Polymetal’s Q2 2007 Silver Production up 3% on Q2 2006, Three Processing Plants Demonstrating Record Quarterly Throughputs
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JSC "Polymetal" (LSE, MICEX, RTS: PMTL) ("Polymetal" or the "Company"), today announced its production results for the quarter ended June 30, 2007.
HIGHLIGHTS
| 3 months ended June 30 | % change1 | 6 months ended June 30 | % change1 |
|||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||
| Ore mined, Kt | 897 | 625 | 44% | 1 544 | 1 221 | 26% |
| Open-pit | 747 | 500 | 49% | 1 257 | 979 | 28% |
| Underground | 150 | 125 | 20% | 287 | 242 | 19% |
| Ore processed, Kt | 871 | 725 | 20% | 1 373 | 1 169 | 18% |
| Production: | ||||||
| Gold, Koz | 58 | 58 | -1% | 113 | 117 | -3% |
| Silver, Moz | 4,4 | 4,3 | 3% | 7,9 | 8,5 | -7% |
| Notes: (1) % changes can be different from zero even when absolute amounts remain the same because of rounding | ||||||
- In Q2 2007, Polymetal silver production increased by 3% while gold production decreased by 1% compared to Q2 2006, as planned grade decreases were mostly outweighed by a 20% increase in processing volumes and improved recoveries.
- Processing plants at Lunnoye, Khakanja, and Voro (CIP) all have had record quarterly throughputs.
- The Company remains on track to produce, in line with previous guidance, 16-18 Moz of silver and 230-250 Koz of gold in full year 2007.
- Total cash costs (co-product basis) at silver operations (Dukat and Lunnoye) are expected to be approximately $5.5-6 per ounce of silver for FY 2007. Total cash costs (co-product basis) at gold operations (Voro and Khakanja) are expected to be around $330-360 per ounce of gold for FY 2007. 1H costs per ounce have been negatively influenced by weak Q1 production results and the Company expects 2H costs per ounce to be lower than 1H costs per ounce.
"Polymetal operations in the second quarter were able to improve significantly compared with a relatively weak first quarter," said Vitaly Nesis, CEO of Polymetal, commenting on the results. "I am confident that positive production dynamics will continue in the second half of 2007 as we concentrate on operational improvements at our sites".
OPERATING MINES
Dukat
In Q2 2007, mining operations at Dukat demonstrated significant growth compared to Q2 2006, led by an 18% increase in underground mining.
Silver grades were below reserve average due to open-pit mine sequencing.
In Q2 2007, flash flotation was introduced at the processing plant, which is expected to result in 2% improvement in recoveries.
Dukat production results are presented in the following table:
| 3 months ended June 30 | % change1 | 6 months ended June 30 | % change1 |
|||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||
| Waste mined, Kt | 851 | 463 | 84% | 1,472 | 944 | 56% |
| Underground development, m | 2 599 | 2 706 | -4% | 5 178 | 5 448 | -5% |
| Ore mined, Kt | 248 | 231 | 8% | 483 | 456 | 6% |
| Open-pit | 104 | 106 | -2% | 202 | 214 | -6% |
| Underground | 144 | 125 | 16% | 281 | 242 | 16% |
| Ore processed, Kt | 225 | 211 | 7% | 420 | 406 | 4% |
| Head grades | ||||||
| Gold, g/t | 1,1 | 1,2 | -8% | 1,1 | 1,2 | -7% |
| Silver, g/t | 478 | 556 | -14% | 484 | 590 | -18% |
| Recovery1 | ||||||
| Gold | 79% | 78% | 1% | 81% | 77% | 4% |
| Silver | 80% | 80% | 1% | 79% | 80% | -1% |
| Production: | ||||||
| Gold, Koz | 6,2 | 6,7 | -7% | 13 | 12 | 10% |
| Silver, Moz | 2,8 | 3,2 | -11% | 5,3 | 6,3 | -16% |
| Notes: (1) Technological recovery, includes gold and silver within work-in-progress inventory (concentrate, precipitate) | ||||||
Lunnoye
Significant improvement in volumes of ore processed was achieved following a debottlenecking in the milling section and expansion of the leaching circuit.
Lunnoye open pit mining was completed, underground mine generated first ore.
Arylakh (satellite deposit) open pit reached designed mining capacity. The majority of ore is expected to come from Arylakh starting in Q4 2007 with higher silver and lower gold grades.
Lunnoye production results are presented in the following table:
| 3 months ended June 30 | % change1 | 6 months ended June 30 | % change1 |
|||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||
| Waste mined, Kt | 702 | 305 | 130% | 1,491 | 1,080 | 38% |
| Underground development, m | 235 | 59 | 298% | 441 | 59 | 647% |
| Ore mined, Kt | 215 | 78 | 176% | 312 | 128 | 144% |
| Open-pit | 209 | 78 | 168% | 306 | 128 | 139% |
| Underground | 6 | 0 | - | 6 | 0 | - |
| Ore processed, Kt | 86 | 54 | 59% | 152 | 115 | 32% |
| Head grades | ||||||
| Gold, g/t | 2,5 | 2,5 | 0% | 2,6 | 2,4 | 11% |
| Silver, g/t | 414 | 410 | 1% | 382 | 331 | 15% |
| Recovery1 | ||||||
| Gold | 94% | 93% | 1% | 94% | 93% | 0% |
| Silver | 90% | 89% | 1% | 89% | 89% | 1% |
| Production: | ||||||
| Gold, Koz | 6,8 | 3,3 | 106% | 13 | 7,6 | 70% |
| Silver, Moz | 1,1 | 0,6 | 90% | 1,8 | 1,0 | 76% |
| Notes: (1) Technological recovery, includes gold and silver within work-in-progress inventory (precipitate) | ||||||
Khakanja
At Khakanja, first stage (pushback) of open pit 1 is approaching exhaustion, which resulted in lower gold grades. At the same time, open pit 2 started with first higher grade ore expected to be mined in the Q4 2007.
Yurievskoye (satellite deposit) development is on track to generate first ore in Q1 2008. The construction of a winter road, which will be used for delivery of ore to the processing plant at Khakanja, is well advanced.
Khakanja production results are presented in the following table:
| 3 months ended June 30 | % change1 | 6 months ended June 30 | % change1 |
|||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||
| Waste mined, Kt | 1 738 | 898 | 94% | 3 042 | 1 795 | 69% |
| Ore mined, Kt | 157 | 168 | -7% | 277 | 353 | -21% |
| Open-pit | 157 | 168 | -7% | 277 | 353 | -21% |
| Ore processed, Kt | 152 | 134 | 14% | 298 | 246 | 21% |
| Head grades | ||||||
| Gold, g/t | 4,5 | 7,1 | -37% | 4,3 | 7,8 | -45% |
| Silver, g/t | 194 | 271 | -28% | 169 | 309 | -45% |
| Recovery1 | ||||||
| Gold | 93% | 92% | 1% | 93% | 92% | 2% |
| Silver | 54% | 44% | 23% | 51% | 47% | 7% |
| Production: | ||||||
| Gold, Koz | 21 | 25 | -18% | 40 | 56 | -28% |
| Silver, Moz | 0,5 | 0,5 | -7% | 0,8 | 1,2 | -29% |
| Notes: (1) Technological recovery, includes gold and silver within work-in-progress inventory (precipitate) | ||||||
Voro
Thanks to better equipment availability, both processing volumes and recovery were improved at the Voro CIP processing plant.
Mining operations demonstrated steady growth providing a good start for the heap leach stacking season and possibility of primary ore stockpiling for the upcoming plant expansion.
Voro production results are presented in the following table:
| 3 months ended June 30 | % change1 | 6 months ended June 30 | % change1 |
|||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2007 | 2006 | |||
| Waste mined, Kt | 2 585 | 1 710 | 51% | 5 000 | 4 546 | 10% |
| Ore mined, Kt | 278 | 149 | 87% | 472 | 285 | 66% |
| Oxidized | 92 | 17 | 431% | 129 | 31 | 315% |
| Primary | 186 | 131 | 41% | 343 | 254 | 35% |
| Ore processed, Kt | 407 | 326 | 25% | 503 | 402 | 25% |
| Oxidized | 281 | 211 | 33% | 281 | 211 | 33% |
| Primary | 127 | 115 | 10% | 222 | 191 | 16% |
| Head grades, г/т | ||||||
| Oxidized | 2,5 | 1,6 | 63% | 2,5 | 1,6 | 63% |
| Primary | 6,0 | 6,2 | -3% | 6,3 | 6,1 | 3% |
| Gold recovery1 | 81% | 73% | 10% | 80% | 77% | 4% |
| Gold production, Koz | 24 | 23 | 4% | 47 | 41 | 15% |
| Heap leach | 5,5 | 5,9 | -7% | 12 | 12 | -1% |
| CIP | 19 | 17 | 7% | 35 | 29 | 22% |
| Silver production, Moz | 0,015 | 0,014 | 7% | 0,032 | 0,027 | 19% |
| Notes: (1) CIP technological recovery only. Heap leach recoveries are meaningful for full year only due to seasonality factor | ||||||
DEVELOPMENT PROJECTS
Dukat flanks
In 1H 2007, diamond drilling at Dukat flanks amounted to 9,399m, with 5,250m drilled at Nachalnoe-2 target.
Nachalnoe-2 is fully prepared for independent JORC-compliant reserve audit in Q4 2007 with technological testing yielding positive results. The reserve is expected to be fully open-pittable with silver grades of 250-350 g/t and sufficient to provide feed to the expanded processing plant for 2-3 years. Regional GKZ approval is planned to be obtained in Q2 2008 with start of mining in Q4 2008.
Two other areas in close proximity to the existing mine (Perevalnoe and Nachalnoe-1) are expected to generate JORC-compliant reserves in 2008.
Processing plant expansion to 1.5 Mtpa is on track to be completed in Q4 2008. New SAG mill and new tailings facility are expected to be commissioned in Q4 2007.
Albazino
Albazino continues to be Polymetal's key mid-term growth project.
During 1H 2007, 4,310m of diamond drilling was performed by two drill rigs. Three additional rigs are expected to be commissioned in Q3 2007; it is planned to drill 18,900m for full year 2007.
Continuity of Anfisa ore zone down-dip and along strike was confirmed with 19 drill holes out of 22 yielding meaningful economical gold intersections.
The project is on track to reach 3 Moz of JORC-compliant resource milestone by the end of 2008: as audited in November 2006, resources were 1.1 Moz at 5.5 g/t; next independent auditor's JORC resource update is expected in December 2007.
Polymetal has selected a venue for the downstream processing (POX) facility in Amursk, conveniently located on the shore of Amur River and having all necessary logistical and construction infrastructure in place.
Public hearings on mine/concentrator were successfully held in Q2 while public hearings on POX plant in Amursk will take place in September 2007. Amursk regional authorities are highly supportive of construction of the plant.
Feasibility study is expected to be completed by June 2008; first gold pour is planned in Q4 2010. Currently Polymetal expects to produce 200-250 Koz of gold per year. The capital cost is presently estimated at $150-200 million.
Voro expansion
All major equipment necessary for Voro CIP plant expansion has been contracted. The new mill will be commissioned in Q4 2007, and the project is expected to be completed by the end of 2008 with processing capacity increasing from 450 Ktpa to 900 Ktpa at a capital cost of approximately $12 million.
EXPLORATION PROJECTS
Voro regional
During 1H 2007, 15,695m of diamond drilling was completed, of which 8,990m at Galka, 842m at Rudnichny, and 1,153m at Katasma.
Galka resource GKZ approval is expected in Q2 2008 with license conversion planned for Q4 2008 and feasibility study by Q2 2009. Recent drilling confirms high probability of significantly increasing the size of known resource (currently 1.6 Moz of gold equivalent JORC-compliant as audited in June 2007).
Rudnichny and Katasma prospects are expected to generate JORC-compliant resource by Q3 2008.
Okhotsk regional
Khakari prospect saw first drill hole (280m drilled) with 4,000m expected this year in addition to 32,000m3 of trenching.
Three new license areas were acquired (covering the total area of 2,865km2) and are currently under initial reconnaissance/sediment sampling activities.
Fevralskoe
3,127m of diamond drilling confirming the presence of material oxidized mineralization suitable for heap leaching has been completed in 1H 2007. 2H drilling will concentrate on primary ore at deeper levels with first JORC-compliant resource statement expected in 2Q 2008.
Strategic Alliance with AngloGold Ashanti
All conditions precedent for the formation of the JV are satisfied (FAS approval, closing of the deal between AGA and TSG), JV framework agreement to be signed by the end of July and JV is expected to be fully operational by September 2007.
Successful conversion of Annenskoe exploration license to mining license in Q2 2007 created a precedent in Russia setting a standard for further analogous license conversions.
Veduga mining license was amended with the requirement for the first gold pour delayed till 2011. Veduga exploration license was extended by 2 years till Q3 2009. Veduga internal pre-feasibility study is expected to be ready by Q3 2007.
Mongolian JV
There has been no progress with respect to the Asgat project. Polymetal considers that given the current situation, the abandonment of the project in its current JV status is the most likely outcome. However, Mongolia remains to be the key geographical area of the Company's interests outside Russia, and Polymetal continues to review opportunities in this country.
CHANGE OF US GAAP AUDITOR
According to the best international practice of changing auditors regularly, Polymetal has decided to replace PricewaterhouseCoopers, its auditor in 2002-2006, with Deloitte & Touché.
Polymetal would like to thank PWC for the highest quality of audit services provided by the firm during the entire period of cooperation.
HEDGING AGREEMENTS
In 1H 2007, 6.5 Moz of silver was delivered into forward sales contracts at below-market prices. As of today, the amount of silver to be delivered under the hedging agreements equals 6.4 Moz.
The last shipment of silver under the hedging agreements is expected to occur in November 2007. After that, Polymetal does not plan to enter into any agreements limiting upside potential of gold and silver sales prices (the gold production is currently fully unhedged).
PERSONNEL
Sergey Antipin, previously MD of Khakanja (Dec 2003 - Jun 2007) and Lunnoye (Jun 2002 - Dec 2003), was appointed MD of Albazino. Mr. Antipin brings to the project extensive experience in developing green-field mines and strong expertise in construction and logistics of large projects in challenging locations.
Gennady Kuzmenko, previously deputy MD-human resources at Dukat and Lunnoye (Feb 2004 - Jun 2007), was appointed MD of Khakanja. Polymetal is confident that Mr. Kuzmenko, known as an experienced and professional manager, will contribute considerably to the future success of the Company.
1H 2007 FINANCIAL RESULTS
1H 2007 financial results are expected to be released on Thursday, September 27, 2007.
CONFERENCE CALL
Polymetal will host a conference call to discuss the second quarter production results on Wednesday, July 25, 2007 at 5:30pm Moscow time (2:30pm London time; 9:30am New York time).
Dial in number: +44 (0) 20 7153 9902
Meeting number: 213528
A recording of the conference call will be available by dialing +44 20 7154 2617 immediately after the end of the call for one week.
IR Department
Polymetal