Polymetal International plc

Good day and welcome to the PolyMetal final year 2020 preliminary financial results call. Today's conference is being recorded. At this time, I would like to turn the conference over to Vitaly Nessus. Please go ahead, sir.

Thank you very much, ladies and gentlemen. Welcome to the conference call on fiscal year 2020 financial results. First, myself, Vitaly Nessus, and PolyMetal's CFO, Maxim Nazimov, We'll walk you through the results presentation briefly, and then we'll have a traditional Q&A session. Following the conventional disclaimer about forward-looking statements, let's turn to page three, and I'm very happy to state that Palmetto had an exceptionally strong year with record production and financial metrics. all of the profitability parameters have increased very significantly on the back of a 4% increase in production. So adjusted EBDA jumped by 57%, underlying EPS almost doubled, and as a result, dividend per share increased by 57% year on year. we still enjoy one of the leading dividend yields in the precious metals sector globally. And importantly, despite the COVID challenges, we managed to contain costs at stable level year on year. Turning to COVID on page four, I will not go into too many details. I think it is enough to say that right now the situation at all of our operations is and projects is stable. We continue to maintain strict protocols, and I think partially as a result of that, partially as a consequence of generally declining levels of infections in both Russia and Kazakhstan, we have seen steady, stable decline in the number of active cases and in the number of hospitalizations. So right now, I think... the threat of production disruption is insignificant, although I would like to reiterate we maintain utmost caution. Page five, in terms of probably most important metric of our performance safety, 2020 was a very significant success. It was the first year, I believe in seven, when We recorded zero fatalities among both our employees and contractors, and I would like to thank all of the team at Palmetto for such an achievement. In parallel, we recorded a significant decrease in both metrics related to safety, both in lost time injury frequency rate and also in disability days lost due to work injuries. The management team continues to focus on safety very much. This year, we will try to involve the vast majority of our contractors and all of our exploration sites into the corporate procedures related to safety. Page six, in terms of sustainability targets, focusing clearly first and foremost on greenhouse gas intensity emissions. We have achieved a 4% reduction in line with our current medium-term policy. The company also plans to announce the new medium-term targets, which will be linked to top management motivation and during our corporate markets day in late April. This will be our targets for 2020. In terms of energy intensity, water consumption, we also did very well. Particularly, water consumption has declined very significantly. And, importantly, the share of dry tailings taking place. continues to increase, and we hope to see further increases this year as NASDAQ will have dry talents. Page 7, our ESG performance has received positive evaluations from the majority of the global leading ESG and we are very proud and happy to be the first Russian member of Dojo Sustainability Index. And on all other counts, we continue to improve. Hopefully this year, with the introduction of transparent and science-based carbon reduction strategy, our ratings will improve even further. Page 8, another important result that the company has achieved during the year is clearly expansion of our reserves. We increased our reserves per share by 10%. This is significantly better than industry average, and I believe this is way better than some of the larger companies in the industry. Particularly important is this achievement because we managed to grow reserves without great dilution. And as such, we believe our investment in exploration is creating a lot of value by allowing us not only to replace but to expand reserve base while maintaining high grade, which is essential for good return on invested capital. Page nine, just the breakdown of reserves reconciliation. As you can see, the bulk of ore reserve increases came from initial ore reserve estimates. That's more or less Greenfield exploration. And again, this demonstrates the financial rewards. of our approach to continued investment and exploration. Importantly, the share of silver in ore reserves has increased from 6% to 11% on the back of the significant contribution from Prognos. Given the recent outperformance in silver, we believe this is a welcome development, particularly if you consider that Power Metal continues to use extremely conservative price assumptions for reserve assessment $1,200 per ounce gold, and $15 per ounce silver. Clearly, we have a lot of firepower in gold, but our silver business, which has shrunk for a while, I think is on the brink of coming back to play a more significant role in our portfolio. Page 10, in terms of production, a 4% increase was driven more by Kazil, where great performance was very strong, but also other assets as a group performed well, and despite a couple of significant COVID-related disruptions, the company managed not to have slippage at any of the producing aspects. And I turn the presentation over to Maxim to discuss financial highlights.

Yeah, thanks, Vitaly. So starting from page 11, which gives you all of the financial highlights in one page, we enjoyed pretty much uniform growth in all top-line and bottom-line metrics, with revenue up 28%, mostly cash. Price-driven, adjusted EBDA went up by 57%, nearly to $1.7 billion, and the EBDA margin reached 59%. We delivered total cash costs below our original guidance at $638 per ounce, and we were within the only sustaining cash cost guidance at $874 per ounce. Net earnings demonstrating even stronger growth versus EBDA, 83% growth in earnings and earnings per share. And the dividends proposed for the year are largely reflecting that with a 57% year-on-year growth. Essentially, we are distributing in dividends all of the free cash flow generated for the year. This decision made by the board yesterday is underpinned by pretty strong free cash flow performance in 2020, with free cash flow more than doubling to $610 million. And at the same time, we reduced net debt to $1.35 billion, or 0.8 times adjusted EBITDA. So we are in a very comfortable zone in terms of the balance sheet strength. Now, looking at each of the KPIs in more detail, the revenue growth was almost predominantly driven by metal price movements. In terms of physical sales volumes, they were broadly stable year on year. Looking at EBDA on page 13, again, price movements have contributed most to the EBDA growth, but there was also cost decline. in terms of the TCC 3% decrease year on year. At the same time, we saw other cash expenses increasing. This is mainly represented by COVID-related costs, as well as the social expenditures. Looking at the cash cost dynamics in more detail, page 14 shows the reconciliation between 2019 and 2020 levels. First factor and the largest factor was the foreign exchange. Obviously, rapid devaluation following the Brent's oil price decline in March 2020 has contributed to that. The average rate went from 65 rubles per dollar to 72 rubles per dollar. This was roughly half offset by the domestic inflation. which actually accelerated both in Russia and Kazakhstan. We saw 5% inflation in Russia and 8% inflation in Kazakhstan last year. And the second factor driving the costs up were the COVID related costs at approximately $25 per ounce sold. This year we are expecting, we have conservatively budgeted for continued currency measures throughout the year, and this will amount to roughly $35 per ounce produced. At the same time, growth in commodity prices also meant that the mining tax went up in line with the commodity prices, adding $23 per ounce. The offsetting factor, the internal offsetting factor, were the cost improvements at a few mature operations, notably Omelon, and Maiske, which saw cost declines beyond generic ruble devaluation factors. As a result, costs for the group went down 3% and were, as we promised, below the original group's guidance of $650 to $700 per ounce. Turning over to the structure, this is the expected structure for 2021. and 21 at budget prices of $1,500 per ounce, so the share of royalties is kind of understated here. But generally, the structure remains heavily weighed toward local currencies, 63%, and a significant component is represented by diesel fuel and fuel-driven costs. And this is actually where we see structural changes in 2021 versus 2020, as we are seeing very sharp rebounds in the oil price and also in the domestic fuel prices this year. Page 16 gives you the sensitivities of total cash costs and other financial metrics to our two key macroeconomic variables. for exchange rates and commodity prices. The sensitivities remain broadly in the same range as they were last year, and all this will have material impact on the group's financial results. As a reminder, we have budgeted for 2021 at $1,500 per ounce gold price, $20 per ounce silver, and $72 per dollar. So all of the three assumptions quite conservative against the current spot levels. Looking at individual cost performances on a mind-by-mind basis, this is only on a sustaining cash cost basis. So the bottom group, the lowest cost performers in the business, Svetla and Kizil, have seen cost pick-ups by roughly 8% each. At Svetlia, this has been driven mainly by the grade factor and access to new ore zones. At Kizil, this is mainly representing increased investment in stripping and also mine fleet renewals. And at Vora, which has already switched to processing stockpiles, the growth, which is quite stark, is represented by the grade factor. At the same time, I already mentioned a couple of operations showing very good cost performances last year ahead of ruble devaluation. This is Omelon, mainly grade-driven and mixed-driven in terms of ore process, with processed high-grade ore from Yolochka and Birkachan last year. Ducat, pretty much efficiency improvements against still slightly eroding grade profile. And Moesca, a very visible improvement versus 2019, driven by completion of processing of oxides and great improvements as well. At Albazino, the growth is mainly represented by increased investments in underground development and stripping. That's two newer ozone zones, Ecotrina 2 and Farida. And at Varvara, we enjoyed larger production volumes as a result of processing third-party material in the amount of roughly 400,000 tons last year. But this third-party material is obviously slightly more expensive than the internal feed, and that's the driver behind an 11% growth at Larvara last year. Overall, on an all-in-sustaining cash cost basis, PolyMetal remains very favorably positioned in the global cash cost curve. You can see that... We haven't nearly moved all entertaining cash cost levels year on year in 2020 and remain comfortably sitting within the second quartile of the global cash cost curve. Turning over to the balance sheet, I already mentioned we have seen pretty rapid deleveraging over the course of 2020 driven by strong revenues and strong free cash flow. Net debt stood at $1.35 billion as of 1st of January, and net debt to adjusted EBDA is just 0.8, putting us in a very comfortable position. At the same time, we also saw cost of debt declining to 3.4% on average compared to 4% last year. This is a result of both external events, mainly the rapid decrease in benchmark interest rates, but also a part of management efforts to continue to optimize the portfolio structure. In terms of maturity, you can see it's very comfortable to spread over nearly a 10-year period, with 70% of debt now at fixed interest rates and roughly 30% at floating interest rates. Importantly, we are continuing the trend to have more of green and sustainability-linked financing in our loan portfolio, which now amounts to 16% of the total outstanding debt. And this is something we are very keen to continue in 2021. Overall, looking at the capital allocation, the free cash flow, as I mentioned, was pretty strong, $610 million. And you can see, even last year, this was almost fully distributed in the form of the dividends. The board have exercised discretion in relation to $17 million of additional dividend that was available for distribution, and have come to the conclusion that at this point in the cycle, they are comfortable in distributing all of the free cash flow generated as dividends. And if you look at page 21, this puts us pretty much in the leading spot in terms of dividend for gold equivalent produced in 2020. And we looked at this from a five-year perspective. We're still within the top three of the global producers in terms of the dividends paid for gold equivalent house produced. And this is obviously ensuring the continued leadership in dividend yield, a more traditional metric. here with 4.3% representing one-year average and 4.1% representing a pretty consistent five-year average above 4%. With this, I'm handing over back to Vitaly to talk about the forward-looking guidance for this year and the years beyond 2021.