Petropavlovsk PLC
11 Grosvenor Place
London
SW1X 7HH
T +44 (0)20 7201 8900
E contact@petropavlovsk.net
www.petropavlovsk.net
Annual Report 2019
Who We Are
Petropavlovsk
is a London premium-listed,
Russia-focused gold mining
and R&D business
7.6Moz
Gold produced
to date
514koz
Au sales in 2019
IFC Petropavlovsk Annual Report 2019
17 years
Average mine life
1
of only two POX
plants in Russia
Petropavlovsk
is a London premium-listed,
Russia-focused gold mining
and R&D business
Purpose
“To use our unique technical skill set and mining capabilities
to realise the value of our gold assets for the benefit of all
stakeholders, while enhancing the lives of the communities
and respecting the environment within which we operate.”
Petropavlovsk Annual Report 2019
1
Our Values
Responsibility
We place people first. Responsible practices are our highest priority and we aim to operate safely,
efficiently and transparently, continually seeking new ways to ensure an injury-free workplace.
We are committed to preventing pollution, minimising waste, increasing carbon efficiency and
optimising natural resource usage. We develop innovative solutions to mitigate environmental risks
and welcome an active dialogue with all our stakeholders and local communities.
Innovation
We challenge ourselves and others to constantly look beyond the latest scientific and engineering
developments worldwide. Our aim is to be a respected industry leader in safety and environmental
practices, whilst realising the full potential of our assets through ingenuity, drive and innovation.
Integrity
We believe that honest communication, sound business ethics and respect for people are the
foundation of our business and we deal with all our stakeholders in a respectful, responsible way.
We are guided by our Code of Business Conduct and Ethics in every situation, at all levels of the
Company, to preserve dignity and self-worth in all our interactions.
Excellence
We are focused on delivering results and on doing what we say we will do. We accept responsibility
and hold ourselves accountable for our work, behaviour, ethics and actions. We aim to deliver high
performance outcomes and undertake to deliver on our commitments to our colleagues, business
and social partners, and our investors.
Diversity
We strive for excellence and recognise that our differences make us stronger. By creating an
inclusive and fair workplace, we are ensuring not just diversity of people and skills, but ideas too.
This is the basis for a culture of creativity, which supports the innovation that we value and is a
benefit to all stakeholders.
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Petropavlovsk Annual Report 2019
Our Culture
Inclusive
Without an inclusive culture, diversity is nothing and we believe a culture of equality is a multiplier
of growth and innovation. We aim to foster an inclusive culture that cultivates respect and equality,
and which positively recognises differences.
Happy
A positive and happy workplace environment is key to increased job satisfaction, higher rates of
productivity and reduced workplace stress. This is reflected in reduced employee turnover and
enables the Company to attract and retain top talent.
Creative
Creativity and problem solving have been part of our DNA since the Company was formed and
our research & scientific institutions are a key differentiator of the Group and capable of delivering
superior value to our stakeholders. Additionally, a workplace culture that encourages creativity
leads to happy, motivated and more productive employees.
Rewarding
Showing appreciation for achievement, whether professional or private, through recognition reflects
the value we place on our employees and the effort made by each team member. We understand
that recognition can take many forms and adapt these to reflect to the different geographic cultures
of the Group and the diversity of our employees.
Enabling
The success of our Company is ultimately based on our employees having successful careers,
and progression and advancement is a key ethos for the Group. Many of our employees were
educated as students for free by Petropavlovsk and continuous learning is encouraged as part of
their ongoing development as professionals.
Petropavlovsk Annual Report 2019
3
Our Strategy
The Group’s strategy is to create superior value for
shareholders through six fundamental objectives
1. Maintain and expand gold reserves and resources.
2. Unlock the value creation potential of the POX Hub.
3. Optimise costs and operational efficiencies.
4. Strengthen the balance sheet and increase liquidity.
5. Continuously improve sustainability practices.
6. Develop and nurture current and potential employees.
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Petropavlovsk Annual Report 2019
Investment Rationale
Petropavlovsk is a leading vertically integrated Russian gold miner. With a premium listing on the Main
Market of the London Stock Exchange, the Company is one of Russia’s largest gold producers.
Having operated continuously in the Far East of Russia for over 25 years, from where it has produced
more than 7.6Moz of gold, the Company has a strong track record of mine development, expansion and
asset optimisation.
The Company is one of the major employers and taxpayers in the Amur region and benefits from strong
relationships with the local communities in which it operates.
The POX Hub
The Pressure Oxidation facility (‘POX Hub’)
is a cornerstone of Petropavlovsk’s strategy
and the principal driver of future value for the
Company. The POX Hub is a world-class
facility and one of only two in Russia.
The POX Hub was commissioned late in
2018 and began ramping up in early 2019,
onwards and can treat both Petropavlovsk’s
Significant assets
Petropavlovsk has three active gold mines:
Pioneer, Albyn and Malomir and gold
licences which cover an area of more than
3,200km2 in Russia. The mines are a mix of
open pit and underground, with c.15Mtpa ore
processing capacity in addition to the
500ktpa potential of the POX Hub.
Petropavlovsk today has a long-life mineral
resource base with high expansion potential.
own abundant refractory gold reserves as
well as those of third parties. Not only does
this enable the Company to increase gold
production but also reduce cash costs - it
also means that Petropavlovsk is in a strong
position to consider stranded refractory ore
deposits in the region and across Russia.
The POX Hub is well located in terms of easy
access and well-developed infrastructure.
The anticipated growth in cash flow from
processing its own and third-party ore will be
used to strengthen the balance sheet, which
will then enable the option of paying
dividends to our shareholders.
Deleveraging
The Company’s Net debt / EBITDA was 2.1x
as at 31 December 2019, and Board has set
deleveraging as a management priority given
the need to strengthen the Company’s
balance sheet and liquidity position.
The key driver of increased cash flow to
the Company is the POX Hub which was
commissioned in 2018 and began ramping
up in early 2019.
Experienced management
and technical expertise
Through 25 years of operating in Russia,
the Company has established itself as a
successful explorer, developer and miner
of gold, with all its active mines being
developed from initial greenfield discoveries.
Petropavlovsk differentiates itself from its
peers through its technological expertise and
R&D capabilities. The Company owns several
world-class institutes, including Irgiredmet
and NIC Gydrometallurgia (‘RDC
Hydrometallurgy’), which are responsible for
the innovative design of its processing plant
and continuous improvement of its
processing operations.
Strong Board and
Governance
Petropavlovsk has a strong and experienced
Board, which is fully compliant with the UK
Corporate Governance Code in terms of
composition and diversity, including eight
Independent Non-Executive Directors with a
strong range of skill sets ranging from
auditing, mining, investment banking and
legal. We have an established Code of
Business Conduct and Ethics.
ESG principles
Sustainable development and responsible
business practices have always been
integral to our operations. Since the early
years when Petropavlovsk received
financing from the IFC, the Group has
adhered to strict ESG principles and the very
high H&S standards required under Russian
law in addition to operating in line with
international best practices. The Company
has a strong Sustainability track record and
strives for continuous improvement for the
benefit of all stakeholders. As part of its
ESG strategy, Petropavlovsk joined the
UN Global Compact Initiative on corporate
sustainability and further enhanced its
Corporate Social Responsibility (‘CSR’)
framework, among other achievements.
Petropavlovsk Annual Report 2019
5
Our Response to the COVID-19 Pandemic
Dr Pavel Maslovskiy Chief Executive Officer
“The health and safety of our workers and the local communities within
which we operate remains our highest priority during this challenging
period. Petropavlovsk continues to maintain open dialogue with the
authorities to monitor the situation and ensure the Company is abiding
by all measures and restrictions.”
Health and safety update
At the time of publishing, none of
Petropavlovsk’s employees have been
diagnosed with COVID-19.
There have been relatively few cases
registered in the Amur region which is a
sparsely populated area roughly equivalent
to half the size of France.
While our mining operations and POX Hub are
naturally isolated and away from population
centres, the Group has also implemented
measures in each operating jurisdiction to
meet Government guidelines and which are
appropriate to the specific needs of each
location including its head offices.
High-level management actions taken
include:
– An emergency response team has been
formed to limit the spread COVID-19 at the
Group’s Companies. Members of the
response team are working in co-operation
with local authorities, when and if, required;
– The response team includes
representatives from each of the Group’s
businesses in Russia, and coordinators
have been appointed at each location who
are responsible for preventative and
counteractive measures; and
– Group business travel has been restricted
and the Company’s Moscow and London
offices have been closed until further
notice, with written permission required to
enter buildings.
Employee and community actions taken
include:
– Mine shift patterns have been adjusted to
lower the frequency of new teams arriving
onsite;
– Before commencing each shift, employees
and contractors are required to undertake
14 days quarantine in four purpose-built
camps, with virus testing on arrival and
before moving to the sites;
– Medical infra-red thermometers are used
daily to take the temperature of employees;
– Designated isolation zones have been set
up to house any individuals showing flu-like
symptoms;
– In addition to the recommended hygiene
measures, a comprehensive site awareness
campaign is being carried out; and
– Petropavlovsk has been included in
the most recently revised Federal list
of Russia’s systemically important
companies. Additionally, the JSC
Pokrovskiy Mine (including Pioneer),
LLC Albynskiy Rudnik (Albyn) and LLC
Malomirskiy Rudnik (Malomir) companies
were all identified as being strategically
important to the Amur region. This entails
more stringent oversight by the Federal
authorities and local Ministry of Economic
Development as well as the executive
branch of local government, and the
Company believes this reduces the risk
of business interruption.
Logistics and sales update
– The Company continues to monitor its
supply chain and is putting in place all
necessary precautions to ensure business
continuity;
– Awareness programmes targeting the
local community have also been put in
place, and the Company is supporting
local businesses and the community
through the distribution of masks and hand
sanitisers.
– While the Central Bank of Russia has
temporarily suspended gold purchases,
commercial banks in Russia continue to
buy gold bullion and the Company
continues to sell gold through Russian
commercial banks; and
Legislative update
– In response to the COVID-19 outbreak, the
Russian Government has been introducing
a wide range of measures including
non-work period (from which Petropavlovsk
is exempt as a continuous process
organisation). It has also expanded the
authority of regional heads to set further
specific measures relevant for their regions;
– While the non-work period was officially
lifted by the Federal government, most
regional authorities are maintaining the
restrictions;
– Other measures include certain tax, credit
and reporting holidays which are of benefit
to certain suppliers to the Group’s
business; and
– The Company also can export gold bullion
and confirms that it has the necessary
licences in place required to export gold
for sale outside of Russia, and that it
commenced gold shipments to the UK
and Switzerland from 2020.
Pioneer flotation plant construction
update
– Despite lockdown measures in place,
all key equipment items necessary to
complete construction of Petropavlovsk’s
second flotation plant have now arrived in
Russia, thus ensuring the project remains
on track for Q4 2020 commissioning; and
– Once operating at full capacity, the new
flotation plant at Pioneer will double the
Group’s flotation capacity from 3.6 to
7.2Mtpa.
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Petropavlovsk Annual Report 2019
Contents
Non-Financial Information Statement
We aim to comply with the Non-Financial Reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006.
Reporting requirement
Policies and Standards
Outcomes and Additional Information
Environmental matters
Safety, Health and Environment
Managing environmental impact
GHG Emissions
ISO 14001
Water Management
Waste Management Programme
Cyanide Management
Rehabilitation Programme
Education and Training
Climate change
Permissions
Water
Waste
The Pokrovskiy Mining College
Health & Safety Management Systems
Safety
Human Rights Policy
Grievance Mechanism
Stakeholder engagement
Human rights
Enable members of the public and other stakeholders to raise complaints
The Petropavlovsk Foundation
Code of Business Conduct and Ethics
Building a purpose-led culture/corruption controls
Business model
Managing risk
Key performance indicators
Employees
Human rights
Social matters
Anti-corruption and
anti-bribery
Principal risks and impact
of business activity
Non-financial KPIs
Page
113-115
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113
114
118
120
120
102
109-111
99
105
106
92-93
99
18-19
26-41
86-84
Petropavlovsk Annual Report 2019
7
Who We AreOur Values 2Our Culture 3Our Strategy 4Investment Rationale 5Our Response to the COVID-19 Pandemic 6Strategic ReportChairman’s Statement 10CEO’s Statement 12Celebrating 25 Years of Technical and Gold Mining Expertise 14Our Business Model 18Gold Market Review 20The Group’s Strategy 22s172 statement 24Principal Risk Report 26Risks to Our Performance 28Operational Performance 42Pioneer 44Albyn 46Malomir 48The POX Hub 50The POX Hub 52The making of the POX plant 55Reserves & Resources 58Exploration Update 68IRC 69Financial Performance 70CFO Statement 72Sustainable DevelopmentSustainability Performance 86Introduction to Safety, Sustainability & Workforce Committee Report 89Our Approach 90Corporate Social Responsibility 99Our People 100Local Communities 105Health and Safety 109Environmental Stewardship 113Independent Limited Assurance Statement 124GovernanceIntroduction from the Chairman 128Board of Directors 130Executive Committee 133Governance Report 134Nominations Committee Report 144Audit Committee Report 146Directors’ Remuneration Report 156Directors’ Report 175Directors’ responsibilities statement 183Independent Auditor’s Report to the Members of Petropavlovsk PLC 184Financial StatementsConsolidated Statement of Profit or Loss 198Consolidated Statement of Comprehensive Income 199Consolidated Statement of Financial Position 200Consolidated Statement of Changes in Equity 201Consolidated Statement of Cash Flows 202Notes to the Consolidated Financial Statements 203Company Balance Sheet 250Company Statement of Changes in Equity 251Notes to the Company Financial Statements 252The Use and Application of Alternative Performance Measures (APMs) 256 Appendix, Glossary and Definitions 263Communication with Our Shareholders 267GRI Content Index 268
Strategic Report
8
Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019
9
Second, we have worked to strengthen
the balance sheet. We have restructured
the IRC debt guarantees and refinanced
US$100 million of convertible bonds due in
2020. Petropavlovsk’s ratings with credit
agencies have improved, putting the Group in
a stronger position to undertake further
liability management, including deleveraging
and reducing the cost of servicing debt. This
is a key strategic objective.
Third, we are pursuing an approach of
continuous improvement in all areas of the
business and of investment in both people
and technology. Over the past year, the Board
and Executive team have taken steps to
enhance the Group’s financial reporting and
audit functions; to upgrade risk management;
to develop the work we have done over many
years on environmental and social issues; and
to establish a clear channel of communication
between the Board and the workforce. Danila
Kotlyarov has joined us from IRC as the new
Chief Financial Officer and has since become
an Executive Director. The Safety,
Sustainability and Workforce Committee of
the Board has strengthened oversight of
safety issues, and we are pleased to report on
a year with no fatalities and a significant fall in
the Lost Time Injury Frequency Rate.
Petropavlovsk has joined the United Nations
Global Compact Initiative on corporate
sustainability, reflecting our commitment to
ten established principles in human rights,
labour relations, the environment, and
anti-corruption measures.
Chairman’s Statement
Sir Roderic Lyne
The COVID-19 pandemic casts an inevitable
shadow over this Annual Report. We have
described at the beginning of the Report the
rigorous measures Petropavlovsk has
implemented to protect our employees and
our operations. At the time of writing, in
mid-May, no cases of infection have been
reported within the company. While some
aspects of business have become more
difficult, we have been able to sustain full
operating capacity; and we have benefited
from the upward pressure on the gold price.
That said, it is impossible to predict what
effects the pandemic may have in the months
ahead, save that we are clearly facing a
prolonged period of high volatility in the global
economy. As we explain elsewhere in this
Report, the potential consequences of the
pandemic must stand at the head of our
register of risks.
I had hoped to begin my final report as
Chairman on a more cheerful note. Within this
sombre and uncertain environment, the
better news for all of our stakeholders is that
2019, continuing into the current year, has
been one of the most successful periods in
the quarter-century history of the Group.
In the course of 2019, Petropavlovsk has met
the corporate purpose defined by the Board,
which is to use our unique technical skill set
and mining capabilities to realise the value of
our gold assets for the benefit of all
stakeholders, while enhancing the lives of the
communities and respecting the environment
within which we operate.
Petropavlovsk’s shares have significantly
outperformed the major gold miners quoted
on the London Stock Exchange, both over the
course of 2019 and the first quarter of 2020.
Our shares rose by 102% during 2019. At the
time of writing, a share in Petropavlovsk is
worth more than three times its value at the
2018 AGM, when the current Board was
elected. Cash flow has increased and gold
sold in 2019 grew by 39% to 514,000 ounces
and our guidance is for a further substantial
increase in production to between 620,000
and 720,000 ounces in 2020, including
third-party processing.
Aside from the benefit to all gold mining
companies from the past year’s rise in the
price of bullion, there are a number of specific
reasons why Petropavlovsk has outperformed
the market, strengthened its competitive
position and built a solid foundation for value
accretion in the years ahead.
First and foremost, is the exceptional
performance of the Group’s executive team
and skilled workforce under the leadership of
Dr Pavel Maslovskiy, who returned as CEO in
June 2018.
Over ten years ago, Dr Maslovskiy initiated a
project to construct a Pressure Oxidation
plant at Pokrovskiy in order to process the
refractory ores which are abundant in Russia
and represent approximately 71% of the
Group’s Reserves. This required a large
capital investment, of some US$310 million;
lengthy preparation; and careful technical
training of its operators. Pressure Oxidation
plants are complex operations and elsewhere
in the industry have often proved difficult in
the start-up phase. The POX plant came into
operation at the end of 2018. It has run
remarkably smoothly through 2019 and has
added materially to the Group’s production.
To increase the near-term supply of refractory
concentrates to the POX Hub, our technical
experts have improved the flotation plant at
Malomir; and we are investing in a new
flotation plant at Pioneer (due for
commissioning from Q4 2020), where there
are 2.07 million ounces of refractory reserves.
The POX plant, with its four autoclaves, is one
of only two Pressure Oxidation plants in the
Russian gold industry, and the largest. We are
using spare capacity to process third-party
concentrate purchased from other producers
and plan to increase our own production of
refractory concentrate through expanding
our flotation capacity, exploration and low
cost acquisition. The development of the
POX plant has opened new horizons for
Petropavlovsk and has put the Group in
a very strong competitive position.
10 Petropavlovsk Annual Report 2019
The Group’s strategy is ambitious but realistic.
We shall continue to take a conservative
approach to risk. We shall live within our
means, seek continuous improvement and
guard against complacency. Above all we
seek to build on Petropavlovsk’s technical
strengths – the lead the Group enjoys in the
processing of refractory ores through
Pressure Oxidation, and the excellence of our
geological, analytical, research, engineering
development and training teams.
Finally, I should record that I shall be retiring
from the Chair at the Annual General Meeting.
I have had the privilege of serving on Boards
within the Group for twelve of the past
fourteen years. Together with Pavel
Maslovskiy and Robert Jenkins, I was asked
by shareholders to return in 2018 to help
stabilise the company, revive momentum and
restore its reputation in the markets. With
these objectives achieved, I asked the Board
last autumn to look for a younger successor
who could lead the Board through the next
phase of its strategy for growth. After a
meticulous process of search and interview,
the Board has recommended that Fiona
Paulus should take over the Chair. Having had
a distinguished career in investment banking
and extensive Board experience, Fiona
Paulus is superbly equipped for the role.
COVID-19 permitting, I believe that, under the
leadership of Fiona Paulus and Pavel
Maslovskiy, Petropavlovsk can look ahead to
2020 and beyond with optimism.
ON OUR BUSINESS]
Sir Roderic Lyne
Non-Executive Chairman
26 May 2020
Fourth, after the period of turbulence which
damaged the Group in 2017-18, the Board
has restored stability to the leadership and
reputation of Petropavlovsk and has placed
strong emphasis on rigorous corporate
governance. Since November we have
welcomed four new, highly-qualified
independent non-executive Directors – Katia
Ray, Charlotte Philipps, Fiona Paulus and Tim
McCutcheon. The Board now benefits from
the varied experience of eight independent
non-executive Directors, in addition to the
Chairman. They are diverse in gender, age,
nationality (of five different nationalities at
birth), and professional background. They
have had careers, respectively, in banking,
accounting and corporate finance;
operational mining; natural resources
investment, analysis and consultancy; and
law and business development. Until
February 2020, the Group’s largest
shareholder, the Aeon Mining Limited, was
represented on the Board by Mirzaaziz
Musakhanov. Mr Musakhanov left the Board
when Aeon’s shareholding was acquired by
Uzhuralzoloto Group of Companies (“UGC”).
On 21 April 2020 Maxim Kharin joined the
Board as a Director nominated by UGC.
To sum up, over the past year the Group has
built a platform for growth. The Board has
initiated a review of the Group’s strategy
which is reflected in the “The Group’s
Strategy” section of this report and is
intended to give clear definition to both
short-term and long-term objectives.
Petropavlovsk seeks to become at least the
third largest producer of gold in Russia in
terms of gross profit. We aim to raise
shareholder value by fully exploiting the
potential of the Pressure Oxidation Hub and
increasing the grades of concentrate fed
through it; by decreasing leverage towards a
targeted Net debt / EBITDA ratio of below
2.0x; by reintroducing a dividend programme;
and by reviewing value-accretive merger or
joint venture options. We shall seek to sustain
or expand the Group’s reserve base through
exploration and seeking opportunities for
small-scale acquisition of low-cost resources.
It will be our objective to achieve these targets
with a top-quartile safety record and zero
fatalities, while maintaining the highest
environmental standards in the Russian
mining sector.
Petropavlovsk Annual Report 2019
11
CEO’s Statement
Dr Pavel Maslovskiy
On the Company’s 25th anniversary, I am
pleased to report that 2019 was a positive year
in our development, with strong corporate and
operational progress. This further builds on the
solid foundation we have developed over the
years and bodes well for our future as a
sustainable gold miner and producer.
The successful ramp-up of the POX Hub is
a significant event in the Company’s history
given it is the cornerstone of our future strategy
and principal driver of value creation for our
shareholders. Not only did the plant exceed all
expectations in its first year, but the associated
flotation plant at Malomir also operated above
design rates in several key areas which bodes
well for a successful start-up of Pioneer
flotation plant when it is launched later this year.
In respect of our shareholders I am especially
pleased that these developments and the
successful turnaround of our business are
being recognised through a re-rating of our
equity, with our share price rising 102% in 2019
compared to a 18% increase in the price of gold.
The POX Hub
The delivery and ramp-up of our unique plant,
which can treat multiple sources of even the
most complex refractory gold concentrate, is
testament to the strength of the Company’s
scientific and engineering capabilities.
The POX Hub exceeded even our optimistic
expectations, with 193.2koz of gold recovered
from refractory concentrates during its first
12 months of operations. Of this amount,
132.0koz came from concentrates produced
at our own mine, Malomir, leading to an
increase of 132% in gold produced at Malomir
compared to a year ago. Gold recoveries from
Malomir concentrates increased steadily at
the POX plant through the year to reach above
design during the fourth quarter; whilst
productivity and utilisation-hours for key
equipment items exceeded design rate and
all four autoclaves have been shown to
operate at stable rates at full capacity.
Starting in July, the POX plant began treating
third-party concentrates from several
sources, quickly achieving the design
recovery rate, and 61.2koz of gold were
recovered. Importantly, this demonstrates
our ability to treat a variety of concentrates
which puts Petropavlovsk in a strong position
to meet our 2020 production targets given
this significantly widens the scope of
third-party material that can be acquired and
successfully treated.
Optimising the capacity of the POX Hub is
now critical for the team, and I am pleased to
report that the Group’s second flotation plant,
which is being constructed at Pioneer, will
double the Group’s capacity to produce
concentrate from its own refractory gold ores
to 7.2Mtpa and remains on schedule to
contribute from the fourth quarter. Subject to
Board approval, an expansion of the flotation
plant at Malomir would further increase the
Group’s concentrate capacity to 9.0Mtpa.
A feasibility study on the Malomir expansion
is underway, and I look forward to updating
stakeholders on our progress then.
Operational Performance
The performance at our mining operations
was in line with expectations, with strong
performances from Malomir and Albyn
offsetting weakness at Pioneer caused by the
processing of harder ores and challenging
geotechnical and hydrogeological issues
encountered at the start of the year. Albyn
was the standout performer with production
rising c.13% from the previous year due to an
increase in the volume of higher-grade ore
combined with consistently high recoveries at
the RIP plant. Malomir successfully
underwent the transition from being non-
refractory to being predominantly a refractory
mine such that, in the fourth quarter, around
87% of total gold recovered at Malomir came
from refractory ores. This enabled production
volumes to increase significantly and this was
further helped by the strong performance of
the flotation plant where concentrate grades
were around 18% above design. Gold
recoveries exceeded the design rate of 93%
for the first time in November for Malomir
concentrates.
Production and Costs
For 2019, total gold production, including
production from third-party concentrates,
increased almost 23% to 517.3koz.
Production from our own mines amounted to
471.6koz which is in line with guidance given
at the start of 2019 of between 450 – 500koz
despite the unforeseen geological issues
encountered at Pioneer and extreme weather
events of last summer that caused multiple
floods in the region. Of the three mining
centres, Albyn contributed 33% of total gold
production for the year, while Pioneer
contributed 23% and Malomir 35%. The
remaining 9% came from third-party
concentrates.
In the first full year of operations at the POX
Hub, around 28% of gold produced from our
own mines was from refractory ores and this
rises to around 35% when including third-
party concentrates.
Total Cash Costs◆ were 10% higher at
US$749/oz, up from 2018 (US$678/oz) due
to additional costs associated with the
ramp-up of the POX Hub. All-in Sustaining
Costs◆ decreased by 5% to US$1,020/oz
compared to 2018 (US$1,079/oz).
Total Cash Costs◆ were affected by inflation
of certain Rouble denominated costs, costs
associated with the ramp-up of the POX Hub
and Malomir flotation, application of the full
6% mining tax rate at Pioneer and progressive
increase in mining tax rate to 1.2% at Albyn
and Malomir, which was partly offset by
higher grades at all mines and higher
recoveries at Pioneer and Malomir as
well as Rouble depreciation.
The decrease in All-in Sustaining Costs◆
primarily reflects reversal of impairment of
non-refractory ore stockpiles at Albyn as
well as the increase in physical ounces
sold in 2019 with an aggregate of sustaining
exploration and capital expenditures related
to the existing mining operations and
underground mining projects at Pioneer and
Malomir, Malomir flotation, and capitalised
stripping expenditure during the period
remaining at approximately the same level as
in 2018. This effect was partially offset by the
increase in Total Cash Costs◆.
12 Petropavlovsk Annual Report 2019
Responsible Business
The health and safety of our employees
remains our number one priority and, while
I am pleased to report zero fatalities and a
significant reduction of the LTIFR by 36% in
2019, the basis of our strategy is continuous
improvement with zero harm as our ultimate
target. The initiatives undertaken in 2019
included an increase in health and safety
training and stricter onsite safety monitoring
procedures and these will be continued and
further improved in 2020. I am also pleased
that there were zero major environmental
harm incidents in 2019, for the tenth
consecutive year.
In terms of governance, the skills,
composition and diversity of the Board were
further enhanced by the appointments of
Charlotte Philipps, Katia Ray, Fiona Paulus
and Tim McCutcheon as independent
Non-Executive Directors, Danila Kotlyarov
as an Executive Director and Maxim Kharin
as a Non-Executive Director.
Recognising the value that responsible
business practices create, a new
comprehensive ESG programme, is being
developed and implemented to raise the
Company to a new level of responsible mining
with a focus on sustainable development and
excellence in governance. As part of this
programme, it is our intention to align our
operations and strategies with ten universally
accepted principles in the areas of human
rights, labour, environment and anti-corruption,
and to act in support of the UN goals and
issues embodied in the Sustainable
Development Goals (SDGs). This programme
is being undertaken as part of our participation
in the United Nations Global Compact Initiative
on Corporate Responsibility, for which I am
proud to have become a supporter.
Exploration
Our exploration programme continued its
strategy of extending known orebodies as well
as exploring new deposits to secure the future
of our business, with an increasing focus on
revisiting known refractory gold deposits given
the successful start-up of the POX plant. As a
result, total reserves increased to 8.46Moz,
while total Measured, Indicated and Inferred
Resources which include reserves, increased
to 21.03Moz (after accounting for depletion
caused by mining).
In respect of extensions to known reserves,
intersections made below the open pit at NE
Bakhmut 1 have led to the possibility of
expanding the pit shell and thus extending the
mine life. At Elginskoye, which is expected to
commence production in the second half of
2020, we are optimistic that drilling outside of
known resources will lead to their increase
given encouraging intercepts during the year.
In terms of earlier stage exploration, our team
had a successful year at Osipkan, a satellite of
Tokur which lies around 130km from Malomir,
where two zones of mineralisation have been
discovered which are equivalent to JORC
gold resources and further exploration will be
conducted on these.
Outlook
It is my firm hope that the increase in cash
generated as the POX plant ramps up will
enable the Group to rapidly normalise Net
debt / EBITDA in line with the Company’s goal
of balancing between deleveraging, capital
investment and rewarding shareholder
patience through paying dividends.
As outlined in our response to the COVID-19
pandemic on page 6, the Company has
reacted swiftly to protect the health and welfare
of its employees and local communities, whilst
ensuring the continuity of its business
operations and development projects.
However, given the ongoing uncertainty that
all businesses face, as an additional measure,
I am pleased that Gazprombank has
approved a gold prepays limit of c.392koz
or c.US$470 million, which is valid through
to the end of May 2024.
I would like to thank our employees,
Board, shareholders, host Government,
communities and suppliers for your support
in 2019 and look forward to updating you as
the business continues to progress.
Dr Pavel Maslovskiy
Chief Executive Officer
26 May 2020
Petropavlovsk Annual Report 2019
13
Celebrating 25 Years of Technical
and Gold Mining Expertise
From humble beginnings
Dr Pavel Maslovskiy Co-founder of Petropavlovsk
“When I consider Petropavlovsk today, with its three large-scale gold
mines, over 21 million ounces of JORC Resources, and a processing
capacity of around 15 million tonnes of ore per annum in addition to our
state-of-the-art POX plant, it gives me great pride to reflect on our
history and the strides we have made over the last quarter of a century.
With the enduring support of our employees,
Board and management, shareholders and
other stakeholders, we have created one of
Russia’s largest gold producers from nothing.
And whilst we have encountered challenges
along the way, I believe that, on the 25th
anniversary of the Company I helped
co-found, we can be very proud of our
business’s strong foundations and excited
by the road ahead.
(‘RIP’) plant. This constituted an important stage
in the Company’s progress and a step change
for the business, which previously had struggled
with low recovery rates, particularly during the
winter months despite the team’s ingenious
‘budget’ heating system (shown in photo below
left) which used wood burners and plastic
sacking and which, nonetheless, won
widespread acclaim and more importantly
worked!
Thinking back to the humble beginnings of
our early days at Pokrovskiy – Chairman,
Chief Engineer and Chief Manager all working
side by side with other team members 24
hours a day to install the small second-hand
processing plant we brought over from the
US – I find it quite remarkable to consider all
the achievements we have made.
Founded in 1994 as JSC Pokrovskiy mine
to bid for the Pokrovskiy gold deposit, the
Company produced its first gold in 1999 from
a 600,000 tonnes per annum heap-leach
operation. Having worked tirelessly to finance
the initial stages of the mine, run operations on a
modest budget and, with a total reliance on
doing everything ourselves, we were then able
to direct the ensuing cash flow from these early
ounces into developing proper infrastructure at
the mine and constructing our first Resin in Pulp
Even in those early days, we were dependent on
our in-house capabilities – from engineering to
welding, from construction to baking bread – and
I believe this was instrumental, not just in keeping
a strict control on costs, but also in building our
foundations as a team and cultivating the
entrepreneurial spirit of the Company.
Pokrovskiy went on to yield c.2 million ounces
of gold and paved the way for the
commissioning of three further mines and
plants in the Russian Far East, all of which
were explored, defined and developed by our
in-house mining and technical teams.
Subsequently, the exhausted Pokrovskiy
mine site was reclaimed as the location of our
new state-of-the-art POX Hub facility.
First gold recovered
from Pokrovskiy
Admitted to trading on
the AIM market of the
LSE
Malomir licence
acquired as
a greenfield project
Pioneer’s 1st stage
production facility
completed
Moved to LSE
Main Market
Albyn
commissioned
POX Hub and Malomir
flotation plants
commissioned
Pioneer acquired as
a greenfield project
Commissioning of RIP
plant at Pokrovskiy
Albyn licence
acquired as a
greenfield project
Production
commenced
at Pioneer
Malomir RIP plant
commissioned
Underground
development
commenced
at Pioneer
Construction of
Pioneer flotation
plant commenced
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
14 Petropavlovsk Annual Report 2019
1995: Exploration camp2000: First accommodation camp blocks at Pokrovskiy1999: Winter heap-leach patented by Petropavlovsk It is not surprising, perhaps, that the
same values of innovation, integrity and
excellence which prevailed then still exists
today and have been the driving force
behind the growth of Petropavlovsk from
these humble beginnings to having a
premium listing on the Main Market of
the London Stock Exchange with annual
production of over half a million ounces.
Furthermore, the delivery and smooth
ramp-up of our unique POX plant, which
can treat multiple sources of even the
most complex refractory concentrate,
is testament to the strength of our
Company’s scientific and engineering
capabilities; and I believe Petropavlovsk is
second to none in terms of possessing
such skills and capabilities.
Creating value for the Amur region
and its people
Located in the Russian Far East, on the
border with China, the Amur region has
become one of the largest gold producing
regions in Russia as a result of Petropavlovsk.
It is hard to believe now, but back in 2002
we were one of the first mining companies
with solely Russian assets to achieve
admission to trade on the AIM of the
London Stock Exchange. With a maiden
turnover of just US$23 million, we had the
ambitions of a significantly larger
organisation - to create sustainable value
for Amur and its people. We have since
grown to become one of the largest
businesses in the region and our
contribution to the local economy is
significant and I expect will continue to
be for generations to come. Petropavlovsk
is recognised as a leading taxpayer in
the region.
First gold recovered
from Pokrovskiy
Admitted to trading on
the AIM market of the
LSE
Malomir licence
acquired as
a greenfield project
Pioneer’s 1st stage
production facility
completed
Moved to LSE
Main Market
Albyn
commissioned
POX Hub and Malomir
flotation plants
commissioned
Pioneer acquired as
a greenfield project
Commissioning of RIP
plant at Pokrovskiy
Albyn licence
acquired as a
greenfield project
Production
commenced
at Pioneer
Malomir RIP plant
commissioned
Underground
development
commenced
at Pioneer
Construction of
Pioneer flotation
plant commenced
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Petropavlovsk Annual Report 2019
15
Celebrating 25 Years of Technical
and Gold Mining Expertise continued
We have always maintained a preference for
developing and employing local expertise
– whether in the form of mine management,
engineers, technicians or suppliers. Our
management team consists predominantly of
Russian nationals. Many have been with the
Group since its inception and possess a
range of skills spanning the mining spectrum,
as well as an in-depth knowledge of the
Russian gold mining industry, the legislative
and regulatory environment and an
understanding of local conditions.
advanced plant of its kind in the country. In
order to recover gold from refractory ore,
which accounts for more than two thirds of
our reserves, a complex technical solution
was required. It is testament to our excellent
research and development centres, as well
as our strong partnership with Outotec, that
we have been able to realise this ambition.
By embracing one of the most advanced
technologies in the industry, we are now able
to unlock the significant value of our own
reserves and those of third parties.
Local hiring from the Amur region stands at
65.3%, with a total of 99.7% from Russia as a
whole. From a workforce of 17 in 1994, we
have grown to employing over 9,000 people
where our average wage paid is 32% above
the national average. We are particularly
proud to have an exceptionally high, and
growing, ratio of female employees which, at
c.25%, compares very favourably with the
industry as a whole.
The Group has always focused on nurturing
talent and facilitating career development for
its employees. In 2008, we established a
specialist mining college near Pokrovskiy and
are particularly proud to have provided
training to over 10,000 students since then.
This not only gives people in the area a
significant opportunity for professional
development, but also provides the Company
with a valuable pool of skilled local talent.
Recognising it is our responsibility to make a
meaningful contribution to the communities
that host us, Petropavlovsk has invested
heavily in social development throughout its
history. In the beginning, this involved
investments into specific projects, such as the
construction of a new school, assistance
provided to an orphanage and the provision
of educational facilities. In 2010, we took the
decision to formalise our approach with the
creation of the Petropavlovsk Foundation.
I am pleased to say that we have provided
ongoing support in the form of community
investment to the tune of over US$30 million
since 2001. Together, this has had a huge
impact on the socio-economic and cultural
development of our local communities as well
as uplifting the lives of many.
Innovation and technical excellence
Over the years, we have amassed a highly
skilled and ambitious team of mining experts
and specialists and it is our passionate and
dedicated staff that brought us to where we
are today.
Underpinned by our values of responsibility,
innovation, integrity, excellence and diversity
is our creative culture. By constantly
challenging ourselves to discover new ideas,
better solutions and inventive technology, we
have achieved significant feats over the years,
often in the face of great adversity.
Our latest achievement has been the
successful development of the POX Hub
which is the largest and most technologically
Growing responsibly
High social and environmental standards
have always been a key focus for
Petropavlovsk and, when financing the
development of the Pokrovskiy mine in the
early 2000’s, we attracted investment from
an institution with the most rigorous ESG
standards; the International Finance
Corporation. Consequently, we were one
of the early proponents of sustainability
reporting in the mining industry, providing
ESG commentary as early as 2003 and our
first standalone sustainability report for 2006.
Today, we are one of the few mining
companies to report safety and environmental
data alongside quarterly production results,
and we are continuously looking to improve
our performance in this integral aspect of the
business. With the introduction of more ESG
targets from 2020, we are committing to
meaningful positive change and to minimising
our negative impact.
As the Company and the broader regulatory
and governance landscape has evolved, so
too has our Board and we are delighted today
to have the team with the right blend of
experience that will take us forward into the
next chapter of our development.
Positioned for a sustainable future
Having achieved a substantial turnaround of
the business and strengthened our
foundations by commissioning and ramping
up the POX Hub, I believe we are well
positioned to significantly de-risk the balance
sheet. However, the path has not always been
paved with gold. I think it was Winston
16 Petropavlovsk Annual Report 2019
Churchill who said: “All men make mistakes,
but only wise men learn from their mistakes”
– in Russian, we say ‘a beaten man is worth
two who haven’t been beaten’. There can be
no doubt that we have learnt important and
costly lessons along the way, although I
believe these lessons have set us in very good
stead for a bright and enduring future.
The hurdles we have encountered have
served to heighten our agility as a business
as well as reinforce our resourcefulness.
We have weathered many a storm to come
out the other side stronger and better
equipped. In this respect, I wish to give
specific mention to the loyalty and patience
of our shareholders, and I am one myself, and
I appreciate this has not been an easy journey
in the past few years. We must never forget
that mining is the most cyclical of all
industries. We have learned through painful
experience that our decision-making,
particularly where it involves the debt
financing of large-scale projects, needs to
consider a long-term and ultra-conservative
view of commodity prices.
Today, with our major capital expenditure
programme behind us, we forward look to a
much brighter future. With a steadfast focus
on margins, we expect to generate sustained
cash flow from our installed asset base, which
will enable us to pay down debt and thereby
improve return on equity plus reward
shareholders in the form of dividends.
The diligence and resilience of our team
knows no bounds and I am endlessly grateful
for their continued dedication.
I would like to thank all those who have made
the last 25 years such an incredible journey
and wish the Company, its employees and
shareholders, all the best for the next 25 years.”
Petropavlovsk Annual Report 2019
17
7.6Moz gold producedWorld-class R&D facilities2019: Fully automated POX plant2019: POX Hubc.US$30 million invested in local community since 2001c.25% female workforce Our Business Model
The Cycle
Our business model was designed to implement our Purpose of using our unique technical skill set and
mining capabilities to benefit all stakeholders, with sustainable development embedded at every stage of
the mining lifecycle, from identifying prospective areas to exploration, development, mining and processing.
1.
Exploration
and Evaluation
2.
Mining and
Development
3.
Technology
We have a strong track record of
identifying, exploring and appraising
deposits with commercially viable
concentrations of gold in both
brownfield and greenfield sites.
These deposits replenish and
increase our resource base.
Our operating experience allows
us to achieve optimal ore extraction
from our open pit and underground
assets. This, along with the scale
of our asset base, enables us to
increase processing capacity and
operating profits.
We have harnessed our industry-
leading expertise in processing
technologies at the Group’s research
centre RDC Hydrometallurgy to
design and construct a pressure
oxidation circuit at Pokrovskiy (the
“POX Hub”) as well as associated
flotation plants at Malomir and Pioneer
(under construction). RDC
Hydrometallurgy also determined the
optimal processing parameters for the
plants and continues to seek ways to
improve their performance, as well as
design new technologies for the future
processing of refractory gold ores.
18 Petropavlovsk Annual Report 2019
4.
Processing
5.
Production
6.
Mine Closure and
Rehabilitation
We produce gold doré bars which are
sent to refineries for smelting into bullion.
Currently, all of the doré produced at
Petropavlovsk is either sold to banks in
Russia or exported.
Mine closure planning is integrated
into the asset life cycle. This ensures
responsible environmental compliance
and the sustainable development of
mines in the project areas.
In addition to the traditional
Resin-In-Pulp (RIP) technology used
for extracting non-refractory gold
from ores, the Group also owns one
of only two POX plants in Russia
which enables it to recover gold
from refractory ores. The plant is
currently processing refractory gold
from its own mines as well as from
third parties, and is the only plant in
Russia capable of processing
double-refractory gold ores.
Petropavlovsk Annual Report 2019
19
Gold Market Review
How did gold perform in 2019?
2019 was a strong year for gold, with
prices rising 18% to reach a six-year high,
commencing the year at US$1,279/oz and
ending at US$1,515/oz. Prices traded within
a range of US$1,270/oz – US$1,546/oz and
averaged US$1,392/oz, which is a 10%
increase on 2018. On a relative basis, while
gold outperformed silver (+16%) and the
Bloomberg Commodity Index (+5%) it could
not quite match the returns generated by
platinum (+21%) and palladium (+54%).
What factors may have influenced the
gold price during the year?
Gold’s performance has likely benefitted
from its safe haven status, with 2019 being
an eventful year in terms of political and
macroeconomic news. Early in 2019, the US
witnessed its longest Government shutdown,
lasting 35 days, while protracted Brexit
negotiations resulted in the resignation of
Prime Minister Theresa May followed by a
snap general election. Other factors included
a deterioration in the relationship between
Russia and the US, protracted conflict in
Syria, rising tensions between Iran and the
US, the US’s trade war with China and a
presidential crisis in Venezuela. From a
macroeconomic perspective, interest rates
continued to track lower, while the US Federal
Reserve Bank became increasingly dovish,
cutting rates three times over the course of
the year with the European Central Bank
resuming quantitative easing measures.
Together, these factors helped gold to regain
its status as a hedge against uncertainty and
a tool for portfolio diversification.
What were the key demand trends in 2019?
Broadly speaking, global gold demand did
not change materially, decreasing a modest
1% to c.140.0Moz (2018: c.141.5Moz), as
increased investment demand into Exchange
Trade Funds (“ETF”) was balanced by weaker
bar and coin and jewellery demand.
Global jewellery demand declined 6% to
67.7Moz, driven by lacklustre demand in the
world’s two largest markets, India and China
which collectively accounted for 56% of global
jewellery demand. China’s jewellery demand
retreated 7% on the back of a slowing domestic
economy, rising inflation, higher gold prices and
the China-US trade dispute. India’s experience
was similar, with year-on-year jewellery demand
falling 9% as it was affected by higher gold prices
and weaker economic sentiment. By contrast,
demand in the world’s third largest consumer, the
US, increased 2% to reach a 10 year high of
4.2Moz, underpinned by strong consumer
confidence and a robust economic environment.
20 Petropavlovsk Annual Report 2019
Investment demand is the second largest
source of demand after jewellery and includes
bars, coins and ETFs. Overall, investment
demand increased 9% to 40.9Moz thanks
to a rise in ETF holdings which more than offset
a decline in physical gold, with retail investment
tumbling to a decade low leading to demand
for bars falling by 25% to 18.6Moz and demand
for coins falling by 8% to 9.3Moz.
On a combined basis, China (6.8Moz) and
India (4.7Moz) accounted for 41% of physical
bar and coin demand in 2019. Both countries
witnessed a sharp decline in demand due to
higher gold prices (especially in local currency
terms) as well as pressure from weaker
economies (China’s GDP growth slowed to
the lowest in 27 years). As a result, China’s
total bar and coin demand declined 31%
while India’s fell 10%. The weakness was
not confined to China and India only, with
Asia, the Middle East and much of the West
also declining. Only Turkey, South Korea and
Canada recorded positive year-on-year
growth in physical bar and coin demand.
With gold rallying to a six-year high in US$
terms and hitting record levels in many local
currencies, the behaviour of retail and
institutional investors diverged somewhat.
Retail bar and coin investors typically looked
to capitalise on a rising gold price by selling
their holdings, while institutional investors
took the opportunity to increase their holdings
via ETFs.
According to data compiled by UBS, global
ETFs increased by 14% to 86.8Moz, which is
roughly the equivalent of US$130 billion
based on the year end gold price. North
American ETFs accounted for around 50%
of total global holdings with the world’s largest
ETF, the SPDR Gold Shares ETF, reportedly
holding 28.7Moz at the year end.
In terms of official sector demand, central
bank purchases totalled 20.9Moz in 2019,
1% lower year-on-year, but representing
the tenth consecutive year of net purchases
and the second highest level in value terms
after 2018. Most Central Banks became net
purchasers following the 2008 global financial
crisis and have continued to add to reserves,
driven by heightened economic and
geopolitical uncertainty and unconventional
monetary policies.
As in previous years, much of the material
demand came from emerging markets as
their Central Banks sought to diversify reserve
holdings. Russia (5.2Moz purchased), Turkey
(5.2Moz purchased), China (3.2Moz
purchased), Kazakhstan (1.2Moz purchased)
and India (1.2Moz purchased) all added to
existing holdings.
What were the key takeaways in terms of
gold supply in 2019?
Total gold supply increased 2% to 153.6Moz,
driven mainly by an 11% increase in recycled
gold, which totalled 41.9Moz, with higher gold
prices stimulating supply. This is not unusual
in a rising gold price environment, especially
considering that some prices in local
currencies have increased beyond previous
record highs.
Mine production decreased 1% to 111.4Moz,
although it is worth noting that this was the
second highest year of production in the last
decade, with Russia, Australia, Turkey and West
Africa all making notable gains. In contrast the
world’s largest producer, China, experienced its
third consecutive year of decline with output
affected by stricter environmental controls and
the scaling down and closure of some
smaller-scale operations. Industrial action
in South Africa and Mexico, as well as lower
grades from Grasberg (one of the world’s
biggest gold mines, located in Indonesia),
also weighed on total output.
How has gold performed so far in 2020?
During the first four months of 2020, gold
appreciated by +12%, beating silver (-16%),
platinum (-20%) and palladium (+1%). With
COVID-19 materially impacting markets and
economies on a global scale, gold initially
performed in a similar fashion to the 2008
financial crisis, initially falling in tandem with
the stock market crash, as funds that held
gold via futures and ETFs were forced to sell
their holdings to meet margin calls, raise cash
and buy government bonds. This resulted in
the gold price temporarily dipping below the
psychologically important US$1,500/oz level
around mid-March. However; following this
initial selloff, gold proceeded to rebound to
over US$1,700/oz (US$1,742/oz on 14 April), a
price last seen in Q4 2012, suggesting that
gold’s status as a wealth preservation and
diversification tool remains intact as the
remainder of the year will likely depend on a
range of factors, including the path of inflation,
interest rates, US$ strength, stock market
performance, geopolitical risk, consumer
confidence and the impact of the COVID-19
pandemic.
The average annual gold price increased by 10% in 2019 to US$1,392/oz (in US$/oz)
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
1,392
1,410
1,268
1,257
1,248
1,265
1,160
1,224
1,668
1,570
Source: The London Gold Market Fixing Limited. Data provided for information purposes only.
Gold appreciated by 18% in 2019 (in US$/oz)
2000
1750
1500
1250
1000
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: The London Gold Market Fixing Limited. Data provided for information purposes only.
Gold ETFs added 10.4Moz (+14%) to their total holdings in 2019
100
90
80
70
60
50
40
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: UBS
Petropavlovsk Annual Report 2019
21
The Group’s Strategy
The Group’s strategy is to create superior value for
shareholders through six fundamental objectives
Maintain and
expand reserves
and resources
Unlock the value
creation potential of
the POX Hub
Optimise costs and
operational
efficiencies
The Group continually strives to strengthen its
cash flows by optimising costs and improving
operational efficiencies at both existing and
future operations. In this respect, the Company
has a strong track record of using its unique
R&D capabilities to enhance gold processing
techniques and to optimise gold recoveries.
At its mines, the Company is currently focused
on optimising the stripping of refractory ore
bodies in order to fast-track access to higher
quality reserves, whilst maintaining ore supply
to the processing plants through careful
production scheduling and use of existing
stockpiles. The Company’s team of scientists
and engineers continue to seek ways to
increase throughput at Malomir by improving
the utilisation of crushing and flotation circuits.
These modifications will also be implemented
at the Pioneer flotation circuit once
commissioned later in 2020.
Other project cost initiatives include:
– The installation of pumps which will enable
single autoclaves to undergo scheduled
maintenance while optimising the use of
oxygen in the remaining three autoclaves;
– Test work and research to determine optimal
concentrate blends to improve gold recovery
while minimising oxygen consumption
(which is a significant cost to the pressure
oxidation process);
– A feasibility study into thermal pre-treatment
of double refractory concentrates with a
view to improving recovery by up to 5%; and
– An updated feasibility study into expanding
the Malomir flotation plant has focused
on ways of reducing CAPEX from the
original study.
Our short-term strategy is focused on
maximising utilisation of the POX Hub’s
capacity by increasing the supply of
concentrates from our own mines and third
parties. At our own mines, construction of a
new flotation plant is underway at Pioneer
which will double the Group’s own flotation
capacity from 3.6Mtpa to 7.2Mtpa once
operational in Q4 2020.
The Company is also undertaking a feasibility
study into expanding the capacity of the
flotation plant at Malomir by investing in a third
production line. Subject to funding and Board
approval, this line could come on stream in
2022 and increase total own Group flotation
capacity to 9.0Mtpa.
Starting in July 2019, the POX Hub began
treating third-party concentrates from multiple
sources with recoveries quickly reaching and
exceeding the design rate. The Company
plans to increase treatment of third-party
materials to between 130kt to 145kt in
2020 depending on availability.
In the longer term, the Company is
investigating the prospect of acquiring
further licences in the underexplored
Mongolo-Okhotskiy mineralised belt which
hosts several well-known deposits, including
the Taseevskoye and world-class Sukhoi Log
deposits. As part of this initiative, two
exploration licences covering the Mariinskiy
project lying 30km to the east of Malomir were
acquired at state auction in February 2020.
The Company is also considering the
resumption of exploration work on the
Tokur project, including its satellite Osipkan.
There is strong geological evidence to suggest
that both Mariinskiy and Tokur may contain
significant refractory gold resources which are
higher quality than both Malomir and Pioneer.
Given that the POX Hub’s capacity can be
increased by 50%, our long-term strategy is
to consider a range of opportunities; including
greenfield projects to potentially acquiring
producing or advanced-stage assets.
The Group’s strategy is to grow and maintain
its resources and reserves through exploration
and/or small-scale acquisition of low-cost
reserves and resources. Given the lack of
refractory processing capacity in Russia,
many quality refractory orebodies remain
underexplored and licences are more readily
available. Given many of these orebodies are
already known, discovery costs are lower
which makes them potentially interesting
targets for non-organic growth.
In implementing this strategy, the Group
acquired two licences in February 2020
covering the promising early-stage Mariinskiy
project located c.30km east from Malomir.
The Group’s internal exploration programme
also focuses on good quality refractory gold
ores since this has the potential to unlock
significant value.
The Group’s short-term reserve and resource
replacement strategy includes:
– Near mine exploration, targeting further
non-refractory reserves, including
underground, to maximise plant utilisation
and extend the useful life of the remaining
non-refractory processing facilities;
– Exploration in the vicinity of Malomir and
Pioneer, targeting high quality refractory
reserves to maximise returns from the POX
Hub; and
– Early stage exploration at the Group’s
various development and greenfield
projects, including: Tokur, Mariinskiy
and two located in Khabarovsk.
The Group’s longer-term reserves and
resources replacement strategy is focused on:
– A programme of active exploration
prioritising the most attractive refractory
targets within the Group’s own
development projects;
– Exploration aimed at defining underground
reserve and resources at Albyn and its
satellites, and to identify further underground
targets in the Pioneer and Malomir areas;
and
– Potential further licence acquisitions close
to existing Group infrastructure.
22 Petropavlovsk Annual Report 2019
Strengthen the
balance sheet and
increase liquidity
Continuously improve
sustainability
practices
Develop and nurture
current and potential
employees
Management continually looks for ways to
de-risk the Group’s balance sheet, including
focusing on improving cash flow generation
and an optimal capital structure. In 2019 and
the early part of 2020, the Company
undertook several initiatives aimed at
strengthening its financial position, including:
(i) a restructuring of IRC’s debt facilities, which
are guaranteed by the Company, to a more
favourable repayment schedule; (ii) a
restructuring of the Company’s
US$100 million convertible bonds due on 18
March 2020 which were retired early and
replaced with US$125 million convertible
bonds due in July 2024; (iii) entering into a
non-binding preliminary agreement with
Stocken Board AG to remove the IRC debt
guarantees and dispose of most of its equity
holding in IRC; and (iv) providing shareholders
with the option of using equity to fund the
purchase of 25% of TEMI LLC. At the time of
writing, these initiatives were met with an
upgraded rating by Fitch in August 2019 and
an upgraded outlook by S&P Global Ratings
in October 2019.
The Board has maintained its strategic
objective of reducing Net debt / EBITDA as a
Group priority, which has been facilitated by
the strength in the gold price and weakness in
the Rouble. The team is focussing on several
initiatives to reach this target, including:
(i) expanding EBITDA by maximising utilisation
of the POX Hub’s capacity and implementing
cost optimisation and operational efficiency
measures; and (ii) reducing Net debt by
prioritising the build-up of free cash flow
on the balance sheet. The Company aims to
implement an appropriate capital allocation
policy in line with the Company’s goal to
balance between deleveraging, capital
investment and return to shareholders.
Management, together with external advisers,
are also continually monitoring low or zero
cost hedging options to fix the gold price
and ensure that the Company will continue
to meet its interest payment obligations in the
event of a deterioration in gold prices.
The health and safety of our workforce is a
top priority for the Board and management.
The Group is focused on the continual
improvement of health and safety
performance, by minimising the risk of
accidents and occupational illnesses, and
is committed to achieving a zero-harm
working environment.
We regard people as our most valuable asset
and believe that investing in our employees
delivers long term rewards in the form of a
skilled and loyal workforce. We look to
encourage the development of our
employees by offering a high level of training
and ensuring we engage with them in an
appropriate way.
Given the remoteness of our operations,
we aim to employ local residents wherever
possible so that our employees are able to
either work from or close to their hometowns.
As a result, more than 65% of our employees
are residents of the Amur region. In order to
ensure we have the appropriate skills and
training, many of our employees joined
Petropavlovsk after graduating from our
Pokrovskiy Mining College where they
mastered professions in mining and metallurgy.
Since its foundation in 2008, the college has
educated more than 10,000 graduates.
As part of ongoing professional training,
an average of 62 hours of professional
education per employee was carried out
in 2019, in fields ranging from analytical
chemistry to the pressure oxidation process.
The Pokrovskiy Mining College is the only
educational institution in the Far East which
provides an advanced training programme for
engineers on pressure oxidation technology.
The programme is aimed at sharing the
theory and expertise of our in-house R&D
company, RDC Hydrometallurgy, as well as
practical skills which are taught using a
unique pilot autoclave and computer
simulator.
Risk management strategies are
implemented based on valid data and sound
science to reduce Lost Time Injury Frequency
Rates (LTIFRs). Safety performance is
carefully monitored at all levels of the
business, with ultimate oversight by the
Board of Directors. We aim to develop a
safety culture within the Group, which is
founded on behavioural based safety.
We continually review, update and look for
ways of enhancing opportunities for open
dialogue with our local communities, which
include consultations and social impact
assessments at our operations. We are
cognisant of the socio-economic impact we
can make within the Amur region and have
various tools in place to enable us to provide
support and assistance, including the
prioritisation of local recruitment and
procurement, the Petropavlovsk Foundation
and the provision of local infrastructure.
We are committed to respecting our
environment which means preventing
pollution wherever possible, minimising
waste, increasing efficiency, managing and
reducing greenhouse gas emissions and
optimising natural resource usage and
developing innovative solutions to manage
and mitigate environmental risks.
The Company is committed to high standards
of corporate governance and to applying the
Principles of Good Governance set out in the
UK Corporate Governance Code. Our strategy
is to continuously improve governance by
reinforcing key areas such as the management
and oversight of audit; finance; risk; health and
safety; environmental, community and
workforce issues; and to place increasing
emphasis on ESG.
Petropavlovsk Annual Report 2019
23
s172 statement
Promoting the success of the Company
The Board acknowledges that there is a
legal requirement for the Company to report
on how the Board and its Committees have
considered the requirements of s.172 of the
Companies Act 2006 in their decision making.
A director of a company must act in the way
he or she considers, in good faith, would be
most likely to promote the success of the
company for the benefit of its members as a
whole and, in doing so, have regard (amongst
other matters) to the following factors:
– The likely consequences of any decision on
the long-term;
– The interests of the company’s employees;
– The need to foster the company’s business
relationships with suppliers, customers and
others;
– The impact of the company’s operations on
the community and the environment;
– The desirability of the company maintaining
a reputation for high standards of business
conduct; and
– The need to act fairly as between members
of the company.
The Board is ultimately responsible for the
direction, management, performance and
long-term sustainable success of the
Company. It sets the Group’s strategy and
objectives, taking into account the interests
of all its stakeholders. A good understanding
of the Company’s stakeholders enables the
Board to factor the potential impact of strategic
decisions on each stakeholder group into
Boardroom discussions. By considering
the Company’s purpose, vision and values
together with its strategic priorities the Board
aims to make sure that its decisions are fair.
The Board has always, both collectively and
individually, taken decisions for the long term
and consistently aim to uphold the highest
standards of business conduct. Board
resolutions are always determined with
reference to the interests of the Company’s
employees, its business relationships with
suppliers and customers, and the impact
of its operations on communities and the
environment. This statement serves as an
overview of how the Directors have performed
this duty in 2019 and engaged with the
Company’s key stakeholders to help to inform
the Board’s decision-making.
Pages 92 to 93 of the Sustainable
Development section of this Report details
the Group’s stakeholders and describes
how the Board received information about
its various stakeholders and the main
concerns and issues raised by them in
2019. Throughout this Strategic Report
are examples of how the views of the
Company’s stakeholders are embedded in
how the Company does business, guided by
its purpose.
The following examples demonstrate how
the Board considered and approved matters
which support the longer-term success of the
Company:
– Refinancing of the Group’s US$100 million
9% Convertible Bonds due March 2020;
– ESG initiatives including Membership of the
United Nations Global Compact Initiative;
and
– Construction of the flotation plant at
Pioneer.
24 Petropavlovsk Annual Report 2019
Acceleration of the construction
of the flotation plant at Pioneer
During the year the Board approved
construction of the flotation plant at Pioneer.
This will enable the Group to process refractory
and transition ore. It is a strategically important
aspect of the Group’s development and its
future position in the gold mining industry.
Together with considering the key financial
data of the project the Board considered
non-financial matters. A decision not to
construct the flotation plant would potentially
lead to the closure of the Pioneer RIP plant.
This would ultimately result in job losses and
consequent social issues within the local
community.
Further examples of the Board’s deliberations
during the year and how the Board took
account of stakeholders are provided on
pages 128 to 183 of the Governance Section
of this Report.
Refinancing of the Group’s
US$100 million 9% Convertible Bonds
due March 2020
During the year, the Board considered the
refinancing of the Group’s US$100 million 9%
Convertible Bonds due March 2020 (the
‘US$100 million Bonds’).
The refinancing consisted of the placement
of Petropavlovsk 2016 Limited US$125 million
8.25% Convertible Bonds due 2024 to repay
the US$100 million Bonds (the ‘Refinancing’).
The Board considered that the financial
advantage accruing to the Company as a
result of the Refinancing would promote the
growth and financial prosperity of the
Company and the Group as a whole.
The Refinancing benefitted bondholders,
shareholders and employees by de-risking the
Group’s balance sheet. The Refinancing also
contributed to Fitch Ratings upgrading the
Group’s Long-Term Issuer Default Rating and
senior unsecured rating to ‘B-‘ from ‘CCC’ with
a Positive Outlook. This is expected to reduce
the Group’s future cost of debt.
In addition, funds raised from the placement
of the new US$125 million convertible bonds
were used to advance construction of a
flotation facility at the Pioneer mine, enabling
the Group to grow its production of refractory
gold, benefitting the Group’s employees,
Shareholders and securing the long-term
future of the Pioneer mine which has
abundant reserves of refractory gold ores.
ESG Initiatives
As a mining company, and one of the principal
employers in the Amur region, the Board
understands that its wide range of stakeholders
is integral to the sustainability of the Group’s
business, underpinning its social licence to
operate. In addition, the Board is conscious
that expectations around the Company’s
performance and contribution to society are
diverse and evolving.
Stakeholder considerations are integral to
discussions at Board and Committee
meetings. The Board recognises that its
operations have an impact on the local
community in which the Group has its mining
operations.
The Board (through its Safety, Sustainability &
Workforce Committee) approved the
following matters, which were endorsed by
the Board:
– Petropavlovsk joined the United Nations
Global Compact initiative. The UN Global
Compact is a call to companies to align their
operations and strategies with ten
universally accepted principles in the areas
of human rights, labour, environmental
management and anti-corruption and to
implement actions in support of UN goals
and the issues embodied in the associated
Sustainable Development Goals.
Petropavlovsk is proud to join thousands of
other companies globally who are all
committed to responsible business
decision-making in pursuit of a better and
more sustainable world;
– A Grievance mechanism has been
launched to enable any member of public or
stakeholder to confidentially raise
complaints or issues concerning
Petropavlovsk’s activities and to be assured
that they will be carefully assessed and that
a written response will be provided; and
– The development of an Environmental,
Social and Governance programme which
will contain a set of ambitious short and
long-term targets designed to enhance
Petropavlovsk’s sustainability policies, and
practices.
Petropavlovsk Annual Report 2019
25
Principal Risk Report
Introduction to Risk Management during 2019
The Board believes that risk management
brings many benefits to Petropavlovsk’s
operations. Identification and management
of risk are central to its delivery of strategic
goals because they reduce unexpected
productivity shortfalls and limit unbudgeted
costs. Risk management also provides a
framework for balancing risk against strategic
returns by enabling management to quantify
the level of risk deemed acceptable for a given
economic return. Effective risk management
can also create opportunities because the
learned experiences of the past improve
resilience and protection going forward and
therefore can help maximise returns for
acceptable levels of risk.
During 2019, the Board considered the
Group’s risks and its mechanisms and
processes for handling these risks.
The Group risks were monitored by the
Board, with the exception of (i) financial risks
which were in the first instance monitored by
the Audit Committee and (ii) health, safety and
environmental (‘HSE’) risks which were in the
first instance monitored by the Safety,
Sustainability & Workforce Committee
(‘SS&W’). The Audit and SS&W Committees
reported any material risks within these areas
to the Board which considered these risks
and monitored the mitigating actions being
taken to address and monitor these risks.
The risk management system aims to ensure
that the Board’s attention is focused on those
risks with the highest potential impact.
During 2019, members of the Executive
Committee had responsibility for evaluating
risks in terms of potential impact and financial
cost, with reference to the Group’s strategy
and the operating environment.
Responsibility for each risk category was
delegated to a member of the Executive
Committee (a ‘Risk Owner’). Each Risk Owner
is responsible for:
– Identifying risks in their risk area;
– Assessing the likelihood of occurrence and
potential impact on the Group of each risk;
and
– The implementation of mitigating controls
and action plans which seek to remove or
minimise the likelihood and impact of the
risks before they occur.
The Board recognises that some risks by their
nature cannot be mitigated by the Company.
A diagram detailing the Group’s Risk
Management Framework is provided on
page 29.
Principal risks relating to the Group
A table summarising Principal Risks is provided
below, followed on pages 30 to 41 by further
information on the potential impact of each
specific risk and mitigating measures in place.
The risks set out below should not be regarded
as a complete or comprehensive list of all
potential risks and uncertainties facing the
Group which could have an adverse impact
on its performance. Additional risks which are
currently believed to be immaterial could turn
out to be material and significantly affect the
Group’s business and financial results.
Details of the Group’s internal control systems
which support this risk management system
are outlined on page 154.
Risk Management Framework
going forward
The Board believes that managing risks
effectively across different disciplines requires
a consistent and integrated methodology to
deliver the balanced assessment needed by
management to identify the primary source of
risk and area of impact. Both are essential for
effective management and governance.
In December 2019, the Board undertook a
review of the Group’s risk management
framework. This review was led, on behalf of the
Board, by Mr Damien Hackett, Independent
Non-Executive Director. This culminated in the
constitution of a new Risk Committee (the
‘Committee’) on 4 February 2020. The Risk
Committee is chaired by Mr Hackett. Other
members of the Committee are Mr James
Cameron and Mrs Katia Ray, Independent
Non-Executive Directors and Mr Dmitrii
Chekashkin, Group Executive, Business
Transformation and Operational Efficiency.
Mr Chekashkin is a member of the Group’s
Executive and Operational Committees.
Mr Martin Smith, the Group’s former Deputy
CEO, acts as an adviser to the Committee.
Terms of Reference of the Committee are
available on the Company’s website at
www.petropavlovsk.net.
The first task of the Committee is to review the
Group’s risk management framework and
recommend any changes to the Board. The
Committee proposes that the new framework
will include both a top-down and bottom-up
approach. It is proposed that the Operational
Committee will continue to play a pivotal role
in the new framework. The Board will remain
responsible for determining the Group’s risk
appetite.
The Committee has proposed the introduction
of a basic, 3-way integrated framework to
identify, assess and manage risk.
Strategy
Governance
Intelligence
Further details of the new Risk Management
framework and its implementation will be
provided in the 2020 Annual Report.
26 Petropavlovsk Annual Report 2019
Changes from risks identified in the
2018 Annual Report
During 2019 the most critical risks to the
Group related to:
(i) The ramping up of the POX Hub; and
(ii) The refinancing of the Group’s
US$100 million 9% Convertible Bonds
due March 2020.
At the date of this report the Board is pleased
to note:
(i) The successful ramping up of the POX
Hub. This is covered in detail on pages
50 to 57; and
(ii) The placement, in June 2019, of
US$125 million 8.25% new convertible
bonds (the ‘New Bonds’) to refinance the
US$100 million 9% Convertible Bonds due
March 2020. The additional proceeds from
the issue of the New Bonds were used to
advance the construction of a new
flotation facility at the Pioneer mine,
enabling the Group to grow production
by unlocking the value embedded in the
Group’s refractory reserves via the
POX Hub.
New risks
The Board considers and is conscious of new
risks and ensures that mitigating actions are
taken as appropriate.
COVID-19
At the date of this report, there is an
unprecedented global situation due to the
COVID-19 pandemic which is impacting on
businesses worldwide. This poses the most
significant current risk to Petropavlovsk’s
employees and operations.
Petropavlovsk’s highest priority is to protect
its workforce and the local communities in the
Amur region in which it operates. The Group
has undertaken risk mitigation strategies
which are focused on protecting its staff
and are in line with published governmental
guidance. This has included the formation of
an emergency response team, should this be
needed, to limit the spread of COVID-19 at
Group companies.
There are currently no disruptions to any of
the Group’s supply chains or logistics and
business operations continue as normal.
However, the situation is evolving and
dynamic. The executive team and the Board
continually monitor the situation.
Consequently COVID-19 has been included
as a new risk.
Further information on measures taken by the
Company is provided on page 6.
Brexit
The UK ceased to be a member of the
European Union at 23:00 GMT on 31 January
2020. The transition period which began
immediately is due to end on 31 December
2020. Given the guidance provided by the
Financial Reporting Council, the Board has
again considered whether this presents any
risk to the Company. The Board has
concluded that there are no obvious,
company-specific risks to Petropavlovsk’s
operations or financial results arising directly
from the transition period ending on
31 December 2020.
Hydrotechnical Storage Facilities
Following the widely reported tailings dam
failures in Brazil in January 2019, the SS&W
Committee received a detailed paper on the
management of the Group’s hydrotechnical
storage facilities (HSF). The Group uses a
downstream method of construction for HSF.
In addition, there are no villages or people
living in the path of the Group’s facilities in the
highly unlikely event of any failures. The
Group’s HSF are insured, operated and
monitored in accordance with the legislation
of the Russian Federation. Examinations and
monitoring are performed daily and, as a
result, the risk is considered low.
The Executive Committee and the Board
continue to monitor emerging risks.
Petropavlovsk Annual Report 2019
27
Risks to Our Performance
Increased risk
No change
Decreased risk
New risk
Principal Risks and Mitigation
Table Summarising Principal Risks
Risks
Significant factors: 2019 and 2020 to date
Impact of COVID-19 on the Group’s
employees and its operations.
The Group has implemented risk mitigation strategies which are focused on
protecting the Group’s employees and operations and the local community within
which the Group operates. Further information is provided on page 6.
Overall
change in risk
from prior year
Operational
a) Production Related
– Weather
– Delivery of equipment
b) Exploration
Processing
Heavy rainfall impacted underground development works at Malomir during 2019.
The situation was well managed with no material impact on the Group’s 2019
production.
Successful ramping-up of the POX Hub:
– Mechanical failure of POX Hub
– The POX Hub exceeded the Group’s most optimistic expectations, with
– Failure to reach expected recovery
– Significant levels of gold loss from
pregnant solution (preg robbing)
Financial
– Lack of funding and liquidity
– Gold price
– Exchange rate
193.2koz of gold recovered from refractory concentrates during its first 12
months of operation;
– Gold recoveries from Malomir concentrates increased steadily at the POX plant
through the year;
– Productivity and utilisation-hours for key equipment items exceeded design
rate; and
– All four autoclaves are fully operational achieving design hourly throughput capacity.
– Successful liability management: Refinancing of the Group’s 9% Convertible
Bonds due March 2020 by the placement of US$125 million 8.25% Convertible
Bonds due 2024;
– An 18% increase in the gold price during 2019 reaching a six year-high, ending
2019 at US$1,515/oz;
– Guarantee of IRC’s debt
– Increased financial stability for IRC due to the Gazprombank refinancing; and
– Potential disposal of a c.29.9% shareholding in IRC Limited, subject to certain
conditions being met, including the release of the Group’s obligation to
guarantee IRC’s loan facilities with Gazprombank.
Health, Safety & Environmental
– The Group reduced its Lost-Time Injury Frequency Rate by c.36% in 2019
– POX
– Underground mining
– Contamination
compared with 2018;
– The Company joined the United Nations Global Compact Initiative. This is a
further step on the Group’s roadmap to implementing international best
practices across all areas of sustainable development; and
– Significant improvements were made in ESG Key Performance Indicators.
Country/Compliance
The Board will continue to monitor these issues.
– The Group requires various licences and
permits in order to operate
– Russian sovereign risk
Loss of Key Personnel
– The Company is dependent on Dr
Maslovskiy and other long-serving
members of the senior executive team.
28 Petropavlovsk Annual Report 2019
– The Executive Committee was strengthened with the appointment of
Mr Dmitrii Chekashkin, Group Executive, Business Transformation and
Operational Efficiency; and Mr Danila Kotlyarov as Chief Financial Officer
and Executive Director; and
– A revised Remuneration Policy is being proposed to shareholders for approval
at the 2020 Annual General Meeting.
Risk management framework as at 31 December 2019
Petropavlovsk PLC Board
Audit Committee
Safety, Sustainability and
Workforce Committee
Executive Committee
Categorisation of risks
and risk owners
Operational
Financial
Factors which
impact output such
as inadequate
or failed internal
processes,
systems or people
or external events.
Financial risks
include lack of
funding and
liquidity, inability
to raise finance,
gold price risk,
exchange rate
exposure and risks
related to the new
Gazprombank
guarantees.
Health, Safety
and Environmental
(‘HSE’)
Country/
Compliance
Risks
Workplace hazards
that could result in
liability for the Group
or have an adverse
impact on output.
Risks that create
potential for loss
arising from
uncertainty due
to legal actions or
uncertainty in the
application of laws
or regulations.
Human
Resources
Risks associated
with the recruitment
and ongoing
management
of people.
Investor Relations
and External
Communications
Includes risks
such as poor
management
of market
expectations and
poorly informed
investor perception.
Chief Executive
Officer
Chief Financial
Officer
Chief Executive
Officer
Senior Legal
Advisor
Chief Executive
Officer
Deputy CEO
Petropavlovsk Annual Report 2019
29
Risks to Our Performance continued
Table of principal risks
Operational risks
Risk
Description and potential impact
Potential impact/
Change since 2018
Mitigation/comments/ 2019 Progress
Additional
information
PRODUCTION RELATED RISK – Failure to achieve the Group’s production plan
Risk to the Group’s employees and
operations from COVID-19
The global COVID-19 pandemic could significantly impact on
the Group’s employees and could result in the suspension of
some or all, of the Group’s mining operations.
High
Risk to production from:
(i) Weather
(ii) Delivery of equipment
The Group’s assets are located in the Russian Far East, a
remote area that can be subject to severe climatic conditions.
Severe weather conditions, such as cold temperatures in winter
and torrential rain, potentially causing flooding in the region
could have an adverse impact on operations, including the
delivery of supplies, equipment and fuel. Exploration and
extraction levels may fall as a result.
High
The Group relies on the supply and availability of various
services and equipment in order to successfully run its
operations. Delay in the delivery or the failure of mining
equipment could significantly delay production and impact
the Group’s profitability.
The Group is dependent on production from its operating mines
(both open pits and underground) and from the POX plant in
order to generate revenue and cash flow.
The Group has implemented measures in each of the jurisdictions in which it operates, in line with published guidance,
in order to protect employees and the Group’s operations.
Additional actions taken by the Group have included:
– The formation of an emergency response team to limit the spread of COVID-19 at the Group companies. Members
of the response team will work in co-operation with the local authorities when and if required. The team includes
representatives from each Group enterprise in Russia; and
– Coordinators responsible for the control and counteraction against the spread of COVID-19 have been appointed
at each location.
Preventative maintenance procedures are undertaken on a regular basis to ensure that machines will function properly
Operational
under extreme cold weather conditions; heating plants at operational bases are regularly maintained and operational
Performance
equipment is fitted with cold weather options which could assist in ensuring that equipment does not fail as a result of
page 42
adverse weather conditions. Pumping systems are in place and tested periodically to ensure that they are functioning.
Management monitor natural conditions in order to pre-empt any disaster and in order that appropriate mitigating
action can be taken. The Group aims to maintain several months of essential supplies at each site. Equipment is
ordered with adequate lead time in order to prevent delays in delivery.
The Group has contingency plans in place to address any disruption to services.
2019
In July 2019, the Company announced that heavy rainfall had impacted underground development works at Malomir
which is in a remote region where heavy rainfall events are not uncommon during the summer months. The Company
is well equipped to deal with such issues as they arise including employee welfare and safety. The situation was well
managed. Malomir produced 180.3koz of gold doré in 2019, including from concentrate, compared with 77.6koz in 2018.
30 Petropavlovsk Annual Report 2019
PRODUCTION RELATED RISK – Failure to achieve the Group’s production plan
Risk to the Group’s employees and
operations from COVID-19
The global COVID-19 pandemic could significantly impact on
High
the Group’s employees and could result in the suspension of
some or all, of the Group’s mining operations.
Operational risks
Risk to production from:
(i) Weather
(ii) Delivery of equipment
The Group’s assets are located in the Russian Far East, a
High
remote area that can be subject to severe climatic conditions.
Severe weather conditions, such as cold temperatures in winter
and torrential rain, potentially causing flooding in the region
could have an adverse impact on operations, including the
delivery of supplies, equipment and fuel. Exploration and
extraction levels may fall as a result.
The Group relies on the supply and availability of various
services and equipment in order to successfully run its
operations. Delay in the delivery or the failure of mining
equipment could significantly delay production and impact
the Group’s profitability.
The Group is dependent on production from its operating mines
(both open pits and underground) and from the POX plant in
order to generate revenue and cash flow.
The symbols indicate how the Company
considers that these risks have changed
since 2018.
Increased risk
No change
Decreased risk
New risk
Risk
Description and potential impact
Mitigation/comments/ 2019 Progress
Potential impact/
Change since 2018
Additional
information
The Group has implemented measures in each of the jurisdictions in which it operates, in line with published guidance,
in order to protect employees and the Group’s operations.
Additional actions taken by the Group have included:
– The formation of an emergency response team to limit the spread of COVID-19 at the Group companies. Members
of the response team will work in co-operation with the local authorities when and if required. The team includes
representatives from each Group enterprise in Russia; and
– Coordinators responsible for the control and counteraction against the spread of COVID-19 have been appointed
at each location.
Preventative maintenance procedures are undertaken on a regular basis to ensure that machines will function properly
under extreme cold weather conditions; heating plants at operational bases are regularly maintained and operational
equipment is fitted with cold weather options which could assist in ensuring that equipment does not fail as a result of
adverse weather conditions. Pumping systems are in place and tested periodically to ensure that they are functioning.
Operational
Performance
page 42
Management monitor natural conditions in order to pre-empt any disaster and in order that appropriate mitigating
action can be taken. The Group aims to maintain several months of essential supplies at each site. Equipment is
ordered with adequate lead time in order to prevent delays in delivery.
The Group has contingency plans in place to address any disruption to services.
2019
In July 2019, the Company announced that heavy rainfall had impacted underground development works at Malomir
which is in a remote region where heavy rainfall events are not uncommon during the summer months. The Company
is well equipped to deal with such issues as they arise including employee welfare and safety. The situation was well
managed. Malomir produced 180.3koz of gold doré in 2019, including from concentrate, compared with 77.6koz in 2018.
Petropavlovsk Annual Report 2019
31
Risks to Our Performance continued
Operational risks (continued)
Risk
Description and potential impact
EXPLORATION RELATED RISK
The Group’s activities are reliant on
the quantity and quality of the Mineral
Resources and Ore Reserves available
to it.
Exploration activities are speculative, time-consuming and can
be unproductive. In addition, these activities often require
substantial expenditure to establish reserves through drilling,
metallurgical and other testing, to determine appropriate
recovery processes to extract gold from the ore and to
construct or expand mining and processing facilities. Once
deposits are discovered it can take several years to determine
whether reserves exist. During this time, the economic viability
of production may change. As a result of these uncertainties,
the exploration programmes in which the Group is engaged
may not result in the expansion or replacement of the current
production with new reserves or operations.
Potential impact/
Change since 2018
High
Mitigation/comments/ 2019 Progress
PROCESSING
The POX Hub, together with the
associated flotation plants at Malomir
and Pioneer, sits at the heart of
Petropavlovsk’s strategy and is the
principal driver of future value for
the Group.
A mechanical or metallurgical failure of
the POX Hub, including failure to reach
expected recovery rate or high levels of
‘preg robbing’ could result in lower
production and/or higher costs, thus
impacting the Group’s Strategy.
POX is a new and complex metallurgical facility which brings
added challenges.
High
If there is a failure in the POX process it could lead to lower
production and/or higher costs which may have a detrimental
impact on the Group’s operating and financial condition.
Radioactive isotopes are used in monitoring the POX process.
Failure to use this equipment correctly could result in
contamination.
32 Petropavlovsk Annual Report 2019
Additional
information
The POX Hub
on page 50
The Group uses core drilling combined with modern geophysical and geochemical exploration and surveying
Exploration Update
techniques. The Group employs a world-class team of geologists with considerable regional expertise and
on page 68
experience. They are supported by a network of fully accredited laboratories experienced in performing a range
of assay work to high standards.
Group Mineral Resource and Ore Reserve estimates are prepared by a team of qualified specialists following the
guidelines of JORC Code 2012, which is one of the most recognised reporting codes. Mineral Resource and Ore
Reserve estimates are subject to regular independent reviews and audits. The last full audit was completed in April
2017 by Wardell Armstrong International.
In addition, as a part of compliance with The Subsoil Law, the Group also prepares reserve estimates following
Russian GKZ guidelines. These estimates are subject to GKZ audits. Where possible, the Group reconciles GKZ
and JORC estimates which provides additional assurance about the Company’s Reserve estimates.
The Group employs a team of qualified mining engineers to undertake mine planning, detailed open pit and
underground mine design and production scheduling.
The successful commissioning of the POX Hub unlocked the economic potential of the Group’s 12.99Moz refractory
resources which support the Group’s long-term growth objectives. The Group continues to explore the potential for
further mine life extension and production expansion and has identified several prospective satellite refractory targets
at Malomir and Pioneer.
In February 2020, the Group acquired exploration assets at Mariinskiy comprising two adjacent exploration licences.
Our exploration geologists believe these assets have the potential to contain substantial gold resources, of a similar
scale and to known orebodies at Malomir including its satellites.
The smooth ramp-up of the POX Hub in 2019 is a record for the industry. The POX Hub exceeded the Group’s most
The POX Hub on
optimistic expectations, with 193.2koz of gold recovered from refractory concentrates during its first 12 months of
page 50
operations. Of this amount, 132.0koz came from concentrates produced at Malomir, leading to an increase of 132% in
gold produced at Malomir compared to a year ago.
Gold recoveries from Malomir concentrates increased steadily at the POX plant through 2019 to reach above design
during the fourth quarter. Productivity and capacity utilisation for key equipment exceeded design rate and all four
autoclaves have tested at stable, full capacity.
The Group’s expertise in pressure oxidation is guided by RDC Hydrometallurgy, a scientific research centre based in
St Petersburg with a POX pilot plant located in Blagoveschensk. Using its scientific strengths, RDC is now focussing
on ways to process more complex refractory ores.
Stringent safety standards governing licensing and use of nuclear isotopes are second only to the space industry.
Employee training for such activity is undertaken at the Novosibirsk Institute for Advanced Studies.
Operational risks (continued)
Risk
to it.
EXPLORATION RELATED RISK
The Group’s activities are reliant on
the quantity and quality of the Mineral
Resources and Ore Reserves available
Exploration activities are speculative, time-consuming and can
High
be unproductive. In addition, these activities often require
substantial expenditure to establish reserves through drilling,
metallurgical and other testing, to determine appropriate
recovery processes to extract gold from the ore and to
construct or expand mining and processing facilities. Once
deposits are discovered it can take several years to determine
whether reserves exist. During this time, the economic viability
of production may change. As a result of these uncertainties,
the exploration programmes in which the Group is engaged
may not result in the expansion or replacement of the current
production with new reserves or operations.
Description and potential impact
Mitigation/comments/ 2019 Progress
Potential impact/
Change since 2018
The Group uses core drilling combined with modern geophysical and geochemical exploration and surveying
techniques. The Group employs a world-class team of geologists with considerable regional expertise and
experience. They are supported by a network of fully accredited laboratories experienced in performing a range
of assay work to high standards.
Group Mineral Resource and Ore Reserve estimates are prepared by a team of qualified specialists following the
guidelines of JORC Code 2012, which is one of the most recognised reporting codes. Mineral Resource and Ore
Reserve estimates are subject to regular independent reviews and audits. The last full audit was completed in April
2017 by Wardell Armstrong International.
In addition, as a part of compliance with The Subsoil Law, the Group also prepares reserve estimates following
Russian GKZ guidelines. These estimates are subject to GKZ audits. Where possible, the Group reconciles GKZ
and JORC estimates which provides additional assurance about the Company’s Reserve estimates.
The Group employs a team of qualified mining engineers to undertake mine planning, detailed open pit and
underground mine design and production scheduling.
The successful commissioning of the POX Hub unlocked the economic potential of the Group’s 12.99Moz refractory
resources which support the Group’s long-term growth objectives. The Group continues to explore the potential for
further mine life extension and production expansion and has identified several prospective satellite refractory targets
at Malomir and Pioneer.
In February 2020, the Group acquired exploration assets at Mariinskiy comprising two adjacent exploration licences.
Our exploration geologists believe these assets have the potential to contain substantial gold resources, of a similar
scale and to known orebodies at Malomir including its satellites.
Additional
information
Exploration Update
on page 68
The POX Hub
on page 50
The POX Hub, together with the
POX is a new and complex metallurgical facility which brings
High
associated flotation plants at Malomir
added challenges.
If there is a failure in the POX process it could lead to lower
production and/or higher costs which may have a detrimental
impact on the Group’s operating and financial condition.
Radioactive isotopes are used in monitoring the POX process.
Failure to use this equipment correctly could result in
contamination.
PROCESSING
and Pioneer, sits at the heart of
Petropavlovsk’s strategy and is the
principal driver of future value for
the Group.
A mechanical or metallurgical failure of
the POX Hub, including failure to reach
expected recovery rate or high levels of
‘preg robbing’ could result in lower
production and/or higher costs, thus
impacting the Group’s Strategy.
The smooth ramp-up of the POX Hub in 2019 is a record for the industry. The POX Hub exceeded the Group’s most
optimistic expectations, with 193.2koz of gold recovered from refractory concentrates during its first 12 months of
operations. Of this amount, 132.0koz came from concentrates produced at Malomir, leading to an increase of 132% in
gold produced at Malomir compared to a year ago.
The POX Hub on
page 50
Gold recoveries from Malomir concentrates increased steadily at the POX plant through 2019 to reach above design
during the fourth quarter. Productivity and capacity utilisation for key equipment exceeded design rate and all four
autoclaves have tested at stable, full capacity.
The Group’s expertise in pressure oxidation is guided by RDC Hydrometallurgy, a scientific research centre based in
St Petersburg with a POX pilot plant located in Blagoveschensk. Using its scientific strengths, RDC is now focussing
on ways to process more complex refractory ores.
Stringent safety standards governing licensing and use of nuclear isotopes are second only to the space industry.
Employee training for such activity is undertaken at the Novosibirsk Institute for Advanced Studies.
Petropavlovsk Annual Report 2019
33
Risks to Our Performance continued
Financial risks
Risk
Liquidity
Description and potential impact
Potential impact/
Change since 2018
The Group may need ongoing access to liquidity and funding
in order to:
High
(i) Refinance its existing debt;
(ii) Support its existing operations and extend their life and
capacity; and
(iii) Invest to develop its refractory ore concentrate production,
including construction of flotation plants, underground
mining projects and exploration.
There is a risk that the Group may be unable to obtain the
necessary funding when required or that such funding will
only be available on unfavourable terms.
The Group may therefore be unable to meet its business
development objectives or financial commitments.
The Group’s result of operations may be
affected by changes in the gold price.
The Group’s financial performance is highly dependent on the
gold price. The gold market is cyclical and sensitive to changes
in the economy and numerous factors which are beyond the
Group’s control.
High
High
The average year-on-year depreciation of the Russian Rouble against the US Dollar was approximately 3.2%, with
the average exchange rate for 2019 being RUB64.69 : US$1 compared to RUB62.68 : US$1 for 2018.
The Group’s policy is to keep under review possible options for exchange rate hedging.
A significant continuous decline in the gold price would
negatively affect the Group’s profitability and cash flow and
consequently its ability to develop its business.
The Company reports its results in US Dollars, which is the
currency in which gold is principally traded and therefore in
which most of the Group’s revenues are generated. Significant
costs are incurred in and/or influenced by the local currencies
in which the Group operates, principally Russian Roubles.
An appreciation of the Russian Rouble against the US Dollar
tends to result in an increase in the Group’s costs relative to its
revenues whereas the depreciation of the Russian Rouble
against the US Dollar tends to result in lower Group costs
relative to its revenues.
In addition:
– A portion of the Group corporate overhead is denominated in
Sterling. Therefore, adverse exchange rate movements may
materially affect the Group’s financial condition and results of
operations; and
– If inflation in Russia were to increase without a corresponding
devaluation of the Russian Rouble relative to the US Dollar, the
Group’s business, results of operations and financial condition
may be adversely affected.
Exchange rate fluctuations
34 Petropavlovsk Annual Report 2019
Mitigation/comments/ 2019 Progress
Additional
information
In the event that the Group requires additional finance for shorter term liquidity purposes, including for capital
Chief Financial
expenditure purposes, the Group may access forward gold sales funding. This may be advantageous, depending
Officer’s Statement
upon the Group’s access or otherwise to debt or equity finance and the terms on which these may be available.
on page 72
No forward contracts to sell gold were outstanding as at 31 December 2019 (31 December 2018: 200,000 ounces
of gold at an average price of US$1,252/oz). Gold contracts during 2018 and 2019 provided the Group with flexibility
during the POX plant ramp up period.
In June 2019, the Company successfully refinanced the Group’s US$100 million 9% Convertible Bonds due March
2020 by the placement of US$125 million 8.25% Convertible Bonds due 2024 (the ‘New Bonds’) significantly
de-risking the Group’s balance sheet. In addition, funds from the New Bonds have been used to advance
construction of a new flotation facility at the Pioneer mine, enabling the Group to grow its production by unlocking
the value embedded in its refractory reserves via the Pressure Oxidation (POX) Hub.
In August 2019, Fitch Ratings upgraded the Group’s Long-Term Issuer Default Rating and senior unsecured rating to
‘B-‘ from ‘CCC’ with a Positive Outlook due to ‘a significant strengthening in Petropavlovsk’s liquidity position due to
the refinancing of the convertible bond, repayment of US$57 million bridge loan by affiliated iron ore producer IRC
Limited and the increased visibility for production due to the launch of the POX Hub in November 2018.’
The Chief Financial Officer constantly monitors the gold price and influencing factors and consults with the Board
Market Overview
as appropriate.
The Group has a hedging policy and hedges a portion of production as the Chief Financial Officer and Board deem
Chief Financial
necessary. As at 31 December 2019 the Group was unhedged.
on page 20
Officer’s Statement
on page 72
Financial risks
Risk
Liquidity
Description and potential impact
Mitigation/comments/ 2019 Progress
Potential impact/
Change since 2018
In the event that the Group requires additional finance for shorter term liquidity purposes, including for capital
expenditure purposes, the Group may access forward gold sales funding. This may be advantageous, depending
upon the Group’s access or otherwise to debt or equity finance and the terms on which these may be available.
No forward contracts to sell gold were outstanding as at 31 December 2019 (31 December 2018: 200,000 ounces
of gold at an average price of US$1,252/oz). Gold contracts during 2018 and 2019 provided the Group with flexibility
during the POX plant ramp up period.
In June 2019, the Company successfully refinanced the Group’s US$100 million 9% Convertible Bonds due March
2020 by the placement of US$125 million 8.25% Convertible Bonds due 2024 (the ‘New Bonds’) significantly
de-risking the Group’s balance sheet. In addition, funds from the New Bonds have been used to advance
construction of a new flotation facility at the Pioneer mine, enabling the Group to grow its production by unlocking
the value embedded in its refractory reserves via the Pressure Oxidation (POX) Hub.
In August 2019, Fitch Ratings upgraded the Group’s Long-Term Issuer Default Rating and senior unsecured rating to
‘B-‘ from ‘CCC’ with a Positive Outlook due to ‘a significant strengthening in Petropavlovsk’s liquidity position due to
the refinancing of the convertible bond, repayment of US$57 million bridge loan by affiliated iron ore producer IRC
Limited and the increased visibility for production due to the launch of the POX Hub in November 2018.’
Additional
information
Chief Financial
Officer’s Statement
on page 72
The Group’s result of operations may be
affected by changes in the gold price.
The Group’s financial performance is highly dependent on the
High
gold price. The gold market is cyclical and sensitive to changes
in the economy and numerous factors which are beyond the
Group’s control.
Exchange rate fluctuations
The Company reports its results in US Dollars, which is the
High
The Chief Financial Officer constantly monitors the gold price and influencing factors and consults with the Board
as appropriate.
Market Overview
on page 20
The Group has a hedging policy and hedges a portion of production as the Chief Financial Officer and Board deem
necessary. As at 31 December 2019 the Group was unhedged.
Chief Financial
Officer’s Statement
on page 72
The average year-on-year depreciation of the Russian Rouble against the US Dollar was approximately 3.2%, with
the average exchange rate for 2019 being RUB64.69 : US$1 compared to RUB62.68 : US$1 for 2018.
The Group’s policy is to keep under review possible options for exchange rate hedging.
The Group may need ongoing access to liquidity and funding
High
in order to:
(i) Refinance its existing debt;
(ii) Support its existing operations and extend their life and
capacity; and
(iii) Invest to develop its refractory ore concentrate production,
including construction of flotation plants, underground
mining projects and exploration.
There is a risk that the Group may be unable to obtain the
necessary funding when required or that such funding will
only be available on unfavourable terms.
The Group may therefore be unable to meet its business
development objectives or financial commitments.
A significant continuous decline in the gold price would
negatively affect the Group’s profitability and cash flow and
consequently its ability to develop its business.
currency in which gold is principally traded and therefore in
which most of the Group’s revenues are generated. Significant
costs are incurred in and/or influenced by the local currencies
in which the Group operates, principally Russian Roubles.
An appreciation of the Russian Rouble against the US Dollar
tends to result in an increase in the Group’s costs relative to its
revenues whereas the depreciation of the Russian Rouble
against the US Dollar tends to result in lower Group costs
relative to its revenues.
In addition:
– A portion of the Group corporate overhead is denominated in
Sterling. Therefore, adverse exchange rate movements may
materially affect the Group’s financial condition and results of
operations; and
– If inflation in Russia were to increase without a corresponding
devaluation of the Russian Rouble relative to the US Dollar, the
Group’s business, results of operations and financial condition
may be adversely affected.
Petropavlovsk Annual Report 2019
35
Risks to Our Performance continued
Financial risks (continued)
Risk
Risk that:
– funding may be demanded from
Petropavlovsk under a guarantee
provided in relation to a project finance
facility provided to K&S, a wholly
owned subsidiary of IRC.
– K&S will not be able to service the
interest and meet the repayments due
on its loan due to insufficient funds
arising from a decrease in the iron ore
price or operational issues at the
K&S site.
Description and potential impact
As at 1 January 2019, Petropavlovsk had provided a guarantee
against a US$340 million project loan facility provided to K&S by
ICBC to fund the construction of IRC’s iron ore mining operation
at K&S, of which c.US$169 million was outstanding as at
1 January 2019.
In the event that K&S defaulted on its loan, Petropavlovsk may
have been liable to repayment of the outstanding loan under the
terms of the guarantee and other Group indebtedness may
have become repayable under cross-default provisions.
Due to actions taken by IRC and the Company during 2019 (see
Mitigation/Comments) this risk has substantially reduced.
Potential impact/
Change since 2018
High
Mitigation/comments/ 2019 Progress
– On 18 December 2018, K&S signed two new broadly identical facility agreements with Gazprombank (the ‘Facility
IRC on page 69
Agreements’) whereby Gazprombank would provide K&S with a US$240 million facility for the purposes of
repaying in full the outstanding project finance facility K&S had with ICBC and repaying the two bridge loans
Audit Committee
provided by Petropavlovsk to IRC (the ‘Gazprombank Facility’).
Additional
information
Report on
page 146
The Company’s
Circular to
Shareholders dated
15 February 2019, is
available at www.
petropavlovsk.net
Risk that further issues delaying the
ramping up of the K&S facility and/or a
decrease in the iron ore price could result
in a decrease in the value of the Group’s
shareholding in IRC.
Due to the guarantees provided by the Company to
Gazprombank, the Group’s going concern status remains
sensitive to IRC’s ability to comply with covenants within the
new facilities and generate sufficient cash flows from its
K&S mine.
High
36 Petropavlovsk Annual Report 2019
– Pursuant to the Facility Agreements, Petropavlovsk was to guarantee the obligations of K&S up to an initial amount
of US$160 million through a series of five guarantees over the life of the Gazprombank Facility. These guarantees
were entered into by the Company and Gazprombank on 15 February 2019, with the effectiveness of each of the
guarantees being conditional upon shareholder approval being obtained at a General Meeting. Such shareholder
approval was obtained on 12 March 2019.
– The Gazprombank Facility has been fully drawn down and has enabled IRC to:
– Repay in full the sum of approximately US$169 million outstanding under the ICBC Facility;
– Repay Petropavlovsk the Rouble equivalent of approximately US$57 million, in addition to any accrued interest
and fees, as full repayment of the two bridge loans; and
– Pay Petropavlovsk approximately US$6 million in fees owed by K&S and IRC to Petropavlovsk in respect of the
guarantee provided under the ICBC Facility.
– The risk of K&S defaulting on its loan, and hence the risk that Petropavlovsk may be liable to repay the outstanding
loan, has been reduced by K&S entering into the Gazprombank Facility and repaying the ICBC Facility because:
– The Gazprombank Facility provides for a significantly more relaxed amortisation schedule compared to that
under the ICBC Facility; and
– It better aligns with the proposed ramp up of K&S and the revenues that are anticipated to be generated by it.
– The guarantee provided by the Company has decreased to US$160 million as at the date of this Annual Report.
However, in certain circumstances the Company could have a maximum liability of the full amount outstanding
to Gazprombank by K&S. As at 31 December 2019, the Group has guaranteed the outstanding amounts IRC
owed to Gazprombank. The outstanding loan principal was US$225 million as at 31 December 2019.
Preliminary Agreement for the Proposed Termination of IRC Guarantees and the Disposal of 29.9%
of the Company’s interest in IRC
On 18 March 2020, the Company entered into a preliminary agreement with Stocken Board AG, setting out the
non-binding terms on which Petropavlovsk would sell to Stocken a 29.9% shareholding in IRC Limited, subject to
certain conditions precedent being met, including the release of the Group’s obligation to guarantee IRC’s loan
facilities with Gazprombank.
IRC announced its 2019 full year results on 27 March 2020. This confirmed that K&S had operated at 81% of
capacity during 2019 whilst it was currently operating at c.95%. However, the IRC Board noted the potential negative
impact of COVID-19 on IRC’s performance.
Financial risks (continued)
Risk
Risk that:
– funding may be demanded from
Petropavlovsk under a guarantee
provided in relation to a project finance
facility provided to K&S, a wholly
owned subsidiary of IRC.
As at 1 January 2019, Petropavlovsk had provided a guarantee
High
against a US$340 million project loan facility provided to K&S by
ICBC to fund the construction of IRC’s iron ore mining operation
at K&S, of which c.US$169 million was outstanding as at
1 January 2019.
– K&S will not be able to service the
have been liable to repayment of the outstanding loan under the
interest and meet the repayments due
terms of the guarantee and other Group indebtedness may
on its loan due to insufficient funds
have become repayable under cross-default provisions.
In the event that K&S defaulted on its loan, Petropavlovsk may
arising from a decrease in the iron ore
price or operational issues at the
Due to actions taken by IRC and the Company during 2019 (see
K&S site.
Mitigation/Comments) this risk has substantially reduced.
Risk that further issues delaying the
ramping up of the K&S facility and/or a
decrease in the iron ore price could result
in a decrease in the value of the Group’s
shareholding in IRC.
K&S mine.
Due to the guarantees provided by the Company to
High
Gazprombank, the Group’s going concern status remains
sensitive to IRC’s ability to comply with covenants within the
new facilities and generate sufficient cash flows from its
Description and potential impact
Mitigation/comments/ 2019 Progress
Potential impact/
Change since 2018
Additional
information
– On 18 December 2018, K&S signed two new broadly identical facility agreements with Gazprombank (the ‘Facility
IRC on page 69
Agreements’) whereby Gazprombank would provide K&S with a US$240 million facility for the purposes of
repaying in full the outstanding project finance facility K&S had with ICBC and repaying the two bridge loans
provided by Petropavlovsk to IRC (the ‘Gazprombank Facility’).
– Pursuant to the Facility Agreements, Petropavlovsk was to guarantee the obligations of K&S up to an initial amount
of US$160 million through a series of five guarantees over the life of the Gazprombank Facility. These guarantees
were entered into by the Company and Gazprombank on 15 February 2019, with the effectiveness of each of the
guarantees being conditional upon shareholder approval being obtained at a General Meeting. Such shareholder
approval was obtained on 12 March 2019.
– The Gazprombank Facility has been fully drawn down and has enabled IRC to:
– Repay in full the sum of approximately US$169 million outstanding under the ICBC Facility;
Audit Committee
Report on
page 146
The Company’s
Circular to
Shareholders dated
15 February 2019, is
available at www.
petropavlovsk.net
– Repay Petropavlovsk the Rouble equivalent of approximately US$57 million, in addition to any accrued interest
and fees, as full repayment of the two bridge loans; and
– Pay Petropavlovsk approximately US$6 million in fees owed by K&S and IRC to Petropavlovsk in respect of the
guarantee provided under the ICBC Facility.
– The risk of K&S defaulting on its loan, and hence the risk that Petropavlovsk may be liable to repay the outstanding
loan, has been reduced by K&S entering into the Gazprombank Facility and repaying the ICBC Facility because:
– The Gazprombank Facility provides for a significantly more relaxed amortisation schedule compared to that
under the ICBC Facility; and
– It better aligns with the proposed ramp up of K&S and the revenues that are anticipated to be generated by it.
– The guarantee provided by the Company has decreased to US$160 million as at the date of this Annual Report.
However, in certain circumstances the Company could have a maximum liability of the full amount outstanding
to Gazprombank by K&S. As at 31 December 2019, the Group has guaranteed the outstanding amounts IRC
owed to Gazprombank. The outstanding loan principal was US$225 million as at 31 December 2019.
Preliminary Agreement for the Proposed Termination of IRC Guarantees and the Disposal of 29.9%
of the Company’s interest in IRC
On 18 March 2020, the Company entered into a preliminary agreement with Stocken Board AG, setting out the
non-binding terms on which Petropavlovsk would sell to Stocken a 29.9% shareholding in IRC Limited, subject to
certain conditions precedent being met, including the release of the Group’s obligation to guarantee IRC’s loan
facilities with Gazprombank.
IRC announced its 2019 full year results on 27 March 2020. This confirmed that K&S had operated at 81% of
capacity during 2019 whilst it was currently operating at c.95%. However, the IRC Board noted the potential negative
impact of COVID-19 on IRC’s performance.
Petropavlovsk Annual Report 2019
37
Risks to Our Performance continued
Health, Safety and Environmental risks
Risk
Description and potential impact
The Group operates potentially
hazardous sites such as the POX Hub,
open pits, underground mines,
exploration sites, processing facilities
and explosive storage facilities.
The operation of these sites exposes
its personnel to a variety of health and
safety risks.
The Group’s employees are its most valuable assets. The Group
recognises that it has an obligation to protect the health of its
employees and that they have the right to operate in a safe
working environment. Certain of the Group’s operations are
carried out under potentially hazardous conditions. Group
employees may become exposed to health and safety risks
which may lead to work-related accidents and harm to the
Group’s employees. These could also result in production
delays and financial loss.
Potential impact/
Change since 2018
Medium/High
Major pollution arising from operations
include air and water pollution, land
contamination and deforestation.
If the Group was involved in a major environmental event,
potential impacts could include fines and penalties, statutory
liability for environmental redemption and other financial
consequences that might be significant.
Medium/High
Accidental spillages of cyanide and other chemicals may result
in damage to the environment, personnel and individuals within
the local community.
38 Petropavlovsk Annual Report 2019
Mitigation/comments/ 2019 Progress
Additional
information
Health & Safety management systems are in place across the Group to ensure that the operations are managed in
Sustainability
accordance with the relevant health and safety regulations and requirements and where possible with international
best practice. The Group continually reviews and updates its health and safety procedures in order to minimise the
Report on
page 84
risk of accidents and improve accident response, including additional and enhanced technical measures at all sites,
improved first aid response and the provision of further occupational, health and safety training.
Board level oversight of health and safety issues occurs through the work of the Safety, Sustainability and Workforce
Committee (SS&W Committee). The Committee is chaired by Mr Harry Kenyon-Slaney, Independent Non-Executive
Director, who is assisted by his colleagues on the Committee namely, Dr Pavel Maslovskiy, Chief Executive Officer,
Mr Damien Hackett and Mrs Katia Ray, Independent Non-Executive Directors and Dr Alya Samokhvalova, Deputy
CEO. Mr Kenyon-Slaney’s introduction to the Sustainability Report is provided on page 89 of this Annual Report.
Members of the SS&W Committee visited the Group’s operating mines in April 2019 and met with members of the
workforce and the local community.
Progress during 2019:
– As part of the Company’s commitment to environmental, sustainability and governance (ESG) matters, the
Company became a member of the UN Global Compact Initiative on corporate sustainability. This requires the
Company to align its operations and strategies with ten universally accepted principles in the areas of human
rights, labour, environment and anti-corruption;
– The Lost-Time Injury Frequency Rate (LTIFR) for 2019 of 1.61 accidents per 1 million man-hours worked
represented a c.36% reduction compared to 2018;
– Greenhouse Gas Emissions were reduced from 1.01t CO2e per ounce of gold in 2018 to 0.88t; and
– The Company recently appointed an experienced Head of Sustainable Business who will assist with the
development of the Group in this area.
Health & Safety targets are included in the annual bonus scheme for Executive Directors and the Executive
Committee. The Remuneration Committee may also consider the Group’s health and safety performance during the
year when considering bonus plan payments.
The Company operates a certified environmental management system at all of its sites which meet international
standards.
environment.
The Company has implemented a number of initiatives to monitor and limit the impact of its operations on the
Cyanide and other dangerous substances are kept in secure storages with access limited to qualified personnel and
closely monitored by security staff.
Sustainability
Report on
page 84
Health, Safety and Environmental risks
Risk
Description and potential impact
Mitigation/comments/ 2019 Progress
Potential impact/
Change since 2018
The Group operates potentially
hazardous sites such as the POX Hub,
open pits, underground mines,
exploration sites, processing facilities
and explosive storage facilities.
The operation of these sites exposes
its personnel to a variety of health and
safety risks.
The Group’s employees are its most valuable assets. The Group
recognises that it has an obligation to protect the health of its
Medium/High
employees and that they have the right to operate in a safe
working environment. Certain of the Group’s operations are
carried out under potentially hazardous conditions. Group
employees may become exposed to health and safety risks
which may lead to work-related accidents and harm to the
Group’s employees. These could also result in production
delays and financial loss.
Health & Safety management systems are in place across the Group to ensure that the operations are managed in
accordance with the relevant health and safety regulations and requirements and where possible with international
best practice. The Group continually reviews and updates its health and safety procedures in order to minimise the
risk of accidents and improve accident response, including additional and enhanced technical measures at all sites,
improved first aid response and the provision of further occupational, health and safety training.
Board level oversight of health and safety issues occurs through the work of the Safety, Sustainability and Workforce
Committee (SS&W Committee). The Committee is chaired by Mr Harry Kenyon-Slaney, Independent Non-Executive
Director, who is assisted by his colleagues on the Committee namely, Dr Pavel Maslovskiy, Chief Executive Officer,
Mr Damien Hackett and Mrs Katia Ray, Independent Non-Executive Directors and Dr Alya Samokhvalova, Deputy
CEO. Mr Kenyon-Slaney’s introduction to the Sustainability Report is provided on page 89 of this Annual Report.
Members of the SS&W Committee visited the Group’s operating mines in April 2019 and met with members of the
workforce and the local community.
Progress during 2019:
– As part of the Company’s commitment to environmental, sustainability and governance (ESG) matters, the
Company became a member of the UN Global Compact Initiative on corporate sustainability. This requires the
Company to align its operations and strategies with ten universally accepted principles in the areas of human
rights, labour, environment and anti-corruption;
– The Lost-Time Injury Frequency Rate (LTIFR) for 2019 of 1.61 accidents per 1 million man-hours worked
represented a c.36% reduction compared to 2018;
– Greenhouse Gas Emissions were reduced from 1.01t CO2e per ounce of gold in 2018 to 0.88t; and
– The Company recently appointed an experienced Head of Sustainable Business who will assist with the
development of the Group in this area.
Additional
information
Sustainability
Report on
page 84
Major pollution arising from operations
If the Group was involved in a major environmental event,
include air and water pollution, land
contamination and deforestation.
potential impacts could include fines and penalties, statutory
liability for environmental redemption and other financial
Medium/High
consequences that might be significant.
Accidental spillages of cyanide and other chemicals may result
in damage to the environment, personnel and individuals within
the local community.
Health & Safety targets are included in the annual bonus scheme for Executive Directors and the Executive
Committee. The Remuneration Committee may also consider the Group’s health and safety performance during the
year when considering bonus plan payments.
The Company operates a certified environmental management system at all of its sites which meet international
standards.
The Company has implemented a number of initiatives to monitor and limit the impact of its operations on the
environment.
Cyanide and other dangerous substances are kept in secure storages with access limited to qualified personnel and
closely monitored by security staff.
Sustainability
Report on
page 84
Petropavlovsk Annual Report 2019
39
Risks to Our Performance continued
Country and Compliance risks
Risk
Description and potential impact
The Group requires various licences and
permits in order to operate.
The Group is subject to Sovereign Risk.
The Group’s principal activity is gold mining which requires
licences permitting exploration and mining in specific areas in
Russia. These licences are regulated by Russian governmental
agencies and if a material licence was challenged or terminated,
this would have a material adverse impact on the Group.
In addition, various government regulations require the Group
to obtain permits to implement new projects or to renew
existing permits.
Failure to comply with the requirements and terms of these
licences may result in the subsequent termination of licences
crucial to operations and cause reputational damage.
Alternatively, financial or legal sanctions could be imposed on
the Group. Failure to secure new licences or renew existing
ones could lead to the cessation of mining at the Group’s
operations or an inability to expand operations.
Actions by governments or changes in economic, political,
judicial, administrative, taxation or other regulatory factors or
foreign policy in the countries in which the Group operates or
holds its major assets could have an adverse impact on the
Group’s business or its future performance. Most of the Group’s
assets and operations are based in Russia.
Russian foreign investment legislation imposes restrictions on
the acquisition by foreign investors of direct or indirect interests
in strategic sectors of the Russian economy, including gold
reserves in excess of a specified amount or any occurrences
of platinum group metals.
The Group’s Pioneer and Malomir licences have been included
on the list of subsoil assets of federal significance, maintained
by the Russian Government (“Strategic Assets”). The impact
of this classification is that changes to the direct or indirect
ownership of these licences may require clearance in
accordance with the Foreign Strategic Investment law of the
Russian Federation.
Potential impact/
Change since 2018
Medium/High
Mitigation/comments/ 2019 Progress
Additional
information
There are established processes in place to monitor the required and existing licences and permits on an on-going
basis. Processes are also in place to ensure compliance with the requirements of the licences and permits.
Medium/High
To mitigate Russian economic and banking risk the Group strives to use the banking services of several financial
institutions and not keep disproportionately large sums on deposit with a single bank.
Loss of Key Personnel
Risk
Description and potential impact
The Company is dependent on Dr Pavel
Maslovskiy, CEO and other long-serving
members of the senior executive team.
The loss of key personnel to the Company may impact the
morale of senior management, its workforce, the result of the
Group’s operations and a delay in the delivery of projects.
Potential impact/
Change since 2018
Medium/High
40 Petropavlovsk Annual Report 2019
The Group seeks to mitigate political and legal risk by constant monitoring of proposed and newly adopted
legislation in the countries in which it operates and specifically in Russia. It also relies on the advice of external
counsel in relation to the interpretation and implementation of new legislation.
The Group closely monitors its assets and the probability of their inclusion into the Strategic Assets lists published by
the Russian Government.
The Company’s Articles of Association include a provision which allows the Board to impose such restrictions as the
Directors may think necessary for the purpose of ensuring that no ordinary shares in the Company are acquired or
held or transferred to any person in breach of Russian legislation, including any person having acquired (or who
would as a result of any transfer acquire) ordinary shares or an interest in ordinary shares which, together with any
other shares in which that person or members of their group is deemed to have an interest for the purposes of the
Strategic Asset Laws, carry voting rights, exceeding 50 per cent. (or such lower number as the Board may determine
in the context of the Strategic Asset Laws) of the total voting rights attributable to the issued ordinary shares without
such acquisition having been approved, where such approval is required, pursuant to the Strategic Asset Laws.
This risk cannot be influenced by the management of the Company. However, the Group continues to monitor
changes in the political environment and reviews changes to the relevant legislation, policies and practices.
Mitigation/comments/ 2019 Progress
– During 2019, the Executive Committee has been strengthened by the appointment of Mr Dmitrii Chekashkin,
Nominations
Group Executive, Business Transformation and Operational Efficiency.
– During 2020, Mr Danila Kotlyarov was appointed as Chief Financial Officer and Executive Director, further
strengthening the Board and the executive team.
– A revised Remuneration Policy will be proposed to shareholders for approval at the Company’s 2020 Annual
General Meeting.
Additional
information
Committee Report
on page 144
Directors’
Remuneration
Report on
page 156
The Group is subject to Sovereign Risk.
Medium/High
licences permitting exploration and mining in specific areas in
Russia. These licences are regulated by Russian governmental
agencies and if a material licence was challenged or terminated,
this would have a material adverse impact on the Group.
In addition, various government regulations require the Group
to obtain permits to implement new projects or to renew
existing permits.
Failure to comply with the requirements and terms of these
licences may result in the subsequent termination of licences
crucial to operations and cause reputational damage.
Alternatively, financial or legal sanctions could be imposed on
the Group. Failure to secure new licences or renew existing
ones could lead to the cessation of mining at the Group’s
operations or an inability to expand operations.
Actions by governments or changes in economic, political,
judicial, administrative, taxation or other regulatory factors or
foreign policy in the countries in which the Group operates or
holds its major assets could have an adverse impact on the
Group’s business or its future performance. Most of the Group’s
assets and operations are based in Russia.
Russian foreign investment legislation imposes restrictions on
the acquisition by foreign investors of direct or indirect interests
in strategic sectors of the Russian economy, including gold
reserves in excess of a specified amount or any occurrences
of platinum group metals.
The Group’s Pioneer and Malomir licences have been included
on the list of subsoil assets of federal significance, maintained
by the Russian Government (“Strategic Assets”). The impact
of this classification is that changes to the direct or indirect
ownership of these licences may require clearance in
accordance with the Foreign Strategic Investment law of the
Russian Federation.
Country and Compliance risks
Risk
Description and potential impact
Mitigation/comments/ 2019 Progress
Additional
information
The Group requires various licences and
The Group’s principal activity is gold mining which requires
permits in order to operate.
There are established processes in place to monitor the required and existing licences and permits on an on-going
basis. Processes are also in place to ensure compliance with the requirements of the licences and permits.
Potential impact/
Change since 2018
Medium/High
To mitigate Russian economic and banking risk the Group strives to use the banking services of several financial
institutions and not keep disproportionately large sums on deposit with a single bank.
The Group seeks to mitigate political and legal risk by constant monitoring of proposed and newly adopted
legislation in the countries in which it operates and specifically in Russia. It also relies on the advice of external
counsel in relation to the interpretation and implementation of new legislation.
The Group closely monitors its assets and the probability of their inclusion into the Strategic Assets lists published by
the Russian Government.
The Company’s Articles of Association include a provision which allows the Board to impose such restrictions as the
Directors may think necessary for the purpose of ensuring that no ordinary shares in the Company are acquired or
held or transferred to any person in breach of Russian legislation, including any person having acquired (or who
would as a result of any transfer acquire) ordinary shares or an interest in ordinary shares which, together with any
other shares in which that person or members of their group is deemed to have an interest for the purposes of the
Strategic Asset Laws, carry voting rights, exceeding 50 per cent. (or such lower number as the Board may determine
in the context of the Strategic Asset Laws) of the total voting rights attributable to the issued ordinary shares without
such acquisition having been approved, where such approval is required, pursuant to the Strategic Asset Laws.
This risk cannot be influenced by the management of the Company. However, the Group continues to monitor
changes in the political environment and reviews changes to the relevant legislation, policies and practices.
Loss of Key Personnel
The Company is dependent on Dr Pavel
Maslovskiy, CEO and other long-serving
members of the senior executive team.
The loss of key personnel to the Company may impact the
morale of senior management, its workforce, the result of the
Group’s operations and a delay in the delivery of projects.
Potential impact/
Change since 2018
Medium/High
Risk
Description and potential impact
Mitigation/comments/ 2019 Progress
– During 2019, the Executive Committee has been strengthened by the appointment of Mr Dmitrii Chekashkin,
Group Executive, Business Transformation and Operational Efficiency.
– During 2020, Mr Danila Kotlyarov was appointed as Chief Financial Officer and Executive Director, further
strengthening the Board and the executive team.
– A revised Remuneration Policy will be proposed to shareholders for approval at the Company’s 2020 Annual
General Meeting.
Additional
information
Nominations
Committee Report
on page 144
Directors’
Remuneration
Report on
page 156
Petropavlovsk Annual Report 2019
41
Operational Performance
Key Performance Indicators
Improved gold market conditions have led to
the use of a higher gold price assumption
(US$1,700/oz vs. US$1,500/oz) to define
Mineral Resources. This, together with
favourable results from metallurgical testing,
has allowed Pokrovskiy and Pioneer RIP
tailings to be classified as Inferred Mineral
Resources in accordance with the JORC Code
which collectively added c.0.87Moz to the
Mineral Resource statement. Pioneer Mineral
Resources have increased by c.11%, whilst
Pokrovskiy Mineral Resources increased by
c.32%. The increase at Pioneer is attributable
to both exploration success, including
metallurgical testing, and the increase in the
gold price assumption, whilst the increase at
Pokrovskiy is purely due to a higher gold price
assumption as there was no exploration
completed at Pokrovskiy during 2019.
Going forward
The Company will continue to develop a
high-quality refractory and non-refractory
resource pipeline to support both open pit
and underground mining and maximise
existing Group infrastructure. Specifically, in
2020, Group geologists will seek to
delineate new mineral resources at Albyn as
well as at Osipkan and Tokur which are in
proximity to Malomir. The Company will
also seek opportunities to increase its
refractory resource base via high-quality
low-cost acquisitions.
Mineral Resources (Moz)
2019
2018
2017
21.03
20.52
20.86
Definition
A Mineral Resource is a concentration or
occurrence of solid material of economic
interest in or on the earth’s crust in such form,
grade, and quantity that there are reasonable
prospects for eventual economic extraction.
The location, quantity, grade, continuity and
other geological characteristics of a Mineral
Resource are known, estimated or interpreted
from specific geological evidence and
knowledge, including sampling. Mineral
Resources are sub divided, in order of
increasing geological confidence, into
Inferred, Indicated and Measured categories.
Relevance
JORC Mineral Resources are a singular
measure of the size of the Group’s mining
and exploration assets, indicating medium
to long-term production potential. In line with
its Strategy of maintaining and expanding
Reserves and Resources, the Group places
emphasis on finding Mineral Resources
through near mine exploration and is
increasingly investigating the potential
of other licences further away from its
existing operations given the distance
that refractory gold ores can be transported
(once concentrated) to the POX Hub.
By implementing this strategy in recent years,
the Group has successfully replenished gold
resources depleted by mining.
Progress In 2019
A successful exploration campaign together
with the recently improved gold market
conditions allowed the Group to increase its
Mineral Resources from 20.52 to 21.03Moz
despite depletion of c.0.5Moz due to mining.
Exploration completed in 2019 has resulted in
increased confidence at Elginskoye (part of the
Albyn project) which is the next Group’s major
open pit mine starting production in 2020.
Albyn’s Measured and Indicated gold
resources increased by c.20% in 2019 vs 2018.
Of this increase, refractory ounces increased
almost three-fold from 0.57 to 1.55Moz as
transitional resources were re-classified as
lower risk refractory resources following the
successful start-up of the POX Hub.
42 Petropavlovsk Annual Report 2019
Our key performance indicators appear throughout this report and introduce the operational,
financial and sustainable development sections; respectively pages 42, 70 and 86.
Going forward
Total gold production for 2020 is expected
to increase and reach a range between 620
and 720koz. Production at Malomir is
expected to decline modestly due to a
scheduled decline in production from the
underground sections of the mine and
exhaustion of Quartzitovoye non-refractory
open pit. Albyn’s production is also
expected to be lower on account of a small
decrease in plant throughput, head grade
and recovery caused by the switch from
mining at the Albyn open pit to mining at
Elginskoye. The declines at Malomir and
Albyn are expected to be partly offset by
increased production at Pioneer due to
higher head grades and RIP recoveries
resulting from a greater contribution of
underground ore from NE Bakhmut and the
development of an underground mine at
Andreevskaya zone. Increase in gold
production from third-party concentrates is
expected to contribute to total gold
production rise to between 620 to 720koz.
Total gold production (koz)
2019
2018
2017
517
422
440
Definition
Measured in troy ounces, total gold production
is made up of gold produced from the Group’s
hard-rock mines as well as from the processing
of material purchased from third parties for the
applicable years. Gold production data is
comprised of gold recovered each year and
adjusted for changes in gold remaining in circuit
at the end of the period.
Relevance
Gold production underpins our financial
performance, as the majority of the Group’s
operating profit is attributable to the sale of
the gold produced by the Group. The indicator
also demonstrates the strength of our
operational and managerial teams and
ability to deliver against the mine plan.
Performance in 2019
In 2019, the Group produced 517.3koz.
Production from the Group’s own mines
amounted to 471.6koz, in line with guidance
given for the year of 450 - 500koz. A further
45.7koz of gold was produced from
concentrates purchased from third parties
for the processing at Pokrovskiy POX Hub
which was the first instance when Group
started gold production from third-party
sources. Albyn was a strong performer,
with production rising c.13% from 2018 due
to a combination of increased throughput of
higher-grade ore and consistently high
recoveries at the RIP plant. Malomir
transitioned from being nonrefractory to
becoming principally a refractory mine
which enabled production volumes to
increase 132% via treatment at the POX Hub.
The increase at Malomir was also helped by
the stronger-than-expected performance at
the flotation plant. Pioneer’s performance fell
c.11% from 2018 as it was impacted by the
processing of harder ores plus challenging
geotechnical and hydrogeological issues
encountered at the start of the year.
Petropavlovsk Annual Report 2019
43
Operational Performance continued
Pioneer
Pioneer produced c.23% of total gold production in 2019 from a mix of open pit and underground operations.
Since the start of mining in 2008, the mine has focused on extracting non-refractory ores, although the
completion of new flotation facilities in 2020 will lead to a transition towards mining predominantly refractory
gold ores for processing at the POX Hub. In terms of exploration, the Pioneer project is considered to have
significant potential, particularly for refractory gold which has historically been under-explored.
Operating performance
Pioneer produced 120.4koz of gold in 2019, a
c.11% decrease from 2018 (135.1koz), caused
by mining harder than anticipated ores which
negatively affected mill throughput. Non-
refractory ore was mined from open pits at
Yuzhnaya, Alexandra and Katrin, with
additional material provided by stockpiles.
Underground development advanced well,
with a total of 4,348m (58,478m3) of
underground workings completed at North
East Bakhmut. In total, 246kt of underground
ore with an average gold grade of 4.60g/t were
mined from pay shoots 2 and 3, with
the mine operating at its design capacity.
No further ore was added to the heap-leach
due to its decommissioning, although 2.9koz
of gold were recovered from irrigation
activities over the course of the year.
Total Cash Costs◆ increased by 31% to
US$1,040/oz (2018: US$792/oz) and All-in
Sustaining Costs◆ increased by 15% to
US$1,363/oz (2018: US$1,190/oz).
Total Cash Costs◆ were most affected by
additional costs associated with the ramp-up
of the POX Hub, inflation of certain Rouble
denominated costs and application of the full
6% mining tax rate, partly offset by higher
grades and recoveries and Rouble
depreciation.
All-in Sustaining Costs◆ reflect the increase
in Total Cash Costs◆, partially offset by the
increase in physical ounces sold in 2019 with
an aggregate of sustaining exploration and
capital expenditures and capitalized stripping
expenditure during the period remaining at
approximately the same level as in 2018.
Mining and Processing
Pioneer is a bulk tonnage operation comprising
multiple open pits and an underground mine.
The orebodies contain both non-refractory and
refractory gold ores. Non-refractory ore is
processed at an all-year 6.7Mtpa RIP plant,
although reserves are nearing exhaustion and
RIP production is set to decline. Following the
launch of the POX Hub, the Group has started
construction of a 3.6Mtpa flotation plant which
is expected to be operational from Q4 2020.
MAINLINE RAILWAY
A-360
A-360
P-297
Pokrovskiy POX Hub
A-361
Tygda
RAILWAY
Zeya
Pioneer
RUSSIA
Fevralsk
CHINA
RIP plant
Hydro power plant
Flotation plant
Railway
POX Hub
Core assets
Federal highway
National border
BLAGOVESCHENSK
P-297
44 Petropavlovsk Annual Report 2019
The addition of a flotation plant will enable
Pioneer’s substantial refractory reserves to be
processed by concentrating refractory ore at
the mine prior to transporting to the POX Hub
for further processing into doré. The flotation
plant will utilise two of the c.2.0Mt per annum
crushing and grinding lines that are currently
dedicated to the RIP circuit. Consequently,
non-refractory processing capacity will be
reduced to 2.7Mtpa from 6.7Mtpa. Given the
harder nature of refractory ore, the combined
annual throughput of refractory gold ores
through the two milling lines is expected to
be less than 4.0Mtpa at around 3.6Mtpa.
Production from the first Pioneer North East
Bakhmut underground mine began in 2017
using a reputable Russian mining contractor.
Mining at NE Bakhmut is undertaken
employing trackless equipment using
sub-level open stoping mining method with
or without backfill. A second underground
mine at Andreevskaya Zone is scheduled for
construction during 2020 in addition to the
North East Bakhmut underground operation.
Ores amenable heap-leach treatment have
now been exhausted and no further heap-
leach processing is planned. Heap-leach
crushing equipment are used to assist in
crushing RIP ore and also to produce ballast
for use in construction and maintenance
work. The sorption columns are adapted to
recover gold-in-circuit from re-circulated RIP
tailings solution.
Geology
Gold mineralisation at Pioneer was formed
as a result of hydrothermal processes occurring
in the late Mesozoic Period near the contact
between a granitoid massif and Jurassic
country rocks. Pioneer is comprised of five
gold licences covering multiple steeply dipping
orebodies with a strike length of up to 2km.
The orebodies are comprised of high-grade
shoots with lower grade halos of mineralisation.
High-grade shoots generally have a thickness of
between 1 and 20m, while low-grade halos
extend up to 200m in thickness. Many of the
high-grade shoots remain open at depth,
offering the potential for an increase in
underground resources. The Group’s
geologists believe excellent potential exists for
the discovery of significant open pit resources.
Pioneer open pit and underground mining operations
2019 total gold production:
Total material moved
Ore mined
Average grade
Gold content
Processing operations
RIP Plant
Ore milled
Average grade
Gold content
Recovery
Gold recovered
Heap-leach operations
Total stacked
Average grade
Gold content
Recovery
Gold recovered
Pioneer gold production – Doré
Figures may not add up due to rounding.
Units
m3 ’000
t ’000
g/t
oz. ’000
Year ended
31 December 2019
19,042
3,795
0.97
118.6
Year ended
31 December 2018
18,612
3,173
1.07
108.9
Units
Year ended
31 December 2019
Year ended
31 December 2018
t ’000
g/t
oz. ’000
%
oz. ’000
t ’000
g/t
oz. ’000
%
oz. ’000
oz. ’000
5,707
0.78
143.5
81.7
117.2
–
–
–
–
2.9
120.4
6,395
0.73
150.0
80.4
120.6
701
0.50
11.3
50.1
5.6
135.1
Outlook
Production at Pioneer is expected to be higher, between 130 and 140koz, in 2020 due to
an increase in head grades and RIP recoveries resulting from a greater contribution of
underground ore from NE Bakhmut and the development of an underground mine at
Andreevskaya zone. Open pit production is expected to come from Alexandra, Katrin and
Yuzhnaya as well as from existing stockpiles. Construction remains on schedule for the
flotation plant to be fully operational in Q4 2020.
120.4koz – c.23% of total gold
production for the year
Pioneer production as a % of total
Key facts:
2001
Pioneer was acquired as a greenfield licence
2.7Moz
Gold produced to date
5,707kt
Ore processed via RIP in 2019
1,337km2
Total gold licence area
6.59Moz
Mineral Resources, including 2.72Moz
Ore Reserves
18 years
Mine life
Petropavlovsk Annual Report 2019
45
Operational Performance continued
Albyn
Albyn is the Group’s principal non-refractory asset, having contributed c.33% of total gold production
in 2019. Albyn operates as a conventional open pit mine with a dedicated RIP processing circuit.
The project consists of three adjoining licences that cover multiple orebodies, including Albyn,
Elginskoye, Unglichikanskoye and Afanasevskoye. All four orebodies are considered prospective given
they remain open down-dip, while the Elginskoye, Unglichikanskoye and Afanasevskoye deposits are
also open along strike.
Operating performance
In 2019, Albyn produced 170.9koz which
was a c.13% increase on 2018 (151.0koz).
The main source of ore was the central zone
of the main pit. Recoveries at the processing
plant were consistently high, averaging over
93% for the year. Total Cash Costs◆ decreased
by 16% to US$468/oz (2018: US$559/oz) and
All-in Sustaining Costs◆ decreased by 29% to
US$690/oz (2018: US$974/oz).
Total Cash Costs◆ benefited from higher
grades with recoveries remaining at
approximately the same level as in 2018 and
Rouble depreciation, partially offset by inflation
of certain Rouble denominated costs and
progressive increase in mining tax rate to 1.2%.
All-in Sustaining Costs◆ followed the
decrease in Total Cash Costs◆ and also
reflect the reversal of impairment of non-
refractory ore stockpiles at Albyn. An increase
in sustaining capital expenditure due to
Elginskoye mine development was offset by
no capitalised stripping expenditure during
the period. When combined with the increase
in physical ounces sold in 2019 this
contributed to further improvement in All-in
Sustaining Costs◆.
Mining and Processing
Albyn is a large (2.2km long) open pit, bulk
tonnage mine and the Group operates its own
mining fleet consisting of modern diesel and
electrical excavators, dump trucks, drill rigs,
bulldozers and other vehicles. Productivity
and equipment utilisation is optimised by
running two shifts per day throughout the
year. Albyn is mostly non-refractory and ore
is treated at a dedicated 4.7Mtpa RIP plant
which also operates continuously throughout
the year. The RIP plant is comprised of two
identical crushing and grinding lines, each
with a 1.8Mtpa design capacity. Since
commissioning in 2011, plant optimisation
and improvements have enabled for a 30%
increase in processing capacity above design.
Geology
The Albyn project is located on the Mongolo-
Okhotskiy thrust zone within a belt of
mineralisation associated with the collision
MAINLINE RAILWAY
A-360
A-360
RUSSIA
Albyn
P-297
A-361
RAILWAY
Tygda
Fevralsk
Zeya
of the Eurasian and Amur plates. The project
consists of four principal deposits: Albyn,
Elginskoye, Unglichikanskoye and
Afanasevskoye.
Mineralisation at the Albyn deposit occurs
as a series of gently-dipping, sub-parallel
metasomatic zones which appear to
continue down dip. The mineralised zones
show variable thickness and grade and extend
to c.4.5km in strike length. Mineralisation at
Elginskoye is confined within metasomatic
zones that dip gently to the south and drilling
has confirmed gold mineralisation extends over
a strike length in excess of 7km and remains
open in all directions. Unglichikanskoye is
comprised of a series of sub-parallel, relatively
narrow, steeply dipping zones which have been
proven over a strike length in excess of 5km and
which remain open in all directions. There is a
relatively narrow, c.1.5km long, steeply dipping
single zone of gold mineralisation at
Afanasevskoye which is open down-dip
and along strike to the west.
In addition to the four known deposits,
there are several potential exploration targets,
of which Ulgen, Yasnoye and Leninskoye are
considered the most significant. Most of the
licence area remains underexplored and
considered highly prospective. All known
Mineral Resources and Reserves at Albyn
deposit are non-refractory, whilst Elginskoye
and Unglichikanskoye include both non-
refractory and refractory Mineral Resource
and Ore Reserves.
CHINA
RIP plant
Core assets
Hydro power plant
Railway
Federal highway
National border
46 Petropavlovsk Annual Report 2019
BLAGOVESCHENSK
P-297
Albyn mining operations
Total material moved
Ore mined
Average grade
Gold content
Processing operations (Resin-in-pulp plant)
Ore milled
Average grade
Gold content
Recovery
Gold recovered
Albyn gold production – Doré
Figures may not add up due to rounding.
Units
m3 ’000
t ’000
g/t
oz. ’000
Year ended
31 December 2019
12,465
6,222
1.22
243.5
Year ended
31 December 2018
18,155
3,904
1.10
137.8
Units
t ’000
g/t
oz. ’000
%
oz. ’000
oz. ’000
Year ended
31 December 2019
4,602
1.22
180.2
93.9
169.3
170.9
Year ended
31 December 2018
4,602
1.09
161.7
94.0
152.1
151.0
Outlook
2020 production is expected to be below 2019 levels, between 145 and 155koz, due to a
slight decrease in plant throughput, head grade and recovery due to the switch from mining
at the Albyn open pit to mining at the Elginskoye open pit. Mining at Albyn is expected to
cease altogether in the second half of 2020. To assist with the switch, stockpiled material will
be used to contribute additional ore.
In the longer-term, mining is expected to move to satellite Unglichikanskoye deposit. As the
Albyn orebody remains open at depth, the Group is also investigating the potential for mining
under the open pit which may become an additional source of future production.
Refractory reserves are known to exist at the Elginskoye and Unglichikanskoye deposits
and are currently scheduled for processing from 2028 when a flotation plant is planned to
concentrate refractory ores prior to transportation to the POX plant for further processing and
gold recovery.
2019 total gold production:
170.9koz – c.33% of total gold
production for the year
Albyn production as a % of total
Key facts:
2005
Albyn was acquired as a greenfield licence
1.3Moz
Gold produced to date
4,602kt
Ore processed via RIP in 2019
1,053km2
Total gold licence area
5.01Moz
Mineral Resources, including 2.50Moz
Ore Reserves
18 years
Mine life
Petropavlovsk Annual Report 2019
47
Operational Performance continued
Malomir
Malomir is a large, conventional, open pit and underground mining operation that accounted for c.35% of
total gold production in 2019. Since completing the POX Hub in late 2018, the focus has shifted to mining
mainly refractory gold ores. The mineralisation at Malomir consists of multiple orebodies, of which the
Malomir, Quartzitovoye, Ozhidaemoye and Magnetitovoye are the most significant.
Operating performance
Malomir produced a total of 180.3koz of gold
in 2019, representing a 132% increase (2018:
77.6koz) mainly due to the mining of refractory
ores at the Centralniy pit. The total volume of
ore treated at both the RIP and flotation plants
increased c.18% compared to 2018, with the
flotation plant producing 133kt of refractory
concentrates containing 121.4koz of gold in
its first calendar year of operations. Following
improvements made to the flowsheet during
construction, and optimisation of the crushing
and grinding circuit undertaken in 2019,
concentrate grades reached c.18% above
design during the year and throughput
exceeded design capacity by c.10% in
the fourth quarter.
Non-refractory ore was sourced from
the Quartzitovoye zone as well as from
underground at Quartzitovoye and stockpiles.
The underground mine performed well in
2019, producing 277kt of ore containing
c.47koz of gold at an average grade of 5.27g/t.
During 2019, a total of 3,752m (49,339m3) of
underground workings were completed.
Total Cash Costs◆ increased by 15% to
US$752/oz (2018: US$654/oz) and All-in
Sustaining Costs◆ decreased by 5% to
US$1,022/oz (2018: US$1,058/oz).
Total Cash Costs◆were affected by additional
costs associated with the ramp-up of the POX
Hub and Malomir flotation, inflation of certain
Rouble denominated costs and progressive
increase in mining tax rate to 1.2%, partially
offset by higher grades and recoveries for
non-refractory ore and Rouble depreciation.
All-in Sustaining Costs◆ reflect the increase in
Total Cash Costs◆, compensated by the
increase in physical ounces sold in 2019 with
an aggregate of sustaining exploration and
capital expenditures and capitalized stripping
expenditure during the period remaining at
approximately the same level as in 2018.
Mining and Processing
Open pit mining at Malomir is undertaken using a
combination of Petropavlovsk’s own mining fleet
and a local contractor, while underground mining
is undertaken by a specialist underground
contractor. Refractory ores from Malomir and
Ozhidaemoye are not amenable to standard RIP
MAINLINE RAILWAY
A-360
A-360
RUSSIA
P-297
Pokrovskiy POX Hub
A-361
Tygda
RAILWAY
Zeya
Pioneer
Malomir
Fevralsk
CHINA
RIP plant
Hydro power plant
Flotation plant
Railway
POX Hub
Core assets
Federal highway
Transport route
National border
BLAGOVESCHENSK
P-297
48 Petropavlovsk Annual Report 2019
processing methods. Run-of-mine refractory ore
is first concentrated on site using flotation into a
high-grade concentrate prior to being
transported 1,318km via road and rail to the POX
Hub for further processing. The first stage of the
3.6Mtpa Malomir flotation plant was completed
in 2018. As a result of the transition to mining
refractory gold, the crushing and grinding
capacity of the RIP circuit has been reduced to
0.4Mtpa, with non-refractory ore being sourced
primarily from the Quartzitovoye underground
mine and Magnetitovoye open pit.
Geology
Malomir is situated above a major thrust zone
which dips gently northwards at 15-20° within
the Mongolo-Okhotskiy mineralised belt.
Malomir is the most significant orebody within
the licence area and the principal zone of
mineralisation is tabular in shape with a strike
length of 4.2km and down dip extensions of up
to 1.5km. Mineralisation is typically between 20
to 30m thick reaching up to 100m in places,
with several smaller steeply dipping zones
sitting above the principal zone. The main
Malomir orebody is refractory. Quartzitovoye is
the other significant orebody within the licence
which occurs as high-grade, steeply dipping
zones and low grade stockwork mineralisation.
High-grade zones are non-refractory and open
down dip. Ozhidaemoye is an eastern extension
of Malomir with a similar tabular morphology
dipping gently towards the north. Similarly to
Malomir Ozhidaemoye mineralisation is
refractory. Magnetitovoye is a small narrow
steeply dipping non-refractory satellite orebody
situated c.4.5km east from Malomir open pit.
Outlook
Malomir production is expected to be in a
range between 155 and 165koz in 2020
due to a scheduled decline in output from
the underground and exhaustion of
Quartzitovoe non-refractory open pit.
Longer term production rates at Malomir
will be sustained via the proposed
construction of an expansion to the
flotation plant which would increase the
capacity of the Malomir flotation plant from
3.6Mtpa to 5.4Mtpa. Subject to Board
approval and funding, construction could
potentially begin before the end of 2020.
Malomir mining operations
Total material moved
Non-refractory Ore
Average grade
Gold Content
Refractory Ore
Average grade
Gold content
Processing operations
RIP Plant
Ore milled
Average grade
Gold content
Recovery
Gold recovered
Flotation Plant
Ore milled
Average grade
Gold content
Recovery
Yield
Concentrate produced
Grade
Gold content
Malomir Concentrate POX Processing
Concentrate treated
Grade
Gold in concentrate
Recovery
Gold recovered
Malomir gold production – Doré
Figures may not add up due to rounding.
)
t
k
(
e
g
a
n
n
o
T
i
g
n
s
s
e
c
o
r
P
)
g
k
(
e
t
a
r
t
n
e
c
n
o
c
n
i
l
d
o
g
1200
1000
800
600
400
200
0
2019 total gold production:
180.3koz – c.35% of total gold
production for the year
Units
m3 ‘000
t ‘000
g/t
oz. ‘000
t ‘000
g/t
oz. ‘000
Year ended
31 December 2019
7,658
413
3.96
52.6
5,282
1.11
189.1
Year ended
31 December 2018
7,464
2,264
1.39
101.3
837
1.55
41.8
Units
Year ended
31 December 2019
Year ended
31 December 2018
t ’000
g/t
oz. ’000
%
oz. ’000
t ‘000
g/t
oz. ‘000
%
oz. ‘000
t’000
g/t
oz. ‘000
t ‘000
g/t
oz. ‘000
%
oz. ‘000
oz. ‘000
536
3.38
58.2
78.7
45.9
3,762
1.15
139.3
87.1
3.5
133
28.4
121.4
155
30.0
149.0
88.6
132.0
180.3
2,375
1.33
101.7
73.6
74.8
1,266
1.48
60.2
86.6
3.6
46
35.2
52.1
–
–
–
–
–
77.6
40
30
20
10
0
)
t
k
(
n
o
i
t
c
u
d
o
r
p
e
t
a
r
t
n
e
c
n
o
C
POX (26%)
RIP (9%)
Malomir production as a % of total
Key facts:
2003
Malomir was acquired as a greenfield licence
0.9Moz
Gold produced to date
4,298kt
Ore processed via RIP and flotation in 2019
230km2
Total gold licence area
6.84Moz
Mineral Resources, including 3.04Moz
Ore Reserves
15 years
Mine life
Processing tonnage
Gold in concentrate
Concentrate production
Q1
Q2
Q3
Q4
Petropavlovsk Annual Report 2019
49
Operational Performance continued
The POX Hub
Regarded as the future of the gold industry in Russia, the Pressure Oxidation facility (‘POX Hub’) is one
of the most technologically advanced processing plants of its kind. It is Petropavlovsk’s newest and
most important asset as well as being responsible for providing employment to around 500 persons.
The pressure oxidation process is regarded as the most efficient, robust and environmentally responsible
way of processing a diverse range of refractory concentrates.
Processing
The POX Hub is the newest, largest and most
technologically advanced facility of its kind in
Russia. Strategically located near the
Trans-Siberian Railway, the POX Hub is
powered by cheap and sustainable
hydropower and has significant flexibility
given its four separate autoclave vessels
can process a wide range of third-party
gold-bearing concentrates in addition to
feed from Petropavlovsk’s own mines.
Refractory concentrate is brought to the
Hub by road and rail and stored at the intake
building. Processing begins by regrinding the
concentrates at the former Pokrovskiy plant
using the existing, refurbished, milling
facilities. Reground concentrate is then
sent to the POX circuit where gold-bearing
sulphides are oxidised in the autoclaves under
high pressures and temperatures to liberate
the gold from sulphide minerals, thus enabling
the gold to be recovered via conventional
resin-in-pulp (‘RIP’) processing. The state-of-
the-art POX circuit is unique given it includes
four separate autoclave vessels as well as
high- and low-pressure ancillary circuits.
The four autoclaves are designed to operate
at temperatures of around 225°C and
pressures of 3,500kPa, which is higher
than most POX plants. The layout has been
designed to accommodate a 5th and 6th
autoclave in the future, which would increase
capacity by around 50% compared to the
existing level. The process is exothermic and
consumes pure oxygen supplied from a
purpose-built oxygen plant. Once oxidised,
the concentrate is cooled, thickened and
filtered through press-filters before having its
acidity neutralised by the addition of lime and
limestone. The filtered material is then
transferred to the RIP plant where gold is
recovered as a doré ready for shipping to
refineries. Tailings from the POX process
are neutralised using limestone before being
safely stored inside a redundant open pit at
the former mine. RIP tailings are stored at a
facility originally constructed for use by the
former Pokrovskiy mine.
MAINLINE RAILWAY
A-360
A-360
RUSSIA
P-297
Pokrovskiy POX Hub
A-361
Tygda
RAILWAY
Zeya
Pioneer
Malomir
Fevralsk
CHINA
Flotation plant
Hydro power plant
POX Hub
Core assets
Railway
Federal highway
National border
BLAGOVESCHENSK
P-297
50 Petropavlovsk Annual Report 2019
Responsible business
Studies undertaken by the Group and third
parties concluded that POX is the most
environmentally friendly process for treating
a wide variety of refractory gold concentrates,
particularly those containing arsenic, which is
converted to a stable form, known as
scorodite, that can be safely stored in the
tailings. The plant is powered by the local
grid which is supplied with electricity primarily
generated from renewable hydropower which
is abundant in the area. Given that pressure
oxidation is exothermic, heat generated by
the process is utilised for heating the POX
complex and office buildings during colder
months. Given the success of this project,
the Company is investigating the potential to
capture more of the heat for heating the
accommodation blocks. The Company is also
investigating ways to utilise this energy during
warmer months. In addition to the above,
the plant provides employment to around
500 persons.
Operations
Operationally, 2019 was an extremely
successful first year at the POX plant.
Wet commissioning began in October 2018,
with first concentrate fed into the plant in
early December and first gold poured on
21 December 2018. The plant reached its
design capacity (for Malomir concentrates)
of 11.5t to 12.0t per hour at the first two
autoclaves within just a few weeks.
Throughput ramped up steadily over the year,
with 32kt of concentrate being processed in
Q1 and 63kt being processed in Q4. Gold
recovered increased from 28koz in Q1 to
83koz in Q4, while recoveries increased
steadily from 84% to 94% over the year.
In total, the POX Hub processed 155kt of
Malomir concentrate and 33kt of third-party
concentrate to produce c.180koz (or c.35%
of the Group total) of gold in 2019.
For the year, processing costs averaged
US$213.6/t which is expected to fall as
throughput increases and the plant reaches
full capacity.
POX Hub performance metrics
POX Plant
Concentrate treated
Concentrate grade
Gold in concentrate
Gold Recovery
Gold Recovered
Gold Produced
Ramp up of the POX Hub in 2019
Unit
kt
g/t
koz
%
koz
koz
)
z
o
k
(
d
e
r
e
v
o
c
e
R
d
o
G
d
n
a
l
)
t
k
(
e
g
a
n
n
o
T
100
80
60
40
20
0
e
t
i
i
s
e
n
m
e
h
t
t
A
e
h
t
t
A
b
u
H
X
O
P
Q1
Q2
Q3
Q4
Processing tonnage (kt)
Gold recovered (koz)
Gold recovery (%)
Crushing and Grinding
– Grinding helps break up refractory ores into finer particles
– Standard flotation technique
Preconcentration
– Reduces transport costs
POX
– Sulphide minerals break down at high temperature combined with high pressure,
thus releasing gold
– Gold removed from the solution via standard carbon-in-pulp process
Outlook
In 2020, the POX Hub is expected to process between 300 and 330kt of concentrate and
produce 370-430koz of gold from all four autoclaves. The sources of concentrate include
between 135 and 140kt from Malomir, between 35 to 45kt from the new flotation plant at
Pioneer and an estimated 130-145kt from third-party producers, depending on availability.
Processing costs are expected to be below the level of 2019, due to higher throughput and
operational improvements.
2019
188
35.5
213
90.5
193
179.5
)
%
(
y
r
e
v
o
c
e
R
d
o
G
l
96
94
92
90
88
86
84
82
80
78
2019 total gold production:
179.5koz – 35% of total gold production for
the year
Malomir refractory (26%)
Third-party refractory (9%)
Pioneer, Malomir & Albyn
non-refractory (65%)
Production as a % of total
Key Facts:
2018
Production starts after 13 years of research,
planning and construction activities
35%
Up to 500kt p.a.
Total capacity (depending on concentrate
qualities)
4 autoclaves
Each able to process different concentrate types
12.99Moz
Refractory Mineral Resources, including
5.99Moz Ore Reserves
Petropavlovsk Annual Report 2019
51
– Technology widely used in the mining industry, for both base and precious metals
Of total gold production in 2019 from POX Hub
The POX Hub
A strategic asset
POX at the heart of our strategy
The POX Hub, together with the associated
flotation plants at Malomir and Pioneer
(the ‘POX project’), sits at the heart of
Petropavlovsk’s strategy and is the principal
driver of future value for the Group. Pressure
oxidation was selected for being the most
efficient and environmentally friendly
technology to process refractory gold ores.
Refractory gold is an important future source
of gold production given that approximately
15-30% of Russian classified gold reserves are
refractory, while c.5.99Moz of the Group’s own
reserves are also refractory. The lack of
sufficient suitable processing capacity in
Russia means refractory gold occurrences are
often highly attractive in terms of grade and
mining profile yet are undeveloped or
under-explored and readily available.
As the owner of one of only two POX plants in
Russia, this makes the POX Hub an important
strategic asset for Petropavlovsk.
On account of its flexibility, the plant is
capable of profitably treating a wide range
of third-party concentrates, most of which
are higher quality (in terms of grade and the
presence of carbon and/or sulphur) than
concentrates produced at the Group’s own
Malomir and Pioneer mines. As a result, in
addition to conducting exploration work on its
own properties, the Company is considering
the attractiveness of several refractory
projects in the region and investigating the
potential to acquire new licences where
low-cost and high-return projects can be
brought into production quickly and with a low
capital intensity.
The POX Hub concept
The POX Hub is strategically located at the
site of the Company’s first and now depleted
mine, Pokrovskiy, where it benefits from
existing milling facilities, road and rail
infrastructure, low cost renewable power
(hydro-electric) as well as a nearby limestone
deposit – a key ingredient in the POX process.
Located just 18km by road from the Trans-
Siberian Railway enables concentrates to be
sourced over large distances and the plant has
processed third-party material from Russia
and Kazakhstan in addition to its own mine at
Malomir which travels over 1,300km by road
and rail. This also means that the Company
can consider expanding inorganically or
developing the best assets in conjunction
with other parties over a wide area given
distance is not necessarily a constraint.
Split of refractory and non-refractory reserves
Petropavlovsk
29%
71%
■ Refractory
Russia
70-85%
15-30%
■ Non-refractory
The processing of refractory gold ores
The journey from refractory ore to gold doré (total recovery of 74%-80%)(1)
PIONEER MINE
MALOMIR MINE
160ktpa concentrate(2)
– 80%-82% flotation recovery
– 2.5-3.6% concentrate yield
– 20-33g/t Au
230ktpa concentrate
– 83%-86% flotation recovery
– 3.5% concentrate yield
– 20-35g/t concentrate grade
40km
166km
Rail loading facility
Rail loading facility
18km
Tygda
1,134km
Fevralsk
Concentrate Re-grinding
Autoclave Oxidation
4x 15mx4m autoclave
RIP Circuit
Gold Doré
l
t
n
a
P
n
o
i
t
a
t
o
F
l
n
o
i
t
a
t
r
o
p
s
n
a
r
T
b
u
H
x
o
P
90% -0.044mm
225°C @ 35 bar
20 - 30 minutes
Purogold resin
Malomir = 93% POX recovery
Pioneer = 93%-98% POX recovery
(1) Total recovery calculated for Malomir as 83%-86% (conc. recovery) x 93% (POX recovery) = 77%-80%. For Pioneer, calculated as: 80%-82% x 93%-98% = 74%-80%.
(2) Pioneer concentrate tonnages depend on the concentrate yield which is expected to range from 2.5-3.6%.
52 Petropavlovsk Annual Report 2019
Technical Aspects
The pressure oxidation process
The processing of refractory gold ores begins
with crushing and grinding, followed by
flotation at the mine site which reduces the
volume material down to between 2.8% and
4.2% of the original mass by selectively
enriching gold mineralisation. The resulting
concentrate is then transported to the POX
Hub by road and/or rail for further processing
and gold recovery.
Flotation tanks at Malomir
The POX Hub is designed to operate at a
pressure of 3,500kPa and a temperature of
225°C which is higher than most other POX
plants and enables the efficient processing of
a variety of refractory feeds, including
double-refractory concentrates.
Four separate autoclave vessels provide
a significant degree of flexibility to
Petropavlovsk since concentrates from
Malomir, Pioneer and other future sources
(including third-party) can be processed
optimally, either individually or as blends,
in separate autoclaves. It also means that
scheduled maintenance can be undertaken
by shutting down only one autoclave at a time,
which means each individual autoclave is
expected to operate for 7,500 hours per year
once at full capacity.
Throughput rates are determined by the
specific characteristic of the concentrate
and particularly the level of sulphur, with high
sulphur concentrates taking longer to process
given the additional time required to oxidise
sulphur in the autoclaves. As a result, the
capacity of the plant varies on an annual basis
according to the material it is processing.
The POX project
The Group controls substantial refractory
resources totalling c.12.99Moz and spread
across Malomir, Pioneer and Albyn projects.
Over 10 years ago, the Board approved a
large-scale investment into the construction
of the necessary processing facilities,
including two flotation plants and the POX
Hub, to recover refractory gold and thus
monetise this portion of its asset base.
The Group’s first flotation plant was
successfully commissioned at Malomir in
2018 at a capacity of 3.6Mtpa and produced
concentrate which was sent to the POX Hub
for further processing and gold recovery.
Concentrate grades varied between 21 and
32g/t of gold with a sulphur content ranging
from 21 to 29%. Given the presence of natural
carbon in the refractory ores, Malomir
concentrate is known as double refractory,
which requires special measures to neutralise
the carbon so as gold recoveries are not
negatively impacted. These include strict
control over chlorine ion levels and the
relatively high pressure and temperature
of the autoclaves. As a result, the average
recovery of gold in the POX circuit is expected
to be high at between 93% to 96%.
The construction of a second 3.6Mtpa
flotation plant began in H2 2019 at Pioneer.
The construction is well under way and the
new plant is expected to be fully operational
in Q4 2020. Once in production, Pioneer
concentrate grades are anticipated to vary
between 20 and 33g/t of gold, with an
average gold grade of 24.2g/t and average
sulphur grade of 21.0%. Gold recovery in the
POX circuit is conservatively expected to be
Group refractory resources
Malomir (51%)
Pioneer (35%)
Albyn (14%)
around 93%, although the Group’s engineers
believe 98% is achievable.
Subject to Board approval, the Group is
expecting to undertake an expansion,
commencing late-2020, of the flotation plant
at Malomir which would increase capacity to
5.4Mtpa of concentrate.
Longer-term, a flotation plant at Albyn is
envisaged for 2028 to process refractory
ores at the Elginskoye and Unglichikanskoye
deposits. The gold grade of these concentrates
is anticipated to vary between 20 and 40g/t, and
the average sulphur grade is expected to be
around 15%.
Third-party material and inorganic growth
Spare capacity at the POX Hub enables the
Group to process third-party concentrates
available from several sources in Russia and
Kazakhstan. Starting in H2 2019, a total of
33kt of third-party concentrate was
processed up to the end of 2019, with
average monthly grades ranging between
c.38 and c.90g/t and average monthly gold
recoveries ranging between 94.1 and 95.3%.
The Group anticipates that 2020 will be the
peak year for treating third-party concentrates
as the new flotation plant at Pioneer and
expanded Malomir plant become operational.
The Company is also investigating the
possibility of making a strategic acquisition
of a low-cost asset or licence which can be
brought into production on a 12 to 18-month
timeframe and which would enable the POX
plant to operate at full capacity by treating
material sourced entirely from Petropavlovsk’s
own operations.
Petropavlovsk Annual Report 2019
53
The POX Hub continued
Operational parameters of the POX project
Stage Parameter
Malomir
Pioneer
Malomir+Pioneer Total
3rd party
Ore processing
capacity
Concentrate yields
Concentrate grades
Concentrate tonnages
n
o
i
t
a
t
o
F
l
Recoveries
b Sulphur content
u
H
Recoveries
3.6Mtpa (Malomir 2 lines)
5.4Mtpa (Malomir 3 lines)
3.5%
20-35g/t
<140ktpa (Malomir Stage 1)
<230ktpa (Malomir Stage 2)
83%-86%
20-40%
93%
3.6Mtpa (Pioneer 2 lines)
5.4Mtpa (Pioneer 3 lines)
2.5-3.6%
20-33g/t
<100ktpa (Pioneer Stage 1)
<160ktpa (Pioneer Stage 2)
80%-82%
21%
93%-98%
7.2Mtpa
10.8Mtpa
2.5-3.6%
20-35g/t
<240ktpa
<390ktpa
81%-84%
20%-32%
93%-96%
N/A
N/A
27-70g/t
N/A
N/A
21%
92-96%
l
a
t
o
T
Total Recovery
77%-80%
74%-80%
74%-80%
92-96%
X
O
P
i
d
e
n
b
m
o
C
54 Petropavlovsk Annual Report 2019
The making of the POX plant
Key data
1st
R&D dedicated pressure oxidation centre and
the only one of its kind in Russia
1st
Pilot autoclave in Russia
An industry first – Petropavlovsk’s in-house research and development network
POX Hub
The competence to implement complex, challenging projects
Test plant* (est. 2009)
Exploration companies
– NGGF Regis* (since 2004)
– Central analytical laboratory* supports
exploration research and runs complex
analyses (est. 2004)
Unique pilot
autoclave*(2010)
Kapstroi*
construction
company
Laboratories
5 laboratories at mines
(since 1998)
Research institutes and R&D Centres
7 patents
For treating refractory ores, two of which are
being used at the POX Hub
Multidisciplinary
engineering centre PHM
Engineering* (est. 2004)
Irgiredmet*
Scientific Institute
(acquired 2006)
*Took part in implementing POX Hub project.
RDC Hydrometallurgy* est.2008
3 months
From start-up to first gold production
2 weeks
From start-up to achieving full capacity in
each autoclave – an industry record
introduce a new generation of technologies
to a potential 5th and 6th autoclave.
Petropavlovsk’s success story at the
POX Hub
The POX project began with the
establishment of a research centre intended
to build-out our expertise, which began by
studying the design and performance of other
autoclaves around the world. Subsequently,
Petropavlovsk’s own scientific institutions
were involved at all stages, from initial
laboratory tests in 2009 to monitoring
and providing daily feedback during
commissioning and ramp-up.
The key to the success of our POX
project - our unique in-house technical
and scientific expertise
Petropavlovsk’s unique approach to the
processing of complex refractory ores is
based around having its own in-house
technical and scientific expertise.
Since taking the decision in 2006 to commit
to pressure oxidation, as part of its long-term
strategy, the Company’s in-house team have
worked almost independently from start to
completion of the project. Initially, this was done
through researching existing technologies
elsewhere in the world, before designing and
developing its own customised technologies.
The smooth ramp-up of POX Hub stands as a
record for the industry, and reflects more than
a decade of R&D. This early investment, and
the resulting accumulation of its technical
expertise over the period, is now paying off in
other areas as the team is fully focused on
continuous improvement of the POX plant.
In addition, the Company is well positioned to
POX Hub Timeline
Decision
to develop
refractory
ores taken
R&D begins at RDC
Hydrometallurgy and
Irgiredmet
Results demonstrate
POX to be the most
attractive processing
solution
Engineering work
(Outotec, PHM
Engineering)
Autoclave equipment
installation, lining of
autoclave vessels and
flash tanks
Launch of
Malomir
flotation
POX plant is able to
operate with
4 autoclaves run
simultaneously
Establishment of RDC
Hydrometallurgy
(A refractory ore research
foundation)
Extensive feasibility
study into refractory ore
processing solutions,
base engineering study
Launch of Pilot
Autoclave at our test
plant, pilot tests begin
Gold price falls and
construction work
slows due to capital
constraints, pilot
tests continue
POX plant
commissioned
and first gold
poured
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Petropavlovsk Annual Report 2019
55
The making of the POX plant continued
RDC Hydrometallurgy (“RDC”)
The ‘think-tank’ of pressure oxidation
RDC undertook 70 research projects over the past 10 years, including the POX project.
Overview:
RDC is made up of over 40 employees with both practical and academic experience and includes some of Russia’s leading experts in the field of
pressure oxidation technology. These include one Doctor of Science and eleven PhDs, seven of which wrote their PhD thesis on the POX plant.
Petr Zaytsev
PhD in Technical Sciences
Ilya Fomenko
PhD in Technical Sciences
Anna Kabisova
PhD in Technical Sciences
Sergey Polezhaev
PhD in Technical Sciences
Sergey Lyah
PhD in Technical Sciences
Head of the Research and
Technology Division
Director of Scientific work
Head of the Technical
Research Laboratory
Senior Research
Associate
Head Engineer
“I went into science
almost immediately after
graduating, and my role at
RDC was my second one.
“By becoming part of RDC
Hydrometallurgy, I entered
the complex and romantic
world of science.
I was immediately attracted
by the opportunity of
participating in researching
and developing new
technologies as well as
solving challenging and
interesting technical
problems.”
Because it is so unique,
all employees at RDC are
inspired by the work we
do on the POX project.
The POX Hub is therefore
the result of the work of
people who were truly
passionate about it.”
“Being on the POX project
team meant I participated
in laboratory research &
pilot trials and
subsequently in the
commissioning phase.
All the project’s
parameters, such as high
sulphur and the refractory
nature of the ores, the
high-temperature
autoclave process etc.
make it unique on a
world scale.”
“Since 2013, I have
been responsible for
coordinating and
conducting pilot tests,
90% of which are still being
carried out on behalf of
Petropavlovsk.
RDC’s scientific research
has enabled Petropavlovsk
to successfully unlock the
potential of its gold-bearing
refractory resource base.”
“I received an offer to
join the RDC team as a
researcher at the
beginning. I was lucky
enough to work with
Lev Chugaev, one of
the most respected
hydrometallurgical
scientists in the field
of precious metals in
Russia.
The POX Hub has been
and remains our flagship
project. This is one of the
few projects in Russia
which went through all
stages from the first
laboratory tests to
industrial production.”
and research determined the optimal
processing parameters such that recoveries
of between 92 and 94% are now, as was
demonstrated in Q4 2019. This research
has been highly effective in improving
profitability through decreasing the cost
of recovering gold.
Starting in January 2009, RDC began
performing test works that would eventually
lead to the POX Hub of today. Over this time,
RDC tested hundreds of metallurgical
samples, including regular testing of samples
from Petropavlovsk’s unique pilot autoclave to
ensure that it closely replicates the processing
environment of the full-scale plant.
These studies have been instrumental in
defining the optimal design and processing
parameters of the POX Hub which has
significant de-risked the project. For example,
our initial tests on Malomir concentrate
samples suggested recovery rates of only
70% were possible. However, further testing
56 Petropavlovsk Annual Report 2019
A few thoughts from the next generation of RDC scientists:
De-risking the project and quickly reaching
the optimal processing parameters
following commissioning of the plant.
Petr Zaytsev: “We ran technical and financial
calculations in the early days of operations at
the POX plant which compared the very high
recovery rates to the ramp-up of similar
plants around the world. This concluded
the investment Petropavlovsk made into
scientific research over the past 11 years
would (theoretically) be paid off several times
over in the first year of operations.”
Sergey Lyah: “The launch of the POX Hub
can be considered as unprecedented and
therefore unique – the plant reached design
parameters in its first few months of
operations and now shows consistently
strong results and high gold recoveries.”
Ilya Fomenko: “Having in-house research
expertise is a fundamental difference
between Petropavlovsk’s approach and the
path that other companies have followed
when implementing their autoclave projects.
There are significant advantages to this
approach - for example, Petropavlovsk does
not need to send samples to another region
or country for pilot testing since the pilot
autoclave is located close to the POX facility.
There is no need to bring in large teams of
third-party specialists during launch and
ramp-up, etc. All of this was done in-house…
and it was done well!”
Treating complex ores
Petr Zaytsev: “Science has made it possible
for Petropavlovsk to monetise significant
reserves of refractory gold which would not
otherwise have any value.”
Sergey Polezhaev: “The scientific element
of the POX project has significantly expanded
the mineral resource base of the company. In
the early stages of the Company’s
development, the extraction of gold from
refractory ore at Malomir was considered
uneconomic. Today, with the successful
start-up of the POX project, the relevance and
importance of refractory gold has increased
significantly. Not only does this apply to
Malomir, but also other gold-bearing
refractory orebodies.
RDC is now focusing on ways to process
refractory ores containing high amounts of
organic carbon. Such ores cannot currently
be processed in Russia and are either
exported or stored with the possibility of
further processing as tailings. Petropavlovsk’s
scientific strengths are therefore helping the
Company to expand the number of
opportunities for its future.”
The distinctive features of the POX plant
– High temperatures and pressures enable it
to efficiently process a wide range of
refractory feeds;
– Its robust design, flexible equipment and
technological setup allows it to process
materials with different compositions and
metallurgical characteristics at the same time;
and
– Its ability to process even the most complex
ores, including what is known as ‘double’
refractory ore, where gold is not only trapped
in sulphide minerals, but its recovery is
affected by the presence of carbon.
Training personnel
Ilya Fomenko: “In Russia there are no
educational institutions capable of teaching
our specialists how to operate an autoclave
facility, so we needed to create our own
programmes. We began by developing
learning and training materials which tried
to incorporate all important points in an
accessible and understandable way.
Future operators were then given practical
training on a specially created simulator that
enables them to control a virtual autoclave.
This helped the operators enormously and
they were able to learn quickly and move onto
controlling a real-life autoclave. The POX team
is relatively young and did not take long to
master new skills, although we remain on
hand to help and advise them if they have any
questions. I believe this approach would have
contributed to the smooth launch of the
POX Hub.
Anna Kabisova: “I can see, through my
interaction with POX personnel, that the
training programme designed by RDC has
given them a deep understanding of
hydrometallurgy and the autoclave process.
The programme was developed by the chief
engineer of RDC which made it possible to
quickly and efficiently train personnel who have
now fully mastered the POX Hub.”
The future of the POX plant
Technological improvements are constantly
being made to solve some of the key
challenges associated with treating
refractory ores (Petropavlovsk’s and those
of third parties):
– Isolating and recovering antimony as
a by-product;
– Reducing the amount of organic carbon
in concentrates; and
– Suppressing the sorption activity of
a carbonaceous substance through
(i) heat treatment of concentrates which
have passed through the autoclaves,
and (ii) low and high temperature
pressure oxidation.
It is possible to install additional autoclaves
at the POX Hub and it is envisaged that
these might be able to process some very
complex refractory materials, including:
– Pyrrhotite-bearing concentrates;
– Cuprous and antimony gold-bearing
concentrates;
– Triple-carbon concentrates;
– Concentrates from the tailings of existing
mines; and
– Bio-cake.
Petropavlovsk Annual Report 2019
57
Reserves & Resources
Review of Ore Reserves and Mineral
Resources
In line with best industry practice, Petropavlovsk
reports its Mineral Resources and Ore Reserves
in accordance with the JORC Code.
The Mineral Resource and Ore Reserve
estimates are an update on 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
as well as depletion due to mining activities. To
reflect recent market trends, the Company has
increased its long-term gold price assumption
for Mineral Resource reporting from US$1,500/
oz to US$1,700/oz. Similarly, the long-term gold
price assumption for Ore Reserve reporting was
changed from US$1,200/oz to US$1,400/oz.
As at 31 December 2019, total Group Mineral
Resources (including Reserves) amounted to
21.03Moz of gold compared to 20.52Moz
twelve months previously, with total Reserves
amounting to 8.46Moz compared to 8.21Moz
in the previous year. The increase in Mineral
Resources is due to a combination of
exploration success at Pioneer and Malomir
and a higher gold price assumption.
In particular, the higher price assumption
has enabled tailings stored at Pioneer and
Pokrovskiy to be included as JORC Inferred
Resources given their potential to be
re-processed.
There was an overall decrease in Ore Reserves
at Pioneer due to mining depletion and the
use of more conservative recovery and cost
assumptions with respect to estimating
refractory gold ores. This was more than offset
by an increase in Ore Reserves at Malomir and
Albyn. The increase at Malomir resulted from an
updated pit design and the inclusion of new
discoveries with open pit mining potential at the
Quartzitovoye area. An increase in Ore
Reserves at Albyn resulted from successful in-fill
drilling which converted Inferred resources into
Ore Reserves at the Elginskoye deposit.
An independently audited estimate is
expected to be published during Q3 2020.
The tables below provide details of Group
Mineral Resources and Ore Reserves.
Group Ore Reserves as at 31/12/2019 (in accordance with the JORC Code 2012 (1))
Total Open Pit and Underground Ore Reserves
Total
Non-Refractory
Refractory
Total Open Pit Ore Reserves
Total
Non-Refractory
Refractory
Total Underground Ore Reserves
Total
Non-Refractory
Refractory
58 Petropavlovsk Annual Report 2019
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Tonnage (kt)
55,300
223,316
278,616
22,158
57,964
80,122
33,141
165,352
198,494
Tonnage (kt)
55,103
221,952
277,055
21,961
57,094
79,055
33,141
164,858
197,999
Tonnage (kt)
197
1,364
1,561
197
870
1,067
–
494
494
Grade (g/t Au)
0.78
0.99
0.94
0.69
1.06
0.96
0.84
0.96
0.94
Grade (g/t Au)
0.75
0.95
0.91
0.63
1.00
0.90
0.84
0.94
0.92
Grade (g/t Au)
7.56
6.25
6.42
7.56
5.08
5.54
–
8.32
8.32
Metal (Moz Au)
1.38
7.08
8.46
0.49
1.98
2.47
0.89
5.10
5.99
Metal (Moz Au)
1.34
6.81
8.14
0.45
1.84
2.28
0.89
4.97
5.86
Metal (Moz Au)
0.05
0.27
0.32
0.05
0.14
0.19
–
0.13
0.13
Group Mineral Resources as at 31/12/2019 (in accordance with the JORC Code 2012 (1))
Total Open Pit and Underground Mineral Resources
Total
Non-Refractory
Refractory
Total Open Pit Mineral Resources
Total
Non-Refractory
Refractory
Total Underground Mineral Resources
Total
Non-Refractory
Refractory
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Tonnage (kt)
75,490
464,138
539,628
293,575
37,690
143,853
181,544
134,738
37,800
320,285
358,084
158,837
Tonnage (kt)
73,979
457,788
531,767
285,832
36,179
138,685
174,864
127,593
37,800
319,103
356,903
158,240
Tonnage (kt)
1,511
6,350
7,861
7,743
1,511
5,168
6,680
7,146
–
1,181
1,181
598
Grade (g/t Au)
0.87
0.86
0.86
0.65
0.93
0.95
0.94
0.58
0.81
0.81
0.81
0.71
Grade (g/t Au)
0.80
0.82
0.82
0.60
0.79
0.87
0.85
0.48
0.81
0.80
0.80
0.70
Grade (g/t Au)
4.33
3.50
3.66
2.47
4.33
3.10
3.38
2.43
–
5.27
5.27
2.98
Metal (Moz Au)
2.11
12.76
14.87
6.16
1.13
4.38
5.51
2.53
0.98
8.38
9.37
3.63
Metal (Moz Au)
1.90
12.05
13.95
5.54
0.92
3.86
4.78
1.97
0.98
8.18
9.17
3.57
Metal (Moz Au)
0.21
0.71
0.93
0.62
0.21
0.51
0.72
0.56
–
0.20
0.20
0.06
Petropavlovsk Annual Report 2019
59
Reserves & Resources continued
Summary of Ore Reserves by Asset as at 31/12/2019 (in accordance with the JORC Code 2012 (1))
Malomir Open Pit and Underground Ore Reserves
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Tonnage (kt)
18,830
83,226
102,057
12
647
659
18,819
82,579
101,398
Tonnage (kt)
18,828
83,011
101,838
9
432
440
18,819
82,579
101,398
Tonnage (kt)
3
216
218
3
216
218
–
–
–
Grade (g/t Au)
0.76
0.97
0.93
1.71
1.98
1.97
0.76
0.96
0.92
Grade (g/t Au)
0.76
0.96
0.92
1.00
1.33
1.32
0.76
0.96
0.92
Grade (g/t Au)
3.93
3.27
3.28
3.93
3.27
3.28
–
–
–
Metal (Moz Au)
0.46
2.58
3.04
0.001
0.04
0.04
0.46
2.54
3.00
Metal (Moz Au)
0.46
2.56
3.02
0.0003
0.02
0.02
0.46
2.54
3.00
Metal (Moz Au)
0.0004
0.02
0.02
0.0004
0.02
0.02
–
–
–
Total
Non-Refractory
Refractory
Malomir Open Pit Ore Reserves
Total
Non-Refractory
Refractory
Malomir Underground Ore Reserves
Total
Non-Refractory
Refractory
60 Petropavlovsk Annual Report 2019
Albyn Ore Reserves (all open pit)
Total
Non-Refractory
Refractory
Pioneer Open Pit and Underground Ore Reserves
Total
Non-Refractory
Refractory
Pioneer Open Pit Ore Reserves
Total
Non-Refractory
Refractory
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Tonnage (kt)
12,927
65,537
78,465
9,704
43,864
53,568
3,223
21,673
24,896
Tonnage (kt)
21,514
72,358
93,871
10,414
11,258
21,672
11,100
61,100
72,199
Tonnage (kt)
21,320
71,209
92,529
10,220
10,604
20,824
11,100
60,606
71,705
Grade (g/t Au)
0.74
1.04
0.99
0.62
0.99
0.92
1.11
1.15
1.14
Grade (g/t Au)
0.75
0.95
0.90
0.61
1.22
0.92
0.88
0.90
0.89
Grade (g/t Au)
0.68
0.85
0.81
0.47
0.94
0.71
0.88
0.84
0.84
Metal (Moz Au)
0.31
2.19
2.50
0.19
1.40
1.59
0.11
0.80
0.91
Metal (Moz Au)
0.52
2.20
2.72
0.20
0.44
0.64
0.31
1.76
2.07
Metal (Moz Au)
0.47
1.95
2.42
0.16
0.32
0.48
0.31
1.63
1.94
Petropavlovsk Annual Report 2019
61
Reserves & Resources continued
Pioneer Underground Ore Reserves
Total
Non-Refractory
Refractory
Tokur Ore Reserves (all open pit)
Total
Non-Refractory
Refractory
Notes:
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Category
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Proved
Probable
Proved+Probable
Tonnage (kt)
194
1,148
1,343
194
654
848
–
494
494
Tonnage (kt)
2,028
2,195
4,223
2,028
2,195
4,223
–
–
–
Grade (g/t Au)
7.61
6.81
6.93
7.61
5.68
6.12
–
8.32
8.32
Grade (g/t Au)
1.47
1.44
1.45
1.47
1.44
1.45
–
–
–
Metal (Moz Au)
0.05
0.25
0.30
0.05
0.12
0.17
–
0.13
0.13
Metal (Moz Au)
0.10
0.10
0.20
0.10
0.10
0.20
–
–
–
(1) With an exception of Tokur, Group Ore Reserves statements are prepared internally as an update of the April 2017 WAI estimate. The Pioneer, Malomir and Albyn Reserves were prepared in April 2020 in
accordance with JORC Code 2012; Tokur Reserves were prepared in 2010 by WAI in accordance with JORC Code 2004 and there have been no changes to the Tokur estimates since that date.
(2) Pioneer, Malomir and Albyn 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. Tokur Reserves have been based on a US$1,000/oz gold price assumption, together with operating costs assumptions relevant at the time of the estimate
(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) Reserve figures have been adjusted for anticipated dilution and mine recovery
(6) The Underground Reserves cut-off grade for reporting is 1.5g/t Au
(7) In accordance with JORC Code, all open pit and underground designs have been based on Measured and Indicated Resources; in addition to the Proved and Probable Reserves quoted above, the design
captures the following Inferred Resource:
– Pioneer: 61,006kt@0.30g/t (0.59Moz) of non-refractory and 7,647kt @ 0.67g/t (0.16Moz) of refractory;
– Malomir: 166kt @ 0.77g/t (0.004Moz) of non-refractory and 6,453kt@0.89g/t (0.18Moz) of refractory
– Albyn 4,296@1.01g/t (0.2Moz) of non-refractory and 55.7kt@ 1.25g/t (0.02Moz) of refractory
(8) Figures may not add up due to rounding
62 Petropavlovsk Annual Report 2019
Summary of Mineral Resources by Asset as at 31/12/2019 (in accordance with JORC Code 2012 (2))
Malomir Open Pit and Underground Mineral Resources
Total
Non-Refractory
Refractory
Malomir Open Pit Mineral Resources
Total
Non-Refractory
Refractory
Malomir Underground Mineral Resources
Total
Non-Refractory
Refractory
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Tonnage (kt)
19,016
134,250
153,267
113,941
18
1,919
1,937
1,251
18,999
132,331
151,330
112,690
Tonnage (kt)
16,047
125,841
141,888
95,862
8
14,196
14,204
7,603
16,039
111,645
127,684
88,259
Tonnage (kt)
330
466
796
513
330
466
796
513
–
–
–
–
Grade (g/t Au)
0.77
0.87
0.86
0.71
0.90
1.85
1.84
1.50
0.77
0.86
0.85
0.70
Grade (g/t Au)
0.31
0.87
0.81
0.72
0.78
0.69
0.69
0.73
0.31
0.90
0.82
0.72
Grade (g/t Au)
3.86
3.54
3.67
2.61
3.86
3.54
3.67
2.61
–
–
–
–
Metal (Moz Au)
0.47
3.77
4.24
2.60
0.001
0.11
0.11
0.06
0.47
3.66
4.13
2.54
Metal (Moz Au)
0.16
3.54
3.70
2.22
0.0002
0.32
0.32
0.18
0.16
3.22
3.38
2.04
Metal (Moz Au)
0.04
0.05
0.09
0.04
0.04
0.05
0.09
0.04
–
–
–
–
Petropavlovsk Annual Report 2019
63
Reserves & Resources continued
Albyn Open Pit and Underground Mineral Resources
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Tonnage (kt)
13,395
108,271
121,666
25,344
9,887
67,470
77,356
18,968
3,508
40,801
44,309
6,376
Tonnage (kt)
13,384
105,268
118,651
18,380
9,887
65,472
75,358
13,342
3,497
39,796
43,293
5,038
Tonnage (kt)
–
1,998
1,998
5,626
–
1,998
1,998
5,626
–
–
–
–
Grade (g/t Au)
0.75
1.04
1.00
1.33
0.63
1.01
0.96
1.36
1.08
1.09
1.09
1.24
Grade (g/t Au)
0.75
1.02
0.99
1.07
0.63
0.98
0.93
0.99
1.08
1.09
1.09
1.29
Grade (g/t Au)
–
2.00
2.00
2.23
–
2.00
2.00
2.23
–
–
–
–
Metal (Moz Au)
0.32
3.61
3.93
1.08
0.20
2.18
2.38
0.83
0.12
1.43
1.55
0.25
Metal (Moz Au)
0.32
3.45
3.77
0.64
0.20
2.06
2.26
0.43
0.12
1.39
1.52
0.21
Metal (Moz Au)
–
0.13
0.13
0.40
–
0.13
0.13
0.40
–
–
–
–
Total
Non-Refractory
Refractory
Albyn Open Pit Mineral Resources
Total
Non-Refractory
Refractory
Albyn Underground Mineral Resources
Total
Non-Refractory
Refractory
64 Petropavlovsk Annual Report 2019
Pioneer Open Pit and Underground Mineral Resources
Total
Non-Refractory
Refractory
Pioneer Open Pit Mineral Resources
Total
Non-Refractory
Refractory
Pioneer Underground Mineral Resources
Total
Non-Refractory
Refractory
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Tonnage (kt)
26,118
183,373
209,491
106,875
10,825
36,220
47,046
67,104
15,293
147,152
162,445
39,771
Tonnage (kt)
25,763
180,684
206,447
105,777
10,471
34,713
45,183
66,603
15,293
145,971
161,264
39,173
Tonnage (kt)
355
2,689
3,044
1,098
355
1,508
1,862
501
–
1,181
1,181
598
Grade (g/t Au)
0.76
0.73
0.74
0.47
0.71
0.88
0.84
0.37
0.80
0.70
0.71
0.65
Grade (g/t Au)
0.67
0.67
0.67
0.44
0.49
0.70
0.65
0.34
0.80
0.66
0.67
0.61
Grade (g/t Au)
7.40
5.08
5.35
3.45
7.40
4.93
5.40
4.00
–
5.27
5.27
2.98
Metal (Moz Au)
0.64
4.32
4.96
1.63
0.25
1.02
1.27
0.80
0.39
3.30
3.69
0.83
Metal (Moz Au)
0.56
3.88
4.44
1.51
0.16
0.78
0.94
0.73
0.39
3.10
3.49
0.77
Metal (Moz Au)
0.08
0.44
0.52
0.12
0.08
0.24
0.32
0.06
–
0.20
0.20
0.06
Petropavlovsk Annual Report 2019
65
Reserves & Resources continued
Pokrovskiy Open Pit and Underground Mineral Resources
Total
Non-Refractory
Refractory
Pokrovskiy Open Pit Mineral Resources
Total
Non-Refractory
Refractory
Pokrovskiy Underground Mineral Resources
Total
Non-Refractory
Refractory
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Tonnage (kt)
5,009
22,148
27,157
36,709
5,009
22,148
27,157
36,709
–
–
–
–
Tonnage (kt)
4,182
20,951
25,134
36,203
4,182
20,951
25,134
36,203
–
–
–
–
Tonnage (kt)
827
1,196
2,023
506
827
1,196
2,023
506
–
–
–
–
Grade (g/t Au)
1.11
0.72
0.79
0.40
1.11
0.72
0.79
0.40
–
–
–
–
Grade (g/t Au)
0.70
0.62
0.63
0.36
0.70
0.62
0.63
0.36
–
–
–
–
Grade (g/t Au)
3.20
2.45
2.76
2.96
3.20
2.45
2.76
2.96
–
–
–
–
Metal (Moz Au)
0.18
0.51
0.69
0.47
0.18
0.51
0.69
0.47
–
–
–
–
Metal (Moz Au)
0.09
0.42
0.51
0.42
0.09
0.42
0.51
0.42
–
–
–
–
Metal (Moz Au)
0.09
0.09
0.18
0.05
0.09
0.09
0.18
0.05
–
–
–
–
66 Petropavlovsk Annual Report 2019
Tokur Total Mineral Resources (all open pit)
Total
Non-Refractory
Refractory
Category
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Measured
Indicated
Measured+Indicated
Inferred
Tonnage (kt)
11,952
16,096
28,048
10,706
11,952
16,096
28,048
10,706
–
–
–
–
Grade (g/t Au)
1.30
1.06
1.16
1.09
1.30
1.06
1.16
1.09
–
–
–
–
Metal (Moz Au)
0.50
0.55
1.05
0.38
0.50
0.55
1.05
0.38
–
–
–
–
Notes:
(1) Mineral Resources include Ore Reserves.
(2) Mineral Resource estimates for Pokrovskiy, Pioneer, Malomir and Albyn were prepared internally by the Group in accordance with JORC Code 2012 as an update of the April 2017 statement audited by WAI;
Mineral Resources for Tokur were reviewed by WAI in 2010 in accordance with JORC Code 2004 and there have been no changes to the Tokur estimates since that date.
(3) Open Pit Mineral Resources for Pokrovskiy, Pioneer, Malomir and Albyn are constrained by conceptual open-pit shells at a US$1,700/oz long term gold price; Tokur Mineral Resources have no open pit
constraints.
(4) The cut-off grade for Mineral Resources for open pit mining varies from 0.25 to 0.50g/t depending on the type of mineralisation and proposed processing method.
(5) A cut-off grade of 1.5g/t is used to report Mineral Resources for potential underground mining at all sites with exception of Albyn; 1.0g/t cut-off was used at Albyn.
(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 recovery.
(8) Figures may not add up due to rounding.
Petropavlovsk Annual Report 2019
67
2020 Exploration Outlook
At Elginskoye, exploration will continue to
de-risk and grow the reserves.
At Unglichikanskoye, exploration will
resume with the objective of expanding
reserves.
Exploration at Tokur and Osipkan will
focus on verifying historical exploration
results and preparing a maiden reserve
estimate.
Further exploration of resources which
have the potential for underground mining
at Malomir.
Early stage exploration will continue at the
promising Mariinskiy area.
Further greenfield exploration will take
place at Chogarskaya and Verkhne-
Udskaya.
Exploration Update
Pioneer
Exploration at North East Bakhmut (NE
Bakhmut) focused on payshoots 1 and 2
to investigate the possibility of higher-grade
underground mineralisation as well as
supporting ongoing mining activities.
Highlights for the year included:
– Two drill holes intersected mineralisation 30
to 70m below the pit floor at NE Bakhmut 1,
confirming mineralisation extends well
below the current open pit, with significant
intersections of: 14.2m@1.17g/t (C-6334),
7.2m@3.77g/t (C-1083) and 5.3m@1.36g/t
(C-1083);
– The technical team is currently evaluating
the possibility of deepening the NE
Bakhmut 1pit; and
– Stope definition drilling and production
grade control sampling completed at NE
Bakhmut 2 resulted in underground
resources increasing from c.127 to
c.142koz.
Deep drilling at the Nikolaevskaya zone
resulted in the discovery of further downdip
extensions of the orebody and an increase in
the mineral resource potential for underground
mining.
Deep in-fill drilling at the central section of the
Andreevskaya zone hit a payshoot with the
best intersection grading 58.23g/t over a
thickness of 11.2m. Since this is an in-fill drill
hole it does not extend the Andreevskaya ore
body, but demonstrates the existence of
extremely high-grade pockets of mineralisation
which would not have been detected by
40x40m drill grid. Historically, the
Andreevskaya open pit has produced
approximately 25% more gold than expected
due to this effect. As a result, the existing
Andreevskaya underground resource and
reserve estimates are likely to be conservative.
Albyn
Resource expansion drilling on the periphery
of Elginskoye has extended known gold
mineralisation in the south-west, south-east
and north, resulting in a 23% increase in
Reserves compared to the previous year.
Drilling at Sukholozhskiy, 500m west of
the Albyn open pit, intersected high-grade
mineralisation, with the best intersection
being 2.5m@12.26g/t.
Malomir
In-fill drilling at Quartzitovoye confirmed the
presence of a bulk stockwork to the west
of the Ore Body 55. This was previously
considered to be a target for underground
mining linked to the Quartzitovoye
underground mine. However, the stockwork
increasingly appears to be an attractive target
for an open pit mine that would replace the
Quartzitovoye underground mine once
depleted.
Drilling at Osipkan, a Tokur satellite located
130km away from Malomir, has identified two
zones equivalent to Inferred under JORC gold
resources, including 97koz (2.5Mt @ 1.23g/t)
and 22koz (458kt @ 1.50g/t).
Other Projects
Early stage exploration at the Chogarskaya
and Verkhne-Udskaya licences in the
Khabarovsk region yielded some promising
results, including grab samples from the
Chogarskaya licence returning grades of up
to 22.1g/t. At the Verkhne-Udskaya licence,
the average grade for mineralised trench
samples is c.1g/t, whilst grab samples taken
from the areas not yet trenched have shown
grades of up to 10g/t.
Preliminary metallurgical tests suggest gold
mineralisation at Verkhne-Udskaya is
non-refractory.
Post Year End Events
In February 2020, the Group acquired
exploration assets at Mariinskiy comprising
two adjacent exploration licences with a total
area of c.155km2 located c.30km north-east
of Malomir and c.50km west from Tokur.
These licences cover an area where extensive
historical alluvial mining has taken place over
a strike length of c.18km.
Historical exploration work has identified at
least 30 quartz veins with gold grades of up
to 10g/t, as well as disseminated gold
mineralisation with grades of up to 2.5g/t.
The Company’s in-house exploration team
believe that this asset has the potential to
contain substantial gold resources, of a
similar scale and nature to known orebodies
at Malomir including its satellites.
Note: unless stated otherwise all thicknesses quoted are apparent.
68 Petropavlovsk Annual Report 2019
IRC
IRC produces and develops industrial
commodities. Based in the Russian Far East,
it benefits from low production costs and
proximity to China, the world’s largest consumer
of IRC’s main product, iron ore. IRC was part of
Petropavlovsk’s Non-Precious Metal Division
before it was listed on The Stock Exchange of
Hong Kong in 2010 (ticker: 1029.HK) as a
separate entity. In March 2020, Petropavlovsk
entered into a non-binding preliminary
agreement with Stocken Board AG to dispose
of 29.9% of IRC for consideration of
US$10 million.
IRC Assets
IRC’s key mining assets are K&S and
Kuranakh:
– K&S: a mine producing 65% iron ore
concentrate, located in the Jewish
Autonomous Region (EAO) of the Russian
Far East. The project is currently in phase
one of two phases, and once ramped up,
is expected to have a full annual capacity
of 3.2Mtpa; and
– Kuranakh: a mine producing iron ore /
ilmenite concentrate located in the Amur
region, Russian Far East, currently in care
and maintenance and under administration.
IRC’s non-core mining assets include:
– Bolshoi Seym: an ilmenite deposit located
north of Kuranakh;
– The Garinskoye flanks: which is at an early
stage of exploration; and
– Kostenginskoye: an area 18km south of
K&S which is at an early stage of
exploration.
Operational Performance in 2019
K&S
In 2019, IRC continued with phase one ramp
up of K&S, transitioning from a development
project into a cash generating mine. Once
fully ramped up, phase one is expected to
result in the production of 3.2Mtpa of iron
ore concentrate with a 65% iron (Fe) content.
Iron ore prices continued rising in 2019, with
the benchmark 65% Fe Platts spot price
index averaging US$104/t.
Annual iron ore concentrate production
increased 15% to 2.6Mt, with the plant
operating at a steady state capacity of c.81%.
In October 2019, the K&S plant achieved a
significant milestone by successfully operating
at full capacity, despite disruption in August
due to adverse weather conditions. Q4 2019
capacity was temporarily affected by technical
issues with the ball mills, rectified in December,
allowing K&S to resume its normal production
rate and commence the use of the Drying Unit
in time for the winter production period.
At the end of March 2019, the Amur River
Bridge was connected. Once the bridge is
operational, it will further reduce congestion
and shorten shipment times to IRC’s Chinese
customers from 7-10 days to 3-5 days, saving
IRC c.US$5/t.
preliminary agreement becomes a binding
SPA and its completion is dependent on two
conditions:
– Termination and release of Petropavlovsk
from all loan guarantees given to
Gazprombank in relation to IRC; and
– The receipt of any consents that may be
required from the Petropavlovsk’s
noteholders or a confirmation by the Board
that none are required.
Kuranakh
In response to a challenging operating
environment and lower iron ore prices,
Kuranakh was moved to care and maintenance
in 2016. As a result, there were no sales of iron
ore concentrate or ilmenite in 2019.
The care and maintenance programme
involves limiting costs by minimising
headcount responsible for maintenance and
security. Prior to being moved to care and
maintenance, Kuranakh produced c.1.2Mt of
iron ore concentrate and 0.2Mt of ilmenite per
annum. During Q4 2019, Kuranakh was
placed under administration with the option to
re-open the plant should the iron ore market
upside prevail.
Refinancing of the ICBC Project Finance
Facility
In December 2018, IRC announced the
agreement of a US$240 million facility
with Gazprombank to repay in full K&S’s
outstanding loan facility with ICBC
(US$169 million). The ICBC facility was
originally entered into by IRC in 2010 to
fund development of the K&S deposit.
In March 2019, refinancing of the ICBC loan
was successfully completed and the facility
fully drawn down and used to repay the
outstanding ICBC facility, two bridge loans
as well as c.US$6 million in fees related to the
guarantee provided by Petropavlovsk.
Proposed Termination of IRC
Guarantees and Disposal of
Petropavlovsk’s Shareholding
On 18 March 2020, Petropavlovsk signed a
preliminary agreement with Stocken Board
AG (Stocken) as the first step towards the
termination of and release of Petropavlovsk
from all loan guarantees given to
Gazprombank in relation to IRC and disposal
of Petropavlovsk’s 29.9% equity holding in
IRC for a cash consideration of US$10 million
(or lesser amount to reflect any dilution
caused through an issuance of IRC shares).
Upon Gazprombank giving its consent for
Petropavlovsk to reduce its stake in IRC, the
Should Stocken be successful in relieving
Petropavlovsk of the loan guarantees at any
time within 180 days from entering into the SPA
(which is extendable at Petropavlovsk’s
discretion), Petropavlovsk undertakes to transfer
the 29.9% holding in IRC to Stocken in return for
a cash payment of US$10 million payable up to
31 December 2021. Until full payment of the
US$10 million has been received, Stocken has
an option (“Option”) which allows it to return the
29.9% holding to Petropavlovsk. If the Option is
exercised, there would be no effect on the
guarantee release and the IRC shares which
Petropavlovsk transferred to Stocken will be
returned to Petropavlovsk without the
guarantees attached and any consideration
paid up to that date will be refunded to Stocken.
The Option also protects Petropavlovsk in the
event of a deterioration in IRC’s financial
performance during this period, such that
Stocken would be unable to exercise the option
if any of the following thresholds are breached
with respect to IRC’s financial performance:
(i) Net debt of less than US$275 million, (ii) Net
debt / EBITDA ratio which is 35% above that
on the date of the SPA, and (iii) IRC’s market
capitalisation not to fall below 50% of the market
capitalisation as at the date of the SPA.
FY 2019 Financial Results
In 2019, IRC reported iron ore concentrate
sales of over 2.4Mt, a c.11% increase
compared to 2018, at a selling price of
US$71/t (2018: US$68/t). Due to increased
sales, IRC reported a c.31% increase in
revenue before hedging losses totalling
US$200 million (2018: US$153 million).
The positive operational performance
resulted in a 39% increase in adjusted
EBITDA (excluding foreign exchange),
to US$33 million (2018: US$24 million).
Petropavlovsk Annual Report 2019
69
Financial Performance
Key Performance Indicators
Revenue
(US$ million)
2019
2018
2017
Total Cash Costs◆ per Ounce of Gold for Hard-Rock Mines
(US$/oz)
741.6
2019
499.8
587.4
2018
2017
678
749
741
Definition
Revenue is the fair value of the consideration
received or receivable through the sales of gold
and silver as well as the rendering of services
by the Group’s various in-house companies.
Relevance
Revenue is an indicator of the Group’s ability
to generate operating cash flows which are
a source of funding for the Group’s working
capital requirements, capital expenditure and
debt service obligations.
Performance in 2019
Group revenue during the period increased
by 48% to US$741.6 million (2018: US$499.8
million), due to higher gold sales volumes and
an improved average realised gold price.
Gold remains the key commodity produced
and sold by the Group, comprising 93% of total
revenue generated in 2019. Physical volume of
gold sold increased by 39% from 369,611oz in
2018 to 514,005oz in 2019, at average realised
gold price of US$1,346/oz (2018: US$1,263/oz)
inclusive of a US$(61)/oz effect from hedge
arrangements (2018: US$(9)/oz). In addition,
the Group sold 56,568oz of silver in 2019 at
an average price of US$15/oz, compared to
54,746oz in 2018 at an average price of
US$15/oz. Revenue generated by the
Group’s in-house service companies
increased by 68% to US$49.0 million in 2019
(2018: US$29.1 million). This revenue stream 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.
Going forward
The Company is targeting 2020 gold
production of between 620koz and
720koz, with total revenue largely
dependent on the average realised gold
sales price during the period.
For further information on Revenue please
refer to the CFO Statement on pages 72 to
82 of this report.
Definition
Total cash cost per ounce (“TCC”) is the cost
of producing and selling an ounce of gold from
the Group’s hard-rock mines (Pioneer, Malomir
and Albyn) and the processing and selling an
ounce of gold by the treatment of third-party
sourced refractory concentrate at the POX
Hub. The Group’s hard-rock mines are its key
assets, accounting for approximately 90% of
the Group’s total gold production in 2019.
TCC◆ are calculated by the Group as operating
cash costs less co-product revenue. TCC◆ per
oz are calculated as Total Cash Costs◆ divided
by ounces of gold sold and are presented on a
segmental basis.
Operating cash costs are defined by the
Group as operating cash expenses plus
refinery and transportation costs, other taxes
and mining tax.
The key components of the operating cash
expenses are wages, electricity, diesel,
chemical reagents and consumables.
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. Refinery and transportation
costs are variable costs dependent on
production volume. Mining tax is also a
variable cost dependent on production
volumes and the gold price realised.
The Russian statutory mining tax rate is 6%.
Under the Russian Federal Law 144-FZ dated
23 May 2016 that 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. LLC Malomirskiy
Rudnik and LLC Albynskiy Rudnik met
eligibility criteria and applied 1.2% mining tax
rate in 2019, while JSC Pokrovskiy Rudnik
applied full mining tax rate in 2019, resulting in
US$15.9 million mining tax expense compared
to nil in 2018 when 0% mining tax rate was
applied by the Group.
70 Petropavlovsk Annual Report 2019
Relevance
The Group closely monitors its current and
projected costs to track and benchmark the
ongoing efficiency and effectiveness of its
operations. This monitoring includes analysing
fluctuations in the components that constitute
cash costs and cost per tonne mined and
processed to identify whether and where
efficiencies may be made.
Performance in 2019
Total Cash Costs◆ for hard-rock mines
increased from US$678/oz in 2018 to US$749/
oz in 2019. The increase in TCC◆ primarily
reflects the effect of inflation of certain Rouble
denominated costs, costs associated with the
ramp-up of the POX Hub and Malomir flotation,
application of the full 6% mining tax rate at
Pioneer and progressive increase in mining tax
rate to 1.2% at Albyn and Malomir. This effect
was partially mitigated by higher grades of non-
refractory ore processed at Pioneer, Albyn and
Malomir and higher recoveries achieved at
Pioneer and Malomir as well as by the effect
of Rouble depreciation.
Going forward
The Group expects TCC◆ for 2020 to be
in the range of c.US$700 – US$800/oz,
excluding third-party concentrate, as the
price of concentrate depends on the
volatility of the gold price.
For further information on TCC◆ please refer
to the CFO Statement on pages 72 to 82 of
this report.
◆ Go to “The Use and Application of Alternative
Performance Measures (APMs)” section on pages
256 to 262 for further information on our APMs.
Our key performance indicators appear throughout this report and introduce the operational,
financial and sustainable development sections; respectively pages 42, 70 and 86.
All-in Sustaining Costs◆
(US$/oz)
Underlying EBITDA
(US$ million)
Profit / (Loss) For The Period
(US$ million)
2019
2018
2017
1,020
2019
1,079
2018
963
2017
264.8
2019
182.7
196.8
2018
2017
25.7
25.9
37.1
Definition
All-in sustaining cash costs (“AISC”) include
both operating and capital costs required to
sustain gold production on an ongoing basis,
over and above the direct mining and selling
costs shown by TCC◆. AISC◆ are calculated in
accordance with guidelines for reporting AISC◆,
as published by the World Gold Council.
Definition
EBITDA is a common measure used to
assess profitability without the impact of
different financing methods, tax, asset
depreciation and amortisation of intangibles
and items of an exceptional / non-recurring
nature, or those that could make comparison
of results from prior periods less meaningful.
Relevance
AISC◆ allows for a better understanding of
the true cost of producing gold once key
components such as central admin costs and
the cost of sustaining capital and exploration
expenditure are taken into account.
Management uses this measure to monitor
the performance of our assets and their ability
to generate positive cash flows.
Performance in 2019
AISC◆ decreased from US$1,079/oz in 2018
to US$1,020/oz in 2019. The decrease
primarily reflects reversal of impairment of
non-refractory ore stockpiles at Albyn, as well
as an increase in physical ounces sold in 2019
with an aggregate of sustaining exploration
and capital expenditures related to the
existing mining operations and underground
mining projects at Pioneer and Malomir,
Malomir flotation plant and capitalised
stripping expenditure during the period
remaining at a similar level to 2018. This effect
was partially offset by an increase in TCC.
Going forward
The Group expects AISC◆ for 2020 to be in
line with changes in TCC.
For further information on AISC◆ please refer
to the CFO Statement on pages 72 to 82 of
this report.
Relevance
Underlying EBITDA◆ is an indicator of the
Group’s ability to generate operating
cashflows, which are the source of funding
for the Group’s working capital requirements,
Capital Expenditure◆ and debt service
obligations. It is also widely used by various
stakeholders.
Performance in 2019
In 2019, the Group generated Underlying
EBITDA of US$264.8 million, compared with
US$182.7 million in 2018. The 2019 figure
represents a 45% increase in Underlying
EBITDA primarily due to an increase in
physical ounces of gold sold at a higher
average realised gold price compared to the
same period in 2018, partially offset by a rise
in TCC◆.
Going forward
The Group aims to continue to produce
and sell gold at competitive margins,
which will, amongst other factors,
influence the Group’s future Underlying
EBITDA◆ levels.
For further information on Underlying
EBITDA◆ please refer to the CFO Statement
on pages 72 to 82 of this report.
Definition
Profit / (loss) for the period is calculated by
deducting operating and net finance
expenses, taxation and any relevant share of
results of associates for the applicable years
from total revenue.
Relevance
Profit / (loss) for the period is often referred to
as the ‘bottom line’ of the income statement
and is the income attributable on a per share
basis when it is divided by the weighted
average number of shares outstanding
during the reporting period.
Performance in 2019
Profit for the period amounted to US$25.7
million in 2019, compared to a profit of
US$25.9 million in 2018. The Group’s profit
for the period was driven by higher underlying
EBITDA of US$264.8 million (2018: US$182.7
million), as well as net impairment gains on
financial instruments totalling US$30.8 million
(2018: US$28.6 million net impairment losses),
partially offset by lower impairment reversal of
mining assets and in-house services totalling
US$52.2 million (2018: US$101.7 million).
Going forward
The Group aims to continue to produce
and sell gold at competitive margins,
which will, amongst other factors,
influence the Group’s future profit / (loss)
for the period.
◆ Go to “The Use and Application of Alternative
Performance Measures (APMs)” section on pages
256 to 262 for further information on our APMs.
Petropavlovsk Annual Report 2019
71
CFO Statement
For the year ended 31 December 2019
Note: Figures may not add up due to rounding
Financial Highlights
Gold produced
Gold sold
Group revenue
Average realised gold price◆
Average LBMA gold price afternoon fixing
Total Cash Costs◆ (a),(c)
All-in Sustaining Costs◆ (b),(c)
All-in Costs◆ (b)
Underlying EBITDA◆ (c)
Operating profit
Profit before tax
Profit for the year
Profit for the year attributable to equity shareholders of Petropavlovsk PLC
Basic profit per share
Cash generated from operations before working capital changes
Net cash from operating activities
(a) Calculation of Total Cash Costs◆ (“TCC”) is set out in the section hard-rock mines section below.
’000oz
’000oz
US$ million
US$/oz
US$/oz
US$/oz
US$/oz
US$/oz
US$ million
US$ million
US$ million
US$ million
US$ million
US$
US$ million
US$ million
2019
517.3
514.0
741.6
1,346
1,393
749
1,020
1,103
264.8
115.4
52.9
25.7
26.9
0.01
250.5
95.4
2018(c)
422.3
369.6
499.8
1,263
1,269
678
1,079
1,332
182.7
126.6
82.4
25.9
24.5
0.01
162.3
264.2
(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) Following a review of the nature of the deferred stripping costs the Group has made a reclassification of deferred stripping costs balance from the Inventory balance into the Mining assets within Property, plant
and equipment. Comparative information on TCC, AISC and EBITDA for 2018 have been re-calculated accordingly to reflect the effect of the aforementioned re-classification.
Cash and cash equivalents
Notes(d)
Convertible bonds(e)
Net debt◆
(d) US$500 million Guaranteed Notes due on 14 November 2022 at amortised cost.
(e) US$125 million convertible bonds due on 03 July 2024 at amortised cost.
Revenue
Revenue from hard-rock mines
Revenue from other operations
31 December
2019
US$ million
48.2
(500.4)
(109.1)
(561.3)
31 December
2018
US$ million
26.2
(499.0)
(95.2)
(568.0)
2019
US$ million
692.6
49.0
741.6
2018
US$ million
470.7
29.1
499.8
Group revenue during the period was US$741.6 million, 48% higher than the US$499.8 million achieved in 2018.
Revenue from hard-rock mines during the period was US$692.6 million, 47% higher than the US$470.7 million achieved in 2018. Gold
remains the key commodity produced and sold by the Group, comprising 93% of total revenue generated in 2019. The physical volume of
gold sold from hard-rock mines increased by 39% from 369,611oz in 2018 to 514,005 oz in 2019. The average realised gold price◆ increased
by 7% from US$1,263/oz in 2018 to US$1,346/oz in 2019. The average realised gold price◆ includes a US$(61)/oz effect from hedge
arrangements (2018: US$(9)/oz).
Hard-rock mines sold 56,568oz of silver in 2019 at an average price of US$15/oz, compared to 54,746oz in 2018 at an average price of
US$15/oz.
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
72 Petropavlovsk Annual Report 2019
Revenue generated as a result of third-party
work by the Group’s in-house service
companies was US$49.0 million in 2019, a
US$19.9 million increase compared to
US$29.1 million in 2018. 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$45.1 million in 2019
compared to US$25.1 million in 2018.
Cash flow hedge arrangements
In order to increase certainty in respect of a
significant proportion of its cash flows, the
Group has entered into a number of gold
forward contracts.
Forward contracts to sell an aggregate
of 230,000oz of gold matured during the
2019 and resulted in a US$(31.5) million
net cash settlement by the Group (2018:
US$(3.4) million net cash settlement paid
Underlying EBITDA◆ and analysis of operating costs
by the Group on forward contracts to sell
an aggregate of 200,000oz of gold).
The Group constantly monitors the gold
price and hedges some portion of production
as considered appropriate. All forward
contracts were realized in 2019 and the
Group had no open hedge positions as
at 31 December 2019.
Profit for the year
Add/(less):
Net (impairment reversals)/ impairment losses on financial instruments
Investment and other finance income
Interest expense
Net other finance losses/(gains)
Foreign exchange losses/(gains)
Taxation
Depreciation
Impairment of exploration and evaluation assets
(Reversal of impairment)/impairment of ore stockpiles
Impairment of gold in circuit
Reversal of impairment of mining assets and in-house service
Share of results of associate(a)
Underlying EBITDA◆
2019
US$ million
25.7
2018
US$ million
25.9
(30.8)
(8.8)
59.9
42.2
20.8
27.2
137.8
–
(2.8)
0.1
(52.2)
45.7
264.8
28.6
(3.8)
29.5
(10.2)
(8.5)
56.5
142.0
12.2
18.0
2.1
(101.7)
(8.1)
182.7
(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 an associate (IRC).
Underlying EBITDA◆ as contributed by business segments is set out below.
Pioneer
Pokrovskiy
Malomir
Albyn
Total hard-rock mines
Corporate and other
Underlying EBITDA◆
2019
US$ million
53.3
–
104.2
149.3
306.8
(41.9)
264.8
2018
US$ million
64.0
(0.5)
48.3
104.8
216.8
(34.0)
182.7
Hard-rock mines
During this period, the hard-rock mines
generated Underlying EBITDA◆ of US$306.8
million compared to US$216.8 million
Underlying EBITDA◆ in 2018.
Total Cash Costs◆ for hard-rock mines
increased from US$678/oz in 2018 to
US$749/oz in 2019. The increase in TCC◆
primarily reflects the effect of inflation of
certain Rouble denominated costs, costs
associated with the ramp-up of the POX Hub
and Malomir flotation, application of the full
6% mining tax rate at Pioneer and progressive
increase in mining tax rate to 1.2% at Albyn
and Malomir. This effect was partially
mitigated by higher grades of non-refractory
ore processed at Pioneer, Albyn and Malomir
and higher recoveries achieved at Pioneer
and Malomir as well as by the effect of Rouble
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
Petropavlovsk Annual Report 2019
73
CFO Statement continued
For the year ended 31 December 2019
depreciation. The increase in physical ounces
sold from 369,611oz in 2018 to 514,005oz in
2019 resulted in US$84.4 million increase in
the Underlying EBITDA◆. The increase in the
average realized gold price◆ from US$1,263/
oz in 2018 to US$1,346/oz in 2019 contributed
to a further US$42.7 million increase in the
Underlying EBITDA◆. This effect was partly
mitigated by the increase in TCC◆ with
US$(36.5) million effect on the 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.
Compared with 2018 there was ongoing
inflation of certain Rouble denominated costs,
in particular, electricity costs increased by 3%
in Rouble terms (no changes in US Dollar
terms) and the cost of diesel increased by
12% in Rouble terms (increased by 8% in US
Dollar terms). The Rouble depreciated against
the US Dollar by 3% in 2019 compared to
2018, with the average exchange rate for the
year of RUB64.69 : US$1 in 2019 compared
to RUB62.68 : US$1 in 2018, somewhat
mitigating the effect of Rouble denominated
costs 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 that 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. LLC
Malomirskiy Rudnik and LLC Albynskiy
Rudnik met eligibility criteria and applied 1.2%
mining tax rate in 2019 while JSC Pokrovskiy
Rudnik applied full mining tax rate in 2019,
resulting in US$15.9 million mining tax
expense compared to nil in 2018 when 0%
mining tax rate was applied by the Group.
Staff cost
Materials
Flotation concentrate purchased
Fuel
Electricity
Other external services
Other operating expenses
Movement in ore stockpiles, gold in circuit, bullion in process, limestone and
flotation concentrate attributable to gold production
Total operating cash expenses
2019
2018
US$ million
83.2
86.6
74.0
43.3
34.0
42.3
32.0
395.5
(34.2)
361.4
%
21
22
19
11
8
11
8
100
US$ million
62.8
87.4
-
39.9
25.9
17.9
21.8
255.7
(8.6)
247.1
%
24
34
-
16
10
7
9
100
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
74 Petropavlovsk Annual Report 2019
Revenue
Gold
Including:
Gold from 3d parties concentrate
Silver
Flotation concentrate
Expenses
Operating cash expenses
Refinery and transportation
Other taxes
Mining tax
Depreciation
Reversal of impairment of mining assets
Impairment of exploration and evaluation assets
Impairment/(reversal of impairment) of ore stockpiles and
gold in circuit
Operating expenses
Result of precious metals operations
Add/(less):
Depreciation
Reversal of impairment of mining assets
Impairment of exploration and evaluation assets
Impairment/(reversal of impairment) of ore stockpiles and
gold in circuit
Segment EBITDA◆
Hard-rock mines
Pioneer
US$ million
Malomir
US$ million
Albyn
US$ million
2019
Total
US$ million
2018
Total
US$ million
223.2
239.4
229.1
691.7
466.7
62.9
0.5
–
223.7
158.2
0.3
1.5
10.3
41.2
(42.8)
–
0.6
169.4
54.3
41.2
(42.8)
–
–
0.3
–
239.6
128.1
0.3
4.2
2.8
46.5
–
–
0.7
182.7
56.9
46.5
–
–
0.6
53.3
0.7
104.2
–
0.1
–
229.3
75.0
0.3
1.9
2.9
48.1
–
–
(4.0)
124.2
105.1
48.1
–
–
(4.0)
149.3
62.9
0.9
–
692.6
361.4
0.9
7.6
15.9
135.9
(42.8)
–
(2.7)
476.3
216.3
135.9
(42.8)
–
(2.7)
306.8
–
0.8
3.2
470.7
247.1
0.6
6.2
–
141.6
(83.0)
12.2
20.1
344.9
125.8
141.6
(83.0)
12.2
20.1
216.8
Physical volume of gold sold, oz
Including:
Physical volume of gold sold from 3d parties concentrate, oz
Cash costs
Operating cash expenses
Refinery and transportation
Other taxes
Mining tax
Operating cash costs
Deduct: co-product revenue
Deduct: cost of flotation concentrate
Total Cash Costs◆
Including:
Total cash costs from 3d parties concentrate
TCC◆, US$/oz
163,398
179,791
170,817
514,005
369,611
42,442
–
–
42,442
–
158.2
0.3
1.5
10.3
170.3
(0.5)
–
169.9
128.1
0.3
4.2
2.8
135.4
(0.3)
–
135.2
53.4
–
1,040
752
75.0
0.3
1.9
2.9
80.0
(0.1)
–
79.9
–
468
361.4
0.9
7.6
15.9
385.8
(0.9)
–
384.9
53.4
749
247.1
0.6
6.2
–
254.0
(0.8)
(2.6)
250.6
–
678
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
Petropavlovsk Annual Report 2019
75
CFO Statement continued
For the year ended 31 December 2019
All-in Sustaining Costs◆ and All-in
Costs◆
AISC◆ decreased from US$1,079/oz in 2018
to US$1,020/oz in 2019. The decrease in
AISC◆ primarily reflects reversal of
impairment of non-refractory ore stockpiles
at Albyn as well as increase in physical
ounces sold in 2019 with an aggregate of
sustaining exploration and capital
expenditures related to the existing mining
operations and underground mining projects
at Pioneer and Malomir, Malomir flotation
plant, and capitalized stripping expenditure
during the period remaining at approximately
the same level as in 2018. This effect was
partially offset by the increase in TCC.
AIC◆ decreased from US$1,332/oz in 2018 to
US$1,103/oz in 2019, reflecting the decrease in
AISC◆ explained above, decrease in Capital
Expenditure◆ in relation to the POX project,
with POX Hub commissioned during the
period and Pioneer flotation plant in
development, as well as no perspective
stripping expenditure capitalized in the period.
Hard-rock mines
Pioneer
US$ million
Malomir
US$ million
Albyn
US$ million
2019
Total
US$ million
2018
Total
US$ million
Physical volume of gold sold, oz
163,398
179,791
170,817
514,005
369,611
Total Cash Costs◆
TCC◆, US$/oz
169.9
135.2
79.9
384.9
250.6
1,040
752
468
749
678
Impairment/(reversal of impairment) of ore stockpiles and
gold in circuit
Adjusted operating costs
Central administration expenses
Capitalised stripping
Close down and site restoration
Sustaining exploration expenditures
Sustaining Capital Expenditure◆
All-in Sustaining Costs◆
0.6
170.4
16.7
14.5
0.2
4.0
16.9
222.7
0.7
135.9
18.4
12.7
0.2
0.1
16.5
183.7
(4.0)
75.9
17.5
–
0.6
0.0
23.9
117.9
(2.7)
382.3
52.5
27.1
1.1
4.1
57.2
524.3
20.1
270.7
39.2
33.0
1.2
18.5
36.1
398.7
All-in Sustaining Costs◆, US$/oz
1,363
1,022
690
1,020
1,079
Exploration expenditure◆
Capital Expenditure◆
Capitalised stripping
All-in Costs◆
All-in Costs◆, US$/oz
0.7
22.2
–
245.5
1.1
10.2
–
195.0
8.4
–
–
126.3
10.1
32.4
–
566.8
3.1
76.7
14.0
492.5
1,503
1,085
739
1,103
1,332
Corporate and other
Corporate and other operations contributed
US$(41.9) million to Underlying EBITDA◆ in
2019 compared to US$(34.0) million in 2018.
Corporate and other operations primarily
include central administration function, the
results of in-house service companies and
related charges, 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$13.3 million from
US$39.2 million in 2018 to US$52.5 million
in 2019.
The Group recognised US$12.0 million share
of IRC losses and a further US$23.4 million
impairment of investment in IRC (2018:
US$15.5 million share of profit generated
by IRC, including US$28.1 million effect from
partial reversal of impairment at K&S mine
and US$(5.7) million impairment of investment
in IRC). IRC contributed US$10.3 million to the
Group’s Underlying EBITDA◆ in 2019.
Impairment review
Impairment of mining assets
The Group undertook a review of impairment
indicators and impairment reversal 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
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
76 Petropavlovsk Annual Report 2019
calculations based on discounted cash
flows, were prepared which concluded no
impairment was required as at 31 December
2019 and 2018.
Having considered the excess of estimated
recoverable amounts over the carrying values
of the associated assets on the statement of
financial position as at 31 December 2019
and taking into consideration removed
uncertainty connected with the timing of the
final construction and performance of the
POX hub, the Directors concluded on the
following:
– A reversal of impairment previously
recorded against the carrying value of the
assets that are part of the Pioneer CGU
would be appropriate. Accordingly, a
pre-tax impairment reversal of US$43.5
million (being a post-tax impairment reversal
of US$34.8 million) has been recorded
against the associated assets within
property, plant and equipment. The
aforementioned impairment reversal takes
into consideration the effect of depreciation
attributable to relevant mining assets and
intra-group transfers of previously impaired
assets to Pioneer.
– A further reversal of impairment previously
recorded against the carrying value of the
assets of the supporting in-house service
companies would be appropriate.
Accordingly, a pre-tax impairment reversal of
US$9.4 million (being a post-tax impairment
reversal of US$7.8 million) has been recorded
against the associated assets within property,
plant and equipment. The aforementioned
impairment reversal takes into consideration
the effect of depreciation attributable to
relevant assets and intra-group transfers of
previously impaired assets.
As at 31 December 2018, the Group
recognised impairment reversals at the
Malomir and Albyn CGUs of US$83.0 million
(US$66.4 million post-tax) and US$18.7
million (US$15.2 million post-tax), respectively.
The key assumptions which formed the basis of forecasting future cash flows and the value in use calculation are set out below:
Long-term real gold price
Discount rate (a)
RUB : US$ exchange rate
(a) Being the post-tax real weighted average cost of capital, equivalent to a nominal pre-tax discount rate of 8.7% (2018: 12.5%).
2019
US$1,400/oz
7.0%
2018
US$1,300/oz
8.5%
RUB66 : US$1 RUB67 : US$1
Impairment of exploration and evaluation
assets
As at 31 December 2019, the Group
performed a review of its exploration and
evaluation assets and concluded no
impairment was required (31 December
2018: the Group performed a review of its
Investment and other finance income
Investment income
Guarantee fee income (a)
exploration and evaluation assets and
concluded to suspend exploration at the
Flanks of Malomir and surrender the relevant
licences. An aggregate impairment charge
of US$12.2 million was recorded against
associated exploration and evaluation assets).
As at 31 December 2019, all exploration and
evaluation assets in the statement of financial
position related to the areas adjacent to the
existing mines with ongoing drilling and
technical studies being performed.
2019
US$ million
3.2
5.6
8.8
2018
US$ million
3.8
–
3.8
(a) Guarantee fee income under Gazprombank Guarantee arrangements, as set out in section “Corporate activities” below.
The Group recognised US$1.8 million interest income on loans granted and US$1.4 million interest income on cash deposits with banks.
Interest expense
Interest expense
Interest capitalised
Other
2019
US$ million
71.6
(12.3)
0.6
59.9
2018
US$ million
62.8
(33.7)
0.4
29.5
Petropavlovsk Annual Report 2019
77
CFO Statement continued
For the year ended 31 December 2019
Interest expense for the year comprised
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 (2018: US$41.9 million of
effective interest on the Notes, US$12.6
million of effective interest on the Convertible
Bonds, US$1.1 million of effective interest on
bank facilities and US$7.2 million of interest on
prepayments on gold sale agreements).
As the Group continued with completion of
the POX Hub, this project met eligibility criteria
for borrowing costs capitalisation under IAS
23 “Borrowing Costs”. US$12.3 million of
interest expense was capitalised within
property, plant and equipment (2018:
US$33.7 million interest capitalised within
property, plant and equipment ). With all
four autoclaves of the POX Hub now fully
functional, interest capitalisation in relation
to POX Hub ceased in December 2019,
Taxation
Tax charge
with increase in net interest expense from
December 2019 onwards. Construction
of the flotation line at Pioneer met eligibility
criteria for borrowing costs capitalization
with relevant interest to be capitalized
going forward.
Net other finance gains/(losses)
Net other finance losses for the year totalled
US$(42.2) million compared to US$10.2 million
of net other finance gains in 2018.
Key elements of other finance gains
and losses this period include:
– US$(31.1) million fair value loss from
re-measurement of the conversion option
of the convertible bonds;
– US$(11.2) million loss on repurchase of
the Existing Bonds as set out in section
“Corporate activities” below;
– US$3.6 million gain from re-measurement
of receivable from IRC under ICBC
Guarantee arrangements to fair value as set
out in section “Corporate activities” below;
– US$(2.0) 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$(1.5) million net loss on other items.
Net impairment reversals/(impairment
losses) on financial instruments
In 2019, the Group recognised US$2.3 million
reversal of impairment of financial assets
(2018: US$3.2 million impairment losses of
financial assets) and net of US$28.5 million
reversal of provision for expected credit
losses under Gazprombank and ICBC
guarantee arrangements (2018: US$25.5
million provision for expected credit losses
under ICBC guarantee arrangements), as set
out in section “Corporate activities” below.
2019
US$ million
27.2
2018
US$ million
56.5
The Group is subject to corporation tax under
the UK, Russia and Cyprus tax legislation.
The statutory tax rate for 2019 was 19.0% in
the UK and 20% in Russia. Under the Russian
Federal Law 144-FZ dated 23 May 2016
taxpayers who are participants in 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 and 2018, LLC Albynskiy
Rudnik has received tax relief as a RIP
participant and was entitled to the reduced
statutory corporation tax rate of 17%. In 2019
LLC Malomirskiy Rudnik has received tax
relief as a RIP participant and was entitled to
the reduced statutory corporation tax rate
of 17%.
The tax charge for the year primarily related
to the Group’s gold mining operations and is
represented by a current tax charge of
US$29.7 million (2018: US$19.9 million) and a
deferred tax credit, which is a non-cash item,
of US$2.4 million (2018: deferred tax charge
of US$36.6 million). Included in the deferred
tax credit in 2019 is a US$20.4 million credit
(2018: US$30.6 million charge) foreign
exchange effect 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.
During the period, the Group made
corporation tax payments in aggregate of
US$32.7 million in Russia (2018: corporation
tax payments in aggregate of US$5.0 million
in Russia).
Earnings per share
Profit for the year attributable to equity holders of Petropavlovsk PLC
Weighted average number of Ordinary Shares
Basic profit per ordinary share
2019
2018
US$26.9 million US$24.5 million
3,309,193,559 3,305,069,755
US$0.01
US$0.01
Basic profit per share for 2019 was US$0.01 (2018: basic profit per share was US$0.01). The total number of Ordinary Shares in issue as at
31 December 2019 was 3,310,210,281 (31 December 2018: 3,307,151,712).
78 Petropavlovsk Annual Report 2019
Financial position and cash flows
Cash and cash equivalents
Notes (a)
Convertible bonds (b)
Net debt◆
(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.
Net cash from operating activities
Net cash used in investing activities(c)
Net cash from/(used in) financing activities
(c) Including US$103.8 million Capital Expenditure◆ (2018: US$134.4 million).
Key movements in cash and Net debt◆
As at 1 January 2019
Net cash generated by operating activities before working capital changes
Decrease in working capital(d)
Corporation tax paid
Capital Expenditure◆
Capitalized stripping
Repayment of loans granted to an associate
Issue of Bonds, net of transaction costs
Repurchase of the Existing Bonds
Interest accrued
Interest paid
Payment for the call option to acquire non-controlling 25% interest in the Group’s subsidiary
LLC TEMI
ICBC Guarantee fee
Interest received
Other
As at 31 December 2019
Cash
US$ million
26.2
250.5
(61.2)
(32.7)
(103.8)
(27.1)
56.2
120.6
(108.0)
(67.2)(e)
(13.0)
6.0
3.3
(1.6)
48.2
31 December
2019
US$ million
48.2
(500.4)
(109.1)
(561.3)
31 December
2018
US$ million
26.2
(499.0)
(95.2)
(568.0)
2019
US$ million
95.4
(84.7)
8.9
2018
US$ million
264.2
(233.5)
(13.0)
Debt
US$ million
(594.2)
Net debt◆
US$ million
(568.0)
(107.8)
96.8
(55.0)
50.7
(609.5)
(561.3)
(d) Including an aggregate of US$187.4 million advance payments received from Gazprombank and Sberbank outstanding as at 31 December 2019. 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.
(e) Including US$16.0 million interest paid in relation to advance payments from Gazprombank and Sberbank.
Capital Expenditure◆
The Group invested an aggregate of US$103.8 million in 2019 compared to US$134.4 million in 2018. The key areas of focus in 2019
were on the POX project completion, exploration and development to support the underground mining at Pioneer and Malomir, expansion
of tailings dams at Pioneer and Albyn and ongoing exploration related to the areas adjacent to the ore bodies of the Group’s main mining
operations. The Group capitalised 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 (2018: US$33.7 million into the cost of the POX Hub and Malomir flotation).
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
Petropavlovsk Annual Report 2019
79
CFO Statement continued
For the year ended 31 December 2019
POX(a)
Pioneer (b),(c)
Malomir (d),(e)
Albyn (f)
Corporate and in-house services
Exploration
expenditure
US$ million
–
4.7
1.2
8.4
–
14.2
Development
expenditure and
other CAPEX◆
US$ million
17.1
29.9
14.1
21.6
6.9
89.6
Total CAPEX◆
US$ million
17.1
34.6
15.2
30.0
6.9
103.8
(a) Including US$17.1 million of development expenditure in relation to the POX Hub which is considered to be non-sustaining Capital Expenditure◆ for the purposes of calculating AISC◆ and AIC◆.
(b) Including US$8.8 million of expenditure in relation to the underground mining project at Pioneer to be sustaining Capital Expenditure◆ for the purposes of calculating AISC◆ and AIC◆.
(c) Including US$15.2 million development expenditure in relation to the Pioneer flotation (including tailing dams) to be non-sustaining Capital Expenditure for the purposes of calculating the AISC◆ and AIC◆.
(d) Including US$2.8 million of development expenditure in relation to the underground mining project at Malomir to be sustaining Capital Expenditure◆ for the purposes of calculating AISC◆ and AIC◆.
(e) Including US$8.2 million of development expenditure in relation to Malomir flotation (including tailing dams), which is considered to be sustaining Capital Expenditure◆ for the purposes of calculating AISC◆ and AIC◆.
(f) Including US$10.1 million of development expenditure in relation to Albyn tailing dams and US$5.3 million in relation to road between Elginskoye and Albyn processing facilities, which are considered to be
sustaining Capital Expenditure for the purposes of calculating AISC and AIC.
Foreign currency exchange differences
The Group’s principal subsidiaries have a US Dollar functional currency. Foreign exchange differences arise on the translation of monetary assets
and liabilities denominated in foreign currencies, which for the principal subsidiaries of the Group are the Russian Rouble and GB Pounds Sterling.
The following exchange rates to the US Dollar have been applied to translate monetary assets and liabilities denominated in foreign currencies.
GB Pounds Sterling (GBP : US$)
Russian Rouble (RUB : US$)
The Rouble recovered by 11% against the US
Dollar during 2019, from RUB69.47 : US$1 as
at 31 December 2018 to RUB61.91 : US$1 as
at 31 December 2019. The average year-on-
year depreciation of the Rouble against the
US Dollar was approximately 3%, with the
average exchange rate for 2019 being
RUB64.69 : US$1 compared to RUB62.68 :
US$1 for 2018. The Group recognised foreign
exchange losses of US$21 million in 2019
(2018: gains of US$8.5 million) arising
primarily on Rouble denominated net
monetary assets.
Corporate activities
Guarantee over IRC’s external
borrowings and refinancing of IRC’s
project finance facility
The Group historically entered into an
arrangement to provide a guarantee over its
associate’s, IRC, external borrowings, the
ICBC Facility (‘ICBC Guarantee’). At 31
December 2018 the principal amounts
outstanding subject to the ICBC guarantee
were US$169.6 million. Under the terms of the
arrangement the Group was entitled to
receive an annual fee equal to 1.75% of the
outstanding amount, which amounted to
US$0.6 million during the period (2018:
US$4.0 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 and was used, inter alia,
to repay the amounts outstanding under the
ICBC Facility in full, the two loans provided
by the Group in the equivalent of
approximately US$57 million and part of the
guarantee fee of US$6 million owed by IRC
to the Group in respect of the guarantee of
the ICBC Facility. At 31 December 2019 the
remaining outstanding contractual
guarantee fee was US$5.0 million, which had
a corresponding fair value after provision for
credit losses of US$4.4 million and is payable
by IRC no later than 31 December 2020 (31
December 2018: outstanding contractual
guarantee fee of US$10.3 million with a
corresponding fair value after provision for
credit losses of US$6.8 million).
A new guarantee was issued by the Group
over part of the Gazprombank Facility
(‘Gazprombank Guarantee’), the guarantee
31 December 2019
0.75
61.91
31 December 2018
0.78
69.47
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$225 million as at
31 December 2019. 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 year ended
31 December 2019 was estimated at the
annual rate of 3.07% for 2019 by reference to
the average outstanding principal balance
under Gazprombank Facility. The guarantee
fee charged for 2019 was US$5.6 million, with
corresponding value of US$5.0 million after
provision for expected credit losses
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
80 Petropavlovsk Annual Report 2019
The following assets and liabilities have been recognised in relation to the ICBC Guarantee and Gazprombank Guarantee as at 31 December
2019 and 31 December 2018:
Other receivables – ICBC Guarantee
Other receivables – Gazprombank Guarantee
Financial guarantee contract – ICBC Guarantee
Financial guarantee contract – Gazprombank Guarantee
31 December 2019
US$ million
4.4
5.0
–
(8.9)
31 December 2018
US$ million
6.8
–
(37.4)
–
The following gains and losses resulting from the aforementioned transactions were recognised during the period:
Fair value change on ICBC Guarantee fee receivable
Gazprombank Guarantee fee for the year
De-recognition of liability under ICBC Guarantee arrangements
Recognition of liability under Gazprombank Guarantee arrangements
Interest on loans advanced to IRC
Reversal of provision for expected credit losses following repayment of loans advanced to IRC
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
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 2019,
the fair value of the derivative financial asset
was US$11.0 million reflecting a loss on
re-measurement to fair value of US$2.0 million
and the initial US$13 million cash payment.
Placement of US$125 million new
convertible bonds and concurrent
repurchase of outstanding US$100
million Convertible Bonds
In July 2019, the Group has issued US$125
million convertible bonds due 2024. The
bonds were issued by the Group’s wholly
owned subsidiary Petropavlovsk 2010 Limited
(the “Issuer”) 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.
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
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$1,000 in
aggregate principal amount of Existing Bonds
from and including 18 June 2019 to
redemption. The Existing Bonds were
subsequently cancelled by the Issuer.
2019
US$ million
3.6
5.0
37.4
(8.9)
1.8
3.2
41.1
The US$11.2 million difference between cash
paid to purchase the Existing Bonds and the
carrying value of respective debt was
recognised as loss on re-purchase of the
Existing Bonds.
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.
Petropavlovsk Annual Report 2019
81
CFO Statement continued
For the year ended 31 December 2019
The directors have also considered the
potential impacts of COVID-19 which are
described in detail on pages 6, 30 and
31 of the Annual Report.
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 2019 Annual
Report and Accounts. Accordingly, they
continue to adopt the going concern basis of
accounting in preparing these consolidated
financial statements.
2020 Outlook
Production is on track to meet the full year
target of 620 – 720koz of gold in 2020.
The Group expects TCC◆ in 2020 to be in
the range of US$700 – US$800/oz excluding
third-party concentrate as the pricing of
concentrate depends on highly volatile
gold price.
Danila Kotlyarov
Chief Financial Officer
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
2019 Annual Report and Accounts. As at
31 December 2019, 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 June 2021.
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 third-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, and Russian Rouble : US Dollar
exchange rate that is approximately 10%
stronger than the average of the market
consensus forecasts. This layered stressed
case indicates sufficient liquidity for a period of
at least 12 months including under downside
IRC performance scenarios.
As at 31 December 2019, the Group has
guaranteed the outstanding amounts IRC
owed to Gazprombank. The outstanding loan
principal was US$225 million as at 31
December 2019 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.
◆ Go to “The Use and Application of Alternative Performance Measures (APMs)” section on pages 256 to 262 for further information on our APMs.
82 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019
83
Sustainable Development
84 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019
85
Sustainability Performance
Our key performance indicators appear throughout this report and introduce the operational,
financial and sustainable development sections; respectively pages 42, 70 and 86.
Lost Time Injury Frequency Rate (LTIFR)
1.61
2019
2018
2017
2.52
3.11
Definition
Lost Time Injury Frequency Rate (LTIFR) is a
measure of the rate of recorded accidents,
including fatalities, which occur at the Group’s
premises within the reporting period, per
million man-hours worked. Contractors
are excluded.
Relevance
As a mining company, safety is our first
priority and we are committed to achieving
a zero-harm workplace and ensuring that
our employees return home safely. We strive
to maintain a safe environment across our
operations and are continuously looking at
ways to improve safety performance, which
includes implementing additional safety
protocols, providing protective equipment and
effectively managing risks. LTIFR is one of the
key performance indicators used to measure
the effectiveness of the occupational health
and safety policies and practices, and to
identify trends and areas of focus. It is an
integral part of a complex system covering
the database of statistics, educational
programmes and operating parameters which
are subject to an ongoing analysis and control.
LTIFR ensures the Group’s compliance with
Russian legislation and provides the Group
with a basis for continuous improvement.
Verification / assurance
Reported LTIFR data has been verified by an
independent audit undertaken by Wardell
Armstrong International (WAI) (please refer to
page 124).
Performance in 2019
For the year ended 31 December 2019,
Group operations recorded an LTIFR of 1.61
accidents per million man-hours worked,
representing a 36% improvement from 2.52
accidents per million man-hours worked in
2018. The improvements are mainly
attributable to stricter and more rigorous
safety control across the Group.
During 2019, we continued to address any
gaps in knowledge of safety procedures.
Training was conducted for relevant
departments to reinforce the drive to
86 Petropavlovsk Annual Report 2019
create a safer workplace and to highlight
everyone’s personal responsibility in
achieving this goal.
The Company recognises both the personal
responsibility of each employee at every site
and workplace, and the Group’s accountability
for the safety measures and actions to create
the safety environment, striving for the ultimate
zero-injury record.
Going forward
In 2020 we will continue to analyse our
health and safety performance by
ensuring a constant dialogue with our
people, who help us to identify areas for
improvement. Health and safety is an
integral aspect of our culture and we are
continuously looking at ways of improving
our performance. One of these methods is
to continue developing and providing
safety programmes and training to our
employees. We will continue our efforts in
maintaining an LTIFR lower than or equal
to 1.61.
Our focus will be on health and safety
training across the Company through the
use of recognised tools, as well as through
the introduction of additional programmes,
in which the Pokrovskiy Mining College
(the Group’s in-house educational facility)
plays an important part as a place of study
for future and current employees.
We look to continue maintaining a high level
of health and safety awareness using
campaigns, emergency drills and measures
aimed at preventing the occurrence of
occupational diseases. Safety performance
will continue to be monitored at all levels of
the business, with ultimate oversight by the
Board of Directors.
For more information on Health & Safety
please go to page 109.
Total Headcount and Gender Split
2019
2018
2017
6,819 2,261
9,080
= 24.9% female staff
6,713 2,187
8,900
= 24.6% female staff
6,674 1,950 8,624
= 22.6% female staff
■ Male
■ Female
Definition
Total headcount is the total number of
personnel employed by the Group, while
Gender split is the number of male and female
staff as a proportion of the overall workforce.
Both data points are reported as at
31 December of each calendar year.
Relevance
This KPI allows the Group to ensure that there is
an appropriate number of employees to fulfil the
strategy and to maintain a balanced split of
males and females throughout the business.
Management firmly believes that the Group’s
ongoing success depends in part on its ability to
hire, motivate, develop and retain staff with the
right skills and experience, to help them master
challenges and make the most of opportunities.
Although traditionally the mining industry in
Russia has been heavily male dominated, the
Group actively seeks to apply meritocratic
principles and provides equal opportunities
and pay for all employees, regardless of gender.
Female employees occupy senior positions
across the business which include
departmental heads, deputy directors, chief
accountants and managers of laboratories.
We consider the ratio of female workers to be
of material importance to the Group and look to
ensure that they have equality of opportunity
within the business. All employees, regardless
of age, gender, race, sexuality, disability or
culture have equal opportunities for professional
development and training.
Performance in 2019
Total headcount remained stable throughout
2019. 97.5% of our personnel were employed
on a full-time basis and 96.5% of our
employees had permanent contracts.
As part of the Company’s strategy to avoid
redundancies as a result of the cessation of the
Pokrovskiy mine, a decision was taken to build
the POX Hub using the mine’s existing
infrastructure and this was instrumental in
saving the majority of jobs. Employees in
redundant positions at the new POX Hub
were offered an opportunity to be transferred
to other Petropavlovsk operations and most
accepted. As a result, we were able to avoid
dismissals and actually finished 2019 with a
slight increase of 4.6% in total headcount.
As at 31 December 2019, 2,261 employees
were female, representing almost a quarter
of the Group’s total workforce. The ratio of
female employees increased slightly when
compared to 2018 and remained well above
our target of 20%.
We have a relatively high ratio of female
employees in managerial positions of 34% and
35% in the exploration department. The lowest
ratio of female employees is in construction and
blast holes drilling departments (amounting to
5.5% and 7.6% respectively). This is due to
legislative restrictions set out in Labour
legislation of the Russian Federation which
include a list of jobs and occupations with
harmful and/or hazardous working conditions,
where the use of women’s labour is prohibited,
such as welding, drilling, metal fitting etc.
Going forward
Staff diversity reviews at Petropavlovsk
are conducted on an ongoing basis.
The Group is committed to operating as
a responsible employer, promoting equal
opportunities, fair treatment and non-
discrimination of workers, as required
under both Russian and UK law. As the
business continues to grow, evolve and
develop, as part of the resourcing and HR
strategy, the Group will seek to ensure that
it continues to hire a diverse range of
well-qualified personnel.
In 2020, we will continue to focus on
keeping our gender diversity ratio above
20%. As a part of this aim, we will assess
the equality of opportunity offered by
recruitment programmes and practices
through the Group.
In 2020, Petropavlovsk is launching a
gender diversity programme, developed
in partnership with Women in Mining.
The programme is aimed at promoting
opportunities within the mining industry
among female graduates and increasing
the focus on gender diversity.
For more information on Diversity please go
to page 100.
Petropavlovsk Annual Report 2019
87
Sustainability Performance continued
Greenhouse Gas (GHG) Emissions
2019 206,379
248,502
454,881
GHG emissions (t CO2e)
2018 209,164
218,854
428,018
■ Scope 1: Direct GHG emissions
2017 218,502
227,305
445,807
■ Scope 2: Indirect GHG emissions
2019
2018
2017
0.88
GHG emissions intensity
(t CO2e / oz)
1.01
1.01
Methodology
The Company has adopted a methodology
for reporting its Greenhouse Gases (GHG)
emissions measured in CO2 equivalent (CO2e).
In our approach we are guided by the reporting
principles as set out by the GHG Protocol
Corporate Accounting and Reporting
Standard (GHG Protocol Corporate Standard).
In accordance with the laws of the Russian
Federation GHG emissions associated
with our consumption of diesel, kerosene,
benzene and coal (Scope 1) are calculated
using approved formulae. GHG emissions
associated with our consumption of
electricity (Scope 2) are calculated using the
International Energy Agency (IEA) electricity
conversion factor for the Russian Federation
and are measured in tonnes of carbon
dioxide. All emissions values disclosed above
are presented gross, with no deductions for
export of renewable energy or purchases of
certified emission reduction.
The Company reports all emissions sources
as required under the Companies Act 2006
(Strategic Report and Directors’ Reports)
Regulations 2013. These sources fall within
our consolidated financial statements.
We do not have responsibility for any
emission sources not included as part of
the Company’s consolidated statements.
As a gold producer, we consider ounces of
gold as the appropriate measurement unit for
intensity calculations. In 2019, Petropavlovsk
produced 517.3koz and this figure has been
used to calculate GHG emissions intensity.
88 Petropavlovsk Annual Report 2019
Relevance
The Group recognises its responsibility to
manage and reduce GHG emissions in order
to diminish its overall carbon footprint.
Monitoring progress with this goal is essential
in terms of our focus on climate-related risks
and opportunities. A reduction in GHG
emissions may result in a decrease in
operating expenditure as a result of
efficiencies achieved.
Verification / assurance
Reported GHG emissions data has been
verified by an independent audit undertaken
by WAI (please refer to page 124). The Group
also submits annual emissions reports to
the Russian Environmental Agency,
Rosprirodnadzor. Internal verification
is conducted at a corporate level.
Performance in 2019
In 2019, Scope 1 direct GHG emissions
originated from the following sources:
– Diesel: excavators, trucks, bulldozers,
crushers, screens, pumps and cars;
– Kerosene: helicopters;
– Petrol: cars; and
– Coal: heating plants. All heat generated is
re-used by the Group.
Scope 2 indirect GHG emissions originate
from electricity purchased for the Group’s
needs. Supply of electricity is carried out
under several power supply agreements with
a major supplier to the Amur region (PJSC
Far-Eastern Energy Company (FEEC)).
Electricity generated in the Amur region is
produced predominantly by two hydropower
plants (HPP), the Zeyskaya and Bureyskaya
HPPs which are among the largest renewable
power plants in Russia. Approximately 90% of
electricity purchased by the Group comes
from renewable sources.1
In 2019 the Group achieved a 13% reduction in
the intensity of GHG emissions as a result of
the focus on energy efficiency and an increase
in gold production when compared to 2018,
despite a 4% increase in total GHG emissions.
Going forward
The Group will continue to monitor its
GHG emissions and analyse all relevant
data on a quarterly basis to better
understand where improvements can be
made. Given the production forecast for
2020, our strategic target is to further
decrease GHG emissions intensity by at
least 1% next year. Quarterly updates on
GHG emissions will be reported by the
Group’s accordingly.
In 2020, as a part of our comprehensive
Sustainability strategy, we are planning to
align our reporting standards with the
GHG Protocol Corporate Standard, which
will include:
– Conducting GHG inventory to ensure
all sources of emissions are included;
– Establishing a base year to track our
progress towards a GHG emissions
target; and
– Identifying the sources of Scope 3
emissions.
For more information on emissions please go
to page 116.
1. 90% is a reasonable assumption made by Petropavlovsk
based on the high density of hydro-electric facilities in the
region. FEEC was unable to confirm the exact portion of
electricity generated from renewable sources due to data
unavailability.
Introduction from the Chairman of the Safety,
Sustainability & Workforce Committee
Dear Shareholder
After my first full year as Chairman of
the Safety, Sustainability & Workforce
Committee, I am delighted to share with you
Petropavlovsk’s 2019 Sustainability Report
which outlines our achievements over the
past twelve months and sets out our goals
and ambitions in this critical aspect of our
business for the years ahead.
Our people are the foundation of our business
and there is nothing more important to us
than their safety, their health and their
wellbeing. At this time of significant concern
over the tragic consequences of the
COVID-19 pandemic, the Committee is
working closely with management to ensure
that the Company does everything it can to
protect its employees and their families and
to support the local and national governments
with whom we work in their efforts to contain
the outbreak. More details on Petropavlovsk’s
response to the COVID-19 pandemic are
available on page 6.
A fundamental pillar of the operational and
financial success of our business is that we
continue to improve the health and safety
environment within which our people work.
We passionately believe that it is the right of
everyone working within our business to
return to their families and friends unharmed
at the end of every working day and shift
cycle. It is our firm commitment to cause zero
harm. Through the use of effective systems,
processes, leadership and employee
engagement we strive to eliminate all fatal and
serious accidents and to continue to drive
down the number of incidents as measured
by our LTIFR.
I am pleased to report that over the past year
the Group’s LTIFR has fallen from 2.52 in 2018
to 1.61, a reduction of 36% and this
improvement reflects our determination to
deliver on our goal of zero harm. In addition,
I am proud to report that there were no
material health or environmental incidents at
any of our operations during the year. The
Committee has worked with management to
identify ways of continuing to improve the
design, reporting and implementation of
health, safety and environmental strategies
and it is our aim to be able to report further
improvements during the coming year. More
details on management’s plans to improve
our health and safety record further during
2020 is provided on pages 109 to 111.
Training and development are vital catalysts
for improvement and much of this work is
done through our Pokrovskiy Mining College
details of which can be found on page 110.
As set out on page 88, I am also pleased to
confirm a reduction in the intensity of the
Group’s greenhouse gas emissions over the
past year. This improvement came as a result
of the more efficient use of resources in the
company’s operations and a Group-wide
energy saving programme. The latter is based
on the implementation of modern technology
as well as compact space planning solutions
for buildings and their positioning. The Group
has continued to gradually switch away from
the use of coal and diesel wherever it can
and now draws 46% of its total energy
requirement from the Amur region’s electrical
grid. Every opportunity to further lower the
reliance on fossil fuels is being taken in order
in order to minimise the Group’s carbon
footprint and resulting impact on the
environment.
In April 2019, as a part of our workforce
engagement programme, my colleagues and
I travelled to the Group’s operational sites in
the Far East of Russia to meet with both
workforce and Trade Union representatives,
including the Chairman of the independent
Trade Union organisation of Pokrovskiy mine.
The purpose of the visit was to increase
bilateral dialogue with the workforce and to
see for ourselves the work that is being done
to improve the health and safety of
employees. In addition, we assessed the
controls in place to manage our hydraulic
storage facilities and we reviewed the
proactive community support that is being
provided into the remote areas surrounding
our operations. The Committee met with the
Head of Health & Safety at Malomir and also
with the Head of our Environmental
Department, who presented to the
Committee on the Group’s approach to
environmental management.
In 2019 Petropavlovsk celebrated 25 years
of operation and we are very proud of the
efforts we have made to support our local
communities. Throughout this time we have
built strong relationships with our employees,
the large majority of whom reside in the
Amur region. As one of the largest, non-
governmental employers in the area
Petropavlovsk plays a significant role in
contributing to local economic activity,
infrastructure development, social cohesion
and emergency support in times of hardship.
An important aspect of ensuring strong
community engagement is to be fully
transparent on any issues that may affect
local stakeholders. While our first objective
is always to discuss any issues directly with
those affected, in 2019 we developed a new
grievance procedure to enable members of the
public and other stakeholders to confidentially
raise any issues concerning our activities that
they may have. Through this process they are
assured that the issues will be carefully
assessed and that a comprehensive written
response will be provided.
In December 2019 Petropavlovsk was very
pleased to join the United Nations (UN) Global
Compact initiative. The Company is proud to
join thousands of other companies who are all
committed to responsible business decision-
making in pursuit of a better and more
sustainable world. We look forward to learning
from other participants and to setting an
example and promoting best practice within
Russia and the wider global mining industry.
Sustainability has always been integral to
Petropavlovsk’s operations. The ever-growing
and dynamic nature of environmental, social
and governance (ESG) factors however
means that we need to closely monitor how
best we can apply emerging developments in
these fields to our business. To do this we are
in the process of establishing of a new
comprehensive ESG programme which will
contain a set of ambitious short and long-
term targets. These targets will be designed
to enhance Petropavlovsk’s sustainability
policies and practices and to ensure the
business is set on a course of long-term
improvement. I look forward to sharing these
with you next year, as well as commenting on
the progress we have made towards their
attainment.
I hope that you will find this Sustainability
Report interesting and informative.
Finally, I would like to thank management,
our employees and my fellow committee
members for all their hard work and dedication
over the past year in further improving the
health, safety, environmental management
and sustainability of the company.
Harry Kenyon-Slaney
Chairman, Safety, Sustainability & Workforce
Committee
Petropavlovsk Annual Report 2019
89
Our Approach
Overview
For the past 25 years, responsible business and sustainable development have been integral to our
operations. The Company’s approach to sustainability has evolved over time and will continue to adapt and
grow as we look forward. At the heart of our ethos has always been a recognition that our ethical, social
and environmental practices should always be fully incorporated into our business model and aligned with
our strategy.
Sustainability framework
Board of Directors Petropavlovsk PLC
Safety, Sustainability & Workforce Committee
Safety, Sustainability & Workforce Committee
General Director of MC Petropavlovsk
Petropavlovsk
Foundation
Head of Welfare &
Community Liaison
General Directors
of Production and
Ancillary Facilities
Chief Engineers
Head of
Environmental
Safety
Human Resources
Departments
Health & Safety
Departments
Environmental
Departments
90 Petropavlovsk Annual Report 2019
We produced our first sustainability report in
2006 – long before the significantly increased
level of societal focus on this fundamental area
we see today. In this early report, we asserted
our belief that maintaining high levels of
economic, environmental and social
performance contributes to increased
shareholder value and maintains and
enhances our “social licence to operate” within
our host communities. This principle persists to
this day and forms the backbone of our
thinking. Beyond the obvious advantage of
being the right way to do business, operating in
a responsible manner has significant benefits,
which include improved productivity, a lower
risk profile and the creation of additional value
for our stakeholders.
Our sustainability approach is underpinned by
our corporate values and guiding principles
(shown below). Our objective is to act in the
interests of our stakeholders, including
shareholders, employees and the communities
in which we operate, by ensuring our activities
are efficient, transparent and sustainable.
We place people first. Responsible practices
are our highest priority and we aim to operate
safely, efficiently and transparently, continually
seeking new ways to ensure an injury-free
workplace. We are committed to respecting
our environment which means preventing
pollution, minimising waste, increasing
carbon efficiency and optimising natural
resource usage. We develop innovative
solutions to manage and mitigate
environmental risks and welcome an active
dialogue with local communities. Cognisant
of the socio-economic impact we are able to
make within the Amur region, we prioritise
local recruitment and procurement.
We are particularly proud of the new
technology we have implemented at the POX
Hub, which is regarded as the most efficient,
robust and environmentally responsible way
of processing a diverse range of refractory
concentrates.
Sustainability is managed via a robust
framework (as demonstrated on page 90)
to ensure the responsible management of
health, safety, environmental and social
issues and we have reporting systems in
place to enable adequate reporting and
communication of performance, issues and
progress. The Board is ultimately responsible
for this area of the business.
We report on sustainability performance on
an annual basis and encourage any feedback
or questions to be addressed to
sustainability@petropavlovsk.net.
– Contribute to the social, economic
and institutional development of the
communities in which the Company
operates; and
– Implement effective and transparent
engagement, communication and
independently verified reporting
arrangements with Group stakeholders.
Our commitments
– Managing our operations to ensure the
health, safety and security of employees,
contractors and local communities, and to
limit any negative impact on the surrounding
environment. In planning our approach to
business, we recognise that we have duties
to shareholders and responsibilities to a
wider group of stakeholders (those who can
affect or who are affected by our activities);
– Undertaking all our operations in
compliance with Russian regulatory
requirements and international good
practice, wherever possible; and
– Going beyond legal compliance where
necessary to protect our workers, the
surrounding environment and the
communities within which we operate.
The UN Global Compact
Since 2019 Petropavlovsk PLC has been
committed to the UN Global Compact
corporate responsibility initiative and its
principles in the areas of human rights, labour,
the environment and anti-corruption. Read
more on page 97.
Full description of how our environmental and
social risks are managed is covered in Principle
Risks section on page 26.
Our sustainability values
– We aim to operate such that we avoid
causing harm to employees, the
environment and local communities;
– Work-related incidents, illnesses and
injuries are preventable;
– Foreseeable hazards and environmental
impacts must be identified, the associated
risk assessed and, where reasonably
practical, eliminated or minimised;
– We respect the human rights of our
workers, suppliers and host communities;
– There is a safe and correct way of doing
every task, however urgent or important;
– All employees are responsible for their own
actions and the workplace health and safety
of their fellow workers; and
– Health, safety and environmental
performance and community engagement
can be continually improved.
Our guiding principles
We will:
– Implement and maintain ethical business
practices and sound systems of corporate
governance;
– Integrate sustainable development
considerations within the corporate
decision-making process;
– Uphold fundamental human rights and
respect cultures, customs and values in
dealings with employees and others who
are affected by our activities;
– Implement risk management strategies
based on valid data and sound science;
– Seek continual improvement of the
Company’s health and safety performance;
– Seek continual improvement of the
Company’s environmental performance;
– Contribute to conservation of biodiversity
and integrated approaches to land use
planning;
– Facilitate and encourage responsible
product design, use, re-use and recycling;
Petropavlovsk Annual Report 2019
91
Our Approach continued
Stakeholder engagement
The Group is committed to establishing and maintaining constructive relationships with all stakeholders to foster sustainable, positive and
transparent interaction, and to ensure there are benefits to all stakeholders from the Group’s activities during the lifetime of each operation
and beyond. All persons or groups that are directly or indirectly involved in the operations of the Group are considered stakeholders.
New stakeholders are regularly identified and included in the consultation process.
Stakeholder engagement in 2019
Stakeholder group
Why they are important
Shareholders,
lenders, bondholders
Our equity and fixed income investors are de-facto owners of the Company and hence concerned with
sustainability and long-term value creation. By having robust engagement processes, we build trust in the future
of the Company and ensure that investors have a full spectrum of information available to them when making
investment decisions.
Amongst other things, this group of stakeholders are also providers of funding and therefore effective
engagement is paramount to ensure that our cost of capital truly reflects the investment proposition the
Company offers.
Employees
We regard people as our most valuable asset and believe that investing in our employees delivers long-term
rewards in the form of a skilled and loyal workforce. Our employees’ experience and expertise is a major driver
of the Group’s successful operations.
The health and safety of our people remains our number one priority and we are continually seeking new ways
of achieving an injury-free workplace.
Suppliers and
contractors
Suppliers and contractors are essential to the successful running of our business. Responsible supply chain
management is an important part of achieving our goal of continuous sustainable development.
We strive to work with suppliers and contractors who share our approach to legal compliance, industrial safety,
human rights and environmental protection.
Local communities,
including Indigenous
communities
Building long-term relationships with local communities and enhancing their lives is important to us. We aim to
engage in an open and transparent manner with all local communities and NGOs.
Government and
industry authorities
Good relations with the national and local governments are required to maintain our licence to operate.
– Meetings, round-table conferences
– CEO
– Tax
– 0 environmental fines,
Petropavlovsk complies with all laws and regulations relevant to our business.
– Industry conferences
– Managing directors
– Legal
– 0 moderate or serious environmental
We recognise the socio-economic influence we have as one of the major employers and taxpayers in the
Amur region.
92 Petropavlovsk Annual Report 2019
– Investor conferences, conference
– Deputy CEO
calls, one-to-one meetings
Engagement mechanism
– AGM
– Annual Report
– Site visits
– Website
– Intranet
– Corporate newspaper Pokrovka
Plus, Social media accounts
– Trade Union
– Meetings and face-to-face
communication with management
Who is responsible
within the Group
– Board
– CEO
– Investor Relations
department
– Welfare and
Community Liaison
team
– HR Departments
– Health & Safety
Departments
– General Directors of
production and
Ancillary facilities
Key topics
Results 2019
– Economic
performance
– Anti-corruption
– Share price gain of 102% in 2019
– Group-wide Anti-Bribery Policy in place
– Five sustainability statistics now reported
quarterly
– Capital Markets Day held in September 2019
– Convertible bond issue in June 2019
significantly oversubscribed
More on page 5 and on our website
www.petropavlovsk.net/investors/
– Health & Safety
– 0 fatalities
– Training and
education
– Employment
and salaries
– 36% improvement in LTIFR
More on Health & Safety page 109
– 62 hours on average of training and
education per employee
More on training on page 102
– Average wages 32% above the national
average
More on remuneration and benefits on page 101
– Direct correspondence
– Operations directors
– Local
– 41% of procurement derived from local
– Meetings
– Contractual relationships
and Chief engineers
procurement
suppliers
– Procurement
departments
– Open channels of
– US$313.3 million paid to suppliers
communication
More on page 96
– Public hearings
– Welfare and
– Tax
– 65.3% of workforce employed locally
– Corporate newspaper Pokrovka
Plus, Social media accounts
– Social and charity activities
– Company website
– Site visits
– Grievance procedure
Community Liaison
team
– Petropavlovsk
Foundation team
– Investment in
– US$1.6 million of social investment
community
development
– Rights of
Indigenous
communities
– Agreement signed by Albyn mine and the
Association of Indigenous Minorities of the
North of the Selemdzhinsky District in 2019
More on page 105
– Direct correspondence
– Company website
– Circulation of information
(brochures, factsheets, leaflets,
etc.)
at operations
compliance
accidents
– Welfare and
– Contributing to
More on page 114
Community Liaison
infrastructure
team
– Legal team
– GR team
and quality of life
– 174 km high-voltage power line built in
cooperation with the government
More on page 108
Stakeholder group
Why they are important
Shareholders,
lenders, bondholders
Our equity and fixed income investors are de-facto owners of the Company and hence concerned with
sustainability and long-term value creation. By having robust engagement processes, we build trust in the future
of the Company and ensure that investors have a full spectrum of information available to them when making
investment decisions.
Company offers.
Amongst other things, this group of stakeholders are also providers of funding and therefore effective
engagement is paramount to ensure that our cost of capital truly reflects the investment proposition the
Employees
We regard people as our most valuable asset and believe that investing in our employees delivers long-term
rewards in the form of a skilled and loyal workforce. Our employees’ experience and expertise is a major driver
of the Group’s successful operations.
of achieving an injury-free workplace.
The health and safety of our people remains our number one priority and we are continually seeking new ways
Suppliers and
contractors
Suppliers and contractors are essential to the successful running of our business. Responsible supply chain
management is an important part of achieving our goal of continuous sustainable development.
We strive to work with suppliers and contractors who share our approach to legal compliance, industrial safety,
human rights and environmental protection.
Local communities,
including Indigenous
communities
engage in an open and transparent manner with all local communities and NGOs.
Engagement mechanism
– AGM
– Annual Report
Who is responsible
within the Group
– Board
– CEO
– Investor conferences, conference
– Deputy CEO
calls, one-to-one meetings
– Site visits
– Investor Relations
department
Key topics
Results 2019
– Economic
performance
– Anti-corruption
– Share price gain of 102% in 2019
– Group-wide Anti-Bribery Policy in place
– Five sustainability statistics now reported
quarterly
– Capital Markets Day held in September 2019
– Convertible bond issue in June 2019
significantly oversubscribed
More on page 5 and on our website
www.petropavlovsk.net/investors/
– Website
– Intranet
– Corporate newspaper Pokrovka
Plus, Social media accounts
– Trade Union
– Meetings and face-to-face
communication with management
– Welfare and
– Health & Safety
– 0 fatalities
Community Liaison
team
– HR Departments
– Health & Safety
Departments
– General Directors of
production and
Ancillary facilities
– Training and
education
– Employment
and salaries
– 36% improvement in LTIFR
More on Health & Safety page 109
– 62 hours on average of training and
education per employee
More on training on page 102
– Average wages 32% above the national
average
More on remuneration and benefits on page 101
– Direct correspondence
– Meetings
– Contractual relationships
– Operations directors
and Chief engineers
– Local
– 41% of procurement derived from local
procurement
suppliers
– Procurement
departments
– Open channels of
communication
– US$313.3 million paid to suppliers
More on page 96
Building long-term relationships with local communities and enhancing their lives is important to us. We aim to
– Public hearings
– Welfare and
– Tax
– 65.3% of workforce employed locally
– Corporate newspaper Pokrovka
Plus, Social media accounts
– Social and charity activities
– Company website
– Site visits
– Grievance procedure
Community Liaison
team
– Petropavlovsk
Foundation team
– Investment in
community
development
– Rights of
Indigenous
communities
– US$1.6 million of social investment
– Agreement signed by Albyn mine and the
Association of Indigenous Minorities of the
North of the Selemdzhinsky District in 2019
More on page 105
Government and
industry authorities
Good relations with the national and local governments are required to maintain our licence to operate.
– Meetings, round-table conferences
– CEO
– Tax
– 0 environmental fines,
Petropavlovsk complies with all laws and regulations relevant to our business.
– Industry conferences
– Managing directors
– Legal
– 0 moderate or serious environmental
We recognise the socio-economic influence we have as one of the major employers and taxpayers in the
Amur region.
– Direct correspondence
– Company website
– Circulation of information
(brochures, factsheets, leaflets,
etc.)
at operations
– Welfare and
Community Liaison
team
– Legal team
– GR team
compliance
accidents
– Contributing to
infrastructure
and quality of life
More on page 114
– 174 km high-voltage power line built in
cooperation with the government
More on page 108
Petropavlovsk Annual Report 2019
93
Our Approach continued
Materiality assessment
We conducted a materiality assessment to
define the sustainability topics that are most
important to our business and most relevant to
our internal and external stakeholders, thereby
enabling us to report on these themes in
accordance with GRI Standards (Core Option).
The initial step in the process was to identify
and rank over 50 topics, including broad
sustainability trends affecting the Company as
well as specific topics that could significantly
impact long-term business viability. In defining
these topics, we looked at industry trends and
risks, internal information and data, peer
disclosure and media analysis. We then
identified three key groups of stakeholders,
which included employees, shareholders and
local communities in the areas where we
operate and consulted them on our material
topics. This process not only provided the
Company with a valuable engagement tool,
but also allowed us to better understand the
ESG topics considered by our stakeholders to
be of the highest importance.
Stakeholder feedback was collected via an
online survey and ranked in terms of the
importance of each topic on a three-point
scale based on our assessment of aggregate
feedback.
The results showed that, for our employees,
training and education opportunities were
crucial, alongside salaries, operational
performance and occupational health and
safety. For our local communities, the payment
of taxes was considered of paramount
significance. Our shareholders prioritised
economic performance. All three stakeholder
groups considered the environmental impact
of our operations to be important.
When assessing whether a topic is material,
two main criteria were used: the importance
to stakeholders and the significance of its
impact on our business. As a result, we
identified and ranked 16 material topics
which are presented in this report.
Certain topics are overarching themes
which consider a number of sub-themes
and have been grouped to ensure a concise
overview of materiality. An example of this
would be ‘ethical business practices’, which
includes diversity, non-discrimination, human
rights, anti-corruption, which is important
to our shareholders, and other ethical
considerations. Similarly, occupational
health and safety importantly also includes
emergency preparedness, while employment
covers numerous responsible practices
surrounding remuneration, benefits and
elements of labour relations.
Addressing the key findings of this feedback
will be one of our priorities in 2020 and forms
part of our ESG framework.
On the basis the GRI tax standard was
launched in 2019, we have taken the decision
to report on this from 2020 onwards.
Materiality assessment flow chart
Defining and
analysing
preliminary
list of material
topics
Identification
of stakeholders
Engaging with
stakeholders
Assessment
of the priorities
assigned by the
stakeholders
to the issue
Prioritising
material
topics
Assessment of priorities assigned by stakeholders
High
l
s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
m
I
Medium
Priority
Waste
management
Energy, emissions
management
Top Priority
Tax
Environmental
Compliance
Economic
performance
Employment
Training & education
Responsible
procurement
Biodiversity &
rehabilitation
Water
management
Local communities
Rights of
indigenous people
Freedom of
association and
collective bargaining
Occupational H&S
R&D,
Use of Modern
Technologies
Ethical business
practices
Social
Environmental
Economic
Low
Low
Significance of impact on business
High
94 Petropavlovsk Annual Report 2019
Approach to reporting
Our approach to reporting follows five key steps:
1
2
3
4
5
Reporting boundaries
The reporting boundaries used for the
sustainability section of this report include all
Petropavlovsk’s operating assets and entities
within the Group, unless stated otherwise.
Total employee numbers are reported at
Group level. From an environmental indicator
perspective, data primarily covers the direct
impacts from Petropavlovsk’s operating
assets (Pioneer, Albyn, Malomir, the POX
Hub and support functions ) with other
administrative offices excluded due to
immateriality. Thus, GHG emissions are
recorded for operating assets only.
We will look to include emissions from
our headquarters in Moscow in future.
Non-managed joint ventures and contractors
are excluded.
1. Sustainability report working group is
established, with ownership and
accountability defined.
2. Materiality assessment is conducted using
a stakeholder engagement process.
3. HSE and social performance data is
collected and analysed, with feedback
received for the previous report from
Board, advisers and other stakeholders.
4. The report is drafted, with a focus
on materiality, transparency and
completeness, with the aim of providing
a meaningful and comprehensive update
on the Group’s sustainability activities.
The draft report then undergoes a
comprehensive internal verification
process.
5. The report and data are submitted to the
CEO and Deputy CEO for review and sign
off. External verification has been provided
by Wardell Armstrong International (more
information on page 124).
Petropavlovsk Annual Report 2019
95
Our Approach continued
Supply chain management
and responsible procurement
Responsible supply chain management is an
important part of achieving our goal of
continuous sustainable development. Our
operations are supported by a supply chain
which predominantly comprises goods and
services required for the mining, processing
and recovery of gold. Two thirds of all Group
purchases are procured for mining
operations, including fuel, explosives,
processing chemicals, milling materials and
mechanical spares and tyres. The Company
continues to strengthen relationships with
local suppliers to enhance its socio-economic
contribution to the Amur region in which its
operations are based.
We strive to work with suppliers who share
our approach to legal compliance, industrial
safety, human rights, fair employment
practices and environmental protection.
All our suppliers are required to comply with
our safety and environmental policies. In order
to prevent modern slavery and human
trafficking in our supply chain, we require our
suppliers to confirm that they have adequate
policies in place to protect against these
issues. All new suppliers are contractually
obliged to acknowledge and unconditionally
renunciate any type of slavery, human
trafficking, servile, forced or compulsory
labour, or any exploitation as legally defined.
This process is being progressively applied to
all suppliers as Group contracts continue to
be renewed.
Supplier assessment is carried out according
to an internal system based on financial, legal,
social and environmental principles
developed and approved internally. Various
structural divisions throughout the Group are
involved in the procurement and supplier
selection procedures, thereby ensuring a
multi-dimensional approach and a thorough
screening process. Once the supplier meets
our requirements, we strive to conclude
long-term and mutually beneficial contracts,
whilst continuing to monitor all existing
suppliers on a regular basis. An audit of
suppliers by the Company’s internal audit
team is a part of our ongoing risk
management process, with reports being
provided to the Audit Committee.
We strive to make the supply chain
management process as transparent as
possible. The Group maintains open channels
of communication with its suppliers and
encourages them to raise any issues or
concerns that arise in the conduct of their
business.
Suppliers of hazardous substances and gold
concentrate are subject to special controls to
ensure that their activities comply with all legal
standards and responsible business practices.
Petropavlovsk recognises its ability to have a
positive socio-economic impact in the Amur
region, particularly with regards to local
procurement. We therefore give preference to
regional suppliers and continuously strive to
strengthen relationships with them. In 2019, we
conducted business with over 2,000 suppliers
of various sizes operating in 79 regions of
Russia. 41% of procurement was derived from
local1 suppliers, with other 43% being delivered
primarily from other regions of Russia.
International suppliers are included in ‘Others’
category as their contribution is not significant.
Geographic location of suppliers
Region
Moscow
Amur region
Khabarovsk region
Others
%
16
13
28
43
Customers and markets served
Our gold and silver bars are mainly sold to
Russian banks and 100% of our total sales
in 2019 were in bullion form. All processes
comply with applicable national and
international regulations. We ensure full
compliance with Russian regulations in
product quality, shipment and transportation.
We have never received any significant fines
for non-compliance with laws and
international regulations relating to the use
and provision of products and services.
Sustainable Development Goals
As part of our commitment to align our
business with global initiatives in the area of
sustainable development, Petropavlovsk
joined the United Nations (UN) Global
Compact on 18 December 2019.
The UN Global Compact is a call to
companies to align their operations and
strategies with ten universally accepted
principles in the areas of human rights, labour,
environment and anti-corruption (The Ten
Principles), and to take action in support of
UN goals and issues embodied in the
Sustainable Development Goals (SDGs).
The Ten Principles of the UN Global Compact
provide a common ethical and practical
framework for our corporate social
responsibility, whilst the 17 SDGs represent
aspirational, long-term targets for business
and other stakeholders to work in
collaboration towards creating the better
world for all. Together, the Ten Principles and
the Global Goals will guide our values and
vision to help us make the biggest
contribution possible to people and planet.
In 2019, following the process of principled
prioritisation of the SDGs in alignment with the
Ten Principles, we identified the goals where
we consider the Company has the best
opportunity of maximising its positive
contribution, while minimising its negative
impact. The findings were presented to the
senior management and the members of the
SS&W Committee who discussed the
importance of instigating relevant targets and
disclosing the Company’s efforts in driving
positive changes among our stakeholders.
While Petropavlovsk recognises the
importance of all 17 SDGs and aspires to
making a contribution to all goals in future, in
2019 our focus was devoted to the five goals
outlined below.
In 2020, while continuing our efforts in
contributing to the SDGs, we will collect and
analyse the data that will allow us to select a
set of performance indicators which clearly
link to the identified targets in order to
measure our progress.
1 ”Local” in this context is considered to be those from the
Amur ad Khabarovsk regions.
96 Petropavlovsk Annual Report 2019
SDG
Ensure healthy
lives and promote
wellbeing for all at
all ages
Ensure inclusive
and equitable
quality education
and promote lifelong
learning opportunities
for all
Ensure availability
and sustainable
management of water
and sanitation for all
Build resilient
infrastructure,
promote inclusive
and sustainable
industrialisation and
foster innovation
We maintain healthy
workplaces at all times and
promote wellbeing among
all our stakeholders:
– Stringent approach to
safety management, with
zero harm commitment;
We aim to make a
meaningful contribution to
education and learning in the
Amur region by providing
professional training
opportunities and assisting
local educational facilities:
– Providing access to
quality healthcare for all
our employees;
– Additional support
through financing the
treatment at specialised
health centres;
– Availability of sport
facilities at each mine;
and
– Organising and
sponsoring various
sports events for
employees and local
communities.
Read more on page 109.
– Advancing science,
technology, engineering
and mathematics (STEM)
education through our
Pokrovskiy Mining
College – a unique
educational institution
funded by the Group;
– Ensuring equal access to
education and training for
our male and female
employees;
– Providing facilities and
resources for higher
education and vocational
education institutions;
and
– Supporting high schools
by delivering career
guidance and providing
learning opportunities.
Petropavlovsk contribution
We continue to investigate
and bring into operation
new, underground drinking
water sources which can
be used both by our
operations and the local
community, and strive to
minimise our impact on
water resources:
– Closed circuit water
supply leading to zero
water discharges;
– Three-stage treatment of
wastewater, involving
BioDisc- and UV-
equipment - with reuse
for operational purposes;
and
– Exploration of
underground drinking
water deposits to supply
our mines and local
communities with
drinking water.
10 drinking water
deposits have been
discovered since the
inception of the Group.
We are developing
infrastructure for the stable
operation of our mines and
the sustainable
development of local
settlements:
– Increasing transport
accessibility in remote
areas;
– Bridge repair and
construction;
– Construction of bypass
roads between our mines
in order to minimise the
impact on local
settlements;
– Investment in new gold
mining and processing
technologies and R&D;
and
– The establishment of
innovative research
centres, institutes and
training organisations
within the Group.
Read more on pages 56
and 108.
Read more on pages 102
and 105.
Read more on pages 107
and 114.
Protect, restore and
promote sustainable
use of terrestrial
ecosystems, sustainably
manage forests, combat
desertification, halt and
reverse land degradation
and halt biodiversity loss
We are committed to
protecting forests and
restoring biodiversity:
– Environmental Impact
Assessments conducted
for every operation as
part of permitting
process;
– All operations are
certified as ISO 14001
compliant;
– Forest protection,
including forest fire
protection campaigns;
– Re-forestation
programmes;
– Complex land
reclamation programme;
and
– Fish release
programmes.
Read more on page 118.
Petropavlovsk Annual Report 2019
97
Our Approach continued
Our sustainability progress in 2019 and future plans
Objective
2019 goals
Status
Performance
2020 goals and plans
Health & Safety
Safety
performance
improvement
Reduce LTIFR at
each mine
Health &
Safety
framework
development
Review and update
H&S Policies to
ensure safe working
at POX Hub
Safety culture
development
Conduct safety
campaign to raise
awareness
Corporate Social Responsibility
Stakeholder
relationship
building
Increase bilateral
communications
with the workforce
Increase bilateral
communications
with the community
Further strengthen
the relationship with
indigenous
communities
CSR
Framework
Development
Adopt Speak-up
and Anti-Bribery
Policies aligned with
international
industry standards
Align grievance
procedure with
international
industry standards
●
●
●
●
●
●
●
●
Environmental management
Energy
efficiency
Harness innovation
for further
improvements
Water
management
Maintain zero water
discharge
Emissions
reduction
GHG intensity
reduction
●
●
●
● Achieved
● In progress
98 Petropavlovsk Annual Report 2019
Significant decrease in LTIFR across all mining
operations: Group LTIFR improved by 36% to 1.61.
Improve or sustain the Group LTIFR
of 1.61.
POX Hub H&S policies were updated to reflect the
introduction of new technologies to the Group’s
portfolio.
Further review and strengthen the
Group’s policies and standards across
all operations.
Road Safety Campaign and Slips/Trips/Falls
Campaign were conducted to raise awareness
and improve the safety culture.
Continue with Group-wide training
programme, including the specific
courses for the POX Hub developed
at the Pokrovskiy Mining College.
Board members visited all the mines as a part
of our workforce engagement programme.
An Instagram account was created to
communicate Group news to employees via
popular network service.
Three community consultations organised in 2019
and early 2020 to introduce and explain our
projects to local residents.
Six site visits were arranged for local residents.
An agreement for harmonious development of the
Ivanovskoye Evenk community signed between
Albyn mine and the Association of Indigenous
Minorities of the North of the Selemdzhinskiy
District.
Policies were developed during 2019 and adopted
in early 2020 as part of our commitment to
maintaining a culture of openness across all the
Group and ensuring the highest standards of
probity and accountability.
Develop direct engagement channels
between management and personnel
as a part of employee satisfaction
monitoring.
Enhance opportunities for open
dialogue by holding community
consultations.
Conduct further social impact
assessments at our operations.
Review and update our local
communities strategy.
Conduct an information campaign,
throughout the Group to ensure all
employees are aware of their rights
and responsibilities, and to encourage
them to report any concerns regarding
malpractice.
Completed implementation of the grievance
procedure, aligning the mechanism with ICMM
Principles.
Review current Code of Business
Conduct and Ethics and implement
any required updates.
Implemented Waste Heat Recovery (WHR) system
at the POX Hub.
Further upgrade WHR system in order
to supply heat to the shift camp.
Zero discharge to surface and underground
water bodies, verified by sample analysis.
13% reduction in GHG emissions intensity
achieved.
Maintain zero water discharge.
Reduce GHG emissions intensity by at
least 1% and formalise our medium-
and long-term targets.
Corporate Social Responsibility
Uliana Levanova Head of Welfare and Community Liaison
“We are very proud of our enthusiastic, innovative and diverse team and continue to invest
in their development. We are pleased to have been able to maintain positive and
constructive relationships with our local communities and are honoured to be able to make
a meaningful contribution in the form of employment opportunities, education, support
and assistance.”
Key facts 2019
30%
Of employees occupying senior, executive
and mid-level management positions across
the business are female
62 hrs
On average training and education at the
Pokrovskiy Mining College1
20%
Increase in the number of employees involved
in mentoring programmes
We regard our people as our most valuable
asset and are committed to responsible
employment practices, by promoting the fair
treatment of our workforce, providing equal
opportunity, preventing discrimination and
upholding human rights , including our
workers’ rights to exercise freedom of
association or collective bargaining.
We believe that attracting the best talent and
maintaining an inspired, driven and enthused
workforce with a strong culture, underpinned
by our values of responsibility, innovation,
integrity, excellence and sustainability is
essential to our future success. We look to
encourage the development of our
employees by offering a high level of training
and ensuring we engage with them in an
appropriate way.
1. Scope includes employees of Amur region-based
companies
Whilst the Board oversees governance, the
SS&W Committee has overall responsibility for
the key social aspects of the business and, along
with the Board, evaluates the effectiveness of the
Company’s key social, human resources (HR)
and ethical policies and procedures. The Group
has site level HR departments at all our
operations who report to their respective General
Directors. They, in turn, report to the General
Director of MC Petropavlovsk, who sits on the
Executive Committee and can ensure an
effective line of communication of all social issues
up to Board level.
Ethics and human rights
Petropavlovsk operates with a strong
emphasis on governance and ethical
behaviour, underpinned by our culture
and values. As a signatory of the UN Global
Compact, we are committed to upholding
the human rights of all our stakeholders,
including employees, suppliers, contractors
and partners and have a policy of fair dealing
and integrity in place. We have developed a
Code of Business Conduct and Ethics
(the ‘Code’) which sets out our principles
applicable to our employees and stakeholders.
A comprehensive training programme is
currently being developed to ensure that all
aspects of the Code are understood and
embedded in the Group’s culture.
In addition to the Code, the main policies
and procedures we have in place in order
to address human rights are:
– Annual publication of Modern Slavery
Statement, with on-line training provided
to employees in both Russia and London
in 2019;
– A Grievance mechanism for all our
stakeholders, which has been implemented
in line with the UN Guiding Principles on
Business and Human Rights;
– Continuous engagement with our all our
stakeholders; and
– HR policies in compliance with the
requirements of the Russian Federation.
Anti-corruption
Petropavlovsk is committed to preventing
corruption and the consequences of such
actions. All anti-corruption initiatives are
implemented with the direct support of the
company’s top management. All related
matters are closely monitored by the
Executive Committee and discussed in
regular meetings. The responsibility for
ensuring enforcement of any decisions is
taken by the CEO, who then formally reports
on this to the Board of Directors.
The Group has adopted certain policies and
procedures to prevent, combat and reduce
bribery and corruption and to reinforce its
zero-tolerance approach. These include a
Group-wide Anti-Bribery Policy, a Speak-up
Policy (which provides detailed guidance on
how employees can raise ethical concerns),
a Standard Procedure for Processing
Transactions, as well as internal controls for
the implementation of related Federal Law.
A clause aimed at preventing corruption is
also included in the Code.
We have an explicit clause regarding anti-
corruption within our contractual terms with
all our suppliers, formulated in line with our
Anti-Bribery Policy. No violations of anti-
corruption legislation were identified in 2019.
In 2018, a grievance mechanism was initiated
to enable employees and other stakeholders
to raise any ethical concerns. No cases of
unethical behaviour were reported through
this channel in 2019.
We have various plans in 2020 to further
strengthen initiatives in the business,
including:
– Detailed implementation of Anti-Bribery
Policy, approved by the Board in the
beginning of 2020, throughout the
Company’s departments;
– Introductory briefings on the inadmissibility
of corruption actions for employees and
contractors; and
– Anti-Bribery training.
Petropavlovsk Annual Report 2019
99
Our People
Our workforce
We aim to employ local residents wherever possible and we are proud of the fact that this enables people
to find opportunities close to their hometowns in relatively remote areas of the Russian Far East. The vast
majority of our workforce (65%) is from the Amur region, many of which mastered professions in mining
and metallurgy at our Pokrovskiy Mining College.
Diversity and equal opportunity
Petropavlovsk is committed to operating as
a responsible employer, both by promoting
the fair treatment of its workforce through
equal opportunity, and by the absence of
discrimination required under both Russian
and UK law. The Group considers
professional qualities of employees and is
committed to providing equal opportunity
to all, regardless of gender, ethnicity, race,
disability or sexual orientation.
We are proud of the gender diversity
demonstrated amongst our broader
workforce, with around a quarter of our
employees being female. The ratio of women
in senior and executive positions across the
business is higher still, reaching 35% in 2019.
Ksenia Maltseva Chief Technology Officer
We are proud of the
many women we
have in positions that
traditionally have
been occupied by
men in the Russian
mining industry.
Ksenia Maltseva
embodies the
development opportunities available to
women at Petropavlovsk. Ksenia has
recently returned to work after maternity
leave and, given her position as Chief
Technology Officer and Chief Engineer of
Pioneer RIP Plant-2, she will be deeply
involved in the commissioning of Pioneer
flotation unit.
Rashida Mustafina Operator-technologist
Rashida lives in
Kazakhstan, where
she previously
worked at a copper
refining factory.
She holds two
diplomas of higher
education, in
metallurgical
engineering, and economics. She first arrived
at our POX Hub in February 2019, brought
here by her interest in being a part of the most
advanced operation in gold mining.
“After graduating from Tomsk Polytechnic
University in 2007, I moved to the Far East of
Russia and started as a hydro metallurgist at
Pioneer - my first and only place of work.
I then moved into the position of shift
foreman and was promoted to production
manager at RIP Plant-1. In 2013, having
been directly involved in the construction
and commissioning of RIP Plant-2, I was
appointed as its Head Engineer.
I must admit, at first it was challenging,
especially being new to an executive position,
with responsibilities for all operational issues
at the plant. I was able to rely on my prior
experience and my authority, which I had
nurtured and earned over time by working in
different positions at Pioneer throughout my
career – all of which enabled me to
successfully lead a large team.”
“It’s now been almost a year since I started
working at the Pokrovskiy Hub. The main
difficulty for me was getting here as it takes
two and a half days by plane or six days by
train. However, I do not regret a single minute
about my decision. Working in the mining
industry feels like my predestination, but the
POX Hub is more than mining. It represents
cutting edge technologies. I like everything
here - the operation, people and our team.
I like being responsible for many issues,
including safety procedures, reagent
consumption rate, and so on. Before starting
work, I was trained in-house, mentored, and
then started working on my own.
The autoclave does not divide people
according to gender. Here it is experience
and professional qualities that matter.”
100 Petropavlovsk Annual Report 2019
Petropavlovsk employees*
by age and gender
4,331
25.6%
74.4%
2,781
25.4%
74.6%
1,958
22.5%
77.5%
<30 YO
30-50 YO
>50 YO
Male
Female
Petropavlovsk employees* by region of
residency
Amur region (65.3%)
Other regions of the Far
East of Russia (25.7%)
Other regions of
Russia (8.7%)
CIS countries (0.1%)
UK (0.2%)
Petropavlovsk employees* by function
6,376
1,777
917
Workers
Qualified
employees
Management
* reporting scope includes Amur region based companies,
Moscow and London offices, Irgiredmet, Hydromellurgy,
PHM-Engineering.
27 people with disabilities are employed by
the Group, with necessary adaptations made
to working environments where required.
Employee communication
Employee engagement is facilitated via
multiple channels, including the internal
‘PokrovkaPlus’ newspaper, which is delivered
in both digital and print formats to ensure the
involvement of any employees on site with
limited computer access. The newsletter is
also circulated to local residents and provides
an important tool for responding to any
community questions, with input in the
publication from internal professionals with
specialist knowledge of the subject in question.
Social media constitutes an important
engagement tool, with a Company Facebook
and Instagram account in operation. Employee
feedback can be director to HR departments
and the Head of Welfare and Community
Liaison via e-mail or telephone. 120 such
enquiries were made in 2019, with the most
frequent topics being education and training
opportunities, arrangement of the 25-year
Company celebrations and requests for
assistance in difficult personal circumstances.
Employee satisfaction
Turnover rate
2019
2018
33.1%
34.9%
We consider employee turnover to be one
of the indicators that demonstrates our
progress in building long-term relationships
with employees. In 2019, we had a decrease
in turnover of 1.8% compared to 2018.
Whilst, we still consider current turnover
rates to be quite high, we are pleased with
the downwards trajectory. We believe that
instability has been the main factor
contributing to the high turnover of our
employees in recent years. However, we have
now passed a turning point by bringing the
POX project into operation, providing a stable
future for our mines. In addition to this, the
original chief operational team has now
returned to successfully complete this project,
thereby boosting morale and confidence.
Turnover rate is lowest in our offices, among
management personnel and engineering and
technical workers. Turnover is highest amongst
workers on long shifts (30 consecutive days),
especially those at our most remote mines.
Whilst Company loyalty is high amongst many
of our employees, with over one third of our
workforce having been with Petropavlovsk for
more than five years, we recognise that we
need to address turnover rates and are
committed to reducing these to 25% by 2025.
In 2020, we plan to introduce a survey for
those leaving the Company in order to better
understand the turnover issue. We will also
conduct surveys throughout the year to
monitor employee satisfaction, gather
feedback and better understand material
issues for our employees.
Employment practices, competitive
remuneration and benefits
All employees are issued with contracts
detailing their working hours, paid annual
leave and other guarantees, in line with
Russian or UK legislation (as applicable).
In Russia, the Group operates in accordance
with the Constitution of the Russian
Federation, which details the rights and
freedoms of citizens.
Petropavlovsk provides competitive
remuneration to its employees, with our
minimum salaries exceeding regional
minimum wage by 83% and our average
wages being 32% above the national
averages. Both average and minimum
Petropavlovsk wages increased both in
Roubles and in US$ when compared to
2018. In order to motivate and encourage
our workforce, the Group also has variable,
performance-based components to
remuneration, which is available for all
employees who have worked for the Company
for over one year. The performance-based
component amounts to 20% of the wage,
with two types of bonuses, one is paid over
the period of one month (for employees of
the month), and the other is paid over a period
of one year (for employees of the year).
The share of workers allotted with the wage
bonus increased from 1,933 people (22%) in
2018 to 2,252 people (26%) in 2019.
Eligibility for performance-based bonuses is
dependent on having no violations of work
discipline and health and safety rules.
Social benefits, such as pensions, maternity/
paternity leave, and employee assistance
programmes are provided by Petropavlovsk.
212 female and 5 male employees took
parental leave in 2019. The Group also pays
for the employee assistance programmes
which fund one-off payments in the case of
childbirth, marriage, and medical treatment,
funeral costs for close family, financial
difficulties and natural disasters. In 2019,
1,072 employees received such assistance.
Non-compensation benefits for our employees
includes health resort treatment and in 2019,
198 employees received holiday packages,
with 164 employee children receiving vacation
packages for summer camps.
Petropavlovsk* minimum and average salaries vs. regional and national average, US$ per month
Average salary in Russia
Average salary in Amur region
Petropavlovsk average salary
Minimum salary in Amur region
271
Petropavlovsk minimum salary
*Amur region based companies only.
496
659
688
872
Petropavlovsk Annual Report 2019 101
Our People continued
Living conditions and leisure
opportunities at our accommodation
camps
Shift patterns are organised in such a way as
to promote uninterrupted operations, but also
to allow employees to perform their duties
whilst providing for family commitments.
These patterns are usually either 14, 30 or
45 days at the mine with subsequent leave
of the same duration. Whilst on duty,
employees live on site in comfortable, hotel-style
accommodation with access to leisure facilities.
At all Petropavlovsk mines, there are gyms,
as well as outdoor sport courts for our
employees to keep fit. Sports tournaments
are held regularly in cross country running,
chess, darts, volleyball, table tennis and
football. In 2019, more than 500 people,
including employees, contractors and interns,
took part in a variety of sports tournaments.
Employee education, training and
development
Employee education and development are
critical not only to the Company but also to
the mining industry as a whole and we take
our responsibility to providing development
opportunities seriously. We see this area of
the business as vitally important not only to
ensure that our workforce has the correct
level of skills and abilities but also consider
it to be an important way of improving
employee retention by continuously furthering
the careers of our people. We take pride in
our ability to innovate and therefore focus on
providing a high level of technical training.
We have systems in place within the HR
department to assess the skills and
educational requirements of our workforce
and encourage our employees to constantly
further their abilities and meet professional
goals and ambitions. More than 23% of our
employees hold university diplomas, with
another 19% having obtained professional
education. All employees, regardless of their
education level, are trained and have access
to in-house educational opportunities at the
Pokrovskiy Mining College to master new
skills and technologies.
Established in 2008, the Pokrovskiy Mining
College is well equipped, has a modern
campus and highly qualified teachers. This
private, non-profit, innovative educational
institution offers a wide range of in-house
training courses, which include:
– Secondary education (training of mid-level
specialists, skilled workers and employees);
– Additional education (retraining for a new
activity, advanced training); and
– Professional training (with over 40
programmes available – ranging from
analytical chemistry to electrical fitting.
Improving living conditions for our employees at the accommodation
camp at Pokrovskiy
The launch of the POX Hub extended the life
of the Pokrovskiy mine for decades and, in
the summer of 2019, a renovation project
started at the oldest accommodation camp,
where some of the earliest buildings were
constructed more than 15 years ago.
Commenting on the importance of the
refurbishment programme, Anatoly Lapa,
head manager of the POX camp said: “The
operation is expanding, and new employees
and contractors are coming to site; many of
whom are of the younger generation.
Comfort is very important to them and
therefore, if we want to attract this
generation, it is important that we take
account of their feedback and do our best to
accommodate their requests. Some
employees spend almost half of their time in
our camps and therefore we are committed
to ensuring they are as comfortable as
possible.”
During the summer, four buildings were
renovated and we plan to complete
refurbishments to all other buildings in 2020.
This involves rewiring, carrying out cosmetic
repairs, replacing wooden windows with
plastic frames, and sheathing external walls.
– In 2019, over 2,600 employees were trained
and educated at the Pokrovskiy Mining
College, with the majority of these people
coming from Pokrovskiy and Pioneer. A key
training programme carried out during the
year focused on POX Hub safety.
Mentoring and work experience
programmes
With a balanced distribution of ages amongst
our workforce, we have good opportunities
for mentoring and transfer of optimal work
practices. Mentoring programmes are
designed to pass on work experience,
knowledge, as well as corporate culture from
our employees to those joining the Company,
and to facilitate the induction and adjustment
process. Mentoring programmes are also a
part of vocational training for the students of
our Pokrovskiy Mining College, as well as for
university students and graduates during their
internship with the Company. Employees
acting as mentors are paid a bonus salary
and, in 2019, 196 employees were involved in
such programmes, representing a 20%
increase from 2018.
In 2019, 217 students from Russian
universities completed internships at
Petropavlovsk, where they acquired a
practical understanding of a modern mining
enterprise operation. Many of these will return
to the Company upon graduation.
Our employee level of education
Upper and compulsory secondary (44.8%)
Elementary professional training (12.7%)
Professional/Vocational education (19.4%)
University degree (23.1%)
102 Petropavlovsk Annual Report 2019
Collaborating with suppliers to improve training
In the summer of 2019, Petropavlovsk,
together with Caterpillar, organised a
professional skills contest among mining
equipment operators (dump truck drivers,
bulldozer and excavator operators).
The winners in each of the three categories
were rewarded with a trip to Spain to visit
the Caterpillar demonstration and training
centre in Malaga. All the winners are
experienced operators, who had been
with the Company between 6 to 10 years.
In Malaga, Petropavlovsk operators were
given a tour of all the demonstration and
training facilities. They were given the
opportunity to become acquainted with
Caterpillar technologies and programmes for
monitoring road safety, obstacle detection,
as well as new technologies the Company is
planning to implement. Petropavlovsk
employees provided valuable feedback on
operating Caterpillar machinery in the harsh
weather conditions of the Russian Far East.
In 2020, Petropavlovsk and Caterpillar are
planning to hold the competition again, and
add additional stages, so that as many
operators as possible have the opportunity
to take part and test their professional skills.
Trade Union and freedom of association
We believe that upholding workers’ rights is a
fundamental way of maintaining an engaged
and committed workforce. We recognise the
rights of our employees to join a Trade Union,
to bargain collectively or to engage in Trade
Union activities.
A Trade Union was formed by Pokrovskiy
employees and a Collective Bargaining
Agreement (covering all employees, including
those who are not unionised), between the
Trade Union and the Company, was signed
in 2006 for an initial duration of three years.
Since then it has been renewed four times,
with the most recent ratification in 2018.
Today, 1,599 employees are members of
the Trade Union, consisting of 1,021 males,
and 578 females. In a continuation of the
Group’s historical record, no strikes occurred
during 2019.
In February 2020, the Board of Directors
adopted a Freedom of Association Policy,
officially recognising the rights of our
employers and workers to join or create an
employee organisation such as a trade union,
a worker association, a worker council or
committee for the promotion and defence of
occupational interests of their choice, without
negative consequences to them. This also
includes the freedom not to be forced to join
any of these groups.
Petropavlovsk operates in Russia, which has
ratified the International Labour Organisation’s
Convention No. 87 (Freedom of Association
and Protection of the Right to Organise, 1948)
and Convention No. 98 (Right to Organise
and Collective Bargaining Convention, 1949).
In accordance with the laws of the Russian
Federation, all employees are free to join or
not join a Trade Union.
As such, we do not consider there to be a risk
within the Group for workers’ rights to
exercise freedom of association or collective
bargaining to be violated or at significant risk.
Photo by Pospelov Production
Petropavlovsk Annual Report 2019 103
Our People continued
Petropavlovsk celebrates its 25-year anniversary
Award ceremonies, concerts, sporting and
entertainment events were held at all of our
mines in July 2019 to celebrate 25 years
since the Group’s foundation.
Longstanding employees, who have been
working at Petropavlovsk for more than 5,
10, 15, 20 and 25 years respectively,
received medals and salary bonuses.
Employees and their children were invited to
take part in creative competitions, producing
drawings, music compositions and videos to
mark the occasion. One such video was
shot by employees of the Pokrovskiy mine,
and featured over 150 of our colleagues.
Singing and dancing groups performed at
Pokrovskiy, one of our mines, which was
brought into production in 1999. The
following day, the groups visited Pioneer,
where families of our employees living in the
nearby villages, were invited to the concert to
watch their relatives being rewarded for their
dedication to the Company.
Employees at Albyn also organised several
vocal and dance groups and performed
along with local children from the area in
Zlatoustovsk.
A large celebration ceremony was held in
Blagoveschensk, with all those present
congratulated by the Group CEO Pavel
Maslovskiy and an award was presented to
the most highly commended Petropavlovsk
employee. City and regional government
officials thanked our employees for their work
and praised their invaluable contribution to the
economy of the Amur region.
104 Petropavlovsk Annual Report 2019
Local Communities
Community engagement
Building long-term relationships with local communities and local residents is important to us and we aim
to engage in an open and transparent manner. We have various channels through which we can seek
community feedback and disseminate information about the Company, including the ‘PokrovkaPlus’
newsletter, social media accounts, as well as our Head of Welfare and Community Liaison.
Key facts 2019
US$1.6 million
Of social investment
65.3%
Of our employees are from the Amur region
174km
High-voltage power line built in cooperation
with the Government
We are committed to maintaining our ‘social
licence to operate’ and are aware of our duty
to engender and maintain the acceptance
and approval of our local stakeholders.
Recognising our responsibility to make a
meaningful socio-economic contribution to
the communities in which we operate, we
have various tools in place to enable us to
provide support and assistance. One of the
most obvious inputs is the employment we
offer (covered on pages 100 to 101), but in
addition to this we look to support the
community through education (both at our
College and also by providing assistance to
educational institutions), other financial
assistance through the Petropavlovsk
Foundation, preferential local procurement
and the provision of local infrastructure.
We value open and transparent engagement
with our local stakeholders and look to uphold
cultural traditions and respect indigenous
communities.
The SS&W Committee is ultimately responsible
for this area of the business, however we also
have a Head of Welfare and Community
Liaison who is tasked with day-to-day
supervision and there is significant executive
management input, with the General
Managers at each mine administering the
Company’s social initiatives in the local
communities and allocating the budget.
The General Director of MC Petropavlovsk is
responsible for establishing overall budgets for
the community development projects and
approving key areas of focus, both are which
are subject to approval by the CEO.
We value open and transparent engagement
with our local stakeholders and look to uphold
cultural traditions and respect indigenous
communities. Local community engagement
is carried out at all our operations and we
have various tools in place to facilitate this.
Environmental Impact Assessments (EIA) are
performed at all projects, with results
disclosed in the public arena. Community
development programmes are in place at
each of our projects, based on local
stakeholder requirements, with further
information available on pages 105 to 108.
We review socio-economic data and statistics
in order to further evaluate our approaches to
community contribution.
Various community consultations and site
visits were organised in 2019 to facilitate open
dialogue with local residents, NGOs and
regional and municipal level officials.
A significant proportion of the local community
attended these public consultations, with all
information and data made available to
attendees in advance of the meeting.
At the beginning of the year, residents of
the Selemdzhinskiy District were consulted
regarding the expansion of hydrotechnical
facilities at Albyn. Questions arising during
the meeting centred around the stability of
the facility during emergency situations,
construction safety. In December 2019,
Petropavlovsk held public consultations
in Ekimchan village to discuss the EIA of
underground development of the Malomir
Quartzitovoye pit. Company representatives
gave local residents and other stakeholders
an in-depth description of the technical
features of the project. They key focus of
the discussion was on the environmental
safety review.
We have a Group-wide grievance mechanism
in place covering all operations, which
enables members of the public and other
stakeholders to raise complaints or issues
concerning the Company’s activities and to
be assured that these complaints will receive
due consideration and a written response.
The introduction of the system was approved
by the Board of Directors and implemented in
2019. Any complaints are registered online
(with high internet connectivity in the Amur
region enabling this process); only one was
posted in 2019. We have therefore planned an
information campaign in 2020 to raise
awareness of the service and plan to trial and
expand the number of communications
methods in order to optimise the procedure.
Providing educational support in the
Amur region
We are proud of the training we are able to
facilitate not only for our employees but also
for community members. By facilitating
technical education, we not only contribute
to the socio-economic environment but also
develop a pipeline of local talent for the
Company. School graduates in the Amur
region have access to mining education at
our Pokrovskiy Mining College, where study,
tuition and accommodation are free for
students for the duration of their training,
and those who demonstrate outstanding
results receive a stipend.
In 2019, 34 students graduated in mining
and electrical equipment maintenance and
12 people received training as mid-level
specialists in analytical chemistry. All of
these former students are now employed
by Petropavlovsk. Training at our college
is becoming increasingly prestigious and
competitive, with five applications for every
entrant in 2019.
Petropavlovsk Annual Report 2019 105
Local Communities continued
Community site visits
Russian Federation aimed at guaranteeing
the rights of Indigenous people.
As a part of Petropavlovsk’s commitment to
respect and form long-lasting relations with the
Indigenous Community, Albyn mine signed an
Agreement with the Association of Indigenous
Minorities of the North of the Selemdzhinsky
District in 2019, legally represented by its head
Sergey Nikiforov. Under this agreement
Petropavlovsk has committed to assisting
in the development of the local community.
This is an important step both in terms of the
basis of the Agreement but also the cooperation
it demonstrates and the engagement and
dialogue with the community it enables.
The Agreement provides the Evenk community
with a transparent framework that enables
them to identify their priorities and plan the
community’s development.
This forms part of Petropavlovsk’s policy to
support Indigenous communities in their
effort to save their native language and pass it
on to the next generations. By supporting the
socio-economic development of the village,
we aim to improve quality of life for the Evenk
community. In November 2019, the Company
sponsored the participation of schoolchildren
from Ivanovskoye village and their teacher in
the ‘Turen-2019’ conference, dedicated to the
language and culture of Russian Evenks and
the Orochons of the Northern China.
Petropavlovsk also has a partnership with
leading universities in the Amur region. For
example, we partner with the Faculty of Natural
Sciences of Blagoveschensk Pedagogical
University on the education of qualified staff for
the Group’s analytical laboratories. The faculty
celebrated its 85th anniversary this year, and
was presented with computers and laboratory
equipment by the Company.
Supporting indigenous communities
Our Albyn mine is located approximately
20km from Ivanovskoye village, with a
population of c.370 people, the majority of
which are Evenk, an Indigenous people of
the Amur region. This village is located in a
traditional gold mining area, where alluvial
gold has been mined since the 19th century,
and various local companies (which are not
part of the Group) continue to mine alluvial
gold in the vicinity.
We recognise that prior to the
commencement of mining at Albyn by
Petropavlovsk, past alluvial operations
have sometimes negatively impacted the
Evenk community and their surrounding
environment, without creating any meaningful
benefit for them. As one of our primary
stakeholder groups in the region, we are
committed to protecting their rights,
acknowledging that they face similar
socio-economic challenges to others in the
region but are also confronted with the unique
issue of saving their culture and traditional
lifestyle. Our approach in this regard also
aligns with legislative framework in the
106 Petropavlovsk Annual Report 2019
We organise community site visits to ensure
that local residents understand our
operations and to maintain a strong,
transparent level of dialogue with them.
In 2019, Albyn and Malomir were visited by
high school students living in neighbouring
villages. They observed operations at the
mine, visited the chemical laboratory, and
toured RIP plants and accommodation
camp. Students and their teachers enquired
about environmental protection measures,
operational performance and employment
prospects. Children were most impressed
by the Caterpillar trucks, whereas the
interest from teachers mainly centred
around the high-tech equipment used at
the chemical laboratory and at the plant.
Site visits were also arranged throughout the
year for local NGOs, industry authorities and
analysts and investors.
In 2019, Petropavlovsk also supported the
Evenk community to facilitate their traditional
reindeer herding. There were no incidents of
violations involving rights of Indigenous
peoples in 2019.
Petropavlovsk Foundation
Petropavlovsk provides direct support to local
communities through the Petropavlovsk
Foundation. Established in 2010, the
Foundation invests in programmes aimed at
encouraging socio-economic development,
improving the quality of life for local
communities and maintaining a positive
socio-cultural environment. Support is
informed by the local community
development programmes at each of our
operations which is based on local
stakeholder needs.
The Foundation’s social projects fall under 6
strategic areas:
– Education;
– Future generations (child development);
– Research and development;
– Culture;
– Quality of life; and
– Sport.
Key projects in 2019
In 2019, the Petropavlovsk Foundation continued to support social and educational institutions, regional NGOs, and significant public
initiatives throughout the Amur region. Some of the key areas of support we offer through the Foundation are as follows:
Childcare and school
facilities
The creation of modern and safe conditions for pupils in preschool and educational institutions of the Amur region is one
of the significant areas of work of the Petropavlovsk Foundation.
Sport
In 2019, we took part in providing drinking water to nurseries in the Mazanovskiy district, which suffered from a massive
flood in the Amur region in the summer of 2019. Water in the village is supplied from drill holes and wells, however, lab
tests showed that it was not suitable for drinking. The Petropavlovsk Foundation acquired the necessary equipment for
water treatment. The clean water was secured, and the nurseries opened their doors. Another project in 2019 involved
buying playground equipment for schoolchildren in Tygda village, where many Pokrovskiy employees live.
In order to develop grassroots children’s football in the Amur region, the Petropavlovsk Foundation continued its
cooperation with the Amur regional Children’s Football League. We contributed to an international tournament,
local competitions among football teams, advanced training courses for coaches and master classes with professional
football players. Over 500 children benefited from the programme. In 2019 the Foundation conducted the ninth
annual Open Petropavlovsk Cup football tournament. Amateur athletes from Amur villages competed, as well as
Petropavlovsk team.
Culture and history
The ‘Albazino Expedition’ project was supported by the Foundation, aiming to facilitate research and development of the
historical and cultural heritage of the Amur region.
Petropavlovsk Annual Report 2019 107
Local Communities continued
“The Albazino Expedition” A Cultural and Historical Awareness Project
In 2017, the Petropavlovsk Foundation
was awarded a Presidential Grant for
Non-Governmental Organisations worth
RUB1.7 million, which was used to film a
historical documentary called the “Albazin’s
legacy” charting the discovery and
subsequent development of Siberia and
the Russian Far East by early Russian
explorers, including the founding of
Russia’s first city on the Amur River in
the XVII century and the Albazin fortress.
Through documenting the unique cultural
heritage of this region, the project has greatly
benefitted school children and the wider
community, and an exhibition of various
findings and artefacts from the project is
also on display in Moscow at the Streletsky
Chambers museum following its opening at a
ceremony attended by Vladimir Medinsky, the
Minister of Culture for the Russian Federation.
The documentary has been made
available on YouTube in Russian with English
subtitles (www.youtube.com/watch?v=-
gz95mpL0_w&feature=youtu.be) and has
been shown at venues across the Far East,
including the Amur Autumn film festival in
2018, the History department of the Russian
Academy of Sciences and the Streletskie
Chamber Museum in Moscow. It has also
been sent to all schools and Universities in
the Amur region where feedback has been
overwhelmingly positive, particularly from
schoolteachers.
Given the success of the project, the
Foundation considered it logical to talk about
the next important stage in the history of the
region, when the territory became part of
Russia again in the mid-19th century.
At the end of 2018, the Foundation again
won a RUB2.4 million Presidential Grant for
filming another documentary focusing on
this period.
The Foundation also published a book in
2019 spanning 500 years of the region’s
history in collaboration with Novosibirsk
University and using materials from the
filming of the Albazin Expedition.
In 2020, the Foundation plans to publish a
book for children about the history of the
Russian Far East, make a new documentary
film and exhibit items found during the
making of the Albazin Expedition.
Contributing to infrastructure and
quality of life
Some of our operations are located in remote
areas, with inherent transport and accessibility
issues, specifically in the northern
Selemdzhinskiy district. Petropavlovsk actively
invests in the construction of infrastructure,
which is instrumental to the development of
our projects but also significantly improves the
quality of life for local residents. Ways in which
we are able to contribute to local infrastructure
through the sharing of our services include:
– Funding and constructing road networks,
including the car and pedestrian bridge
across the Karaurak River, built by
Petropavlovsk for a cost of RUB13 million
and opened in 2019;
– Allowing emergency services and services
such as sanitation and forest protection to
use our helipads, thereby enabling quick
and qualified assistance to residents of
remote areas; and
– The construction of a high-voltage
power line in 2019 in cooperation with
Government, providing our enterprises
(including the Malomir flotation line) and
local villages with a reliable electricity
supply. The 220 kV, 174km long
transmission line (February-Rudnaya) and
a 220 kV substation in the village of Koboldo
(Rudnaya) were successfully tested at the
end of 2019 and launched in early 2020.
Economic performance
We are aware that one of the most significant
positive contributions we can make is the
economic value we bring to our stakeholders
and the regions in which we operate. Given the
remote location of our mines and the local
socio-economic environment, this is
considered to be our most material impact
and one that we take very seriously. We are
committed to the transparent payment of
taxes, preferential recruitment of local people
with fair and favourable remuneration,
prioritised spend with local suppliers and
community-led investment and support.
Strong economic performance by the
Company directly impacts all our stakeholders
and enables us to contribute to sustainable
development and provide long-term benefits.
In 2019, Petropavlovsk distributed
US$559.2 million, which included payments
to suppliers, wages and benefits to our
employees, taxes, and US$1.6 million
invested in local community projects in
the Russian Far East.
Direct economic value generated and distributed, US$ million
Direct economic value generated
Revenue
Interest
Economic value distributed:
Operating costs (suppliers)
Payment to employees (wages and benefits)
Taxes1
Payments to capital providers2
Community investment
Economic value retained
Notes:
1 2017 figure includes $19.9 million of mineral tax accrued in 2016;
2 Interest expense net of capitalised interest;
108 Petropavlovsk Annual Report 2019
2019
744.8
741.6
3.2
559.1
313.3
131.1
53.3
59.9
1.6
185.7
2018
503.6
499.8
3.8
375.3
217.5
101.5
26.3
29.5
0.5
128.3
2017
588.2
587.4
0.8
450.7
270.8
103.6
50.1
25.9
0.3
137.5
Health and Safety
Vladimir Novikov Health & Safety Officer
“We recognise the impact on our employees of the remote locations of our operations
and the sometimes-harsh weather conditions. Therefore, our task as health and safety
management is to protect their safety, sustain their health and support them in every way
possible. I am pleased to note a strong improvement in safety performance across our
operations in 2019, demonstrating a significant achievement for all the team, with a
notable reduction in LTIFR. However, we are careful not to become complacent and look to continue
further enhancing performance going forward.”
Key facts 2019
0
Fatalities
30 hrs
On average of safety training per employee
36%
Improvement in LTIFR
Our people are central to the success of
our business and we recognise the health,
safety and wellbeing of our workforce and
contractors as one of our key responsibilities.
At Petropavlovsk, we promote a strong
culture of responsible health and safety
management and are focused on its continual
improvement. Our overall objective is to
minimise the risk of accidents and of
occupational illnesses, and to avoid fatalities.
In 2019, we continued working towards our
goal of “zero-harm”, with the safety of our
people remaining our number one priority.
Our health and safety practices are overseen
by the Board, with the Board-level SS&W
Committee meeting regularly to assess and
evaluate Occupational Health & Safety (OHS)
management systems. General Managers
at each operation are responsible for
overseeing the safety of workplaces at sites
and protecting the health of our employees.
We also expect them to set examples through
leadership and model correct behaviours.
We believe that safety is our collective
responsibility and employees at different
levels of the business actively partake
in the development of health and safety
programmes and policies. Every employee
is involved in decisions relating to collective
safety, ranging from the use of personal
protective equipment (PPE) to advanced
protective automotive systems.
Our health and safety strategy is based on
the following commitments:
– Providing a safe working environment for
all employees;
– Ensuring full compliance with the legislation
of the Russian Federation;
It is our duty to all our stakeholders to comply
with health and safety legislation and all
relevant regulations in the regions in which
we operate and we incorporate all legislative
developments into our health and safety
standards in timely manner as they arise.
Beyond this, Petropavlovsk strives to align
with industry best practice, both in Russia
and internationally.
OHS management systems are an integral
and essential part of our approach and have
been developed in line with OHSAS 18001
and based on the guidelines on occupational
safety and health management systems of
the International Labour Organisation
(ILO-OSH 2001). These guidelines are aimed
at protecting workers and contractors from
occupational hazards and minimising risks,
while improving productivity. Our health and
safety policies are applicable to all employees
as well as contractors and everyone is
informed of any amendments to procedures
as required. Our contractors are regularly
audited for health and safety practices to
encourage and improve performance; they
also take part in health and safety meetings
held on sites.
An important element of our safety approach
is the development and promotion of a strong
safety culture within the Group, based on
behavioural practice.
– Minimising the risk of accidents and
occupational illness; and
– Providing high quality, task-specific training.
Any employee at our operations is able to
effectively contact health and safety officers
either in person, using communication
devices (radio, phone, e-mail) or through their
foremen on site – whether before, after or
during the shift. This system enables workers
to come forward with any health and safety
related proposals – be that in the form of a
complaint or a suggestion to improve
conditions in the workplace. In addition,
employees are encouraged to request any
required information or clarifications on
specific health and safety guidance if they
are unsure of the relevant procedures.
OHS risk assessment
Risk management is integral to our health and
safety practices and Petropavlovsk conducts
regular and rigorous risk assessments to
ensure we protect our workforce. By requiring
our workplaces to adopt and apply a
risk-based approach, we are in a better
position to more effectively and efficiently
control the highest risk workplace hazards.
The risk assessment process consists of:
– Assessing workplace hazards and
assigning a level of risk to them;
– Controlling workplace hazards;
– Ensuring that the appropriate education,
relating to the principal risks, is provided
to the workforce through seminars and
‘toolbox’ talks as well as social media; and
– Ensuring that risk assessments are carried
out at the appropriate frequency.
Petropavlovsk Annual Report 2019 109
Health & Safety continued
Petropavlovsk collects and evaluates data on
‘near miss’ incidents in order to quantify the
risk and evaluate its frequency and impact in
order to mitigate workplace health and safety
hazards.
The most common Health & Safety risk
categories have been slipping and falling
(predominantly in winter), machine
maintenance, road transportation and
accidents occurring during loading and
unloading. Whilst these categories are still
relevant today, we have seen a declining
exposure as employees become more aware
through ongoing education.
Daily risk assessments are performed at each
stage of an employee’s work and, should any
hazard or risk be identified, the assignment is
not commenced before the risk is removed or
mitigated to the appropriate level.
Employees are encouraged to report any
work-related hazards without reprisal, and we
have a system in place to enable this, which
involves a reporting or signalling system,
whereby the employee should inform his
foreman of any identified risk. In accordance
with the specifics of the risk, the foreman then
either stops the working process until the
hazard is removed, and if necessary, engages
higher management, or, if possible, enables
the immediate elimination of the risk prior to
commencement of work. Workers may
remove themselves from any unsafe situations
until such time as the risk has been removed.
Safety training
All our employees are provided with safety
training and education and all employees,
contractors and any other visitors undergo a
safety induction upon arrival at any of our sites.
Safety refresher courses and exams are
mandatory on a six- or twelve-monthly basis
(depending on the profession). Targeted
safety training is also provided for those
carrying out tasks outside of their usual
scope of work. In the event of an incident,
investigation findings are presented to all
involved, with specialised training provided
to reinforce rules, regulations and practices.
Safety reporting
All accidents resulting in a lost time injury (LTI)
are recorded, analysed and investigated by the
onsite safety committee to determine the cause
of the accident, address issues and improve
systems to prevent recurrence. They are then
reported to the Management Company, the
Executive Committee and Board. Group
management strategies implemented at
110 Petropavlovsk Annual Report 2019
Health & Safety at the POX Hub
In line with our focus on health and safety,
the new POX Hub has a robust employee
verification security system, training,
and personnel admission. The safety
management system was developed in
order to achieve a greater level of control and
maintenance of necessary qualifications.
In 2019, employees from several specialist
functions, including the hydrometallurgical
division, and pump and crane operators,
underwent specific health and safety
training at the Pokrovskiy Mining College,
where they were awarded the necessary
certificates to continue their function or to
enable promotion into other functions.
Employees from all functions and
plant management underwent nuclear
safety training according to Federal
programmes run by leading Russian
universities. This was undertaken to ensure
that staff at the pressure oxidation plant
have the necessary radiation safety training
required under a new clause of the State
licence issued to the plant. A scheduled site
visit was made by the Federal watchdog,
overseeing radiation safety in the sector, and
the operation successfully passed the
inspection In addition, the Emergency
Localisation and Response Plan for the POX
Hub was approved by the Ministry of
Emergencies.
As part of the Group’s general OHS
programme, an annual medical examination
took place at the POX plant, which included
x-ray examinations of all plant employees to
detect lung disease or related issues. An
annual mandatory vaccination programme
was also conducted to protect employees
against the encephalitis tick, which is
prevalent in the region.
In 2020, we are planning to introduce new
software aimed at automating certain health
and safety procedures in order to minimise
paperwork and enable health and safety
officers to focus on more essential tasks at
the site.
all sites are aimed at reducing the number
accidents, leading to a lower LTIFR.
Regular internal on-site inspections are
carried out to ensure that working
environments are safe. External audits are
conducted by various Russian authorities to
confirm compliance with the legislation.
Fatalities
2019 0
2018
2017
1
3
Incident investigation and prevention
Having investigated and scrutinised the
accidents that have occurred at our operations
over the last three years by type and root
cause, we have determined the following areas
of increased focus going forward:
– Operation and maintenance of automotive
equipment;
– Road safety; and
– Slips, trips and falls.
This has enabled the initiation of a focused
health and safety programme across the Group.
Safety memorandums were circulated to
familiarise employees with incidents and
briefings and tailored training were carried out.
Corrective measures were introduced to
address each of the focus areas and targeted
health and safety campaigns continue to be
carried out to prevent reoccurrence of incidents.
Various measures were implemented in
response to the fatalities that occurred in 2018
and 2017, which included: refresher or targeted
health and safety training to reinforce the risks
and remind employees of hazards, and where
appropriate, seasonal threats. As a result of all
these measures, several HSE parameters have
demonstrated steady improvement.
A road safety campaign was conducted from
January to March 2019, which resulted in a
decrease in automotive accidents.
In 2019, US$2.6 million were spent on initiatives
aimed at improving industrial safety and
occupational health. The majority of funds
were spent on the provision of PPE, conducting
medical examinations of employees, voluntary
health insurance and on OHS training.
Emergency preparedness
In order to minimise potential risks and hazards
at our sites, the Company regularly conducts
emergency drills. These are based on
emergency preparedness plans, involve
different exercises and engage both the workers
of the mines, as well as medical specialists and
firefighting units. It is vital that everyone knows
their role and is prepared to participate should
the circumstances require. Training and
education here are of great significance.
In addition to ensuring readiness amongst the
required personnel, we need to ensure that all
machinery and equipment are in the best
possible condition. This requires adherence
to the maintenance schedule and monitoring
and control of relevant vehicles and machines
on a daily basis, as appropriate.
Emergency preparedness performance is
reviewed as part of our regular internal and
external audits.
Health
At Petropavlovsk we pride ourselves on our
commitment to providing a healthy working
environment for our employees. All our sites
are equipped with medical facilities, which are
accessible to all employees with doctors and
essential medication available. Annual medical
examinations are conducted to assess the
health of our employees, as well as provide
vaccinations. All personal data of our
employees, including that of their health
status, is kept confidential in accordance with
Russian legislation and is protected under the
Company’s confidentiality policy.
We promote a healthy lifestyle among our
employees and all sites have sports facilities,
including football pitches, volleyball courts,
table tennis tables and gymnasiums. Every
year we organise sports competitions to
boost the team spirit of our workforce and
to encourage healthy living.
Employees of pre-retirement age with
medical conditions are sent to healthcare
resorts to improve their health. In addition to
the standard state insurance which covers all
of our employees, 26% of the Group’s
employees have taken up the option of private
medical insurance, provided by the Group,
which includes outpatient, dental care, doctor
home visits and an ambulance service. 70%
of the Group’s total workforce undertook a
health examination in 2019, which is
mandatory for all operational personnel
and voluntary for the office personnel.
In accordance with Russian legislation, we
record all occupational (work related) and
recordable (non-work related) diseases
which occur at a place of work and affect
an employee’s health. The most commonly
occurring occupational diseases in the past
three years were vibrational disease, hearing
loss and radiculitis. However, the number of
cases of these and other occupational and
recordable diseases remain low with 11
having been identified in 2019.
Recently, additional diseases were introduced
into the register reflecting the wider range of
medical diagnostics, and more rigorous
medical examinations.
Measures have been taken to carry out
stricter monitoring of the effect of equipment
and impact of the work zone on employees’
health and the impact in the work zones.
Along with this, medical treatment of
occupational diseases’ is provided to
those necessitating such.
As part of our ongoing Health & Safety
initiatives, all drivers across the Group are
required to undergo a medical check-up
before the start of each shift.
Antismoking and anti-alcohol campaigns are
conducted on a regular basis in form of flyers
and ‘health talks’ during health and safety
trainings and briefings. Alcohol consumption
is strictly prohibited on site.
Petropavlovsk Annual Report 2019 111
112 Petropavlovsk Annual Report 2019
Environmental Stewardship
Vera Usova Head of Environmental Safety Department
“Petropavlovsk’s environmental specialists are enthusiasts, who are devoted to attaining
their goals. They work tirelessly to protect our natural environment, continuously
monitoring any potential negative impacts and always looking to responsibly manage and
improve environmental performance at all stages of our operations from construction,
through production to rehabilitation.”
25 years of protecting nature
At Petropavlovsk, we recognise that our
mining operations have the potential to
negatively impact the natural environment
and therefore our main aim is to prevent
environmental harm wherever possible.
We also have policies, systems and tools in
place to manage, reduce and mitigate these
impacts. We are cognisant of the negative
influence on the Company’s licence to
operate should any environmental impacts
exceed acceptable limits and strongly believe
for our business to have a lasting future, we
must recognise our responsibilities and strive
to continually improve our environmental
performance.
Key facts 2019
13%
Reduction GHG emissions intensity
Zero
Water discharge
54%
Of waste rock re-used
Zero
Environmental fines
Since its formation, Petropavlovsk has been
committed to upholding the highest
standards of environmental management.
Effective environmental protection is a key
element of our business strategy and it is
fundamental to our day-to day operations,
planning and decision making.
Recognising that our operations involve a
number of environmental risks, we have
developed Environmental Management
Systems (EMS) that help identify and manage
those risks and achieve resource and energy
efficiency. EMS at all our operational sites are
fully certified for compliance with ISO 14001.
Our environmental risk management strategies
are based on continuous and rigorous
monitoring, training, external assurance by
the state bodies and emergency
preparedness. Detailed emergency response
plans are developed and approved every year.
All environmental risks are included in the
Group-wide risk matrix which is reviewed
and updated on regular basis.
We have environmental policies in place at
all our sites, which are regularly reviewed
and updated as the business evolves and
develops. The policies serve as guidelines of
the precautionary approach to environmental
challenges adopted by the company.
Petropavlovsk manages its operations
in accordance with stringent Russian
environmental legislation which regulates
discharges to air, water, soil, tailings and
waste management. The Group is developing
and using advanced technologies, equipment
and materials with the aim of reducing the
consumption of natural resources.
The environmental impact assessment (‘EIA’),
which evaluates the state of the environment
and anticipated impact on water, mineral
resources, land, soil, air and biodiversity for
each of our projects, is fundamental to the
management of our operations. The areas
covered by the EIA are closely monitored over
the life of the project and thereby form the
basis of our environmental approach.
Transparency and stakeholder engagement
form a vital part of environmental
management by the Group. We hold public
hearings to facilitate feedback on our projects
from the local community.
General and specialised environmental
training is regularly organised for our
specialists and directors in areas such as
waste management, environmental safety
and emergency preparedness.
The S,S&W Committee oversees and is
responsible for ensuring that appropriate
systems are in place to manage
environmental and compliance risks (read
more in the Governance section page 135).
The importance of the Group’s environmental
commitment is also reflected by the close
involvement of the senior executive team.
Environmental reports are prepared monthly
basis for internal use and quarterly updates
are published on the Group’s website.
Executive Committee reviews these on
regular basis together with detailed analysis
of the Group’s environmental performance
and information on documentation or controls
set up during the period.
Monitoring and auditing
The Group conducts regular monitoring of
groundwater, rivers and streams, soil, air,
plant and animal life, both to determine their
state and also better understand the impact
of our operations.
Our commitment to applying a rigorous
approach to environmental management is
reflected in the range of measures that have
been implemented to monitor and control
discharge to air, soil and water, as well as
protect biodiversity and limit the consumption
of reagents and chemicals. Samples are
collected and analysed in the Group’s
state-accredited laboratories and the data
analysed in detail by the relevant authorities
to confirm compliance.
External audits and on-site reviews are
regularly conducted by environmental
auditors. In 2019, the Group was a subject to
six official environmental audits conducted by
various state and local authorities. There were
no violations found.
Petropavlovsk Annual Report 2019 113
Environmental Stewardship continued
The Group continued improving its excellent track record in environmental management, as reflected in zero licence violations and zero
environmental fines for nine consecutive years. The Group has adopted a grading system for environmental incidents based on their potential
or real impact, from 1 for minor incidents to 3 for the most serious. Category 1 incidents are classified as temporary lapses in normal
environmental procedures, which once identified, may be remedied with no detrimental impact on the environment. In 2019, there were no
serious or moderate environmental accidents recorded, the number of minor incidents in 2019 was almost three times less than in 2018.
Environmental incidents
Category
Category 1 - Minor
Category 2 - Moderate
Category 3 - Serious
Water management systems
Water is an essential resource, which is
shared with our host communities, natural
ecosystems and wildlife, and Petropavlovsk
is therefore committed to responsible usage.
Our operations are located in non-water stressed
areas, typicality with surplus of natural water.
Water forms an integral part of our processing
operations and is used for dust suppression
and domestic services. Water consumption at
the Group’s operations is carried out in strict
accordance with quotas set out in our licences
and our water intake does not deplete surface
or underground water sources. All operational
sites are designed as “zero-discharge” facilities
and recycled water systems are in place. Such
systems allow us to minimise the freshwater
intake from local sources by maximising the
use of recycled water. Our water management
systems and aims, which form an integral part
of our EMS, are based on the original EIA for
each project and then constantly updated by
Freshwater withdrawal
Underground
Surface
Total
Water consumption by source
2019
19
0
0
2018
53
0
0
2017
41
0
0
our environmental specialists to ensure they
remain in line with regulation; we also look to
surpass legislative requirements where
possible, as demonstrated by our significant
water recycling capacity. Water reuse is one of
the key elements to our water management
strategies - all operational sites are designed
as “zero-discharge” facilities and recycled
water systems are in place.
The quality of surface and underground water
is monitored on an ongoing basis, and the
analysis of water samples recorded in the
state register. At the end of each year, a report
is prepared and submitted to all relevant state
bodies. Maximum permissible concentrations
were not exceeded for any pollutants in 2019.
mining transport complexes and each well is
licensed and certified as compliant with
sanitary norms and rules. Water supplied for
household purposes undergoes treatment
and is made safe in accordance with
applicable standards.
Domestic effluents are purified at sewage
treatment facilities using biological treatment,
post-treatment and disinfection. Purified water
is returned to the recycling water supply
system or used for dust suppression. Pit
waters and rain and snow-melt waters from
shift camps are collected, purified and sent to
the recycling water supply system or used for
dust suppression. Water hydrotechnical dams
are utilised in the recycling water supply system
Water supply for domestic and industrial
needs is provided by surface and
underground water sources. Intake wells are
generally located close to where water is
consumed, including shift camps, factories,
Whilst overall water consumption increased
in 2019, the intensity, which enables us to
monitor efficiency, has improved by 10%,
demonstrating the effectiveness of the
Company’s strategy on water management.
Units
m3 million
m3 million
m3 million
2019
1.13
4.71
5.84
2018
0.66
4.55
5.21
2017
0.52
4.57
5.09
s
n
o
i
l
l
i
m
3
m
,
n
o
i
t
p
m
u
s
n
o
c
r
e
t
a
W
30
25
20
15
10
5
0
2017
2018
2019
114 Petropavlovsk Annual Report 2019
60
50
40
30
20
10
)
l
d
o
g
e
c
n
u
o
r
e
p
3
m
(
y
t
i
s
n
e
t
n
I
Intensity
Underground
Surface
Recycled and re-used
Discharged
Total water consumption
Units
m3/oz
2019
45.4
2018
50.2
2017
49.4
m3 million
m3 million
m3 million
m3 million
m3 million
1.13
4.71
17.64
0.00
23.49
0.66
4.55
16.01
0.00
21.22
0.52
4.57
16.65
0.00
21.74
Water use is reported to authorities in m3. To convert to megalitres, divide by 1,000.
Achieving zero-discharge water target
BioDisc treatment facilities were first built
in 2009 at the Pioneer mine and then
subsequently at Pokrovskiy, Albyn and
Malomir in 2010, allowing the Group to
achieve zero water discharge to surface and
underground waters. An additional benefit
of BioDisc is that surplus sludge can be
used in land rehabilitation in order to make
the soil more fertile.
We are committed to decreasing the amount
of energy used at our operations, and this is
one of the key focus areas of our business.
We have a Group wide energy saving
programme, which is based on the
implementation of modern technologies and
includes the following measures:
– Compact space-planning solutions for
buildings and their strategic positioning;
– Use of modern equipment with increased
efficiency;
– Use of energy-saving light sources (LED
lamps) and automatic control of outdoor
lighting;
– Placement of switchgears near the location
of concentrated loads; and
– Use of a frequency-controlled electric motor
drive of technological equipment. This allows
the operator to maintain the required speed
when changing the load on the motor shaft,
thereby reducing energy consumption.
BioDisc is a modern technology utilising a
natural biological process for the treatment of
wastewater based on the principle of rotating
biological contactors (RBCs). This process
has many inherent operating characteristics
that make it ideally suited for the treatment of
wastewater. The BioDisc process requires
less electrical energy than other treatment
processes and is environmentally friendly
due to the fact that it does not require open
ponds or exposed tanks.
Energy consumption and carbon
emissions
Mining and processing are energy intensive
activities, with various sources of energy in use.
Diesel is used in fixed and mobile equipment,
kerosene is used in our helicopters and petrol
in cars. Electricity is used for heating and
charging fixed mining equipment. Coal is used
in heating plants. The Group’s electricity supply
is purchased; predominantly from the national
grid. Each of the Group’s operations has direct
access to electric power. Mining operations
such as stripping, transportation infrastructure,
waste storage facilities and energy use are all
sources of air emissions which can impact on
people and the environment if not managed
properly. These include carbon dioxide as well
as nitrogen, sulphur oxides and dust emissions
(covered in detail on page 116).
The Group’s energy strategy is based on
the requirements of Russian legislation and is
also aligned with best international practices.
All the Group’s facilities are constructed in
compliance with Federal Law, which
specifies obligations surrounding internal
microclimates and other operating conditions
that ensure efficient use of energy resources.
Energy consumption by source
6,000
5,000
4,000
3,000
2,000
1,000
0
J
T
,
n
o
i
t
p
m
u
s
n
o
c
y
g
r
e
n
E
14
12
10
8
6
4
2
0
)
l
d
o
g
e
c
n
u
o
r
e
p
J
T
(
y
t
i
s
n
e
t
n
I
2017
2018
2019
Intensity
Coal
Diesel
Petrol
Coal
Diesel
Petrol
Kerosene
Electricity
Total energy consumption
Kerosene
Electricity
The Group’s operations benefit from the
production of renewable energy in the Amur
region, generated from two major hydropower
dams, which are not only a reliable source of
low cost and high value electricity but also play
an important role in flood management.
In 2019 the Group achieved a 27% reduction
in coal usage compared to 2017 and we will
continue to reduce our reliance on this
resource in order to reach our ultimate target
of becoming a coal-free business by 2030.
Overall electricity usage increased in 2019
in line with the elevated production levels,
however, we recorded a significant
improvement in energy intensity (11%),
demonstrating the success of our energy
efficiency measures.
Climate change
Recognising the impact of carbon emissions
on climate change and the global imperative to
address this, we look to manage and minimise
GHG emissions omitted by our operations.
Our reduction strategies are focused on the
implementation of energy efficiency measures,
which have the added benefit of cost savings,
and we have employed the following strategies
across our operations:
– Optimal control schemes of rock mass
management to prevent multiple
movements of the same material;
– Monitoring blasting and crushing in order to
obtain optimum coarseness for the material
sent to the processing plants;
– Using grinding technologies and mills with
a light rubber lining also contributing to
energy savings;
– Using electrical mining excavators; and
– Installing a Waste Heat Recovery system
at the POX Hub.
Units
TJ/1koz
2019
10.7
2018
12.0
2017
12.0
TJ
TJ
TJ
TJ
TJ
TJ
325
2,598
32
2
2,552
5,510
330
2,642
24
4
2,076
5,076
446
2,650
20
4
2,156
5,276
Energy consumption for 2017 and 2018 has been restated due to a conversion error in figures reported in 2018.
Petropavlovsk Annual Report 2019 115
Environmental Stewardship continued
In order to manage our GHG emissions
over the long term and to align our business
reporting with the Task Force on Climate-
related Financial Disclosures (TCFD)
framework, with we have committed to the
implementation of the following measures
over the next 5 years:
– Undertaking climate scenario planning;
– Setting a science-based greenhouse gas
emissions reduction target; and
– Carrying out a feasibility study for the
construction of a solar panel plant.
We have reported on GHG emissions since
2007 and it is a strategic KPI for the business.
The climate in the Amur region, where the
Group’s assets are located, is characterised
by long, cold winters and short, hot summers,
with average temperatures ranging from
-27°C to +42°C in the south. Despite these
climatic variations, Petropavlovsk’s hard-rock
mines operate throughout the year, with the
probability of extreme weather being factored
into all facilities and machinery design.
Consequently, our key operations are likely to
be unaffected by increases or decreases in
average temperatures that may arise as a
result of climate change.
The Amur region is landlocked, so the Group
is unlikely to be affected by rises in sea levels
and, although water is essential to mining, it is
unlikely that the Amur region will be affected
by drought due to climate change.
Rising temperatures could affect some
exploration activities which rely on the ground
being frozen (and not boggy). The impact of
prolonged winters is not thought to be
significant as the majority of the Group’s
production comes from all-year-round
hard-rock mining.
The Group recognises the importance of
addressing climate change and is planning
to review and analyse the climate change
risks posed by its operations in 2020.
We are also planning to initiate reporting of
carbon emissions to CDP in 2020. For more
information on GHG emissions please go to
page 88.
In addition to risks, we see opportunities within
the context of climate change, which may
include a potential benefit to the Group from an
increase in gold demand due to heightened
market volatility, uncertainty and risk.
By instigating measures to reduce emissions
and adapt to climate change, we also see an
opportunity to further reduce our energy
consumption which in turn will lead to
cost savings.
Air quality and emissions control
Air is one of the four basics elements
sustaining life on our planet and we take great
care in preserving its quality. The Group
implements effective measures to minimise
air pollution and to reduce concentrations of
harmful substances at ground level. All the
Group’s operations hold state-issued permits
regulating the discharge of emissions to
atmosphere. Emissions are strictly monitored
according to a complex programme agreed
with the federal authorities.
We aim to prevent the discharge of harmful
substances to the environment by implementing
the following measures at our sites:
– All emissions points are equipped with gas
purifying equipment, which is monitored on
a regular basis;
– All technical equipment and vehicles are
checked according to the maintenance
schedule to ensure that they fully comply
with all requirements;
– Dust suppression by irrigation; and
– Modern ventilation systems.
Air emissions
Air pollutant
Sulphur oxides (SOx)
Nitrogen oxides (NOx)
Solids (dust emissions)
Volatile organic compounds (VOCs)
Carbon oxide (CO)
Other
Total
unit
t
t
t
t
t
t
t
2019
234.4
1,835.7
1,005.3
278.5
1,117.5
250.0
4,721.3
2018
231.5
1,867.0
965.0
295.2
1,110.6
250.8
4,720.2
2017
192.1
827.5
551.1
154.2
679.5
159.8
2,564.2
Intensity
t/1 koz
9.1
11.2
5.8
116 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 117
Environmental Stewardship continued
Creating value from waste
In 2017, the Group developed a detailed
technical specification to enable waste
rock from our operations to be sold to
third parties as a natural stone for use
in the construction industry. Following
comprehensive laboratory testing, the
specification was successfully certified,
and surplus waste rock has been
sold since then. Demonstrating our
commitment to responsible mining,
all profits received from the sales are used
for environmental protection measures.
Focus on sustainable waste
management and resource efficiency
We are committed to the safe and responsible
management of waste and implement waste
management programmes, approved by
regulatory authorities, at all operations. Waste
management data is reviewed independently
by local authorities.
We aim to reuse and recycle waste wherever
possible and have systems and procedures
to maximise this strategy, thereby minimising
waste to landfill. Where we cannot utilise,
reuse or recycle waste, we dispose of it at our
own waste facilities or transfer it to authorised
contractors for recycling.
The Group focuses on the efficient use of
resources, as well as reuse and recycling and
implements the following initiatives as part of
this strategy:
– Used mineral oils are processed and used
in the CleanBurn air heating system;
– Tyres are re-used following the application
of a new tread to the tire body;
– Non-hazardous ash is used as an insulating
layer at the solid waste landfill;
– Excess sludge from biological sewage
treatment facilities is used in land
rehabilitation to increase soil fertility; and
– Waste materials contaminated with oil
or petroleum products are utilised at the
Group’s Thermal Waste Treatment Plant.
In 2019, the Group re-used 46% of its waste; 98% of waste transferred to third parties was recycled. The generation of waste increased in
line with the production capacities.
Non-mineral waste
Total waste generated:
Non-hazardous
Hazardous
Reused
Neutralised
Disposed at own landfill
Transferred
unit
t
t
t
t
t
t
t
Small amounts of waste generated at the end of the year are accumulated at temporary waste storage sites before being disposed.
Waste re-used
Intensity
unit
%
t/1koz
2019
9,390.2
8,491.8
898.4
4,312.7
117.3
2,995.0
1,926.6
2019
46
18.1
2018
8,005.4
7,454.1
551.3
2,278.6
96.1
2,859.7
2,742.8
2018
28
19
2017
7,499.6
6,950.1
549.5
2,981.0
80.9
1,124.3
2,338.1
2017
40
17.1
Mining generates a significant amount of waste rock as overburden needs to be removed to uncover the ore deposits. While fertile soil is
stored to be used in land rehabilitation, waste rock is used in a wide range of construction works and backfilling. Surplus waste rock is sold to
third parties as a certified natural stone.
Mineral waste
Waste rock generated
Re-used
unit
t
%
2019
69,848
54%
2018
88,348
48%
2017
114,924
67%
Preserving biodiversity
Protection of biodiversity remains one of our
main priorities and we work hard to ensure that
wildlife and local habitats are protected for future
generations through all stages of mine life. The
Company does not operate in any protected
areas or regions with high biodiversity value.
be taken in order to manage and mitigate these
possible risks. This procedure, which is part of
the EIA, has an important role in the Group’s
decision-making. Biodiversity management
plans, outlining preventative measures and
prohibited activities, are developed and
implemented at all our operations.
Before a mine becomes operational, the Group
outlines potential impacts of the operations on
wildlife, along with the measures and actions to
The Group has never operated in or adjacent
to protected areas or areas of high
biodiversity value, in line with Russian legal
requirements and regulations.
Petropavlovsk has developed a biodiversity
management programme based on the
following initiatives:
– Preventing pollution and minimising its
environmental impact;
– Minimising noise levels as far as possible;
118 Petropavlovsk Annual Report 2019
– Minimising and controlling the disposal of
food waste which could attract wildlife;
– Use of “cat’s eye” road reflectors and other
wildlife deterrents near areas close to
moving vehicles, as well as wildlife
awareness warning signs for drivers;
– Monitoring discharges to air, soil and water;
– Installing digital bird repellent systems to
protect waterfowl; and
– Maximising use of all brownfield sites.
We have various biodiversity strategies in
place to protect flora and fauna and to avoid
contamination of local rivers, ponds or
streams, which include:
– Prohibition of felling trees or clearing
wooded areas using heavy machinery,
such as bulldozers, flooding of forest land,
dumping waste or rubbish, fishing, hunting
or poaching and driving vehicles outside
designated zones or existing roads;
– Replenishing aquatic biodiversity in local
rivers, in partnership with the Federal
Authority on Fishery and Biological Resources
Preservation of Amur region (Amurybvod),
with over US$185,000 having been spent in
restocking over the last six years; and
– Annual information campaigns to raise
awareness of forest fires, which can
‘I volunteer’ environmental campaigns
Employee participation forms an integral
part of our environmental protection
strategies. Annual volunteering campaigns
are carried out at our operations and not
only assist in environmental management
but also serve to unite and encourage
collaboration amongst our employees.
Such campaigns usually take place in April
and May and involve cleaning the areas
adjacent to production facilities in
preparation for the summer months. In
addition to this, employees plant flowers and
remove dry grass and dead wood to prevent
forest fires close to the mines during the
fire-hazardous period.
have a potentially devastating impact on
biodiversity. Our experience shows that
the use of billboards, posters and warning
signs at our operations as well as in the
surrounding area (such as at rest areas
on the motorways) has a noticeable
positive effect.
We were able to measure the outcomes of
various biodiversity management strategies
in 2019, and specifically saw success with an
absence of birds were recorded where bird
scarers were put in place, and road warning
signs proving effective in raising awareness
of animal migration routes.
Monitoring of wildlife is an integral part of
the operational environmental control and is
carried out in accordance with the approved
programme.
In 2020, we plan to review our biodiversity
management programmes and start
developing a Group-wide Biodiversity Policy.
Petropavlovsk Annual Report 2019 119
Environmental Stewardship continued
Working together to prevent
forest fires: high alert seasons
Large parts of the Amur region are
wooded which means that forest fires
could quickly spread if not managed
adequately, with potentially devastating
effects on wildlife, the environment and
local communities. The risk of forest fires is
considered to be greatest in May, putting
significant pressure on firefighters.
Therefore, security measures are
strengthened at all our operations at this
time. Each mine has a dedicated fire
brigade with specially trained fire fighters
and stations with a wide range of
fire-fighting equipment and fire-resistant
workwear. Our teams are on duty 24/7
and fire safety briefings and drills are
carried out on a regular basis. Our
firefighting teams assist local villages with
house fires emanating from local forests
when required.
Land rehabilitation
It is the Group’s intention to ensure that
after decommissioning the landscape will
be restored as far as possible to its original
state. Closure plans for our operations are
prepared as part of the initial permitting
process and are updated as the mines
approach the end of their operating lives.
The financial provisions to cover the cost
of the rehabilitation are regularly revised to
reflect the operational and financial changes.
Ongoing rehabilitation is an integral part of the
mining operations at all sites – as an example
of this, after the heaps and piles are levelled,
pine seedlings are planted. It is the Group’s
intention to restore landscape to its original
state as far as possible after decommissioning.
To date, the Group has not decommissioned
any of its operations as the Pokrovskiy mine
is the only project to have reached end of life
and its facilities have been fully utilised for
reuse by the POX Hub.
Total disturbed land
Rehabilitated land during the reporting period
unit
ha
ha
2019
10,241
1,043
2018
11,219
305
2017
11,261
3,004
More than 510,000 tree seedlings have
been planted by the Group over the last
three years, with pine having been chosen
due to its high survival rate. The advantage
of planting seedlings on an artificial surface
such as a heap is that within ten to fifteen
years the seedlings will be guaranteed to
be protected from wildfires.
Cyanide management
Cyanide is widely used in gold mining
to extract metal from ore. The Company
applies a rigorous approach handling,
monitoring and storing cyanide due,
to is hazardous potential.
Cyanide levels are strictly controlled in pulp,
surface and ground waters. All facilities are
fully compliant with the Russian legislation
and environmental monitoring results are
provided to the authorities on a regular basis.
Enhanced security measures are also
implemented at all stages of cyanide
handling, transportation and storage.
Only authorised personnel are allowed to
transport cyanide and all transportation is
logged. Cyanide is stored in locked, guarded
warehouses with concrete floors and access
limited only to qualified personnel, which is
closely monitored by security staff.
Cyanide consumption, t
2019
2018
2017
5,330
6,295
7,720
120 Petropavlovsk Annual Report 2019
Hydraulic Storage Facilities
Management
Key facts 2019
8
Hydraulic storage facilities
0
Hazardous incidents
Regular
Internal and external audits
Approved
Safety Declaration
As part of the normal process of mining and
recovering gold, various types of Hydraulic
Storage Facilities (HSF) are required for
further processing or storage of residues
created after the initial ore processing.
Petropavlovsk is fully committed to upholding
the highest standards of environmental
management, occupational health and
industrial safety. We continuously focus
on zero-harm principles and ensure the
transparency of our operations.
All specialists and management working
at HSFs are certified in the area of dam
safety. Specialists involved in operational
management of HSF are also required to
pass a test at least once every five years in
accordance with Rosprirodnadzor regulations.
The process of designing and operating
HFSs is controlled by Group management and
overseen by state supervisory authorities in
accordance with stringent Russian legislation.
There have been no incidents relating to the
integrity or stability of the Group’s HSFs over
the entire period of operation.
Optimal management of HSFs is one of the
most important areas of focus for the Group,
and all HSFs are insured, operated and
monitored in accordance with Russian
legislation and in line with international
best practices.
Our HSF strategies, which are based on a
complex measures to ensure the highest
standards of design and construction, are
aimed at minimising risk and enabling safe
functioning and operation.
In order to ensure the safe operation of HSFs a
comprehensive system of internal control has
been established under the Safety Monitoring
Programme approved by the Chief Engineer.
Each enterprise of the Group has a senior
member of management who is responsible for
the safety of HSFs management. The system of
monitoring safety of the hydrotechnical facilities
includes: the dikes, the beach area, the
containment pond, the area where the
hydrotechnical dam is located, pulp pipelines,
recirculation water pipelines, pumping stations,
environment (air, soil, eater, flora, fauna), roads,
communications, lighting, staff education and
training, availability of operational documents.
The risk of HSF failure is included in our HSE risk
management systems, with examinations and
monitoring performed daily. Hydrotechnical
dams are designed and built in full compliance
with the requirements of Russian legislation and
incorporate detailed geological studies. As a
result, all the Group’s HSFs are considered to be
highly reliable and low risk, due to careful and
professional management of these facilities.
Hydrotechnical dams are located in
controlled access areas away from any
local populations. The nearest populated
settlement is located 6km away from Albyn
HSF. Approved routes for vehicles and
pedestrians are clearly displayed at the
hydrotechnical dams. Warning safety signs
for the hazardous zone and controlled access
area are displayed at the entrance.
Civil liability insurance contracts for causing
damage as a result of an accident at a
hazardous facility are in place and respective
insurance policies are issued for all the HSFs.
A reviewed and approved detailed emergency
response plan is developed every year.
The state appraisal on the emergency
preparedness and ability to protect the
population and environment as result of an
accident is issued by the Russian Emergency
Ministry in the Amur region.
Table of current HSF
Enterprise
POX Hub
Pioneer
Malomir
Albyn
HSF
HSF-1
HSF-1
HSF-2
HSF 1
HSF 2
HSF 1-2
HSF 1-3
HSF-1
Raising method
Downstream
Downstream
Downstream
Upstream
Upstream
Upstream
Upstream
Downstream
Status
Active
Active
Active
Not active, preparation for mothballing
Active
Active
Active
Active
Distance in km from the closest
populated settlement
8
40
40
40
6
Petropavlovsk Annual Report 2019 121
Environmental Stewardship continued
In line with legislation, all Group’s HSFs are
registered in the state register of hazardous
production facilities and receive state
certificates corresponding to their hazard
class. At present, the hazard class of
operating hydraulic structures corresponds
to the second class, high hazard.
Environmental monitoring and protection of
wildlife is an obligatory part of the Operational
Environmental Control carried out in
accordance with the approved Environmental
Monitoring Programme. The monitoring data
is included in the annual report submitted to
the state bodies of all levels.
co-ordinated with the state bodies of the
Regional and Local government and in
accordance with the environmental
requirements of the Russian Federation. It also
undergoes the State Environmental review.
Detailed closure plans are prepared three
years before the actual closure. The plan
provides a mechanism for ensuring the
financing of these works. This project is
The annual audit undertaken by Rostechnadzor
in 2019 did not identify any violations.
122 Petropavlovsk Annual Report 2019
Environmental Protection at the POX Hub
The pressure oxidation process is regarded as the most efficient, robust and environmentally responsible
way of processing a diverse range of refractory concentrates. Our POX Hub is designed in line with the
latest environmental technologies, with the aim of maximising the use of resources and minimising any
negative impacts.
Autoclave leaching technology requires a
significant amount of industrial water in its
processes; therefore, we have implemented a
water supply recycling scheme to conserve
resources, as demonstrated below. As part of
this, grey waters from the pit are being used in the
POX Hub water supply systems. and rain and
snow-fall waters are collected, purified and used
for dust suppression. Such systems allow a
significant reduction in clean natural water usage
at the POX Hub.
2019 was the first full operational year for the
POX Hub. In order to monitor and analyse its
environmental performance a set of
environmental and strategic KPIs have been
established.
Environmental KPIs 2019
GHG emissions
Energy consumption
Water consumption
unit
69,143
t CO2e
GJ
776,629
m3 3,796,788
Strategic KPIs 2019
GHG intensity
Energy intensity
Water intensity
unit
t CO2e/oz
GJ/oz
m3/oz
0.39
4.33
21.15
In 2020, we will analyse the environmental
data on a quarterly basis so that targets for
the next three years can be determined.
Our achievements
– Maximum use of previously disturbed land;
– Waste and resource management systems
in place;
– Environmental monitoring programmes
(for water, air, soil and noise) have been
developed, approved and implemented;
– Biodiversity management plans have been
approved and implemented; and
– Zero discharge and recycled water supply
systems are in place.
The Group operates its POX Hub in strict
compliance with the requirements of Russian
legislation, ensuring environmental safety of all
its facilities. Continuous environmental
monitoring is carried out to identify the potential
environmental impacts and any actions that
are required. Data is collected and processed
in accordance with a strict schedule approved
by supervisory authorities. The POX Hub has
all required water use licences, with related
quotas determining water sources and
permitted withdrawal volumes.
Water use and recycling system at the POX Hub
85% recycled water
15% fresh water
Fresh water
Recycled water pit
Rain & snowmelt
waters
Shift camp
BioDisc
RIP
POX
Hydrotechnical
facility
Purification
Dust suppression
Petropavlovsk Annual Report 2019 123
Independent Limited Assurance Statement
1 Introduction
1.1 Terms of Reference
Wardell Armstrong International (WAI)
was engaged by Petropavlovsk PLC
(Petropavlovsk) to provide independent, basic
limited level assurance of the sustainability
section of the 2019 Petropavlovsk Annual
Report, hereafter referred to as “the
sustainability section”. This assurance
statement focuses on the way Petropavlovsk
manages sustainability performance, and
how it communicates this in its sustainability
reporting. This assurance statement also
includes an assessment of Petropavlovsk’s
performance and progress regarding three
requested KPIs.
1.2 Professional standards applied and
level of assurance
WAI were engaged to provide a basic
limited level assurance in accordance with
internationally recognised standards namely,
AA1000 Assurance Standard; ICMM
Assurance Procedure and International Best
Practice. With more detailed or reasonable
assurance required for the following three Key
Performance Indicators (“KPIs”):
– Greenhouse gas emissions;
– Water consumption; and
– Lost time injury frequency rate.
1.3 Limitations and Exclusions
Due to the level of assurance required a
high-level overview of data supplied to WAI
was undertaken. Additional information, not
reviewed, may lead to differing understanding
or interpretation than that presented here
within.
The information that was assured and its
presentation in the sustainability section are
the sole responsibility of the management of
Petropavlovsk. WAI was not involved in the
drafting of the Report. Our sole responsibility
was to provide independent assurance on its
content.
2 Methodology
2.1 Activities Undertaken
In support of the Assurance, WAI undertook
the following activities:
– Site visit to Petropavlovsk assets, namely:
Pokrovskiy, Pioneer, Malomir and Albyn;
– Visit to Petropavlovsk head office in
Blagoveschensk;
– Interviews with relevant key personnel of
Petropavlovsk;
124 Petropavlovsk Annual Report 2019
– Review of internal and external documentary
evidence produced by Petropavlovsk used
to inform the sustainability section of the
2019 Annual Report;
– Petropavlovsk’s management and site
teams show support to a company-wide
commitment to responsible mining
practices at operations and projects.
– Audit of performance data presented within
the sustainability section of the Annual
Report, including detailed audit of three
KPIs; and
– Review of Petropavlovsk data and
information systems for collection,
aggregation, analysis and internal
verification and review.
3 Findings
On the basis of our described methodology,
the data provided, and our understanding of
the activities carried out by Petropavlovsk, we
provide limited assurance of the sustainability
section. Our finding are as follows:
– Sustainability aspects of the Petropavlovsk
operations are managed in a way that
ensures compliance with Russian
Legislation;
– The information and data included in the
sustainability section are accurate, reliable
and free from material misstatements;
– Information in the sustainability section is
for the most part clearly presented and
understandable (see below for comment
regarding Lost time injury frequency rate).
The section is well laid out and is accessible
to Stakeholders;
– The sustainability disclosure provides a fair
representation and allows readers to form a
balanced opinion regarding Petropavlovsk’s
sustainability performance during the 2019
period;
– The reporting has been prepared in
accordance with the GRI standards (core
option) and includes appropriate
consideration of the Reporting Principles;
– Petropavlovsk has appropriate systems in
place for the collection and analysis of
environmental KPIs. Based on data seen
by WAI, it is deemed Petropavlovsk have
a robust monitoring system, ensuring
consistency in the quality and assurance
of reporting;
– For the most part Petropavlovsk has
processes in place for consultation and
engagement with key internal and external
stakeholders. It is understood that some
corporate level policies are still being rolled
out at site level, a systematic approach to
information dissemination would assist in
this regard; and
3.1 Greenhouse Gas Emissions
Current reporting is considered to comply
with AA1000 AS. An appropriate and robust
mechanism for the collection, reporting and
auditing of greenhouse gas emission data is
in place. Data reporting, regarding GHG
emissions, could be made more rigorous by
the inclusion of additional emission streams
currently excluded, however, the most
significant emissions are accounted for
and the data therefore is considered
representative. Accuracy of GHG emission
reporting is summarised as follows:
– Scope 1 emissions are covered and most
likely within +/-5% - currently emissions
from explosives and ground disturbance
are excluded although this is considered
likely to contribute a relatively small amount;
– Scope 2 emissions are covered and
expected to be within +/-5%, based on the
use of published grid emissions factors by
IEA ; and
– Scope 3 emissions are not currently
accounted for. Petropavlovsk are looking
at including this in 2020. Including Scope 3
emissions is considered best practice but
under the GHG Protocol reporting of Scope
3 emissions is optional.
3.2 Water Consumption
The water data presented in the
Environmental Stewardship section is clear
and understandable. It highlights the principal
trends in water consumption which were
shown to increase in 2019 whilst also
recording increasing water recycling rates
in the mineral processing operations.
The inclusion of water intensity data
demonstrates an improvement in this year’s
water cycle management and efficiency.
3.3 Lost time injury frequency rate
The KPI presented is the Lost Time Injury
Frequency Rate (LTIFR). LTIFR is a measure
of safety and is clear and understandable.
The LTIFR KPI data displayed is for the whole
company. The figures presented are accurate
and are a mean based on data for each of the
individual sites.
mining industry. WAI has no vested interest
in any particular technology, supplier or
contractor.
Work was carried out by an independent
professionally qualified team with experience
in sustainability reporting and environmental
and social audits. No member of this team
has a business relationship with
Petropavlovsk, its Directors or Managers,
beyond that of verification and assurance
of sustainability data and reporting.
WAI confirms no conflict of interest exists with
respect to this commission.
Approved by:
Alison Allen
Technical Director
27 April 2020
The Strategic Report was approved by the
Board on 26 May 2020 and signed on its
behalf by:
ON OUR BUSINESS]
Sir Roderic Lyne
Non-Executive Chairman
26 May 2020
4 Adherence to the principles of
AA1000AS
4.1 Inclusivity
The sustainability section identifies groups
of key stakeholders and details forms of
information dissemination that are utilised by
Petropavlovsk for both internal and external
stakeholders. The sustainability section
clearly lays out and communicates what
engagement and social activities have been
completed in 2019. Petropavlovsk adheres to
the requirements of Russian legislation, some
effort has been made to start moving towards
international best practice (namely, IFC
Performance Standards) through the
development of site-specific Stakeholder
Engagement Plans. WAI observed
stakeholder consultation and community
development activities being implemented
across Petropavlovsk sites.
4.2 Materiality
Petropavlovsk conducted a materiality
assessment during 2019 taking industry
and business trends as well as internal and
external stakeholder feedback into account.
The process undertaken revealed key
aspects that were identified as both important
to stakeholders and having significant impact
to the business. Five key materiality aspects
were identified, these are overarching themes
that comprise of multiple KPIs.
4.3 Responsiveness
Petropavlovsk has developed minimum
requirements and systems to respond to
Stakeholder issues in their grievance
mechanism. The grievance mechanism is
presented on the Petropavlovsk website and
requires internet access. The mechanism
presented is comprehensive, following a
6-stage procedure. Petropavlovsk have set
a time frame for response of 20 days but no
more than 45 days from receipt of complaint.
During 2019, two comments were submitted
via the grievance mechanism, however on
review these do not represent grievances, the
mechanism has instead been used as a basic
form of contact. Whilst the Grievance
Mechanism has not been formally rolled
out across project affected communities, a
disclosure programme is planned for 2020.
5 Statement by WAI of independence,
integrity and competence
WAI is an independent technical engineering
company that specialises in engineering,
health, safety, environmental and social
management with over 180 years history of
providing technical and audit advice to the
Petropavlovsk Annual Report 2019 125
Governance
126 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 127
Introduction from the Chairman
Dear Shareholder
On behalf of the Board, I introduce
Petropavlovsk PLC’s annual Corporate
Governance Report for the financial year
ended 31 December 2019.
Corporate governance has played a
significant part in the striking improvement
in the Group’s performance, reputation and
value over the past year.
When I was elected Chairman in 2018,
one of my key objectives was to strengthen
corporate governance within the Group and
ensure that it met both the letter and the spirit
of the 2018 UK Corporate Governance Code.
I wanted Petropavlovsk to have a strong,
independent, highly qualified and diverse
Board, actively engaged in the strategic
decision-making and oversight of the Group.
I am glad to report that we have met
this objective. We have reinforced the
management and oversight of audit; finance;
risk; health and safety; environmental,
community and workforce issues; and
are placing increasing emphasis on ESG.
We have a goal of continuous improvement.
With the appointments of Katia Ray and
Charlotte Philipps, on 8 November 2019,
and Danila Kotlyarov and Maxim Kharin
on 21 April 2020, and the proposed
appointments of Fiona Paulus and Tim
McCutcheon on 27 May 2020, the Board
will have, in addition to the Chairman, two
Executive Directors (the CEO, and Chief
Financial Officer), one Non-Independent
Director, and eight independent Directors.
The Independent Non-Executive Directors
have a notably wide range of relevant
experience; with a balance of ages and
nationality. Following my retirement at the
Annual General Meeting, three of eight
Independent Directors, including my
designated successor, will be highly qualified
women. This reflects the commitment we
made to diversify gender representation on
the Board.
We have reorganised the Board’s
Committees. Each Committee is working to
a full agenda under strong and experienced
leadership. Harry Kenyon-Slaney, who was
appointed Senior Independent Director in
April 2019, has brought his expertise in the
mining industry to bear on the Safety,
Sustainability and Workforce Committee,
to notable effect. Robert Jenkins continues
to be a skilled and committed Chair of the
Audit and Remuneration Committees and
has devoted a great deal of time to the
upgrading of the audit and finance functions.
Damien Hackett has conducted a review of
risk management. As the Chair of the Risk
Committee from March 2020, he is
introducing a new approach to risk, informed
by best practice and tailored to the needs of
the group. I continue to chair the Nominations
Committee.
On 30 July 2019 Bektas Mukazhanov, who
was a non-executive Director nominated by
Fincraft Holdings Ltd (as the Group’s major
shareholder) resigned from the Board,
Fincraft having sold its shareholding to Aeon
Mining Limited (‘Aeon’). In consequence, on
14 October 2019, we welcomed Mr Mirzaaziz
(Aziz) Musakhanov to the Board as a nominee
of Aeon. Mr Musakhanov resigned from the
Board on 5 February 2020 following Aeon’s
decision to sell its shareholding in
Petropavlovsk. On 21 April 2020, the Board
appointed in his place Mr Maxim Kharin, a
nominee of the new major shareholder, the
Uzhuralzoloto Group of Companies. In each
of these cases, a Relationship Agreement has
been signed between Petropavlovsk and the
nominating company and ultimate beneficial
shareholder.
In April 2019, all members of the Board visited
the Group’s operations in the Far East of
Russia. The Board visited laboratories and
research facilities in Blagoveschensk, the
mining and processing operations at Malomir,
and the Pressure Oxidation Plant at
Pokrovskiy. Directors had the opportunity for
extensive conversations with managers and
other staff representatives in each location
and were impressed both by the quality of the
operations and the skill, commitment and
high morale of the Group’s personnel.
Consultation with shareholders
Board members have stayed in regular
contact with the Group’s shareholders.
In accordance with corporate governance
practice, I wrote to a number of significant
shareholders who had voted against certain
resolutions at the 2019 Annual General
Meeting. (Six resolutions proposed at the
AGM received less than 80% support of
shareholders who voted, with two resolutions
failing.) The Senior Independent Director and
I had constructive meetings with two of the
shareholder groups who took up the invitation
to discuss the resolutions. We have sought to
address the issues raised by shareholders
and those advising them. One issue was the
previous lack of gender diversity on the
Board. This has now been resolved , as
described above. Another issue raised
with the Board related to the level of bonus
disclosure in the Directors’ Remuneration
Report (the ‘DRR’). This was considered
by the Chairman of the Remuneration
Committee, Robert Jenkins, and I hope
shareholders will find that this has been
satisfactorily addressed in this year’s DRR.
Board activity during the year
Significant tasks, aside from those mentioned
above, on which the Board focused during
the year included:
– Development of the Group’s future strategy:
This was the subject of a Board Strategy
Day held in October 2019 and carried
forward at subsequent Board meetings.
It is covered elsewhere in this report;
– Liability management, including the
refinancing of the Group’s 9% Convertible
Bonds due March 2020 (the ‘2020 Bonds’).
The Board approved and launched a new
US$125 million 8.25% Convertible Bonds
due 2024 which not only refinanced the
2020 Bonds but enabled the Group to
accelerate the construction of the Pioneer
flotation plant;
– An option agreement with the owner of 25%
of TEMI LLC, which holds the Elginskoye
licence. (This was the subject of an RNS
announcement of 23 September 2019).
The objective is to facilitate the expansion
of the Group’s Albyn mine; and
– The future of Petropavlovsk’s c.31% share
of the Hong Kong-listed iron-ore mining
company (and former subsidiary) IRC.
128 Petropavlovsk Annual Report 2019
The Board’s s172 Companies Act 2006
Statement is provided on pages 24 and 25.
This details how the Board considered not
only our shareholders but our wider
stakeholders in its decision making during
2019. A vital part of the Board’s responsibility
includes understanding the views of our
stakeholders (employees, shareholders,
local communities, suppliers, regulators
and governments) and building constructive
relationships with them.
25th Anniversary year – employee and
community engagement
Petropavlovsk celebrated its 25th anniversary
on 1 September 2019. The Group’s growth
and development over that period – starting
from scratch in the early days of the Russian
Federation’s market economy in a remote and
climatically difficult region – is a remarkable
story. The Group now employs more than
9,000 people, the majority of whom are
residents of the Amur region. We have been
instrumental in the development of the local
infrastructure. We have constructed bridges
and roads in the area in which we operate,
provided energy supplies and installed cellular
communications all of which have benefited
the local community.
As the largest regional employer,
Petropavlovsk has a significant role to play in
the community. We take these responsibilities
seriously. The Company has built a strong
reputation locally through a variety of activities
ranging from philanthropic initiatives to the
provision of emergency assistance during
periods of flooding.
In 2008 the Group established the Pokrovskiy
Mining College. This private, non-profit
educational institution offers a wide range of
in-house training courses with study, training
and accommodation free for students. It is the
only higher education institution of its kind in
the region. To date it has trained more than
10,000 specialists, providing much-needed
skills for the local market. Many of our
employees are graduates of the College.
Culture and Purpose
Petropavlovsk’s purpose is clearly defined as
part of ‘Who we are’ and set out on page 1 to 3.
The updated UK Corporate Governance
Code, published in July 2018 (the ‘2018
Code’) requires Boards to assess and monitor
culture. We must also provide an explanation
of the Company’s approach to investing in
and rewarding our workforce. Our employees
are pivotal to the Company’s success. Further
detail is provided on pages 100 to 104.
We are a company which bridges the differing
systems, cultures and traditions of the United
Kingdom and the Russian Federation, and
has responsibilities in both jurisdictions.
Petropavlovsk is one of a small number of
Russian-based companies with a listing on
the London Stock Exchange and stands
apart from many Russian natural resources
companies by the diversity of its shareholder
register. Our responsibility to all of our
stakeholders, our respect for the culture of
both countries, and the example we seek to
set through strict adherence to the highest
standards of governance and management
are values which permeate the Board’s
decision-making.
We have respect for the environment in which
we operate. We recognise our responsibility
to minimise any impact on biodiversity by
ensuring that wildlife and local habitats are
protected through all stages of mine life.
Further details are provided in the Sustainable
Development section on pages 84 to 123.
During this year’s Board visit to our mining
operations, Harry Kenyon-Slaney (in his role
of Safety, Sustainability and Workforce
Committee Chair) and other members of the
Board held meetings with representatives of
our workforce and of the local union. This was
a constructive beginning to a new process of
engagement between non-executive Directors
and the Group’s employees which we intend to
continue on at least an annual basis.
We aim to promote a healthy workplace
culture and one that is inclusive and
collaborative. We contribute to the local
community, in which the majority of our
workforce resides. By investing in training,
we seek to develop the full potential of our
employees.
In December 2019, Petropavlovsk joined the
United Nations Global Compact initiative on
corporate sustainability. This is a voluntary
leadership platform which reflects the Board’s
commitment to aligning our operation and
strategies with ten universally accepted
principles in the areas of human rights, labour,
environment and anti-corruption. We have
recently reviewed and updated our ‘Speak-
Up’ and Anti-Bribery policies. We continue to
pay our workforce competitive salaries which
exceed regional and country averages.
By these actions we promote a culture of
integrity, openness and respect within the
Company. The Board recognises that this is
pivotal to delivering the long-term success of
the Company.
The following pages set out details of
the Company’s corporate governance
arrangements, processes and activities
during the year, and reports from each of
the Board Committees.
Sir Roderic Lyne
Non-Executive Chairman
26 May 2020
Petropavlovsk Annual Report 2019 129
Board of Directors
An experienced, diverse and well-balanced Board
N
S
N
E
S
A
N
A
R
The Rt. Hon. Sir Roderic Lyne
Non-Executive Chairman
Dr Pavel Maslovskiy
Chief Executive Officer
Mr Harry Kenyon-Slaney
Senior Independent Director
Mr James W Cameron Jr
Independent Non-Executive Director
Nationality: British
Appointed: June 2018
Nationality: Russian
Appointed: June 2018
Nationality: British
Appointed: November 2018
Nationality: American
Appointed: October 2018
Experience
Mr Cameron, a US qualified
lawyer, has extensive international
experience, providing expertise and
consulting services for companies
particularly in the natural resources
sector within Russia and the former
Soviet Union, since 1988. He was
formerly Founder, CEO and
Chairman of Occupational Urgent
Care Systems Inc., a company
traded on the NASDAQ National
Market System until it was sold
in 1992.
External Appointments
Mr Cameron is CEO and Chairman
of Cameron and Associates
Experience
Mr Kenyon-Slaney has over 37 years
of experience in the mining industry,
principally with Rio Tinto. He is a
geologist by training and his
experience spans operations,
marketing, projects, finance and
business development. Mr Kenyon-
Slaney is a member of the board
of directors of Schenck Process
AG. Until 2015, Mr Kenyon-Slaney
was a member of the Group
Executive committee of Rio Tinto
where he held the roles of CEO of
Energy, and before that CEO of
Diamonds and Minerals. Prior to
this he led Rio Tinto’s global titanium
dioxide business, was CEO of Rio
Tinto’s listed subsidiary, Energy
Resources of Australia Ltd, was
GM Operations at Palabora Mining
Company in South Africa and held
senior marketing roles in copper,
uranium and industrial minerals.
He began his career as an
underground geologist with Anglo
American on the gold mines in
South Africa. Mr Kenyon-Slaney
has a BSc Geology from
Southampton University.
External Appointments
Mr Kenyon-Slaney, is currently
Non-Executive Chairman of Gem
Diamonds Limited, Non-Executive
Director of Sibanye Gold Limited
(trading as Sibanye-Stillwater) and a
senior advisor to McKinsey & Co.
Experience
Sir Roderic Lyne was first appointed
to the Board in April 2009 upon the
Company’s merger with Aricom PLC,
and was appointed as the Senior
Independent Director in November
2015. He was also Chairman of the
Company’s Remuneration and HSE
Committees. Sir Roderic continued to
act in such a capacity until June 2016,
when he retired as a Director. He was
subsequently appointed as Chairman
of Petropavlovsk following the
Company’s AGM on 29 June 2018.
Sir Roderic was previously a
Non-Executive Director of Aricom
PLC, a position he held from
October 2006 until April 2009,
and a Director of the Russo-British
Chamber of Commerce from April
2006 to July 2009. He served as
British Ambassador to Russia from
January 2000 until August 2004,
and speaks Russian.
Sir Roderic is a former Non-
Executive Director of Accor, Senior
Advisor successively to HSBC, BP
and JP Morgan, Deputy Chairman
of the Council of the Royal Institute
of International Affairs (Chatham
House) and Chairman of the
Governors of Kingston University.
He was a member of the Committee
of the Iraq Inquiry and was appointed
to The Privy Council in 2009.
Sir Roderic was a Non-Executive
Director of JP Morgan Bank
International.
External Appointments
None.
130 Petropavlovsk Annual Report 2019
Experience
Dr Pavel Maslovskiy, a professional
metallurgist, co-founded
Petropavlovsk with Peter Hambro
in 1994 with a single greenfield licence
in the Amur region, organically
expanding the business into one of
Russia’s largest gold mining
companies. Starting out with a small
team of mining professionals, as Chief
Executive, Dr Maslovskiy oversaw the
development and construction of four
highly successful mines.
Under his leadership and technical
know-how, Petropavlovsk
successfully built and commissioned
its Pressure Oxidation Hub (POX) in
2018, a unique, state-of-the-art
modern processing plant, that is
producing gold from complex ores,
both its own and third-party sourced.
Dr Maslovskiy has made a significant
contribution to Russian society by
founding and leading the work
undertaken by the Petropavlovsk
Foundation for Social Investment.
Prior to embarking on his successful
business career, Dr Maslovskiy was
a Professor of Metallurgy at the
Moscow Aircraft Technology Institute.
He is the author of more than 100
printed scientific papers, copyright
certificates and co-author of various
textbooks in the field of metallurgy.
Dr Maslovskiy’s achievements and
contribution, to the Russian mining
industry and society has been
recognised with awards from
the Ministry of Education, the
Administration of the President
of the Russian Federation and the
Administration of the Amur region.
External appointments
Director of XAU Resources Inc.
A Audit Committee
N Nominations Committee
R Remuneration Committee
S Safety, Sustainability and Workforce Committee
E Executive Committee
Chair of Committee
A
N
R
S
A
R
N
A
R
R
S
Mr Damien Hackett
Independent Non-Executive Director
Mr Robert Jenkins
Independent Non-Executive Director
Ms Charlotte Philipps
Independent Non-Executive Director
Mrs Katia Ray
Independent Non-Executive Director
Nationality: British and Australian
Appointed: October 2018
Nationality: British
Appointed: June 2018
Nationality: German
Appointed: November 2019
Nationality: British and Russian
Appointed: November 2019
Experience
Mr Hackett has 26 years critical
investment research experience
covering globally diverse mining
companies, initially as Global Head
of Mining Research with Credit
Suisse – First Boston in Australia,
following which he held similar roles
with Credit Suisse and Canaccord
Genuity in London. Latterly he was
Vice Chairman Mining Advisory at
Canaccord Genuity responsible for
developing investment themes in
metals and mining across North
America, Europe, Russia and
Australia.
Mr Hackett’s early career in resources
was grounded in 4 years of
exploration, resource development
and mining in Western Australia
followed by 7 years in mineral
exploration and economic
assessment in Saudi Arabia.
Mr Hackett holds a Bachelor of
Science from the Australian National
University in Canberra.
External Appointments
Mr Hackett is Chairman of
UrAmerica Ltd, a private uranium
exploration company in Argentina.
Experience
Mr Jenkins is a Chartered
Accountant, has an MA in Modern
History and Modern Languages
from Oxford University, and is a fluent
Russian speaker. He has 25 years of
Russia-related investment and
natural resources experience.
Mr Jenkins was formerly Finance
Director of AIM listed Eurasia Mining
PLC, a Russia-focused mining
exploration company, and Chief
Financial Officer of Urals Energy, a
Russia-based oil exploration and
production company. He was
formerly Senior Independent
Director and Audit Committee
Chairman of Ruspetro Plc, a
Russia-focused independent oil and
gas production company, and Audit
Committee Chairman of Toledo
Mining Corporation PLC, which is
engaged in nickel ore production in
the Philippines.
External Appointments
Mr Jenkins is also currently a
Non-Executive Director of Brazilian
Nickel PLC and of Oppenheimer
Resources, a Luxembourg-
registered investment vehicle
engaged in financing oil and gas
producers in the US.
Experience
Ms Philipps has extensive experience
in corporate financing and equity
transactions in Russia and in other
transitional former Soviet and CMEA
countries, principally focused on
natural resources.
Ms Philipps, a German national and
qualified lawyer, relocated to London
in 1993 to join the European Bank for
Reconstruction and Development
(EBRD) in London, where she held a
number of senior positions, latterly as
Senior Banker for EBRD’s Natural
Resources Team, before accepting
the appointment of President & CEO
of AIG Russia Century Fund, Moscow.
Ms Philipps lived and worked in
Moscow during the period 2006 to
2014. Ms Philipps speaks a number
of languages, including Russian.
External Appointments
Ms Philipps is a member of the
Strategy and Investment Committee
of Inter RAO UES, Russia’s largest
integrated utility company. In addition,
she is a member of the Advisory
Board of CAPTIS Intelligence Inc.,
a US-based global industry leader in
security and crime prevention and
chairs the Board of one of the UK’s
largest architecture firms.
Experience
Mrs Ray has a scientific and
technical background and over
25 years’ experience in the mining
sector in senior leadership roles with
both Rio Tinto plc and Anglo
American plc, primarily in business
development, sales and marketing,
and project and change
management. She has worked
across the globe in a number of
different commodities including
industrial minerals, diamonds and
platinum group metals. Mrs Ray
founded and runs a management
consulting firm and has advised
corporate mining companies on
corporate strategy across the value
chain, private equity groups on M&A
projects and a number of start-up
businesses.
Mrs Ray has a MSc in Chemical
Engineering from the Mendeleev
University of Chemical Technology in
Moscow, Russia. Mrs Ray was born
in Russia but has lived in the UK
since the early 1990s and is a British
citizen.
External Appointments
Mrs Ray has a number of voluntary
roles, including acting as a Governor
and a Nominations Committee
member at the Royal Surrey County
Hospital NHS Trust and is a Business
Advisor for Young Enterprise UK.
Petropavlovsk Annual Report 2019 131
Board of Directors continued
E
Mr Danila Kotlyarov
Executive Director &
Chief Financial Officer
Nationality: Russian
Appointed: April 2020
Mr Maxim Kharin
Non-Executive Director
Nationality: Russian
Appointed: April 2020
Experience
Mr Kharin has a degree in
Computer-aided Systems
of Management from the Far
Eastern State Technical University
of Russia and became a qualified
accountant in 2006. Prior to
joining Uzhuralzoloto Group
of Companies (‘UGC’) as CFO,
Mr Kharin held several roles in
the International Audit Department
at Moore Stephens where he
held the title of Senior Auditor
and Director and was responsible
for the independent audit of
companies across a range
of sectors, including mining,
with a particular focus on the
transformation of Russian
Accounting Standards to IFRS.
Mr Kharin was nominated as a
Director of Petropavlovsk by UGC,
the Company’s largest shareholder.
External Appointments
Mr Kharin currently serves as
the Director for Economics and
Finance at UGC a role he has held
since 2012, and where he has also
served as Chairman of its Board
since 2018.
Experience
Immediately prior to joining the
Company, Mr Kotlyarov was Chief
Financial Officer and Executive
Director of IRC Limited, a position
he had held since January 2016.
Prior to this he served as Deputy
General Director for Finance of
Aricom a position which in 2010
transferred to IRC as Deputy Chief
Executive Officer, following the
listing of IRC on the Hong Kong
Stock Exchange. Mr Kotlyarov was
appointed as Interim Chief Financial
Officer of IRC in March 2015.
Mr Kotlyarov has considerable
experience having been employed
in various position with a number
of international companies.
Mr Kotlyarov holds a BA in
Management from Moscow State
University and a MA in International
Economics from the Moscow State
Institute of International Relations
(MGIMO). He is a fellow member
of the Association of Chartered
Certified Accountants (ACCA),
Chartered Financial Analyst (CFA)
charter holder, member of Hong
Kong and Russia Associations
of Financial Analysts and has a
professional diploma in civil and
industrial construction.
External Appointments
Non-Executive Director, IRC Limited.
132 Petropavlovsk Annual Report 2019
Executive Committee
The Company’s Executive Committee was reconstituted on 1 January 2019, and comprises a focused and
experienced senior executive team who manage the Group on a day-to-day basis. Terms of Reference of
the Executive Committee are available on the Company’s website at www.petropavlovsk.net.
The Executive Committee comprises Board members, Dr Pavel Maslovskiy and Mr Danila Kotlyarov, along
with the following:
Dr Alya Samokhvalova
Deputy CEO
Mr Sergey Ermolenko
General Director MC
Petropavlovsk
Mr Nikolai Vlasov
Group Chief Geologist
Mr Nikolai Vlasov has many
years of experience in gold
exploration and mining
within the Amur region.
Mr Vlasov was one of the
original members of the
Company’s founding
management. Prior to this
he was the chief geologist
of the only comprehensive
geological exploration
expedition in the Amur
region. Mr Vlasov also
headed the government
department for the
evaluation of gold resources
in the Russian Far East.
In his role of Group Chief
Geologist, Mr Vlasov leads
the Group’s exploration
work.
Mr Vlasov has received
various state awards
including for excellence in
exploration of mineral
resources, Honored
Prospector of mineral
resources and Honored
Geologist of the Russian
Federation.
Dr Alfiya (Alya)
Samokhvalova
is Deputy Chief Executive
Officer and a Member of
the Safety, Sustainability
and Workforce Committee
of the Board of Directors.
In addition,
Dr Samokhvalova is
Head of the Company’s
Corporate Office.
Dr Samokhvalova joined
the Company in 2002.
Dr Samokhvalova is also a
Non-Executive Director of
the Russo-British Chamber
of Commerce and a
member of the Global
Advisory Board of
Cass Business School.
Dr Samokhvalova holds a
Masters in Investment
Management from Cass
Business School, London,
and a PhD in Economics
from the Moscow
International High Business
School, a BSc in
Accounting and Audit
(All-Russian Distance
Institute of Finance and
Economics, Moscow) and a
BSc in Pharmacy (Alma-Ata
State Medical University).
She also holds a
Professional Accountant
Certificate from the Institute
of Professional Accountants
of Russia.
Mr Sergey Ermolenko is
the General Director of
Management Company
Petropavlovsk.
Mr Ermolenko served as
a Director and as Interim
Chief Executive Officer of
Petropavlovsk PLC from
18 July 2017 until 16 April
2018. He previously served
in this role from December
2011 to November 2014
when Dr Pavel Maslovskiy
was serving as a Russian
senator.
Mr Ermolenko is one of the
original members of the
Group’s founding
management team.
He has held top managerial
positions with the Group
since its inception in 1994
and has been instrumental
in the expansion of the
Group into a multi-mine
operation, overseeing the
commissioning of
Pokrovskiy, Pioneer,
Malomir and Albyn.
He was appointed General
Director of Management
Company Petropavlovsk
in 2004. In this capacity,
he led the expansion
of the Group into a multi
mine operator.
Mr Dmitrii Chekashkin
Group Executive, Business
Transformation and
Operational Efficiency
Mr Dmitrii Chekashkin
was appointed as Group
Executive, Business
Transformation and
Operational Efficiency in
October 2019. He is also
the Group’s Chief Risk
Officer and a member of
the Company’s Executive
Committee.
Mr Chekashkin has more
than 25 years of experience
in the gold mining industry.
Mr Chekashkin joined the
Group in 2003. He has held
various senior positions,
including Group Head of
Precious Metals and Chief
Operating Officer. He was
appointed as a Director and
COO of the Company in
May 2013 and resigned as
a Director in March 2015
when the number of
Directors on the Board was
reduced. Mr Chekashkin
left the Group in October
2018 for a sabbatical,
returning to his new position
in October 2019.
Prior to his employment
with the Group he was
employed as Deputy
General Director of Finance
for two leading gold mining
enterprises in the Russian
Far East.
Mr Chekashkin is a qualified
engineer.
Mr Mikhail Safray
Senior Legal Advisor
Mr Mikhail Safray joined the
Petropavlovsk Group in
August 2018 and was
appointed as Senior Legal
Advisor in November 2018.
Prior to joining the
Company, Mr Safray held
a number of senior legal
positions with large
Russian and international
companies, including his
tenure at Alfa Group,
Immofinanz AG and
Interros. He also acted
as legal counsel for the
European Bank for
Reconstruction and
Development in London
where he was responsible
for investments in industrial
companies in the CIS
countries and the Balkans.
Mr Safray graduated from
the National Research
University Higher School of
Economics, summa cum
laude, and received
a PhD degree from the
Kutafin Moscow State Law
University and LL.M from
Boston University.
Petropavlovsk Annual Report 2019 133
Governance Report
As at 31 December 2019
Board balance of Directors
Non-Executive
Chairman (1)
Chief Executive
Director (1)
Independent Non-
Executive Directors (6)
Non-Executive
Directors (1)
Mining industry/natural
resources (8)
Business experience
in Russia (7)
Financial/Corporate
finance/advisory (5)
Diplomatic (2)
Legal (2)
Fund management/
research/city/banking (2)
UK Listed Board (2)
Male (7)
Female (2)
Business experience
Gender Diversity
Nationality
Russian (3)
British (3)
American (1)
Australian (1)
German (1)
Language skills – Russian
Native (3)
Fluent (2)
Conversational (1)
Basic or none (3)
Language skills – English
Native (5)
Fluent (4)
134 Petropavlovsk Annual Report 2019
Diversity in the Board
Petropavlovsk has an effective board of
directors made up of diverse and experienced
members. During 2019, the Board achieved
its goal of improving its gender and age
diversity. Our two new Directors have further
strengthened our Board, bringing
complementary skills and international
expertise across diverse backgrounds in
natural resources, finance and governance.
As at 31 December 2019, the nine-member
Board comprised nationals of five different
countries (the UK, Russia, the USA, Australia
and Germany), with 22% of our Board
comprising female directors.
Corporate governance framework
The following sections of this report detail the
work and operation of the Board, and the
corporate governance framework within
which the Company operates, including
further reporting required under the 2018
Code, the UK Listing Rules and the Disclosure
Guidance & Transparency Rules, to all of
which the Company is subject.
Application of the UK Corporate
Governance Code
For the year commencing 1 January 2019, the
Company was subject to the ‘2018 Code’ This
can be viewed on the website of the Financial
Reporting Council at www.frc.org.uk.
The 2018 Code sets out key corporate
governance recommendations for companies
such as Petropavlovsk that have a premium
listing of their equity shares on the main market
of the London Stock Exchange. It consists
of broad principles (Principles) and specific
provisions (Provisions) of good governance
in the following areas: Board Leadership
and Company Purpose; Division of
Responsibilities; Composition, Succession
and Evaluation; Audit, Risk and Internal Control
and Remuneration.
This Governance Report together with the
Audit Committee Report (on pages 146 to
154), the Directors’ Remuneration Report
(on pages 156 to 174) and the Nominations
Committee Report (on pages 144 to 145) is
arranged around these Principles and sets
out how the Company has applied the
Principles and Provisions of the 2018 Code
during 2019.
Compliance with Code Provisions
The Company has complied with the
Provisions of the Code throughout the year
ended 31 December 2019, with the following
exceptions:
Independence of Directors: Provision 9 and 10
of Part 2. The 2018 Code requires that the
Board should state its reasons for determining
that a director is independent notwithstanding
the existence of relationships or circumstances
which may appear relevant to its determination.
Sir Roderic Lyne and Mr Robert Jenkins were
appointed as Directors of the Company at its
2018 Annual General Meeting, having been
proposed for appointment by two of the
Company’s major shareholders, together having,
at that time, an interest in c.9% of the Company’s
voting rights over its ordinary shares. Sir Roderic
and Mr Jenkins were re-elected as Directors by
shareholders at the Company’s 2019 Annual
General Meeting having been proposed for
re-election by the Board.
Sir Roderic Lyne and Mr Jenkins are
independent and are responsible to, and act
in the interests of all shareholders equally.
Sir Roderic Lyne previously served as a
Director of Aricom Limited, from 2 October
2006 until 22 April 2009 and as a Director of
Petropavlovsk PLC, following Aricom’s merger
with Petropavlovsk, from 22 April 2009 until he
retired from the Board on 28 June 2016. The
Board considers that, given Sir Roderic has no
connection with any major shareholder, and
that he had retired as a Director two years prior
to his appointment as Chairman, having had
no involvement with the Company or its
operations during this time, (except in his
capacity as a small shareholder up to
mid-2017), he was independent upon his
appointment as Chairman.
Mr Robert Jenkins was previously a Director
of the Company for the period from 30 April
2015 to 22 June 2017. Given that Mr Jenkins
has no connection with any major
shareholder and that he was previously a
Director of the Company for a period of only
just over 2 years, he is considered by the
Company, and by the terms of the 2018 Code,
as being an Independent Director.
Senior Independent Director: Provision 12 of
Part 2 of the Code, requires that the Board
should appoint one of the independent
non-executive directors to be the senior
independent director. Following the Company’s
2018 Annual General Meeting the Directors
agreed that until the Board was fully constituted
it was not appropriate to appoint a Senior
Independent Director. Following the constitution
of the new Board and the recommendation of the
Nominations Committee, Mr Harry Kenyon-
Slaney was appointed as Senior Independent
Director with effect from 23 April 2019.
The Board
The role of the Board
The Board is ultimately responsible to shareholders for the direction, management, performance and long-term sustainable success of the
Company. It sets the Group’s strategy and objectives and oversees and monitors internal controls, risk management, principal risks,
governance and viability of the Company. In doing so, the Directors comply with their duties under section 172 of the Companies Act 2006.
The Board has established certain principal committees to assist it in fulfilling its oversight responsibilities, providing dedicated focus on
particular areas, as set out below. The Chairs of the Audit, Remuneration, Nominations and Safety, Sustainability & Workforce Committees
report to the Board on the Committee’s activities after each Committee meeting, highlighting the proceedings of those meetings, including
the key discussion points and any areas of concern.
In March 2020, after consideration of the Group’s risk framework the Board constituted a Risk Committee, chaired by Mr Damien Hackett,
Independent Non-Executive Director. The principal role of the Risk Committee is to advise the Board on the Company’s overall risk
appetite, tolerance and strategy and oversee and advise the Board on current risk exposures of the Company and future risk strategy
ensuring that appropriate mitigating strategies are in place to manage these risks.
Terms of Reference of the Board Committees are available on the Company’s website at www.petropavlovsk.net.
Board structure – as at 31 December 2019
Board
Board Committees
Audit Committee
– Reviews Audit Report on
the interim review and full
year audit;
– Reviews appropriateness
of accounting standards;
– Oversees relationships
with internal and external
auditors;
– Overseas external audit
process;
– Reviews the financial risks;
and
– Reviews internal audit
plans.
Membership
Robert Jenkins (Chair)
James W Cameron Jr
Damien Hackett
Charlotte Philipps
Harry Kenyon-Slaney
See pages 146 to 154 for
more information.
Remuneration Committee
– Determines and agrees
with the Board the format
and broad policy for the
remuneration of the
Company Chairman,
Executive Directors,
members of the Executive
Committee and the
Company Secretary;
– Reviews the on-going
appropriateness of the
policy;
– Ensures that the Company
maintains contact with
shareholders regarding the
Company’s remuneration
policy; and
– Receives and considers
details of Workforce
remuneration.
Membership
Robert Jenkins (Chair)
James W Cameron Jr
Damien Hackett
Charlotte Philipps
Katia Ray
See pages 156 to 174 for
more information.
Nominations Committee
– Reviews structure, size and
composition of the Board
and its Committees and
makes recommendations
to the Board as
appropriate;
– Considers succession
planning issues for
Directors and senior
executives; and
– Evaluates the skills and
experience of the Board
before any appointment is
made to the Board.
Membership
Sir Roderic Lyne (Chair)
Robert Jenkins
Damien Hackett
Harry Kenyon-Slaney
Dr Pavel Maslovskiy
See pages 144 to 145 for more
information.
Safety, Sustainability &
Workforce Committee
– Reviews the Group’s
health, safety,
environmental and
community relations
(“Sustainability”) strategy;
– Evaluates the effectiveness
of the Group’s policies and
systems for managing
Sustainability issues and
risks;
– Assesses the performance
of the Group with regard to
the impact of Sustainability
decisions and actions; and
– Seeks active engagement
with the Group’s workforce
on behalf of the Board.
Membership
Harry Kenyon-Slaney (Chair)
Damien Hackett
Dr Pavel Maslovskiy
Katia Ray
Dr Alya Samokhvalova
Please see pages 86 to 123 .
Petropavlovsk Annual Report 2019 135
Governance Report continued
2019 Board composition, meeting attendance and responsibilities
The following table details responsibilities and independence of the Directors, detailing their attendance at Board meetings during the year and
how their responsibilities are linked to remuneration.
Meetings
attended
Maximum
possible
Independent Responsibilities
Linked to
remuneration
Chairman
Sir Roderic Lyne
6
6
Providing leadership to the Board. Promoting the strategic success of
the Company and creating value for the shareholders in the long-
term, whilst ensuring that sound, effective corporate governance
practices are embedded in the Group and in its decision-making
processes.
Strategy and Group performance – responsibility for developing the
Group’s objectives and strategy and for the successful achievement
of objectives and execution of strategy, following approval by the
Board.
Executive Director
Dr Pavel Maslovskiy
Senior Independent Director
Harry Kenyon-Slaney
6
6
6
6
To support the Chairman and provide an independent point of
contact to shareholders on Board matters.
The responsibilities of the Non-Executive Chairman, Chief Executive Officer and the Senior Independent Director
are clearly defined with separated responsibilities, set out in writing and approved by the Board.
A copy of this document is available on the Company’s website at www.petropavlovsk.net.
Independent Non-Executive Directors
6
James W. Cameron Jr1
5
Damien Hackett
Robert Jenkins
Charlotte Philipps
(appointed on 8 November
2019)
Katia Ray
(appointed on 8 November
2019)
6
6
1
1
6
6
1
1
The Independent Non-Executive Directors bring independent and
objective analysis to all matters before the Board and its Committees
using their substantial and wide-ranging experience.
They monitor the executives’ delivery of strategy within the risk and
governance structure agreed by the Board.
As at 31 December 2019 66.7% of the Board comprised of Independent Non-Executive Directors.
Non-Executive Directors
Mirzaaziz Musakhanov2
(appointed on 14 October
2019, resigned on 5
February 2020)
Bektas Mukazhanov2
(retired as a Director on 31
July 2019)
2
3
2
3
x
x
Mr Musakhanov was a nominee Director of Aeon Mining Limited, the
Company’s former largest shareholder.
Mr Mukazhanov was a nominee Director of Fincraft Holdings Ltd, the
Company’s former largest shareholder.
As at 31 December 2019, c.22% of the Directors were female.
The Board comprises Directors of 5 nationalities.
Members of the Board have a wide range of appropriate backgrounds and experience.
1) Mr Cameron was unable to attend the meeting on 23 April 2019 due to illness.
2) Save for the potential conflicts inherent in their relationship as nominee Directors, there were no potential conflicts of interest between the duties owed to the Company by Messrs Musakhanov and
Mukazhanov and their private interests or other duties.
136 Petropavlovsk Annual Report 2019
Board meetings held in 2019
The Board held six scheduled meetings
during the year, and individual attendance is
set out above. The Directors also attended a
separate Board Strategy meeting in October,
at which all Directors were present.
In addition, there were ad hoc meetings
convened to consider matters relating to the
guarantee to be provided to Gazprombank
Joint Stock Company in relation to IRC’s new
debt facilities, the refinancing of the Group’s
9% Convertible Bonds due 2020, the
approval of the option to acquire the
remaining 25% of TEMI LLC and matters
of a routine or administrative nature.
All members of the Board attended a site visit
to the Group’s mining operations in April 2019
which included a visit to IRC’s K&S facility.
Sufficient time is provided, periodically, for the
Chairman to meet privately with the Senior
Independent Director and the Non-Executive
Directors to discuss any matters.
Board effectiveness
Board activities during 2019
The Board has a schedule of matters
reserved for its decision. This includes inter
alia: strategic matters, financial reporting and
controls, legal and regulatory compliance and
Key area of activity
Matters considered
Outcome
appointments of committees and setting of
their terms of reference. A copy of the
Schedule of Matters Reserved for the Board
is available on the Company’s website at
www.petropavlovsk.net.
During the year, the Board focused on the
matters summarised in the table below in line
with the Group strategy and the Group’s
principal risks.
Strategic:
Strategy
– Development of the
Group’s strategy
– The Long-Term Plan
– Options available for
the future of the
Group’s 31.1%
shareholding in IRC
The Board considered:
– Petropavlovsk’s strategy & culture;
– The Group’s Long-Term Plan; and
– The investment in IRC, which is considered as a non-core asset of the
Group. The Board continues to consider its options, specifically in respect
of the removal of the guarantee provided to Gazprombank by the Company
in respect of K&S’s, a subsidiary of IRC, finance facilities.
Continuously
improve Health,
Safety &
Environmental
Standards
– Proposed
Environmental,
Social &
Governance (‘ESG’)
programme
The Board approved the Company’s joining the United Nations (UN) Global
Compact initiative in December 2019. This is a voluntary leadership platform
which reflects the Board’s commitment to aligning the Group’s operations
with ten universally accepted principles in the areas of human rights, labour,
environment and anti-corruption.
The Board reviewed the Group’s ESG strategy and, considering this to be of a
critical importance to the Group’s future, the Board agreed to appoint a Head
of Sustainable Business to develop the Group’s ESG programme and set
appropriate ESG KPIs targets.
– Lost-Time Injury
Frequency Rate &
initiatives to improve
safety performance
The Safety, Sustainability & Workforce Committee (the “SS&W Committee”)
advised the Board of the H&S initiatives being undertaken at operational level
to improve LTIFR. 2019 saw a considerable improvement in LTIFR from 2.52
to 1.61.
– The safety of the
Group’s
Hydrotechnical
Storage Facilities
The SS&W Committee Chair reported on a detailed paper presented by the
executive team on management’s approach to ensuring that the Group’s
Hydrotechnical Storage Facilities (‘HSF’) are operated and monitored in
accordance with legislation of the Russian Federation and in line with
international best practices. This approach adopts the zero-harm principle.
Stakeholders
– Our investors
– Our employees
– Our communities
– Our contractors
– Our employees
– Our communities
and governments
– Our investors
– Our contractors
Petropavlovsk Annual Report 2019 137
Governance Report continued
Key area of activity
Matters considered
Outcome
Strategic: (continued)
Strengthen the
balance sheet and
increase liquidity
– The guarantee
provided to
Gazprombank in
relation to IRC’s loan
facilities and the
refinancing of its
bank debt
In March 2019, IRC completed a refinancing of its ICBC Facility with
Gazprombank, extending the maturity of the debt obligations. The refinancing
terms included proposed new guarantee arrangements, which the Board
considered, and on its recommendation, were approved by shareholders
on 12 March 2019. The refinancing and new guarantee arrangements have
assisted to de-risk the Company’s financial position, enabling also K&S,
a wholly owned subsidiary of IRC, to repay bridge loans amounting to
US$57 million advanced by the Company.
Stakeholders
– All stakeholders
– Refinancing
of the Petropavlovsk
2010 Limited 9%
Convertible Bonds
due March 2020
In June 2019, the Board approved the launch of the Group’s US$125 million
8.25% Convertible Bonds due 2024, proceeds of which were used to repay
the existing US$100 million Group’s 9% Convertible Bonds due 2020 and
to accelerate the construction of the planned new flotation facility at the
Pioneer mine.
– All stakeholders
In August 2019, Fitch Ratings upgraded the Group’s Long-Term Issuer Default Rating and senior unsecured rating to ‘B-’ From ‘CCC’ with a
Positive Outlook due to “a significant strengthening in Petropavlovsk’s liquidity position due to the refinancing of the convertible bond,
repayment of US$57 million bridge loans by affiliated iron ore producer IRC Limited and the increased visibility for production due to the launch
of the POX Hub in November 2018.”
Maintain and
expand gold
resources
– Option Agreement
to acquire 25%
minority interest in
TEMI LLC.
The Board approved an Option to acquire the remaining 25% of TEMI LLC
(“TEMI”) the terms of which were announced on 23 September 2019. TEMI
holds the licences to the Elginskoye and Unglichikanskoye deposits, which
have substantial non-refractory gold reserves and resources, suitable for
processing at the Albyn Plant.
– Our investors
– Our employees
– Development
Opportunities
At the Board Strategy Day in October 2019, the Board considered various
development opportunities for Petropavlovsk’s resource base. Assessment of
these options is continuing, led by the Executive Committee.
Unlock the value
creation potential
of the POX Hub
– Ramp-up of POX
Hub production,
including purchase
of third-party
concentrate
The Board:
– Received regular updates on the ramping up of the POX Hub’s production;
as well as on the supply and processing of third-party concentrate; and
– Considered a report on the comprehensive systems and security in place
to protect the POX processing plant which aims to ensure environmental
safety and safety of the Group’s employees.
– Our investors
– Our employees
– Our suppliers
– Our community
(the environment)
– Acceleration of the
construction of the
Pioneer flotation
plant
The Board approved the acceleration of the construction of the Pioneer
flotation plant. Construction remains on schedule for the plant to be fully
operational in Q4 2020.
– Employee
engagement
In April 2019 the full Board visited the Group’s operations and met with
members of the workforce and the local trade union.
– Our employees
Please go to page 100 relating to the Company’s culture and its engagement
with employees.
Development of
current and future
employees
138 Petropavlovsk Annual Report 2019
– Our Board
colleagues
– Our employees
– Our suppliers
– Our customers
– Governments
– Our shareholders
Key area of activity
Matters considered
Outcome
Stakeholders
Governance & Legal:
Leadership
– Appointment of
additional Board
members to
broaden the skills
and experience of
the Board and to
enhance the
diversity of the
Group’s leadership
During the year Charlotte Philipps and Katia Ray joined the Board as
Independent Non-Executive Directors bringing complementary skills and
international expertise across diverse backgrounds in natural resources,
finance and governance.
The biographies of all current Board and Executive Committee members
are set out on pages 130 to 133.
Board evaluation
– External Board
evaluation
Legal & Regulatory
– Regulatory
The Board undertook an external Board evaluation, conducted by Prism
CoSec an independent firm with no other connection to the Company.
Further details are provided on page 134.
The Board approved the Modern Slavery Statement, Payments to
Governments Report, updated Anti-Bribery Policy and ‘Speak Up’ Policy.
Shareholder engagement
Annual General
Meeting
– Poll results of
resolutions
proposed at the
2019 Annual
General Meeting
Investor
engagement
– Shareholder
feedback
Financial Updates & Risk Management
Finance
– Actual results and
budgeting
Internal Controls
– Risk Management
The Board consulted with shareholders who voted against resolutions
to ascertain their reasons for voting against the Board’s recommendation.
Further information is provided on page 175.
The Board received and considered feedback from shareholders.
– Our shareholders
The Board considered and approved the Group’s 2020 Budget and updated
Long-Term Plan.
The Board reviewed the Group’s cash flow projections and hedging
arrangements, including its forward gold sales arrangements.
The Board instigated a review of the Group’s Risk Framework with
recommendations presented to the Board in early 2020. As a result, the Board
agreed:
– A Board Risk Committee to be set up and chaired by Mr Damien Hackett,
Independent Non-Executive Director; and
– A new Risk Committee framework will be presented to the Board in
May 2020.
Production & Operational Updates
– Monthly production
figures and
operational issues
The Board reviewed the Group’s monthly production reports compared to
budget and forecast.
It also received updates on operational issues, including flooding at Malomir
during July and August 2019.
Petropavlovsk Annual Report 2019 139
Governance Report continued
Board evaluation
During the second half of 2019, a
performance evaluation of the Board was
externally facilitated by Christopher Stamp
of Prism CoSec (‘Prism’). Neither Mr Stamp
nor Prism has any other connection with
the Company.
Process: The scope of the 2019 evaluation
was determined following a review by Prism
of Board and Committee papers, minutes and
Committee terms of reference. The scope was
discussed in advance with the Senior
Independent Director and the Company
Secretary. The process agreed on was to
use one-to-one interviews with each of the
Directors, the Chief Financial Officer, the
Deputy Chief Executive Officer and the
Company Secretary. A report was then
prepared by the external consultant
incorporating the findings and observations
(the ‘Report’). The Report was discussed with
the Senior Independent Director and the
Company Secretary prior to circulation to
members of the Board. The recommendations
were discussed at the following Board
meeting. The conclusion of that discussion
and agreed actions were recorded in the
minutes of the meeting.
With a significant period of change nearly
completed, opening up the possibilities for
the Board to be more forward-looking, the
evaluation provided a good opportunity for
the Board to consider how to progress its
governance processes further, particularly
taking into account the expectations set by
the 2018 Code. The principal focus of the
evaluation was therefore on:
– Board and Committee processes, papers,
minutes and structure of meetings;
– Board and Committee priorities for the
coming 12-18 months;
– Adoption of the new UK Corporate
Governance Code requirements; and
– Governance of stakeholder relationships.
In addition, the independent consultant
briefed the Senior Independent Director on
feedback relating to Sir Roderic Lyne which
was used as part of the evaluation of the
Chairman, as required by the 2018 Code.
Board Review Insights: The evaluation
concluded that the Board had developed into
a cohesive group. The Independent Non-
Executive Directors brought robust challenge
to the Board’s discussions whilst respecting
the need for the executive team to be allowed
to manage the Group’s business operations.
Relationships with the Company’s major
shareholders had improved with the Chairman
and Senior Independent Director supporting
the interaction of the executive team.
The Board was reasonably satisfied with the
current approach to risk believing it to be
robust and balanced. However, the Board’s
approach to risk was evolving and there might
be scope for further improvement in the
approach to risk particularly the operation and
effectiveness of the overall risk management
framework.
Other areas for further progress included
consistency and structure of papers and
management information. In addition, whilst
there are no immediate concerns about
succession planning at the executive level, the
report concluded that there is scope for the
Nominations Committee to focus on senior
management succession to ensure that loss
of personnel risk is managed well.
Induction, site visits, information and
support
Induction and site visits: New directors
receive appropriate induction training when
they join the board of Petropavlovsk PLC.
Directors are expected to update their skills
and knowledge and develop the familiarity
with the Group’s operations needed to fulfil
their role on both the Board and any
Committees.
As part of their induction, Ms Philipps and
Mrs Ray met with members of the Senior
Executive team, including with Dr Pavel
Maslovskiy, Chief Executive Officer; Dr Alya
Samokhvalova, Deputy Chief Executive
Officer and Mr Dmitrii Chekashkin, Group
Executive, Business Transformation and
Operational Efficiency.
Action Plan: The following action points, amongst others, were agreed as a result of the Board evaluation process
Information and
processes:
A review of papers and information provided to the
Board and Board Committees should be undertaken
to ensure that the papers focus on key issues.
Status: This review is underway
Succession
planning:
Succession planning for the team below the Board will
be included as an item for future Nominations
Committee meetings.
Status: Ongoing
Risk management
and internal
control:
A review of the Group’s risk management framework
and internal control environment should be undertaken.
Status: Reviews of the Group’s finance function and its
internal audit function have been completed. In addition,
following an internal review of the Group’s risk framework,
the Board has constituted a Risk Committee, chaired by
Mr Damien Hackett, Independent Non-Executive Director.
140 Petropavlovsk Annual Report 2019
There is regular dialogue with institutional
shareholders, as well as presentations after
the full year and interim results. The Board is
advised of any specific comments from
institutional investors to enable it to develop
an understanding of the views of major
shareholders. Small retail shareholders are
important to the Company. All shareholders
have the opportunity to put questions at the
Company’s Annual General Meetings.
In addition, shareholders are welcome to
contact the Company’s Investor Relations
department with any specific queries
regarding the Company.
As new members of the Remuneration
Committee, and as part of their induction,
they also met with Mercer Kepler, adviser to
this Committee. They both attended a briefing
session with management on financial control
and reporting matters. This was of particular
relevance to Ms Philipps due to her
appointment to the Audit Committee.
Visits to the Group’s gold mining operations
are an important part of a Director’s induction
and a visit has been planned for Ms Philipps
and Mrs Ray during the latter half of 2020.
The full Board visited the Group’s gold mining
operations in early April 2019. The Directors
visited the Group’s offices in Blagoveschensk,
the Malomir mine and the POX Hub at
Pokrovskiy. A visit to IRC’s K&S facility was also
arranged. During the visit the Chairman of the
Safety, Sustainability & Workforce Committee,
and members of this Committee, met with
representatives of the workforce. Management
presentations were arranged for the Board
including from Mr Nikolai Vlasov, Group
Chief Geologist.
As detailed in the Audit Committee Report
on page 147, Mr Jenkins, Audit Committee
Chair, visited the Group’s mining operations
in December 2019, together with the
Company’s external auditor, Deloitte LLP.
This included visits to the Albyn, Malomir and
Pioneer mines, the flotation concentrate plant
at Malomir and the POX Hub facility.
Mr Jenkins has also attended the Group’s
offices in Moscow for meetings with the Chief
Financial Officer and Group Internal Auditor
and with certain audit firms who participated
in the Company’s audit tender.
During the year the Board received
presentations from the Company’s brokers
advising them of their responsibilities as
Directors of a listed company and from the
Company’s legal counsel on the UK Listing
Rules including the new obligations in respect
of related party transactions.
The Non-Executive Directors may attend
conferences and seminars on the mining
industry at the Company’s expense to
enhance and update their knowledge.
The Directors receive briefings on regulatory
and corporate governance issues from the
Company Secretary and the Company’s
advisors.
Information flow: Prior to each Board meeting
the Directors receive detailed information on
operational and financial performance,
activities of the Board Committees, investor
relations and projects that are being
progressed by the Executive team. The Board
receives presentations and verbal updates
from the Chief Executive Officer, Chief
Financial Officer and other members of the
Executive Committee at Board meetings as
appropriate. All Directors are encouraged to
make further enquiries, and request further
information as they feel appropriate, of the
Chief Executive Officer or members of the
senior executive team. All Directors are
encouraged to participate actively in Board
meetings which are chaired in an open and
collaborative manner.
All Directors have access to the services of
a professionally-qualified and experienced
Company Secretary, who is responsible for
information flows to the Board and its
committees and between senior
management, the Chairman and Non-
Executive Directors, facilitating induction and
assisting with professional development as
required, ensuring compliance with Board
procedure and applicable laws and
regulation.
Professional advice: There is an agreed
procedure for Directors to take independent
professional advice if considered necessary
to discharge their responsibilities as Directors
and at the Company’s expense.
Senior Advisor and President: Mr Peter
Hambro, who co-founded the Company with
Dr Maslovskiy, is President of the Company
and Senior Advisor to the Board. Mr Hambro
is not a member of the Company’s
management or executive team and has
no authority to take executive decisions.
Mr Hambro is also Non-Executive Chairman
of IRC Limited.
Investor engagement
Communication with shareholders is of great
importance to the Company and the Board
aims to maintain an open and transparent
dialogue with its shareholders and potential
shareholders. The Investor Relations
department manages the interaction with
these audiences and ensures that full and
comprehensive information is available to all
shareholders.
Petropavlovsk Annual Report 2019 141
Governance Report continued
2019 Annual General Meeting
The following table details the resolutions proposed at the 2019 AGM by the Company which received less than 80% of votes in favour:
Election of Mr Bektas Mukazhanov
Resolutions:
8
9 Re-election of Sir Roderic Lyne
11 Re-election of Mr Robert Jenkins
12 Authority to allot shares
13 Disapplication of pre-emption rights*
14 Disapplication of pre-emption rights (additional 5%)*
*Proposed as Special Resolutions requiring at least 75% of votes cast to be in favour of the Resolution.
The following information is provided in
accordance with Provision 4 of the Code:
As detailed in the Company’s
announcements on 5 December 2019, the
Chairman personally wrote to shareholders
who voted against the above resolutions to
understand why they had voted against the
Board’s recommendation. The Chairman and
the Senior Independent Director had
constructive meetings with two of the
shareholder groups who accepted the
invitation to discuss the resolutions.
Mr Jenkins also discussed matters with
certain shareholders in his capacity as both
Remuneration and Audit Committee Chair.
During this consultation process the following
points were raised:
Re-election of Directors:
– Re-election of Sir Roderic Lyne (Resolution
9): Sir Roderic is Chair of the Board and of
the Nominations Committee. Shareholders
highlighted their concerns about the diversity
of the Board given that at the date of the
2019 AGM all the Directors were male.
As detailed in the 2018 Nominations
Committee Report the aim of the Board
was to identify and recruit both female
and younger Directors with relevant
qualifications. Following an extensive search,
the Company announced the appointment
of Ms Charlotte Philipps and Mrs Katia Ray
as Independent Directors of the Company
with effect from 8 November 2019.
As at 31 December 2019, the Board’s
composition had c.22% female
representation, closely matching the
overall female representation across all
Petropavlovsk operations of c.25% –
notably higher than the International
Women in Mining’s industry estimate of
10 percent females in mining operations
globally. The age profile of the Board has
also improved. More information is provided
on page 144 to 145.
– Re-election of Mr Robert Jenkins
(Resolution 11): Mr Jenkins is Chair of
the Remuneration and Audit Committees.
The Company’s audit tender was due
during the year ended 31 December 2019.
However due to Board changes the
Company requested an extension from
the Financial Reporting Council. This was
duly provided. However certain of our
shareholders decided, due to their internal
voting policies, to vote against Mr Jenkins
re-election due to this deferral of the audit
tender. An audit tender process was
undertaken in late 2019 which is explained
in detail on page 153. As a consequence,
PwC will be appointed as the Company’s
auditor following the signing of the
Company’s accounts and financial
statements for the year ended 31
December 2019.
In addition, certain shareholders raised
concerns regarding the level of disclosure
of bonus targets in the 2018 Directors’
Remuneration Report. As a consequence
of this feedback, the level of disclosure in
the 2019 Directors’ Remuneration Report
has been increased.
‘For’
74.75%
71.60%
74.69%
73.51%
73.43%
73.38%
‘Against’
25.25%
28.40%
25.31%
26.49%
26.57%
26.62%
– With respect to Resolution 8, the election
of Mr Bektas Mukazhanov as a Director,
Mr Mukazhanov, nominee Director of
Fincraft Holdings Ltd the then major
shareholder of the Company, resigned as a
Non-Executive Director of the Company on
30 July 2019 following a purchase of
Fincraft Holdings Ltd by Aeon Mining
Limited.
Authority to Allot Shares and Dis-apply
Pre-Emption Rights: In respect of Resolutions
13 and 14 relating to the application of
disapplication rights, the authority sought by
the Company was aligned with the Investment
Association’s share capital guidelines and
market practice for FTSE listed companies.
However, these Special Resolutions, which
required at least 75% support from
shareholders who voted, were not approved.
It can be noted that during the Chairman’s
consultation process no shareholder raised
any specific concerns regarding the authority
to allot shares and the two special resolutions
to dis-apply pre-emption rights. Shareholders
were supportive of resolutions to allot shares
and dis-apply pre-emption rights proposed at
the 2018 AGM.
The Board appreciated the feedback it
received from shareholders during this
process. The Board intends to continue
its policy of proactive engagement with its
shareholders.
142 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 143
Nominations Committee Report
Letter from the Nominations Committee Chair
Nominations Committee composition and meeting attendance
Current members
Sir Roderic Lyne (Chairman)
Dr Pavel Maslovskiy
Mr Damien Hackett1
Mr Robert Jenkins
Mr Harry Kenyon-Slaney2
1. Member from 24 April 2019.
Role
Non-Executive Chairman of the Board
Chief Executive Officer
Non-Executive Director
Non-Executive Director
Senior Independent Director
Meeting
attendance
4/4
4/4
3/3
4/4
3/4
2. Mr Kenyon-Slaney was unable to attend the Committee meeting held on 15 October 2019 due a prior business commitment.
In addition to the appointment of Mr Kharin,
the Committee has initiated three further
appointments in 2020.
Firstly, on 21 April 2020 the Board was
pleased to approve the appointment of
Danila Kotlyarov as an Executive Director,
upon the recommendation of the Committee.
Mr Kotlyarov was appointed as Chief Financial
Officer of the Company and a member of the
Executive Committee in February 2020. With
his expertise and previous Board experience
as Finance Director of our associated
company, IRC, Danila Kotlyarov is giving
authoritative direction to the Company’s
financial management.
Second on 24 May 2020, the Committee
recommended the appointments of
Ms Fiona Paulus and Mr Tim McCutcheon
as Independent Non-Executive Directors.
Mr McCutcheon, who has extensive
experience of the natural resources sector in
Russia, was interviewed by the Committee
following a recommendation from a
shareholder. Ms Paulus was recommended
as a candidate for the Chairmanship following
a lengthy process led by the Senior
Independent Director, Harry Kenyon-Slaney,
and assisted by the recruitment consultancy
Egon Zehnder. (As I have noted in my
introductory Chairman’s Statement in this
Report, in the autumn of 2019 I informed the
Nominations Committee and the Board of my
intention to retire at the 2020 AGM subject to
a suitable successor being found. A Search
Committee was then formed under
Mr Kenyon-Slaney and criteria agreed.)
Diversity statement
It is a core belief of the Petropavlovsk Board
that diverse skills, background, experience and
points of view will benefit our organisation and
strengthen the Board’s effectiveness. During
2019 the Committee focused on enhancing
the diversity of the Board, seeking female and
younger Directors with relevant qualifications.
Our aim was to build a strong, independent,
highly qualified and diverse Board, actively
engaged in the strategic decision-making and
oversight of the Group. This process
Company on 8 November 2019. Their varied
and relevant career backgrounds have added
to the skills and experience of our Board and
its Committees.
On 30 July 2019, Bektas Mukazhanov, who
had served as a Non-Executive Director
nominated by Fincraft Holdings Ltd (as the
Group’s major shareholder), resigned from
the Board, Fincraft having sold its
shareholding to Aeon Mining Limited (‘Aeon’).
In consequence, on 14 October 2019, we
welcomed Mirzaaziz Musakhanov to the
Board as a nominee of Aeon.
Mr Musakhanov resigned from the Board on
5 February 2020, following Aeon’s decision to
sell its Petropavlovsk shareholding. On 21
April 2020 the Board appointed in his place
Maxim Kharin, a nominee of the Company’s
new major shareholder, Uzhuralzoloto Group
of Companies (‘Uzhuralzoloto’). Prior to the
appointment of Mirzaaziz Musakhanov and
Maxim Kharin as a Non-Executive Director
the Committee considered that they had the
relevant experience and skills to make a
valuable contribution to the Board. The
Company has entered into a formal
Relationship Agreement with Uzhuralzoloto
and its beneficial shareholder which governs
the rights of Uzhuralzoloto, its beneficial
holder and the Company and manages any
potential conflicts. Such an agreement was
also in place with Fincraft and Aeon.
Diversity (as at 31 December 2019)
Male
Board
78%
Executive Committee
86%
Direct Reports to Executive Committee
60%
All Employees
75%
Female
22%
14%
40%
25%
Dear Shareholder
Introduction
I am presenting this report as Chairman of the
Nominations Committee, a committee
established by the Board of the Company.
In the Chairman’s governance introduction,
I note that during 2019, we achieved our
objective of having a strong, independent,
highly qualified and diverse Board, actively
engaged in the strategic decision-making and
oversight of the Group. The work undertaken
by the Committee during the year (and carried
through into 2020) has ensured that we have
in place an exceptional non-executive team
with a breadth of skills, experience and
perspectives that are relevant to the next
phase of the Company’s development.
The Committee continued to fulfil its core
responsibilities of reviewing the structure of
the Board and committees, recommending
new Board appointments and ensuring
adherence to formal appointment and
induction processes.
Board changes
In 2019, the Committee led the process to
identify two new Independent Non-Executive
Directors. The Committee approved the
appointment of Savannah Group, an external
global search consultant, to facilitate these
appointments. Savannah, in conjunction with
the Committee, developed a candidate
specification that highlighted a number of
areas of competence required by the Board.
These included experience in corporate
financing and investment, natural resources
and Russia. We sought candidates with
experience of dealing at senior levels and
the communication skills and personal
characteristics to be effective at Board level.
After interviewing a number of well-qualified
candidates, we were very pleased to
appoint Charlotte Philipps and Katia Ray as
Independent Non-Executive Directors of the
144 Petropavlovsk Annual Report 2019
culminated in the appointment of Charlotte
Philipps and Katia Ray in November 2019
and the proposed appointment of Ms Paulus
and Mr McCutcheon on 27 May 2020, as
detailed above.
As of 27 May 2020, the twelve-member
Board will comprise nationals of five different
countries (the UK, Russia, Germany, the USA
and Australia) with a wide range of appropriate
backgrounds and experience. As at
31 December 2019 female Directors
represented 22 per cent of the total Board
membership, compared with an all-male
Board as at 31 December 2018. As of 27 May
2020, three out of eight Independent Non-
Executive Directors (37%) will be women.
The Committee has taken account of the
Hampton-Alexander Review and the Lord
Davies Report and will continue to monitor
the possibility of legislation on Board
composition. It has made appointments to
the Board on merit and on its assessment
of appropriate qualifications, including its
objective of enhancing diversity. These are
criteria which the Board intends to maintain.
We are proud of the gender diversity of the
Group’s general workforce with female
employees comprising c.25 per cent, with the
percentage of women employed in senior and
executive positions at c.30 per cent. Please
go to pages 100 and 103 of the Sustainable
Development Section of this Report for
further details of the Company’s ‘Diversity
and Equal Opportunity’ policy.
Succession planning
The Committee focuses on effective
succession planning to ensure the future
prosperity of the Company.
As I have explained in my introduction to the
Annual Report, this will be my last year as
Chairman and I am therefore not seeking
re-election to the Board at the 2020 Annual
General Meeting.
I have served as a Non-Executive Director
within the Group for twelve out of the past
fourteen years. Having been a Non-Executive
Director of Aricom plc from 2006 to 2009,
I then became a Director of Peter Hambro
Mining plc and Petropavlovsk PLC until 2016,
when I retired at the Annual General Meeting.
I was asked to return, as Chairman, and
elected by shareholders at the 2018 AGM,
in order to stabilise the Company and restore
corporate governance at a time of great
difficulty and turbulence engendered by
Board changes in the previous year.
These objectives have now been achieved.
Following Pavel Maslovskiy’s return as CEO,
Petropavlovsk has made exceptional
progress in 2019, continuing into 2020.
We have rebuilt the Board and corporate
governance to the highest standards.
The Board is now focused on a strategy for
the Company’s further development over
the next five years. Now is the right time to
appoint a new and younger Chairman who
can lead it forward through this period of
growth and opportunity. It is also the case
that my continued service as Chairman, after
so many years in different roles within the
Group, could be seen to be outside the
parameters of the UK Corporate Governance
Code 2018 (the ‘2018 Code’).
The Committee was pleased to note and
support the appointment to the Executive
Committee on 1 January 2020 of Dmitrii
Chekashkin, Group Executive, Business
Transformation and Operational Efficiency.
Dmitrii has more than 25 years of experience
in the gold mining industry. Dmitrii was the
Group’s former COO, leaving the Group in
September 2018 for a sabbatical. Dmitrii has
also recently been appointed as the Group’s
Chief Risk Officer, a new position which is
focused on strengthening our risk
management framework.
In November 2018 Mikhail Safray was
appointed as Senior Legal Advisor. Prior to
his appointment Mikhail held a number of
senior legal positions with large Russian
and international companies. Together with
the recent appointment of Danila Kotlyarov,
the Executive Committee has also been
reinvigorated since the return of Pavel
Maslovskiy, Chief Executive Officer in June
2018. The Executive Committee comprises
an experienced senior executive team. Please
go to page 133 for current membership of
the Executive Committee and summaries
of their biographies.
Effectiveness of the Committee
The effectiveness of the Committee was
reviewed as part of the Board evaluation
process undertaken by an external facilitator
during 2019. The process identified that
although there are no immediate concerns
about succession planning at the executive
level, with a strong Executive Committee
membership, there is scope for the
Committee to focus more on senior
management succession to ensure that
loss of personnel risks are managed well.
The Committee intends to fully address this
matter during 2020.
It is proposed that Prism, the external
facilitator will be appointed during 2020 to
undertake a detailed evaluation of all the
Board’s Committees, including the
Nominations Committee.
Re-election of Directors
The Committee has considered in detail the
performance and contribution of the Directors
who are standing for election or re-election at
the Company’s 2020 AGM. Following this
review the Committee recommended that
each Director be put forward for election or
re-election by the Company’s shareholders
at the 2020 AGM.
In accordance with the 2018 Code the specific
reasons why the contribution of each Director
is, and continues to be, important to the
Company’s long-term sustainable success will
be set out in the 2020 Notice of Annual General
Meeting and accompanying papers.
Sir Roderic Lyne
Nominations Committee Chair
26 May 2020
Additional activities of the Committee during
2019:
– Approval of the 2018 Nominations
Committee Report;
– Recommendation to the Board of:
– The appointment of Mr Harry Kenyon-
Slaney as Senior Independent Director
with effect from 23 April 2019;
– The appointment of Mr Damien Hackett
as a member of the Committee with effect
from 24 April 2019; and
– Recommendation to the Board of a change
in Board committee membership following
the appointment of Ms Charlotte Philipps
and Mrs Katia Ray as Independent Non-
Executive Directors on 8 November 2019.
Petropavlovsk Annual Report 2019 145
Audit Committee Report
Letter from the Audit Committee Chair
Dear Shareholder
While 2019 has been a successful year for
Petropavlovsk, we are conscious that the
Company operates in a global environment
with volatile markets and economies, which in
turn influence the gold price and exchange
rates. The Committee is also mindful of the
increasingly complex governance and
accounting frameworks that drive the internal
controls and risk management processes of
our business. We have taken actions during
the year for the enhancement of these.
The current COVID-19 pandemic is a new
risk that the Committee has had to consider,
particularly in our assessment and
appropriateness of the going concern basis of
accounting. I am pleased to advise that at the
date of this Report, COVID-19 has had minimal
impact on our operations with none of our
employees having been diagnosed with
COVID-19, and to date relatively few cases
registered in the Amur region in which the
Group’s mining operations are located.
We continue to ensure that appropriate
mitigating actions are taken to ensure the
safety of our workforce. The Company has
also taken action to support the local
communities in the Amur region during these
unprecedented times. Please go to page 6
of this Annual Report for further information.
The Committee’s focus in 2019
Financial Function, Risk Management
Framework and review of controls
During the year the Committee, together
with management, have initiated a review
to determine implementation proposals to
enhance the Group’s internal financial
reporting, associated processes and risk
management controls framework. In 2019,
external consultants were engaged to:
(i) Review the Group’s finance function:
whilst the Group has a capable,
experienced and highly qualified finance
team, the review was focused on
assessing the structure and processes
of the Group’s finance function, comparing
these with industry best practice; and
(ii) Review the Group’s internal audit function
to identify areas for further development.
The outcome of the finance function review is
being considered by Mr Danila Kotlyarov, our
newly appointed Chief Financial Officer, with
proposals to be presented to the Committee
for initiation of implementation in 2020.
The key areas for focus during 2020 will
include (i) optimisation of the administrative
and finance function structure and (ii)
enhancing of the Group’s budgeting,
management accounting and financial
reporting processes. This will cover the
potential automation of certain processes.
The Committee looks forward to reporting
further on this in detail and on actions taken
in its 2020 Report.
The external review of the Group’s internal
audit function highlighted the effectiveness
and value of the Group’s advanced automated
data analytics software that has been
developed internally. This is being utilised
to monitor the control and management
of working capital, including inventory and
purchasing. It has extended the scope of the
work that can be undertaken by our audit
team. Although it has increased its effective
capacity, the review has highlighted its small
staffing size. The Group has acted to address
a number of the review’s recommendations
and has resolved to increase the size of its
internal audit staffing and develop the scope
of its assurance function.
The review identified further actions that
could be taken to strengthen the Group’s
procedures to manage risks and oversee the
Group’s internal control framework. I have
engaged regularly with the Group Head of
Internal Audit on these as well as in external
meetings together on risk management with
both the Group’s external consultants and
with leading Russian mining company
management responsible for this to consider
the role of the internal audit function in
meeting the Group’s requirements. This will
be a principal area of focus for the Committee
during 2020. For details of these reviews
please go to page 154. In this connection,
the Committee has welcomed the recent
constitution of a Board Risk Committee in
February 2020. This has enhanced the
Group’s risk management framework.
This committee has already completed a
review of the Group’s risk framework to
identify areas for improvement.
146 Petropavlovsk Annual Report 2019
Audit tender
In 2019, the Committee, supported by
Petropavlovsk’s capable finance team, led the
audit tendering process for financial years
starting from 2020. Deloitte LLP (Deloitte) has
been the external auditor of the Company
since 2009 when Deloitte won a competitive
tender. As outlined in the 2018 Audit
Committee Report, this tender process had, in
accordance with legislation, been required for
the year ended 31 December 2019. However,
the tender was deferred for a year due to the
change of Board in 2018 and following
approval by the Financial Reporting Council.
The Company followed a thorough process
in undertaking the tender. This included
consideration of the quality and cultural fit of the
lead partner and key members of their team, the
approach to client services and quality of the
audit, technical expertise and independence
of the audit firm. The Committee is pleased to
announce PricewaterhouseCoopers LLP (PwC)
as the successful firm.
The Committee considers PwC to be a
first-class candidate and in reaching its
decision the Committee considered the
overall audit quality and the principal criteria in
the tendering process, as well as the
experience and expertise of PwC’s Russian
and UK teams. A resolution will be proposed
at the Company’s 2020 Annual General
Meeting for the appointment of PwC as
auditor of the Company.
Significant judgements
Going concern
In March 2019, IRC’s bank debt with ICBC
was refinanced through new facilities with
Gazprombank Joint Stock Company
(Gazprombank). These are on more
favourable terms, providing a more relaxed
amortisation schedule and an extended
repayment period to 2026. This has
substantially improved the financial stability of
both IRC and Petropavlovsk, which provides
a guarantee for these loan facilities.
In June 2019, the Group refinanced its
US$100 million 9% Convertible Bonds
due March 2020 with the placement of
US$125 million 8.25% Convertible Bonds
due July 2024. The additional funds were used
to accelerate the construction of the flotation
plant at Pioneer, which is due to be
commissioned in Q4 2020. As a result, the
Company has significantly strengthened its
balance sheet, with no debt to repay during the
going concern period, being 12 months from the
date of signing of the 2019 financial statements.
Visits to the Operations
I continue to engage regularly with the Chief
Executive Officer, Chief Financial Officer,
Group Head of Corporate Reporting and
Group Head of Internal Audit, ensuring that
I am fully informed of any matters of
importance to the Committee.
During the year I have visited both our
Moscow Head Office and our mining
operations on a number of occasions,
meeting with operational management
and the Group Chief Geologist to ensure that
I have a proper understanding of key issues
relating to financial, including risk
management and reporting. Additionally,
I visited the Group’s Scientific Research
Centre in Saint Petersburg, whose
metallurgical expertise is central to its
refractory ore processing capability.
Annual Report
The Committee continues to oversee the
reporting process in order to ensure that the
information provided to shareholders in this
Annual Report taken as a whole is ‘fair,
balanced and understandable’ and allows
assessment of the Company’s position and
performance, business model and strategy.
In addition, the Committee has advised the
Board on the viability statement required
under the UK Corporate Governance Code.
In the following report the Committee has
sought to provide shareholders with an
understanding of the work that we have done
to provide assurance on the integrity of the
2019 Annual Report and financial statements.
I hope that you will find this informative.
Robert Jenkins
Audit Committee Chair
26 May 2020
However, in addition to reviewing and
challenging key assumptions of gold price,
production and exchange rates, and as noted
earlier in this report, the going concern analysis
has taken into consideration the potential
impact of COVID-19 on the Group’s operations.
This was a detailed exercise and included
consideration of the potential implications to the
Group’s supply chain, inventory management,
purchase and sales logistics and access to
capital. After careful consideration the
Committee recommended to the Board that
the going concern basis of accounting was
appropriate for the financial statements for the
year ended 31 December 2019.
Other significant judgements for the
Committee’s consideration at the year-end
related to:
– The carrying value of mining assets
including the POX Hub;
– Valuation of the Company’s investment in
IRC; and
– Accounting for Petropavlovsk’s guarantee
of IRC’s debt.
These matters are discussed in more detail
later in this Report.
Other matters
Committee membership
The Committee was pleased to welcome
Ms Charlotte Philipps, Independent Non-
Executive Director, as a member of the
Committee on 8 November 2019. Charlotte
has extensive experience in corporate
financing and equity investment in Russia and
in other former USSR and CMEA countries,
principally focused on natural resources.
She is a qualified lawyer.
As part of her induction as a member of the
Committee, Charlotte attended an in-depth
briefing session upon her appointment to
ensure that she had a proper understanding
of relevant matters to enable her to participate
fully in her first Committee meeting. She also
met separately with Mr Christopher Thomas,
the Company’s Audit Partner at Deloitte LLP.
The Committee now comprises of five
Independent Non-Executive Directors. For full
details of Committee membership please go
to page 133.
Petropavlovsk Annual Report 2019 147
Audit Committee Report continued
Governance
Committee membership and attendance:
Name
Mr Robert Jenkins, Committee Chair, Independent Non-Executive Director
Mr James W. Cameron Jr, Independent Non-Executive Director
Mr Damien Hackett, Independent Non-Executive Director
Mr Harry Kenyon-Slaney, Senior Independent Director
Ms Charlotte Philipps, Independent Non-Executive Director
1.Mr Cameron was unable to attend one meeting due to illness.
Meeting attendance
5/5
4/5 1
5/5
5/5
1/1
Mr Jenkins is considered by the Board as
having the requisite and relevant financial
experience due to his profession as a
Chartered Accountant and his previous roles
as Finance Director and Chief Financial
Officer of two Russia focused natural
resource companies, including a UK AIM
listed mining exploration company.
Mr Jenkins was also the Senior Independent
Director and Audit Committee Chairman of
Ruspetro plc, an independent oil and gas
production company, until its delisting from
the London Stock Exchange in June 2016.
Mr Jenkins has over 25 years’ Russia related
investment experience. He was also
previously Audit Committee Chairman of UK
AIM listed Philippines nickel ore producer
Toledo Mining Corporation PLC.
Additionally, both Messrs Hackett and
Kenyon-Slaney have relevant experience
within the mining sector. Mr Hackett has over
25 years’ investment analyst research
experience covering globally diverse mining
companies, initially as Global Head of Mining
Research with Credit Suisse – First Boston in
Australia, following which he held similar roles
with Credit Suisse and Canaccord Genuity in
London. Latterly he was Vice Chairman
Mining Advisory at Canaccord Genuity
responsible for developing investment
themes in metals and mining across North
America, Europe, Russia and Australia.
Mr Kenyon-Slaney is a geologist by
professional qualification and his experience
spans operations, marketing, projects,
finance and business development. He has
over 34 years’ experience in the mining
industry, principally with Rio Tinto and is
currently Non-Executive Chairman of Gem
Diamonds Limited and a Non-Executive
Director of Sibanye Gold Limited, a
Johannesburg listed gold precious metal
mining group trading as Sibanye-Stillwater.
Mr Cameron, a US qualified lawyer, has
extensive international experience, providing
expertise and consulting services for
148 Petropavlovsk Annual Report 2019
companies particularly within Russia.
The Board therefore considers that the
Committee as a whole has competence
relevant to its responsibilities in the context
of the sector in which it operates.
Ms Philipps’ experience, as detailed in the
Chairman’s letter, is considered as relevant
experience for her membership of the
Committee. The biographies of Audit
Committee members are provided on pages
130 to 131.
The Chief Executive Officer, the Chief
Financial Officer, the Group Head of Internal
Audit and Group Head of Corporate
Reporting and other Directors are invited
to attend Committee meetings with
representatives of Deloitte LLP, the external
auditor, attending all scheduled Committee
meetings in 2019. In addition, the Committee
Chairman meets on a regular basis with the
Chief Financial Officer to discuss any issues
and with the lead partner of the external
auditor on a regular basis and prior to each
Committee meeting. He also has regular
meetings with the Group Head of Internal
Audit who reports to the Committee.
Mr Christopher Thomas was appointed
as lead audit partner in December 2018.
Mr Thomas is a Deloitte audit partner based
in London who has specialised in the metals
and mining sector for almost all of his 22 years
at Deloitte. He has been a Partner for ten
years and leads the Deloitte UK Metals and
Mining audit group.
Summary of the Committee’s role and
responsibilities
The Committee’s terms of reference set
out its main responsibilities and are available
to view on the Company’s website.
The Committee is responsible for:
– The integrity of the Company’s financial
statements and the significant reporting
judgements contained in them;
– Where requested by the Board, reviewing
the content of the annual report and
accounts and advising the Board on
whether, taken as a whole, it is fair,
balanced and understandable and provides
the information necessary for shareholders
to assess the Company’s position and
performance, business model and strategy;
– Where requested by the Board, providing
advice on how, taking into account the
Company’s position and principal risks,
the Company’s prospects have been
assessed, over what period and why the
period is regarded as appropriate;
– Advising the Board on whether there is a
reasonable expectation that the Company
will be able to continue in operation and
meet its liabilities as they fall due over the
said period, drawing attention to any
qualifications or assumptions as necessary;
– The appropriateness of the Company’s
relationship with the external auditor,
including auditor independence, fees
and provision of non-audit services;
– The effectiveness of the external audit
process, making recommendations to the
Board on the appointment of the external
auditor;
– The effectiveness of the Group’s internal
control and financial and tax risk
management systems;
– Monitoring and reviewing the effectiveness
of the Group internal audit function in the
context of the Company’s overall risk
management system; and
– Leading the external audit tender process.
In carrying out its responsibilities, the
Committee has full authority to investigate
all matters within its terms of reference.
Accordingly, the Committee may:
– Obtain independent professional advice in
the satisfaction of its duties at the cost of the
Company; and
– Have direct access to the resources of
the Group as it may reasonably require
including the external and internal auditors.
The Committee’s focus during 2019
The Committee met on five occasions during
the financial year. During the year, amongst
other matters, the Committee:
Financial statements and reports
– Reviewed the 2018 Annual Report and
Accounts and the six months’ Half Year
report ended 30 June 2019 before
recommending their adoption by the Board.
As part of these reviews the Committee
received reports from management and the
external auditor, reviewed accounting
policies, estimates and judgements applied
by management in preparing the relevant
statements and the transparency and clarity
of disclosure contained within them; and
– Considered whether the 2018 Annual
Report and Accounts, taken as a whole
were fair, balanced and understandable
and reported to the Board on its conclusion.
Risk management
– Considered the output from the Group’s
financial and tax review process undertaken
to identify, evaluate and mitigate risks
advising the Board of changes in these
risks. Please go to pages 26 to 41 of the
Principal Risks and Mitigation section which
describes the Group’s principal financial
risks during the year and actions taken to
mitigate them; and
– Received and considered reports detailing
litigation in which the Company and/or any
of its subsidiaries are involved.
Internal audit
– During 2019, an external consultant was
engaged to conduct a review of the Group’s
internal audit function to identify areas for its
further development. A detailed report was
provided to the Committee together with a
presentation by the external consultant.
This review:
– Assessed the internal audit methodology
applied by the internal audit function
through each stage of the audit process
(from planning to monitoring), its
effectiveness and results based on a
review of audits performed during 2018
and 2019;
– Evaluated the data analytics audit
techniques developed and applied by
the internal audit function; and
– Assessed the proficiency of the internal
audit function staff, in their experience,
knowledge and skills and any
requirements for additional development.
Outcome of the review:
– The review made a number of
recommendations, some of which have
already been actioned. This has included
the strengthening of the internal audit
function by the appointment of additional
staff. The internal audit function now
comprises three auditors with the
appointment of one more member of the
team proposed. The review also identified
further actions that could be taken to
strengthen the Group’s procedures to
manage risks and oversee the Group’s
internal control framework. This will be a
principal area of focus for the Committee
during 2020;
– In addition, the review commended the
Group’s data analytics software audit
programme which has been developed
internally by the Group Head of Internal
Audit . This enables the analysis of an
entire population of data, including ratio,
trend and variance analysis, period-to-
period comparisons and benchmarking,
allowing the scope of an audit to be
increased without requiring additional
staff resource;
– The Committee evaluated the
effectiveness of the internal audit function,
by reviewing the reports, conclusions and
recommendations of the Group Head of
Internal Audit and discussing these with
the Chief Executive Officer and members
of the senior executive team. It approved
the scope of work to be undertaken by
internal audit during 2019, including
audits to be performed at the Group’s
mining operations and at its offices in
Moscow and Blagoveschensk. During the
year the Group Head of Internal Audit
presented his findings to the Committee
from various assignments. The
presentation included details of issues
identified and subsequent actions taken.
Audits undertaken during the year, amongst
others, comprised:
be utilised during future audits. Internal
audit investigated material price changes,
examples of high or low stock levels and
obsolete or slow-moving inventories.
The audit concluded that the Group’s
procurement process functioned well.
Specific recommendations were made
and discussed with management
including a new proposed procurement
policy. This will be reviewed internally,
including by the Committee and formally
approved by the Company in 2020;
– Working capital management – the audit
of working capital has included a review
of inventory and stock control, payables
and receivables and obsolete spare parts.
The outcome of the working capital
management audit together with
recommendations will be presented
to the Committee in H2 2020;
– Reviewed and approved the 2020 internal
audit plan which covers all the Group’s mines
and its service companies. This will include
ongoing monitoring of the procurement and
supply process using the data analytics audit
software programme, working capital
management, budget variance analysis and
operating expenses; and
– Reviewed management responses to audit
reports issued during the year.
External auditor and non-audit work
– Reviewed, considered and agreed the
scope and methodology of the audit work
to be undertaken by the external auditor;
– Agreed the terms of engagement for the
audit of the 2019 financial statements; and
– The Committee led a tender process for the
appointment of an external auditor. Please
go to page 153 for further information.
To date in 2020, the Committee has reviewed,
in particular, the following matters in relation to
the 2019 financial statements:
– Carrying value of the mining assets and
their associated impairment;
– Valuation of Company’s option to acquire
the outstanding 25% shareholding in TEMI
LLC;
– Valuation of the Company’s investment in
– Procurement and supply process –
IRC;
the Group’s procurement system and
procedures were subject to audit. As part
of the review process internal audit
designed a data analytics audit software
programme. This has proven valuable in
assessing large quantities of data and will
– Accounting for the guarantee of IRC’s debt;
and
– The going concern assessment.
Petropavlovsk Annual Report 2019 149
Audit Committee Report continued
The Committee has also advised the Board
on whether the 2019 Annual Report and
Accounts (the ‘2019 Report’) taken as a whole
is fair, balanced and understandable and the
Directors’ statement in this respect is set out
on page 183.
The Committee and the Board are satisfied
that the 2019 Report meets this requirement,
as appropriate weight has been given to both
positive and negative developments in the
year. In substantiating this statement, the
Committee has considered the robustness of
the process undertaken in creating the 2019
Report, including:
– A thorough process of review, evaluation
and verification of the inputs from the
Group’s operations undertaken to ensure
accuracy and consistency;
– The Committee’s consideration of the
external auditor’s conclusions about the key
audit risks that contributed to their audit
report, in particular specifically going
concern, carrying value and impairment
of mining assets, the valuation of the
Company’s investment in IRC and
accounting for the guarantee of IRC’s debt;
and
– The Company’s longer-term Viability
Statement as required under Provision
31 of the UK Corporate Governance Code
published in July 2018 and considered by
the Committee .
Significant issues considered by the
Audit Committee in the context of the
2019 financial statements
The Committee identified the issues below as
significant in the context of the 2019 financial
statements. The Committee considers these
areas to be significant taking into the account
the level of materiality and the degree of
judgement exercised by management. The
Committee has debated these issues in detail
to ensure that the approaches taken were
appropriate.
Issue
Committee action
Conclusion
Taking the above into account the
Committee is satisfied with the
thoroughness of the approach and
judgements made.
The Committee has considered all
relevant facts and circumstances and
recommended to the Board reversal of the
historical impairment taken at 31 December
2013 against the carrying value of assets
relating to Pioneer.
Details of this pre-tax impairment reversal
of US$43.5 million are set out in note 6 to
the financial statements on page 220 and
on page 77 of the Chief Financial
Officer’s Statement.
Carrying value of mining assets
including the POX Hub.
(See note 6 to the financial statements.)
The carrying value of the Group’s mining
assets which includes the tangible assets
attributable to the gold mining operations and
the supporting in-house service companies.
Where management has identified an
indicator of impairment or impairment
reversals, an impairment test should be
performed.
The Group’s calculation of value in use for its
mining assets remains particularly sensitive to
the forecast long-term gold price and the
Russian Rouble : US Dollar exchange rate.
Consequently, the comparison of the carrying
value of the Group’s mining assets with their
net present value and whether an impairment
or reversal of impairment is necessary
requires significant judgement.
The Committee has addressed this matter
through:
– Receiving reports from management
outlining the basis for the assumptions used,
including about the gold price, the discount
rate used for the projects, the Russian Rouble
: US Dollar exchange rate, production in
accordance with the Group’s long-term
mining plan and the supply of third-party
concentrate to utilise the POX Hub’s available
capacity as well as planned capital
expenditure for the construction of
processing facilities. Management’s analysis
included the key risks from future cashflows
at Pioneer as the flotation facilities are
scheduled for completion in Q4 2020.
Management’s analysis did not include any
risk adjustment for COVID-19 implications
considering that these are non-adjusting
post-balance sheet events for impairment
valuation; additionally, that risk that this will
impact the Group’s gold mining business is
expected to be short-term and will not affect
life-of-mine production plans;
– Receiving a paper from the Executive
Committee recommending the pre-tax
reversal of impairment previously recorded
against the carrying value of the assets that
are part of the Pioneer Cash Generating Unit;
and
– Discussing with the external auditor their view
on the impairment testing procedure
including the key assumptions used by
management.
150 Petropavlovsk Annual Report 2019
Issue
Committee action
Conclusion
After consideration of management’s
analysis, the Committee agreed with the
conclusion that Petropavlovsk does not
have de facto control over IRC and that the
accounting treatment of IRC as an
associate is appropriate.
The Committee has also agreed with
management’s assessment that, based on
value-in-use calculations, a US$23.4 million
impairment is appropriate against the
US$72.0 million carrying value of
investment in IRC as at 31 December 2019.
Valuation of the Company’s investment
in IRC
The Committee has addressed this matter
through:
– Considering information from management
on IRC control considerations in order to
assess whether the investment in IRC should
be accounted for as an associate using the
equity method.
– Ensuring a full understanding of the key
operational risks of IRC and of the key
assumptions applied in the valuation and
challenging these.
– Considering and challenging management’s
conclusion that an impairment based on
value-in-use calculations as at 31 December
2019 should be taken.
– Discussing with the external auditor their view
on the proposed impairment.
(See note 14 to the financial statements.)
Petropavlovsk holds a 31.1% interest in IRC
and accounts for this investment as an
associate using the equity method.
On 18 March 2020, the Company entered into
a preliminary agreement with Stocken Board
AG in relation to a conditional disposal of 29%
of its interest in IRC for US$10 million plus
release of its guarantee over IRC’s
borrowings. The IRC share price also
declined during the second half of 2019,
implying a US$34 million market value as at
31 December 2019. Management concluded
that these factors represented indicators of
impairment.
The investment was not an asset held for sale
under IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations as at the
balance sheet date. The recoverable amount
of the Company’s interest was therefore
calculated on a value in use basis. This
involved significant judgement by the
Company in determining appropriate cash
flow forecast assumptions and in assessing
the underlying impairment valuations
performed by IRC management, noting that
no impairments had been recognised by IRC
as at 31 December 2019.
The key assumptions applied in the valuation
were the iron ore price, IRC production
volumes and foreign exchange rate forecasts
over the lifetime of the operations, the relevant
IRC book value to Group equity value
adjustments and the discount rate.
Petropavlovsk Annual Report 2019 151
Audit Committee Report continued
Issue
Committee action
Conclusion
The financial guarantee contract as at 31
December 2019 was recognised in the
amount of 12-month expected credit losses
of US$8.9 million in accordance with the
IFRS 9 impairment model.
The Committee has addressed this matter
through:
– Engaging a third-party expert;
– Receiving information from management;
– The Audit Committee Chair discussing the
third-party findings with the expert and with
management; and
– Discussing this matter with management
and with the external auditor.
Following careful review of all relevant
factors and after making enquiries and
considering the uncertainties
aforementioned and as detailed in the
going concern statement on pages 179
to 180, the Committee has 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 2019
Annual Report and Accounts and
accordingly, the going concern basis is
appropriate for the preparation of the 2019
financial statements. The Committee
advised the Board accordingly.
The Committee has addressed this matter
through:
– Reviewing a paper from management on the
going concern assessment, challenging the
key assumptions used for both base case
and reasonable worst-case downside
scenarios.
In particular the Committee considered and
challenged the assumptions relating to gold
production, the future gold price and the
Russian Rouble : US Dollar exchange rates
assumptions;
– The Committee also received a paper on
IRC’s going concern including its future
liquidity position given the Company’s
guarantee over IRC’s finance facilities with
Gazprombank;
– Consideration of the potential consequences
of the current COVID-19 pandemic and
management’s assessment of these,
including contingency plans to address such
consequences so as to limit any business
disruption; and
– Consideration of the mitigating actions
proposed by management under a
reasonable worst case downside scenario
during the going concern period, including
the postponement of mining works that do
not affect gold production in the going
concern period and receiving gold sales
advances in accordance with concluded
agreements.
Valuation of the IRC guarantee
On 12 March 2019 Petropavlovsk’s
shareholders approved the provision of new
guarantees for IRC’s new US$240 million loan
facility with Gazprombank which replaced the
ICBC Facility.
The amount outstanding under the
Gazprombank facility as at 31 December
2019 was US$225 million.
The Company is required to value its liability
for the provision of the guarantee, as well as
the associated income stream of guarantee
fee payments from IRC, in accordance with
IFRS 9 Financial Instruments.
The application of the accounting standard
valuations of these financial instruments is
complex in respect of the applicable
methodologies and the determination of the
asset and liability values. These take into
account a number of factors, including the
assessed probability of IRC’s future default.
Going concern statement
(See note 2.1 to the financial statements.)
A key judgement for the Committee relating to
the 2019 financial statements concerned the
appropriateness of the basis of accounting.
The Directors perform an assessment of the
Company’s ability to continue as a going
concern at the end of each reporting period.
The period of the assessment covers at least
12 months from the date of signing of the
financial statements.
152 Petropavlovsk Annual Report 2019
Ensuring independence of the external
auditor
Non-audit services
The external auditor’s independence is
deemed to be impaired if the auditor provides
a service that:
– Results in the auditor acting as a manager
or employee of the Company or the Group;
– Puts the auditor in the role of advocate for
the Company or the Group; and
– Creates a mutuality of interest between the
auditor and the Company or the Group.
Petropavlovsk addresses this issue through
the following measures:
– The prohibition of selected services;
– Prior approval by the Audit Committee of
non-audit services where the cost of the
proposed service is likely to exceed
£100,000. All other non-audit services are
approved by the Chief Financial Officer; and
– Disclosure of the extent and nature of
non-audit services.
The majority of non-audit fees paid to Deloitte
for the year ended 31 December 2019 were in
respect of:
– Their engagement which was limited to that
of reporting accountant on the provision of
new guarantees by the Company to
Gazprombank in relation to the new finance
facilities provided to IRC. In accordance
with the UK Listing Authority Listing Rules,
the provision of the guarantees constituted
a Class 1 transaction, requiring shareholder
approval. The appointment of Deloitte was
approved by the Audit Committee, and an
independent review partner was involved in
this engagement; and
– Their appointment for the review of the
Company’s financial statements for the six
months’ ended 30 June 2019. This is
considered as standard practice for a listed
company. Approval was given by the Audit
Committee.
Deloitte’s engagement on the above matters
was undertaken in accordance with the
Company’s policy on the provision of
non-audit services, a copy of which can be
located on the Company’s website or
obtained from the Company Secretary. This
policy follows the recommendations of the
Financial Reporting Council on the provision
of non-audit services contained within the
Guidance on Audit Committees published in
April 2016. The Committee approved the
appointment on the basis that it was in
accordance with the Company’s policy and
that Deloitte would be the most appropriate
firm to work on the Class 1 Circular within the
time available given their detailed knowledge
of the Group. This work is typically performed
by a company’s external auditor. Accordingly,
in the opinion of the Committee, the
independence and objectivity of Deloitte as
external auditor to the Company has not been
impaired by their work in this respect.
A breakdown of non-audit fees paid in 2019 is
set out in note 7 on page 221 of this Report.
Effectiveness of the External auditor
The Committee has evaluated the
effectiveness of the external auditor and as
part of this assessment, has considered:
– Deloitte’s fulfilment of the agreed audit plan,
the quality and robustness of their audit,
identification of and response to areas of
risk and the experience and expertise of the
audit team, including the lead audit partner;
– Deloitte’s proposed audit fee for the 2019
interim review and year-end audit and after
consideration recommended these to the
Board for approval;
– The confirmation from Deloitte that they
remain independent and objective within
the context of applicable professional
standards;
– The deep knowledge of the Company
which enhances Deloitte’s effectiveness as
external auditor; and
– In addition, Committee members
completed a structured questionnaire to
individually assess the performance of the
auditor. This evaluated audit planning,
execution, communicating and reporting.
The assessment conducted in 2019 for the
2018 audit showed that the audit continued
to be assessed as effective.
Audit tender and appointment of
external auditor
During 2019, the Company undertook a
formal tender process for the appointment
of a new external auditor for the financial year
ending 31 December 2020. The tender
process was supervised by the Committee.
To support them in this process, a tender
panel was constituted to include the Audit
Committee Chair, Mr Damien Hackett,
Independent Non-Executive Director, the
Chief Financial Officer and the Group Head
of Corporate Reporting (the ‘Audit Tender
Panel’).
The tender comprised the following steps:
– In July 2019, a number of audit firms were
invited to confirm their willingness to
participate in the audit tender, their global
capabilities and their assessment of
independence. Interested firms were asked
to submit proposal documents to the Audit
Tender Panel by 30 September 2019;
– Selection criteria, for the evaluation of the
audit firms, was approved by the Audit
Tender Panel and a timetable was approved
to enable a smooth transition for the current
auditor, should they not be selected;
– Members of the Audit Tender Panel
interviewed potential lead audit partners,
both in London and in Moscow;
– Presentations were made by the proposed
audit firms to the Committee in December
2019. The Committee discussed the merits
of each firm and their teams. The
Committee considered the views of the
management teams, audit quality and
capacity, and the cost proposals presented
by each firm; and
– Outcomes of the Committee deliberations
were presented to the Board.
PricewaterhouseCoopers LLP (PwC) were
selected as the preferred firm. If approved by
shareholders, PwC will be the Company’s
statutory auditor commencing for the year
ending 31 December 2020. Resolutions to
authorise the Board to appoint and determine
the remuneration of PwC will be proposed at
the Company’s 2020 Annual General Meeting
to be held on 30 June 2020.
The Committee would like to thank each firm
that participated in the tender and specifically
thank Deloitte for their significant contribution
to the Group over the years.
Petropavlovsk Annual Report 2019 153
Audit Committee Report continued
Some key features of the internal control
system, not detailed above, are:
– A defined management structure with clear
accountabilities. There is a clearly defined
delegation of authorities, which covers all
expenditure;
– Board approval of a Group annual budget,
with re-forecasts being made subsequently;
– Review by members of the Executive
Committee of detailed management
accounts including variance analysis
against the approved annual budget, a
copy of which is provided to the Board
following this review;
– Appropriate segregation of duties
throughout the Group, in particular
separating purchasing and ordering
functions from processing and payments
functions;
– A centrally directed treasury function which
manages the Company’s cash and debt on
a daily basis; and
– Specific approval procedures have been
established for approval of all related party
transactions.
Risk management
The Company has adopted a formal risk
management framework with the Board
having ultimate responsibility for setting the
Group’s risk appetite and the Executive
Committee having responsibility for on-going
risk review and management. The Committee
retains responsibility for reviewing financial
risks and reporting its findings and
recommendations to the Board. The Principal
Risks and Mitigation section, summarises the
risk management framework together with
details of the principal risks of the Group and
is on pages 28 to 41 of this Report.
Overview
As a result of the Committee’s work during the
year, the Committee has concluded that it has
acted in accordance with its terms of
reference.
Internal Audit
The internal audit function supports the Audit
Committee. It also aims to raise levels of
understanding and awareness of risk and
control throughout the Group.
The Group Head of Internal Audit reports
to the Committee Chair and to the Chief
Executive Officer.
Assurance – financial and internal
controls and risk management
The Committee operates within the following
assurance framework established by the
Board. The Board has delegated authority to
the Safety, Sustainability and Workforce
Committee and Executive Committee in
addition to the Audit Committee, details of
which are as follows.
During 2019 the Board (which received advice
from the Audit Committee, Safety,
Sustainability and Workforce Committee and
Executive Committee) had overall
responsibility for the system of internal control
and risk management in the Group. On behalf
of the Board the Committee has considered
the effectiveness of the Group’s system of
internal control.
As detailed in last year’s report of the
Committee, the Committee considered
various control issues during the 2018
year-end audit. Following discussion with
management and Deloitte, the Company’s
auditor, a leading international accounting firm
was engaged in a consulting capacity to
undertake a review of the Group’s finance
function. This was focused on assessing the
structure and processes of the Group’s
finance function, comparing these with
industry best practice. The same firm also
undertook an external review of the Group’s
internal audit function to identify areas for
further development.
The review concluded that the Group’s
reporting processes were not as developed
as leading industry and Russia peers.
It highlighted potential inefficiencies and areas
for improvement in the areas of planning,
budgeting and management accounting;
principally arising from the lack of automation
of certain processes in these areas.
The Committee recognises, together with
management, that the Group’s systems need
to be developed and enhanced to ensure that
high quality information is provided in a timely
manner to the executive management and
the Board to enable informed decisions.
The Board is committed to improving the
integrity of the Group’s systems and
recognises that this will require investment.
As part of this process, Mr Danila Kotlyarov
was appointed as Chief Financial Officer on
1 February 2020. Mr Kotlyarov is highly
qualified. He is a fellow member of the
Association of Chartered Accountants
(ACCA) and a Chartered Financial Analyst
(CFA) charter holder. Subsequently some
additional organisational and policy changes
were implemented across the Finance
function of the Company. These steps to
strengthen both the skills and depth of the
Group’s finance team, are considered as an
essential first step for the implementation of
a finance transformation programme
(the ‘Plan’).
Management will present proposals to the
Committee during 2020, including for
implementation starting in 2020, to develop
further and enhance the Group’s internal
reporting and associated processes in
relation to budgeting, management
accounting and financial reporting. This will
include the automation of certain processes.
The implementation of the Plan has been
identified as a Key Performance Indicator for
the Company and the implementation of the
Plan is one of the annual bonus objectives for
the Executive Directors and certain members
of the Group’s Executive Management (see
page 171 for further information).
The Board has also constituted a Risk
Committee which has reviewed the Group’s
risk management framework. Further
information in this respect will be provided
in the 2020 report of the Committee.
The Committee has also considered and
reviewed the Group’s financial risks and the
mitigating actions to address these and has
reported its conclusions to the Board. The
system of controls is designed to manage, but
may not eliminate, the risks of failure to
achieve the Group’s objectives. Oversight is
provided by the Executive Committee, that
reviews the results of the Group’s operations.
For IRC, Petropavlovsk operates controls over
the inclusion of its financial data but places
reliance upon the systems of internal control
operating within IRC and the obligations upon
IRC’s Board relating to the effectiveness of its
own systems. IRC ceased to be a subsidiary
of the Company and became an associate on
7 August 2015.
154 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 155
Directors’ Remuneration Report
Annual statement from the Chairman of the
Remuneration Committee (the ‘Committee’)
– The previous LTIP expired in June 2019,
and therefore we will be seeking
shareholder approval for a new plan at the
2020 Annual General Meeting (‘AGM’).
The overall framework of the plan remains
unchanged, although a number of
amendments are proposed (e.g. to leaver
provisions) to bring the plan into line with
prevailing best practice.
– Annual bonus
The maximum opportunity under the annual
bonus is proposed to be increased to 150%
of salary (from 100% currently), to help
ensure the overall remuneration package
is appropriately focused on variable pay
elements and is competitive with that of
sector comparators. The revised maximum
will apply under all circumstances, including
recruitment. The pay-out at target will be
reduced from 50% to 30% of maximum.
The Committee is also proposing to
formalise its bonus deferral arrangements,
such that one-third of any bonus earned is
deferred in Company shares for a period of
three years. Malus and clawback provisions
will apply for a period of up to two years
following vesting.
– Post-termination shareholding requirement
In line with current best practice, the
Committee proposes to introduce a
post-termination shareholding requirement
for Executive Directors as part of the
proposed Policy. Executive Directors will
normally be expected to maintain a holding
of Company shares at a level equal to the
in-post shareholding guideline (being 150%
of salary) for a period of two years from the
date the individual ceases to be a Director.
The specific application of this requirement
will be at the Committee’s discretion but
will apply to share awards granted under
the Policy from the 2020 financial year.
There will be no requirement to hold
shares post-termination which have been
purchased independently by the executive.
the balance in the form of deferred bonus
shares, vesting after one year.
As mentioned in last year’s report, 2019 was
also the first year since 2011 in which awards
were made under the Company’s Long-Term
Incentive Plan. Awards will vest subject to
relative total shareholder return (‘TSR’)
performance against a bespoke gold mining
index (weighted 70%) and a balanced
scorecard of objectives (30%), measured over
three years. Further details are provided in the
Annual Report on Remuneration.
As a Remuneration Committee, we
endeavour to ensure that our strategic goals
are reflected and reinforced through our
remuneration policies and pay arrangements.
In this way, we ensure that remuneration
outcomes for executives reflect business
performance and the returns that we deliver
to our shareholders.
The Committee was pleased to note that in
December 2019, Dr Pavel Maslovskiy, Chief
Executive Officer purchased 17.4 million
Ordinary Shares equating to around
GBP2.262 million using his own funds.
We have not included a Chief Executive
Officer pay ratio as the Company has only
15 employees based in the UK, so that any
resulting ratios would not be meaningful.
Review of the Remuneration Policy
The Committee has reviewed the Company’s
Remuneration Policy (the ‘Policy’). Following
this review, the Committee is proposing a
number of revisions to the Policy, which
represent a refinement of the existing Policy
rather than a significant reshape; the main
changes are as follows:
– Long-Term Incentive Plan (‘LTIP’)
The Committee is proposing to increase
the maximum annual award under the LTIP
from 100% to 150% of salary, with the size
of any actual award determined annually
based on the business circumstances at
the time and at the Committee’s discretion.
The revised maximum will apply under all
circumstances, including recruitment.
The level of vesting at ‘threshold’ (expected
performance) will be reduced from 30% to
25% of maximum.
Dear Shareholder
Introduction
On behalf of the Board, I am pleased to
present the Directors’ Remuneration Report
for the year ended 31 December 2019.
The Committee comprises five independent
Directors: I continue to act as Committee
Chair, with my colleagues James Cameron
and Damien Hackett, together with Charlotte
Philipps and Katia Ray, both of whom joined
the Committee on 8 November 2019, as the
other four members.
Review of 2019
2019 was one of the Company’s most
successful years. We made significant
progress in our core strategy of leveraging the
technologically advanced POX Hub to unlock
the value of ore, whilst focussing on our
responsibilities as a business for the benefit
of all our stakeholders. We successfully
refinanced the Group’s US$100 million
Convertible Bonds due March 2020, thereby
strengthening our balance sheet. The Lost-
Time Injury Frequency Rate, which reflects the
number of accidents per million man-hours
worked and is a key indicator of the Group’s
health and safety performance, improved
from 2.52 in 2018 to 1.61 in 2019, a substantial
reduction of c.36%. The safety of our
employees is of paramount importance to
the Board. Accordingly, we use health and
safety not only as a bonus objective but as a
discretionary underpin to reduce any pay-out
should the Committee decide that a
deterioration in the Group’s health and
safety performance warrants this.
The 2019 bonus targets were directly linked
to these key performance indicators and
strategic initiatives. Specifically, objectives for
Dr Maslovskiy were heavily weighted towards
the successful ramping up of the POX Hub
(weighted 50% of maximum) given its critical
importance to the Group’s strategy.
Other targets related to the refinancing of
the Group’s US$100 million 9% Convertible
Bonds due 2020, gold production and
improvement in the Group’s health and
safety performance.
All of these objectives were achieved in full
and therefore a bonus of 100% of salary was
awarded to Dr Maslovskiy. The Committee
reviewed the formulaic outcome in the
context of the Company’s underlying
business performance and concluded
that it was appropriate and that no further
discretionary adjustment was required.
Half of the bonus will be paid in cash, with
156 Petropavlovsk Annual Report 2019
The Committee has ensured that the
proposed revised Policy and practices remain
consistent with the six principles set out in
Provision 40 of the UK Corporate Governance
Code. Specifically, the Policy is clear, simple,
well understood by our executives, and clearly
communicated to our shareholders. The
design of the Policy was guided closely by the
Company’s risk appetite; mandatory bonus
deferral, LTIP holding, and the malus and
clawback provisions support long-term
decision-making and discourage excessive
risk-taking. Incentives are appropriately
capped, and the pay mix is in line with market
norms. Finally, the performance measures in
incentives are appropriately aligned with the
Company’s strategy and culture, particularly
around health and safety.
The Committee commenced a consultation
process with selected major shareholders on
the proposed revisions to the Policy earlier
this year. The consultation is ongoing, having
been delayed in part due to COVID-19. Based
on feedback thus far, shareholders have
indicated their support for the proposals.
We thank those who have engaged with us so
far, and welcome further comments ahead of
the AGM.
Implementation of proposed
Remuneration Policy in 2020
In early 2020, the Committee considered and
approved annual bonus targets for 2020.
These targets are aligned with the Group’s
strategy, including unlocking the value
creation potential of the POX Hub,
strengthening the balance sheet, increasing
liquidity, and ensuring the safety of our
employees and of those that visit our
operations, which is of paramount
importance to the Board. Further details of
the 2020 annual bonus targets are provided
on page 171. Subject to shareholder approval
of the revised Policy, the maximum bonus
opportunity for 2020 will be 150% of salary.
An LTIP award of 150% of salary is proposed
for 2020, subject to shareholder approval.
Vesting will be based on relative TSR
performance against a bespoke gold mining
index, measured over three years. Further
details are provided in the Annual Report on
Remuneration.
For 2020, the Chief Executive Officer’s salary
will remain unchanged at £655,000.
Mr Danila Kotlyarov was appointed as Chief
Financial Officer on 1 February 2020 and as
an Executive Director on 21 April 2020.
Mr Kotlyarov was appointed as Chief Financial
Officer on a salary of £500,000 on his
promotion to the Board. Mr Kotlyarov will be
participating in the annual bonus scheme for
2020, and will also receive an award under
the LTIP.
In addition, on 21 April 2020, Mr Maxim
Kharin was appointed as a Non-Executive
Director of the Company. Mr Kharin receives a
fee of £80,000, being the basic fee paid to the
Company’s Non-Executive Directors.
Impact of COVID-19 on remuneration
The Committee appreciates that the current
COVID-19 pandemic is having an impact on
decisions by remuneration committees
globally. To date, our mining operations
remain strong, as does Petropavlovsk’s share
price. Unlike many other companies, we are
fortunate in that we do not currently envisage
having to make any redundancies or reduce
our operations as a result of COVID-19.
In this context, we do not currently propose
to reduce the overall remuneration levels,
including the proposed 2020 LTIP awards,
of our Chief Executive Officer, Chief Financial
Officer and the executive team, who have
taken considerable steps to safeguard our
employees and operations during this
pandemic. Nevertheless, the situation is
dynamic; the Committee notes recent
comments to UK public companies from some
institutional shareholders and will keep this
matter under review over the coming months.
I hope that you find this report to be clear and
informative. The Committee would welcome
engagement should you have any questions
or comments on any aspect of this year’s
report, including the revised Remuneration
Policy. We hope to have your support at the
upcoming AGM.
Robert Jenkins
Remuneration Committee Chairman
26 May 2020
Petropavlovsk Annual Report 2019 157
Directors’ Remuneration Report continued
Contents of this Report:
This report sets out details of the proposed 2020 Remuneration Policy for Executive and Non-Executive Directors, describes the proposed
implementation of that Policy for the year ended 31 December 2020, and discloses the amounts paid relating to the year ended 31 December 2019.
The report complies with the provisions of the Companies Act 2006 and Schedule 8 of The Large and Medium-sized Companies and Groups
(Accounts and Reports) (Amendment) Regulations 2013. The report has been prepared in line with the recommendations of the UK Corporate
Governance Code and the requirements of the UKLA Listing Rules.
Remuneration Policy
The Company is seeking shareholder
approval for a revised Remuneration Policy
(the ‘Policy’), as set out in this section, at the
Annual General Meeting to be held on
30 June 2020. This Policy represents a
refinement of the Company’s existing
arrangements, rather than a significant
change to structure.
The main changes to the Policy as compared
with the Policy approved by shareholders at
the 2018 Annual General Meeting, are as
described in the Chair’s letter and as follows:
Policy Table
Remuneration element
Purpose and link to strategy
Operation
– The maximum annual award under the
– The maximum incentive opportunities in
Long-Term Incentive Plan will be increased
from 100% to 150% of salary, with actual
award levels determined annually; threshold
vesting will be reduced from 30% to 25% of
maximum;
– The maximum opportunity under the
annual bonus will be increased from 100%
to 150% of salary, with target pay-out
reduced from 50% to 30% of maximum;
one-third of any bonus earned will be
mandatorily deferred in Company shares for
a period of three years;
respect of a new Executive Director
appointment, whether an internal promotion
or external hire, will be aligned with those
set out in the Policy Table; and
– Post-exit shareholding requirements will be
introduced, whereby a departing Executive
Director will be expected to hold shares
equivalent to 150% of salary for a period of
two years from the date the individual
ceases to be a Director.
Base salary
To provide a market-competitive level of guaranteed cash earnings in order to attract and retain
high-calibre Executive Directors to manage and execute the Board’s strategic plans.
The Committee reviews base salaries annually. Salary increases typically take effect from
1 January each year, unless there is a significant change in the responsibilities of the role.
Reviews take account of:
– The individual performance of the Executive Director, his or her experience, skills and potential;
– The challenges intrinsic to that individual’s role;
– Market-competitiveness within the Group’s sector;
– Salary increases across the wider employee population; and
– The wider pay environment.
Maximum opportunity
There is no prescribed maximum salary.
It is generally expected that increases will be no higher than inflation, and no higher than that
provided to the wider workforce though the Committee has discretion to apply a higher increase
in exceptional circumstances, e.g. significant increase in role size or complexity, promotion,
exceptional performance, or any other factors the Committee considers relevant within the
context of the Group’s overall Policy.
Performance metrics
Not applicable, although the individual’s contribution and overall performance is one of the
considerations in determining the level of any salary increase.
158 Petropavlovsk Annual Report 2019
Remuneration element
Purpose and link to strategy
Benefits
To provide market-competitive benefits to ensure that the overall remuneration package is
competitive.
Operation
Benefits may include (but are not limited to):
– Private medical insurance for the individual and family;
– Life assurance up to 4x salary, subject to underwriting;
– Ill-health income protection; and
– Travel insurance whilst on Company business.
Maximum opportunity
Other benefits may be provided at the discretion of the Committee based on individual
circumstances and business requirements, such as appropriate relocation allowances and support.
The cost of these benefits to the Company is dependent upon market rates and availability of the
respective benefits.
Performance metrics
Not applicable.
Remuneration element
Purpose and link to strategy
Operation
Maximum opportunity
Pension
To provide market-competitive pension benefits in line with the wider workforce whilst ensuring
no undefined liability for the Company.
Executive Directors may receive contributions from the Company into a personal pension plan
or similar savings vehicle.
A Company contribution of up to 12.5% of salary, depending on length of service, is made to a
personal pension arrangement with a minimum contribution from the Executive Directors of 3%
of salary. The individual may instead receive, in part or in whole, cash in lieu of pension, provided
by way of a salary supplement. These arrangements depend on the individual circumstance and
residence of the Executive Director concerned.
The Chief Executive Officer and the Chief Financial Officer do not currently receive any pension
benefits. Pension benefits for any new Executive Directors will be no higher than that available for
the Company’s UK employees.
Performance metrics
Not applicable.
Remuneration element
Purpose and link to strategy
Operation
Annual bonus
To ensure a focus on, and provide a financial incentive for, the delivery of the annual budget and
other short-term financial and strategic imperatives. The deferred element aligns the interests of
Executive Directors and shareholders and supports retention.
Performance measures and targets are set by the Committee with the bonus payable
determined by the Committee after the year-end, based on achievement against the
pre-determined targets.
One-third of any bonus earned will be mandatorily deferred in the Company’s shares for a period
of three years, though the Committee has discretion to defer a greater proportion, of up to 100%
of bonus earned, in any given year. The Committee retains the discretion to allow dividends (or
equivalent) to accrue over the vesting period in respect of awards that vest.
Malus and clawback provisions may be applied for up to a period of two years post-payment in
respect of the cash element, and for two years post-vesting in respect of the deferred element in
exceptional circumstances, including but not limited to material misconduct, material misstatement
of the results, and a calculation error and/or poor information when calculating the reward outcome.
Please also refer to footnote 1 at the top of page 161.
Maximum opportunity
Maximum bonus opportunity is 150% of salary.
For target level performance, the bonus earned is 30% of maximum.
Petropavlovsk Annual Report 2019 159
Directors’ Remuneration Report continued
Remuneration element
Performance metrics
Annual bonus
Performance is assessed against a range of strategically important measures which may vary
each year depending upon the annual priorities of the Group.
It is the Committee’s current intention that the bonus is entirely linked to the achievement of
Group strategic objectives, which may include measures such as:
– Health and safety;
– Annual gold production;
– Total Cash Costs◆;
– All-in Sustaining Costs◆;
– Net debt◆;
– Free cashflow;
– Strengthening of balance sheet;
– Delivery of Capital Expenditure◆ projects on time and within budget; and
– Exploration success.
Details of the measures applicable for the financial year under review are provided in the Annual
Report on Remuneration.
The bonus scheme is not a contractual entitlement and the bonus is payable at the discretion of
and subject to the approval of the Remuneration Committee. The Committee has the discretion
to take into consideration the underlying performance of the Group when adjudicating bonus
payments. The Committee may also include a discretionary underpin in the annual bonus plan
to capture material adverse events, e.g. material events relating to health and safety and
reputational damage.
Long-Term Incentive Plan (‘LTIP’)
To reinforce long-term shareholder alignment through annual awards of performance shares
vesting only on the satisfaction of challenging long-term performance conditions.
Awards of conditional shares and nil-cost options are made which vest based on performance
over a minimum of three years. Awards vest on no earlier than the third anniversary of grant
subject to (i) the satisfaction of performance targets, and (ii) continued employment on the
vesting date. There is no opportunity to retest the performance conditions.
The Committee retains the discretion to allow dividends (or equivalent) to accrue over the vesting
period in respect of the awards that vest.
A two-year post-vesting holding period will apply to awards. Vested shares may not be sold
during the holding period except to cover tax liabilities.
Malus and clawback provisions may be applied for up to a period of two years post-vesting
in exceptional circumstances, including but not limited to material misconduct, material
misstatement of the results, and a calculation error and/or poor information when calculating
the reward outcome. Please also refer to footnote 1 at the top of page 161.
The maximum annual award is 150% of salary, with actual award levels determined annually
based on the business circumstances at the time and at the Committee’s discretion.
Threshold performance will result in vesting of no more than 25% of the award.
Remuneration element
Purpose and link to strategy
Operation
Maximum opportunity
160 Petropavlovsk Annual Report 2019
Remuneration element
Performance metrics
Long-Term Incentive Plan (‘LTIP’)
The Committee will regularly review the performance conditions and targets to ensure that they are
aligned to the Group’s strategy and that they are sufficiently challenging. The relevant metrics and
the respective weightings may vary each year based upon the Company’s strategic priorities.
Details of the measures, weightings and performance targets used for specific LTIP grants are
included in the Annual Report on Remuneration as relevant.
The Committee has the discretion to take into consideration the underlying performance of the
Group, as well as any material adverse events (e.g. material events relating to health and safety
and reputational damage), when adjudicating LTIP vesting.
Note 1: Given the international nature of the Group’s business, the Company’s ability to operate and/or enforce certain provisions and remuneration arrangements such as the malus and clawback provisions may
be restricted by relevant local laws.
The Committee reserves the discretion to make minor amendments to this Policy without the need to seek shareholder approval.
Any such changes will be reported to shareholders in the following year’s Annual Report on Remuneration.
Payments from previously agreed
remuneration arrangements
The Committee reserves the right to make
any remuneration payments, notwithstanding
that they may not be in line with the Policy
where the terms of the payment were agreed
either before the Policy came into effect or at
a time when the relevant individual was not a
Director of the Company and in the opinion of
the Committee, the payment was not in
consideration for the individual becoming a
Director of the Company. This does not apply
to pension benefits (if any) for new
appointments to the Board. Details of any
such payments will be set out in the Annual
Report on Remuneration as they arise.
Explanation of performance metrics
chosen
Performance targets are set to be stretching
and achievable, taking into account the
Group’s strategic priorities and the
environment within which the Group
operates. In setting these performance
targets the Committee will take into account a
number of different reference points, which
may include the Group’s long-term mining
plan, budgets and operational plans.
In respect of the annual bonus, strategic
objectives are selected to ensure the delivery
of the Company’s immediate objectives within
the wider context of the Group’s long-term
strategy and corporate responsibilities. Other
supporting annual objectives are selected to
reflect the Company’s key financial objectives,
exploration success, delivery of specific
investment projects, and health and safety
objectives, and rewards delivery against these.
The Committee retains the discretion to
adjust the performance targets and measures
where it considers it appropriate to do so (for
example, to reflect changes in the structure of
the business and to assess performance on a
fair and consistent basis from year to year).
Remuneration Policy for other
employees
A large percentage of the Group’s employees
are based at the Group’s mines in the
Amur region in the Far East of Russia,
whilst corporate, administrative and support
staff are based at the Group’s offices in
Blagoveschensk, Moscow and London.
The Board aims to ensure that employees
are paid competitively within the region.
Employees based at the Group’s mines
receive base salary, shift and production
related bonuses where applicable to their
role, together with certain benefits.
It is proposed that members of the Executive
Committee and other senior employees will
participate in the 2020 LTIP award in order that
they have the opportunity to share in the
Group’s success, aligning their interest with
those of the Executive Directors and
shareholders. LTIP performance conditions will
be the same for all participants, while award
sizes will vary according to level of seniority.
The key difference between Executive
Directors’ (and Executive Committee
members’) remuneration and that of other
employees is that, overall, the Remuneration
Policy for the former group is more heavily
weighted towards variable pay.
The Company does not have an all-employee
share ownership plan. The Board believes
it more appropriate and beneficial to the
general workforce to reward employees
below senior employee level with bonus
payments, based on the achievement of
targets that are relevant to their positions
and which they can influence.
Shareholding guidelines
Shareholding requirements are in place
whereby Executive Directors are expected to
build up a shareholding equivalent to 150% of
their salary, typically over a five-year period
commencing on the date of their appointment
to the Board.
Dr Pavel Maslovskiy, Chief Executive Officer,
has a shareholding of 17,400,000 Petropavlovsk
PLC ordinary shares. As at 31 December 2019,
this was valued at c.£2.216 million, representing
over 300% of Dr Maslovskiy’s salary as at
1 January 2020. The new CFO, who was
appointed in April 2020, has no Petropavlovsk
shares. He will be working towards achieving
the guideline over a period of five years from
appointment to the Board.
With effect from the 2020 AGM, Executive
Directors will also be subject to a post-exit
shareholding requirement. Executive
Directors will normally be expected to
maintain a holding of Company shares at
a level equal to the in-post shareholding
requirement (currently 150% of salary) for
a period of two years from the date the
individual ceases to be a Director. The specific
application of this shareholding requirement
will be at the Committee’s discretion.
Petropavlovsk Annual Report 2019 161
Directors’ Remuneration Report continued
Illustration of the application of the Remuneration Policy
The charts below provide an estimate of the potential future reward opportunities for the Chief Executive Officer and the Chief Financial Officer
based on the remuneration opportunities expected to be granted in 2020. Potential outcomes for the Chief Executive Officer and the Chief
Financial Officer are shown based on four different performance scenarios: ‘minimum’, ‘on-target’ (i.e. in line with the Company’s expectations),
‘maximum’, and maximum plus 50% share price appreciation (a scenario where 50% share price appreciation is included).
Performance scenario
Chief Executive (£'000)
3,117
Chief Financial Officer (£'000)
2,625
2,375
2,000
1,201
661
912
500
Minimum
On-target Maximum Maximum
+ 50%
Minimum
On-target Maximum Maximum
+ 50%
Key
Multi-year
variable
Single-year
variable
0.0%
20.5%
37.4% 47.3%
0.0%
24.5%
37.4% 31.5%
Multi-year
variable
Single-year
variable
0.0%
20.5%
37.5% 47.4%
0.0%
24.7%
37.5% 31.6%
Multi-year Variable
Single-year Variable
Fixed pay
Fixed pay
100%
55.0%
25.2% 21.2%
Fixed pay
100%
54.8%
25.0% 21.1%
% of total remuneration
These graphs exclude the effect of any appreciation in the Company’s share price except in the ‘Maximum+50%’ scenario.
Assumptions:
Performance scenario
Minimum
On-target
Maximum
Maximum +50%
Includes
Salary plus benefits.
No bonus payout
No vesting under the LTIP
Salary plus benefits.
30% of maximum annual bonus payout (i.e. 45% of salary)
25% of maximum vesting under the LTIP (i.e. 37.5% of salary)
Salary plus benefits.
100% of maximum annual bonus payout (i.e. 150% of salary)
100% of maximum vesting under the LTIP (i.e. 150% of salary)
Salary plus benefits.
100% of maximum annual bonus payout (i.e. 150% of salary)
100% of maximum vesting under the LTIP, plus 50% share price appreciation
162 Petropavlovsk Annual Report 2019
Approach to recruitment and promotion
The Committee’s policy is to set pay for new Executive Directors within the existing Remuneration Policy in order to provide internal consistency.
The Committee aims to ensure that the Company pays no more than is necessary to appoint individuals of an appropriate calibre.
Remuneration element
Base salary
Benefits
Pension
Annual bonus
Long-term incentives
Policy
Salary for a new Executive Director appointment, whether an internal promotion or external hire,
would be set at a level sufficient to attract the best candidate available to fill the role, taking into
account the Group’s position and strategy, market conditions and country of residence. The
Committee would be prepared to set the salary of a new hire at a premium to those paid to the
predecessor if this was necessary to attract and appoint a candidate with the requisite
experience, seniority and calibre.
Benefits will be set in accordance with the Remuneration Policy. In addition, where necessary,
the Committee may approve the payment of relocation expenses in line with local market norms
to facilitate recruitment, for a period of up to two years. Flexibility is retained to pay for legal fees
and other costs incurred by the individual in relation to his or her appointment.
Pension will be set in accordance with the Remuneration Policy capped at 12.5% of salary subject
to any particular considerations for a recruit who will be principally based outside of the UK.
The annual bonus will operate in line with the Remuneration Policy. Depending on the timing of
the appointment and responsibilities of the appointee, it may be necessary to set different
performance measures and targets initially.
LTIP awards will be granted in line with the Remuneration Policy. An award may (and would
usually) be made upon appointment, subject to the Company not being prohibited from doing
so. For an internal hire, existing awards would typically continue over their original vesting period
and remain subject to their original terms; further awards may also be considered, subject to the
cap in the Policy.
In addition, in the case of an external hire, the
Committee may offer additional cash and/or
share-based elements when it considers
these to be in the best interests of the
Company (and therefore shareholders) to
facilitate the buy-out of value forfeit on joining
the Company. Such payments would take
account of remuneration relinquished when
leaving a former employer and would reflect
(as far as possible) the nature and time
horizons attaching to that remuneration and
the impact of any performance conditions.
Any such buy-out would not have a fair value
higher than that of awards forfeited.
The Committee will use the components of
the Remuneration Policy when suitable but
may also avail itself of Rule 9.4.2 of the Listing
Rules. Shareholders will be informed of any
such payments at the time of appointment.
Executive Director service contracts
Executive Directors have service contracts
with the Company which provide for a
twelve-month notice period, from both the
Company and the Executive Directors.
The Executive Directors of the Company are
Dr Pavel Maslovskiy, Chief Executive Officer
and Mr Danila Kotlyarov, Chief Financial Officer.
If the Company terminates the employment
of an Executive Director with immediate effect,
in the absence of a breach of the service
agreement by the Director, a payment in lieu
of notice may be made. This may include base
salary, pension and benefits. Benefits may also
include, but are not limited to, legal fees.
Executive Directors’ service contracts may be
terminated without notice for certain events,
such as gross misconduct. No payment or
compensation beyond sums accrued up to
the date of termination will be made if such an
event occurs.
The Committee will retain discretion to approve
new contractual arrangements with departing
Executive Directors including settlement,
confidentiality agreements, providing the
provision of outplacement services, agreement
of restrictive covenants and consultancy
arrangements. The Committee will use its
discretion in this respect sparingly and will
enter into such arrangements only where
the Committee believes that it is in the best
interests of the Company and its shareholders
to do so.
The date of the Executive Directors’ service contracts are as follows:
Executive Director
Executive Director
Pavel Maslovskiy
Danila Kotlyarov
Position
Position
Chief Executive Officer
Chief Financial Officer
Effective date of contract
Effective date of contract
29 June 2018
1 February 2020
Petropavlovsk Annual Report 2019 163
Directors’ Remuneration Report continued
Leaver and change of control provisions
The section below details how outstanding awards under incentive plans are treated in specific circumstances where the Executive Director’s
employment has terminated or where there has been a change of control or similar transaction event. Final treatment remains subject to the
Remuneration Committee’s discretion. When considering the use of discretion, the Committee reviews all potential incentive outcomes to
ensure that any application of discretion is fair to both shareholders and participants.
Plan
Annual bonus
Scenario
All leavers.
Change of control.
Deferred bonus shares Good leavers (defined as death, injury, ill-health,
LTIP
disability, retirement with agreement of the
Committee, the employing company or business
being sold out of the Group, or any other reason
that the Committee determines appropriate).
All other leavers.
Change of control.
Good leavers (defined as death, injury, ill-health,
disability, retirement with agreement of the
Committee, the employing company or business
being sold out of the Group, or any other reason
that the Committee determines appropriate).
All other leavers.
Change of control.
Timing and calculation of payment/vesting
Any bonus payment will be at the discretion of the Committee and the
decision to award a bonus, in full or in part, will depend on a number of
factors including the circumstances of the individual’s departure and their
contribution to the Group during the bonus period in question.
Any bonus amount paid will typically be pro-rated for the period of time
that the Executive Director has been employed during the relevant bonus
period and will be paid at the usual time.
The Committee will assess the most appropriate treatment for the
outstanding bonus period according to the circumstances.
Awards will normally vest on the original vesting date, with Committee
discretion to accelerate vesting.
Awards will lapse.
Awards will normally vest immediately and will be pro-rated for time.
Alternatively, awards may be exchanged for new equivalent awards in the
acquirer where appropriate.
Awards will normally vest on the original vesting date, with Committee
discretion to accelerate vesting. The extent to which awards vest in these
circumstances will be determined by the Committee, taking into account
the extent to which the performance conditions have been satisfied and
the period from the date of grant up to the date of cessation.
Awards will lapse.
Awards will normally vest immediately, subject to performance, and
will be pro-rated for time unless the Committee determines otherwise.
Alternatively, awards may be exchanged for new equivalent awards in the
acquirer where appropriate.
Remuneration Policy for Non-Executive Directors
Non-Executive Directors do not receive benefits from the Company and they are not eligible to receive pension contributions or participate
in any bonus or incentive plan. Any reasonable expenses that they incur in the deliverance of their duties are reimbursed by the Company.
Details of the Policy on Non-Executive Director fees are set out in the table below.
Remuneration element
Purpose and link to strategy
Operation
Maximum opportunity
Fees
To attract and retain high-performing independent Non-Executive Directors by ensuring that
fees are competitive and fair.
Paid monthly in arrears and reviewed annually by the Board, after recommendation from the
Non-Executive Chair. Fee increases, if applicable are normally effective from 1 January.
There is no prescribed maximum annual increase although fees are determined by reference
to time commitment and relevant benchmark market data. The Chair of the Audit Committee,
the Remuneration Committee, the Risk Committee, the Safety, Sustainability and Workforce
Committee and the Senior Independent Director may also receive an additional fee in
recognition of the greater time commitment.
The aggregate annual fees are limited to GBP1.0 million under the Company’s Articles of
Association.
Performance metrics
Not applicable.
In recruiting a new Non-Executive Director, the Board will use the Policy as set out in the table above.
164 Petropavlovsk Annual Report 2019
Non-Executive Directors are appointed for an initial term of three years and have formal letters of appointment setting out their duties and
responsibilities. The appointment can be terminated by paying in lieu of the notice period with such pay being limited to the Non-Executive
Director’s basic fees. Dates of Non-Executive Director appointments are as follows:
Name
Roderic Lyne
James W. Cameron Jr.
Damien Hackett
Robert Jenkins
Harry Kenyon-Slaney
Charlotte Philipps
Katia Ray
Maxim Kharin
Date of original appointment
29 June 2018
15 October 2018
15 October 2018
29 June 2018
7 November 2018
8 November 2019
8 November 2019
21 April 2020
Unexpired term as at
31 December 2019
18 months
21 months
21 months
18 months
22 months
34 months
34 months
N/A
Date of appointment/last
reappointment at AGM
2019
2019
2019
2019
2019
N/A
N/A
N/A
Notice period
3 months
3 months
3 months
3 months
3 months
3 months
3 months
3 months
Consideration of employment
conditions elsewhere in the Company
The Committee consider the level of salary
increases that have been made to the Group’s
employees when considering salary
increases for the Executive Directors and
members of the Executive Committee, whilst
also taking into consideration the diverse
nature of the roles, responsibilities, and
geographic locations and economies of the
Group’s workforce. The Company does not
currently actively consult with employees on
executive remuneration.
Further information on the Group’s
employment policies are provided in the
Sustainable Development Report on pages
100 and 104 of this Annual Report
How the views of shareholders are taken
into account
The Committee considers shareholder feedback
and comment from corporate governance
bodies received in relation to the AGM each year.
The Committee will take these comments into
consideration when reviewing the Remuneration
Policy. The Committee will consult with its major
shareholders in advance of making any material
changes to remuneration.
Petropavlovsk Annual Report 2019 165
Directors’ Remuneration Report continued
Annual Report on Remuneration
The following section provides details of how the Company’s 2018 Remuneration Policy was implemented during the financial year ending
31 December 2019, and how the proposed 2020 Policy will be implemented in 2020. Any information contained in this section of the report
that is subject to audit is highlighted.
The Remuneration Committee
Membership and process
Members
Robert Jenkins (Chairman)
Damien Hackett
James W. Cameron1
Charlotte Philipps
Katia Ray
1. Mr Cameron was unable to attend one meeting due to illness.
From
29 June 2018
12 November 2018
12 November 2018
8 November 2019
8 November 2019
To
Present
Present
Present
Present
Present
Number of meetings in 2019
– Attendance/Eligibility
3/3
3/3
2/3
0/0
0/0
The principal role of the Committee is to recommend to the Board the framework and Policy for the remuneration of the Company’s Non-
Executive Chair, the Executive Directors, any newly appointed Executive Director, the Company Secretary and members of the Executive
Committee. In addition, and in consultation with the Chief Executive Officer as appropriate, the Committee is responsible for reviewing the
total individual remuneration package of each Executive Director and for reviewing annual proposals for the Executive Committee members.
The Committee’s terms of reference are available on the Company’s website at www.petropavlovsk.net.
Activities of the Committee during 2019
The Committee held four formal meetings
during the year. Key activities during the year
included:
In addition, Ms Philipps and Mrs Ray attended
a Remuneration Committee induction session
following their appointment to the Committee
on 8 November 2019.
– Review and approval of the 2018 bonus
outcome;
– Determination of performance measures
and targets, and award levels, for the 2019
annual bonus and 2019 LTIP awards for the
Chief Executive Officer and members of the
Executive Committee;
– Review and approval of the outcome of the
2018 annual bonus;
– Review and approval of the 2018 Directors’
Remuneration Report;
– Consideration and approval of new
performance conditions for the Long-Term
Incentive Plan; and
– Approval of the 2019 LTIP grants.
External advisers
In carrying out its responsibilities, the
Committee is independently advised by
external advisers.
Mercer Kepler (part of the MMC group of
companies), independent remuneration
consultants appointed by the Committee after
consultation with the Board, continued to act
as the remuneration adviser to the Committee
during the year. Mercer Kepler provides advice
on remuneration for executives, benchmarking
analysis, regular market and best practice
updates, and support with drafting of the
Directors’ Remuneration Report. Mercer
Kepler is a signatory to the Code of Conduct
for Remuneration Consultants of UK-listed
companies (which can be found at
www.remunerationconsultantsgroup.com).
Mercer Kepler reports directly to the
Committee Chair and neither Mercer Kepler
nor any other part of the MMC group of
companies provides any other services
to the Company, with the exception that Marsh
Ltd has been appointed as insurance broker
for some of the Group’s UK and global policies
and Mercer Marsh Benefits has been
appointed as broker for the private medical
healthcare scheme and life assurance scheme
for the Company’s UK based employees.
Mercer Kepler’s total fees for the provision
of remuneration services to the Committee in
2019 were £29,503 on the basis of time and
materials, excluding expenses and VAT.
Shareholder voting at Annual General
Meetings
The table below sets out the results of the
most recent shareholder votes on the Policy
Report and the advisory vote on the 2018
Annual Report on Remuneration at the 2019
AGM held on 13 June 2019.
Resolutions
Policy (2018 AGM)
2018 Annual Report on Remuneration
Percentage of votes cast
Number of votes cast
For and discretion
84.57
96.35
Against
15.43
3.65
For and discretion
1,996,614,738
2,072,264,402
Against
364,296,668
78,544,342
Withheld1
193,523,679
31,577,780
1. A vote withheld is not a vote in law and is not counted in the calculation of votes cast ‘for’ and ‘against’ a resolution.
2. The above resolutions were voted on a poll.
166 Petropavlovsk Annual Report 2019
Single total figure of remuneration for Executive Directors (audited)
The remuneration received by Executive Directors in respect of the financial years ended 31 December 2019 and 31 December 2018 is set
out below.
Executive Director
Pavel Maslovskiy(a)
Pavel Maslovskiy
Year
2019
2018
Salary & fees
£
Pension
£
Taxable
Benefit(b)
£
Total fixed
£
Annual
Bonus(c)
£
LTIP
£
Total variable
£
Single Figure
Remuneration
Total
£
Single Figure
Remuneration
US$(d)
655,000
330,017
0
0
5,812
0
660,812
330,017
655,000
324,654
0
0
655,000
324,654
1,315,812
654,671
1,680,045
903,446
(a) Dr Pavel Maslovskiy was appointed as an Executive Director and Chief Executive Officer on 29 June 2018; the 2018 remuneration shown in the table relates to his appointment during the period 29 June 2018
to 31 December 2018.
(b) Taxable benefit is in respect of critical illness cover provided for Dr Maslovskiy.
(c) The value of the annual bonus (including deferred bonus shares) awarded in respect of the corresponding performance year.
(d) Converted from GBP to US$ using the average exchange rate for the year (2019: £0.7832:US$1, 2018: £0.7246:US$1).
Petropavlovsk Annual Report 2019 167
Directors’ Remuneration Report continued
Implementation of the Remuneration Policy in 2019
Application of the Remuneration Policy in 2019
During 2019, Dr Pavel Maslovskiy, Chief Executive Officer was the sole Executive Director.
The following table summarises how the Policy was applied in 2019 for Dr Maslovskiy’s remuneration and the components making up the
report single figure on page 167.
Element of remuneration
How it works
How it was implemented in 2019
Salary
Benefits
Pension
Annual Bonus
Long-Term Incentive
Plan
Generally expected that increases will be no
higher than inflation.
To provide market competitive benefits.
To provide market-competitive pension
benefits in line with the wider workforce
whilst ensuring no undefined liability for the
Company.
Payment of a maximum of 100% of salary.
Performance is assessed against a range of
strategically important measures which may
vary each year depending upon the annual
priorities of the Group.
50% deferred into shares for one year.
Performance Share Award of up to 100%
of salary.
Shares will vest 3 years from date of grant
subject to satisfaction of performance targets.
There will be an additional 2-year holding
period.
No increase in 2019.
Life assurance and critical illness cover
provided.
No pension payments were made for
Dr Maslovskiy. The provision of pension is in
line with that of the Group’s Russian based
employees, whereby a statutory payment
is made by the Company to the Russian
government.
See page below table for details of the bonus
scorecard and achievement against the
specific targets
CEO actual 2019
remuneration outcome
(% change from 2018)
£655,000 (no change)
£5,812
Nil (no change)
100% of maximum
£655,000 (+1.625%)
Performance Share Award equal to 100%
of salary awarded in June 2019.
Please see page 169 for full details of
performance targets.
N/A
No performance share
award was due to vest
based on performance
to 2019.
Annual bonus
For 2019, 100% of the annual bonus targets were aligned to the Board’s strategy. The maximum bonus opportunity was 100% of salary, and
target bonus was 50% of salary. The performance targets and actual achievement during the year, and the resulting bonus outcome, are set
out in the table below.
Objective and weighting
(% of max)
POX performance
(50%)
Resolution of
US$100 million 9%
Convertible Bonds due
2020
(25%)
Link to our
strategy
Unlock the value creation
potential of the POX Hub.
Strengthen the balance
sheet and increase
liquidity.
Target
(pay-out of 50% of max)
4-autoclaves
commissioned in 2019.
Refinancing of the Group’s US$100 million 9%
Convertible Bonds Due 2020.
Stretch
(pay-out of 100% of max)
Autoclaves achievement
of 14,000 hours.
Gold Production
(20%)
Health & Safety
(5%)
Optimise costs and
operational efficiencies.
Continuously improve
HSE standards.
Gold production of
460koz of doré.
LTIFR target equal to 2018
actual LTIFR.
Gold production
=>483koz of doré.
LTIFR target 5% or more
improvement on 2018
performance
(LTIFR equal or less than
2.14).
Total
168 Petropavlovsk Annual Report 2019
Achieved
Total of 15,812 hours
achieved.
Convertible Bonds
refinanced by the
issue of the Group’s
US$125 million 8.25%
Convertible Bonds due
2024.
(see page 23)
517.3koz
1.61
Actual bonus
outcome
(% of max)
50%
25%
20%
5%
100%
Based on achievement of performance
targets, the bonus outcome was 100% of
maximum. The Committee reviewed the
Company’s underlying performance during
the year and determined that no discretionary
adjustment was required.
For 2019, half of the total bonus payable will
be paid in cash and the remainder will be
payable in the form of deferred bonus shares,
subject to the approval of the new Long-Term
Incentive Plan (the Plan under which the
deferred bonus share awards are made).
LTIP awards made during 2019
In 2019, the Chief Executive Officer received an award under the LTIP of 100% of salary:
The deferred award will vest after one year,
subject to continued employment. Malus and
clawback provisions apply, as appropriate.
Date of grant
24 June 2019
Number of shares granted
7,127,312
Share price on date of grant
9.19 pence
Face value
£655,000
Award as % of salary
100%
Vesting date
24 June 2022
Holding period expiry
24 June 2024
1. The share price for calculating the awards was 9.19 pence, being the average middle market closing price of Petropavlovsk Ordinary Shares on the three dealing days immediately prior to the date the Awards
were made in accordance with the LTIP Rules.
Vesting will be dependent on (i) three-year relative TSR from 1 January 2019 to 31 December 2021 against a bespoke gold mining index,
weighted 70% of the award, and (ii) a balanced scorecard, weighted 30% of the award. Performance against the balanced scorecard
measures will be assessed on a discretionary basis, and full disclosure of targets and actual performance will be provided on vesting; the key
performance criteria for each measure are set out in the table.
Measure
Performance targets
TSR vs. bespoke gold
mining index1
Balanced scorecard
Weighting (% of award)
70%
Below threshold (0% vesting)
Below median
Threshold (25% vesting)
Median
Stretch (100% vesting)
Median +10% p.a.
20%
5%
– Construction and launch of a flotation plant at Pioneer.
– Start of operations at the Elginskoye deposit.
– Finalising a feasibility study of permanent conditions and ensuring the reserves are
protected and recorded in the State Committee of Mineral Reserves.
5%
– Completion of technical documentation and commencement of construction of the
3rd phase of the Malomir flotation plant.
1. The bespoke Gold Mining Index comprises of the following companies: Acacia Mining, Atlantic Gold Corporation, Centamin, Endeavour Mining Corporation, Highland Gold Mining, Perseus Mining, Polymetal
International, Resolute Mining, Roxgold, Saracen Mineral, Silver Lake Resources.
Prior to determining the level of vesting, the
Committee will also consider the underlying
performance of the business, including whether
there have been any material adverse events.
The award will vest three years from the grant
date, subject to meeting the performance
conditions and continued employment.
Clawback and malus provisions apply, as
appropriate. A mandatory two-year post-
vesting holding period applies; vested awards
may not be sold during the holding period
except to cover tax liabilities.
Deferred bonus share awards made
during 2019
In 2019, the Chief Executive Officer received
an award under the 2018 bonus of 963,931
Ordinary Shares based on a share price of
8.42 pence on 1 May 2019. These Shares
vested on 1 May 2020.
Petropavlovsk Annual Report 2019 169
Directors’ Remuneration Report continued
Single figure for Non-Executive Directors (audited)
The fees paid to Sir Roderic Lyne, Non-Executive Chair and to the Company’s Non-Executive Directors in respect of the financial years ended
31 December 2019 and 31 December 2018 are as follows:
Non-Executive Directors
Roderic Lyne1
James W. Cameron Jr2
Damian Hackett2
Robert Jenkins3
Harry Kenyon-Slaney4
Bektas Mukazhanov5
Mirzaaziz Musakhanov6
Charlotte Philipps7
Katia Ray7
Total
Total fees £
Total fees US$8
2019
150,000
80,000
80,000
123,000
83,151
46,667
17,641
11,590
11,590
603,639
2018
75,577
15,865
15,865
42,827
11,346
32,115
–
–
–
193,595
2019
191,520
102,144
95,760
157,046
108,720
59,584
22,524
14,798
14,798
766,894
2018
104,296
21,894
21,894
59,101
15,658
44,319
–
–
–
267,162
1. Sir Roderic Lyne was appointed as Non-Executive Chair on 29 June 2018.
2. Messrs James W. Cameron Jr and Damien Hackett were appointed as Independent Non-Executive Directors on 15 October 2018.
3. Mr Robert Jenkins was appointed as an Independent Non-Executive Director on 29 June 2018. Mr Jenkins acts as Chair of the Audit and Remuneration Committees. Mr Jenkins is entitled to a fee for acting as
Chair of each Committee. Mr Jenkins did not accept a fee for his Chairing of the Remuneration Committee during the period 29 June 2018 to 31 December 2018. The Board approved a payment of £25,500 to
Mr Jenkins in respect of the additional work undertaken in relation to the estimation and negotiation of Petropavlovsk’s guarantee fee arrangements with IRC. This was agreed at a daily rate of £1,500.
4. Mr Harry Kenyon-Slaney was appointed as an Independent Non-Executive Director on 7 November 2018 and as Senior Independent Director on 24 April 2019.
5. Mr Mukazhanov was appointed as a Non-Executive Director on 8 February 2018 and departed as a Director on 8 June 2018, he was re-appointed as a Non-Executive Director on 27 July 2018. The
remuneration shown for 2018 relates to the period from 27 July 2018 to 31 December 2018. Mr Mukazhanov did not receive any fee for his period as a Director of the Company from 8 February 2018 to 8 June
2018. Mr Mukazhanov resigned as a Director on 30 July 2019.
6. Mr Musakhanov was appointed as a Director on 14 October 2019.
7. Ms Charlotte Philipps and Mrs Katia Ray were appointed as Independent Non-Executive Directors on 8 November 2019.
8. Converted from GBP to US$ using the average exchange rate for the year: (2019: £0.7832:US$1, 2018: £0.7246:US$1).
The Non-Executive Chair’s fee for 2019 remained unchanged from 2018 levels. The Board approved an increase of c.6.7% in the fee payable
to the Non-Executive Directors effective from 1 January 2019, from £75,000 to £80,000. This was the first time that fees had been reviewed
since May 2015 when fees were reduced by c.18.5%. No increase was made to the additional fee for the Audit Committee or Remuneration
Committee Chair or for the position of Senior Independent Director. A summary of the fees as at 1 January 2019 is set out below.
Non-Executive Chair fee
Non-Executive Director base fee
Additional Senior Independent Director fee
Additional Audit Committee Chair fee
Additional Remuneration Committee Chair fee
Payments for loss of office and to past
Directors (audited)
There were no payments made for loss of
office during the year, and no payments to
past Directors during the period in respect of
services provided to the Company as a
Director.
External directorships
Executive Directors may accept an external
non-executive appointment with the approval
of the Board. Any fees earned are retained by
the executive. The Chief Executive Officer did
not earn any remuneration from external
non-executive appointments during the year.
Fees 2019
£150,000
£80,000
£7,500
£10,000
£7,500
170 Petropavlovsk Annual Report 2019
Implementation of proposed Remuneration Policy in 2020
The section below sets out a summary of how the proposed Remuneration Policy will be implemented for the year ending 31 December 2020.
Executive Directors
Salary
The Committee reviewed the Chief Executive Officer’s salary and determined that no increase should be awarded. His salary will remain £655,000.
Mr Danila Kotlyarov was appointed as Chief Financial Officer on 1 February 2020 and as an Executive Director on 21 April 2020. His salary upon
appointment as Chief Financial Officer was £500,000; this is subject to review on 1 January 2021.
Annual bonus
The maximum annual bonus opportunity for the Chief Executive Officer and Chief Financial Officer for 2020 will be 150% of salary, subject to the approval
of the revised Policy at the 2020 AGM. Bonus pay-out at target will be 30% of max. The measures and weightings are set out in the table below.
Objective
Health and Safety, ESG (achievement of LTIFR performance targets)
Improved Capital Structure (liquidity improvement and reduction of both
leverage and cost of funding)
Cost Reduction (achievement of TCC and AISC targets for non-refractory
and refractory ore and mining and processing)
Finance function transformation (development and implementation of plans
to enhance business budgeting and reporting)
Increased gold production (achievement of budgeted targets for own gold
production and utilisation of POX Hub capacity)
Link to Strategy
Continuously improve sustainability practices
Strengthen the balance sheet and increase liquidity
Optimise costs and operational efficiencies
Optimise costs and operational efficiencies
CEO
Weighting
(% of max)
20%
40%
15%
10%
Unlock the value creation potential of the POX Hub
15%
CFO
Weighting
(% of max)
15%
40%
15%
20%
10%
Total
100%
100%
The final annual bonus outcome will be determined with reference to the achievement of the performance targets set out in the table, subject to the
Committee’s broader assessment of overall Company performance, including the occurrence of any material adverse HSE event or an event which leads to
significant reputational damage for the Company.
Full retrospective disclosure of the specific targets and performance against them will be provided in the 2020 Annual Report on Remuneration.
For 2020, one-third of the total bonus paid will be deferred in Company shares, vesting after three years subject to continued employment.
Dividend equivalents may be accrued in respect of awards that vest. Malus and clawback provisions apply, as appropriate.
LTIP
The Committee intends to grant performance share awards following the AGM, subject to shareholders’ approval of the new Long-Term Incentive
Plan. It is intended that the Chief Executive Officer and the Chief Financial Officer will receive an award of 150% of salary, which will vest based
upon the satisfaction of performance targets over a three-year performance period as set out below.
Measure
Performance targets
TSR vs. bespoke gold
mining index1
Weighting (% of award)
100%
Below threshold (0% vesting)
Below median
Threshold (25% vesting)
Median
Stretch (100% vesting)
Median +10% p.a.
1. The bespoke Gold Mining Index comprises of the following companies: Atlantic Gold Corporation, Centamin, Endeavour Mining Corporation, Highland Gold Mining, Perseus Mining, Polymetal International,
Resolute Mining, Roxgold, Sabine Gold Limited, Saracen Mineral, Silver Lake Resources.
Petropavlovsk Annual Report 2019 171
Directors’ Remuneration Report continued
Non-Executive Directors
The Non-Executive Chair and Non-Executive Director fees for 2020 have remained unchanged from 2019 levels. A summary of fees as at
1 January 2020 is set out below.
Non-Executive Chair fee
Non-Executive Director base fee
Additional Senior Independent Director fee
Additional Audit Committee Chair fee
Additional Remuneration Committee Chair fee
Fees 2020
£150,000
£80,000
£7,500
£10,000
£7,500
Percentage change in remuneration
of the Chief Executive Officer
The table below shows the percentage
change in Chief Executive Officer
remuneration from the prior year compared
to the average percentage change in
remuneration for Executive Committee
members. Given that the Group operates
in a number of diverse locations and its
employees cover a wide remit of roles, the
majority of whom are operational employees
based at the Group’s producing mines in the
Far East Amur region of Russia and also
include geologists, technicians at the Group’s
laboratories and functional staff at the
Group’s offices in Blagoveschensk, Moscow
and London, the Committee believes that
using the Executive Committee as a subset
for the purposes of comparing Chief
Executive Officer pay against wider employee
pay provides a more useful and meaningful
comparison than using pay data for all
employees.
The minimum wage paid to employees of
Petropavlovsk Group companies increased
by 16.5% in 2019 compared to 2018, with the
average wage increasing by 12% during the
same period.
Item
Base salary
Taxable benefits
Annual bonus
1. For 2018, based on the sum of remuneration paid to:
– Mr Ermolenko from 1 January to 15 April;
– Mr Roman Deniskin from 16 April to 28 June; and
– Dr Pavel Maslovskiy from 29 June to 31 December.
Percentage change: 2019 vs. 2018
Chief Executive
Officer1 Executive Committee
(2.7)%
5.2%
24.8%
N/A%
50%2
(15.9)%
2. Dr Maslovskiy’s 2019 bonus was in respect of the period 1 January 2019 to 31 December 2019. Dr Maslovskiy’s 2018 bonus was in respect of the period 29 June 2018 to 31 December 2018.
Relative importance of the spend on pay
The table below shows the movement in spend on staff costs between the 2019 and 2018 financial years, compared to profit before tax
and dividends:
Staff costs
Average number of staff
Profit before tax
Dividends
2019
US$103.7
8,981
2018
US$101.5
8,681
US$76.3 million US$82.4 million
–
–
% change
2.2%
3.5%
(7.3)%
–
There were no dividends paid or declared during the years ended 31 December 2019 and 31 December 2018 and no share buy-backs
were undertaken.
172 Petropavlovsk Annual Report 2019
Total shareholder return
This graph shows the Company’s TSR performance relative to the FTSE350 Mining Index and the bespoke Gold Mining Index over a period
of ten years to 31 December 2019. The Board considers the FTSE350 Mining Index to be an appropriate index for comparison as the
constituents represent the UK-listed mining sector. The bespoke Gold Mining Index is also considered an appropriate index for comparison
purpose as this is the comparator group for Performance Share Awards made under the Company’s Long-Term Incentive Plan.
£100 invested in Petropavlovsk, bespoke Gold Mining Index and FTSE350 Mining Index on 31 December 2009
£100 invested in Petropavlovsk, bespoke Gold Mining Index, and FTSE350 Mining Index on 31 Dec 2009
300
250
200
150
100
50
0
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
FTSE350 Mining Index
TSR peer group median
POG
Chief Executive Officer Remuneration
The table below shows the single figure of total remuneration for the Chief Executive Officer during each of the last ten financial years.
Year
Chief Executive
Officer during the
year(a)
Total
remuneration £
Annual bonus (%)
LTIP vesting (%)
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Mr Ermolenko Mr Ermolenko/
Dr Maslovskiy
Dr Maslovskiy Dr Maslovskiy/
Mr Ermolenko
Dr Maslovskiy
Mr Ermolenko/
Mr Deniskin/
Dr Maslovskiy
1,025,991
1,569,190
661,000
400,000
977,605
655,000
786,000
584,583
654,671
1,315,812
45%
0%
94.4%
0%
45.5%
0%
0%
0%
100%
N/A
0%(c)
N/A
20%
N/A
25%
N/A
98.4%(d)
N/A
100%
N/A
a. Dr Pavel Maslovskiy resigned as Chief Executive Officer on 20 December 2011 and Mr Sergey Ermolenko was appointed as Chief Executive Officer on that date. Mr Ermolenko stepped down as Chief
Executive officer on 5 November 2014 and Dr Maslovskiy was appointed as Chief Executive Officer on that date. Dr Maslovskiy resigned as Chief Executive Officer on 17 July 2017 and Mr Ermolenko was
appointed as Interim Chief Executive Officer on 18 July 2017.
b. Dr Maslovskiy also received a special bonus payment of £225,000 during the year ended 31 December 2009 in recognition of the services provided in relation to the Company’s acquisition of Aricom plc and
to the admission of the Company’s shares to trading on the Main Market of the London Stock Exchange plc. The special bonus payment of £225,000 is included in the total remuneration for 2009 shown
above but is not included in the annual bonus percentage figure shown of 70%.
c. The formulaic outcome of the 2015 Annual Bonus Plan would have resulted in a bonus of 30% of basic salary. However, Dr Maslovskiy agreed that his bonus payment should be waived.
d. Dr Maslovskiy received a bonus of 98.375% of his salary for the period 29 June 2018 to 31 December 2018.
Petropavlovsk Annual Report 2019 173
Directors’ Remuneration Report continued
Directors’ shares and share plan interests
Directors’ share interests
The interests of the Directors who held office during the period from 1 January 2019 to 31 December 2019 in the ordinary shares of the
Company, together with details of changes to shareholdings between 1 January 2020 and 26 May 2020, are as set out in the table below.
Director
Current Directors:
Sir Roderic Lyne
Dr Pavel Maslovskiy
Mr James W Cameron Jr
Mr Damien Hackett
Mr Robert Jenkins
Mr Bektas Mukazhanov1
Mr Mirzaaziz Musakhanov2
Mr Harry Kenyon-Slaney
Ms Charlotte Philipps3
Mrs Katia Ray3
Mr Danila Kotlyarov4
Mr Maxim Kharin5
Shares held as at
1 January 2019
or date of
appointment if later
Shares held as at
31 December 2019
or date of
retirement if earlier
Shares held as at
26 May 2020
0
0
0
0
0
1,192,406
0
0
N/A
N/A
N/A
N/A
0
17,400,000
0
0
250,000
1,192,406
0
250,000
0
0
N/A
N/A
0
17,400,000
0
0
250,000
N/A
0
250,000
0
0
0
0
1. Resigned as a Non-Executive Director on 30 July 2019. These shares were beneficially owned by JSC Fincraft Investment House.
2. Appointed as a Non-Executive Director on 14 October 2019, resigned as a Director on 5 February 2020.
3. Appointed as an Independent Non-Executive Director on 8 November 2019.
4. Appointed as Chief Financial Officer on 1 February 2020 and as an Executive Director on 21 April 2020.
5. Appointed as a Non-Executive Director on 21 April 2020.
Outstanding share awards
Details of awards outstanding are detailed below.
Director
Dr Pavel Maslovskiy
Dr Pavel Maslovskiy
Date of award
1 May 2019
24 June 2019
At 1 January 2019
-
-
Granted during the year
963,931
7,127,312
Face value at grant
£81,163
£655,000
At 31 December 2019
963,931
7,127,312
Normal vesting date
1 May 20201
24 June 20222
1. Dr Maslovskiy received a Deferred Bonus Award on 1 May 2019, under the rules of the Long-Term Incentive Plan. The award was in respect of c.12.4% of D Maslovskiy’s salary, representing c.25% of the
bonus received by Dr Maslovskiy in respect of the year ended 31 December 2018, as disclosed in the 2018 Directors’ Remuneration report. This Award vested on 1 May 2020. It is proposed that these shares
will be issued to the Petropavlovsk Employee Benefit Trust and transferred to Dr Maslovskiy following the release of the Company’s results for the full year ended 31 December 2019.
The number of ordinary shares awarded was based on the mid-market closing share price of Petropavlovsk PLC ordinary shares on 30 April 2019, being 8.42 pence.
2. Dr Maslovskiy was granted a Performance Share Award on 24 June 2019. This Award will vest subject to the satisfaction of performance conditions detailed on page 169 over the three-year performance
period. This will be followed by a two-year holding period.
Approval
The Annual Remuneration Report has been approved by the Board of Directors and signed on its behalf by:
Robert Jenkins
Chairman, Remuneration Committee
26 May 2020
174 Petropavlovsk Annual Report 2019
Directors’ Report
For the year ended 31 December 2019
Statutory and other information
This report includes certain disclosure which
are required by law to be included in the
Directors’ Report.
In accordance with the Companies Act 2006,
the following items have been reported in
other sections of this Annual Report and are
included in this Directors’ Report by
reference:
– The Strategic Report on pages 10 to 82
fulfils the requirements set out in section
414C of the Companies Act 2006 (the ‘Act’).
The statement describing how the Directors
have had regard to the matters set out in
Section 172(a) to (f) of the Act is provided
on pages 24 to 25.
– The Directors’ statement summarising how
the directors have:
– Had regard to the need to foster the
Company’s business relationships with
suppliers, customers and others, and
the effect of that regard; and
– Engaged with its employees and have
had regard to their interests, including
on the principal decisions taken by the
Company during the financial year is
provided on pages 100 to 104.
– Details of significant events since the
balance sheet date are contained in note 31
to the financial statements.
– Details of the Group’s approach to financial
risk management, its objectives and
policies and exposure to risk are described
in notes 18 and 28 to the financial
statements and in the Principal Risks and
Mitigation section on pages 28 to 41.
– Information about the use of financial
instruments by the Company and its
subsidiaries is given in note 28 to the
financial statements.
Name
Ms Charlotte Philipps
Mrs Ekaterina (Katia) Ray
Mr Mirzaaziz Musakhanov
Mr Bektas Mukazhanov
Mr Maxim Kharin
Mr Danila Kotlyarov
Appointed
8 November 2019
8 November 2019
14 October 2019
21 April 2020
21 April 2020
Resigned
5 February 2020
30 July 2019
Further details of these changes are provided on pages 144 and 145 of the Corporate Governance Report.
Directors’ appointment
With regard to the appointment and
replacement of Directors, the Company is
governed by its Articles of Association, the UK
Corporate Governance Code, the Companies
Act 2006, and related legislation. Directors
may be appointed by the Company by
ordinary resolution or by the Board, on
recommendation of the Nominations
Committee. A Director appointed by the
Board holds office only until the following
Annual General Meeting and is then eligible
for election by shareholders. The Company
may, in accordance with and subject to the
provisions of the Companies Act 2006, by
ordinary resolution of which special notice
has been given, remove any Director before
the expiration of his or her term of office.
In accordance with the requirements of the
Code, all eligible directors will stand for
election or re-election at the Company’s 2020
Annual General Meeting. Information
regarding the appointment of Directors is
included in the Nominations Committee
Report on pages 144 and 145.
Conflicts of interest
Under the Act, Directors are subject to a
statutory duty to avoid a situation where they
have, or can have, a direct or indirect interest
that conflicts, or may possibly conflict, with
the interests of the Company.
The Act allows directors of public companies
to authorise conflicts and potential conflicts of
interest of directors where the Articles of
Association contain a provision to that effect.
The Company’s Articles of Association afford
the Directors such powers. In addition, the
Directors will be able to impose limits or
conditions when giving any authorisation, if
they think this is appropriate.
The Board has an established procedure for the
disclosure of interests and other related matters.
Each Director must promptly disclose actual or
potential conflicts and any changes to the
Board, which are noted at each Board meeting.
The Board considers and authorises potential or
actual conflicts as appropriate. Directors with a
conflict do not participate in the discussion or
vote on the matter in question.
– Details of the Group’s corporate governance
arrangements and its compliance with the
UK Corporate Governance Code published
in July 2018 (the ‘Code’) can be found on
pages 134 to 141.
– Directors’ interests in shares as at 31
December 2019 and any changes
thereafter can be found on page 174 of the
Directors’ Remuneration Report.
– The Group’s disclosure of its greenhouse
gas emissions can be found on page 88.
Directors, Directors’ appointment,
conflict of interest and Directors’
indemnity
The names and biographies of the Directors
who held office at the date of this Annual
Report are set out on pages 130 and 132.
Changes to the Directors during 2019 and up
until the date of this Report are detailed in the
table below:
Position
Independent Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Executive Director & Chief Financial Officer
The Directors have reviewed the interests
declared by Directors which could conflict
with those of the Company and are satisfied
that the Board’s power to authorise potential
conflicts is operating effectively. Related party
transactions, which includes those in respect
of any Director, are disclosed in note 26 to the
financial statements on page 236.
Directors’ indemnities
A qualifying third-party indemnity provision
as defined in Section 234 of the Act is in force
for the benefit of the Directors in respect of
liabilities incurred as a result of their office to
the extent permitted by law. In respect of
those liabilities for which Directors may not
be indemnified, the Company maintained a
directors’ and officers’ liability insurance
policy throughout the financial year.
Petropavlovsk Annual Report 2019 175
Directors’ Report continued
Section of this Report on pages 100 to 104
and in the Corporate Governance Report on
page 134.
Modern Slavery and Human Trafficking
Statement
The Company’s statement is available in the
Sustainability section of the Company’s website
at www.petropavlovsk.net.
Donations
In line with the Group policy, no donations
were made for political purposes.
Details of the Group’s charitable activities are
set out in the Sustainable Development
Section of this Report on pages 106 to 108 and
page 236 of Consolidated Financial
Statements.
Share capital and related matters
Share capital
At 31 December 2019, the Company had
3,310,210,281 ordinary shares of £0.01 each
in issue (2018: 3,307,151,712). Details of the
Company’s issued share capital and
movements in the issued share capital are
shown in note 24 to the financial statements
on page 234.
Purchase of own shares
Petropavlovsk’s Articles of Association
provide the authority for the Company to
purchase its own shares subject to
compliance with any applicable requirements
contained in the Act, the CREST regulations
and any other applicable law.
The Company did not seek authority from
shareholders to make purchases of its own
shares at the Company’s 2019 Annual
General Meeting and no such authority will be
sought in 2020.
Shareholders’ rights
The rights attaching to the Ordinary Shares
are governed by the Company’s Articles of
Association and prevailing legislation. There
are no specific restrictions on the size of a
holding.
Subject to applicable law and the Articles of
Association, holders of Ordinary Shares are
entitled to receive all shareholder documents,
including notice of any general meeting;
attend, speak and exercise voting rights at
general meetings, either in person or by
proxy; and participate in any distribution of
income or capital.
Restrictions on voting
In general, there are no specific restrictions on
a shareholder’s ability to exercise their voting
rights, save in situations where the Company
is legally entitled to impose such restrictions
(usually where amounts remain unpaid on the
shares after request, or the shareholder is
otherwise in default of an obligation to the
Company). Currently, all issued Ordinary
Shares are fully paid.
Deadlines for exercising voting rights
Votes are exercisable at a general meeting
of the Company in respect of which the
business being voted upon is being heard.
Votes may be exercised in person, by proxy,
or in relation to corporate members, by
corporate representatives. The Articles of
Association provide a deadline for submission
of proxy forms of not less than 48 hours
before the time appointed for the holding of
the meeting or adjourned meeting.
Transfer of Ordinary Shares
The transfer of Ordinary Shares is governed
by the general provisions of the Company’s
Articles of Association and prevailing
legislation. There are no restrictions on the
transfer of the Ordinary Shares other than
(i) as set out in the Articles of Association;
(ii) certain restrictions which may from time
to time be imposed by laws and regulations
(for example, insider trading laws); and
(iii) pursuant to the Listing Rules of the
Financial Conduct Authority and the Market
Abuse Regulation whereby certain Directors,
officers and employees of the Company
require approval to deal in the Ordinary
Shares in accordance with the Company’s
share dealing rules.
Allotment of Ordinary Shares and
disapplication of pre-emption rights
The Company has authority to issue Ordinary
Shares under its Articles of Association.
At the 2019 Annual General Meeting held
on 13 June 2019, shareholders granted
the Directors authority to allot new shares
(or grant rights to subscribe for or convert
securities into shares) up to a nominal value
of £11,030,000, equivalent to approximately
33% of the total issued Ordinary Share capital
of the Company, exclusive of treasury shares,
at the time of passing the resolution.
Powers of Directors
Subject to the Company’s Articles of
Association, the prevailing legislation and any
directions given by special resolution, the
business and affairs of the Company are
managed by the Directors who may exercise all
such powers of the Company. The powers of
Directors are further described in the Schedule
of Matters reserved for the Board, copies of
which are available on the Company’s website
at www.petropavlovsk.net.
Other statutory disclosures
Dividends
The Directors do not recommend a final
dividend in respect of the year ended
31 December 2019 (2018: nil). Future
decisions regarding the dividend will be
based on a number of factors, including
market conditions, distributable reserves,
liquidity and operational performance.
In any event, the payment of dividends by
the Company is restricted by covenants in
the Petropavlovsk 2016 Limited 8.125%
Guaranteed Notes due 2022, and by
covenants in the Petropavlovsk 2010 Limited
8.25% Convertible Bonds due 2024, both of
which the Company is the guarantor.
Employees
The Group has an internal communications
department to ensure that a regular and
ongoing dialogue is maintained between
employees, trade unions, management,
local communities, the media and non-
governmental organisations. This department
also oversees the production of a free monthly
newspaper designed to keep employees well
informed with news from the Group’s
operations. In addition, regular meetings are
held between management and employees
to allow exchanges of information and ideas.
The Group is committed to providing equal
opportunities and pay in all aspects of
employment. The Group gives every
consideration to applications for employment
by disabled persons where the requirements of
the job may be adequately filled by a disabled
person. Where existing employees become
disabled, it is the Group’s policy wherever
practicable to provide continuing employment
under similar terms and conditions and to
provide training, career development and
promotion wherever appropriate.
Further information regarding employment at
Petropavlovsk, the Board’s engagement with
the Group’s employees, and how it has
complied with Provision 5 of the Code, is
provided in the Sustainable Development
176 Petropavlovsk Annual Report 2019
On 3 July 2019, Petropavlovsk 2010 Limited
(the ‘Issuer’), a subsidiary of the Company,
issued US$125 million Guaranteed
Convertible Bonds due 2024 (the ‘New
Bonds’) convertible into preference shares
of the Issuer (the ‘Preference Shares’) to be
issued upon conversion of the New Bonds,
such Preference Shares being immediately
and mandatorily exchangeable for ordinary
shares in the Company (the ‘Ordinary
Shares’). On 18 June 2019, the Directors
authorised the allotment and issue of any
Ordinary Shares arising from the conversion
of the New Bonds, subject to and on the
terms of the above authority granted at the
Company’s Annual General Meeting held on
13 June 2019.
At the 2019 Annual General Meeting the
Company also sought shareholder approval
of the resolution for disapplication of
pre-emptive rights and the resolution for
disapplication of pre-emptive rights
(representing an additional 5%). These
resolutions were not approved by
shareholders. Further information on the
actions taken by the Company in accordance
with Provision 4 of the Code, including on the
consultation with dissenting shareholders is
provided on page 142.
Resolutions seeking authority for the
Directors to allot ordinary shares will be
sought at the Company’s 2020 Annual
General Meeting.
Further details of the above proposals and
resolutions will be contained in the 2020
Notice of Annual General Meeting.
Amendment of Articles of Association
The Company’s Articles of Association may
be amended by special resolution of
shareholders. A copy of the Company’s
Articles of Association adopted by
shareholders on 26 February 2015 are
available on the Company’s website.
A resolution to amend the Company’s Articles
of Association will be proposed at the
Company’s 2020 Annual General Meeting.
Full details of the changes to be made will be
provided in the Notice of Annual General
Meeting. However, the revised Articles of
Association, if approved by shareholders, will
enable the Company to hold hybrid general
meetings if the Board deems this appropriate.
2020 Annual General Meeting (AGM)
Notice of General Meeting
A separate document, the 2020 Notice of
Annual General Meeting, convening the
Annual General Meeting of the Company to
be held on 30 June 2020, will be sent or made
available to all shareholders and will contain
an explanation of the resolutions to be
proposed to that meeting. The Directors
consider that each of the Resolutions is in
the best interests of the Company and the
shareholders as a whole and recommend
that shareholders vote in favour of all
Resolutions.
Electronic proxy voting
Registered shareholders may submit their
votes (or abstain) on all Resolutions proposed
at the AGM by means of an electronic voting
facility operated by the Company’s registrar,
Link Asset Services. This facility can be
accessed by visiting www.signalshares.com.
CREST members may appoint a proxy or
proxies by using the CREST electronic
appointment service.
As detailed in the 2018 Annual Report,
and in line with the Company’s sustainability
commitment, the Company will no longer be
sending paper proxy cards to shareholders
for the Annual General Meeting unless
specifically asked to do so. Instead
shareholders will be able to submit their
proxy vote electronically by accessing the
shareholder portal at www.signalshares.com.
The Company will provide further advice in
the 2020 Notice of Annual General Meeting
on how to submit votes electronically and how
shareholders can request a paper proxy if this
is their preference.
Electronic copies of the annual report
and financial statements and other
publications
Copies of the 2019 Annual Report and
Financial Statements, Notice of Annual
General Meetings, other corporate
publications, press releases and
announcements are available on the
Group’s website at www.petropavlovsk.net.
Shareholders are encouraged to take advantage
of the provisions allowing the Group to
deliver notices of meetings and associated
documentation electronically by e-mail, or via
the Group’s investor relations webpages at
www.petropavlovsk.net/investors.
Change of control (significant contracts)
A change of control of the Company following
a takeover may cause agreements to which
the Company, or any of its subsidiaries, is
party, such as commercial trading contracts,
joint venture agreements and banking
arrangements, to take effect, alter or terminate.
In the context of the potential impact on the
Group, certain of these arrangements are
considered to be significant.
The following significant agreements contain
certain termination and other rights for the
counterparties of the Group companies upon
a change of control of the Company.
Pursuant to the issue of US$500 million
8.125% Guaranteed Notes due 2022 (the
‘Loan Notes’) issued by Petropavlovsk 2016
Limited on 14 November 2017 and
guaranteed by the Company, if any person or
group of persons acting in concert gains
control of the Company, constituting a
Relevant Event (as defined in the Terms and
Conditions of the Bonds), the bondholders
have the right to require the redemption of the
Loan Notes at 101 per cent. of their principal
amount plus accrued and unpaid interest to
the date of redemption.
Pursuant to the issue of US$125 million 8.25%
guaranteed Convertible Bonds due 2024 (‘the
Bonds’) issued by Petropavlovsk 2010
Limited (‘the Issuer’) on 3 July 2019 and
guaranteed by the Company, upon a change
of control over the Company constituting a
Relevant Event (as defined in the Terms and
Conditions of the Bonds), the exchange price
of the shares shall be adjusted in accordance
with the formula contained in the Terms and
Conditions of the Bonds and the bondholders
have the right to require the redemption of the
Bonds at their principal amount plus accrued
and unpaid interest to the date of redemption.
Information required by UK Listing
Rule 9.8.4
Details of the amount of interest capitalised by
the Group during the financial year can be
found in note 9 to the financial statements on
page 222.
There are no other disclosures to be made
under Listing Rule 9.8.4.
Petropavlovsk Annual Report 2019 177
Directors’ Report continued
Significant shareholdings
Information provided to the Company pursuant to the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules (DGTRs)
is published on a Regulatory Information Service and on the Company’s website.
As at 31 December 2019, the Company had received the following disclosures of major holdings of voting rights, pursuant to the
requirements of Rule 5 of the DGTR.
% interest in
voting rights
ordinary
shares
No of Shares
Financial
Instruments
(Number of voting
rights that may be
acquired if the
instrument is
exercised/
converted)
Financial
instruments with
similar economic
effect
% voting
Rights
% of voting
rights
Total number of
Voting rights
% voting
rights (as
at 31
December
2019
Prosperity Capital Management
Limited (a):
The Russian Prosperity Fund
The Prosperity Cub Fund
The Prosperity Quest Fund
Prosperity Capital
Management SICAV 2384908
Ontario Limited
Aeon Mining Limited (b)
VTB Bank (Deutschland) AG
Everest Alliance Limited (formerly
known as CABS Platform Limited)
The Russian Prosperity Fund (a)
Fortiana Holdings Limited (c)
Slevin Ltd
Abu Dhabi Investment Authority
The Prosperity Quest Fund (a)
Norges Bank
504,028,725
15.23
440,565,485
300,000,000
13.30
9.06
249,517,537
244,884,565
152,994,773
150,517,537
131,559,109
104,127,789
89,963,383
7.54
7.40
4.62
4.55
3.97
3.15
2.72
300,000,000
9.06
210,370,370
5.97
(nominal)
504,028,725
15.23
740,565,485
300,000,000
28.33
9.06
249,517,537
244,884,565
152,994,773
150,517,537
131,559,109
104,127,789
134,963,383
7.54
7.40
4.62
4.55
3.97
3.15
4.08
45,000,000 (d)
1.36
(a) Prosperity Capital Management Limited’s holding of 15.23% includes the disclosure of The Russian Prosperity Fund (7.40%) and The Prosperity Quest Fund (3.15%).
(b) Aeon Mining Limited is the holder of the voting rights and financial instruments in Petropavlovsk PLC as set out above. Aeon Mining Limited is a wholly owned subsidiary of Limited Liability Research and
Production Association Altair, a company ultimately controlled by Mr Roman Trotsenko.
The interest in financial instruments with similar economic effect to qualifying financial instruments of Aeon Mining Limited relates to the Group’s 8.25% Convertible Bonds due 2024 (the ‘Bonds’).
Bondholders cannot exercise their voting rights over Ordinary Shares associated with the Bonds until they have converted their Bonds into Ordinary Shares.
(c) The beneficial ownership of Fortiana Holdings Limited is exercised by entities owned by Vladislav Sviblov.
(d) The interest in financial instruments relates to shares acquired on loan (right to recall)
178 Petropavlovsk Annual Report 2019
As at 26 May 2020, the Company has not received any notification that any other person holds 3% or more of the voting rights of the Company.
% interest in
voting rights
ordinary
shares
No of Shares
Financial
Instruments
(Number of voting
rights that may be
acquired if the
instrument is
exercised/
converted)
Financial
instruments with
similar economic
effect
% voting
Rights
% of voting
rights
Total number of
Voting rights
% voting
rights
(as at
26 May
2020)
740,565,485
22.37
210,370,370(a)
5.97
950,935,855
28.34
494,796,575
14.95
249,517,537
244,884,565
152,994,773
150,517,537
104,127,789
38,754,076
18,455,115
7.54
7.40
4.62
4.55
3.15
1.17
0.56
96,209,307(e)
108,429,907(e)
2.91
3.28
4,065,911
0.12
494,796,575
14.95
249,517,537
244,884,565
152,994,773
150,517,537
104,127,789
134,963,383
130,950,933
7.54
7.40
4.62
4.55
3.15
4.08
3.96
Joint Stock Company
“Uzhuralzoloto Group of
Companies” (a)
Prosperity Capital Management
Limited (b):
The Russian Prosperity Fund
The Prosperity Cub Fund
The Prosperity Quest Fund
Prosperity Capital
Management SICAV 2384908
Ontario Limited
Everest Alliance Limited (formerly
known as CABS Platform Limited)
The Russian Prosperity Fund (b)
Fortiana Holdings Limited (c)
Slevin Ltd
The Prosperity Quest Fund (a)
Norges Bank
Societe Generale SA
(a) The interest in financial instruments with similar economic effect to qualifying financial instruments of Joint Stock Company “Uzhuralzoloto Group of Companies” relates to the Group’s 8.25% Convertible
Bonds due 2024 (the ‘Bonds’). Bondholders cannot exercise their voting rights over Ordinary Shares associated with the Bonds until their Bonds are converted into Ordinary Shares.
(b) Prosperity Capital Management Limited’s holding of 14.95% includes the disclosure of The Russian Prosperity Fund (7.40%) and The Prosperity Quest Fund (3.15%).
(c) The beneficial ownership of Fortiana Holdings Limited is exercised by entities owned by Vladislav Sviblov.
(d) The interest in financial instruments relates to shares acquired on loan (right to recall).
(e) The voting rights for 108,429,907 Ordinary Shares are in relation to Borrowed Ordinary Shares and 4,065,911 voting rights are in relation to the Contract for Difference.
The information provided in the above tables was correct at the date of notification. It should be noted that these holdings may have changed
since the Company was notified. However, notification of any change is not required until the next notifiable threshold is crossed.
Relationship Agreements
On 30 July 2018, Fincraft Holdings Limited
(‘Fincraft’) and Mr Kenges Rakishev entered
into a relationship agreement with the
Company (the ‘Fincraft Relationship
Agreement’) due to Fincraft’s position as a
significant shareholder of the Company and
Mr Rakishev being the sole beneficial owner
of Fincraft. The Fincraft Relationship
Agreement terminated on 27 June 2019 when
Fincraft sold its shareholding in the Company
to Aeon Mining Limited (“Aeon”).
On 14 October 2019 Aeon and Mr Roman
Trotsenko entered into a relationship
agreement with the Company (the ‘Aeon
Relationship Agreement’) due to Aeon’s
position as a significant shareholder of the
Company and Mr Trotsenko being the ultimate
sole beneficial owner of Aeon. The Aeon
Relationship Agreement terminated on
4 February 2020 when Aeon sold its entire
shareholding in the Company to Uzhuralzoloto
Group of Companies.
Under the Fincraft Relationship Agreement
and the Aeon Relationship Agreement,
Fincraft and Aeon respectively had the right
to appoint a director to the board of the
Company. Fincraft and Aeon also provided
certain undertakings including in respect of
conducting transactions with the Company
and exercising their right to vote.
On 2 April 2020 Uzhuralzoloto Group of
Companies and its ultimate beneficial owner
entered into a relationship agreement with
the Company (the ‘UGC Relationship
Agreement’) due to Uzhuralzoloto’s position
as the largest shareholder of the Company.
Under the UGC Relationship Agreement,
UGC has the right to appoint a director to
the board of the Company. In this respect
Mr Maxim Kharin was appointed as a Director
on 21 April 2020. UGC has also provided
certain undertakings including in respect of
conducting transactions with the Company
and exercising their right to vote.
Accountability & Audit
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.
Petropavlovsk Annual Report 2019 179
Directors’ Report continued
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
2019 Annual Report and Accounts. As at
31 December 2019, 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 June 2021.
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 third-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, and Russian Rouble : US Dollar
exchange rate that is approximately 10%
stronger than the average of the market
consensus forecasts. This layered stressed
case indicates sufficient liquidity for a period
of at least 12 months including under
downside IRC performance scenarios.
As at 31 December 2019, the Group has
guaranteed the outstanding amounts IRC
owed to Gazprombank. The outstanding
loan principal was US$225 million as at
31 December 2019 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.
The directors have also considered the
potential impacts of COVID-19 which are
described in detail on pages 6, 30 and 31
of the Annual Report.
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 2019 Annual
Report and Accounts. Accordingly, they
continue to adopt the going concern basis of
accounting in preparing these consolidated
financial statements.
Viability Statement
In accordance with provision C.2.2 of the 2016
UK Corporate Governance Code, the Directors
have assessed the longer-term prospects of
the Group over a period significantly longer
than 12 months in the Going Concern
Statement and have determined an
appropriate period for assessment in this
Viability Statement. In doing so, they have
considered, in particular:
– The nature of the Group’s business,
strategy and business model;
– The Group’s current financial and projected
liquidity positions, based on its current Net
debt and available debt facilities and its
projected performance; and
– The principal risks which could affect these
and the Group’s longer-term viability.
Assessment of prospects
The Directors have assessed the prospects
of the Group in the context of the factors
central to its success in realising its strategic
objectives. They have considered these in
the context of the Group’s Long-Term
Mining Plan, with requirement for the
sustainability alignment of its business model.
The assessment of the Group’s longer-term
prospects has also taken into account, in
particular, its cash and debt finance position
at end 2019, and projected ability to generate
sufficient cash flow to meet its projected
capital expenditure and working capital
requirements as well as to service and repay,
if necessary, its existing debt finance over the
medium-term.
The assessment of the Group’s longer-term
prospects has additionally taken into account
macroeconomic and financial markets
conditions, both globally and in relation to
Russia, in particular as these may affect both
the gold price and the competitiveness of the
Group’s Russia based business operations.
The Group undertakes annually a strategic
review of its Long-Term Mining Plan as the
basis for its business planning process.
This includes evaluation of the robustness
of the Group’s assumptions about projected
gold production, including in the processing
of third-party gold concentrate and its
availability on satisfactory terms,
corresponding projected Total Cash Costs
and All-in Sustaining Costs. The Group
undertakes this evaluation also by reference
to its gold reserves and resources as well as
geological, metallurgical, operational and
other technical actual and potential risk
factors, including of a capital expenditure and
project related nature, as these could affect its
gold production.
Based on this assessment, the Board
considers the Group’s gold production and
associated cost projections to be robust and,
taking due account of external gold market
and exchange rate risk factors, concludes
that its longer-term prospects are
satisfactorily good.
Viability period
The Directors have reviewed the period used
for the assessment and determined that a
five-year period to be appropriate. This period
aligns the Viability Statement with the tenor of
the Group’s existing debt finance obligations
and the possible requirement, in the absence
of refinancing and other options for this, to
repay the Group’s existing US$500 million
Loan Notes in November 2022 and
US$125 million Convertible Bonds in June
2024. Accordingly, the Group’s longer-term
viability assessment and corresponding
financial projections stress test model the
Group’s ability to meet its debt finance
obligations. This is on the basis of its
projected cash generation liquidity, taking
into account also existing forward gold sale
financing facilities available to it.
180 Petropavlovsk Annual Report 2019
Principal risks
The Board attaches great importance to
risk management, and this is reflected in
its creation of a newly established Risk
Committee. The role of the Risk Committee
is to determine the processes by which the
Group identifies risks, decides upon its
appetite for risk and manages risks in their
mitigation. In monitoring the Group’s risk
management, the Risk Committee engages
with both the Audit Committee and the Safety,
Sustainability and Workforce Committee in
fulfilling this role and its membership includes
a senior management representative.
This has provided the context for the
Directors’ assessment of principal risks.
The Board’s detailed assessment of the
identified principal risks and uncertainties
relating to the Group is set out on pages 26
and 27 of this Annual Report.
In its assessment of risks relevant to the
Group’s longer-term viability, the Directors
have given consideration to potential
emerging risks which could affect this.
The Directors have reviewed internal
operational related risks, as they might
individually or together affect the Group’s
longer-term viability. They view these risks,
highlighted at the end of this Viability
Statement, as largely within management
control, including those which are
environmental, social and governance (ESG)
related. As a result, the Directors consider
them to be sufficiently remote so as not to
affect the Group’s viability over the longer-term.
The Directors have also reviewed external
risks largely outside management’s control.
These include the possible risk of IRC not
meeting its debt service obligations under
its Gazprombank loan facilities and, in
connection with its guarantees of this,
the Group consequently having to provide
financial support to IRC. Consideration of this
has included review of a severe but plausible
downside case scenario regarding IRC’s
future performance. This assessment shows
that in the event of, the Group needing to
provide financial support to IRC, this should
not affect the Group’s longer-term viability.
It also does not take into account the
possibility of a removal of Petropavlovsk’s
guarantees in due course resulting from a
disposal of its shareholding in IRC or
otherwise.
The Board has additionally considered
the actual and potential COVID-19 related
external risk consequences for both the
Group and IRC. Based on current information
as available, this has been assessed as
possibly having some limited disruption effect
in the short term, but no major disruption
consequences or risks in the longer-term.
Catastrophic events, which could potentially
result in long disruption to mining related
operations, are regarded as principal risks.
The causes of these could be both external
(e.g. torrential floods affecting mining
operations) and internal, and therefore
amenable to management control (e.g.
accident emergencies relating to the
operation of the Group’s POX Hub). In
considering these, the Directors have
concluded the likelihood of their occurrence
to be remote and have therefore not taken
them into account for the purposes of the
Group’s Viability Statement.
In identifying emerging principal risks that
affect the Group’s viability, the Board has
additionally considered the actual and
potential COVID-19 related risk
consequences for both the Group and IRC.
Based on current information as available, this
has been assessed as possibly having some
limited disruption effect in the short term, but
no major disruption consequences or risks in
the longer-term.
Based on this assessment, the Directors
have concluded that the principal risks which
could affect the Group’s longer-term viability
comprise the external risks relating to the gold
price and exchange rate. These take account
of inherent significant volatility which could
affect these.
The Group’s corporate planning process
for gauging the possible consequences
and of the relevant risks and uncertainties
includes financial modelling to stress test the
robustness of the Group’s business model
and projections under severe but plausible
Reasonable Worst Case (RWC) and
mitigated scenarios.
Key assumptions
The assessment of the Group’s longer-term
viability has taken into consideration its
financially modelled Base Case, RWC
and Mitigated RWC Scenarios, which
management has prepared by reference
to the Group’s Long-Term Mining Plan.
The Group’s Base Case Scenario financial
projections reflect the following key
assumptions:
– Existing JORC gold reserves and
resources;
– Operational production capacity as
projected in the Group’s Long-Term Mining
Plan, including planned capital expenditure
for its mining operations and increased
processing capacity for producing gold
concentrate;
– The Group’s current operational costs
continuing to apply;
– An exchange rate of RUB74 : US$1; and
– A gold price of US$ 1,550/oz.
Assessment of viability
In order to assess resilience to principal risks
that could threaten viability in severe but
plausible scenarios, the Group’s Base Case
financial the model was subjected to stress
test financial modelling analysis, including
in an RWC Scenario, together with an
assessment of potential mitigating actions
in a Mitigated RWC Scenario.
The RWC and Mitigated RWC Scenarios
financial projections assume, throughout the
Viability Statement period, a 10% Rouble
appreciation, applying a RUB66.60 : US$1
exchange rate, and a US$1,400 / oz gold
price. They additionally make some specific
provision for COVID-19 production related
risks in 2020:
– Delay of Pioneer flotation plant
commissioning until October 2020;
– A 10% reduction of third-party concentrate
volumes;
– A 10% reduction in gold produced from
underground operations; and
– A COVID-19 specific 10% downward
adjustment in other production.
The mitigating actions applied in the Group’s
Mitigated RWC Scenario principally comprise
assumed access to debt finance of up to
US$200 million for the repayment in full of the
Group’s existing US$500 million Loan Notes
in 2022, as well as additional US$126 million
forward gold sale funding. Assumed
mitigating actions also include some partial
gold price and exchange rate hedging.
Petropavlovsk Annual Report 2019 181
Fair, balanced and understandable
The Directors consider that this Annual
Report, taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
Company’s position and performance,
business model and strategy.
This report was approved by the Board of
Directors of Petropavlovsk PLC on 26 May
2020 and signed on its behalf by:
Amanda Whalley ACIS
Company Secretary
26 May 2020
Directors’ Report continued
In order to stress test whether the Group
would be able to refinance its existing debt
finance in 2022 and 2024 as necessary,
additional sensitivity analyses have been
undertaken at gold prices ranging down
to US$1,200/oz and Rouble appreciation
ranging up to a RUB62 : US$1 exchange
rate, applied throughout the viability period.
The purpose of this sensitivity analysis stress
test is to assess whether, at such gold price
and exchange rate levels, the Group’s
corresponding projected and cash flow
generation would be sufficient to support the
level of debt financing that would be required
to refinance the Group’s existing debt finance.
Liquidity and solvency
The Group’s Base Case, RWC and Mitigated
RWC Scenarios indicate, by reference to the
corresponding projected operating
profitability and cash generation over the
viability period under these scenarios, that the
Group should have a capacity to refinance, on
a debt funding basis, the resulting projected
liquidity requirement for repaying its existing
US$500 million Loan Notes in 2022 and
US$125 million Convertible Bonds in 2024.
The sensitivity analyses undertaken at gold
prices ranging down to US$1,200/oz and
Rouble appreciation ranging up to a RUB62 :
US$1 exchange rate, as applied throughout
the viability period, further indicate that the
Group should be able to refinance as
necessary its existing debt finance in 2022
and 2024. This is by reference to the Group’s
corresponding projected operating
profitability and cash generation. However, it
should be highlighted that a key assumption
under its stress tested RWC and sensitised
scenarios, which the Directors consider
reasonable, is that the Group will have access
to debt finance for refinancing its existing
borrowings as may be required to a partial
extent. It can also be noted that this does not
take account of either possible new equity
capital or other refinancing options which the
Group may have at such stage.
Expectations
In assessing the Group’s longer-term viability,
the Directors considered, as indicated, the
principal risks that could affect this and the
corresponding severe but plausible scenarios
that have been financially modelled for these
purposes. These have stress tested the
robustness of the Group’s Long-Term Mining
Plan and its projected ability, under
corresponding RWC and sensitised
scenarios, to meet its existing debt financing
obligations to 2024, generating sufficient cash
flow as well as arranging such refinancing as
may be necessary for these purposes. On the
basis of this assessment, the Directors have
concluded and have a reasonable
expectation that the Group will be able to
continue business operations, in line with its
future plans, and to meet its obligations as
they fall due during the five-year period
covered by this Viability Statement.
Information to the independent auditors
The Directors who held office at the date of
this Directors’ Report confirm that, so far as
they are each aware, there is no relevant audit
information of which the Company’s auditor
is unaware, and that each Director has taken
all steps that he ought to have taken as a
Director to make himself aware of any relevant
audit information and to establish that the
Company’s auditor is aware of that information.
Resolution to appoint independent
auditors
Following the conclusion of a formal tender
process led by the Audit Committee, as
detailed on pages 146 to 154, the Directors
recommend the appointment of
PricewaterhouseCoopers LLP as auditor.
A resolution to approve their appointment
as auditor to hold office from, and including
the year ending 31 December 2020 until the
next meeting at which accounts are laid will
be proposed at the forthcoming Annual
General Meeting.
182 Petropavlovsk Annual Report 2019
Directors’ responsibilities statement
Directors’ responsibilities statement
The directors are responsible for preparing
the Annual Report and the financial
statements in accordance with applicable
law and regulations.
– Prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
company will continue in business.
Company law requires the directors to
prepare financial statements for each financial
year. Under that law the directors are required
to prepare the group financial statements in
accordance with International Financial
Reporting Standards (IFRSs) as adopted by
the European Union and Article 4 of the IAS
Regulation and have elected to prepare the
parent company financial statements in
accordance with United Kingdom Generally
Accepted Accounting Practice (United
Kingdom Accounting Standards and
applicable law), including FRS 102 “The
Financial Reporting Standard applicable
in the UK and Republic of Ireland”. Under
company law the directors must not approve
the accounts unless they are satisfied that
they give a true and fair view of the state of
affairs of the company and of the profit or loss
of the company for that period.
In preparing the group financial statements,
International Accounting Standard 1 requires
that directors:
– Properly select and apply accounting
policies;
– Present information, including accounting
policies, in a manner that provides relevant,
reliable, comparable and understandable
information;
– Provide additional disclosures when
compliance with the specific requirements
in IFRSs are insufficient to enable users to
understand the impact of particular
transactions, other events and conditions
on the entity’s financial position and
financial performance; and
– Make an assessment of the company’s
ability to continue as a going concern.
In preparing the parent company financial
statements, the directors are required to:
– Select suitable accounting policies and
then apply them consistently;
– Make judgments and accounting estimates
that are reasonable and prudent;
– State whether applicable UK Accounting
Standards have been followed, subject to
any material departures disclosed and
explained in the financial statements; and
The directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the company’s
transactions and disclose with reasonable
accuracy at any time the financial position
of the company and enable them to ensure
that the financial statements comply with
the Companies Act 2006. They are also
responsible for safeguarding the assets of
the company and hence for taking reasonable
steps for the prevention and detection of fraud
and other irregularities.
The directors are responsible for the
maintenance and integrity of the corporate
and financial information included on the
company’s website. Legislation in the United
Kingdom governing the preparation and
dissemination of financial statements may
differ from legislation in other jurisdictions.
Directors’ Responsibility statement
We confirm that to the best of our knowledge:
– The financial statements, prepared in
accordance with the relevant financial
reporting framework, give a true and fair
view of the assets, liabilities, financial
position and profit or loss of the company
and the undertakings included in the
consolidation taken as a whole;
– The Strategic Report includes a fair review
of the development and performance of the
business and the position of the company
and the undertakings included in the
consolidation taken as a whole, together
with a description of the principal risks and
uncertainties that they face; and
– The Annual Report and financial
statements, taken as a whole, are fair,
balanced and understandable and provide
the information necessary for shareholders
to assess the company’s position and
performance, business model and strategy.
This responsibility statement was approved by the board of directors on 26 May 2020 and is signed on its behalf by:
Sir Roderic Lyne
Non-Executive Chairman
26 May 2020
Dr Pavel Maslovskiy
Chief Executive Officer
26 May 2020
Petropavlovsk Annual Report 2019 183
Independent Auditor’s Report to the Members of
Petropavlovsk PLC
Report on the audit of the financial statements
2. Basis for opinion
3. Summary of our audit approach
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs
(UK)) and applicable law. Our responsibilities
under those standards are further described
in the auditor’s responsibilities for the audit of
the financial statements section of our report.
We are independent of the Group and the
parent company in accordance with the
ethical requirements that are relevant to our
audit of the financial statements in the UK,
including the Financial Reporting Council’s
(the ‘FRC’s’) Ethical Standard as applied to
listed public interest entities, and we have
fulfilled our other ethical responsibilities in
accordance with these requirements. We
confirm that the non-audit services prohibited
by the FRC’s Ethical Standard were not
provided to the Group or the parent company.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.
Key audit matters
The key audit matters that we identified
in the current year were:
– Impairment of property, plant and
equipment;
– Valuation of the IRC investment;
– Valuation of the IRC guarantee; and
– Deferred taxation.
Materiality
The materiality that we used for the Group
financial statements was $9.0 million which
was determined on the basis of net assets.
Scoping
Our Group audit included a full scope audit of
all operating mines and specified audit
procedures in relation to certain exploration
assets, cost of sales and inventory balances;
and service entities. Our full scope and
specified audit procedures covered 88% of
the Group’s net assets and 93% of revenue.
Significant changes in our approach
Our assessment of the Group’s key audit
matters is consistent with 2018, with the
exception of going concern that we no longer
deem to be a key audit matter. This is on the
basis of the macro-environment favourable
gold pricing and relevant foreign exchange
rate changes, which are partly driven by the
impact of COVID-19, plus the re-financing and
other business planning steps undertaken by
the Group.
There were no significant changes in our
audit approach, except for the changes in
key audit matters.
1. Opinion
In our opinion:
– The financial statements of Petropavlovsk
plc (the ‘parent company’) and its
subsidiaries (the ‘Group’) give a true and fair
view of the state of the Group’s and of the
parent company’s affairs as at 31 December
2019 and of the Group’s profit for the year
then ended;
– The Group financial statements have been
properly prepared in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union;
– The parent company financial statements
have been properly prepared in accordance
with United Kingdom Generally Accepted
Accounting Practice, including Financial
Reporting Standard 101 “Reduced
Disclosure Framework”; and
– The financial statements have been
prepared in accordance with the
requirements of the Companies Act 2006
and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
We have audited the financial statements
which comprise:
– The Consolidated Statement of Profit or
Loss;
– The Consolidated Statement of
Comprehensive Income;
– The Consolidated and Company
Statements of Financial Position;
– The Consolidated and Company
Statements of Changes in Equity;
– The Consolidated Statement of Cash
Flows;
– The related notes 1 to 34 to the
Consolidated Financial Statements; and
– The related notes 1 to 11 to the Company
Financial Statements.
The financial reporting framework that has
been applied in the preparation of the Group
financial statements is applicable law and
IFRSs as adopted by the European Union.
The financial reporting framework that has
been applied in the preparation of the parent
company financial statements is applicable
law and United Kingdom Accounting
Standards, including FRS 101 “Reduced
Disclosure Framework” (United Kingdom
Generally Accepted Accounting Practice).
184 Petropavlovsk Annual Report 2019
Independent Auditor’s Report continued
4. Conclusions relating to going concern, principal risks and viability statement
4.1. Going concern
We have reviewed the directors’ statement in Note 2 to the financial statements about whether
they considered it appropriate to adopt the going concern basis of accounting in preparing them
and their identification of any material uncertainties to the Group’s and company’s ability to
continue to do so over a period of at least twelve months from the date of approval of the financial
statements.
We considered as part of our risk assessment the nature of the Group, its business model and
related risks including where relevant the impact of the COVID-19 pandemic and Brexit, the
requirements of the applicable financial reporting framework and the system of internal control.
We evaluated the directors’ assessment of the Group’s ability to continue as a going concern,
including challenging the underlying data and key assumptions used to make the assessment,
and evaluated the directors’ plans for future actions in relation to their going concern
assessment.
We are required to state whether we have anything material to add or draw attention to in relation
to that statement required by Listing Rule 9.8.6R(3) and report if the statement is materially
inconsistent with our knowledge obtained in the audit.
4.2. Principal risks and viability statement
Based solely on reading the directors’ statements and considering whether they were consistent
with the knowledge we obtained in the course of the audit, including the knowledge obtained in
the evaluation of the directors’ assessment of the Group’s and the company’s ability to continue
as a going concern, we are required to state whether we have anything material to add or draw
attention to in relation to:
– The disclosures on pages 26 to 41 that describe the principal risks, procedures to identify
emerging risks, and an explanation of how these are being managed or mitigated;
– The directors’ confirmation on page 180 that they have carried out a robust assessment of
the principal and emerging risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity; or
– The directors’ explanation on page 180 as to how they have assessed the prospects of the
Group, over what period they have done so and why they consider that period to be
appropriate, and their statement as to whether they have a reasonable expectation that the
Group will be able to continue in operation and meet its liabilities as they fall due over the period
of their assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors’ statement relating to the prospects of the
Group required by Listing Rule 9.8.6R (3) is materially inconsistent with our knowledge obtained
in the audit.
Going concern is the basis of
preparation of the financial
statements that assumes an entity
will remain in operation for a period of
at least 12 months from the date of
approval of the financial statements.
We confirm that we have nothing material
to report, add or draw attention to in
respect of these matters.
Viability means the ability of the
Group to continue over the time
horizon considered appropriate by
the directors.
We confirm that we have nothing material
to report, add or draw attention to in
respect of these matters.
Petropavlovsk Annual Report 2019 185
Independent Auditor’s Report continued
5. Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
5.1. Impairment of property, plant and equipment
Key audit matter description
The Group performed a review of its three cash generating units (“CGUs”) for impairment and
impairment reversal indicators as at 31 December 2019. In light of higher gold prices and a
lower discount rate, management concluded that impairment reversal indicators existed at
the Pioneer CGU.
The Group total carrying value of property, plant and equipment (“PP&E”) as at 31 December
2019 was $1,209.8 million (2018: $1,144.1 million), after recognising the full $53 million of
available impairment reversal at Pioneer (and related corporate assets). At the 2018 year end,
$102 million of full impairment reversals were recognised at the Malomir and Albyn CGUs,
meaning there are no further impairment reversals available across the Group’s mining
operations.
Determining the recoverable amount for the Group’s CGUs requires management to make
significant judgements, in particular regarding the key assumptions of forecast gold prices,
production volumes, reserves and resources in mine plans, cash costs and foreign exchange
rates (a key driver of operating costs), operational risks in securing and processing third-party
concentrates, and the 7.0% post-tax real discount rate applied.
Please refer to note 6 to the Group financial statements and the Audit Committee report on
page 150 for further details.
How the scope of our audit responded to
the key audit matter
We challenged management’s recoverable amount estimates and decision to recognise the
above impairment reversal, by:
– Obtaining an understanding of the relevant controls, including management review
controls, around the mine planning and forecasting process and the impairment valuation;
– Challenging management’s determination that the mining and processing operations
comprise three CGUs, by assessing whether the cash inflows are separately identifiable
and independent; plus an assessment of whether the gold concentrate market is active,
including thorough independent research, consistency with the Group’s historical decision
making, review of its concentrate contractual arrangements and future plans;
– Benchmarking management’s gold price forecasts against independent analyst forecasts
and foreign exchange rates against third-party data;
– Performed site visits, involving our mining specialists, to all three of the Group’s mining
operations to independently challenge the production volumes, mine plans, the reserves
and resources, cash costs and the modelling of the operational risks in the cash flows;
– Involving our valuation specialists to benchmark the 7.0% post-tax real discount rate;
– Testing the mechanical accuracy of management’s cash flow model;
– Assessing management’s historical forecasting accuracy;
– Evaluating the sensitivity analysis performed by management and performing our own; and
– Evaluating the key accounting judgement and critical accounting estimate disclosures.
We consider that the assumptions made by management in determining the CGU
recoverable value are overall within the reasonable range; and that the carrying value of PP&E
and impairment reversal recognised are appropriate
Key observations
186 Petropavlovsk Annual Report 2019
5.2. Valuation of the IRC investment
Key audit matter description
How the scope of our audit responded to
the key audit matter
The Group’s 31.1% equity accounted interest in IRC Limited (“IRC”), a Hong-Kong listed iron
ore producer, had a carrying value of $48.7 million as at 31 December 2019 (2018: $85.1
million) after recognition of a $23.3 million (2018: $5.7 million) impairment write down.
Management determined that the decline in IRC’s share price in the second half of 2019; and
the preliminary announcement made on 18 March 2020 that the Group had entered into a
conditional disposal agreement for 29.9% of its 31.1% interest in IRC (for $10 million of
consideration, plus release of the Group’s guarantee over IRC’s borrowings, which is a
significant discount to the pre-impairment carrying value), represented impairment indicators
as at 31 December 2019.
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 the balance sheet date and
management therefore estimated the recoverable amount of its interest on a value in use
basis, concluding that impairment was required for 2019.
Determining the value in use for the Group’s investment in IRC requires management to make
significant judgements in determining appropriate cash flow forecast assumptions and in
assessing the underlying impairment valuations performed by IRC management, noting no
underlying PP&E impairment or reversal was recognised by IRC in 2019 (2018: $90.5 million
underlying IRC impairment reversal, Group share: $28.1 million).
The key assumptions applied in the valuation were the iron ore price, IRC production volumes
and foreign exchange rate forecasts over the lifetime of the operations, the relevant IRC book
value to Group equity value adjustments and the discount rate.
Please refer to note 14 to the Group financial statements and the Audit Committee report on
page 151 for further details.
We challenged management’s impairment valuation and accounting judgements by:
– Obtaining an understanding of the relevant key controls over the valuation of the Group’s
associate, based on the information available to the Group from IRC;
– Challenging the key underlying IRC PP&E impairment valuation assumptions, in particular
in relation to the iron ore price assumptions, life of mine production forecasts, foreign
exchange assumptions and the discount rate;
– This involved our own independent assumption benchmarking procedures, including
comparison of the forecast iron ore price to latest third-party analyst data; comparison to
third-party documentation where available; and the calculation of a reasonable discount
rate range, including involving our valuation specialists;
– Understanding and challenging the key operational risks and production forecasts;
– Challenging management’s methodology for determining the key IRC to Group level
valuation adjustments;
– Assessing management’s conclusion that that disposal transition was not highly probable
at the balance sheet date based on the underlying facts and circumstances;
– Assessing the commercial rationale for the disposal price agreed and whether the valuation
assumptions used were reasonable in light of the contradictory evidence related to the
lower disposal price preliminary announcement;
– Reviewing whether the non-adjusting post balance sheet IRC disposal announcement was
appropriately disclosed, explaining that if the disposal completes, a material loss on
disposal would be realised in future periods; and
– Challenging the appropriateness of the key estimation disclosures and critical accounting
disclosures.
Key observations
We consider that the carrying value of the Group’s investment in IRC is within the reasonable
range.
Petropavlovsk Annual Report 2019 187
Independent Auditor’s Report continued
5.3. Valuation of the IRC guarantee
Key audit matter description
The Group originally provided a guarantee over IRC’s $340 million debt with ICBC in 2010
when IRC was a subsidiary of the Group and received a fee income based on a percentage
of the guaranteed amount. During 2018 the Group provided two bridging loans, for a total of
$57 million, to IRC in order to enable IRC to make scheduled repayments to ICBC, and avoid
a potential default.
In March 2019, IRC completed a re-financing of its outstanding $169 million borrowings from
ICBC, as well as the $57 million of bridging loans, through a new $240 million borrowing facility
with Gazprombank (“GPB”). The Group guaranteed IRC’s new $240 million GPB facility.
The accounting and valuation for the new guarantee and associated guarantee fee income
asset is complex. Management engaged third-party external valuation experts to determine
the appropriate accounting treatment and a valuation of the guarantee liability and the credit
provision for the fee income asset as at 31 December 2019. The de-recognition of the former
ICBC guarantee and recognition of the Gazprombank guarantee resulted in a $28.5 million
net accounting gain for 2019.
The determination of the Group’s $8.9 million (2018: $37.4 million) guarantee liability as at 31
December 2019 relies upon the critical judgement as to whether there has been a significant
increase in IRC’s credit risk from March 2019 to December 2019. This incorporates
consideration of whether the $23.3 million impairment of the Group’s investment in IRC is
indicative of such an increase in credit risk. Management have determined that there has not
been a significant increase in credit risk since March 2019 and therefore the guarantee liability
is measured as a 12 month Expected Credit Loss (“ECL”). This is in contrast to the former
ICBC guarantee which was measured as a lifetime ECL as there had previously been a
significant increase in credit risk for that guarantee since 2010. This difference in risk credit
measurement has resulted in the $28.5 million net accounting gain.
The estimation of the 12 month ECL for the guarantee liability and the credit provision for the
associated guarantee fee asset is dependent on complex valuation techniques and inputs
including: the IRC expected credit default loss (for which there are no directly observable
inputs), the loss given default, the determination of the Group’s total potential IRC liability
exposure; and the inclusion of the Group’s own credit default risk.
Please refer to note 26 to the Group financial statements and the Audit Committee report on
page 152 for further details.
188 Petropavlovsk Annual Report 2019
How the scope of our audit responded to
the key audit matter
We challenged management’s assumptions and conclusions reached in accounting for and
valuing the associated financial instruments by:
– Obtaining an understanding of the relevant controls over the valuation of the IRC guarantee;
– Independently reviewing and challenging the accounting treatment and accounting policy
adopted, including involving our financial instrument technical specialists;
– Assessing the competence, capability, objectivity and the scope of work performed by
management’s third-party valuation expert engaged to perform these valuations. We
reviewed management’s third-party expert’s valuation work engagement letter and
involved our own valuation specialists to review the scope of their work;
– Obtaining the third-party valuation expert’s reporting to management; and challenging the
methodologies used, the assumptions applied against third-party data and external
benchmarks where relevant, and the application of the accounting standards. This
included a number of joint meetings between the audit team, involving our audit valuation
specialists where relevant, management’s valuation expert and management;
– Independently checking the source information used by management’s third-party expert
and benchmarking key assumptions applied in the valuations to third-party market data
were available;
– Performing independent re-calculations of certain key valuation workings in order to
benchmark the output of the valuation models;
– Evaluating the appropriateness of whether the liability should be recognised under Stage 1,
2 or 3 of the IFRS 9 ECL model (in effect to determine whether use of a 12 month ECL or
lifetime ECL was appropriate);
– Evaluating whether the impairment of the Group’s IRC investment and underlying
cashflows are indicative of a significant increase in credit risk by challenging the revised
forecasts and covenant compliance; including through our discussions with
management’s valuation expert.
– Involving our audit valuation specialists to corroborate the impact of the impairment on the
valuation of the liability and to assess the impact on IRC’s shadow credit rating. We also
evaluated management’s qualitative credit risk assessment and performed our own
independent assessment; and
– Reviewing management’s disclosures of the arrangements and accounting in the financial
statements.
We consider that the financial liability recognised in respect of the guarantee, and the
financial asset in respect of the guarantee fee income are reasonable and in accordance with
the requirements of IFRS 9.
Key observations
Petropavlovsk Annual Report 2019 189
Independent Auditor’s Report continued
5.4. Deferred taxation
Key audit matter description
As at 31 December 2019, the Group recognised total deferred tax assets of $33.4 million
(2018: $23.6 million) and deferred tax liabilities of $146.0 million (2018: $137.0 million).
The recognition and measurement of certain Group deferred tax balances is inherently
complex given the key operating entities have a US dollar functional currency for determining
the accounting base but have a Russian Rouble tax base. Furthermore, the Group has
historical losses for which the recognition and measurement of deferred tax assets will often
require management judgement in estimating future probable taxable profits and interpreting
relevant tax legislation.
Historically, management and Deloitte have also identified errors in relation to the recognition
and measurement of deferred tax balances, caused by the complexity of calculations, the
extensive use of Excel workings, and the absence of formally documented review controls.
Please refer to note 21 to the Group financial statements and the Audit Committee report on
page 152 for further details.
How the scope of our audit responded to
the key audit matter
We challenged management’s judgements and assumptions in relation deferred tax
recognition and measurement by:
– Obtaining an understanding of the relevant controls in relation to its deferred tax
calculations;
– Reviewing and challenging deferred tax balances in the context of the relevant accounting
requirements and tax legislation, which arise primarily in Russia, and the associated
consolidation adjustments and challenging management’s judgements on whether or not
these items should have been recorded;
– Reviewing and challenging management’s key judgements involving on-site audit team
visits with management, including our tax specialists;
– Analysing material permanent differences in the Group income tax reconciliation and
determining whether they include any temporary tax differences;
– Assessing material 2019 transactions to determine whether the deferred tax impact has
been appropriately reflected;
– Re-calculating deferred tax balances and evaluating whether the tax and accounting base
used in the management’s calculation are accurate;
– Re-assessing the historical errors and confirming that the relevant deferred tax balances
have been calculated appropriately in line with local tax legislation and IAS 12 Income
taxes; and
– Reviewing the accuracy and completeness of the Group’s consolidated unrecognised
deferred tax disclosed in the financial statements.
Key observations
We considered that the Group’s deferred tax balances are accounted for in line with the
requirements of IAS 12.
190 Petropavlovsk Annual Report 2019
6. Our application of materiality
6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
$9.0 million (2018: $8.5 million)
$8.9 million (2018: $7.6 million)
Basis for
determining
materiality
Rationale for the
benchmark applied
Group materiality
Net assets
Net assets $659m
Less than 2% of the Group’s net assets, consistent with
the approach taken in 2018.
Less than 2% of the Company’s net assets, consistent
with the approach taken in 2018.
The Group’s net asset value reflects its mining assets and
proven and probable gold reserves which support those
assets. We determined that using a balance sheet metric,
rather than profit-based metric, provides a more stable
base for materiality, and is more reflective of the scale of
the Group’s operations.
We have determined materiality based on the net asset
position of the Company as its principal activity is to hold
investments in subsidiaries.
Group materiality $9.0m
Component materiality
range $2.3m to $6.3m
Audit Committee
reporting threshold $0.45m
6.2. Performance materiality
We set performance materiality at a level
lower than materiality to reduce the probability
that, in aggregate, uncorrected and
undetected misstatements exceed the
materiality for the financial statements as a
whole. Group performance materiality was
set at 60% of Group materiality for the 2019
audit (2018: 70%). In determining
performance materiality, we considered the
following:
– Control environment: Historically, we
identified a number of control deficiencies in
the Group’s internal controls and IT systems
for financial reporting.
– Historical errors: Historically, a number of
adjustments were identified through the
financial closing process which related to
prior years. The items that were judged by
management to be material were restated
in the prior year financial statements.
6.3. Error reporting threshold
We agreed with the Audit Committee that
we would report to the Committee all audit
differences in excess of $450,000 (2018:
$450,000), as well as differences below that
threshold that, in our view, warranted reporting
on qualitative grounds. We also report to the
Audit Committee on disclosure matters that
we identified when assessing the overall
presentation of the financial statements.
Petropavlovsk Annual Report 2019 191
Independent Auditor’s Report continued
7. An overview of the scope of our audit
7.1. Identification and scoping of
components
The scope of our audit work was determined
by obtaining an understanding of the Group
and its environment, and assessing the risks
of material misstatement at the Group level.
Considering the key developments in the year,
our Group audit focused primarily on the
operating locations, being the three operating
mines (2018: three), eleven service entities
(2018: eleven), six exploration companies
(2018: six), twelve finance and holding
companies (2018: twelve) as well as on the
Group’s associate, IRC. All of the operating
mines were subject to a full scope audit, while
the exploration assets, finance and holding
companies and service entities were subject
to specified audit procedures, including
testing of the capitalised spend on exploration
activities, an impairment assessment and
substantive testing of borrowings, material
cost of sales and inventory balances, or
desktop reviews. The Group’s associate
was subject to specified audit procedures.
The extent of our audit procedures was
based on our assessment of the risks of
material misstatement and of the materiality
of the Group’s business operations at the
selected locations.
These operating mines represent the principal
business units within the Group’s reportable
segments and account for 88% (2018: 72%)
of the Group’s net assets and 93% (2018:
94%) of the Group’s revenue. They were also
selected to provide an appropriate basis for
undertaking audit work to address the
significant risks of material misstatement
identified above.
7.2. Our consideration of the control
environment
In view of a number of control deficiencies
identified in the Group’s internal controls and
IT systems for the financial reporting period,
we did not take a controls reliance audit
approach in relation to any of the key audit
matters. These items, along with the
subsequent actions taken and planned by the
Group to address these, are further set out on
page 146 of the Annual Report.
7.3. Working with other auditors
Full scope audits and specified audit
procedures were performed by the
component teams in Russia and Hong Kong
under the direct supervision of the Group
audit team and executed at levels of
materiality applicable to each individual entity.
The materiality applied to components,
ranged from $2.3 million to $6.3 million (2018:
$2.1 million to $7.6 million). The Group team
took direct responsibility for the audit work in
respect of the consolidation process as well
as the Group and Company financial
statements. The Group team planned,
oversaw and directed the work performed by
the component auditors. The procedures
performed included, but were not limited to,
site visits to Group’s operating locations,
regular communications with the component
auditors, a review of the reports provided on
the results of the work undertaken by the
component audit teams as well as a detailed
review of the underlying working papers and
challenging the procedures performed to
assess compliance with the relevant
professional standards.
During the audit the senior members of the
Group audit team visited Moscow to review
the work performed by the Russian
component team and the Amur region of
Russia to visit the Group’s assets and hold
meetings with senior operational
management. We were unable to visit the
Hong Kong component audit team due to
COVID-19 travel restrictions and therefore
performed our Group audit review and
oversight procedures remotely.
8. Other information
The directors are responsible for the other
information. The other information comprises
the information included in the annual report,
other than the financial statements and our
auditor’s report thereon.
Our opinion on the financial statements does
not cover the other information and, except to
the extent otherwise explicitly stated in our
report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial
statements, our responsibility is to read the
other information and, in doing so, consider
whether the other information is materially
inconsistent with the financial statements or
our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If we identify such material inconsistencies
or apparent material misstatements, we are
required to determine whether there is a
material misstatement in the financial
statements or a material misstatement of the
other information. If, based on the work we
have performed, we conclude that there is a
material misstatement of this other information,
we are required to report that fact.
In this context, matters that we are specifically
required to report to you as uncorrected
material misstatements of the other
information include where we conclude that:
– Fair, balanced and understandable
– the statement given by the directors that
they consider the annual report and
financial statements taken as a whole is fair,
balanced and understandable and provides
the information necessary for shareholders
to assess the Group’s position and
performance, business model and strategy,
is materially inconsistent with our
knowledge obtained in the audit; or
– Audit committee reporting – the section
describing the work of the Audit Committee
does not appropriately address matters
communicated by us to the Audit
Committee; or
– Directors’ statement of compliance
with the UK Corporate Governance
Code – the parts of the directors’ statement
required under the Listing Rules relating to
the company’s compliance with the UK
Corporate Governance Code containing
provisions specified for review by the
auditor in accordance with Listing Rule
9.8.10R (2) do not properly disclose a
departure from a relevant provision of the
UK Corporate Governance Code.
We have nothing to report in respect of
these matters.
192 Petropavlovsk Annual Report 2019
9. Responsibilities of directors
As explained more fully in the directors’
responsibilities statement, the directors are
responsible for the preparation of the financial
statements and for being satisfied that they
give a true and fair view, and for such internal
control as the directors determine is
necessary to enable the preparation of
financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the
directors are responsible for assessing the
Group’s and the parent company’s ability to
continue as a going concern, disclosing as
applicable, matters related to going concern
and using the going concern basis of
accounting unless the directors either intend
to liquidate the Group or the parent company
or to cease operations, or have no realistic
alternative but to do so.
10. Auditor’s responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable
assurance about whether the financial
statements as a whole are free from material
misstatement, whether due to fraud or error,
and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee
that an audit conducted in accordance
with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements
can arise from fraud or error and are
considered material if, individually or in
the aggregate, they could reasonably be
expected to influence the economic decisions
of users taken on the basis of these financial
statements.
Details of the extent to which the audit was
considered capable of detecting irregularities,
including fraud and non-compliance with laws
and regulations are set out below.
A further description of our responsibilities for
the audit of the financial statements is located
on the FRC’s website at: www.frc.org.uk/
auditors responsibilities. This description
forms part of our auditor’s report.
11. Extent to which the audit was
considered capable of detecting
irregularities, including fraud
We identify and assess the risks of material
misstatement of the financial statements,
whether due to fraud or error, and then design
and perform audit procedures responsive to
those risks, including obtaining audit evidence
that is sufficient and appropriate to provide a
basis for our opinion.
11.1. Identifying and assessing potential
risks related to irregularities
In identifying and assessing risks of material
misstatement in respect of irregularities,
including fraud and non-compliance with laws
and regulations, we considered the following:
– The nature of the industry and sector,
control environment and business
performance including the design of the
Group’s remuneration policies, key drivers
for directors’ remuneration, bonus levels
and performance targets;
– Results of our enquiries of management,
internal audit and the Audit Committee
about their own identification and
assessment of the risks of irregularities;
– Any matters we identified having obtained
and reviewed the Group’s documentation
of their policies and procedures relating to:
– Identifying, evaluating and complying with
laws and regulations and whether they
were aware of any instances of non-
compliance;
– Detecting and responding to the risks of
fraud and whether they have knowledge
of any actual, suspected or alleged fraud;
– The internal controls established to
mitigate risks of fraud or non-compliance
with laws and regulations;
– The matters discussed among the audit
engagement team including significant
component audit teams and involving
relevant internal specialists, including tax,
valuations, IT, and industry specialists
regarding how and where fraud might occur
in the financial statements and any potential
indicators of fraud.
As a result of these procedures, we
considered the opportunities and incentives
that may exist within the organisation for fraud
and identified the greatest potential for fraud
in the following areas: revenue recognition
and going concern. In common with all audits
under ISAs (UK), we are also required to
perform specific procedures to respond to
the risk of management override.
We also obtained an understanding of the
legal and regulatory frameworks that the
Group operates in, focusing on provisions of
those laws and regulations that had a direct
effect on the determination of material
amounts and disclosures in the financial
statements. The key laws and regulations
we considered in this context included the
UK Companies Act, Listing Rules and relevant
tax legislation.
In addition, we considered provisions of other
laws and regulations that do not have a direct
effect on the financial statements but
compliance with which may be fundamental
to the Group’s ability to operate or to avoid a
material penalty. These included the Group’s
operating licences, regulatory requirements
and environmental regulations.
11.2. Audit response to risks identified
As a result of performing the above, we did
not identify any key audit matters related to
the potential risk of fraud or non-compliance
with laws and regulations.
Our procedures to respond to risks identified
included the following:
– Reviewing the financial statement
disclosures and testing to supporting
documentation to assess compliance with
provisions of relevant laws and regulations
described as having a direct effect on the
financial statements;
– Enquiring of management, the Audit
Committee and legal counsel concerning
actual and potential litigation and claims;
– Performing analytical procedures to identify
any unusual or unexpected relationships
that may indicate risks of material
misstatement due to fraud;
Petropavlovsk Annual Report 2019 193
Independent Auditor’s Report continued
– Reading minutes of meetings of those
charged with governance, reviewing
internal audit reports and reviewing
correspondence with HMRC and other
relevant regulatory authorities;
– Reviewing the disclosures in the Audit
Committee Report on page 149 relating
to fraud considerations;
– In addressing the risk of fraud in relation to
going concern, assessing the cash flow
forecast judgements and assumptions for
indications of potential bias;
– In addressing the risk of fraud in relation
to revenue recognition, assessing the
completeness and sales revenue timing
judgment for indications of potential bias;
– In addressing the risk of fraud through
management override of controls, testing
the appropriateness of journal entries and
other adjustments; assessing whether the
judgements made in making accounting
estimates are indicative of a potential bias;
and evaluating the business rationale of any
significant transactions that are unusual or
outside the normal course of business.
We also communicated relevant identified
laws and regulations and potential fraud risks
to all engagement team members including
internal specialists and significant component
audit teams, and remained alert to any
indications of fraud or non-compliance with
laws and regulations throughout the audit.
Report on other legal and regulatory
requirements
12. Opinions on other matters
prescribed by the Companies Act 2006
We have nothing to report in respect of
these matters.
14. Other matters
14.1. Auditor tenure
Following the recommendation of the Audit
Committee, we were initially appointed by the
Board on 15 May 2009 to audit the financial
statements for the year ending 31 December
2009 and subsequent financial periods.
The period of total uninterrupted engagement
including previous renewals and
reappointments of the firm is eleven years,
covering the years ending 31 December 2009
to 31 December 2019. The 31 December
2019 audit was our last year of engagement
as the Group’s external auditor as detailed on
page 146 of the Annual Report.
Consistency of the audit report with the
additional report to the Audit Committee
Our audit opinion is consistent with the
additional report to the Audit Committee we
are required to provide in accordance with
ISAs (UK).
15. Use of our report
This report is made solely to the company’s
members, as a body, in accordance with
Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken
so that we might state to the company’s
members those matters we are required to
state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted
by law, we do not accept or assume
responsibility to anyone other than the
company and the company’s members as a
body, for our audit work, for this report, or for
the opinions we have formed.
Christopher Thomas
(Senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
26 May 2020
In our opinion the part of the directors’
remuneration report to be audited has
been properly prepared in accordance
with the Companies Act 2006.
In our opinion, based on the work
undertaken in the course of the audit:
– The information given in the strategic
report and the directors’ report for the
financial year for which the financial
statements are prepared is consistent
with the financial statements; and
– The strategic report and the directors’
report have been prepared in
accordance with applicable legal
requirements.
In the light of the knowledge and
understanding of the Group and the
parent company and their environment
obtained in the course of the audit, we
have not identified any material
misstatements in the strategic report or
the directors’ report.
13. Matters on which we are required to
report by exception
13.1. Adequacy of explanations received
and accounting records
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
– We have not received all the information and
explanations we require for our audit; or
– Adequate accounting records have not
been kept by the parent company, or returns
adequate for our audit have not been
received from branches not visited by us; or
– The parent company financial statements
are not in agreement with the accounting
records and returns.
We have nothing to report in respect of
these matters.
13.2. Directors’ remuneration
Under the Companies Act 2006 we are also
required to report if in our opinion certain
disclosures of directors’ remuneration have
not been made or the part of the directors’
remuneration report to be audited is not in
agreement with the accounting records
and returns.
194 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 195
Financial Statements
196 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 197
Financial Statements
Consolidated Statement of Profit or Loss
For the year ended 31 December 2019
Group revenue
Operating expenses
Share of results of associate
Operating profit
Net impairment reversals/(impairment losses) on financial instruments
Investment and other finance income
Interest expense
Net other finance (losses)/gains
Profit before taxation
Taxation
Profit for the year
Attributable to:
Equity shareholders of Petropavlovsk PLC
Non-controlling interests
Profit per share
Basic profit per share
Diluted profit per share
Note
5
6
14
9
9
9
9
10
11
11
2019
US$’000
741,589
(590,853)
(35,376)
115,360
30,797
8,826
(59,854)
(42,190)
52,939
(27,246)
25,693
26,883
(1,190)
US$0.01
US$0.01
2018(a)
US$’000
499,775
(388,643)
15,480
126,612
(28,634)
3,775
(29,520)
10,185
82,418
(56,489)
25,929
24,493
1,436
US$0.01
US$0.01
(a) Impairment losses and impairment reversals on financial instruments for the year ended 31 December 2018 have been presented in a separate line item in the Consolidated Statement of Profit or Loss
and the remaining Other finance gains and other finance losses for the year ended 31 December 2018 have been presented on a net basis. See note 2 for details.
198 Petropavlovsk Annual Report 2019
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2019
Profit for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences:
Exchange differences on translating foreign operations
Share of other comprehensive loss of associate
Cash flow hedges:
Fair value (losses)/gains
Tax thereon
Transfer to revenue
Tax thereon
Total comprehensive profit for the year
Attributable to:
Equity shareholders of Petropavlovsk PLC
Non-controlling interests
2019
US$’000
25,693
2,102
(1,084)
(22,652)
4,234
31,471
(5,865)
8,206
33,899
35,067
(1,168)
33,899
2018
US$’000
25,929
(3,183)
(329)
20,238
(3,743)
3,419
(633)
15,769
41,698
40,203
1,495
41,698
Petropavlovsk Annual Report 2019 199
Consolidated Statement of Financial Position
As at 31 December 2019
Assets
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Investments in associate
Inventories
Trade and other receivables
Derivative financial instruments
Other non-current assets
Current assets
Inventories
Trade and other receivables
Loans granted to an associate
Current tax assets
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Borrowings
Derivative financial instruments
Provision for close down and restoration costs
Lease liabilities
Net current assets
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Provision for close down and restoration costs
Financial guarantee contract
Trade and other payables
Lease liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Hedging reserve
Share based payments reserve
Translation reserve
Retained earnings
Equity attributable to the shareholders of Petropavlovsk PLC
Non-controlling interests
Total equity
(a) See note 2 for details regarding the restatement.
Note
31 December 2019
US$’000
31 December 2018(a)
1 January 2018(a)
(restated)
US$’000
(restated)
US$’000
12
13
14
15
16
18
15
16
26
17
19
18
22
23
20
18
21
22
26
19
23
24
53,123
1,209,817
48,680
60,257
556
11,022
880
1,384,335
307,773
105,975
–
5,807
48,153
467,708
1,852,043
(389,041)
(535)
–
(266)
–
(5,373)
(395,215)
72,493
(609,463)
(46,313)
(112,566)
(36,231)
(8,923)
–
(7,805)
(821,301)
(1,216,516)
635,527
49,003
518,142
–
199
(15,878)
73,605
625,071
10,456
635,527
43,115
1,144,063
85,140
56,805
547
–
1,177
1,330,847
158,856
66,741
50,966
1,653
26,152
304,368
1,635,215
(219,845)
(1,571)
(9,955)
(804)
–
(232,175)
72,193
(594,177)
(2,411)
(113,354)
(20,584)
(37,387)
(33,779)
–
(801,692)
(1,033,867)
601,348
48,963
518,142
(7,166)
227
(17,980)
47,538
589,724
11,624
601,348
53,518
977,314
70,890
72,720
8,931
-
347
1,183,720
132,885
75,830
–
–
11,415
220,130
1,403,850
(88,333)
(940)
(7,137)
–
(200)
–
(96,610)
123,520
(589,337)
(49,684)
(72,380)
(20,804)
(8,603)
–
–
(740,808)
(837,418)
566,432
48,920
518,142
(26,388)
144
(17,500)
32,985
556,303
10,129
566,432
These consolidated financial statements for Petropavlovsk PLC, registered number 4343841, were approved by the Directors on 26 May 2020 and
signed on their behalf by
Sir Roderic Lyne
Director
Dr Pavel Maslovskiy
Director
200 Petropavlovsk Annual Report 2019
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Balance at 1 January 2018
Impact of adopting IFRS 9
Impact of adopting IFRS 15
Total comprehensive income/(loss)
Profit for the year
Other comprehensive income/(loss)
Deferred share awards
Balance at 31 December 2018
Total comprehensive income/(loss)
Profit for the year
Other comprehensive income/(loss)
Deferred share awards
Balance at 31 December 2019
Total attributable to equity holders of Petropavlovsk PLC
Share
capital
US$’000
48,920
–
–
–
–
–
43
48,963
–
–
–
40
49,003
Share
premium
US$’000
518,142
–
–
–
–
–
–
518,142
–
–
–
–
518,142
Share
based
payments
reserve
US$’000
144
–
–
–
–
–
83
227
–
–
–
(28)
199
Hedging
reserve
US$’000
(26,388)
–
–
19,222
–
19,222
–
(7,166)
7,166
–
7,166
–
–
Translation
reserve
US$’000
(17,500)
2,703
–
(3,183)
–
(3,183)
–
(17,980)
2,102
–
2,102
–
(15,878)
Retained
earnings/
(losses)
US$’000
32,985
(9,959)
58
24,164
24,493
(329)
290
47,538
25,799
26,883
(1,084)
268
73,605
Non-
controlling
interests
US$’000
10,129
–
–
1,495
1,436
59
–
11,624
(1,168)
(1,190)
22
-
10,456
Total
US$’000
556,303
(7,256)
58
40,203
24,493
15,710
416
589,724
35,067
26,883
8,184
280
625,071
Total equity
US$’000
566,432
(7,256)
58
41,698
25,929
15,769
416
601,348
33,899
25,693
8,206
280
635,527
Petropavlovsk Annual Report 2019 201
Consolidated Statement of Cash Flows
For the year ended 31 December 2019
Cash flows from operating activities
Cash generated from operations
Interest paid
Guarantee fee received in connection with ICBC facility
Income tax paid
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Expenditure on exploration and evaluation assets
Proceeds from disposal of property, plant and equipment
Repayment of loans granted/ (loans granted) to an associate
Other loans granted
Interest received
Call option over non-controlling interests
Net cash used in investing activities
Cash flows from financing activities
Issue of Bonds, net of transaction cost
Repayment of Bonds
Repayments of borrowings
Notes related costs
Debt transaction costs paid in connection with bank loans
Exercise of the Call Option over the Company’s shares
Funds advanced to the Group under investment agreement with the Russian Ministry of Far East Development
Funds transferred under investment agreement with the Russian Ministry of Far East Development
Principal elements of lease payments
Net cash from/(used in) financing activities
Net increase in cash and cash equivalents in the period
Effect of exchange rates on cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
(a) See note 2 for details regarding the restatement.
Note
25
26
25
12
26
26
26
20
20
18
30
30
17
17
2019
US$’000
189,321
(67,160)
6,000
(32,723)
95,438
(120,798)
(10,136)
111
56,243
(389)
3,283
(13,000)
(84,686)
120,561
(108,000)
–
–
–
(2,215)
8,772
(8,772)
(1,468)
8,878
19,630
2,371
26,152
48,153
2018(a)
(restated)
US$’000
329,814
(60,577)
–
(5,024)
264,213
(178,201)
(3,153)
1,170
(56,750)
(210)
3,667
–
(233,477)
–
–
(4,006)
(2,599)
(6,412)
–
–
–
–
(13,017)
17,719
(2,982)
11,415
26,152
202 Petropavlovsk Annual Report 2019
Notes to the Consolidated Financial Statements
For the year ended 31 December 2019
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.
that it has sufficient headroom under a base
case scenario for the period to June 2021. 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;
Re-classification of deferred stripping
costs
The following reclassifications have been
made in the Consolidated Statement of
Financial Position and Consolidated
Statement of Cash Flows regarding the
2018 comparative and opening balances.
2. Significant accounting policies
– Processing of third-party concentrate
2.1. Basis of preparation and
presentation
The consolidated financial statements of
Petropavlovsk PLC and its subsidiaries (the
‘Group’) have been prepared in accordance
with 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
2019 Annual Report and Accounts. As at
31 December 2019, the Group had sufficient
liquidity headroom. The Group is also satisfied
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; and
– Russian Rouble : US Dollar exchange rate
that is approximately 10% stronger than the
average of the market consensus forecasts.
This layered stressed case indicates sufficient
liquidity for a period of at least 12 months
including under downside IRC performance
scenarios. In selecting these scenarios,
the directors have also considered the
potential impacts of COVID-19 which are
described in detail on pages 6, 30 and
31 of this Annual Report.
As at 31 December 2019, the Group has
guaranteed the outstanding amounts IRC
owed to Gazprombank. The outstanding
loan principal was US$225 million as at
31 December 2019 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
2019 Annual Report and Accounts.
Accordingly, they continue to adopt the going
concern basis of accounting in preparing
these consolidated financial statements.
Following a review of the nature of the deferred
stripping costs balance, the Group has
concluded that these costs should had been
presented as mining assets under property,
plant and equipment. The comparative
financial information has been aligned to be on
a consistent basis with re-classifications in the
Consolidated Statement of Financial Position
from inventory current and non-current assets
to property, plant and equipment non-current
assets of US$47.0 million as at 31 December
2018 and UUS$39.8 million as at 1 January
2018. As a consequence, a US$47.0 million
reclassification from Net cash from operating
activities to Net cash used in investing activities
in the Consolidated Statement of Cash Flows
for 2018 has been also made.
There is no impact on the Group’s
consolidated statement of profit or loss, profit
per share, retained earnings or net assets for
the year ended 31 December 2018.
Other re-classifications
Impairment losses and impairment
reversals on financial instruments have been
reclassified to be presented in a separate line
item in the Consolidated Statement of Profit
or Loss. Other finance gains and other finance
losses have been presented in the
Consolidated Statement of Profit or Loss on
a net basis as the Group believes it is more
representative since gains and losses relate to
similar financial instruments. The comparative
financial information for the year ended
31 December 2018 has been aligned to be
on a consistent basis with re-classifications
from Other finance losses to Net impairment
reversals/(impairment losses) on financial
instruments of US$28.6 million and the
remaining Other finance losses of
US$3.7 million and Other finance gains of
US$13.9 million presented on a net basis.
Current tax asset has been reclassified to
be presented in a separate line item in the
Consolidated Statement of Financial Position.
The comparative financial information as at
31 December 2018 has been aligned to be on
a consistent basis with re-classifications from
Trade and other receivables of US$1.7 million.
Petropavlovsk Annual Report 2019 203
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
2.2. Adoption of new and revised
standards and interpretations
As disclosed in note 2 to the Group’s
consolidated financial statements for the year
ended 31 December 2018, IFRS 16 “Leases”
was effective for annual periods beginning on
or after 1 January 2019 and have been
adopted by the Group accordingly. The
Group applied the modified retrospective
transition approach and has not restated
comparative information for the year prior to
first adoption of IFRS 16. The impact of the
adoption of this standard is disclosed below.
Impact of adoption - IFRS 16 “Leases”:
The Group has adopted IFRS 16 using
the modified retrospective method of
adoption, with the date of initial application
as at 1 January 2019, as permitted by
transitional provisions of the standard,
and has not restated comparatives for the
annual period ended on 31 December 2018.
The reclassifications and the adjustments
arising from the new leasing rules are
therefore recognised in the opening balance
sheet on 1 January 2019. The Group elected
to use the transition practical expedient to not
reassess whether a contract is, or contains a
lease at 1 January 2019. Instead, the Group
applied the standard only to contracts that
were previously identified as leases applying
IAS 17 and IFRIC 4 at the date of initial
application. IFRS 16 does not apply to the
lease agreements to explore for or use
minerals and similar non-regenerative
resources and hence the Group continues to
account lease payments associated with
these leases as an expense (note 2.14).
Lessor accounting under IFRS 16 is
substantially unchanged from IAS 17. Lessors
will continue to classify all leases as either
operating leases or finance leases using
similar principles as in IAS 17. IFRS 16 has
been evaluated not have any impact for
leases where the Group is the lessor.
On adoption of IFRS 16, the Group recognised
right-of-use assets and lease liabilities in relation
to leases which had previously been classified
as operating leases, except for short-term
leases and leases of low-value assets.
The right-of-use assets for all leases were
recognised based on the amount equal to the
lease liabilities adjusted for any related prepaid
and accrued lease expenses. Lease liabilities
were measured at the present value of the
remaining lease payments, discounted using
the lessee’s incremental borrowing rate as of
1 January 2019. The weighted average lessee’s
incremental borrowing rate applied to the lease
liabilities on 1 January 2019 was 9.3%.
The Group also applied the available practical
expedients wherein it:
– Used a single discount rate to a portfolio
of leases with reasonably similar
characteristics;
– Applied the short-term leases exemptions
to leases with lease terms that end within
12 months of the date of initial application;
– Used the recognition exemptions for lease
contracts for which the underlying asset is
of low value (low-value assets); and
– Excluded the initial direct costs from the
measurement of the right-of-use asset at
the date of initial application.
The table below presents a reconciliation from operating lease commitments disclosed as at 31 December 2018 to lease liabilities
recognised as at 1 January 2019.
Operating lease commitments disclosed as at 31 December 2018
Add: Finance leases liabilities recognised under IAS 17 as at 31 December 2018
Add: Extension and termination options reasonably certain to be exercised
Less: Non-lease components previously included as part of commitments in relation to existing lease contracts
Less: Discounting using the incremental borrowing rate of at the date of initial application
Lease liabilities recognised as at 1 January 2019
1 January 2019
US$’000
1,397
46
1,188
(376)
(516)
1,739
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):
– Amendments to References to the
Conceptual Framework in IFRS Standards
(29 March 2018);
– Amendments to IFRS 3 (October 2018):
Definition of Business;
– Amendments to IAS 1 and IAS 8 (October
2018): Definition of Material; and
– Amendments to IFRS 7, IFRS 9 and IAS 39
(September 2019): Interest Rate Benchmark
Reform.
The Group intends to adopt these new and
amended standards and interpretations, if
applicable, when they become effective.
IFRIC Interpretation 23 Uncertainty over
Income Tax Treatment
The Group has adopted IFRIC 23 for the first
time in the current year. The Interpretation
addresses the accounting for income taxes
when tax treatments involve uncertainty that
affects the application of IAS 12 “Income
Taxes”. It does not apply to taxes or levies
outside the scope of IAS 12, nor does it
specifically include requirements relating to
interest and penalties associated with
uncertain tax treatments. The Interpretation
requires the Group to:
For the movement in the right-of-use asset
and associated lease liabilities during the year
ended 31 December 2019 refer to note 23.
Furthermore, the classification of cash flows
has changed as operating lease payments
under IAS 17 were presented as operating
cash flows; whereas under the IFRS 16
model, lease payments are split into a
principal and finance cost which will be
presented as financing and operating cash
flows respectively.
New standards and interpretations that
are applicable to the Group, issued but
not yet effective for the reporting period
beginning 1 January 2019
At the date of approval of these financial
statements, the following Standards and
204 Petropavlovsk Annual Report 2019
– Determine whether uncertain tax positions
are assessed separately or as a group;
– Assess whether it is probable that a tax
authority will accept an uncertain tax
treatment used, or proposed to be used, by
an entity in its income tax filings;
– If yes, the Group should determine its
accounting tax position consistently with
the tax treatment used or planned to be
used in its income tax filings; and
– If no, the Group should reflect the effect of
uncertainty in determining its accounting
tax position using either the most likely
amount or the expected value method.
The Group determines whether to consider
each uncertain tax treatment separately or
together with one or more other uncertain tax
treatments and uses the approach that better
predicts the resolution of the uncertainty. The
Group applies significant judgement in
identifying uncertainties over income tax
treatments. The Interpretation has not had a
material impact on the consolidated financial
statements of the Group.
Amendments to References to the
Conceptual Framework in IFRS
Standards (29 March 2018)
The Conceptual Framework is not a standard,
and none of the concepts contained therein
override the concepts or requirements in any
standard. The purpose of the Conceptual
Framework is to assist the IASB in developing
standards, to help preparers develop
consistent accounting policies where there
is no applicable standard in place and to assist
all parties to understand and interpret the
standards. The revised Conceptual Framework
includes some new concepts, provides
updated definitions and recognition criteria
for assets and liabilities and clarifies some
important concepts. These amendments had
no impact on the consolidated financial
statements of the Group.
Amendments to IFRS 3 (October 2018):
Definition of a Business
In October 2018, the IASB issued
amendments to the definition of a business in
IFRS 3 Business Combinations to help
entities determine whether an acquired set of
activities and assets is a business or not. They
clarify the minimum requirements for a
business, remove the assessment of whether
market participants are capable of replacing
any missing elements, add guidance to help
entities assess whether an acquired process
is substantive, narrow the definitions of a
business and of outputs, and introduce an
optional fair value concentration test. New
illustrative examples were provided along with
the amendments. Since the amendments
apply prospectively to transactions or other
events that occur on or after the date of first
application, the Group will not be affected by
these amendments on the date of transition.
Amendments to IAS 1 and IAS 8 (October
2018): Definition of Material
In October 2018, the IASB issued
amendments to IAS 1 Presentation of
Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates
and Errors to align the definition of ‘material’
across the standards and to clarify certain
aspects of the definition. The new definition
states that, “Information is material if omitting,
misstating or obscuring it could reasonably
be expected to influence decisions that the
primary users of general-purpose financial
statements make on the basis of those
financial statements, which provide financial
information about a specific reporting entity.”
The amendments to the definition of material is
not expected to have a significant impact on
the Group’s consolidated financial statements.
Amendments to IFRS 7, IFRS 9 and IAS 39
(September 2019): Interest Rate
Benchmark Reform
The amendments to IFRS 9 Financial
Instruments and IAS 39 Financial Instruments:
Recognition and Measurement provide a
number of reliefs, which apply to all hedging
relationships that are directly affected by interest
rate benchmark reform. A hedging relationship
is affected if the reform gives rise to uncertainties
about the timing and or amount of benchmark-
based cash flows of the hedged item or the
hedging instrument. These amendments
had no impact on the consolidated financial
statements of the Group as it does not have
any interest rate hedges directly linked to interest
rate benchmark reform.
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
Petropavlovsk Annual Report 2019 205
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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
income and expense 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. Gains or
losses on disposals to non-controlling
interests are also recorded in equity.
legal or constructive obligations or made
payments on behalf of the associate.
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.
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.
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
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.
2.6. 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):
GB Pounds Sterling (GBP : US$)
Russian Rouble (RUB : US$)
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.
206 Petropavlovsk Annual Report 2019
As at
31 December 2019
0.75
61.91
Average year ended
31 December 2019
0.78
64.69
As at
31 December 2018
0.78
69.47
Average year ended
31 December 2018
0.75
62.68
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.
2.7. 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.
2.8. 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.
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.
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.
Buildings
Plant and machinery
Vehicles
Office equipment
Computer equipment
Average life
Number of years
15-50
3-20
5-7
5-10
3-5
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.
Residual values and useful lives are reviewed
and adjusted if appropriate, at each reporting
date. Changes to the estimated residual
values or useful lives are accounted for
prospectively.
2.9. 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 to sell’. 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 reserves
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.
Petropavlovsk Annual Report 2019 207
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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.
2.10. 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.
208 Petropavlovsk Annual Report 2019
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.
2.11. 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.
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
their transaction price 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.
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.
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.
Currently the Group has only cash flow hedge
relationships.
Petropavlovsk Annual Report 2019 209
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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.
2.12. 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.
2.13. 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.
2.14. Leases
As explained in note 2.2, the Group has
changed its accounting policy for leases on
adoption of IFRS 16.
Accounting policy applicable from
1 January 2019
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;
210 Petropavlovsk Annual Report 2019
– Variable lease payment that are based on
an index or a rate;
for transferring the promised goods or
services to a customer;
– 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.
Accounting policy applicable prior to
1 January 2019
Leases where the lessor retains substantially
all the risks and rewards of ownership are
classified as operating leases. Payments
made under operating leases (net of any
incentives received from the lessor) are
charged to profit or loss on a straight-line
basis over the period of the lease.
2.15. 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
– 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
recognised over time during the term of
the relevant lease.
2.16. 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 mine development costs of the
mining project when the decision is made to
proceed with the development of the project
and until such time when the project is
substantially ready for its intended use (which
is when commercial production is ready to
commence) or if active development is
suspended or ceases.
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.
2.17. 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.
Petropavlovsk Annual Report 2019 211
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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 recognised 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 that
are expected to apply in the period when the
liability is settled or the asset is realised using
tax rates that have been enacted, or
substantively enacted. 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.
212 Petropavlovsk Annual Report 2019
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 make judgements and estimates
that can have a significant impact on the
financial statements. These judgements
and estimates are based on the Director’s
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 2019, 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.
On 18 March 2020, the Group announced 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.
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”.
At the 31 December 2019, the Group’s
reviewed the carrying value of its 31.1%
investment in IRC and concluded that, based
on value-in-use calculations, a US$23.4 million
impairment is required against the US$72.0
million carrying value of investment in IRC
(note 14). The non-adjusting post year end
effects of COVID-19 and the significant decline
in the oil price have contributed a significant
depreciation of the Russian Rouble against
the US Dollar exchange rate. The above,
combined with an increase in iron ore price,
would have a positive effect on the value in use
of the IRC investment.
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 of $23.4 million (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
2019 was recognised 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 Groups 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 and Malomir 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 presented within borrowings.
As of 31 December 2019, the relevant
contract liabilities amount to US$187.4 million
(31 December 2018: US$163.8 million).
Petropavlovsk Annual Report 2019 213
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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 2019, this
would give rise to an additional US$17.9
million deferred tax liability and corresponding
increase to the tax charge for the year ended
31 December 2019.
Details of deferred tax disclosures are set out
in note 21.
– 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 non-adjusting post
year end effects of COVID-19 have resulted in
a 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.
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;
214 Petropavlovsk Annual Report 2019
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.
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 the remaining
non-controlling 25% interest in the subsidiary
LLC TEMI (‘TEMI option’) from Agestinia
Trading Limited, a holder of 25% non-
controlling interest in LLC TEMI, 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 Area, which
have substantial non-refractory gold reserves
and resources, suitable for processing at the
Albyn Plant. The estimate of the fair value of
the option requires determination of the most
appropriate inputs to the valuation model
including expected volatility and making
assumptions about them. The option fair
value needs to be remeasured at the end
of each reporting period up to the date of
settlement. This requires a reassessment
of the estimates used at the end of each
reporting period. The Group employed an
independent third-party expert to undertake
the valuations of the underlying 25% interest
in LLC TEMI and the TEMI option. The key
inputs to determine the fair value of the call
option are set out in notes 18 and 26.
The non-adjusting post year end effects
of COVID-19 have resulted in a significant
increase in the gold price that together
with depreciation of the Russian rouble,
in which most of the Company’s costs are
denominated, both have a positive effect
on the valuation of the TEMI option.
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. With the
closure of Pokrovskiy mine in 2018, as the site
was transformed into a key component of the
POX Hub, Pokrovskiy ceased being a
reportable segment. POX Hub facilities are
allocated between Pioneer and Malomir
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.
Petropavlovsk Annual Report 2019 215
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
Pioneer
US$’000
Malomir
US$’000
Albyn
US$’000
Corporate
and other
US$’000
Consolidated
US$’000
223,193
464
–
45,970
(45,970)
223,657
(170,349)
(41,225)
–
42,755
(664)
101
(169,382)
–
54,275
239,365
267
–
537
(537)
239,632
(135,427)
(46,549)
–
–
(517)
(243)
(182,736)
–
56,896
229,139
146
–
4,493
(4,493)
229,285
(80,017)
(48,144)
–
–
3,959
–
(124,202)
–
105,083
–
–
49,015
145,326
(145,326)
49,015
(48,745)
(1,857)
(52,527)
9,404
–
–
(93,725)
(35,376)
(80,086)
629,169
705,230
315,152
199,578
(185,883)
(157,335)
(23,065)
(128,204)
691,697
877
49,015
196,326
(196,326)
741,589
(434,538)
(137,775)
(52,527)
52,159
2,778
(142)
(570,045)
(35,376)
136,168
(20,808)
115,360
30,797
8,826
(59,854)
(42,190)
(27,246)
25,693
1,849,129
(494,487)
(112,566)
2,914
(609,463)
635,527
691
34,945
14,454
19,058
2,910
–
24,840
12,653
6,087
1,284
8,350
22,009
–
1,435
1,442
1,095
18,362
–
–
3,345
10,136
100,156
27,107
26,580
8,981
4. Segment information continued
2019
Revenue
Gold (a)
Silver
Other external revenue
Inter segment revenue
Intra group eliminations
Total Group revenue from external customers
Operating expenses and income
Operating cash costs
Depreciation
Central administration expenses
Reversal of impairment of mining assets and in-house service
(Impairment)/reversal of impairment of ore stockpiles
Reversal of impairment/(impairment) of gold in circuit
Total operating expenses (b)
Share of results of associates
Segment result
Foreign exchange losses
Operating profit
Net impairment reversals on financial instruments
Investment and other finance income
Interest expense
Net other finance losses
Taxation
Profit for the year
Segment assets
Segment liabilities
Deferred tax – net
Unallocated cash
Borrowings
Net assets
Other segment information
Additions to non-current assets:
Exploration and evaluation expenditure
Capital Expenditure
Capitalised Stripping
Other items capitalised (c)
Average number of employees
(a) Net of US$(31.5) million net of cash settlement paid by the Group for realised cash flow hedges.
(b) Operating expenses excluding foreign exchange losses (note 6).
(c) Interest and close down and restoration costs capitalised (note 13).
216 Petropavlovsk Annual Report 2019
4. Segment information continued
2018
Revenue
Gold (d)
Silver
Flotation concentrate
Other external revenue
Inter segment revenue
Intra group eliminations
Total Group revenue from external customers
Operating expenses and income
Operating cash costs (e)
Depreciation
Central administration expenses
Reversal of impairment of mining assets
Impairment of exploration and evaluation assets
Impairment of ore stockpiles
Impairment of gold in circuit
Total operating expenses (f)
Share of results of associates
Segment result
Foreign exchange gains
Operating profit
Net impairment losses on financial instruments
Investment and other finance income
Interest expense
Net other finance gains
Taxation
Profit for the year
Segment assets
Segment liabilities
Deferred tax – net
Unallocated cash
Loans granted to associate
Borrowings
Net assets
Other segment information
Additions to non-current assets:
Exploration and evaluation expenditure
Capital Expenditure
Capitalised Stripping
Other items capitalised (g)
Average number of employees
(d) Net of US$(3.4) million net of cash settlement paid by the Group for realised cash flow hedges.
(e) Operating cash costs of Malomir include cost of flotation concentrate sold US$2.6 million.
(f) Operating expenses excluding foreign exchange losses (note 6).
(g) Interest and close down and restoration costs capitalised (note 13).
171,023
591
–
–
524
(524)
171,614
(107,549)
(37,899)
–
–
–
–
(1,415)
(146,863)
–
24,751
437,203
(66,689)
1,092
50,277
22,887
28,789
2,711
Pioneer
US$’000
Pokrovskiy
US$’000
Malomir
US$’000
Albyn
US$’000
Corporate
and other
US$’000
Consolidated
US$’000
8,173
29
–
–
–
–
8,202
(8,667)
(681)
–
–
–
–
(17)
(9,365)
–
(1,163)
98,343
61
3,202
–
807
(807)
101,606
(53,279)
(33,335)
–
82,958
(12,192)
(309)
(536)
(16,693)
–
84,913
189,135
160
–
–
5
(5)
189,295
(84,471)
(69,643)
–
–
–
(17,712)
(157)
(171,983)
–
17,312
–
–
–
29,058
170,916
(170,916)
29,058
(31,286)
(445)
(39,195)
18,737
–
–
–
(52,189)
15,480
(7,651)
466,674
841
3,202
29,058
172,252
(172,252)
499,775
(285,252)
(142,003)
(39,195)
101,695
(12,192)
(18,021)
(2,125)
(397,093)
15,480
118,162
8,450
126,612
(28,634)
3,775
(29,520)
10,185
(56,489)
25,929
1,575,776
(326,336)
(113,354)
8,473
50,966
(594,177)
601,348
–
–
–
–
–
–
–
630,918
319,139
188,516
(75,876)
(100,569)
(83,202)
1,090
59,879
11,529
5,130
1,138
971
14,539
12,572
(115)
1,485
–
2,558
–
–
3,347
3,153
127,253
46,988
33,804
8,681
Petropavlovsk Annual Report 2019 217
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
4. Segment information continued
Entity wide disclosures
Revenue by geographical location (a)
Russia and CIS
United Kingdom of Great Britain and Northern Ireland
Switzerland
Other
(a) Based on the location to which the product is shipped or in which the services are provided.
Non-current assets by location of asset (b)
Russia
Other
(b) Excluding financial instruments and deferred tax assets.
2019
US$’000
678,348
44,975
17,898
368
741,589
2018
US$’000
499,716
–
–
59
499,775
2019
US$’000
1,371,358
1,113
1,372,471
2018
(restated)
US$’000
1,329,660
50
1,329,710
Information about major customers
During the years ended 31 December 2019 and 31 December 2018 the Group generated revenues from the sales of gold to banks. Included in
gold sales revenue for the year ended 31 December 2019 are revenues of 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
(2018: US$451 million which arose from sales of gold to two banks that individually accounted for more than 10% of the Group’s revenue, namely
US$368 million to Sberbank of Russia and US$83 million to Gazprombank). The proportion of Group revenue of each bank may vary from year to
year depending on commercial terms agreed with each bank. Management considers there is no major customer concentration risk due to high
liquidity inherent to gold as a commodity.
5. Group revenue
Sales of goods:
Gold
Silver
Flotation concentrate
Other goods
Rendering of services:
Engineering and construction contracts
Other services
Rental income
Timing of revenue recognition:
At a point in time
Over time
218 Petropavlovsk Annual Report 2019
2019
US$’000
2018
US$’000
691,697
877
–
33,395
12,535
2,347
738
741,589
466,674
841
3,202
14,603
11,653
2,136
666
499,775
2019
US$’000
2018
US$’000
725,969
15,620
741,589
485,320
14,455
499,775
6. Operating expenses
Net operating expenses (a)
Reversal of impairment of mining assets and in-house service (a)
Impairment of exploration and evaluation assets (a)
(Reversal of impairment)/impairment of ore stockpiles (a)
Impairment of gold in circuit
Central administration expenses (a)
Foreign exchange losses/(gains)
(a) As set out below.
Net operating expenses
Depreciation
Staff costs
Materials
Flotation concentrate purchased
Fuel
External services
Mining tax charge/(credit)
Electricity
Smelting and transportation costs
Movement in ore stockpiles, work in progress, bullion in process, limestone and flotation concentrate attributable to gold
production
Taxes other than income
Insurance
Rental fee
Provision for impairment of trade and other receivables
Bank charges
Repair and maintenance
Security services
Travel expenses
Goods for resale
Other operating expenses
2019
US$’000
572,313
(52,159)
–
(2,778)
142
52,527
20,808
590,853
2019
US$’000
137,775
97,615
91,004
74,010
43,612
46,392
15,917
34,118
858
(34,156)
7,706
8,437
3,194
2,021
876
6,896
4,503
2,902
19,471
9,162
572,313
2018
US$’000
427,255
(101,695)
12,192
18,021
2,125
39,195
(8,450)
388,643
2018
US$’000
142,003
71,648
89,465
–
40,077
19,140
(131)
26,001
365
(8,632)
6,418
7,168
2,034
1,435
414
5,400
3,892
2,955
11,200
6,403
427,255
Petropavlovsk Annual Report 2019 219
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
6. Operating expenses continued
Central administration expenses
Staff costs
Professional fees
Insurance
Rental fee
Business travel expenses
Office costs
Other
2019
US$’000
33,466
1,771
797
481
2,000
832
13,180
52,527
2018
US$’000
25,366
5,531
616
1,723
1,541
589
3,829
39,195
Impairment charges
Impairment of mining assets
The Group undertook a review of impairment
indicators and impairment reversal 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 as at 31 December 2019 and 2018.
Having considered the excess of estimated
recoverable amounts over the carrying values
of the associated assets on the statement of
financial position as at 31 December 2019 and
taking into consideration removed uncertainty
connected with the timing of the final
construction and performance of the POX hub,
the Directors concluded on the following:
– A reversal of impairment previously
recorded against the carrying value of the
assets that are part of the Pioneer CGU
would be appropriate. Accordingly, a
pre-tax impairment reversal of US$43.5
million (being a post-tax impairment reversal
of US$34.8 million) has been recorded
against the associated assets within
property, plant and equipment. The
aforementioned impairment reversal takes
into consideration the effect of depreciation
attributable to relevant mining assets and
intra-group transfers of previously impaired
assets to Pioneer.
– A further reversal of impairment previously
recorded against the carrying value of the
assets of the supporting in-house service
companies would be appropriate.
Accordingly, a pre-tax impairment reversal
of US$9.4 million (being a post-tax impairment
reversal of US$7.8 million) has been recorded
against the associated assets within property,
plant and equipment. The aforementioned
impairment reversal takes into consideration
the effect of depreciation attributable to
relevant assets and intra-group transfers of
previously impaired assets.
As at 31 December 2018, the Group
recognised US$83.0 million (US$66.4 million
post-tax) reversal of impairment previously
recorded against the carrying value of the
assets of the Malomir CGU and
US$18.7 million (US$15.2 million post-tax)
reversal of impairment previously recorded
against the carrying value of the assets of the
supporting in-house service companies to
extent of the headroom available at Malomir
and Albyn CGUs.
The key assumptions which formed the basis of forecasting future cash flows and the value in use calculation are set out below:
Long-term real gold price
Discount rate (a)
RUB : US$ exchange rate
(a) Being the post-tax real weighted average cost of capital, equivalent to a nominal pre-tax discount rate of 9.8% (2018: 12.5%).
Year ended
31 December 2019
US$1,400/oz
7.0%
Year ended
31 December 2018
US$1,300/oz
8.5%
RUB65.8 : US$1 RUB67.0 : US$1
With all other assumptions being constant, changes to the aforementioned key assumptions could potentially result in impairment of certain
mining assets as set out below.
Long-term real gold price
Discount rate
RUB : US$ exchange rate
(a) In relation to Pioneer and Malomir CGUs.
220 Petropavlovsk Annual Report 2019
US$1,260/oz
8.0%
RUB60 : US$1
Potential impairment (a)
US$109 million
–
US$4 million
6. Operating expenses continued
Impairment of exploration and evaluation assets
The Group performed a review of its exploration and evaluation assets and concluded no impairment was required as at 31 December 2019
(31 December 2018: the Group performed a review of its exploration and evaluation assets and concluded to suspend exploration at the Flanks
of Malomir and surrender the relevant licences. An aggregate impairment charge of US$12.2 million was recorded against associated exploration
and evaluation assets during the year ended 31 December 2018).
As at 31 December 2019 and 31 December 2018, all exploration and evaluation assets in the statement of financial position related to the areas
adjacent to the existing mines (note 12).
Impairment of ore stockpiles
The Group assessed the recoverability of the carrying value of ore stockpiles and recorded impairment charges/reversals of impairment as set out below:
Year ended 31 December 2019
Year ended 31 December 2018
Pre-tax
impairment
charge
US$’000
664
517
(3,959)
(2,778)
Taxation
US$’000
(133)
(88)
673
452
Post-tax
impairment
charge
US$’000
531
429
(3,286)
(2,326)
Pre-tax
impairment
charge
US$’000
–
309
17,712
18,021
Taxation
US$’000
–
(62)
(3,011)
(3,073)
Post-tax
impairment
charge
US$’000
–
247
14,701
14,948
Pioneer
Malomir
Albyn
7. Auditor’s remuneration
The Group, including its overseas subsidiaries, obtained the following services from the Company’s auditor and their associate:
Audit fees and related fees
Fees payable to the Company's auditor for the annual audit of the parent company and consolidated financial statements
Fees payable to the Company’s auditor and their associate for other services to the Group:
For the audit of the Company's subsidiaries as part of the audit of the consolidated financial statements
For the audit of subsidiary statutory accounts pursuant to legislation (a)
Non-audit fees
Other services pursuant to legislation – interim review
Fees for reporting accountants services (b)
(a) Including the statutory audit of subsidiaries in the UK and Cyprus.
(b) Fees payable in relation to the circular for the ICBC guarantee restructuring (notes 26).
8. Staff costs
Wages and salaries
Social security costs
Pension costs
Share-based compensation
Average number of employees
2019
US$’000
2018
US$’000
1,021
351
84
1,456
337
400
737
803
320
65
1,188
273
900
1,173
2019
US$’000
103,728
26,952
121
280
131,081
2018
US$’000
80,090
20,855
115
416
101,476
8,981
8,681
Petropavlovsk Annual Report 2019 221
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
9. Financial income and expenses and impairment of financial instruments
Net impairment reversals/(impairment losses) on financial instruments
Reversal of impairment/(impairment) of financial assets (a)
Financial guarantee contract (b)
Investment and other finance income
Interest income
Guarantee fee income (c)
Interest expense
Bank loans
Notes
Convertible bonds
Prepayment on gold sale agreements
Lease liabilities
Interest capitalised
Unwinding of discount on environmental obligation
Net other finance (losses)/gains
Fair value (loss)/gain on the conversion option (e)
Loss on repurchase of the Existing Bonds (g)
Fair value gain/(loss) on the guarantee receivable (f)
Fair value loss on the call option over non-controlling interests (d)
Fair value (loss)/gain on other derivative financial instruments
Fair value (loss)/gain on listed equity investments
Gain on lease modification
2019
US$’000
2018
US$’000
2,333
28,464
30,797
3,216
5,610
8,826
–
(41,995)
(12,984)
(16,019)
(593)
(71,591)
12,287
(550)
(59,854)
(31,127)
(11,211)
3,607
(1,978)
(1,345)
(302)
166
(42,190)
(3,163)
(25,471)
(28,634)
3,775
–
3,775
(1,083)
(41,886)
(12,579)
(7,213)
–
(62,761)
33,666
(425)
(29,520)
11,700
–
(3,720)
–
1,961
244
–
10,185
(a) Including US$3.2 million reversal (2018: US$3.2 million recognition) 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.
The determination of the Group’s US$8.9 million guarantee liability as at 31 December 2019 relies upon the critical judgement as to whether there has been a significant increase in IRC’s credit risk from March
2019 to December 2019 (see the IRC guarantee critical judgement disclosed in note 3.1). Management have determined that there has not been a significant increase in credit risk since March 2019 and
therefore the guarantee liability is measured in the amount of 12-month ECL. This is in contrast to the ICBC guarantee which was measured int eh amount of the lifetime ECL as there had previously been a
significant increase in credit risk for that guarantee since 2010. This difference in measurement has resulted in the US$28.5 million net accounting gain.
2018: US$25.5 million loss, being an increase in provision under ICBC guarantee arrangements from the 12-month ECL to the lifetime ECL as set out above.
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 TEMI option to fair value (notes 18 and 26).
(e) Result of re-measurement of the conversion option to fair value (notes 18 and 20).
(f) Result of re-measurement of receivable from IRC under ICBC Guarantee arrangements to fair value, including US$0.7 million guarantee fee income (2018: result of re-measurement of receivable from IRC
under ICBC guarantee arrangements to fair value, net of US$4.0 million guarantee fee income) (note 26).
(g) US$100 million convertible bonds due 2020 (the ‘Existing Bonds’): difference between the US$108 million paid to fund the Repurchase Price and the carrying value of the Existing Bonds at redemption (note 20).
222 Petropavlovsk Annual Report 2019
10. Taxation
Current tax
Russian current tax
Deferred tax
(Reversal)/origination of timing differences (a)
Total tax charge
2019
US$’000
2018
US$’000
29,660
29,660
(2,414)
27,246
19,861
19,861
36,628
56,489
(a) Including effect of foreign exchange movements in respect of deductible temporary differences of US$(20.4) million (year ended 31 December 2018: US$30.6 million) which primarily arises as the tax base for a
significant portion of the future taxable deductions in relation to the Group’s property, plant and equipment are denominated in Russian Rouble whilst the future depreciation charges associated with these
assets will be based on their US Dollar carrying value and reflects the movements in the Russian Rouble to the US Dollar exchange rate.
The charge for the year can be reconciled to the profit before tax per the statement of profit or loss as follows:
Profit before tax
Less: share of results of associate
Profit before tax (excluding associate)
Tax on profit (excluding associate) at the Russian corporation tax rate of 20% (2018: 20%)
Effect of the reduced corporation tax rate (a)
Effect of different tax rates of subsidiaries operating in other jurisdictions
Tax effect of expenses that are not deductible for tax purposes (b)
Tax effect of tax losses for which no deferred income tax asset was recognised (c)
Utilisation of previously unrecognised tax losses
Foreign exchange movements in respect of deductible temporary differences (d)
Income not subject to tax (e)
Other adjustments(f)
Tax charge
2019
US$’000
52,939
35,376
88,315
17,663
(4,813)
1,239
7,681
11,967
(124)
(20,424)
–
14,057
27,246
2018
US$’000
82,418
(15,480)
66,938
13,387
(354)
1,161
1,191
17,055
(442)
30,618
(2,209)
(3,918)
56,489
(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 and 2018, LLC Albynskiy Rudnik has received tax relief as a RIP participant and was entitled to the reduced statutory corporation tax rate of 17%. In 2019 LLC
Malomirskiy Rudnik has 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).
(c) Primarily relate to interest expense incurred in the UK and loss on repurchase of the Existing Bonds (note 9) (2018: primarily relate to interest expense and central administration expenses incurred in the UK
and loss on fair value change on financial guarantee fee).
(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) 2018: Primarily relate to the fair value gain on re-measurement of the conversion option of the Convertible Bonds (note 9).
(f) 2019: 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$10.5 million (2018: US$8.3 million) of contingent liabilities,
including US$4.8 million (2018:US$nil) in respect of income tax and US$5.7 million (2018: US$8.3 million) in respect of other taxes.
Petropavlovsk Annual Report 2019 223
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
11. Earnings per share
Profit for the year attributable to equity holders of Petropavlovsk PLC
Interest expense on convertible bonds (a)
Profit used to determine diluted earnings per share
Weighted average number of Ordinary Shares
Adjustments for dilutive potential Ordinary Shares (a)
Weighted average number of Ordinary Shares for diluted earnings per share
Basic profit per share
Diluted profit per share
2019
US$’000
26,883
–
26,883
2018
US$’000
24,493
–
24,493
No of shares
3,309,193,559
–
3,309,193,559
No of shares
3,305,069,755
–
3,305,069,755
US$
0.01
0.01
US$
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 2019 and 31 December 2018.
12. Exploration and evaluation assets
At 1 January 2019
Additions
Reallocation and other transfers
Transfer to mining assets
At 31 December 2019
Flanks of
Pioneer
US$’000
6,919
691
(66)
–
7,544
(a) Amounts capitalised in respect of acquisition of subsidiaries and exploration LLC “Vostok Geologiya”LLC “Perspectiva DV”.
At 1 January 2018
Additions
Impairment (b)
Transfer to mining assets (c)
At 31 December 2018
(b) Note 6.
Flanks of
Pioneer
US$’000
5,827
1,092
–
–
6,919
Flanks of
Albyn
US$’000
34,076
971
–
–
35,047
Flanks of
Albyn
US$’000
35,047
8,350
–
–
43,397
Flanks of
Malomir
US$’000
12,192
–
(12,192)
–
–
Other (a)
US$’000
1,149
1,095
–
(62)
2,182
Other
US$’000
1,423
1,090
–
(1,364)
1,149
Total
US$’000
43,115
10,136
(66)
(62)
53,123
Total
US$’000
53,518
3,153
(12,192)
(1,364)
43,115
(c) Amounts capitalised in respect of limestone, an essential reagent the pressure oxidation process, and underground water deposits to be used for the POX Hub operations.
224 Petropavlovsk Annual Report 2019
13. Property, plant and equipment
Cost
At 1 January 2018 (restated) (i)
Additions (a) (restated)
Interest capitalised (b)
Close down and restoration cost capitalised (note 22)
Transfer from exploration and evaluation assets (note 12)
Transfers from capital construction in progress (c)
Disposals (e)
Disposals of subsidiaries
Reallocation and other transfers
Foreign exchange differences
At 31 December 2018 (f) (restated)
Recognition of right-of-use assets at the transition date according to IFRS 16
At 1 January 2019 after transition
Additions (a)
Interest capitalised (b)
Close down and restoration cost capitalised (note 22)
Transfer from exploration and evaluation assets (note 12)
Transfers from capital construction in progress (c)
Disposals (e)
Reallocation and other transfers
Foreign exchange differences
At 31 December 2019 (f)
Accumulated depreciation and impairment
At 1 January 2018
Charge for the year (restated) (i)
Disposals
Disposals of subsidiaries
Reallocation and other transfers
Reversal of impairment (note 6)
Foreign exchange differences
At 31 December 2018 (restated)
Charge for the year
Disposals
Reallocation and other transfers
Reversal of impairment of mining assets and in-house service (note 6)
Foreign exchange differences
At 31 December 2019
Net book value
At 31 December 2018 (h) (restated)
At 31 December 2019 (h)
Mining assets
US$’000
Non-mining
assets
US$’000 (g)
Capital
construction in
progress (d)
US$’000
Total
US$’000
1,911,549
98,697
–
138
1,364
108,479
(53,744)
(7,400)
(1,325)
–
2,057,758
–
2,057,758
67,691
–
14,293
62
390,540
(21,148)
80
–
2,509,276
1,340,968
140,345
(52,818)
(7,400)
(352)
(82,958)
–
1,337,785
135,265
(20,355)
(4,843)
(42,755)
–
1,405,097
719,973
1,104,179
178,466
2,730
–
–
–
582
(4,526)
–
(41)
(4,407)
172,804
1,739
174,543
24,427
–
–
–
815
(7,718)
(271)
2,719
194,515
158,254
2,016
(4,410)
–
(23)
(18,737)
(3,479)
133,621
3,386
(6,158)
4,696
(8,013)
2,084
129,616
39,183
64,899
388,032
72,814
33,666
–
–
(109,061)
(3)
–
988
(21)
386,415
–
386,415
33,406
12,287
–
–
(391,355)
(50)
–
36
40,739
1,511
–
–
–
(3)
–
–
1,508
–
(7)
(110)
(1,391)
–
–
2,478,047
174,241
33,666
138
1,364
–
(58,273)
(7,400)
(378)
(4,428)
2,616,977
1,739
2,618,716
125,524
12,287
14,293
62
–
(28,916)
(191)
2,755
2,744,530
1,500,733
142,361
(57,228)
(7,400)
(378)
(101,695)
(3,479)
1,472,914
138,651
(26,520)
(257)
(52,159)
2,084
1,534,713
384,907
40,739
1,144,063
1,209,817
(a) Including US$27.2 million stripping cost capitalised (31 December 2018: US$47.0 million).
(b) Borrowing costs were capitalised at the weighted average rate of the Group’s relevant borrowings being 9.1% (2018: 9.3%).
(c) Being costs primarily associated with c the POX hub project and the Malomir flotation plant.
(d) Capital construction in progress includes US$8.9 million costs associated with the POX Hub project (31 December 2018: US$345.8 million).
(e) Including 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 (31 December 2018:
US$18.1 million of fully depreciated mining fleet that is not suitable for future use due to wear and tear and US$8.1million disposals of mining fleet due to derecognition of the replaced part, US$19.1 million
disposals associated with expected closure of Pokrovskiy mine as the site is being transformed into a key component of the POX Hub, US$5.8 million disposal of road due to the lack of need for further use).
(f) Including US$485.2 million of fully depreciated property, plant and equipment (31 December 2018: US$400.8 million).
(g) Corporate administration and in-house support function, including right-of-use assets. For the movement in the right-of-use assets during the period see note 23.
(h) Including US$41.9 million net book value of capitalized stripping cost (31 December 2018: US$47.0 million).
(i) See note 2 for details regarding the restatement, resulting in US$39.8 million included in depreciation charge for 2018
Petropavlovsk Annual Report 2019 225
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
14. Investment in associate
IRC Limited (‘IRC’)
Summarised financial information for the associate that is material to the Group is set out below.
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Other non-current assets
Current assets
Cash and cash equivalents
Other current assets
Current liabilities
Borrowings (a), (b)
Other current liabilities
Non-current liabilities
Borrowings (a), (b)
Other non-current liabilities
Net assets
(a) 31 December 2019: Gazprombank Facility.
2019
US$’000
48,680
48,680
2018
US$’000
85,140
85,140
IRC
2019
US$’000
IRC
2018
US$’000
19,877
522,640
14,859
557,376
4,292
46,106
50,398
(20,703)
(80,288)
(100,991)
(201,204)
(27,578)
(228,782)
278,001
19,497
533,446
15,185
568,128
7,637
34,195
41,832
(111,954)
(55,080)
(167,034)
(100,915)
(22,501)
(123,416)
319,510
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 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$27 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.
(b) 31 December 2018: including US$158.8 million under ICBC Facility and loans provided by the Group (note 26) in the equivalent of US$54.0 million. On 19 March 2019, IRC repaid the outstanding loan
principal and interest under ICBC Facility in full and terminated the ICBC facility Agreement (the outstanding loan principal under ICBC Facility was US$169.6 million as at 31 December 2018).
226 Petropavlovsk Annual Report 2019
14. Investment in associate continued
Revenue
Net operating (expenses)/ income
Including:
Depreciation
Reversal of impairment of mining assets
Foreign exchange (losses)/gains
Impairment of financial assets
Investment income
Interest expense
Taxation
(Loss)/profit for the year
Other comprehensive loss
Total comprehensive (loss)/profit
Group’s share %
Group’s share in (loss)/profit for the year
Impairment of investment in associate
Share of results of associate
IRC
Year ended
31 December
2019
US$’000
177,164
(178,653)
IRC
Year ended
31 December
2018
US$’000
151,549
(53,876)
(28,504)
–
(6,181)
–
83
(40,421)
3,157
(38,670)
(3,483)
(42,153)
31.1%
(12,026)
(23,350)
(35,376)
(21,208)
90,483
4,554
(7,741)
82
(21,679)
(130)
68,205
(1,057)
67,148
31.1%
21,210
(5,730)
15,480
Impairment of investment in associate
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 a US$23.4 million impairment was required as
at 31 December 2019 and recorded accordingly (31 December 2018: US$5.7 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 2019 were real
long-term 62% iron ore price of US$65.8 per dry metric tonne and discount rate, being the post-tax real weighted average cost of capital, of 10%.
On 18 March 2020, the Group announced a preliminary agreement to dispose of its 29.9% out of 31.1.% interest in IRC as set out in note 31.
15. Inventories
Current
Construction materials
Stores and spares
Ore in stockpiles (a), (b)
Gold in circuit
Bullion in process
Flotation concentrate
Other
Non-current
Ore in stockpiles (a), (b), (c)
(a) As at 31 December 2019, ore in stockpiles include balances in the aggregate of US$0.1 million carried at net realisable value (2018: US$10.1 million).
(b) For details of ore stockpile impairments see note 6.
(c) Ore in stockpiles that is not planned to be processed within twelve months after the reporting period
2019
US$’000
6,600
86,985
68,479
37,740
4,732
97,932
5,305
307,773
60,257
60,257
2018
(restated)
US$’000
6,267
69,082
36,395
16,751
606
25,654
4,101
158,856
56,805
56,805
Petropavlovsk Annual Report 2019 227
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
16. Trade and other receivables
Current
VAT recoverable
Advances to suppliers
Prepayments for property, plant and equipment
Trade receivables (a)
Contract assets
Guarantee fee receivable (b)
Other debtors (c)
Non-current
Other
(a) Net of provision for impairment of US$1.2 million (2018: US$0.9 million). Trade receivables are generally settled in less than three months.
(b) Please refer to notes 14 and 26 for the details of ICBC and Gazprombank guarantee arrangements.
(c) Net of provision for impairment of US$1.7 million (2018: US$1.1 million).
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
17. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
(a) Including US$1.1 million of restricted bank deposit as at 31 December 2019 (31 December 2018: US$nil).
2019
US$’000
2018
US$’000
51,499
10,513
9,216
10,254
2,856
9,417
12,220
105,975
556
556
20,474
5,919
7,233
13,389
3,307
6,829
9,590
66,741
547
547
2019
US$’000
14,181
33,972 (a)
48,153
2018
US$’000
10,682
15,470
26,152
228 Petropavlovsk Annual Report 2019
18. Derivative financial instruments
Current
Forward gold contracts – cash flow hedge (a), (b), (c)
Call Option over the Company’s shares (d)
Other
Non-current
Conversion option (e), (f)
Call option over non-controlling interests (g), (h), (i)
31 December 2019
31 December 2018
Assets
US$’000
Liabilities
US$’000
Assets
US$’000
Liabilities
US$’000
–
–
–
–
11,022
11,022
–
–
(266)
(266)
(46,313)
–
(46,313)
–
–
–
–
–
–
(8,819)
(1,136)
–
(9,955)
(2,411)
–
(2,411)
(a) No forward contracts to sell gold are outstanding as at 31 December 2019 (31 December 2018: 200,000 ounces of gold at an average price of US$1,252 per ounce).
(b) Measured at fair value and considered as Level 2 of the fair value hierarchy which valuation incorporates the following inputs:
– Gold forward curves observable at quoted intervals; and
– Observable credit spreads.
(c) The hedged forecast transactions were expected to occur at various dates during the period to December 2019.
Gain and losses recognised in the hedging reserve in equity as at the reporting date are recognised in the statement of profit or loss in the periods during which the hedged gold sale transactions occur. There was no
ineffectiveness to be recorded from the cash flow hedge during the years ended 31 December 2019 and 2018.
(d) Cash settled call option issued in relation to 3.6 per cent. of the outstanding aggregate ordinary share capital in the Company exercisable between December 2018 and June 2019 at strike price of £0.068 and
exercised during year ended 31 December 2019 resulting in the net cash settlement paid by the Group of an aggregate of US$2.2 million.
(e) Note 20.
(f) 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;
– Conversion price;
– Time to maturity; and
– Risk-free rate.
(g) 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.
(h) 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.
(i) The fair value of the TEMI option at 31 December 2019 is US$11.0 million, which represent the premium paid to acquire the option of US$13.0 million less a subsequent revaluation loss of US$2.0 million.
The fair value of the option was initially recognised as US$9.6 million upon initial recognition, resulting in a corresponding gain recognised within Net other finance gains and losses in the statement of profit or
loss. This gain on initial recognition was primarily due to improvement in the gold price outlook between the pricing and completion of the transaction together with the judgements taken with regards to certain
inputs into the relevant valuation models, in particular, historic volatility used as a proxy of the expected volatility of the underlying assets and being historic volatility of the comparable listed companies used for
the valuations under IFRS 13 as opposed to historic gold market volatility used for the valuation of the contractual option premium.
In the condensed consolidated interim financial statements for the six months ended 30 June 2019 the fair value of the call option, net of the remaining unpaid premium, was recognised at US$16.2 million,
comprising the initial gain of $9.6 million, a revaluation loss of $0.4 million and the premium paid to date of $7.0 million, with a corresponding net gain of US$9.2 million recognised within Net other finance gains
and losses in the statement of profit or loss. After further analysis and consideration of the IFRS 9 application guidance (which prohibits the recognition of day 1 gains based on valuation techniques that use
unobservable inputs), this economic gain previously recognised in the period ended 30 June 2019 has now been deferred for accounting purposes.
Petropavlovsk Annual Report 2019 229
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
19. Trade and other payables
Current
Trade payables (a)
Payables for property, plant and equipment
Advances from customers (b)
Advances received on resale contracts (c)
Accruals and other payables
Non-current
Advances from customers (d)
2019
US$’000
2018
US$’000
134,818
5,810
188,968
7,698
51,747
389,041
–
–
50,099
5,242
131,752
5,432
27,320
219,845
33,779
33,779
(a) The trade payables as at 31 December 2019 include US$81.0 million payable for flotation concentrate purchased (31 December 2018: US$nil).
(b) The current advances from customers as at 31 December 2019 include US$152.5 million (31 December 2018: US$86.0 million) and US$34.9 million (31 December 2018: US$44.0 million) advance payments
received from Gazprombank and Sberbank, respectively, under gold sales agreements. Advance payments are to be settled against physical delivery of gold produced by the Group in regular intervals over the
period of up to twelve months from the reporting date based on the sales price prevailing at delivery that is determined with reference to LBMA fixing. For details of interest charged in relation to the
aforementioned advances please refer to note 9.
(c) Amounts included in advances received on resale contracts at 31 December 2019 and 31 December 2018 relate to services performed by the Group’s subsidiary, Irgiredmet, in its activity to procure materials
such as reagents, consumables and equipment for third parties.
(d) The non-current advances from customers as at 31 December 2019 include US$nil (31 December 2018: US$33.8 million) advance payments received from Gazprombank under gold sales agreements.
Advance payments are to be settled against physical delivery of gold produced by the Group in regular intervals over the period after twelve months from the reporting date based on the sales price prevailing
at delivery that is determined with reference to LBMA fixing. For details of interest charged in relation to the aforementioned advances please refer to note 9.
The Directors consider that the carrying amount of trade and other payables approximates to their fair value.
230 Petropavlovsk Annual Report 2019
20. Borrowings
Borrowings at amortised cost
Notes (a)
Convertible bonds (b), (c)
Amount due for settlement after 12 months
2019
US$’000
2018
US$’000
500,377
109,086
609,463
609,463
609,463
499,007
95,170
594,177
594,177
594,177
(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) 31 December 2019: Debt component of the US$125 million Convertible Bonds due on 03 July 2024 measured at amortised cost and not revalued. 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).
The conversion option of the US$125 million 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 2019, the fair value of debt component of the convertible bonds, considered as Level 3 of the fair value hierarchy, amounted to US$122.8 million, with the carrying value of 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 2019, 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$169.1 million.
(c) 31 December 2018: Debt component of the Existing Bonds due on 18 March 2020, measured at amortised cost. The interest charged was calculated by applying an effective interest rate of 13.89% to the
liability component.
The conversion option of the US$100 million 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.
As at 31 December 2018, the fair value of debt component of the convertible bonds, considered as Level 3 of the fair value hierarchy, amounted to US$86.8 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 2018, 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$89.2 million.
The US$100 million Convertible Bonds were refinanced in July 2019 as set out above.
Petropavlovsk Annual Report 2019 231
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
21. Deferred taxation
At 1 January
Deferred tax (credited)/charged to profit or loss (a)
Deferred tax charged to equity
Exchange differences
At 31 December
Deferred tax liabilities
Net deferred tax liability
(a) Note 10.
Property, plant and equipment
Inventory
Exploration and evaluation assets
Other temporary differences
Tax losses carried forward (a)
2019
US$’000
113,354
(2,414)
1,631
(5)
112,566
(112,566)
(112,566)
2018
US$’000
72,380
36,628
4,376
(30)
113,354
(113,354)
(113,354)
At 1 January
2019
US$’000
121,800
11,264
7,088
(3,183)
(23,615)
113,354
Charged/
(credited)
to profit or loss
US$’000
9,063
(2,823)
938
163
(9,755)
(2,414)
Charged
directly
to equity
US$’000
–
–
–
1,631
–
1,631
Exchange
differences
US$’000
14
(50)
–
31
–
(5)
At 31 December
2019
US$’000
130,877
8,391
8,026
(1,358)
(33,370)
112,566
(a) 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.
Property, plant and equipment
Inventory
Exploration and evaluation assets
Fair value adjustments
Other temporary differences
Tax losses carried forward (b)
At 1 January
2018
US$’000
81,836
8,540
8,070
6
(1,494)
(24,578)
72,380
Charged/
(credited)
to profit or loss
US$’000
40,046
2,958
(982)
(6)
(6,351)
963
36,628
Charged
directly
to equity
US$’000
–
–
–
–
4,376
–
4,376
Exchange
differences
US$’000
(82)
(234)
–
–
286
–
(30)
At 31 December
2018
US$’000
121,800
11,264
7,088
–
(3,183)
(23,615)
113,354
(b) Deferred tax recognised in relation to unused tax losses of LLC Malomirskiy Rudnik and LLC TEMI 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 2019, the Group did not recognise deferred tax assets in respect of the accumulated unused tax losses comprising
US$718.8 million (2018: US$595.4 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$535.4 million
(2018: US$566.0 million) and corporate interest restriction disallowances of US$155.6 million (2018: US$117.8 million) arise in the UK
and tax losses of US$26.7 million (2018: US$28.8 million) arise in Russia, both can be carried forward indefinitely.
As at 31 December 2019, the Group did not recognise deferred tax assets of US$7.8 million (2018: US$2.6 million) in respect of deductible
temporary differences arising 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 2019, statutory unremitted earnings comprised in
aggregate US$960.1 million (2018: US$845.3 million).
232 Petropavlovsk Annual Report 2019
22. Provision for close down and restoration costs
At 1 January
Unwinding of discount
Change in estimates (a)
Amounts charged against provision
At 31 December
Amount due for settlement within 12 months
Amount due for settlement after 12 months
(a) Primarily reflects the effect of change in the forecast the Russian Rouble to the US Dollar exchange rate and the inflation rate.
The Group recognised provisions in relation to close down and restoration costs for the following mining operations:
POX Hub/ Pokrovskiy (a)
Pioneer
Malomir
Albyn
2019
US$’000
21,388
550
14,293
–
36,231
–
36,231
36,231
2019
US$’000
7,401
12,864
10,630
5,336
36,231
2018
US$’000
21,004
425
138
(179)
21,388
804
20,584
21,388
2018(b)
US$’000
6,008
6,688
4,981
3,711
21,388
(a) With the closure of Pokrovskiy mine in 2018, as the site was transformed into a key component of the POX Hub, the associated amounts of close down and restoration costs were attributed to the POX
project accordingly.
(b) The allocation of the provisions between the mining operations and the comparative financial information has been updated to align with the 2019 presentation.
The provision recognised represents the present value of the estimated expenditure that will be incurred, which has been arrived at using the
long-term risk-free pre-tax cost of borrowing. The expenditure arises at different times over the life of mine. The expected timing of significant cash
outflows is between years 2021 and 2038 varying from mine site to mine site.
23. Lease liabilities
The following information is in relation to transactions for which the Group is a lessee (for leases where the Group is a lessor, see note 29).
Movement in the lease liabilities during the year ended 31 December 2019 was as follows:
At 1 January 2019
Additions
Interest expense
Payment of lease liabilities, including interest expense
Disposals
Foreign exchange differences
At 31 December 2019
Amount due for settlement within 12 months
Amount due for settlement after 12 months
US$’000
1,739
13,279
593
(1,879)
(1,124)
570
13,178
5,373
7,805
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.
Petropavlovsk Annual Report 2019 233
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
23. Lease liabilities continued
The movement in the right-of-use asset during the year ended 31 December 2019 was as follows:
At 1 January 2019
Lease assets recognised under IAS 17 as at 31 December 2018
Additions
Disposals
Depreciation
Translation difference
At 31 December 2019
The statement of profit or loss shows the following amounts relating to leases where the group is a lessee:
Depreciation charge of right-of-use assets
Interest expense
Expense relating to short-term leases
Expense relating to leases of low value that are not shown above as short-term leases
US$’000
1,739
79
13,279
(958)
(2,423)
9
11,725
US$’000
2,423
593
2,169
49
24. Share capital
Allotted, called up and fully paid
At 1 January
Issued during the period
At 31 December
2019
2018
No of shares
US$’000
No of shares
US$’000
3,307,151,712
3,058,569
3,310,210,281
48,963
40
49,003
3,303,768,532
3,383,180
3,307,151,712
48,920
43
48,963
The Company has one class of ordinary shares which carry no right to fixed income.
234 Petropavlovsk Annual Report 2019
25. Notes to the cash flow statement
Reconciliation of profit before tax to operating cash flow
Profit before tax
Adjustments for:
Share of results of associate
Net (impairment reversals)/impairment losses on financial instruments
Investment and other finance income
Interest expense
Net other finance losses/(gains)
Share based payments
Depreciation
Impairment of exploration and evaluation assets
(Reversal of impairment)/impairment of ore stockpiles
Effect of processing previously impaired stockpiles
Provision for impairment of trade and other receivables
Impairment of gold in circuit
Effect of processing previously impaired gold in circuit
Loss/(gain) on disposals of property, plant and equipment
Foreign exchange losses/(gains)
Reversal of impairment of mining assets and in-house service
Other non-cash items
Changes in working capital:
Increase in trade and other receivables
Increase in inventories
Increase in trade and other payables
Net cash generated from operations
Reconciliation of cash flows used to purchase property, plant and equipment
Additions to property, plant and equipment
Non-cash additions to property, plant and equipment:
Transfer from materials
Capitalised depreciation
Right-of-use assets additions
Associated cash flows:
Purchase of property, plant and equipment
Increase in prepayments for property, plant and equipment
(Decrease)/increase in payables for property, plant and equipment
Cash movements presented in other cash flow lines:
Changes in working capital
2019
US$’000
52,939
35,376
(30,797)
(8,826)
59,854
42,190
280
137,775
–
(2,778)
(6,398)
2,280
142
(1,413)
1,118
20,808
(52,159)
129
(31,204)
(133,848)
103,853
189,321
2019
US$’000
125,524
7,343
(737)
(13,279)
118,851
120,798
(1,982)
568
(533)
118,851
2018
US$’000
82,418
(15,480)
28,634
(3,775)
29,520
(10,185)
416
142,003
12,192
18,021
(10,496)
1,435
2,124
(3,384)
(862)
(8,450)
(101,695)
(106)
(18,510)
(18,833)
204,827
329,814
2018
US$’000
174,241
(747)
(293)
(55)
173,146
178,201
(1,419)
(5,147)
1,511
173,146
Petropavlovsk Annual Report 2019 235
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
25. Notes to the cash flow statement
(continued)
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 2019 and 2018 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.
Non-cash transactions
An equivalent of US0.1$ million of VAT
recoverable was offset against profit tax
during the year ended 31 December 2019
and US$1.5 million of provision of profit tax
relating to Albyn, was accrued as at 31.
December2019. An equivalent of US$8.0
million of VAT recoverable was offset against
profit tax during the year ended 31 December
2018. There were no other significant
non-cash transactions during the years
ended 31 December 2019 and 2018.
Entities in which key management have interest
and exercise a significant influence or control
IRC Limited and its subsidiaries
Sales to related parties
Purchases from related parties
2019
US$’000
2018
US$’000
2019
US$’000
2018
US$’000
–
42
42
–
164
164
4,046
5,458
9,504
764
681
1,445
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.
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).
At 31 December 2019, the contractual balance
outstanding amounted to US$4.5 million.
During the year ended 31 December 2019,
the Group made US$1.0 million charitable
donations to the Petropavlovsk Foundation
(2018: US$0.4 million).
The outstanding balances with related parties
at 31 December 2019 and 2018 are set out
below.
Entities in which key management have interest
and exercise a significant influence or control
IRC Limited and its subsidiaries
Amounts owed by related parties
Amounts owed to related parties
2019
US$’000
2018
US$’000
2019
US$’000
2018
US$’000
–
3,651
3,651
1,556
2,078
3,634
759
5,863
6,622
–
976
976
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’). At 31 December
2018 the principal amounts outstanding subject
to the ICBC guarantee were US$169.6 million.
Under the terms of the arrangement the Group
was entitled to receive an annual fee equal to
1.75% of the outstanding amount, which
amounted to US$0.7 million during the year
ended 31 December 2019 (31 December 2018:
US$4.0 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 and was
used, inter alia, to repay the amounts
outstanding under the ICBC Facility in full,
the two loans provided by the Group in the
equivalent of approximately US$57 million
and part of the ICBC Guarantee fee of
US$6 million owed by IRC to the Group.
At 31 December 2019 the remaining
outstanding contractual guarantee fee
was US$5.0 million, which had a corresponding
fair value of US$4.4 million and is payable by IRC
no later than 31 December 2020 (31 December
2018: outstanding contractual guarantee fee of
US$10.3 million with a corresponding fair value
of US$6.8 million).
236 Petropavlovsk Annual Report 2019
26. Related parties continued
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$225 million as at
31 December 2019. 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 year ended
31 December 2019 was at the annual
rate of 3.07% for 2019 by reference to the
average outstanding principal balance under
Gazprombank Facility. The guarantee fee
charged for 2019 was US$5.6 million, with
corresponding value of US$5.0 million after
provision for expected credit losses.
On 18 March 2020, the Group announced 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$10 million,
subject to certain conditions precedent being
met, including the release of the Group’s
obligation to guarantee IRC’s debt under the
Gazprombank Facility (note 31).
The following assets and liabilities have been recognised in relation to the ICBC Guarantee and Gazprombank Guarantee as at 31
December 2019 and 31 December 2018:
Other receivables – ICBC Guarantee (a)
Other receivables – Gazprombank Guarantee (b)
Financial guarantee contract – ICBC Guarantee (c)
Financial guarantee contract – Gazprombank Guarantee (d)
31 December 2019
US$’000
4,436
4,981
–
8,923
31 December 2018
US$’000
6,829
–
37,387
–
(a) The fair value of the receivable, comprising billed fee receivable (31 December 2018: both billed and future 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 2019 and 2018;
(b) Amounts of guarantee fee for the period that are expected to be received from IRC and calculated by applying annual rate of 3.07% for 2019 by reference to the average outstanding principal balance under
Gazprombank Facility for the period from 19 March 2019 until 31 December 2019, less provision for ECL.
(c) Measured in accordance with ECL model: the amount of the loss allowance equals to the lifetime ECL as it has been concluded that the credit risk on the financial guarantee contract had increased
significantly since initial recognition, which reflected declining credit status of IRC prior to the refinancing through Gazprombank Facility completed in March 2019.
(d) 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.)
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).
Loans issued to IRC
In June 2018, the Group provided a Rouble
denominated unsecured loan to IRC in the
amount of RUB1,878 million (an equivalent of
US$29.75 million). The loan carried interest of
12% per annum. The loan was recognised net
of lifetime ECL of US$0.5 million at inception
and further US$0.8 million impairment based
on ECL model was recognised during the
year ended 31 December 2018. The loan was
fully repaid in March 2019 with consequent
reversal of US$1.3 million previously
recognised ECL (note 9).
In December 2018, the Group provided a dollar
denominated unsecured loan to IRC in the
amount of US$27.0 million. The loan carried
interest of 16% per annum. The loan was
recognised net of lifetime ECL of US$1.9 million
at inception. The loan was fully repaid in March
2019 with consequent reversal of US$1.9 million
previously recognised ECL (note 9).
Other financing transactions
In March 2018, the Group entered into a loan
agreement with Dr Pavel Maslovskiy. At 31
December 2019, the loan principal
outstanding amounted to an equivalent of
US$0.2 million (2018: US$0.2 million). Interest
charged during the year ended 31 December
2019 comprised an equivalent of
US$0.01 million (2018: US$0.01 million).
In April 2019, the Group entered into a loan
agreement with Dr Alya Samokhvalova. At 31
December 2019, the loan principal
outstanding amounted to an equivalent of
US$0.4 million. Interest charged during the
year ended 31 December 2019 comprised an
equivalent of US$0.01 million.
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 2019,
the fair value of the derivative financial
asset was US$11.0 million reflecting a loss on
re-measurement to fair value of US$2.0 million
and the initial US$13 million cash payment
(note 18).
There are no other related party relationships
with Agestinia Trading Limited present.
Petropavlovsk Annual Report 2019 237
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
26. Related parties continued
Key management compensation
Key management personnel, comprising a group of 14 individuals during the period (2018: 16), including Executive and Non-Executive
Directors of the Company and members of senior management, are those having authority and responsibility for planning, directing and
controlling the activities of the Group.
Wages and salaries
Pension costs
Share-based compensation
27. Analysis of Net debt◆
Cash and cash equivalents
Borrowings
Net debt◆
Lease liabilities (c)
Conversion option (d)
Call option over Company’s shares
2019
US$’000
5,794
62
157
6,013
2018
US$’000
7,761
136
404
8,301
At 1 January
2019
US$’000
26,152
(594,177)
(568,025)
(1,739)
(2,411)
(1,136)
(573,311)
Net cash
movement
US$’000
19,630
38,128 (a)
57,758
1,879
–
2,215
61,852
Exchange
movement
US$’000
2,371
–
2,371
(570)
–
–
1,801
Non-cash
changes
US$’000
–
(53,414)(b)
(53,414)
(12,748)
(43,902)
(1,079)
(111,143)
At 31 December
2019
US$’000
48,153
(609,463)
(561,310)
(13,178)
(46,313)
–
(620,801)
(a) 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$100 million convertible bonds (note 20).
(b) Being principally accrued interest expense which is presented as operating cash flows in the Statement of cash flows when paid (note 9).
(c) Note 23.
(d) Notes 18, 20 and 28.
Cash and cash equivalents
Borrowings
Net debt◆
Conversion option (g)
Call option over Company’s shares
At 1 January
2018
US$’000
11,415
(596,474)
(585,059)
(14,110)
(3,097)
(602,266)
Net cash
movement
US$’000
17,719
57,845 (e)
75,564
–
–
75,564
Exchange
movement
US$’000
(2,982)
–
(2,982)
–
–
(2,982)
Non-cash
changes
US$’000
–
(55,548)(f)
(55,548)
11,700
1,961
(41,887)
At 31 December
2018
US$’000
26,152
(594,177)
(568,025)
(2,411)
(1,136)
(571,572)
(e) Being US$53.8 interest paid on borrowings, which is presented as operating cash flows in the Statement of cash flows, and US$4.0 million repayment of bank loan.
(f) Being accrued interest expense which is presented as operating cash flows in the Statement of cash flows when paid (note 9).
(g) Notes 18, 20 and 28.
◆ Net debt is an Alternative Performance Measure (APM), which is not defined or calculated in accordance with IFRS. Go to “The Use and Application of Alternative Performance Measures
(APMs)” section on pages 256 to 262 for further information on our APMs.
238 Petropavlovsk Annual Report 2019
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◆ (as detailed in note 27) and equity
(comprising issued capital, reserves and
retained earnings). As at 31 December 2019,
the capital comprised US1.2 billion (2018:
US$1.2 billion).
Categories of financial instruments
Financial assets
Financial assets at amortised cost
Cash and cash equivalents
Trade receivables and contract assets
Loans granted to an associate
Other financial assets at amortised cost
Financial assets at FVPL
Guarantee fee receivable
Listed equity securities
Derivative financial instruments
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables
Borrowings
Lease liabilities
Derivative financial instruments
Financial guarantee contract
In order to maintain or adjust the capital
structure, the Group may adjust the amount of
dividends paid to shareholders, return capital
to shareholders, issue new shares or sell
assets to reduce debt. The Group adopts a
modular approach in developing its projects in
order to minimise upfront capital expenditure
and related funding requirements. The Group
manages in detail its funding requirements
on a 12-month rolling basis and maintains a
five-year forecast in order to identify medium-
term funding needs.
The Group is not subject to any externally
imposed capital requirements.
As at 31 December 2019, there are no
material offsetting contracts (2018: none).
Significant accounting policies
Details of significant accounting policies and
methods adopted, including the criteria for
recognition, the basis of measurement and
the basis on which income and expenses are
recognised, in respect of each class of
financial asset, financial liability and equity
instrument are disclosed in note 2 to the
consolidated financial statements.
2019
US$’000
2018
US$’000
48,153
13,110
–
10,441
4,436
286
11,022
143,706
609,463
13,178
46,579
8,923
26,152
13,389
50,966
5,271
6,829
590
–
58,343
594,177
–
12,366
37,387
Petropavlovsk Annual Report 2019 239
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
28. Financial instruments and financial risk management continued
Fair value measurements
Recurring fair value measurements are set out below.
31 December 2019
Financial assets
Financial assets at FVPL:
Guarantee fee receivable
Listed equity securities
Call option over non-controlling interests
Total financial assets
Financial liabilities
Conversion option
Other
Total financial liabilities
31 December 2018
Financial assets
Financial assets at FVPL:
Guarantee fee receivable
Listed equity securities
Total financial assets
Financial liabilities
Forward gold contracts – cash flow hedge
Call Option over the Company’s shares
Conversion option
Total financial liabilities
Level 1
US$’000
Level 2
US$’000
Level 3
US$’000
Total
US$’000
–
286
–
286
–
–
–
–
–
–
–
–
266
266
Level 1
US$’000
Level 2
US$’000
–
590
590
–
–
–
–
–
–
–
8,819
1,136
–
9,955
4,436
–
11,022
15,458
46,313
–
46,313
Level 3
US$’000
6,829
–
6,829
–
2,411
2,411
4,436
286
11,022
15,694
46,313
266
46,579
Total
US$’000
6,829
590
7,419
8,819
1,136
2,411
12,366
There were no transfers between Levels 1, 2 and 3 for recurring fair value measurements during the year.
The changes in Level 3 items for the periods ended 31 December 2019 and 31 December 2018 are set out in the table below:
1 January 2018
Gains/ (losses) recognised in net other finance gains/ (losses) (note 9)
31 December 2018
Purchases
Cash settlements
Issue of convertible bonds (note 20)
Gains/ (losses) recognised in net other finance gains/ (losses) (note 9)
31 December 2019
(a) Note 20.
Guarantee fee
receivable
US$’000
10,549
(3,720)
6,829
–
(6,000) (a)
–
3,607
4,436
Call option over
non- controlling
interests
US$’000
–
–
–
13,000 (a)
–
–
(1,978)
11,022
Conversion
option US$’000
(14,110)
11,700
(2,411)
–
–
(12,775)
(31,127)
(46,313)
Total US$’000
(3,561)
7,980
4,418
13,000
(6,000)
(12,775)
(29,498)
(30,855)
240 Petropavlovsk Annual Report 2019
28. Financial instruments and financial risk management continued
Valuation inputs and relationships to fair value
The quantitative information about the significant unobservable inputs used in level 3 fair value measurements is set out in the table below:
Guarantee fee
receivable (note 26)
Call option over non-
controlling interests (notes 18, 26)
Fair value
at 31 December
2019
US$’000
4,436
2018
US$’000
6,829
Unobservable inputs
– Implied credit spread;
– 2018: likelihood of the
proposed refinancing of
IRC’s debt being
achieved
Range of inputs
– 12.4%
(2018:12.3%);
– 2018: 72.4%
11,022
–
– The current valuation of
– US$71 million;
the underlying
investment; and
– Historic peers’ volatility
– 40%
attributed to the valuation
of the underlying
investment
Conversion option – US$125
million convertible bonds due
in 2025 (note 20)
Conversion option – US$100
million convertible bonds due
in 2020 (note 20)
(46,313)
–
– The Group’s credit risk
– 7.25%
and implied credit
spreads
–
(2,411)
– The Group’s credit risk
– 10.5%
and implied credit
spreads
Relationship of unobservable
inputs to fair value
a reasonable change in
unobservable inputs has been
assessed to not result in a
significantly different fair value
measurement
a reasonable change in
unobservable inputs has been
assessed to not result in a
significantly different fair value
measurement
1% increase in credit spread
would result in US$4.2 million
increase in fair value
a reasonable change in
unobservable inputs has been
assessed to not result in a
significantly different fair value
measurement
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.
Russian Roubles
US Dollars (a)
GB Pounds Sterling
EUR
Other currencies
(a) US Dollar denominated monetary assets and liabilities in Group companies with Rouble functional currency.
Assets
Liabilities
2019
US$’000
86,581
10,759
1,252
22
10
2018
US$’000
66,285
4,652
1,905
22
159
2019
US$’000
165,473
4,169
759
603
267
2018
US$’000
54,757
5,886
1,033
2,301
312
Petropavlovsk Annual Report 2019 241
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
28. Financial instruments and financial risk management continued
The table set out below illustrates the Group’s profit sensitivity to changes in exchange rates by 25% (2018: 25%), representing
management’s assessment of a reasonably possible change in foreign exchange currency rates. The analysis was applied to monetary assets
and liabilities at the reporting dates denominated in respective currencies.
Russian Rouble currency impact
US Dollar currency impact
GB Pounds Sterling currency impact
EUR currency impact
Other currencies
2019
US$’000
19,723
1,647
123
145
64
2018
US$’000
2,882
309
218
570
38
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$225 million outstanding principal under
the Gazprombank Facility (notes 14 and 26).
The major financial assets are cash and
cash equivalents of US$48.2 million
(2018: US$26.2 million) and receivables
from IRC with an aggregate carrying value
of US$12.3 million (2018: US$58.9 million)
(note 26). There is no significant concentration
of credit risk with respect to trade receivables
and contract assets. The credit risk on cash
and cash equivalents is limited because the
main counterparties are banks with high
credit-ratings assigned by international
credit-rating agencies as set out below. As at
31 December 2019, the credit rating for IRC,
calculated as shadow credit rating using a
Moody’s scorecard methodology, was Caa2.
Counterparty
Gazprombank
Sberbank
VTB
Citibank
Barclays
Raiffeisen
Other
Credit rating
BBB-
BBB
BBB-
AA-
A+
BBB
Carrying
amount at
31 December 2019
US$’000
28,616
8,501
5,936
2,073
719
1,051
1,257
48,153
Carrying
amount at
31 December 2018
US$’000
–
598
14,841
8,011
337
872
1,493
26,152
The analysis of loss allowances that have been recognised for financial assets and financial guarantee contracts is set out below:
Loss allowance at 1 January 2019
Increase in loss allowance
Written off during the year
Unused amount reversed
Exchange differences
Loss allowance at 31 December 2019
Trade receivables
and contract
assets
US$’000
891
421
(90)
–
(3)
1,219
Loans granted to
an associate
US$’000
3,163
–
–
(3,163)
–
–
Other financial
assets at
amortised cost
US$’000
1,128
1,326
–
–
(84)
2,370
Financial guarantee
contract US$’ 000
37,387
8,923
–
(37,387)
–
8,923
Total US$’ 000
42,569
10,670
(90)
(40,550)
(87)
12,512
242 Petropavlovsk Annual Report 2019
28. Financial instruments and financial
risk management continued
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 2019 and 2018, 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.
2019
Borrowings
- Convertible bonds
- Notes
Future interest payments (a)
Trade and other payables
Lease liabilities
Financial guarantee contract (b)
Total non-derivative financial liabilities
Other
Total derivative financial liabilities
2018
Borrowings
- Convertible bonds
- Notes
Future interest payments (a)
Trade and other payables
Financial guarantee contract
Total non-derivative financial liabilities
Forward gold contracts – cash flow hedge
Call Option over the Company’s shares
Total derivative financial liabilities
0 - 3 months
US$’000
3 months -
1 year
US$’000
1 - 2 years
US$’000
2 - 3 years
US$’000
3 - 6 years
US$’000
–
–
–
106,353
1,724
225,000
333,077
266
266
–
–
2,250
31,506
–
33,756
1,536
1,136
2,672
–
–
48,359
37,353
4,203
–
89,915
–
–
–
–
47,375
26,837
169,600
243,812
7,283
–
7,283
–
–
50,938
–
5,578
–
56,516
–
–
100,000
–
42,875
–
–
142,875
–
–
–
–
500,000
50,938
–
2,491
–
553,429
–
–
–
–
40,625
–
–
40,625
–
–
–
125,000
–
18,047
–
357
–
143,404
–
–
–
500,000
40,625
–
–
540,625
–
–
–
(a) Future interest payments have been estimated using interest rates applicable at 31 December. There are no borrowings that are subject to variable interest rates and, therefore, subject to change in line with
the market rates.
(b) Note 26
Petropavlovsk Annual Report 2019 243
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
29. Operating lease arrangements
The Group as a Lessee (applicable prior to 1 January 2019)
The group adopted IFRS 16 on 1 January 2019 and recognised a right-of-use asset and lease liability (note 23). For the year ended 31 December
2018, the Group incurred rental expense, primarily associated with rent of office premises and rent of mining fleet, as set out below.
Minimum lease payments under operating leases recognised as an expense in the year
2018
US$’000
3,757
At 31 December 2018, the Group had outstanding commitments for future minimum lease payments under a non-cancellable operating lease for
office premises and vehicles, which fall due as follows:
Expiring:
Within one year
In two to five years
2018
US$’000
929
468
1,397
The Group as a Lessor
The Group earned property rental income
during the year of US$0.7 million (2018:
US$0.7 million) on buildings owned by its
subsidiary Irgiredmet.
30. Capital commitments
At 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 (31
December 2018: US$9.5 million) including
US$7.4 million in relation to Pioneer Flotation
project (31 December 2018: nil) and
US$2.5 million in relation to POX Hub project
(31 December 2018: US$6.8 million).
Investment agreement with the Russian
Ministry of Far East Development
On 14 December 2015, the Group entered
into an investment agreement with the
Russian Ministry of Far East Development
(the ‘Investment Agreement’). The Investment
Agreement involved provision of RUB5.5
billion (an equivalent to c.US$89 million as
at 31 December 2019) funding towards the
construction of the electricity power line in
the north-east of the Amur region of Russia,
where the Group’s Albyn and Malomir mines
and adjacent licence areas are operated,
during the period from 2015 to 2019. The
funds were passed through the Group to the
joint-stock company Far East Grid Distribution
Company (‘DRSK’), which was required to
engage a contractor to build the relevant
power supply infrastructure. The Group’s
responsibility under the Investment
Agreement was to monitor the progress and
to report to the Russian Ministry of Far East
Development. The Group was taking ultimate
responsibility for the construction of the
power line. Upon completion in November
2019, the Group got access to the enhanced
capacity of the power supply infrastructure in
the region. Under the terms of the Investment
Agreement, the Group has certain capital
commitments, including further development
of Albyn and Malomir mines.
During 2019, the Group received
RUB549 million (an equivalent to
US$8.8 million) in funding and transferred
these funds to DRSK (2018: the Group did not
receive and made no transfers of funds under
the Investment Agreement).
244 Petropavlovsk Annual Report 2019
31. Subsequent events
COVID-19
In the period subsequent to the 31 December
2019, the COVID-19 virus has spread globally
although there has been no significant impact
on the Group’s mining operations, sales and
supply chain, capital projects or employee
health and safety as a result of COVID-19 to
date. Further details are set out on page 6
of this Annual Report.
The effects of COVID-19 and the marked
decline in the oil price have contributed to a
significant increase in the gold price and a
significant decline in the Rouble exchange rate.
Preliminary agreement to dispose 29.9%
interest in IRC
On 18 March 2020, the Group announced a
preliminary agreement to dispose of 29.9%
out of 31.1% interest in IRC to Stocken Board
AG for a cash consideration of US$10 million,
subject to certain conditions precedent being
met, including the release of the Group’s
obligation to guarantee IRC’s debt under the
Gazprombank Facility (note 26). This was a
non-adjusting event and the investment was
not considered to be an asset held-for-sale
under IFRS 5 as at 31 December 2019.
The rationale to support the transaction
at the above terms was removal of the
Gazprombank Guarantee and the risks
associated with the guarantee arrangements.
32. Reconciliation of non-GAAP measures (unaudited)
Profit for the year
Add/(less):
Net (impairment reversals)/impairment losses on financial instruments
Investment and other finance income
Interest expense
Net other finance losses/(gains)
Foreign exchange losses/(gains)
Taxation
Depreciation
Reversal of impairment of mining assets and in-house service
Impairment of exploration and evaluation assets
(Reversal of impairment)/impairment of ore stockpiles
Impairment of gold in circuit
Share of results of associate (a)
Underlying EBITDA◆
2019
US$’000
25,693
(30,797)
(8,826)
59,854
42,190
20,808
27,246
137,775
(52,159)
–
(2,778)
142
45,699
264,847
2018
(restated)
US$’000
25,929
28,634
(3,775)
29,520
(10,185)
(8,450)
56,489
142,003
(101,695)
12,192
18,021
2,125
(8,065)
182,743
(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 recognised against investment in the associate (note 14).
◆ Underlying EBITDA is an Alternative Performance Measure (APM), which is not defined or calculated in accordance with IFRS. Go to “The Use and Application of Alternative Performance
Measures (APMs)” section for further information on our APMs.
Petropavlovsk Annual Report 2019 245
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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.
Principal subsidiary, joint venture
and associate undertakings
Country of
incorporation
Principal activity
Subsidiary
JSC Management Company PetropavlovskRussia
Jersey
Petropavlovsk 2010 Limited
Jersey
Petropavlovsk 2016 Limited
Russia
JSC Pokrovskiy mine
Russia
LLC Malomirskiy Rudnik
Russia
LLC Albynskiy Rudnik
Russia
LLC Osipkan
Russia
LLC Tokurskiy Rudnik
Russia
LLC TEMI
Russia
LLC AGPK
Russia
LLC Perspektiva DV
Russia
LLC Vostok Geologiya
Guyana
Universal Mining Inc.
Russia
LLC Kapstroi
Russia
LLC NPGF Regis
Russia
CJSC ZRK Dalgeologiya
Russia
JSC PHM Engineering
Russia
JSC Irgiredmet
Russia
LLC NIC Gydrometallurgia
Russia
LLC BMRP
Russia
LLC AVT-Amur
Russia
LLC Transit
Russia
Pokrovskiy Mining College
Management company
Finance company
Finance company
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Gold exploration and production
Construction services
Exploration services
Exploration services
Project and engineering services
Research services
Research services
Repair and maintenance
Production of explosive materials
Transportation services
Educational institute
Proportion of shares held
by Petropavlovsk PLC(a)
Proportion of shares held
by the Group(a)
31 December
2019
31 December
2018
31 December
2019
31 December
2018
100%
100%
100%
19.37%
–
100%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
100%
100%
19.37%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100%
100%
100%
99.38%
99.94%
100%
100%
100%
75%
99.38%
99.94%
99.94%
100%
100%
100%
99.38%
94%
99.69%
100%
100%
49%
100%
99.38%
100%
100%
100%
99.38%
99.94%
100%
100%
100%
75%
99.38%
99.94%
99.94%
100%
100%
100%
99.38%
94%
99.69%
100%
100%
49%
100%
99.38%
Associate
IRC Limited (b)
HK
Management and holding company
–
–
31.10%
31.10%
(a) In the ordinary class of shares.
(b) IRC Limited and its principal subsidiary and joint venture undertakings.
246 Petropavlovsk Annual Report 2019
33. Principal subsidiaries and other significant investments continued
Principal subsidiary, joint venture
and associate undertakings
Country of
incorporation
Principal activity
Proportion of shares held
by Petropavlovsk PLC (a)
Proportion of shares held
by the Group (a)
31 December
2019
31 December
2018
31 December
2019
31 December
2018
HK
Management and holding company
Russia
Russia
Russia
Management company
Iron ore exploration and production
Iron ore exploration and production
IRC and its principal subsidiary and joint venture undertakings (‘IRC’)
IRC Limited
Principal subsidiaries of IRC
LLC Petropavlovsk-Iron Ore
LLC Olekminsky Rudnik
LLC KS GOK
LLC Garinsky Mining & Metallurgical
Complex
Russia
Russia
LLC Kostenginskiy GOK
Russia
LLC Orlovsko-Sokhatinskiy Rudnik
Russia
JSC Giproruda
Russia
LLC SHMTP
Russia
LLC Amursnab
Heilongjiang Jiatal Titanium Co., Limited China
Russia
LLC Uralmining
Russia
LLC Gorniy Park
Iron ore exploration and production
Iron ore exploration and production
Iron ore exploration and production
Engineering services
Infrastructure project
Procurement services
Titanium sponge project
Iron ore exploration and production
Molybdenym project
Joint ventures of IRC
Heilongjiang Jianlong Vanadium Industries
Co., Limited
(a) In the ordinary class of shares.
China
Vanadium project
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31.10%
31.10%
31.10%
31.10%
31.10%
30.97%
31.10%
31.10%
21.85%
31.10%
31.07%
31.10%
31.10%
18.75%
31.10%
31.10%
31.10%
30.97%
31.10%
31.10%
21.85%
31.10%
31.07%
31.10%
31.10%
18.75%
14.31%
14.31%
Petropavlovsk Annual Report 2019 247
Notes to the Consolidated Financial Statements continued
For the year ended 31 December 2019
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 2019 is disclosed below. The Group’s principal subsidiaries and other significant
investments are set out in note 33.
Country of
incorporation
Proportion of
shares held by
the Group(a)
Registered address
UK
UK
UK
UK
UK
Jersey
Jersey
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Guyana
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cayman Islands
HK
Russia
Russia
100%
100%
100%
100%
100%
100%
100%
100%
99.38%
99.94%
100%
100%
100%
75%
99.38%
99.94%
99.94%
100%
100%
99.38%
94%
99.69%
100%
100%
49%
100%
99.38%
100%
100%
100%
100%
100%
100%
100%
100%
11 Grosvenor Place, London, SW1X 7HH
11 Grosvenor Place, London, SW1X 7HH
11 Grosvenor Place, London, SW1X 7HH
11 Grosvenor Place, London, SW1X 7HH
11 Grosvenor Place, London, SW1X 7HH
13-14 Esplanade, St. Helier, JE1 1EE
13-14 Esplanade, St. Helier, JE1 1EE
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
676150, Amur region, Magdagachinskiy District, Tygda Village,
Sovetskaya Street, 17
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
676581, Amur region, Selemdzhinskiy District, Tokur Village,
Vorozhejkina Street, 16
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
680021, Khabarovskiy region, Khabarovsk, Vladivostokskaya Street,
22, build.3, office 11
680021, Khabarovskiy region, Khabarovsk, Vladivostokskaya Street,
22, build.3, office 9
675002, Amur region, Blagoveschensk, Pervomayskaya Street, 62/1
675027, Amur region, Blagoveschensk, Western Industrial Hub
680041, Khabarovskiy region, Khabarovsk, Balashovskaya Street, 15
105082, Moscow, Rubtsov Pereulok, 13
664025, Irkutsk, Gagarina Boulevard, 38
196247, St Petersburg, Leninskiy Prospekt, 151, level 6, office 635, 26
675016, Amur region, Blagoveschensk, Kalinina Street, 137
675000, Amur region, Blagoveschensk, Lenina Street, 140/1
676572, Amur region, Selemdzhinskiy District, Fevralsk Urban Village,
Vysotskogo Street, 1
676244, Amur region, Zeya, Zolotogorskoe Shosse, 6
Lot 8 Pere Street, Kitty, Georgetown
14 Souliou Street, Aglantzia, Nicosia, 2102
14 Souliou Street, Aglantzia, Nicosia, 2102
14 Souliou Street, Aglantzia, Nicosia, 2102
14 Souliou Street, Aglantzia, Nicosia, 2102
14 Souliou Street, Aglantzia, Nicosia, 2102
14 Souliou Street, Aglantzia, Nicosia, 2102
Clifton House, 75 Fort Street, PO Box 1350, Grand Cayman, KY1-1108
31.10%
6H, 9 Queen’s Road Central, Central, Hong Kong
31.10%
31.10%
127055, Moscow, Lesnaya Street, 43, Office 313
676253, Amur region, Tyndinskiy District, Village Olekma
Name of undertaking
Subsidiaries
Eponymousco Limited
Victoria Resources Limited
Petropavlovsk Mining Treasury UK Limited
Petropavlovsk Rouble Treasury Limited
Petropavlovsk Dollar Treasury Limited
Petropavlovsk 2010 Limited
Petropavlovsk 2016 Limited
JSC Management Company Petropavlovsk
JSC Pokrovskiy mine
LLC Malomirskiy Rudnik
LLC Albynskiy Rudnik
LLC Osipkan
LLC Tokurskiy Rudnik
LLC TEMI
LLC AGPK
LLC Perspektiva DV
LLC Vostok Geologiya
LLC Kapstroi
LLC NPGF Regis
CJSC ZRK Dalgeologiya
JSC PHM Engineering
JSC Irgiredmet
LLC NIC Gydrometallurgia
LLC BMRP
LLC AVT-Amur
LLC Transit
Pokrovskiy Mining College
Universal Mining Inc.
Petropavlovsk (Cyprus) Limited
Malomyrskiy Rudnik (Cyprus) Ltd
Voltimand Limited
Horatio Limited
Sicinius Limited
Syncrom High Corporation Ltd
Cayiron Limited
Associates
IRC Limited (b)
Subsidiaries of IRC
LLC Petropavlovsk- Iron Ore
LLC Olekminsky Rudnik
248 Petropavlovsk Annual Report 2019
34. Related undertakings of the Group continued
Name of undertaking
LLC KS GOK
Country of
incorporation
Russia
Proportion of
shares held by
the Group(a)
31.10%
LLC Garinsky Mining & Metallurgical Complex
LLC Kostenginskiy GOK
Russia
Russia
LLC Orlovsko-Sokhatinskiy Rudnik
JSC Giproruda
LLC SHMTP
LLC Amursnab
LLC Uralmining
LLC Gorniy Park
LLC Garinskaya Infrastructure
LLC TOK
Lucilius Investments Limited
Kapucius Services Limited
Lapwing Limited
Russian Titan Company Limited
Brasenose Services Limited
Tenaviva Limited
Esimanor Limited
Metellus Limited
Dardanius Limited
Rumier Holdings Limited
Guiner Enterprises Limited
Expokom Limited
Arfin Limited
Caedmon Limited
Thorholdco (Cyprus) Limited
Heilongjiang Jiatal Titanium Co., Limited
Ariti HK Limited
Ariva HK Limited
Thorrouble Limited
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Russia
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
Cyprus
China
Hong Kong
Hong Kong
Cayman Islands
30.97%
31.10%
31.10%
21.85%
31.10%
31.07%
31.10%
18.75%
31.10%
31.10%
31.10%
31.10%
30.97%
31.10%
31.10%
31.10%
31.10%
31.10%
31.09%
31.10%
31.10%
31.10%
31.10%
18.75%
31.10%
31.10%
31.10%
31.10%
31.10%
Thordollar Limited
Cayman Islands
31.10%
Thorholdco Limited
Cayman Islands
31.10%
Aricom UK Limited
Aricom Limited
Joint ventures of IRC
Heilongjiang Jianlong Vanadium Industries Co.,
Limited
UK
UK
China
(a) In the ordinary class of shares.
(b) IRC Limited and its principal subsidiary and joint venture undertakings.
31.10%
31.10%
14.31%
Registered address
679000, The Jewish Autonomous Region, Birobidzhan, 60-Letiya
SSSR Street, Building 22B
675028, Amur region, Blagoveschensk, Ignatievskaya Road, 19
679000, The Jewish Autonomous Region, Birobidzhan, 60-Letiya
SSSR Street, Building 22B.
675028, Amur region, Blagoveschensk, Ignatievskaya Road, 19
196247, St Petersburg, Leninskiy Prospect,151
682818, RF, Khabarovsk Territory, Town Sovetskaya Gavan,
Pervomayskaya Street, 48A
127055, Moscow, Lesnaya Street, 43, Office 313
105066, Moscow, Dobroslobodskaya, 7/1, build. 3, level 2, 1, room 2,
office 33
101000, Moscow, Pokrovka Street,1/13/6 Building 2, Office 35
675028, Amur region, Blagoveschensk, Ignatievskaya Road, 19
676282, Amur region, Tynda, Sovetskaya Street,1A
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Themistokli Dervi 12, Palais D’ Ivoire, 2nd Floor, 1066 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
Souliou 14, Aglantzia, 2102 Nicosia
668, Songxing Street, Jiamusi, Heilongjiang Province
6H, 9 Queen’s Road Central, Central, Hong Kong
6H, 9 Queen’s Road Central, Central, Hong Kong
P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road,
Grand Cayman, KY1-1205
P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road,
Grand Cayman, KY1-1205
P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road,
Grand Cayman, KY1-1205
11 Grosvenor Place, London, SW1X 7HH
11 Grosvenor Place, London, SW1X 7HH
Building 50, Block12, Advanced Business Park, No. 188.West Road,
South Ring 4, Fengtai District, Beijing
Petropavlovsk Annual Report 2019 249
Company Balance Sheet
As at 31 December 2019
Fixed assets
Tangible assets
Right-of-use assets
Investments
Current assets
Derivative financial asset
Debtors: due within one year
Cash at bank and in hand
Creditors: amounts falling due within one year
Net current liabilities
Total assets less current liabilities
Derivative financial liability
Creditors: amounts falling due after more than one year
Financial guarantee contract
Net liabilities
Capital and reserves
Share capital
Share premium
Other reserves
Retained earnings
Shareholders’ deficit
(a) See note 2 for details regarding the restatement.
31 December
2019
US$’000
Note
31 December
2018(a)
(restated)
US$’000
9
3
4
5
8
5
7
14
992
603,019
604,025
11,022
898,318
2,881
912,221
(930,216)
(17,995)
586,030
(46,313)
(631,195)
(8,923)
(100,401)
49,003
518,142
200
(667,746)
(100,401)
20
-
490,164
490,184
–
820,340
8,365
828,705
(873,324)
(44,619)
445,565
(3,547)
(602,237)
(37,387)
(197,606)
48,963
518,142
228
(764,939)
(197,606)
The profit after-tax for the year of the Company was US$96.9 million (2018 restated: profit after-tax of US$13.4 million).
The accompanying notes are an integral part of this balance sheet.
These financial statements for Petropavlovsk PLC, registered number 4343841, on pages 250 to 255 were approved by the Directors on 26 May
2020 and signed on their behalf by
Sir Roderic Lyne
Director
Dr Pavel Maslovskiy
Director
250 Petropavlovsk Annual Report 2019
Company Statement of Changes in Equity
For the year ended 31 December 2019
Balance at 1 January 2018
Impact of adopting IFRS 9 (restated(b))
Profit for the year (restated(b))
Deferred share awards
Balance at 1 January 2019 (restated(b))
Profit for the year
Deferred share awards
Balance at 31 December 2019
(a) Please see note 24 to the consolidated financial statements.
(b) See note 2 for details regarding the restatement.
Share capital (a)
US$’000
48,920
–
–
43
48,963
–
40
49,003
Share premium (a)
US$’000
518,142
–
–
–
518,142
–
–
518,142
Other reserves
US$’000
(2,560)
2,705
–
83
228
–
(28)
200
Retained earnings
US$’000
(42,149)
(736,438)
13,358
290
(764,939)
96,925
268
(667,746)
Total
US$’000
522,353
(733,733)
13,358
416
(197,606)
96,925
280
(100,401)
Petropavlovsk Annual Report 2019 251
Notes to the Company Financial Statements
For the year ended 31 December 2019
1. Basis of preparation
2. Significant accounting policies
Petropavlovsk PLC (the ‘Company’) is a public
company limited by shares, incorporated and
registered in England and Wales. The address
of the registered office is 11 Grosvenor Place,
London SW1X 7HH.
These financial statements were prepared in
accordance with FRS 101 (Financial
Reporting Standard 101) ‘Reduced
Disclosure Framework’ as issued by the
Financial Reporting Council.
As permitted by FRS 101, the Company has
taken advantage of the disclosure exemptions
available under that standard in relation to
share-based payments, financial instruments,
presentation of comparative information in
respect of certain assets, presentation of a
cash-flow statement, standards not yet
effective, impairment of assets and related
party transactions.
Where required, equivalent disclosures are
given in the consolidated financial statements.
The financial statements have been prepared
on the historical cost basis except for the
re-measurement of certain financial
instruments to fair value.
As permitted by section 408 of the Companies
Act 2006, the profit and loss account of the
parent company is not presented as part of
these financial statements.
2.1 Adoption of new and revised
standards and interpretations
As disclosed in note 2 to the Group’s
consolidated financial statements for the year
ended 31 December 2019, IFRS 16 “Leases”
was effective for annual periods beginning on
or after 1 January 2019 and have been
adopted by the Company accordingly.
The impact of adoption of IFRS 16 is detailed
in note 2.2 to the consolidated financial
statements.
2.2 Foreign currencies
The functional and presentation currency of
the Company is the US Dollar. Transactions
denominated in other currencies, including
the issue of shares, are translated at the rate
of exchange ruling on the date of the
transaction. Monetary assets and liabilities
that are denominated in other currencies are
retranslated at the rates prevailing on the
balance sheet date. Exchange rates used are
consistent with the rates used by the Group
as disclosed in note 2.6 to the consolidated
financial statements. Exchange differences
are charged or credited to the profit and loss
account in the year in which they arise.
2.3 Tangible fixed assets and
depreciation
Tangible fixed assets are stated at cost, net of
accumulated depreciation. Depreciation is
provided on all tangible fixed assets at rates
calculated to write off the cost or valuation of
each asset on a straight-line basis over its
expected useful life as follows:
Office equipment
Computer equipment
Average life
Number of years
4–7
3
Useful lives and residual values are reviewed
at the end of every reporting period.
2.4 Investments
Investments in subsidiary undertakings and
joint ventures are initially measured at cost
and subsequently carried at cost less
provisions for impairment. Investments are
reviewed for impairment when events or
changes in circumstances indicate that the
carrying amount of the investment may not
be recoverable. An impairment loss is
recognised if the carrying amount of the
investment exceeds the higher of net
realisable value and the discounted future
earnings from the investment.
Investments, other than investments in
subsidiary undertakings and joint ventures,
are measured at fair value. Changes to the fair
value of other investments are recognised
through profit or loss.
2.5 Taxation including deferred taxation
Full provision is made for deferred taxation on
taxable temporary differences that have arisen
but not reversed at the balance sheet date,
except that deferred tax assets are only
recognised to the extent that it is more likely than
not that they will be recovered. Deferred tax is
measured on a non-discounted basis at the tax
rates that are expected to apply in the periods in
which timing differences reverse, based on tax
rates and laws enacted or substantially enacted
at the balance sheet date.
2.6 Financial assets and liabilities
Financial assets are measured on initial
recognition at fair value and are subsequently
measured at amortised cost using the effective
interest rate method, less any impairment.
Financial liabilities, other than derivatives, are
measured on initial recognition at fair value
and are subsequently measured at amortised
cost, using the effective interest rate method.
From 1 January 2018, the Company assesses
on a forward-looking basis the expected
credit losses 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. The Company recognises an
impairment loss in profit and loss account
with a corresponding adjustment to carrying
amount of financial assets.
252 Petropavlovsk Annual Report 2019
2.7 Derivative financial instruments
Derivative financial instruments are initially
accounted for and measured at fair value on
the date a derivative contract is entered into
and subsequently measured at fair value.
The gain or loss on re-measurement is taken
to the income statement except where the
derivative is a designated cash flow hedging
instrument.
Derivative financial instruments embedded in
other financial instruments or other host
contracts are treated as separate derivatives
when their risks and characteristics are not
closely related to those of host contracts and
the host contracts are not carried at fair value,
are recognised at fair value at inception with
gains or losses reported in the income
statement.
2.8 Dividends
Dividends payable are recognised when they
have been approved and, therefore, meet the
criteria for a present obligation.
2.9 Leases
As explained in note 2.1, the Company has
changed its accounting policy for leases on
adoption of IFRS 16.
The right-of-use asset is initially measured at
the initial measurement of the corresponding
lease liability and subsequently measured at
cost less accumulated depreciation and
impairment losses. The lease liability is initially
measured at the present value of the lease
payments that are not paid at the
commencement date. Subsequently, the
lease liability is adjusted for interest and lease
payments, as well as the impact of lease
modifications, amongst others.
2.10 Prior year restatement
Subsequent to the preparation of the
Petropavlovsk PLC parent company only
financial statements for the year ended
31 December 2018, the equivalent financial
statements for the subsidiary undertakings
were prepared, including the mandatory
adoption and first time application of IFRS 9
‘Financial Instruments’ with effect from
1 January 2018.
After the recognition of IFRS 9 expected
credit losses on adoption of this standard, the
subsidiary’s net assets were insufficient to
support the investment carrying value held by
Petropavlovsk PLC as at 31 December 2018
as part of the Investments balance sheet line
(Investments in Group companies within note
3). For Petropavlovsk PLC’s loan receivable
from its subsidiary, as part of the Debtors due
within one year balance sheet line (Debtors:
Owed by Group companies within note 4),
whilst intercompany letters of support exist
in relation to Group entities, they cannot be
considered to represent contractual
obligations sufficient to remedy these
shortfalls through intercompany asset
transfers under IFRS 9.
Accordingly, the opening balance sheet of
Petropavlovsk PLC as at 1 January 2018 and
as at 31 December 2018 has been restated,
as set out in the table below, to reflect write
downs of its investments and intercompany
loans respectively to be consistent with the
net assets presented in the final subsidiary
statutory accounts.
Investments in Group Companies
Owed by Group companies
Retained earnings
(Loss)/Profit after tax for the year
31 December 2018
US$’000
789,822
1,134,845
(140,614)
(42,214)
Increase/
(Decrease)
US$’000
(300,245)
(324,080)
(624,325)
55,572
31 December 2018
Restated
US$’000
489,577
810,765
(764,939)
13,358
1 January 2018
US$’000
775,314
1,068,939
(98,690)
–
Increase/
(Decrease)
US$’000
(300,626)
(379,271)
(679,897)
–
1 January 2018
Restated
US$’000
474,688
689,668
(778,587)
–
This restatement of intercompany balances had no effect on the consolidated results or consolidated balance sheet of the Group as at
1 January 2018 or 31 December 2018. No distributions were made during the year ending 31 December 2018 or subsequently.
In the year ended 31 December 2019 the Group has presented separately on the face of the balance sheet, Financial guarantee contracts,
whereas previously these were presented within Creditors. The comparative financial information has been reclassified to be on a
consistent basis.
2.11 Areas of judgement in applying accounting policies and key sources of estimation uncertainty
When preparing these financial statements in accordance with the accounting policies as set out in note 2, management necessarily makes
judgements and estimates that can have a significant impact on the financial statements. These judgements and estimates are based on
management’s best knowledge of the relevant facts and circumstances and previous experience. Actual results may differ from these
estimates under different assumptions and conditions (note 3 to the consolidated financial statements).
The assessment of impairment of investments in Group companies and carrying values of balances owed by Group companies, as well
as the valuation of the Company’s guarantees over IRC borrowings and the convertible bonds (see notes 26 and 18 to the consolidated
financial statements respectively), are considered key areas of estimation uncertainty.
Petropavlovsk Annual Report 2019 253
Notes to the Company Financial Statements continued
For the year ended 31 December 2019
3. Investments
Cost
At 1 January 2019
Impact of intra-group transfers(a)
Fair value change
At 31 December 2019
Provision for impairment
At 1 January 2019 (restated(b))
Charge for the year
At 31 December 2019
Net book value
At 1 January 2019 (restated(b))
At 31 December 2019
Investments
in Group
companies(b)
US$’000
2,135,271
161,039
–
2,296,310
(1,645,694)
(47,882)(a)
(1,693,576)
489,577
602,734
Other
investments
US$’000
Total(b)
US$’000
587
–
(302)
285
–
–
–
587
285
2,135,858
161,039
(302)
2,296,595
(1,645,694)
(47,882)
(1,693,576)
490,164
603,019
(a) To reflect a distribution of 100% equity interest in a subsidiary undertaking by another Group entity. This was recognised as income by the Company with a corresponding $161.0 million increase in the carrying
value of its investments. No impairment arose in respect of the entity making the distribution.
(b) See note 2 for details regarding the restatement.
(c) Impairment charge to reflect changes in the value of the underlying investment in IRC Limited (note 14 to the consolidated financial statements).
Details of the Company’s subsidiary undertakings at 31 December 2019 are provided in note 33 to the consolidated financial statements.
4. Debtors
Due within one year
Owed by Group companies(a)
Other debtors
(a) Net of provision for impairment of US$374.7 million (2018: US$365.4 million).
(b) See note 2 for details regarding the restatement.
5. Creditors
Due to Group companies
Accruals and other creditors
Due within one year
Due after more than one year
(a) See note 2 for details regarding the restatement.
6. Taxation
2019
US$’000
886,343
11,975
898,318
2018
(restated)(b)
US$’000
810,765
9,575
820,340
2019
US$’000
1,546,376
15,035
1,561,411
930,216
631,195
1,561,411
2018
(restated)(a)
US$’000
1,469,066
6,495
1,475,561
873,324
602,237
1,475,561
As at 31 December 2019, the Company has tax losses available to carry forward in the amount of US$269.8 million and corporate interest
restriction disallowances in the amount of US$61.8 million (2018: US$300.7 million and US$61.8 million).
254 Petropavlovsk Annual Report 2019
7. Parent company guarantees
The Company has provided a number of corporate guarantees including being a guarantor to the US$500 million Guaranteed Notes due for
repayment on 14 November 2022 and US$125 million Convertible Bonds due on 03 July 2024. No material value is associated with these
guarantees. The Company also guarantees the borrowings of its 31.1% associate, IRC with corresponding US$8.9 million financial liability
recognised at 31 December 2019 (2018: US$37.4 million), with further details provided in note 26 to the consolidated financial statements.
8. Derivative financial liability
In respect of the US$125 million Convertible Bonds due on 3 July 2024, the conversion option is measured at fair value and is presented
separately within derivative financial liabilities with US$46.3 million recognised at 31 December 2019 (2018: US$2.4 million) as set out in
note 20 to the consolidated financial statements.
9. Leases
At the balance sheet date, the Company has the following amounts recognised relating to leases that relate to the rent of office premises:
Right-of-use assets
Lease liabilities
Amount due for settlement within 12 months
Amount due for settlement after 12 months
10. Directors’ remuneration
2019
US$’000
990
200
793
993
There was one Executive Director who held office at the end of the year (2018: two Executive Directors who held office at the end of the
year). Details of Directors’ remuneration are provided in the Directors’ Remuneration Report on pages 156 to 174 of this Annual Report.
11. Subsequent events
On 13 April 2020 it was resolved that the principal subsidiary of the Company would distribute a Russian Rouble denominated dividend in
the amount equivalent of US$45.6 million.
Petropavlovsk Annual Report 2019 255
Relevance
The Group closely monitors its current and
projected costs to track and benchmark the
ongoing efficiency and effectiveness of its
operations. This monitoring includes
analysing fluctuations in the components that
operating cash costs and cost per tonne
mined and processed to identify where and
how efficiencies may be made.
Reconciliation
The tables below provide a reconciliation
between operating expenses and total cash
costs to calculate the cash cost per ounce
sold for relevant periods.
The Use and Application of Alternative
Performance Measures (APMs)
Throughout this Annual Report, when
discussing the Group’s financial performance,
reference is made to APMs.
Each of the APMs is defined and calculated
by the Group and as such they are non-IFRS
measures because they may include or
exclude certain items that an IFRS measure
ordinarily would or would not take into
account. APMs should not be regarded as an
alternative or substitute for the equivalent
measures calculated and presented in
accordance with IFRS but instead should be
seen as additional information provided to
investors to enable the comparison of
information between different reporting
periods of the Group.
Although the APMs used by the Group may
be calculated in a different manner and
defined differently by other peers in the
precious metals mining sector (despite being
similar in title), they are nonetheless relevant
and commonly used measures for the
industry in which Petropavlovsk operates.
These and similar measures are used widely
by certain investors, analysts and other
interested parties as supplemental measures
of financial performance.
Some of the APMs form part of the Group’s
Key Performance Indicators (KPIs), which are
used to monitor progress and performance
against strategic objectives and to
benchmark the performance of the business
each year.
A discussion of the relevance of each APM as
well as a description of how they are
calculated is set out below, with reconciliation
to IFRS equivalents from the consolidated
IFRS financial statements (Consolidated
Statement of Profit or Loss (SPL),
Consolidated Statement of Financial Position
(SFP), Consolidated Statement of Cash Flows
(SCF) and the notes to the consolidated IFRS
financial statements).
Total Cash Costs (TCC)
Definition
The total cash cost per ounce is the cost of
producing and selling an ounce of gold from
the Group’s three hard-rock operations (2018:
four) and processing and selling an ounce of
gold by treatment of third-party sourced
refractory concentrate at the POX Hub.
Calculation
TCC are calculated by the Group as operating
cash costs less co-product revenue (2018: and
less cost of flotation concentrate sold to
third-party). TCC per oz are calculated as total
cash costs divided by the ounces of gold sold.
TCC per oz are presented on a segment basis.
Operating cash costs are defined by the
Group as operating cash expenses plus
refinery and transportation costs, other taxes
and mining tax. This also equates to the
Group’s segment result as reported under
IFRS plus each segment’s share of results of
associates, loss/gain on disposal of
subsidiaries, impairment of ore stockpiles,
gold in circuit and flotation concentrate,
impairment of exploration and evaluation
assets, impairment of mining assets,
impairment of non-trading loans, central
administration expenses, depreciation minus
each segment’s revenue from external
customers, reversal of impairment of ore
stockpiles and gold in circuit, reversal of
impairment of mining assets and in-house
service. Operating cash costs are presented
on a segment basis.
Operating cash expenses are defined by the
Group as the total of staff costs, materials,
fuel, electricity, other external services, other
operating expenses, and the movement in ore
stockpiles, work in progress, bullion in
process and flotation concentrate attributable
to gold production. The main cost drivers
affecting operating cash expenses are
stripping ratios, production volumes of ore
mined / processed, recovery rates, cost
inflation and fluctuations in the rouble to US
dollar exchange rate.
Other companies may calculate this measure
differently.
256 Petropavlovsk Annual Report 2019
2019
Operating expenses
Deduct:
Foreign exchange losses
Depreciation
Reversal of impairment of mining assets and in-
house service
Reversal of impairment of ore stockpiles
Impairment of gold in circuit
Central administration expenses
Operating cash costs
Deduct:
Corporate and other segment
Deduct: silver revenue
Total Cash Costs
Ref
SPL
note 6
note 6
note 6
note 6
note 6
note 6
note 4
note 4
note 4
Total ounces sold
Total Cash Cost per ounce sold
oz
US$/oz
2018
(restated)
Operating expenses
Deduct:
Foreign exchange gains
Depreciation
Reversal of impairment of mining assets and in-
house service
Impairment of exploration and evaluation assets
Impairment of ore stockpiles
Impairment of gold in circuit
Central administration expenses
Operating cash costs
Deduct:
Corporate and other segment
Deduct: silver revenue
Deduct: cost of flotation concentrate
Total Cash Costs
Ref
SPL
note 6
note 6
note 6
note 6
note 6
note 6
note 6
note 4
note 4
note 4
note 4
Total ounces sold
Total Cash Cost per ounce sold
oz
US$/oz
Pioneer
US$’000
Pokrovskiy
US$’000
Malomir
US$’000
Albyn
US$’000
Corporate
and other
US$’000
170,349
(464)
169,885
163,398
1,040
–
–
–
–
–
135,427
80,017
48,745
(48,745)
–
–
(267)
135,160
(146)
79,871
179,791
752
170,817
468
Pioneer
US$’000
Pokrovskiy
US$’000
Malomir
US$’000
Albyn
US$’000
Corporate
and other
US$’000
107,549
8,667
53,279
84,471
31,286
(591)
–
106,958
135,001
792
(29)
–
8,638
6,442
1,341
(61)
(2,558)
50,660
77,448
654
(160)
–
84,311
150,720
559
(31,286)
–
–
–
Total
US$’000
590,853
(20,808)
(137,775)
52,159
2,778
(142)
(52,527)
434,538
(48,745)
(877)
384,916
514,005
749
Total
US$’000
388,643
8,450
(142,003)
101,695
(12,192)
(18,021)
(2,125)
(39,195)
285,252
(31,286)
(841)
(2,558)
250,567
369,611
678
Petropavlovsk Annual Report 2019 257
The Use and Application of Alternative
Performance Measures (APMs) continued
All in Sustaining Costs (AISC)
Definition
AISC includes both operating and capital
costs required to sustain gold production on
an ongoing basis, over and above the direct
mining and selling costs shown by TCC.
Calculation
AISC are calculated by the Group as
TCC plus/(minus) impairment/(reversal
of impairment) of ore stockpiles, gold in
circuit and flotation concentrate, central
administration expenses, plus sustaining
capitalised stripping, close-down and site
restoration and sustaining capital and
exploration expenditure. This is then divided
by the ounces of gold sold. AISC are
presented on a segment basis.
AISC are calculated in accordance with
guidelines for reporting AISC as published
by the World Gold Council in June 2013.
Other companies may calculate this measure
differently.
Relevance
AISC allows for a better understanding of the
true cost of producing gold once key
components such as central admin costs and
the cost of sustaining capital and exploration
expenditure are taken into account.
Management uses this measure to monitor
the performance of our assets and their ability
to generate positive cash flows.
Reconciliation
The tables below provide a reconciliation
between total cash costs and all-in sustaining
costs to calculate all-in sustaining cost per
ounce sold for relevant periods.
Pioneer
US$’000
169,885
Pokrovskiy
US$’000
–
Malomir
US$’000
135,160
Albyn
US$’000
79,871
Corporate
and other
US$’000
–
Total
US$’000
384,916
664
(101)
16,698
14,454
210
3,983
16,883
222,676
163,398
1,363
–
–
–
–
–
–
–
–
–
–
517
(3,959)
243
18,373
12,653
229
77
16,467
183,719
–
17,456
–
614
29
23,893
117,904
179,791
1,022
170,817
690
–
–
–
–
–
–
–
–
–
–
Pioneer
US$’000
106,958
Pokrovskiy
US$’000
8,638
Malomir
US$’000
50,660
–
1,415
14,316
8,896
172
8,902
20,003
160,662
135,001
1,190
–
17
683
–
–
–
–
9,338
6,442
1,449
309
536
8,214
11,529
559
5,502
4,612
81,921
77,448
1,058
Albyn
US$’000
84,311
17,712
157
15,982
12,572
511
4,079
11,471
146,795
150,720
974
Corporate
and other
US$’000
–
–
–
–
–
–
–
–
–
–
–
(2,778)
142
52,527
27,107
1,053
4,089
57,243
524,299
514,005
1,020
Total
US$’000
250,567
18,021
2,125
39,195
32,997
1,242
18,483
36,086
398,716
369,611
1,079
2019
Total cash costs
Add:
Impairment/ (reversal of impairment) of ore
stockpiles
Impairment/ (reversal of impairment) of gold in
circuit
Central administration expenses
Capitalised stripping
Site restoration costs
Ref
note 6
note 6
note 6
note 13
Sustaining exploration expenditures
Sustaining Capital Expenditures
All-in Sustaining Costs
Total ounces sold
All-in Sustaining Costs per ounce sold
oz
US$/oz
2018
(restated)
Total cash costs
Add:
Impairment of ore stockpiles
Impairment of gold in circuit
Central administration expenses
Capitalised stripping
Site restoration costs
Sustaining exploration expenditures
Sustaining Capital Expenditures
All-in Sustaining Costs
Ref
note 6
note 6
note 6
note 13
Total ounces sold
All-in Sustaining Costs per ounce sold
oz
US$/oz
258 Petropavlovsk Annual Report 2019
All in Costs (AIC)
Definition
AIC comprises of AISC as well as capital
expenditures for major growth projects or
enhancement capital for significant
improvements at existing operations.
Calculation
AIC are calculated by the Group as AISC plus
non-sustaining capitalised stripping (when the
resulting ore production phase is more than
five years), non-sustaining exploration and
capital expenditure and (reversal of
impairment)/impairment of refractory ore
stockpiles. This is then divided by the ounces
of gold sold. AIC are presented on a segment
basis.
AIC is calculated in accordance with
guidelines for reporting AIC as published by
the World Gold Council in June 2013. Other
companies may calculate this measure
differently.
Relevance
AIC reflect the costs of producing gold over
the life cycle of a mine.
Reconciliation
The tables below provide a reconciliation
between all-in sustaining costs and all-in
costs to calculate all-in cost per ounce sold
for relevant periods.
2019
All-in Sustaining Costs
Add:
Exploration expenditure
Capital Expenditure
All-in costs
Total ounces sold
All-in costs per ounce sold
2018
(restated)
All-in Sustaining Costs
Add:
Exploration expenditure
Capital Expenditure
Capitalised stripping
All-in costs
Total ounces sold
All-in costs per ounce sold
Ref
Pioneer
US$’000
222,676
Pokrovskiy
US$’000
–
Malomir
US$’000
183,719
Albyn
US$’000
117,904
Corporate
and other
US$’000
–
–
–
–
–
–
691
22,169
245,536
163,398
1,503
–
–
–
–
–
1,095
10,190
195,004
8,350
–
126,254
179,791
1,085
170,817
739
Pioneer
US$’000
160,662
Pokrovskiy
US$’000
9,338
Malomir
US$’000
81,921
Albyn
US$’000
146,795
Corporate
and other
US$’000
–
1,092
22,740
13,991
198,485
135,001
1,470
–
–
–
9,338
6,442
1,449
1,084
53,910
–
136,915
77,448
1,768
971
–
–
147,766
150,720
980
–
–
–
–
–
–
Total
US$’000
524,299
10,136
32,359
566,794
514,005
1,103
Total
US$’000
398,716
3,147
76,650
13,991
492,504
369,611
1,332
oz
US$/oz
Ref
note 13
oz
US$/oz
Petropavlovsk Annual Report 2019 259
The Use and Application of Alternative
Performance Measures (APMs) continued
Average Realised Gold Sales Price
Definition
The average realised gold sales price is the
mean price at which the Group sold its gold
production output throughout the reporting
period, including the realised effect of cash
flow hedge contracts during the period.
Calculation
The average realised gold sales price is
calculated by dividing total revenue received
from gold sales (including the realised effect
of any hedging contracts) by the total quantity
of gold sold during the period. Other
companies may calculate this measure
differently.
Gold revenue
Gold sold
Average realised gold price
Ref
note 4
Capital Expenditure (CAPEX)
Definition
CAPEX is the investment required by the
Group to explore and develop its gold assets
and keep current plants and other equipment
at its gold mines in good working order.
Calculation
CAPEX represents cash flows used in
investing activities, namely Purchases
of property, plant and equipment and
Expenditure of exploration and evaluation
assets.
Relevance
Capital expenditure is necessary in order not
only to maintain but also to develop and grow
Purchase of property, plant and equipment
Expenditure on exploration and evaluation assets
Less:
Capitalised stripping
Total Capital Expenditure
Ref
SCF
SCF
note 13
Relevance
As gold is the key commodity produced and
sold by the Group, the average realised gold
sales price is a key driver behind the Group’s
revenues and profitability.
Reconciliation
The average realised gold price has been
calculated as set out in the table below.
US$’000
ounces
US$/oz
2019
691,697
514,005
1,346
2018
466,674
369,611
1,263
the business. CAPEX requirements need to
be balanced in line with the Group’s strategy
and provide an optimal allocation of the
Group’s funds.
Reconciliation
The table below provides a reconciliation
between capital expenditure and cash flows
used in investing activities.
31 December 2019
US$’000
120,798
10,136
31 December 2018
(restated)
US$’000
178,201
3,153
(27,107)
103,827
(46,988)
134,366
Net debt
Definition
Net debt shows how indebted a company is
after total debt and any cash (or its equivalent)
are netted off against each other.
Calculation
Net debt is calculated as the sum of current
borrowings and non-current borrowings less
cash and cash equivalents. Other companies
may calculate this measure differently.
Relevance
Management considers Net debt a key
measure of the Company’s leverage and its
ability to repay debt as well showing what
progress is being made in strengthening the
statement of financial position. The measure
is also widely used by various stakeholders.
Reconciliation
The table below provides calculation of Net
debt at relevant reporting dates.
Cash and cash equivalents
Borrowings
Net debt
Ref
SFP
SFP
31 December 2019
US$’000
48,153
(609,463)
(561,310)
31 December 2018
US$’000
26,152
(594,177)
(568,025)
260 Petropavlovsk Annual Report 2019
Underlying EBITDA
Definition
EBITDA is a common measure used to
assess profitability without the impact of
different financing methods, tax, asset
depreciation and amortisation of intangibles
and items of an exceptional / non-recurring
nature, or those that could make comparison
of results from prior periods less meaningful.
Calculation
Underlying EBITDA is calculated as profit/
(loss) for the period before financial income,
financial expenses, foreign exchange gains
and losses, fair value changes, taxation,
depreciation, impairment charges/reversal of
impairment. Other companies may calculate
this measure differently.
Relevance
Underlying EBITDA is an indicator of the
Group’s ability to generate operating cash
flows, which are the source of funding for the
Group’s working capital requirements, capital
expenditure and debt service obligations. The
measure is also widely used by various
stakeholders.
Reconciliation
The tables below provide reconciliations
between net profit and Underlying EBITDA as
well as reconciliation between operating profit
and Underlying EBITDA for relevant periods.
Profit for the period
Add/(less):
Net (impairment reversals)/impairment losses on financial instruments
Investment and other finance income
Interest expense
Net other finance losses/(gains)
Foreign exchange losses/(gains)
Taxation
Depreciation
Impairment of exploration and evaluation assets
(Reversal of impairment)/impairment of ore stockpiles
Impairment of gold in circuit
Reversal of impairment of mining assets and in-house service
Share of results of associates (a)
Underlying EBITDA
Ref
SPL
SPL
SPL
SPL
SPL
note 6
SPL
note 6
note 6
note 6
note 6
note 6
note 14
2019
US$’000
25,693
(30,797)
(8,826)
59,854
42,190
20,808
27,246
137,775
–
(2,778)
142
(52,159)
45,699
264,847
2018
(restated)
US$’000
25,929
28,634
(3,775)
29,520
(10,185)
(8,450)
56,489
142,003
12,192
18,021
2,125
(101,695)
(8,065)
182,743
(a) Group’s share of interest expense, investment income, other finance gains and losses, foreign exchange gains and losses, taxation, depreciation and impairment/reversal of impairment recognised by an
associate and impairment recognised against investment in the associate.
Petropavlovsk Annual Report 2019 261
The Use and Application of Alternative
Performance Measures (APMs) continued
Ref
SPL
note 6
note 4
2019
Operating profit
Foreign exchange losses
Segment result
Add/ (less):
Depreciation
Reversal of impairment of mining assets and
in-house service
notes 4,6
Impairment/ (reversal of impairment) of ore stockpiles notes 4,6
notes 4,6
Impairment/ (reversal of impairment) of gold in circuit
Share of results of associates (a)
note 14
Underlying EBITDA
notes 4,6
Pioneer
US$’000
Pokrovskiy
US$’000
Malomir
US$’000
Albyn
US$’000
Corporate
and other
US$’000
56,896
105,083
(80,086)
46,549
48,144
1,857
137,775
54,275
41,225
(42,755)
664
(101)
53,308
–
–
–
–
–
–
–
517
243
–
(3,959)
–
104,205
149,268
(9,404)
–
–
45,699
(41,934)
Corporate
and other
US$’000
Pioneer
US$’000
Pokrovskiy
US$’000
Malomir
US$’000
Albyn
US$’000
Consolidated
US$’000
115,360
20,808
136,168
(52,159)
(2,778)
142
45,699
264,847
Consolidated
US$’000
126,612
(8,450)
118,162
Ref
SPL
note 6
note 4
2018 (restated)
Operating profit
Foreign exchange gains
Segment result
Add/ (less):
Depreciation
Reversal of impairment of mining assets and
in-house service
Impairment of exploration and evaluation assets
Impairment of ore stockpiles
Impairment of gold in circuit
Share of results of associates (a)
Underlying EBITDA
24,751
(1,163)
84,913
17,312
(7,651)
notes 4,6
37,899
681
33,335
69,643
445
142,003
notes 4,6
notes 4,6
notes 4,6
notes 4,6
note 14
–
–
–
1,415
–
–
–
17
(82,958)
12,192
309
536
–
–
17,712
157
64,065
(465)
48,327
104,824
(18,737)
–
–
–
(8,065)
(34,008)
(101,695)
12,192
18,021
2,125
(8,065)
182,743
(a) 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 recognised against investment in the associate.
262 Petropavlovsk Annual Report 2019
Appendix, Glossary and Definitions
For the year ended 31 December 2019
Important information
Past performance of Petropavlovsk PLC or
any other company referred to in this
document cannot be relied on as a guide to
its future performance. Some figures may be
rounded. The content of websites referred to
in this document does not form
part of this document.
Forward-looking statements
This document may include statements that
are, or may be deemed to be, forward-looking
statements. Generally, these forward-looking
statements can be identified by the use of
forward-looking terminology, including the
terms ‘believes’, ‘estimates’, ‘plans’, ’targets’,
‘seeks’, ‘projects’, ‘anticipates’, ‘expects’,
‘intends’, ‘forecast’, ‘may’, ‘will’ ‘would’ or
‘should’ or, in each case, their negative or
other variations or comparable terminology,
or by discussions of strategy, plans,
objectives, goals, targets, future events or
intentions. These forward-looking statements
include all matters that are not historical facts
and speak only as at the date of this
document. They appear in a number of
places throughout this document and
include, but are not limited to, statements
regarding the Group’s intentions, beliefs or
current expectations concerning, among
other things, the Group’s results of
operations, financial position, liquidity,
prospects, growth, strategies and
expectations of the industry.
Ore Reserve and Mineral Resource
reporting – basis of preparation
In line with the approach adopted in previous
years, the Group has reported its hard-rock
Mineral Resources and Ore Reserves in
accordance with the JORC Code. The assets
are subdivided into ‘core’ and ‘other’ projects.
Core projects are classified as the Group’s
three operational mines (Pioneer, Malomir,
Albyn) plus any satellites that are scheduled
for production using existing processing
facilities, as well as the former Pokrovskiy
mine. Mineral Resource and, where
appropriate, Ore Reserve estimates for these
assets were independently audited by Wardell
Armstrong International (“WAI”) in accordance
with JORC Code (2012) in April 2017. The Ore
Reserve estimates are based on a long-term
gold price assumption of US$1,400/oz with
other modifying factors derived from the
actual 2019 operational performance and
appropriate technical studies. Mineral
resources are estimated using a US$1,700/oz
long-term gold price assumption. The Group
considers its ‘other’ projects to be those
assets which have good prospects, but are
not located near current processing facilities.
Currently, ‘other’ projects include Tokur,
Marrinskiy and exploration assets in
Khabarovsk region. Of these, only Tokur has
Mineral Resource and Ore Reserve estimates
which were reviewed in accordance with
JORC Code (2004) and signed off by WAI in
March 2011. The estimates apply a US$1,000/
oz gold price assumption together with other
modifying factors relevant at the time of the
estimate. Tokur Mineral Resources and Ore
Reserves have not changed since.
By their nature, forward-looking statements
involve risk and uncertainty because they
relate to future events and circumstances.
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 document.
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
document, those developments may not be
indicative of developments in subsequent
periods. A number of factors could cause
developments to differ materially from those
expressed or implied by the forward-looking
statements including, without limitation,
general economic and business conditions,
industry trends, competition, commodity
prices, changes in law or regulation, currency
fluctuations (including the US Dollar and
Russian Rouble), the Group’s ability to recover
its reserves or develop new reserves,
changes in its business strategy, political and
economic uncertainty. Save as required by
the Listing and Disclosure and Transparency
Rules, the Company is under no obligation to
update the information contained in this
document.
Nothing in this publication should be
considered to be a profit forecast and no
statement in this document should be
interpreted to mean that earnings per share
for the current or future financial years would
necessarily match or exceed the historical
published earnings per share. This document
does not constitute or form part of an
invitation to sell or issue, or any solicitation of
any offer or invitation to purchase or subscribe
for, any securities.
Petropavlovsk Annual Report 2019 263
Appendix, Glossary and Definitions continued
For the year ended 31 December 2019
Alluvial
Assay
Au
Autoclave
Backfill
Bondholder
Brownfield exploration
Concentrate
Material transported by a river and deposited at points along the flood plain and riverbed. The material may
contain economical deposits of gold and other valuable minerals.
Chemical laboratory analysis of an ore sample to determine the proportion of gold, silver or other metal
contained within.
Chemical symbol for the element gold.
Equipment used as part of the pressure oxidation (POX) process to facilitate gold extraction from refractory
concentrate by using a combination of high temperature, pressure and pure oxygen to break down the
sulphides encapsulating the gold.
Waste material used to fill the void created by mining an ore body.
Holder of the Group’s US$125 million 8.25% guaranteed convertible bonds maturing July 2024.
Exploration work carried out close to, at or adjacent to existing mines. Also known as near-mine
exploration.
A semi-finished product (from which waste mineral has been removed), containing a significantly higher
quantity of gold per unit of weight than was originally mined and which requires additional processing at the
POX Hub before it can be processed in the usual way, using the Company’s RIP facilities.
Concentrate yield
The percentage of the mass of the original ore which is pulled into the concentrate.
Crushing
Cut-off grade
Cyanidation
Depletion
Deposit
Dilution
Doré
Exploration
Feasibility study
Flotation
The Foundation or the
Petropavlovsk Foundation
Geochemical prospecting
further testing
g/t
Grade
Breaking down ore from the size as first delivered from the mine into smaller, more uniform fragments, to be
then fed into grinding mills or heaped onto a leach pad.
The lowest grade of mineralised material considered economically feasible for mining and processing.
Used in the reporting of Ore Reserves and Mineral Resources.
Treatment of finely crushed or ground ore with cyanide solution to dissolve and extract gold from it.
Decrease in the quantity of ore at a deposit due to mining / extraction.
Natural occurrence of a mineral or ore, in sufficient quantity and concentration to enable exploitation.
The effect of mixing waste material with mined ore prior to delivery to the processing plant.
Unrefined / impure alloy of gold and silver produced at the mine before being sent to a refinery for additional
purification.
Prospecting, sampling, mapping, drilling and other work involved in searching for ore.
Extensive technical and financial study to assess the commercial viability of a mining project.
The process of separation, extraction and concentration of ore that results in the production of a high-
grade refractory concentrate to be processed inside the autoclaves at the POX Hub. As part of the flotation
process, certain mineral particles are induced to float by becoming attached to bubbles of froth while the
unwanted mineral particles sink.
The Petropavlovsk Foundation for Social Investment.
Techniques which measure the content of specified metals in soil and rock. Sampling defines anomalies
for.
Geophysical prospecting Techniques that measure the physical properties (magnetism, conductivity,
density etc.) of rock and define anomalies.
Grams per metric tonne.
Amount of gold contained in a tonne of gold bearing ore, expressed in grams per metric tonne.
Greenfield exploration
Exploration carried out at a location where minimal to no previous exploration work has taken place.
Group
Head grade
Heap-leach
The Company and its subsidiaries.
Gold content per tonne of ore fed into a mill for processing (in grams per metric tonnes).
A process used for the recovery of gold from low grade ore. Crushed ore is piled high on a mildly sloping,
impervious foundation and uniformly leached by the percolation of a cyanide solution through the ore,
dissolving the contained gold. Thereafter, the metal is recovered from the solution using conventional
methods.
HSE Committee
Health, Safety and Environmental Committee.
264 Petropavlovsk Annual Report 2019
Hydrotechnical storage facility
An open-air storage facility used to store by-products and residue produced during the process of
extracting gold from the ore.
ICBC
Indicated Resource
Inferred Resource
IRC
JORC
K&S
koz
KPI
ktpa
Industrial and Commercial Bank of China.
As defined in the JORC Code, the part of a mineral resource that has been sampled by drill holes,
underground openings or other sampling procedures at locations that are too widely spaced to ensure
continuity, but close enough to give a reasonable indication of continuity and where geoscientific data is
known with a reasonable degree of reliability. An Indicated Mineral Resource will be based on more data
and therefore will be more reliable than an Inferred Resource estimate.
As defined in the JORC Code, the part of a mineral resource for which the tonnage, grade and mineral
content can be estimated with a low level of confidence. It is inferred from the geological evidence and has
assumed but not verified geological and / or grade continuity. It is based on information gathered through
the appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes, which
may be limited or of uncertain quality and reliability.
IRC Limited, the Hong Kong listed former subsidiary, now associate, of the Group. Petropavlovsk remains a
major shareholder with a holding of 31.1%.
Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of
Geoscientists and the Minerals Council of Australia.
The Kimkan and Sutara deposits, which are being developed as one project by IRC.
Thousand ounces.
Key Performance Indicator, used to monitor progress and performance against strategic objectives and to
benchmark the Group’s performance.
Thousand tonnes per annum.
Life of mine
Remaining years of production at a particular location or asset, based on production rates and ore
reserves, as per the Company’s current mine plan.
Lost Time Injury Frequency Rate
(LTIFR)
Time lost as a result of an accident or fatality, measured as the number of accidents per million man-hours
worked.
m3/oz
Mill
Mineralisation
Mineral Resource
Mining
Mtpa
Noteholder
OHS or OH&S
Open pit
Ore
Ore processed
Ore body
Cubic meter per ounce of gold produced.
Equipment used to grind crushed rocks to the desired size for mineral extraction.
The process of formation and concentration of elements and their chemical compounds within a mass or
body of rock.
The concentration or occurrence of material of intrinsic economic interest in or on the earth’s crust in such a
form that there are reasonable prospects for eventual economic extraction. The location, quantity, grade
geological characteristics and continuity of a mineral resource are known, estimated or interpreted from
specific geological evidence and knowledge. Mineral Resources are subdivided into Inferred, Indicated and
Measured categories.
The process of obtaining useful minerals from the earth’s crust via both underground and surface / open pit
mining activities.
Million tonnes per annum.
Holder of the Group’s US$500 million 8.125% guaranteed notes maturing November 2022.
Occupational health and safety.
Large excavation developed to extract a mineral deposit located at or near the surface.
Mineral rock that can be extracted and marketed profitably.
Ore subjected to treatment at one of the Group’s RIP processing plants.
Solid mass of mineralised rock that can be mined profitably under current or immediately foreseeable
economic conditions.
Petropavlovsk Annual Report 2019 265
Appendix, Glossary and Definitions continued
For the year ended 31 December 2019
Ore Reserve
Ounce or oz
Overburden
Placer deposit
Pressure oxidation (POX)
Probable Ore Reserve
Proved Ore Reserve
Recovery rate
Refractory ore
R&D
Resin-in-pulp (RIP)
The economically mineable part of a Measured or Indicated Mineral Resource. It includes diluting materials
and allowances for losses that may occur when the material is mined. Appropriate assessments, which
may include feasibility studies, have been carried out, and include consideration of, and modification by
realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and
governmental factors. These assessments demonstrate at the time of reporting that extraction could be
reasonably justified. Ore Reserves are sub divided in order of increasing confidence into Proved and
Probable.
Troy ounce (31.1035 grams).
Material (usually soil and rock) that sits above the ore deposit and must be removed to expose the ore.
See entry for ‘alluvial’.
A high temperature and pressure process in which refractory ores (gold bearing sulphides) are oxidised to
render gold amenable to cyanide leaching.
Measured and / or Indicated Mineral Resources which are not yet proved, but where technical economic
studies show that extraction is justifiable at the time of the determination and under specific economic
conditions.
Measured Mineral Resources, where technical economic studies show that extraction is justifiable at the
time of the determination and under specific economic conditions recovery of the proportion of valuable
material obtained in the processing of an ore, stated as a percentage of the material recovered compared
with the total material processed.
Quantity of metal physically extracted from the processing of ore, as a percentage of the total metal
content, after accounting for mining losses.
Ore that is ordinarily difficult to treat for recovery of the valuable element using traditional processing
techniques. Refractory gold ore requires additional treatment such as pressure oxidation (POX), roasting or
bio-oxidation for efficient processing and gold recovery.
Research and development.
Processing technique by which a resin medium is used to absorb the desired element from solution or
pulp.
Russian GKZ Standard
Classification System
The means by which Russian reserves are assigned to classes based on the degree of reliability of data
and indicates their comparative importance for the national economy.
Stockpile
Stope
Strike
Strike length
Stripping
Strip ratio
t/1koz
TJ/1koz
t/oz
Accumulation of unprocessed ore or mineralised material intended to serve as a reserve for current or
future processing or as an additional source of material to achieve a uniform feed for the plant by blending
with ore received from the mine.
An area in an underground mine where ore is mined.
Direction of the line formed by the intersection of a fault, bed or other planar feature and a horizontal plane.
Longest horizontal dimension of an ore body or zone of mineralisation.
Removal of waste rock to uncover an ore body in preparation for mining by open pit methods.
The ratio of the volume of overburden (or waste material) removed relative to the volume of ore mined. For
example, a 3:1 stripping ratio means that mining one cubic metre of ore will require mining three cubic
metres of waste rock.
Tonnes per thousand of ounces of gold produced.
Terajoule per thousand of ounces of gold produced.
Tonnes per ounce of gold produced.
Trench sampling
Total gold production
Taking samples from a trench on the surface or along a trench excavated underground, generally in the
form of a series of continuous channels (channel samples).
Measured in troy ounces, total gold production is made up of gold produced from the Group’s hard-rock
mines as well as from the processing of material purchased from third parties.
tpm
Tonnes per month.
266 Petropavlovsk Annual Report 2019
Communication with Our Shareholders
Managing your shares online
Shareholders can manage their holdings
online by registering with Link Asset Services
share portal service. This is an online service
provided by Link which enables shareholders
to view and manage all aspects of their
shareholding securely. The service is free
and available 24 hours a day. Shareholders,
whose shares are registered in their own
name, can:
– View holdings plus indicated price and
valuation;
– View movements on their shareholdings;
– Change their address;
– Register or change their e-mail address;
– Sign up to receive communications by
e-mail instead of post; and
– Access the online voting service.
Shareholder enquiries
Enquiries relating to shareholders, such as
queries concerning notification of change of
address and lost share certificates, should be
made to the Company’s Registrars, Link Asset
Services (‘Link’). Link can be contacted directly
by using one of the methods listed below.
By post:
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
Telephone Helpline:
0371 664 0300
Calls are charged at the standard geographic
rate and will vary by provider. Calls outside the
United Kingdom will be charged at the
applicable international rate. We are open
between 09:00 - 17:30, Monday to Friday
excluding public holidays in England and Wales.
Online: enquiries@linkgroup.co.uk
(from here you will be able to e-mail Link with
your enquiry).
Website
Financial information about the Company,
including annual reports, public
announcements and share price data, is
available from the Company’s website at:
www.petropavlovsk.net.
Additional documents:
Shareholders are encouraged to sign up to
receive news alerts by e-mail. This includes
financial news releases throughout the year.
tors are responsible for the maintenance and
integrity of the financial information on the
Company’s website. This information has
been prepared under the relevant accounting
standards and legislation.
Company contact details
Registered office:
Petropavlovsk PLC
11 Grosvenor Place
Belgravia
London SW1X 7HH
Telephone:
+44 (0) 20 7201 8900
Registered in England and Wales (no.
4343841)
Investor Relations
Patrick Pittaway
Head of Investor Relations
E-mail:
teamir@petropavlovsk.net
Company Secretarial
Amanda Whalley ACIS
Company Secretary
Annual General Meeting 2020
This year’s Annual General Meeting (AGM)
will be held on 30 June 2020 commencing at
11 a.m. Shareholders who wish to attend the
AGM are kindly asked to read the
accompanying notes to the Notice of the
Meeting which explain the documentation
required by shareholders in order for them to
gain entry to the meeting.
Petropavlovsk Annual Report 2019 267
GRI Content Index
GRI standard
Disclosure
number
Disclosure
Page reference and notes
GRI 101: Foundation
GRI General Disclosures
Organisation profile
GRI 102 102: General
Disclosures
GRI 102 – 1
Name of organisation
Cover
GRI 102 – 2
Activities, brands, products and services
IFC, 18, 19
GRI 102 – 3
Location of headquarters
GRI 102 – 4
Location of operations
GRI 102 – 5
Ownership and legal form
GRI 102 – 6
Markets served
London
44, 46, 48, 50
178, 203
18, 19, 96
GRI 102 – 7
Scale of the organisation
IFC, 12, 58-67, 70, 87
GRI 102 – 8
Information on employees and other
workers
87, 100
The share of workers who are not employees is
insignificant in the context of the total Group
employees’ number. Contractors are required for
the underground operations and security services.
GRI 102 – 9
Supply chain
96, 108
GRI 102 – 10
Significant changes to the organisation and
its supply chain
The POX Hub was commissioned at the end of
2018. See further details on the operation on page
50.
GRI 102 – 11
Precautionary Principle or approach
GRI 102 – 12
External initiatives
113
91
GRI 102 - 13
Membership associations
Union of Gold Producers of Russia
Strategy
GRI 102: General
Disclosures
Ethics
GRI 102: General
Disclosures
Corporate Governance
GRI 102: General
Disclosures
GRI 102-14
Statement from senior decision maker
12, 13, 89
GRI 102 – 16
Values, principles, standards and norms of
behaviour
2, 3, 91
GRI 102 – 18
Governance structure
90, 135
Stakeholder engagement
GRI 102: General
Disclosures
GRI 102 – 40
List of stakeholder groups
GRI 102 – 41
Collective bargaining agreements
GRI 102 – 42
Identifying and selecting stakeholders
GRI 102 – 43
Approach to stakeholder engagement
GRI 102 – 44
Key topics and concerns raised
Identified material topics
GRI 102: General
Disclosures
GRI 102 – 45
GRI 102 – 46
Entities included in the consolidated
financial statements
Defining report content and topic
boundaries
GRI 102 – 47
List of material topics
92
103
92
92-94
92-94
246
94-95
94
268 Petropavlovsk Annual Report 2019
GRI standard
Disclosure
number
Disclosure
GRI 102 – 48
Restatement of information
Page reference and notes
Total energy consumption for 2018 and 2017 has
been restated due to the conversion error in data
presented in 2018 report.
Total waste generated data for 2018 and 2017 has
been restated to reflect a wider scope of the
reporting in 2019.
GRI 102 – 49
Changes in reporting
94
The new methodology was applied to GHG
emissions reporting in 2019 to reflect a wider scope
of emissions sources. We were unable to restate the
data for 2018 and 2017.
Report Profile
GRI 102: General
Disclosures
GRI 102 – 50
Reporting period
1 January – 31 December 2019
GRI 102 – 51
Date of most recent report
2018 Annual Report, published 29 April 2019
GRI 102 – 52
Reporting cycle
GRI 102 – 53
Contact point for questions regarding the
report
Annual
91
Alexander Rozhetskin
ar@petropavlovsk.net
Olga Mayorova
om@petropavlovsk.net
+44 (0) 20 7201 8900
GRI 102 – 54
Claims of reporting in accordance with GRI
standards
This report has been prepared in accordance with
the GRI Standards: Core option
GRI 102 – 55
GRI content index
GRI 102 – 56
External assurance
268-273
124-125
GRI Material Topics
Economic performance
GRI 103: Management
Approach
GRI 201: Economic
Performance
Procurement practices
GRI 103: Management
Approach
GRI 204: Procurement
Practices
Anti-corruption
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
94, 105, 109
The management approach and its
components
105
GRI 103 – 3
Evaluation of the management approach
105, 109
GRI 201 – 1
Direct economic value generated and
distributed
109
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
The management approach and its
components
92, 94, 96
96, 108
GRI 103 – 3
Evaluation of the management approach
93, 96
GRI 204 – 1
Proportion of spending on local suppliers
96
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
GRI 103 – 2
The management approach and its
components
94, 100
100
Petropavlovsk Annual Report 2019 269
GRI Content Index continued
GRI standard
Disclosure
number
Disclosure
Page reference and notes
GRI 205:
Ant-corruption
Energy
GRI 103 – 3
Evaluation of the management approach
93, 100
GRI 205 – 3
Confirmed incidents of corruption and
actions taken
100
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
88, 94, 113, 115
GRI 103 – 2
The management approach and its
components
113, 115
GRI 103 – 3
Evaluation of the management approach
113, 115
GRI 302: Energy
GRI 302 – 1
Energy consumption within the organisation
115
Disclosure without further breakdown by renewable
and non-renewable energy sources.
GRI 302 – 3
Energy intensity
115
Water
GRI 303: Water
GRI 303 – 1
Interactions with water as a shared resource
113-114
GRI 303 – 2
Management of water discharge-related
impacts
97, 113-114
GRI 303 – 3
Water withdrawal
GRI 303 – 4
Water discharge
GRI 303 – 5
Water consumption
114
114
114
Water consumption is assessed by instrumental
control.
Biodiversity
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
GRI 103 – 2
The management approach and its
components
94, 113, 118-120
97, 113, 118-119
GRI 103 – 3
Evaluation of the management approach
113, 118-120
GRI 304: Biodiversity
GRI 304 – 1
GRI 304 – 4
Operational sites owned, leased, managed
in, or adjacent to, protected areas and areas
of high biodiversity value outside protected
areas
IUCN Red List species and national
conservation list species with habitats in
areas affected by operations
118, Zero
17 species in national conservation list, including 8
species in IUCN Red List:
– Least Concern (LC) – 6 species
– Near Threatened (NT) – 2 species
Emissions
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
GRI 103 – 2
The management approach and its
components
88, 94, 113, 115-116
88, 113, 115-116
GRI 103 – 3
Evaluation of the management approach
88, 113, 115-116
270 Petropavlovsk Annual Report 2019
GRI standard
Disclosure
number
Disclosure
Page reference and notes
GRI 305: Emissions
GRI 305 – 1
Direct (Scope 1) GHG emissions
88
Biogenic CO2 emissions are not generated at the
Group’s operation.
Emission factors provided by IPCC 2006 Guidelines
for National Greenhouse Gas Inventories and global
warming potential (GWP) values presented in the
IPCC Fourth Assessment Report (AR4) were used.
GRI 305 – 2
Energy indirect (Scope 2) GHG emissions
88
Base year has not been set for the GHG emissions
calculation.
GRI 305 – 4
GHG emissions intensity
88
Gases included in the calculation: CO2, CH4, N2O.
GRI 305 – 7
Nitrogen oxides (NOX), sulphur oxides
(SOX), and other significant air emissions
116
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
The management approach and its
components
94, 104, 118-119
113, 118-119
GRI 103 – 3
Evaluation of the management approach
113, 118-119
GRI 306 – 2
Waste by type and disposal method
118
It has not been possible to show a breakdown of
hazardous and non-hazardous for each disposal
method for this reporting period.
Effluents and waste
GRI 103: Management
Approach
GRI 306: Effluents and
Waste
Environmental compliance
GRI 306 – 3
Significant spills
GRI 103: Management
approach
GRI 103 – 1
Explanation of the material topic and its
boundary
GRI 103 – 2
The management approach and its
components
Zero
94, 113
113
GRI 103 – 3
Evaluation of the management approach
93, 113
GRI 307 – 1
Non-compliance with environmental laws
and regulations
114
GRI 307:
Environmental
Compliance
Employment
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
GRI 103 – 2
The management approach and its
components
92, 94, 99-103
87, 99-103
GRI 103 – 3
Evaluation of the management approach
93, 99-103
Petropavlovsk Annual Report 2019 271
GRI Content Index continued
GRI standard
Disclosure
number
Disclosure
Page reference and notes
GRI 401: Employment
GRI 401 – 1
New employee hires and employee turnover
101
A total of 2,850 employees were hired during the
reporting period (33.6% hire rate), among them
2,305 (27.14%) were male and 545 (6.42%) were
female; 1,102 (12.97%) were younger than 30 y.o.,
1,293 (15.22%) were 30-50 y.o., and 455 employees
(5.36%) were older than 50; 1,781 (21%) are
residents of the Amur region, 917 (10.8%) are
residents of other regions of the Far East of Russia,
151(1.78%) are residents of other Russian regions, 1
(0,01%) is a resident of a CIS country.
2,809 employee left the company during the
reporting period (33.07% turnover rate) during the
reporting period, among them 2,293 (26.99%) were
male, 516 were female (6.07%); 939 employees
were younger than 30 y.o (11.05%), 1,263
employees were 30-50 y.o. (14.87%), 607
employees were older than 50 y.o. (7.15%); 1,803
(21.23%) are residents of the Amur region, 863
(10.16%) are residents of other regions of the Far
East of Russia, 143 (1.68%) are residents of other
Russian regions.
Occupational health and safety
GRI 403: Occupational
Health and Safety
GRI 403 – 1
Occupational health and safety
management system
86, 94, 97, 109-110
GRI 403 – 2
Hazard identification, risk assessment, and
incident investigation
GRI 403 – 3
Occupational health services
GRI 403 – 4
Worker participation, consultation, and
communication on occupational health and
safety
GRI 403 – 5
Worker training on occupational health and
safety
GRI 403 – 6
Promotion of worker health
GRI 403 – 7
Prevention and mitigation of occupational
health and safety impacts directly linked by
business relationships
GRI 403 – 9
Work-related injuries
109-111
111
109-110
110
111
109-111
86, 111
Rate of fatalities
2019 - 0; 2018 - 0.07; 2017 - 0.20
Number of recordable injuries
2019 - 25; 2018 - 38; 2017 - 46
Disclosure without the rate and number of high
consequence injuries.
Training and education
GRI 103: Management
Approach
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
The management approach and its
components
94, 99-102
99, 102
GRI 103 – 3
Evaluation of the management approach
93, 99, 102
272 Petropavlovsk Annual Report 2019
GRI standard
GRI 404: Training and
Education
Disclosure
number
GRI 404 – 1
Diversity and equal opportunity.
Disclosure
Page reference and notes
Average hours of training per year per
employee
102
Disclosure without breakdown of training by gender
and employee.
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
GRI 103 – 2
The management approach and its
components
87, 94, 99-101
99-101
GRI 103 – 3
Evaluation of the management approach
99-101
GRI 405: Diversity and
Equal Opportunity
GRI 405 – 1
Diversity in governance bodies and
employees
87, 100, 134, 144
Board breakdown by age: 50-70: 5; 70+: 3.
Non-Discrimination
GRI 103: Management
Approach
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
The management approach and its
components
94, 99-100
87, 99-100
GRI 103 – 3
Evaluation of the management approach
87, 99-100
GRI 406: Non-
discrimination
GRI 406 – 1
Incidents of discrimination and corrective
actions taken
Zero.
Freedom of Association and Collective Bargaining
GRI 103: Management
Approach
GRI 103 – 1
Explanation of the material topic and its
boundary
94, 103
GRI 103 – 2
The management approach and its
components
GRI 103 – 3
Evaluation of the management approach
GRI 407: Freedom of
association and
collective bargaining
GRI 407 – 1
Operations and suppliers in which the right
to freedom of association and collective
bargaining may be at risk
GRI 407
Freedom of association and collective
bargaining
Rights of Indigenous Peoples
103
103
103
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
The management approach and its
components
94, 105-106
92, 105-106
GRI 103 – 3
Evaluation of the management approach
93, 105-106
GRI 411 – 1
Incidents of violations involving rights of
indigenous peoples
106
GRI 103 – 1
GRI 103 – 2
Explanation of the material topic and its
boundary
94, 105
The management approach and its
components
92, 105-108
GRI 103 – 3
Evaluation of the management approach
93, 105-106
Local communities
GRI 103: Management
Approach
GRI 413: Local
Communities
GRI 413 – 1
Operations with local community
engagement, impact assessments and
development programmes
105
Petropavlovsk Annual Report 2019 273
274 Petropavlovsk Annual Report 2019
Petropavlovsk Annual Report 2019 275