 -
--------------------------------- -------- --------
Reversal of impairment of
ore stockpiles - (2,778)
--------------------------------- -------- --------
Impairment of gold in circuit 77 142
--------------------------------- -------- --------
Impairment of bullion in
process 41 -
--------------------------------- -------- --------
Write-down to adjust the
carrying value of net assets
of disposal group to fair
value less costs to sell 55,798 -
--------------------------------- -------- --------
Share of results of associate
(a) (27,680) 45,699
--------------------------------- -------- --------
Underlying EBITDA 350,724 264,847
--------------------------------- -------- --------
(a) 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
the associate and impairment/reversal of impairment recognised
against investment in the associate (note 14).
33. Principal subsidiaries and other significant investments
The Group has the following principal subsidiaries and other
significant investments, which were consolidated in this financial
information.
Proportion of shares Proportion of
held shares
by Petropavlovsk held by the Group
PLC ( a) ( a)
--------------------------- ------------------ ----------------- ------------------------ ------------------------
Principal subsidiary,
joint venture and associate Country Principal 31 December 31 December 31 December 31 December
undertakings of incorporation activity 2020 2019 2020 2019
------------------ ----------------- ----------- ----------- ----------- -----------
Subsidiaries
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
JSC Management Management
Company Petropavlovsk Russia company 100% 100% 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Petropavlovsk 2010 Limited Jersey Finance company 100% 100% 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Petropavlovsk 2016 Limited Jersey Finance company 100% 100% 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
JSC Pokrovskiy mine Russia and production 19.37% 19.37% 99.38% 99.38%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC Malomirskiy Rudnik Russia and production - - 99.94% 99.94%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC Albynskiy Rudnik Russia and production 100% 100% 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC Osipkan Russia and production - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC Tokurskiy Rudnik Russia and production - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC TEMI Russia and production - - 75% 75%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC Perspektiva DV Russia and production - - 99.94% 99.94%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Gold exploration
LLC Vostok Geologiya Russia and production - - 99.94% 99.94%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Construction
LLC Kapstroi Russia services - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Exploration
LLC NPGF Regis Russia services - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Exploration
CJSC ZRK Dalgeologiya Russia services - - 99.38% 99.38%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Project and
engineering
JSC PHM Engineering Russia services - - 94% 94%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Research
JSC Irgiredmet Russia services - - 99.69% 99.69%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Research
LLC NIC Gydrometallurgia Russia services - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Repair and
LLC BMRP Russia maintenance - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Production
of explosive
LLC AVT-Amur Russia materials - - 49% 49%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Transportation
LLC Transit Russia services - - 100% 100%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Educational
Pokrovskiy Mining College Russia institute - - 99.38% 99.38%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
Associate
------------------ ----------------- ----------- ----------- ----------- -----------
Management
and
IRC Limited (b) Hong Kong holding company - - 31.10% 31.10%
--------------------------- ------------------ ----------------- ----------- ----------- ----------- -----------
(a) In the ordinary class of shares.
(b) IRC Limited and its principal subsidiary and joint venture
undertakings.
Proportion of shares
held Proportion of shares
by Petropavlovsk held by the Group
PLC (a) (a)
---------------------- ------------------ ---------------------- ------------------------ ------------------------
Principal subsidiary,
joint venture and Country 31 December 31 December 31 December 31 December
associate undertakings of incorporation Principal activity 2020 2019 2020 2019
====================== ================== ====================== =========== =========== =========== ===========
IRC and its principal subsidiary and joint venture
undertakings ('IRC')
------------------------------------------------------------------------------- ----------- ----------- -----------
Management and
IRC Limited Hong Kong holding company - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Principal subsidiaries
of IRC
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
LLC Petropavlovsk-Iron
Ore Russia Management company - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Ariti HK Limited Hong Kong General trading - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Iron ore exploration
LLC KS GOK Russia and production - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Iron ore exploration
LLC GMMC Russia and production - - 30.97% 30.97%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Transportation
services to
LLC Garinskaya Garinskoye
Infrastructure Russia project - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
LLC Kostenginskiy Iron ore exploration
GOK Russia and production - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
OJSC Giproruda Russia Engineering services - - 21.86% 21.86%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Ilmenite and
iron ore exploration
LLC Uralmining Russia and production - - 31.10% 31.10%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Principal joint
ventures
of IRC
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
Heilongjiang Jianlong
Vanadium Industry
Co., Ltd China Vanadium project - - 14.31% 14.31%
---------------------- ------------------ ---------------------- ----------- ----------- ----------- -----------
(a) In the ordinary class of shares.
34. Related undertakings of the Group
The Group consists of the parent company, Petropavlovsk PLC,
incorporated in the United Kingdom and its subsidiaries, associates
and joint ventures. In accordance with Section 409 of the Companies
Act 2006 a full list of related undertakings, the country of
incorporation and the effective percentage of equity owned as at 31
December 2020 is disclosed below. The Group's principal
subsidiaries and other significant investments are set out in note
33.
Proportion
of shares
held
Country by the
of Group
Name of undertaking incorporation ( a) Registered address
Subsidiaries
-------------------------- -------------- ---------- ---------------------------------------------
Eponymousco Limited UK 100% 11 Grosvenor Place, London, SW1X 7HH
-------------------------- -------------- ---------- ---------------------------------------------
Victoria Resources Limited UK 100% 11 Grosvenor Place, London, SW1X 7HH
-------------------------- -------------- ---------- ---------------------------------------------
Petropavlovsk Mining
Treasury UK Limited UK 100% 11 Grosvenor Place, London, SW1X 7HH
-------------------------- -------------- ---------- ---------------------------------------------
Petropavlovsk Rouble
Treasury Limited UK 100% 11 Grosvenor Place, London, SW1X 7HH
-------------------------- -------------- ---------- ---------------------------------------------
Petropavlovsk Dollar
Treasury Limited UK 100% 11 Grosvenor Place, London, SW1X 7HH
-------------------------- -------------- ---------- ---------------------------------------------
Petropavlovsk 2010 Limited Jersey 100% 13-14 Esplanade, St. Helier, JE1 1EE
-------------------------- -------------- ---------- ---------------------------------------------
Petropavlovsk 2016 Limited Jersey 100% 13-14 Esplanade, St. Helier, JE1 1EE
-------------------------- -------------- ---------- ---------------------------------------------
JSC Management Company 675000, Amur Region, Blagoveshchensk,
Petropavlovsk Russia 100% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
676150, Amur Region, Magdagachinskiy
District, Tygda Village, Sovetskaya Street,
JSC Pokrovskiy mine Russia 99.38% 17
-------------------------- -------------- ---------- ---------------------------------------------
675000, Amur Region, Blagoveshchensk,
LLC Malomirskiy Rudnik Russia 99.94% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
675000, Amur Region, Blagoveshchensk,
LLC Albynskiy Rudnik Russia 100% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
675000, Amur Region, Blagoveshchensk,
LLC Osipkan Russia 100% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
676581, Amur Region, Selemdzhinskiy District,
LLC Tokurskiy Rudnik Russia 100% Tokur Village, Vorozhejkina Street, 16
-------------------------- -------------- ---------- ---------------------------------------------
675000, Amur Region, Blagoveshchensk,
LLC TEMI Russia 75% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
675000, Amur Region, Blagoveshchensk,
LLC AGPK Russia 99.38% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
680021, Khabarovskiy Region, Khabarovsk,
Vladivostokskaya Street, 22, build.3,
LLC Perspektiva DV Russia 99.94% office 11
-------------------------- -------------- ---------- ---------------------------------------------
680021, Khabarovskiy Region, Khabarovsk,
Vladivostokskaya Street, 22, build.3,
LLC Vostok Geologiya Russia 99.94% office 9
-------------------------- -------------- ---------- ---------------------------------------------
675002, Amur Region, Blagoveshchensk,
LLC Kapstroi Russia 100% Pervomayskaya Street, 62/1
-------------------------- -------------- ---------- ---------------------------------------------
675027, Amur Region, Blagoveshchensk,
LLC NPGF Regis Russia 100% Western Industrial Hub
-------------------------- -------------- ---------- ---------------------------------------------
680041, Khabarovskiy Region, Khabarovsk,
CJSC ZRK Dalgeologiya Russia 99.38% Balashovskaya Street, 15
-------------------------- -------------- ---------- ---------------------------------------------
JSC PHM Engineering Russia 94% 105082, Moscow, Rubtsov Pereulok, 13
-------------------------- -------------- ---------- ---------------------------------------------
664025, Irkutsk, Gagarina Boulevard,
JSC Irgiredmet Russia 99.69% 38
-------------------------- -------------- ---------- ---------------------------------------------
196247, St. Petersburg, Leninskiy Prospekt,
LLC NIC Gydrometallurgia Russia 100% 151, level 6, office 635, 26
-------------------------- -------------- ---------- ---------------------------------------------
675016, Amur Region, Blagoveshchensk,
LLC BMRP Russia 100% Kalinina Street, 137
-------------------------- -------------- ---------- ---------------------------------------------
675000, Amur Region, Blagoveshchensk,
LLC AVT-Amur Russia 49% Lenina Street, 140/1
-------------------------- -------------- ---------- ---------------------------------------------
676572, Amur Region, Selemdzhinskiy District,
Fevralsk Urban Village, Vysotskogo Street,
LLC Transit Russia 100% 1
-------------------------- -------------- ---------- ---------------------------------------------
676244, Amur Region, Zeya, Zolotogorskoe
Pokrovskiy Mining College Russia 99.38% Shosse, 6
-------------------------- -------------- ---------- ---------------------------------------------
111024, Moscow, 2nd Entuziastov Street,
LLC Atlas Mining Russia 100% 5, level 3, V, room 23, office 3
-------------------------- -------------- ---------- ---------------------------------------------
Universal Mining Inc. Guyana 100% Lot 8 Pere Street, Kitty, Georgetown
-------------------------- -------------- ---------- ---------------------------------------------
Petropavlovsk (Cyprus) 14 Souliou Street, Aglantzia, Nicosia,
Limited Cyprus 100% 2102
-------------------------- -------------- ---------- ---------------------------------------------
14 Souliou Street, Aglantzia, Nicosia,
Voltimand Limited Cyprus 100% 2102
-------------------------- -------------- ---------- ---------------------------------------------
14 Souliou Street, Aglantzia, Nicosia,
Horatio Limited Cyprus 100% 2102
-------------------------- -------------- ---------- ---------------------------------------------
14 Souliou Street, Aglantzia, Nicosia,
Sicinius Limited Cyprus 100% 2102
-------------------------- -------------- ---------- ---------------------------------------------
4th Floor, Harbour Place, 103 South Church
Cayiron Cayman Street, P.O. Box 10240,
Limited Islands 100% Grand Cayman KY1-1002
-------------------------- -------------- ---------- ---------------------------------------------
Associates
-------------------------- -------------- ---------- ---------------------------------------------
6H, 9 Queen's Road Central, Central,
IRC Limited (b) HK 31.10% Hong Kong
-------------------------- -------------- ---------- ---------------------------------------------
Subsidiaries of IRC
-------------------------- -------------- ---------- ---------------------------------------------
LLC Petropavlovsk- Iron 127055, Moscow, Lesnaya Street, 43, Office
Ore Russia 31.10% 313
-------------------------- -------------- ---------- ---------------------------------------------
676253, Amur Region, Tyndinskiy District,
LLC Olekminsky Rudnik Russia 31.10% Village Olekma
-------------------------- -------------- ---------- ---------------------------------------------
(a) In the ordinary class of shares.
(b) IRC Limited and its principal subsidiary and joint venture
undertakings.
Proportionof
shares
Country held by
of the Group Registered
Name of undertaking incorporation (a) address
679000, The Jewish Autonomous Region,
Birobidzhan, 60-Letiya SSSR Street, Building
LLC KS GOK Russia 31.10% 22B
----------------------------- -------------- ------------ -----------------------------------------------
675028, Amur Region, Blagoveshchensk,
LLC GMMC Russia 30.97% Ignatievskaya Road, 19
----------------------------- -------------- ------------ -----------------------------------------------
679000, The Jewish Autonomous Region,
LLC Kostenginskiy Birobidzhan, 60-Letiya SSSR Street, Building
GOK Russia 31.10% 22B.
----------------------------- -------------- ------------ -----------------------------------------------
675028, Amur Region,
LLC Orlovsko-Sokhatinsky Blagoveshchensk, Ignatievskaya Road,
Rudnik Russia 31.10% 19
----------------------------- -------------- ------------ -----------------------------------------------
196247, St. Petersburg, Leninskiy Prospect,151,
OJSC Giproruda Russia 21.86% Liter A
----------------------------- -------------- ------------ -----------------------------------------------
682813, RF, Khabarovsk Territory, Town
Sovetskaya Gavan, Goncharova Street,
CJSC SGMTP Russia 31.10% 2, room 5I(27-29)
----------------------------- -------------- ------------ -----------------------------------------------
127055, Moscow, Lesnaya Street, 43, Office
LLC Amursnab Russia 31.07% 313
----------------------------- -------------- ------------ -----------------------------------------------
105066, Moscow, Dobroslobodskaya, 7/1,
build. 3, level 2, 1, room 2, office
LLC Uralmining Russia 31.10% 33
----------------------------- -------------- ------------ -----------------------------------------------
101000, Moscow, Pokrovka Street,1/13/6
LLC Gorniy Park Russia 15 .58% Building 2, Office 35
----------------------------- -------------- ------------ -----------------------------------------------
675028, Amur Region, Blagoveshchensk,
LLC Garinskaya Infrastructure Russia 31.10% Ignatievskaya Road, 19
----------------------------- -------------- ------------ -----------------------------------------------
676282, Amur Region, Tynda, Sovetskaya
LLC TOK Russia 31.10% Street,1A
----------------------------- -------------- ------------ -----------------------------------------------
Lucilius Investments
Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Kapucius Services
Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Themistokli Dervi 12, Palais D' Ivoire,
Lapwing Limited Cyprus 30.97% 2nd Floor, 1066 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Russian Titan Company
Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Brasenose Services
Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Tenaviva Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Esimanor Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Metellus Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Dardanius Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Rumier Holdings Ltd Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Guiner Enterprises
Ltd Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Expokom (Cyprus)
Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Arfin Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Caedmon Ltd Cyprus 15.58% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Thorholdco (Cyprus)
Limited Cyprus 31.10% Souliou 14, Aglantzia, 2102 Nicosia
----------------------------- -------------- ------------ -----------------------------------------------
Heilongjiang Jiatai 668, Songxing Street, Jiamusi,
Titanium Co., Ltd China 31.10% Heilongjiang Province
----------------------------- -------------- ------------ -----------------------------------------------
6H, 9 Queen's Road Central, Central,
Ariti HK Limited Hong Kong 31.10% Hong Kong
----------------------------- -------------- ------------ -----------------------------------------------
6H, 9 Queen's Road Central, Central,
Ariva HK Limited Hong Kong 31.10% Hong Kong
----------------------------- -------------- ------------ -----------------------------------------------
P .O. Box 31119 Grand Pavilion, Hibiscus
Cayman Way, 802 West Bay Road, Grand Cayman,
Thorrouble Limited Islands 31.10% KY1-1205
----------------------------- -------------- ------------ -----------------------------------------------
P.O. Box 31119 Grand Pavilion, Hibiscus
Cayman Way, 802 West Bay Road, Grand Cayman,
Thordollar Limited Islands 31.10% KY1-1205
----------------------------- -------------- ------------ -----------------------------------------------
P.O. Box 31119 Grand Pavilion, Hibiscus
Cayman Way, 802 West Bay Road, Grand Cayman,
Thorholdco Limited Islands 31.10% KY1-1205
----------------------------- -------------- ------------ -----------------------------------------------
Aricom UK Limited UK 31.10% 11 Grosvenor Place, London, SW1X 7HH
----------------------------- -------------- ------------ -----------------------------------------------
Aricom Limited UK 31.10% 11 Grosvenor Place, London, SW1X 7HH
----------------------------- -------------- ------------ -----------------------------------------------
Joint ventures of
IRC
----------------------------- -------------- ------------ -----------------------------------------------
Heilongjiang Jianlong Building 50, Block12, Advanced Business
Vanadium Industry Park, No. 188.West Road, South Ring 4,
Co., Ltd China 14.31% Fengtai District, Beijing
----------------------------- -------------- ------------ -----------------------------------------------
(a) In the ordinary class of shares.
Review of Ore Reserves and Mineral Resources as at 31 December
2020
In line with industry practices, Petropavlovsk reports its
Mineral Resources and Ore Reserves in accordance with the JORC
Code. The Mineral Resource and Ore Reserve estimates are an update
to independent estimates prepared by Wardell Armstrong
International (WAI), a UK based independent technical consultancy
firm, in April 2017. The updated estimates incorporate all material
exploration completed in 2017, 2018 and 2019. 2020 exploration
results were included with the exception of data on Elginskoye,
Unglichikanskoye, Tokur and Osipkan. On-going exploration work at
these areas is considered to be incomplete due to delays caused by
the COVID-19 pandemic and management changes. Tokur Mineral
Resources, which previously were reported as a 2010 historical
estimate prepared in accordance with JORC Code (2004), were
re-stated in accordance with the JORC Code (2012). To reflect gold
price trends, the company increased its long-term gold price
assumption for Mineral Resource reporting from US$1,500/oz, used in
2017, to US$1,700/oz for the 2020 and 2021 updates. Similarly, the
long-term gold price assumption for Ore Reserve reporting was
increased from US$1,200/oz to US$1,400/oz for the 2020 and 2021
updates.
As of 31 December 2020, the total Group Mineral Resources
(including Reserves) amounted to 19.50Moz of gold compared to
21.03Moz twelve months previously, with total Reserves amounting to
7.16Moz compared to 8.46Moz in the previous year. The reduction in
Mineral Resources is due to the use of more conservative open pit
constraints at Elginskoye and a re-evaluation of the Tokur Mineral
Resource in accordance with JORC Code 2012. The previous Tokur
historical estimate included in the 2020 disclosure was prepared in
2010 by WAI following guidelines of the older version of the
code.
The prime reason for the decrease in Ore Reserves is the removal
of Tokur Ore Reserves which could not be reported under JORC Code
2012, the removal of Ore Reserves for the Quartzitovoye open pit,
Malomir tailings and low grade stockpiles across all assets. The
Quartzitovoye open pit, Malomir tailings and low grade stockpiles
were removed from the reserve estimate due to uncertainties around
the feasibility of gold production from these assets. Mine
depletion also contributed to the reduction of Mineral Resource and
Ore Reserves.
The tables below provide a summary of the Group's Mineral
Resources and Ore Reserves as of 31/12/2020. Detailed Mineral
Resource and Ore Reserve statements by asset are available on the
company's website.
Group Ore Reserves as at 31/12/2020
(in accordance with the JORC Code 2012)
Total Open Pit and Underground Ore Reserve
Category Tonnage (kt) Grade (g/t ME T A L (Moz
Au) )
P r oved 22,806 0.96 0.70
----------------------------- ------------- ----------- --------------
P r obable 204,909 0.98 6.46
----------------------------- ------------- ----------- --------------
P r oved+P
T otal r obable 227,715 0.98 7.16
------------ ------------- ----------- --------------
Non-Refractory P r oved 5,865 0.75 0.14
------------ ------------- ----------- --------------
P r obable 50,748 1.00 1.63
----------------------------- ------------- ----------- --------------
P r oved+P
r obable 56,612 0.97 1.77
----------------------------- ------------- ----------- --------------
Refractory P r oved 16,941 1.03 0.56
------------ ------------- ----------- --------------
P r obable 154,161 0.97 4.83
----------------------------- ------------- ----------- --------------
P r oved+P
r obable 171,103 0.98 5.39
----------------------------- ------------- ----------- --------------
Total Open Pit Ore Reserve
Category Tonnage (kt) Grade (g/t Metal (Moz)
Au)
P r oved 22,806 0.96 0.70
----------------------------- ------------- ----------- ------------
P r obable 203,765 0.95 6.22
----------------------------- ------------- ----------- ------------
P r oved+P
T otal r obable 226,571 0.95 6.93
------------ ------------- ----------- ------------
Non-Refractory P r oved 5,865 0.75 0.14
------------ ------------- ----------- ------------
P r obable 50,098 0.95 1.53
----------------------------- ------------- ----------- ------------
P r oved+P
r obable 55,962 0.93 1.67
----------------------------- ------------- ----------- ------------
Refractory P r oved 16,941 1.03 0.56
------------ ------------- ----------- ------------
P r obable 153,667 0.95 4.70
----------------------------- ------------- ----------- ------------
P r oved+P
r obable 170,609 0.96 5.26
----------------------------- ------------- ----------- ------------
Total Underground Ore Reserve
Category Tonnage (kt) Grade (g/t Metal (Moz)
Au)
Total Proved - - -
----------------- ------------- ----------- ------------
Probable 1,144 6.37 0.23
---------------------------------- ------------- ----------- ------------
Proved+Probable 1,144 6.37 0.23
---------------------------------- ------------- ----------- ------------
Non-Refractory Proved - - -
----------------- ------------- ----------- ------------
Probable 650 4.90 0.10
---------------------------------- ------------- ----------- ------------
Proved+Probable 650 4.90 0.10
---------------------------------- ------------- ----------- ------------
Refractory Proved - - -
----------------- ------------- ----------- ------------
Probable 494 8.32 0.13
---------------------------------- ------------- ----------- ------------
Proved+Probable 494 8.32 0.13
---------------------------------- ------------- ----------- ------------
(1) Group Ore Reserves statements are prepared internally in
April 2021 as an update of the April 2017 WAI estimate.
(2) Ore Reserves for open pit extraction are estimated within
economical pit shells using a US$1,400/oz gold price assumption and
applying other modifying factors based on the projected performance
of these operating mines.
(3) The Open Pit Reserves cut-off grade for reporting varies
from 0.30 to 0.70g/t Au, depending on the asset and processing
method.
(4) Underground Ore Reserves estimates use a mine design with
decline access, trackless mining equipment and a sublevel open
stope mining method with or without back fill.
(5) The Underground Reserves cut-off grade for reporting is
1.5g/t Au.
(6) Reserve figures have been adjusted for anticipated dilution
and mine recover y.
(7) Group Ore Reserve estimates were prepared under the
supervision of and verified by Mr. Anton Kornitskiy, who is a
'Competent Person' as defined by JORC Code 2012. Mr. Kornitskiy is
an employee of Petropavlovsk PLC.
(8) Figures may not add up due to rounding.
Group Mineral Resources as at 31/12/2020
(in accordance with the JORC Code 2012)
Total Open Pit and Underground Mineral Resources
Category Tonnage (kt) Grade (g/t Metal (Moz)
Au)
Measu r ed 44,916 0.88 1.28
--------------------------------------- ------------- ----------- ------------
Indicated 438,968 0.83 11.69
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 483,884 0.83 12.97
--------------------------------------- ------------- ----------- ------------
T otal Infer r ed 314,861 0.65 6.53
---------------------- ------------- ----------- ------------
Non-Refractory Measu r ed 15,240 0.94 0.46
---------------------- ------------- ----------- ------------
Indicated 102,797 0.98 3.23
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 118,037 0.97 3.69
--------------------------------------- ------------- ----------- ------------
Infer r ed 137,589 0.60 2.67
--------------------------------------- ------------- ----------- ------------
Refractory Measu r ed 29,676 0.85 0.81
---------------------- ------------- ----------- ------------
Indicated 336,172 0.78 8.46
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 365,847 0.79 9.28
--------------------------------------- ------------- ----------- ------------
Infer r ed 177,272 0.68 3.87
--------------------------------------- ------------- ----------- ------------
Total Open Pit Mineral Resources
Category Tonnage (kt) Grade (g/t Metal (Moz)
Au)
Measu r ed 43,650 0.77 1.08
--------------------------------------- ------------- ----------- ------------
Indicated 433,231 0.79 11.03
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 476,882 0.79 12.11
--------------------------------------- ------------- ----------- ------------
T otal Infer r ed 304,140 0.58 5.70
---------------------- ------------- ----------- ------------
Non-Refractory Measu r ed 13,975 0.58 0.26
---------------------- ------------- ----------- ------------
Indicated 98,024 0.87 2.76
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 111,999 0.84 3.02
--------------------------------------- ------------- ----------- ------------
Infer r ed 127,449 0.46 1.89
--------------------------------------- ------------- ----------- ------------
Refractory Measu r ed 29,676 0.85 0.81
---------------------- ------------- ----------- ------------
Indicated 335,207 0.77 8.28
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 364,883 0.78 9.09
--------------------------------------- ------------- ----------- ------------
Infer r ed 176,690 0.67 3.81
--------------------------------------- ------------- ----------- ------------
Total Underground Mineral Resources
Category Tonnage (kt) Grade (g/t Metal (Moz)
Au)
Measu r ed 1,265 4.93 0.20
--------------------------------------- ------------- ----------- ------------
Indicated 5,737 3.56 0.66
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 7,002 3.81 0.86
--------------------------------------- ------------- ----------- ------------
T otal Infer r ed 10,721 2.43 0.84
---------------------- ------------- ----------- ------------
Non-Refractory Measu r ed 1,265 4.93 0.20
---------------------- ------------- ----------- ------------
Indicated 4,772 3.08 0.47
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 6,037 3.47 0.67
--------------------------------------- ------------- ----------- ------------
Infer r ed 10,139 2.38 0.78
--------------------------------------- ------------- ----------- ------------
Refractory Measu r ed - - -
---------------------- ------------- ----------- ------------
Indicated 965 5.96 0.18
--------------------------------------- ------------- ----------- ------------
Measu r ed+Indicated 965 5.96 0.18
--------------------------------------- ------------- ----------- ------------
Infer r ed 581 3.31 0.06
--------------------------------------- ------------- ----------- ------------
(1) Mineral Resources include Ore Reserves.
(2) Mineral Resource estimates were prepared internally by the
Group in accordance with JORC Code 2012 as an update of the April
2017 statement audited by WAI.
(3) Open Pit Mineral Resources are constrained by conceptual
open-pit shells at a US$1,700/oz long term gold price.
(4) The cut-off grade for Mineral Resources for open pit mining
varies from 0.30 to 0.50g/t depending on the type of mineralisation
and proposed processing method.
(5) A cut-off grade of between 1.0 and 1.5g/t is used to report
Mineral Resources for potential underground mining.
(6) Mineral Resources are not Reserves until they have
demonstrated economic viability based on a feasibility or
pre-feasibility study.
(7) Grade represents estimated contained metal in the ground and
has not been adjusted for metallurgical recover y.
(8) Group Mineral Resource estimates were prepared under the
supervision of and verified by Mr. Anton Kornitskiy, who is a
'Competent Person' as defined by JORC Code 2012. Mr. Kornitskiy is
an employee of Petropavlovsk PLC.
(9) Figures may not add up due to rounding
2020 Exploration Update
Pioneer
Exploration at Pioneer and Pokrovskiy was focused on the
Alexandra and Pokrovka 2 deposits. Exploration relating to
underground production at the NE Bakhmut zone also generated some
positive results.
Eight holes were drilled at Alexandra which increased confidence
in the Mineral Resource estimate. Following these positive results,
the company is considering an expansion of the open pit which, if
completed, would add between 50 and 80koz of non-refractory
reserves.
Metallurgical tests were also completed on the Pokrovka 2 and
Vodorazdelniy zones of the Pokrovskiy deposit to check their
suitability for processing via the Pioneer flotation plant.
Positive metallurgical tests results on Pokrovka 2 material enabled
the partial conversion of the Pokrovka 2 resources to refractory
JORC Reserves, adding 74koz of gold to the Reserve statement. This
material has been scheduled for mining and processing in 2021-2022.
The results of the Vodorazdelniy tests were less encouraging and
indicated this zone is less suitable for processing due to the low
quality of its flotation concentrate.
Underground development completed at NE Bakhmut zones 2 and 3
proved mineralisation continues down-dip and added c.30koz to
Mineral Resources. High grade mineralisation remains open down-dip
at both zones. There are signs of grade and thickness decline at NE
Bakhmut 3; however, the quality of the orebody at the deepest level
of NE Bakhmut 2 remains high. The Group plans underground drilling
at NE Bakhmut 2 in 2021 to explore the orebody further
down-dip.
Albyn (Elginskoye)
Exploration continued at Elginskoye which improved confidence in
the resource estimate and identified further extensions of the
deposit towards the north west. A total of 38,222m of drilling and
54,779 m3 of trenching were completed at Elginskoye. Further
metallurgical tests completed during 2020 indicated that Elginskoye
might be more efficiently exploited using a gravity-flotation-POX
processing route without selective mining of refractory and
non-refractory types.
687m of drilling and 160,774 m(3) of trenching and pre-strips
were completed at the Kera prospect to the west of Elginskoye.
Pre-strips confirmed grade and structural continuity of a key
mineralised zone at Kera. Using a cut-off grade of 0.5g/t, the
mineralisation sampled in the pre-strip has an average thickness of
2.4m@4.79g/t. Drilling comprised of 5 drill holes which confirmed
mineralisation down-dip to a depth of 130m. The best drill
intersections include 6.1m@3.35g/t and 7.3m@4.72g/t. Two maiden
metallurgical tests completed on core material showed mixed results
with cyanide recoveries of 89.15% and 61.02%. Overall, the Kera
prospect is considered as being a potential satellite deposit of
Elginskoye, warranting further exploration.
Drilling completed to the west of the Albyn pit at the
Sukholozhskoye mineralised zone identified several high-grade
intersections, including 6.5m@27.71g/t and 1.0m@8.04g/t.
Exploration at Unglichikanskoye comprised of drilling (2,478m)
and trenching (19,438.1m(3) ). Drilling was concentrated at the
south group of mineralised zones and it proved c.70m of down dip
extensions to the mineralisation. The best intersections include
6.0m@2.25g/t, 5.1m@2.10g/t, 4.1m@2.19g/t, 4.8m@2.71g/t. These
results are yet to be reflected in the Unglichikanskoye resource
statement. Trenching at the periphery of the Unglichikanskoye
property failed to identify significant gold mineralisation.
Malomir
Exploration at Malomir concentrated on the surrounding areas,
including Tokur, Osipkan and Mariinskoye. Some exploration was also
completed at the Quartzitovoye underground mine.
Underground drilling and samples taken from underground workings
did not confirm earlier assumptions of ore continuity at deeper
levels of the deposit. This resulted in a decrease in underground
resources at Quartzitovoye which shortened the Quartzitovoye
underground mine life.
Exploration completed at Tokur and Osipkan included drilling and
trenching. Approximately 6km of drilling and 73,216.5m(3) of
trenching were completed at Tokur, whilst almost 11km of drilling
and 130,521.4m(3) of trenching were completed at Osipkan. The
exploration program is aiming to upgrade parts of the Tokur and
Osipkan resources into the JORC Indicated category which should
allow a maiden Ore Reserve estimate to be made for Tokur in 2021.
Drill intersections at Tokur have an average thickness of
13.5m@1.78g/t. At Osipkan, the average grade of drill intersections
is 0.94g/t with an average thickness of 6.0m. Both Tokur and
Osipkan drilling and trenching results are consistent with
historical data. This exploration program is still in progress with
many assays pending and results have yet to be evaluated and
reflected in the Group JORC Resource statement.
Exploration at Mariinskoye commenced in 2020. Work included
geological reconnaissance, geochemical and chip samples, ground
magnetic and electrical geophysical surveys. Many indications of
the presence of gold mineralisation were discovered, including
sulphide mineralisation with gold grades of up to 0.5g/t in chip
samples and up to >1.0g/t in geochemical samples (1.0g/t being
upper detection limit of the assay method employed). The
exploration program is at an early stage and work is expected to
continue in 2021.
Verkhne-Udskaya & Chogarskaya
These two properties in the Khabarovsk region are considered as
potential satellites to the Malomir deposits. The 2020 exploration
focus was on the Verkhne-Udskaya property where 6,797.3m of
drilling and 194,292m(3) of trenching were completed. Earlier work
discovered the Zapadniy, Egokonga and Kolbokan prospects within
Verkhne-Udskaya. The majority of exploration in 2020 took place at
Zapadniy were two mineralised zones hosted by thrust zones of
potential economic interest were explored by drilling and
trenching. Based on assays completed so far, the average grade of
Zapadniy mineralisation is 1.06g/t with an average thickness of
5.7m. A formal resource estimate in accordance with the JORC Code
is yet to be prepared for Zapadniy, although preliminary estimates
show a mineral resource target of c.70koz. Preliminary
metallurgical tests showed mixed response to cyanidation, with
recoveries varying between 57 and 96%. Early stage exploration work
completed at the Egokonga prospect has discovered a 10km long
gold-bearing structure which is yet to be systematically sampled. A
few trenches completed here discovered grades up to 2.04g/t in
selected samples. Early-stage prospecting competed at Kolbokan in
2020 discovered an encouraging mineralised zone hosted by
conglomerates with grades up to 1.29g/t.
Exploration and prospecting at Chogarskaya included geological
reconnaissance, ground magnetic and lithochemical surveys as well
as some trenching. The lithochemical survey discovered a 3km long
gold bearing zone that warrants further investigation. Trenches
completed at a geochemical anomaly discovered in a 2018 survey
found some high-grade mineralisation with grades up to 25g/t in
selected samples. The best intersections include 1.3m@14.03g/t and
3.0m@2.17g/t. Chogarskaya exploration results are considered
encouraging and further work is planned for 2021.
See "The Use and Application of Alternative Performance Measures
(APMs)" section for further information on our APMs
See "The Use and Application of Alternative Performance Measures
(APMs)" section for further information on our APMs
See "The Use and Application of Alternative Performance Measures
(APMs)" section for further information on our APMs
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