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GV Gold financial results fot the year 2017

GV Gold (Vysochaishy, PJSC), together with its subsidiaries (“GV Gold”, “Vysochaishy” or the “Company”), one of the largest and fastest growing gold producers in Russia, announces its audited consolidated financial results for the year 2017.

Financial highlights

  • Total gold sales increased by 34% y-o-y to 218 koz, including 11.7 koz of gold contained in concentrate.
  • Revenue totalled $271 million, up 33% from 2016.
  • Average refined gold selling price increased by 2% to $1,265 per ounce.
  • Тotal cash costs (TCC)1 rose from $462 to $530 per ounce primarily due to the strengthening of the rouble, and also due to higher TCC at the Vysochaishy Mine attributable to the planned processing of lower-grade ore, which was partially offset by lower costs at the placer deposit in Yakutia.
  • All-in sustaining costs (AISC)2 stood at $701 per ounce, up 14% y-o-y, mainly as a result of TCC growth.
  • Adj. EBITDA3 grew by 17% to $128 million despite the expected increase of costs that was fully offset by stronger gold sales and operational improvements. Adj. EBITDA margin stood at 47%.
  • Net profit decreased by 3% y-o-y to $85 million as gains in revenue were offset by the strengthening of the rouble against the US dollar and higher per unit costs.
  • CAPEX decreased by 35% y-o-y to $68 million as the CAPEX programme was past its peak after several years of expenditures mostly focused on the construction of Taryn Mine and Ugakhan Mine.
  • Net debt4 totalled $175 million as at 31 December 2017. Leverage remains stable with a comfortable repayment schedule and Net Debt/Adj. EBITDA standing at 1.4x at year-end.

Operational highlights

  • Total gold output amounted to 225 koz, up 37% y-o-y, effectively making the Company the 7th largest gold producer in Russia5.
  • In 2017, the Company launched two strategic projects — the Ugakhan Mine and the Taryn Mine, boosting GV Gold’s processing capacities to nearly 8 mt of ore annually.
  • With these new capacities, the Company considerably expanded its mining and processing volumes by 27% and 32%, respectively.

Statement from CEO German Pikhoya:

The Company delivered strong operational and financial performance in 2017 driven by the strategic initiatives and consistent efforts made to propel GV Gold forward as a major Russian gold producer. Revenue climbed by 33% to a five year high of $271 million.”

"We launched two strategic projects last year — Phase 1 of Taryn Mine during the Eastern Economic Forum 2018 in September, followed by the process start-up at Ugakhan Mine in October. With its extensive track record and expertise, our team has what it takes to fully unlock the potential of both deposits.

“Last year, we saw total cash costs reach $530 per ounce. This increase was expected and controlled as we brought new capacities on stream and started processing lower-grade ore at Vysochaishy, our flagship deposit. Higher costs affected full-year EBITDA margin that decreased to 47% from 53% a year earlier. However, GV Gold still stands out as one of the lowest cost gold producers in Russia with EBITDA margin on par with industry leaders[7].

“Despite a favourable pricing environment in the gold market throughout 2017, the Company continued to stick to well-balanced financial policies. The Company passed its CAPEX peak last year, and, given its comfortable leverage, is now set to achieve the desirable balance between target investments in growth projects and required shareholder earnings going forward.

We reiterate plans to expand gold production in 2018, standing assured that the year ahead Company will further strengthen the foundation for GV Gold’s sustainable growth. Our guidance for full 2018 currently totals 280–300 koz.”

Key financial results for the years ended 31 December 2017 and 2016
2017 20168 Y-o-Y, %
Financial performance
Gold sold, koz
218 163 34%
Average refined gold selling price, $/oz
1,265 1,245 2%
Revenue, $ million, including:
271 204 33%
Revenue from gold sales, $ million
261 204 28%
Revenue from concentrate sales, $ million 9 n/a n/a
Operating profit, million
107 94 14%
Net profit, million
85 88 -3%
Adj. EBITDA, $ million
128 109 17%
Adj. EBITDA margin, %
47% 53% -6 ppts
Net cash inflow from operations, $ million 88 81 9%
Capital expenditure, $ million
68 104 -35%
Total cash cost (TCC) per ounce sold, $/oz
530 462 15%
All-in sustaining cash cost (AISC) per ounce sold, $/oz 701 615 14%
Financial position
Cash and cash equivalents
35 54 -35%
Net debt, $ million
175 99 77%
Net debt /Adj. EBITDA, х
1,4 0,9 56%
Operating highlights
Ore mined, kt
4,383 3,448 27%
Ore processed, kt
5,854 4,438 32%
Total gold output, koz
225 164 37%

Revenue

Revenue stood at $271 million rising by 33% y-o-y on the back of higher volumes of gold produced (+37%) and sold (+34%) as we brought new capacities on stream and boosted production at the placer deposit. Average realised gold price amounted to $1,265 per ounce, up 2% from 2016.

EBITDA

Adj. EBITDA rose by 17% to $128 million despite expectedly higher costs fully offset by an increase in total gold sold, as well as by operational improvements. Adj. EBITDA margin stood at 47% compared to 53% a year earlier.

Total Cash Costs (ТСС)

TCC of GV Gold increased by 15% in 2017, to $530 per ounce, largely triggered by a stronger rouble and higher costs at the Irkutsk business unit. However, GV Gold remains one of the leaders in terms of TCC in the Russian gold mining sector.

At Vysochaishy Mine, TCC grew by 24% as the rouble appreciated and the Company started the planned processing of lower-grade ore, while decreasing overall processing volumes due to scheduled maintenance at Mill 3. Notably, TCC remained virtually unchanged in rouble terms as Mill 2 and Mill 3 continued to gradually introduce operational improvements.

Taryn Mine showed the lowest TCC across the Group, at $476 per ounce, as the stripping ratio declined by 93% in 2017, while mining volumes increased. Taryn Mine started operations in the summer of 2017 and reached design capacity in record time, becoming GV Gold’s leading operational asset.

Ugakhan Mine that was launched last year after Taryn had TCC of $649 per ounce. The Ugakhan Mill is operating in process start-up mode. TCC at Ugakhan was higher than the Group’s average mainly as a result of low-grade ore it had to process, because it has yet to ramp up. Furthermore, Ugakhan Mine has had higher electricity costs as it is using diesel generators before it gets connected to the power grid.

At Bolshoy Kuranakh, TCC declined 6% to $835 per ounce, as the volumes of sands washed increased 52% y-o-y after new 400-litre dredge No. 401 was commissioned.

TCC performance by mine, $/oz 2017 20168 Y-o-Y, %
Golets Vysochaishy
499 403 24%
Marakan
984 821 20%
Ugakhan 649 n/a n/a
Taryn
476 n/a n/a
Bolshoy Kuranakh
835 885 -6%

All-In Sustaining Costs (AISC)

In 2017, AISC rose 14% y-o-y to $701 per ounce from $615 per ounce, mainly driven by higher TCC while sustaining capital expenditures remained flat.

AISC performance by mine, $/oz 2017 20168 Y-o-Y, %
Golets Vysochaishy
653 495 32%
Marakan
1,200 1,137 6%
Ugakhan
678 n/a n/a
Taryn
538 n/a n/a
Bolshoy Kuranakh
1,063 1,146 -7%

Capital expenditures

Capital expenditures declined as the investment programme passed its peak values after strategic projects, such as Taryn Mine and Ugakhan Mine, were brought on-stream. To recap, capital expenditures amounted to $68 million net of exploration costs.

In 2017, the Company adopted a new exploration strategy that sets more aggressive and stringent project assessment and selection criteria seeking to expand resource potential at the existing fields and find prospective areas across its geographies. As a result, exploration costs totalled $9 million last year, up 13% vs 2016.

Capital expenditures, $ million 2017 20168 Y-o-Y, %
Golets Vysochaishy
8 5 60%
Ugakhan
41 53 -23%
Taryn 16 45 -64%
Bolshoy Kuranakh
3 1 200%
Total
68 104 -35%

Financial position

As at 31 December 2017, net debt totalled $175 million. This increase was mainly due to the Company buying back its own shares from the European Bank for Reconstruction and Development (EBRD), as well as the need to finance the final tranche of investments for main projects. Net Debt / Adj. EBITDA stood at 1.4x compared to 0.9x a year earlier.

Mineral Resources and Ore Reserves

Last year, GV Gold had its resources and reserves reappraised in accordance with the JORC Code (2012) as at 1 July 2017. As a result of exploration works, M and I&I mineral resources and P&P reserves were estimated at 7.0 moz and 4.4 moz of gold, respectively. Notably, P&P ore reserves increased to 66 mt with an average grade of 1.35 g/t, while the estimated volume of gold reached 2.9 moz. Ore reserves effectively rose 68% after successful exploration works in licence areas and follow-up exploration at flanks in operating assets, and after Drazhnoye in Oimyakon district, Yakutia, and Krasnoye in Bodaibo district, Irkutsk Region, were added to the overall estimation.

Outlook for 2018

In its production guidance, the Company expects 280–300 koz of gold to be produced in 2018.

Contacts

Investor Relations

Vasily Migunov, Deputy CEO for IR and Capital Markets

+ 7 495 287 88 40
vvm@gvgold.ru

Press Office

Tatiana Demyanova, Deputy CEO for Public Relations

+ 7 495 287 88 40
dtv@gvgold.ru

EM

Denis Denisov

+7 495 363 28 49
denisov@em-comms.com

Company profile

GV Gold (Vysochaishy, PJSC) is one of largest and fastest growing Russian gold mining companies. It develops open pit deposits and washes gold at the country’s largest alluvial deposit. In 2017, the Company produced 225 koz of gold, becoming the 7th largest gold miner in Russia. GV Gold boasts an extensive resource base, with JORC reserves and resources estimated at 4.4 moz and 7.0 moz, respectively.

Its key operating assets are located in the Irkutsk Region and the Republic of Sakha (Yakutia). The Company operates six mines with a total capacity of 8 mtpa of ore and holds 20 mining and exploration licences.

The Company adheres to high corporate governance standards and has a transparent ownership structure, with BlackRock among its shareholders (17.99%).

For further information, please visit http://gvgold.ru

Sources of financial information

The Group is using Adjusted EBITDA and other non-IFRS measures as it believes these measures and related ratios are widely used by certain investors, securities analysts and other interested parties as supplemental measures of performance and liquidity. This measure should not be considered as an alternative to profit for the period and operating cash flows based on IFRS, and should not necessarily be construed as a comprehensive indicator of the Group’s measure of profitability or liquidity. The Group calculates Adjusted EBITDA margin as Adjusted EBITDA divided by total revenue.

Forward looking statements

This release may contain “forward-looking statements” regarding GV Gold (Vysochaishy, PJSC) and (or) its subsidiaries. The words “will”, “can”, “must”, “should”, “will continue”, “possibility”, “believes”, “expects”, “intends”, “plans”, “estimates” and other similar phrases are largely indicators of forward-looking statements. Forward-looking statements contain elements of risk and uncertainty, as a result of which actual results can differ dramatically from the figures listed in the forward-looking statements. Forward-looking statements contain statements regarding future capital expenditures, strategies for business operations and management, as well as development and expansion of GV Gold (Vysochaishy, PJSC) and (or) its subsidiaries. Many of those risks and uncertainties pertain to factors that cannot be controlled or quantified by GV Gold (Vysochaishy, PJSC) and (or) its subsidiaries, so the content of the statements should not be treated as definitive because it is provided strictly as at the date of the statement. GV Gold (Vysochaishy, PJSC) and (or) any of its subsidiaries does not make any commitment and does not plan to provide updates to the forward-looking statements, except where required by applicable law.


[1] TCC is defined by the Company as cost of gold sales (less depreciation and amortisation of property, plant and equipment and intangible assets that are recognised in cost of goods sold). TCC per ounce is calculated as TCC divided by total gold sold, including gold in concentrate.
[2] AISC per ounce sold is defined as TCC plus administrative expenses (less depreciation and amortisation of property, plant and equipment and intangible assets that are recognised in administrative expenses), equipment acquisition costs, construction and design costs required for sustaining ongoing operations. For the purpose of calculating AISC for separate deposits, general administrative expenses are excluded, but they are included in total AISC for the Group. AISC per ounce is defined as AISC divided by total gold sold, including gold in concentrate.
[3] Adjusted EBITDA is defined by the Company as profit before finance costs, income tax, depreciation and amortization, write-down and impairment costs related to exploration and appraisal of mineral resources and excluding financial income. Adjusted EBITDA is based on the Company’s audited annual consolidated IFRS financial accounts for the reporting period.
[4] Net debt is defined as the amount of current and non-current liabilities on loans and borrowings as well as current and non-current liabilities on financial leases, minus cash and cash equivalents as of the reporting date. This calculation is based on the Company’s audited annual consolidated IFRS financial accounts for the reporting year.
[5]Source: The Union of Gold Producers, excluding foreign assets
[6] Source: According to Companies’ data
[7] Source: According to Companies’ data
[8] Comparative data for 2016 have changed in connection with adjustments to create a reserve for materials without movement and adjustment of the reflection of the subsidy received in 2016. Details of the adjustments and their impact are described in the Notes to the consolidated financial statements for 2017.